UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,September 30, 2013

or

 

¨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)

 

 

 

Ohio 34-0217820

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

6060 Parkland Boulevard

Mayfield Heights, OH

 44124
(Address of principal executive offices) (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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES  x    NO  ¨

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

 

Large accelerated filer ¨  Accelerated filer x
Non-accelerated filer ¨  (Do not check if a smaller reporting company)  Smaller reporting company ¨

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

At March 31,September 30, 2013, there were 86,568,38586,601,495 shares of Ferro Common Stock, par value $1.00, outstanding.

 

 

 


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

   2019  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

   3034  

Item 4. Controls and Procedures

   3135  
PART II  

Item 1. Legal Proceedings

   3236  

Item 1A. Risk Factors

   3236  

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

   3236  

Item 3. Defaults Upon Senior Securities

   3236  

Item 4. Mine Safety Disclosures

   3236  

Item 5. Other Information

   3336  

Item 6. Exhibits

   3336  

Exhibit 10.510.1

  

Exhibit 31.1

  

Exhibit 31.2

  

Exhibit 32.1

  

Exhibit 32.2

  

EX-101 Instance Document

  

EX-101 Schema Document

  

EX-101 Calculation Linkbase Document

  

EX-101 Labels Linkbase Document

  

EX-101 Presentation Linkbase Document

  

EX-101 Definition Linkbase Document

  

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

 

  Three months ended
March 31,
   Three months ended
September 30,
 Nine months ended
September 30,
 
  2013 As adjusted
2012
   2013 As adjusted
2012
 2013 As adjusted
2012
 
  (Dollars in thousands, except per
share amounts)
   (Dollars in thousands, except per share amounts) 

Net sales

  $417,524   $460,425    $408,104   $408,865   $1,261,083   $1,344,836  

Cost of sales

   338,287    374,704     323,857   348,155   1,009,945   1,112,587  
  

 

  

 

   

 

  

 

  

 

  

 

 

Gross profit

   79,237    85,721     84,247    60,710    251,138    232,249  

Selling, general and administrative expenses

   61,592    72,508     59,078    63,863    184,986    202,675  

Restructuring and impairment charges

   9,454    311     3,834    198,695    26,738    203,734  

Other expense (income):

        

Interest expense

   7,297    6,374     6,766    6,716    21,034    19,566  

Interest earned

   (53  (84   (48  (57  (171  (192

Foreign currency losses, net

   1,506    144     1,308    869    4,016    792  

Miscellaneous (income) expense, net

   (10,516  396     (209  797    (9,493  3,038  
  

 

  

 

   

 

  

 

  

 

  

 

 

Income before income taxes

   9,957    6,072  

Income (loss) before income taxes

   13,518    (210,173  24,028    (197,364

Income tax expense

   1,016    2,809     474    105,447    4,025    113,115  
  

 

  

 

   

 

  

 

  

 

  

 

 

Income from continuing operations

   8,941    3,263  

Income (loss) from continuing operations

   13,044    (315,620  20,003    (310,479

(Loss) income from discontinued operations, net of income taxes

   (8,421  707     —      (118  (8,421  917  
  

 

  

 

   

 

  

 

  

 

  

 

 

Net income

   520    3,970  

Less: Net (loss) income attributable to noncontrolling interests

   (363  124  

Net income (loss)

   13,044    (315,738  11,582    (309,562

Less: Net income attributable to noncontrolling interests

   392    376    177    830  
  

 

  

 

   

 

  

 

  

 

  

 

 

Net income attributable to Ferro Corporation common shareholders

  $883   $3,846  

Net income (loss) attributable to Ferro Corporation common shareholders

  $12,652   $(316,114 $11,405   $(310,392
  

 

  

 

   

 

  

 

  

 

  

 

 

Earnings (loss) per share attributable to Ferro Corporation common shareholders:

        

Basic earnings (loss):

        

From continuing operations

  $0.11   $0.03    $0.15   $(3.66 $0.23   $(3.61

From discontinued operations

   (0.10  0.01    $—      —      (0.10  0.01  
  

 

  

 

   

 

  

 

  

 

  

 

 
  $0.01   $0.04    $0.15   $(3.66 $0.13   $(3.60
  

 

  

 

   

 

  

 

  

 

  

 

 

Diluted earnings (loss):

        

From continuing operations

  $0.11   $0.03    $0.15   $(3.66 $0.23   $(3.61

From discontinued operations

   (0.10  0.01    $—      —      (0.10  0.01  
  

 

  

 

   

 

  

 

  

 

  

 

 
  $0.01   $0.04    $0.15   $(3.66 $0.13   $(3.60
  

 

  

 

   

 

  

 

  

 

  

 

 

See accompanying notes to condensed consolidated financial statements.

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) Income

 

   Three months ended
March 31,
 
   2013  As adjusted
2012
 
   (Dollars in thousands) 

Net income

  $520   $3,970  

Other comprehensive (loss) income, net of tax:

   

Foreign currency translation

   (2,982  24  

Postretirement benefit liabilities

   (68  (664
  

 

 

  

 

 

 

Total comprehensive (loss) income

   (2,530  3,330  

Less: Comprehensive (loss) income attributable to noncontrolling interests

   (342  122  
  

 

 

  

 

 

 

Comprehensive (loss) income attributable to Ferro Corporation

  $(2,188 $3,208  
  

 

 

  

 

 

 
   Three months ended
September 30,
  Nine months ended
September 30,
 
   2013  2012  2013  2012 
   (Dollars in thousands) 

Net income (loss)

  $13,044   $(315,738 $11,582   $(309,562

Other comprehensive income (loss), net of tax:

     

Foreign currency translation

   4,226    3,321    (3,820  (2,940

Postretirement benefit liabilities

   (34  1,044    (171  (311
  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss)

   17,236    (311,373  7,591    (312,813

Less: Comprehensive income attributable to noncontrolling interests

   415    442    323    845  
  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) attributable to Ferro Corporation

  $16,821   $(311,815 $7,268   $(313,658
  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to condensed consolidated financial statements.

Ferro Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

 

  March 31,
2013
 December 31,
2012
   September 30,
2013
 December 31,
2012
 
  (Dollars in thousands)   (Dollars in thousands) 
ASSETSASSETS  ASSETS  

Current assets

      

Cash and cash equivalents

  $32,897   $29,576    $35,853   $29,576  

Accounts receivable, net

   314,017    306,463     331,847   306,463  

Inventories

   210,232    200,824     195,617   200,824  

Deferred income taxes

   8,413    7,995     8,011   7,995  

Other receivables

   30,323    31,554     32,371   31,554  

Other current assets

   13,938    10,802     14,571   10,802  

Current assets of discontinued operations

   —      6,289     —     6,289  
  

 

  

 

   

 

  

 

 

Total current assets

   609,820    593,503     618,270    593,503  

Other assets

      

Property, plant and equipment, net

   298,434    309,374     299,619    309,374  

Goodwill

   62,413    62,975     63,234    62,975  

Amortizable intangible assets, net

   13,165    14,410     12,268    14,410  

Deferred income taxes

   21,246    21,554     20,527    21,554  

Other non-current assets

   55,608    61,941     55,444    61,941  

Other assets of discontinued operations

   —      15,346     —      15,346  
  

 

  

 

   

 

  

 

 

Total assets

  $1,060,686   $1,079,103    $1,069,362   $1,079,103  
  

 

  

 

   

 

  

 

 
LIABILITIES AND EQUITYLIABILITIES AND EQUITY  LIABILITIES AND EQUITY  

Current liabilities

      

Loans payable and current portion of long-term debt

  $75,178   $85,152    $59,665   $85,152  

Accounts payable

   191,554    182,024     183,044    182,024  

Accrued payrolls

   32,375    31,643     44,081    31,643  

Accrued expenses and other current liabilities

   65,679    76,384     67,514    76,384  

Current liabilities of discontinued operations

   —      1,300     —      1,300  
  

 

  

 

   

 

  

 

 

Total current liabilities

   364,786    376,503     354,304    376,503  

Other liabilities

      

Long-term debt, less current portion

   265,526    261,624     278,119    261,624  

Postretirement and pension liabilities

   208,594    216,167     199,922    216,167  

Other non-current liabilities

   16,969    18,135     20,316    18,135  
  

 

  

 

   

 

  

 

 

Total liabilities

   855,875    872,429     852,661    872,429  

Equity

      

Ferro Corporation shareholders’ equity:

      

Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 86.6 million shares outstanding in 2013 and 2012

   93,436    93,436  

Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 86.6 and 86.5 million shares outstanding in 2013 and 2012, respectively

   93,436    93,436  

Paid-in capital

   319,267    321,652     320,216    321,652  

Retained deficit

   (85,723  (86,606   (75,201  (86,606

Accumulated other comprehensive income

   13,579    16,650     12,513    16,650  

Common shares in treasury, at cost

   (148,553  (151,605   (147,608  (151,605
  

 

  

 

   

 

  

 

 

Total Ferro Corporation shareholders’ equity

   192,006    193,527     203,356    193,527  

Noncontrolling interests

   12,805    13,147     13,345    13,147  
  

 

  

 

   

 

  

 

 

Total equity

   204,811    206,674     216,701    206,674  
  

 

  

 

   

 

  

 

 

Total liabilities and equity

  $1,060,686   $1,079,103    $1,069,362   $1,079,103  
  

 

  

 

   

 

  

 

 

See accompanying notes to condensed consolidated financial statements.

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

 

  Ferro Corporation Shareholders      Ferro Corporation Shareholders     
  Common Shares
in Treasury
 Common   Paid-in Retained
Earnings
 Accumulated
Other
Comprehensive
 

Non-

controlling

    Common Shares
in Treasury
 Common Paid-in Retained
Earnings
 Accumulated
Other
Comprehensive
 Non-controlling Total 
  Shares Amount Stock   Capital (Deficit) (Loss) Income Interests Total Equity  Shares Amount Stock Capital (Deficit) Income (Loss) Interests Equity 
  (In thousands)  (In thousands) 

Balances at December 31, 2011

   6,865   $(153,617 $93,436    $320,882   $287,662   $23,899   $10,232   $582,494   6,865   $(153,617 $93,436   $320,882   $287,662   $23,899   $10,232   $582,494  

Net (loss) income

     (310,392  830   (309,562

Other comprehensive (loss) income

      (3,266 15   (3,251

Stock-based compensation transactions

 32   588    4,255      4,843  

Distributions to noncontrolling interests

       (380 (380
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balances at September 30, 2012

  6,897   $(153,029 $93,436   $325,137   $(22,730 $20,633   $10,697   $274,144  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balances at December 31, 2012

  6,962   $(151,605 $93,436   $321,652   $(86,606 $16,650   $13,147   $206,674  

Net income

    3,846     124    3,970        11,405     177    11,582  

Other comprehensive (loss) income

    (638  (2  (640       (4,137  146    (3,991

Stock-based compensation transactions

   3    637      1,081       1,718    (129  3,997     (1,436     2,561  

Distributions to noncontrolling interests

    (44  (44        (125  (125
  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balances at March 31, 2012

   6,868   $(152,980 $93,436    $321,963   $291,508   $23,261   $10,310   $587,498  

Balances at September 30, 2013

  6,833   $(147,608 $93,436   $320,216   $(75,201 $12,513   $13,345   $216,701  
  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balances at December 31, 2012

   6,962   $(151,605 $93,436    $321,652   $(86,606 $16,650   $13,147   $206,674  

Net income (loss)

    883     (363  520  

Other comprehensive (loss) income

    (3,071  21    (3,050

Stock-based compensation transactions

   (95  3,052      (2,385     667  
  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Balances at March 31, 2013

   6,867   $(148,553 $93,436    $319,267   $(85,723 $13,579   $12,805   $204,811  
  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

See accompanying notes to condensed consolidated financial statements.

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

  Three months ended
March 31,
   

Nine months ended

September 30,

 
  2013 2012   2013 2012 
  (Dollars in thousands)   (Dollars in thousands) 

Cash flows from operating activities

      

Net cash used for operating activities

  $(17,106 $(10,975

Net cash provided by operating activities

  $3,003   $19,536  

Cash flows from investing activities

      

Capital expenditures for property, plant and equipment

   (8,178  (22,579   (21,187 (46,245

Proceeds from sale of assets

   15,109    368     16,034   2,386  

Proceeds from sale of stock of Ferro Pfanstiehl Laboratories, Inc.

   16,912    —       16,912   —    

Dividends received from affiliates

   1,119    —       1,119   96  
  

 

  

 

   

 

  

 

 

Net cash provided by (used for) investing activities

   24,962    (22,211   12,878    (43,763

Cash flows from financing activities

      

Net (repayments) borrowings under loans payable

   (9,635  31,684  

Proceeds from long-term debt

   110,133    97,918  

Principal payments on long-term debt

   (106,094  (95,673

Net borrowings under loans payable(1)

   9,223    22,087  

Proceeds from revolving credit facility

   368,317    323,151  

Principal payments on revolving credit facility

   (351,404  (319,926

Extinguishment of convertible senior notes

   (35,066  —    

Other financing activities

   1,409    (440   (734  760  
  

 

  

 

   

 

  

 

 

Net cash (used for) provided by financing activities

   (4,187  33,489     (9,664  26,072  

Effect of exchange rate changes on cash and cash equivalents

   (348  (23   60    (19
  

 

  

 

   

 

  

 

 

Increase in cash and cash equivalents

   3,321    280     6,277    1,826  

Cash and cash equivalents at beginning of period

   29,576    22,991     29,576    22,991  
  

 

  

 

   

 

  

 

 

Cash and cash equivalents at end of period

  $32,897   $23,271    $35,853   $24,817  
  

 

  

 

   

 

  

 

 

Cash paid during the period for:

      

Interest

  $12,308   $12,059    $25,484   $25,343  

Income taxes

   1,548    1,229     2,905    3,130  

(1)Includes cash flows related to our domestic accounts receivable program, international accounts receivable sales programs as well as loans payable to banks.

See accompanying notes to condensed consolidated financial statements.

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, 2012. Prior periods have been adjusted for the presentation of discontinued operations.

Operating results for the three and nine months ended March 31,September 30, 2013, are not necessarily indicative of the results expected in subsequent quarters or for the full year ending December 31, 2013.

2. Recent Accounting Pronouncements and Change in Accounting Principle

Accounting Standards Adopted in the ThreeNine Months Ended March 31,September 30, 2013

On January 1, 2013, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-11,Disclosures about Offsetting Assets and Liabilities, (“ASU 2011-11”) and ASU 2013-01,Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, (“ASU 2013-01”). These pronouncements are codified in Accounting Standards Codification (“ASC”) Topic 210, Balance Sheet, and contain new disclosure requirements about a company’s right of setoff and related arrangements associated with its financial and derivative instruments. Adoption of this pronouncement did not have a material effect on our consolidated financial statements.

On January 1, 2013, we adopted FASB ASU 2013-02,Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, (“ASU 2013-02”), which is codified in ASC Topic 220, Comprehensive Income. This pronouncement adds new disclosure requirements for items reclassified out of accumulated other comprehensive income. Adoption of this pronouncement did not have a material effect on our consolidated financial statements.

Change in Accounting Principle

During the third quarter of 2012, we elected to change our method of recognizing defined benefit pension and other postretirement benefit expense. Historically, we recognized actuarial gains and losses in accumulated other comprehensive income within equity on our consolidated balance sheets annually, and these gains and losses were amortized into our operating results over the average remaining service period of plan participants, to the extent such gains and losses were in excess of a corridor.

Under our new method, we recognize actuarial gains and losses in our operating results in the year in which the gains or losses occur. These gains and losses are generally measured annually as of December 31 and recorded during the fourth quarter, unless an interim remeasurement is required. The remaining components of benefit expense, primarily service and interest costs and the expected return on plan assets, will be recorded quarterly as ongoing expense or benefit. While the historical method of recognizing expense was acceptable, we believe the new method is preferable because it results in recognition in our operating results of actuarial gains and losses as they arise. In accordance with ASC Topic 250, Accounting Changes and Error Corrections, all prior periods have been adjusted to apply the new method retrospectively. The effect of the change on retained earnings as of January 1, 2012, was a reduction of $106.0 million with a corresponding offset to accumulated other comprehensive loss.

We have presented the effects of the change in accounting principle on our condensed consolidated financial statements for the three months ended March 31, 2012 below. The following tables present the significant effects of the change on our historical condensed consolidated statement of operations and statement of comprehensive income. There was no effect on our historical condensed consolidated statement of cash flows.

Condensed Consolidated Statement of Operations Information3. Inventories

 

   Three months ended
March 31, 2012
 
   As reported (1)  Effect of
accounting
change
  As adjusted 
   (Dollars in thousands, except per share amounts) 

Net sales

  $460,425   $—     $460,425  

Cost of sales

   374,704    —      374,704  
  

 

 

  

 

 

  

 

 

 

Gross profit

   85,721    —      85,721  

Selling, general and administrative expenses

   76,487    (3,979  72,508  

Restructuring and impairment charges

   311    —      311  

Other expense (income):

    

Interest expense

   6,374    —      6,374  

Interest earned

   (84  —      (84

Foreign currency losses, net

   144    —      144  

Miscellaneous expense, net

   396    —      396  
  

 

 

  

 

 

  

 

 

 

Income before income taxes

   2,093    3,979    6,072  

Income tax expense

   1,386    1,423    2,809  
  

 

 

  

 

 

  

 

 

 

Income from continuing operations

   707    2,556    3,263  

Income from discontinued operations, net of income taxes

   707    —      707  
  

 

 

  

 

 

  

 

 

 

Net income

   1,414    2,556    3,970  

Less: Net income attributable to noncontrolling interests

   124    —      124  
  

 

 

  

 

 

  

 

 

 

Net income attributable to Ferro Corporation common shareholders

  $1,290   $2,556   $3,846  
  

 

 

  

 

 

  

 

 

 

Earnings per share attributable to Ferro Corporation common shareholders:

    

Basic earnings:

    

From continuing operations

  $—     $0.03   $0.03  

From discontinued operations

   0.01    —      0.01  
  

 

 

  

 

 

  

 

 

 
  $0.01   $0.03   $0.04  
  

 

 

  

 

 

  

 

 

 

Diluted earnings:

    

From continuing operations

  $—     $0.03   $0.03  

From discontinued operations

   0.01    —      0.01  
  

 

 

  

 

 

  

 

 

 
  $0.01   $0.03   $0.04  
  

 

 

  

 

 

  

 

 

 

(1)

Adjusted to reflect the impact of discontinued operations (see Note 12).

Condensed Consolidated Statement of Comprehensive Income Information

   Three months ended
March 31, 2012
 
   As reported   Effect of
accounting
change
  As adjusted 
   (Dollars in thousands) 

Net income

  $1,414    $2,556   $3,970  

Other comprehensive income (loss), net of tax:

     

Foreign currency translation

   24     —      24  

Postretirement benefit liabilities

   1,892     (2,556  (664
  

 

 

   

 

 

  

 

 

 

Total comprehensive income

   3,330     —      3,330  

Less: Comprehensive income attributable to noncontrolling interests

   122     —      122  
  

 

 

   

 

 

  

 

 

 

Comprehensive income attributable to Ferro Corporation

  $3,208    $—     $3,208  
  

 

 

   

 

 

  

 

 

 

3. Inventories

  March 31,
2013
   December 31,
2012
   September 30,
2013
   December 31,
2012
 
  (Dollars in thousands)   (Dollars in thousands) 

Raw materials

  $63,718    $64,923    $59,272    $64,923  

Work in process

   35,819     35,028     35,716     35,028  

Finished goods

   110,695     100,873     100,629     100,873  
  

 

   

 

   

 

   

 

 

Total inventories

  $210,232    $200,824    $195,617    $200,824  
  

 

   

 

   

 

   

 

 

In the production of some of our products, we use precious metals, some of 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 $1.0$0.7 million and $1.9$1.4 million for the three months ended March 31,September 30, 2013 and 2012, respectively, and were $2.5 million and $5.0 million for the nine months ended September 30, 2013 and 2012, respectively. We had on hand precious metals owned by participants in our precious metals consignment program of $93.4$89.5 million at March 31,September 30, 2013, and $112.2 million at December 31, 2012, measured at fair value based on market prices for identical assets and net of credits.

4. Property, Plant and Equipment

Property, plant and equipment is reported net of accumulated depreciation of $662.4$686.5 million at March 31,September 30, 2013, and $658.1 million at December 31, 2012. Unpaid capital expenditure liabilities, which are noncash investing activities, were $2.4$6.6 million at March 31,September 30, 2013, and $7.8$7.3 million at March 31,September 30, 2012. During the first quarter of 2013, the Nules, Spain and Casiglie, Italy properties classified as held for sale with a net book value of approximately $3.0 million as of December 31, 2012, were disposed of through sale. Total consideration received for the properties was approximately $3.3 million.

During the first quarter of 2013, we sold assets related to our solar pastes product line to Heraeus Precious Metals North America Conshocken LLC (“Heraeus LLC”). The assets sold included, among other things, certain machinery and equipment, certain open orders, raw materials and silver paste required for purchased open orders, and intellectual property. The consideration for the assets sold was $10.9 million, and resulted in a gain on the transaction of $9.0 million and is included within miscellaneous income within the condensed consolidated statement of operations. In addition, Heraeus LLC provided Ferro with approximately $12.0 million of precious metals, which was used to reduce amounts outstanding under our precious metals consignment program.

5. Debt

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

 

  March 31,
2013
   December 31,
2012
   September 30,
2013
   December 31,
2012
 
  (Dollars in thousands)   (Dollars in thousands) 

Loans payable to banks

  $3,123    $2,477    $3,247    $2,477  

Domestic accounts receivable asset securitization program

   30,000     40,000     48,000     40,000  

International accounts receivable sales programs

   5,531     6,122     5,554     6,122  

Current portion of long-term debt

   36,524     36,553     2,864     36,553  
  

 

   

 

   

 

   

 

 

Loans payable and current portion of long-term debt

  $75,178    $85,152    $59,665    $85,152  
  

 

   

 

   

 

   

 

 

Long-term debt consisted of the following:

 

  March 31,
2013
 December 31,
2012
   September 30,
2013
 December 31,
2012
 
  (Dollars in thousands)   (Dollars in thousands) 

7.875% Senior Notes

  $250,000   $250,000    $250,000   $250,000  

6.50% Convertible Senior Notes, net of unamortized discounts

   34,662    34,417     —     34,417  

Revolving credit facility

   6,635    2,596     19,509   2,596  

Capital lease obligations

   6,126    6,433     6,053   6,433  

Other notes

   4,627    4,731     5,421   4,731  
  

 

  

 

   

 

  

 

 

Total long-term debt

   302,050    298,177     280,983    298,177  

Current portion of long-term debt

   (36,524  (36,553   (2,864  (36,553
  

 

  

 

   

 

  

 

 

Long-term debt, less current portion

  $265,526   $261,624    $278,119   $261,624  
  

 

  

 

   

 

  

 

 

Receivable Sales Programs

We have an asset securitization program for Ferro’s U.S. trade accounts receivable. We sell interests in our domestic receivables to various purchasers, and we may obtain up to $50.0 million in the form of cash or letters of credit. Advances received under this program are accounted for as borrowings secured by the receivables and included in net cash provided by financing activities. In the second quarter of 2013, we extended the maturity of this credit facility through May 2014. At March 31,September 30, 2013, advances received of $30.0$48.0 million were secured by $88.2$77.6 million of accounts receivable, and based on available and qualifying receivables, $20.0$2.0 million of additional borrowings were available under the program. During the third quarter of 2013 we amended the agreement. The interest rate under this programthe amended agreement is the sum of (A) either (1) commercial paper rates, (2) LIBOR rates or (3)(2) the federal funds rate plus 0.5% or the prime rate and (B) a fixed margin. At March 31,September 30, 2013, the interest rate was 0.6%.

We also have several international programs to sell with recourse trade accounts receivable to financial institutions. Advances received under these programs are accounted for as borrowings secured by the receivables and included in net cash provided by financing activities. At March 31,September 30, 2013, the commitments supporting these programs totaled $17.9$18.9 million, the advances received of $5.5$5.6 million were secured by $8.3$8.7 million of accounts receivable, and based on available and qualifying receivables, $0.3$0.2 million of additional borrowings were available under the programs. The interest rates under these programs are based on EURIBOR rates plus 1.75%. At March 31,September 30, 2013, the weighted-average interest rate was 1.9%.

7.875% Senior Notes

The 7.875% Senior Notes (the “Senior Notes”) were issued in 2010 at par, bear interest at a rate of 7.875% per year, payable semi-annually in arrears on February 15th and August 15th, and mature on August 15, 2018. Through August 15, 2013, we may redeem up to 35% of the Senior Notes at a price equal to 107.875% of the principal amount using proceeds of certain equity offerings. We may also redeem some or all of the Senior Notes prior to August 15, 2014, at a price equal to the principal amount plus a defined applicable premium. The applicable premium on any redemption date is the greater of 1% of the principal amount of the note or the excess of (1) the present value at such redemption date of the redemption price of the note at August 15, 2014, plus all required interest payments due on the note through August 15, 2014, computed using a discount rate equal to the Treasury Rate as of the redemption date plus 50 basis points; over (2) the principal amount of the note. In addition, we may redeem some or all of the Senior Notes beginning August 15, 2014, at prices ranging from 100% to 103.938% of the principal amount.

The Senior Notes are unsecured obligations and rank equally in right of payment with any other unsecured, unsubordinated obligations. The Senior Notes contain certain affirmative and negative covenants customary for high-yield debt securities, including, but not limited to, restrictions on our ability to incur additional debt, create liens, pay dividends or make other distributions or repurchase our common stock and sell assets outside the ordinary course of business. At March 31,September 30, 2013, we were in compliance with the covenants under the Senior Notes’ indenture.

6.5%6.50% Convertible Senior Notes

The 6.5%6.50% Convertible Senior Notes (the “Convertible Notes”) were issued in 2008, bear interestrepaid at a rate of 6.5% per year, payable semi-annually in arrears on February 15th and August 15th, and maturematurity on August 15, 2013. We separately account for the liability and equity components of the Convertible Notes in a manner that, when interest cost is recognized in subsequent periods, will reflect our nonconvertible debt borrowing rate at the time the Convertible Notes were issued. The effective interest rate on the liability component is 9.5%. Under certain circumstances, holders of the Convertible Notes may convert their notes prior to maturity. The Convertible Notes are unsecured obligations and rank equally in right of payment with any other unsecured, unsubordinated obligations. The principal amount outstanding at maturity was $35.1 million at March 31, 2013, and $35.1 million at December 31, 2012. At March 31, 2013, we were in compliance with the covenants under the Convertible Notes’ indenture.million.

Revolving Credit Facility

In 2010, we entered into the Third Amended and Restated Credit Agreement with a group of lenders for a five-year, $350 million multi-currency senior revolving credit facility (the “2010 Credit Facility”). In March 2013, we amended the 2010 Credit Facility (the “2013 Amended Credit Facility”) to provide additional operating flexibility. The primary effects of the 2013 Amended Credit Facility were to:

 

Decrease the Revolving Loan Commitment Amount from $350.0 million to $250.0 million;

 

Amend the calculation of EBITDA to provide for a restructuring expense add-back attributable to the Company’s restructuring programs of $30.0 million in 2013, $20.0 million in 2014 and $10.0 million in 2015, with no aggregate limit on restructuring expense;

 

Increase the maximum permitted leverage ratio such that for (i) the first, second and third quarters of 2013, it shall increase from 3.50 to 4.25; (ii) the fourth quarter of 2013 and first quarter of 2014, it shall increase from 3.50 to 4.00; (iii) the second and third quarters of 2014, it shall increase from 3.50 to 3.75; and (iv) the fourth quarter of 2014 and thereafter, it will be 3.50; and

 

Amend the requirements for Permitted Acquisitions such that for the Company to consummate a Permitted Acquisition the Company must have minimum liquidity of $100.0 million and the Company’s Secured Leverage Ratio must be less than 1.50.

The 2013 Amended Credit Facility matures on August 24, 2015, and is secured by substantially all of Ferro’s assets. After reductions for outstanding letters of credit, we had $239.2$225.0 million of additional borrowings available at March 31,September 30, 2013. The interest rate under the 2013 Amended Credit Facility is the sum of (A) either (1) LIBOR or (2) the higher of the Federal Funds Rate plus 0.5%, the Prime Rate, or LIBOR plus 1.0% and (B) a variable margin based on the Company’s leverage. At March 31,September 30, 2013, the interest rate was 3.7%3.4%.

Under the 2013 Amended Credit Facility, we are subject to a number of financial covenants, including limitations on the payment of common stock dividends. At March 31,September 30, 2013, we were in compliance with the covenants of the 2013 Amended Credit Facility.

6. Financial Instruments

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

 

  March 31, 2013   September 30, 2013 
  Carrying Fair Value   Carrying Fair Value 
  Amount Total Level 1   Level 2 Level 3   Amount Total Level 1   Level 2 Level 3 
  (Dollars in thousands)   (Dollars in thousands) 

Cash and cash equivalents

  $32,897   $32,897   $32,897    $—     $—      $35,853   $35,853   $35,853    $—     $—    

Loans payable

   (38,654  (38,654  —       (38,654  —       (56,801 (56,801 —       (56,801 —    

7.875% Senior Notes

   (250,000  (261,540  —       (261,540  —       (250,000 (262,500 —       (262,500 —    

6.50% Convertible Senior Notes, net of unamortized discounts

   (34,662  (35,241  —       (35,241  —    

Revolving credit facility

   (6,635  (6,760  —       (6,760  —    

Revolving Credit Facility

   (19,509 (19,936 —       (19,936 —    

Other long-term notes payable

   (4,627  (3,850  —       (3,850  —       (5,421 (4,511 —       (4,511 —    

Foreign currency forward contracts, net

   2,715    2,715    —       2,715    —       (2,467 (2,467 —       (2,467 —    

   December 31, 2012 
   Carrying  Fair Value 
   Amount  Total  Level 1   Level 2  Level 3 
   (Dollars in thousands) 

Cash and cash equivalents

  $29,576   $29,576   $29,576    $—     $—    

Loans payable

   (48,599  (48,599  —       (48,599  —    

7.875% Senior Notes

   (250,000  (231,500  —       (231,500  —    

6.50% Convertible Senior Notes, net of unamortized discounts

   (34,417  (34,803  —       (34,803  —    

Revolving credit facility

   (2,596  (2,634  —       (2,634  —    

Other long-term notes payable

   (4,731  (3,937  —       (3,937  —    

Foreign currency forward contracts, net

   (4,758  (4,758  —       (4,758  —    

The fair values of cash and cash equivalents are based on the fair values of identical assets. The fair values of short-term loans payable are based on the present value of expected future cash flows and approximate their carrying amounts due to the short periods to maturity. The fair values of the Senior Notes and the Convertible Notes are based on third-party estimated bid prices. The fair values of the revolving credit facilityRevolving Credit Facility and the other long-term notes payable are based on the present value of expected future cash flows, and assumptions about current interest rates and the creditworthiness of the Company that market participants would use in pricing the debt.

Foreign currency forward contracts. We manage foreign currency risks principally by entering into forward contracts to mitigate the impact of currency fluctuations on transactions.transactions, the majority of which are intercompany. These forward contracts are not designated as hedging instruments. 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 (gains) losses, net in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2013, net foreign currency loss was approximately $1.3 million and $4.0 million, respectively, which is primarily comprised of the foreign exchange impact on transactions in countries where it is not economically feasible for us to enter into hedging arrangements and hedging inefficiencies, including timing of transactions, etc. Net losses arising from the change in fair value of our financial instruments of $2.7 million and $6.7 million, for the three and nine months ended September 30, 2013, respectively, offset related net gains on the underlying intercompany transactions of approximately the same amounts. The fair values of these contracts are based on market prices for comparable contracts. We had foreign currency forward contracts with notional amounts of $249.1$231.3 million at March 31,September 30, 2013, and $250.7 million at December 31, 2012.

The following table presents the effect on our consolidated statements of operations for the three months ended March 31,September 30, 2013 and 2012, respectively, of our foreign currency forward contracts:

 

   Amount of Gain (Loss)
Recognized in Earnings
    
   2013   2012  Location of Gain (Loss) in Earnings 
   (Dollars in thousands)    

Foreign currency forward contracts

  $964    $(5,653  Foreign currency losses, net  
   Amount of Loss
Recognized in
Earnings
   
   2013  2012  Location of Loss in Earnings
   (Dollars in thousands)   

Foreign currency forward contracts

  $(2,652 $(4,148 Foreign currency losses, net

The following table presents the effect on our consolidated statements of operations for the nine months ended September 30, 2013 and 2012, respectively, of our foreign currency forward contracts:

   Amount of (Loss)
Gain Recognized in
Earnings
    
   2013  2012   Location of (Loss) Gain in Earnings
   (Dollars in thousands)    

Foreign currency forward contracts

  $(6,652 $5,385    Foreign currency losses, net

The following table presents the fair values on our consolidated balance sheets of foreign currency forward contracts:

 

  March 31,
2013
 December 31,
2012
 Balance Sheet Location  September 30,
2013
 December 31,
2012
 

Balance Sheet Location

  (Dollars in thousands)   (Dollars in thousands) 

Asset derivatives:

        

Foreign currency forward contracts

  $3,640   $—     Other current assets   211   213   Accrued expenses and other current liabilities

Foreign currency forward contracts

   —      213   Accrued expenses and other current liabilities
  

 

  

 

  

Total

  $3,640   $213   
  

 

  

 

  

Liability derivatives:

        

Foreign currency forward contracts

  $(925 $—     Other current assets   (2,678 (4,971 Accrued expenses and other current liabilities

Foreign currency forward contracts

   —      (4,971 Accrued expenses and other current liabilities
  

 

  

 

  

Total

  $(925 $(4,971 
  

 

  

 

  

7. Income Taxes

Income tax expense for the threenine months ended March 31,September 30, 2013, was $1.0$4.0 million, or 10.2%16.8% of pre-tax income. In the first threenine months of 2012, we recorded income tax expense of $2.8$113.1 million, or 46.3%(57.3)% of pre-tax income. The decreasechange in the effective tax rate was primarily due to the resultreserve for a significant portion of differencesthe Company’s deferred tax assets, that was recorded in pre-tax loss or incomethe third quarter of 2012 compared to the expected usage of tax assets in loss jurisdictions with full valuation allowances for which no tax benefit or expense is recognized.2013.

8. Contingent Liabilities

We have recorded environmental liabilities of $9.4$8.2 million at March 31,September 30, 2013, and $9.6 million at December 31, 2012, for costs associated with the remediation of certain of our properties that have been contaminated, primarily a non-operating facility in Brazil. The costs include 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 and the ultimate cost of required remediation.

There are various lawsuits and claims pending against the Company and its subsidiaries. We do not currently expect the ultimate liabilities, if any, and expenses related to such lawsuits and claims to materially affect the consolidated financial position, results of operations, or cash flows of the Company.

9. Retirement Benefits

Net periodic benefit (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 have been adjusted for our change in accounting principle as described in Note 2, Recent Accounting Pronouncementsthe three months ended September 30, 2013 and Change in Accounting Principle. 2012, respectively, follow:

   U.S. Pension Plans  Non-U.S. Pension Plans  Other Benefit Plans 
   2013  2012  2013  2012  2013  2012 
   (Dollars in thousands) 

Service cost

  $4   $4   $519   $493   $—     $—    

Interest cost

   4,485    4,867    1,224    1,313    285    396  

Expected return on plan assets

   (6,181  (5,158  (742  (748  —      —    

Amortization of prior service cost (credit)

   3    12    7    —      (29  (33
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net periodic benefit (credit) cost

  $(1,689 $(275 $1,008   $1,058   $256   $363  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net periodic benefit (credit) cost for the threenine months ended March 31,September 30, 2013 and 2012, 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 
  2013 2012 2013 2012 2013 2012   2013 2012 2013 2012 2013 2012 
  (Dollars in thousands)   (Dollars in thousands) 

Service cost

  $4   $4   $533   $577   $—     $—      $12   $12   $1,577   $1,496   $—     $—    

Interest cost

   4,485    4,869    1,230    1,375    285    396     13,455   14,602   3,672   3,990   855   1,189  

Expected return on plan assets

   (6,181  (5,096  (748  (753  —      —       (18,543 (15,473 (2,229 (2,253 —     —    

Amortization of prior service cost (credit)

   3    12    6    (33  (29  (33   9   36   21   1   (87 (98

Curtailment and settlement effects

   —     —     —     (2,394 —     —    
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Net periodic benefit (credit) cost

  $(1,689 $(211 $1,021   $1,166   $256   $363    $(5,067 $(823 $3,041   $840   $768   $1,091  
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Net periodic benefit credit for our U.S. pension plans for the threenine months ended March 31,September 30, 2013 increased from the effects of a lower discount rate and larger plan asset balances resulting in increased expected returns.

Net periodic benefit cost for our non-U.S. pension plans increased due to the non-recurring credit recognized in the second quarter of 2012, resulting from curtailment of retirement benefit accumulations in the Netherlands. The affected employees in the Netherlands now receive benefits through a defined contribution plan.

10. Stock-Based Compensation

OurOn May 22, 2013, our shareholders approved the 2013 Omnibus Incentive Plan (the “Plan”), which was adopted by the Board of Directors on February 22, 2013, subject to shareholder approval. 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, aligning their interests with those of its shareholders. The Plan reserves 4,400,000 shares of common stock to be issued for grants of several different types of long-term incentives including stock options, stock appreciation rights, restricted shares, performance shares, other common stock based awards, and dividend equivalent rights.

The 2010 Long Term Incentive Plan (the “Previous Plan”) was replaced by the 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 2013, our Board of Directors granted 0.50.6 million stock options, 0.40.5 million performance share units and 0.30.4 million deferred stock units during the first quarter of 2013 under our 2010 Long Term IncentiveThe Previous Plan and The Plan. 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 threenine months ended March 31,September 30, 2013:

 

  Stock Options   Stock Options 

Weighted-average grant-date fair value

  $3.79    $4.01  

Expected life, in years

   6.0     6.0  

Risk-free interest rate

   1.4   1.2% - 1.4

Expected volatility

   85.6   83.9% - 86.4

The weighted average grant date fair value of our performance share units was $5.29.$5.69. These shares are currently expensed at target and are evaluated each reporting period for likelihood of achieving the performance criteria.

We measure the fair value of deferred stock units based on the closing market price of our common stock on the date of the grant. The weighted-average fair value per unit for grants made during the threenine months ended March 31,September 30, 2013, was $5.44.$5.70.

We recognized stock-based compensation expense of $1.3$4.4 million for the threenine months ended March 31,September 30, 2013, and $2.0$5.7 million for the threenine months ended March 31,September 30, 2012. At March 31,September 30, 2013, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $10.2$8.4 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of 2016.

11. Restructuring and Cost Reduction Programs

In the first quarter of 2013, we developed and initiated various restructuring programs across the organization with the objectives of realigning the business and lowering our cost structure. Specifically, the programs relate to our European operations, certain corporate functions, improvement of operational efficiencies, and the exit of the solar pastes product line. As a result of the restructuring actions, the Company expects to incur charges of approximately $26$40 million, substantially allthe majority of which will be for severance costs and require future cash expenditures. The programs are subject to required consultations with employee representatives at the affected sites and other local legal requirements. Charges associated with these programs were $9.5$3.8 million and $26.7 million for the three and the nine months ended March 31, 2013.September 30, 2013, respectively. The cumulative charges incurred to date associated with these programs are $37.0 million.

The activities and accruals related to our restructuring and cost reduction programs are summarized below:

 

  Employee
Severance
 Other Costs Asset
Impairment
   Total   Employee
Severance
 Other
Costs
 Asset
Impairment
 Total 
  (Dollars in thousands)   (Dollars in thousands) 

Balance at December 31, 2012

  $4,093   $6,139   $—      $10,232    $4,093   $6,139    $10,232  

Restructuring charges

   8,170    1,284    —       9,454     19,647   7,094   (3 26,738  

Cash payments

   (2,902  (4,699  —       (7,601   (14,715 (7,671  (22,386

Non-cash items

   (204  (77  —       (281   92   (820 3   (725
  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Balance at March 31, 2013

  $9,157   $2,647   $—      $11,804  

Balance at September 30, 2013

  $9,117   $4,742   $—     $13,859  
  

 

  

 

  

 

   

 

   

 

  

 

  

 

  

 

 

We expect to make cash payments to settle the remaining liability for employee termination benefits and other costs over the next twelve months, except where legal or contractual restrictions prevent us from doing so.

12. Discontinued Operations

During the first quarter of 2013, we completed the sale of the stock of our pharmaceuticals business, Ferro Pfanstiehl Laboratories, Inc. (“FPL”), which was previously reported within the Pharmaceuticals reportable segment. Consideration was comprised of a $16.9 million cash payment, and the transaction also included an earn-out incentive of up to $8.0 million based on achieving certain earnings targets over a two-year period. In March 2013, prior to the sale, an impairment loss of $8.7 million associated with the long lived assets of FPL was recorded under ASC Topic 360 Property, Plant and Equipment. The write down was determined by estimating the fair value of the assets less cost to sell of $14.8 million using the market approach considering a bona fide purchase offer, a level three measurement within the fair value hierarchy.

The operations of FPL have been segregated from continuing operations and are included in discontinued operations in our condensed consolidated statements of operations. Interest expense has been allocated to the discontinued operation based on the ratio of net assets of FPL to consolidated net assets excluding debt.

 

  Three months ended
March 31,
 
  2013 2012   Three months ended
September 30,
 
  (Dollars in thousands)   2012 

Net sales

  $4,791   $5,965    $5,975  

Cost of sales

   2,762    3,363     4,346  
  

 

  

 

   

 

 

Gross profit

   2,029    2,602     1,629  

Selling, general and administrative expenses

   1,181    1,198     1,246  

Impairment

   8,682    —    

Restructuring charges

   95  

Interest expense

   589    366     385  

Miscellaneous expense (income), net

   (2  (2

Miscellaneous income, net

   (5
  

 

  

 

   

 

 

(Loss) income from discontinued operations before income taxes

   (8,421  1,040  

Loss from discontinued operations before income taxes

   (92

Income tax expense

   —      333     26  
  

 

  

 

   

 

 

(Loss) income from discontinued operations, net of income taxes

  $(8,421 $707  

Loss from discontinued operations, net of income taxes

  $(118
  

 

  

 

   

 

 

   Nine months ended
September 30,
 
   2013  2012 
   (Dollars in thousands) 

Net sales

  $4,791   $17,899  

Cost of sales

   2,762    11,641  
  

 

 

  

 

 

 

Gross profit

   2,029    6,258  

Selling, general and administrative expenses

   1,181    3,631  

Restructuring and impairment charges

   8,682    95  

Interest expense

   589    1,123  

Miscellaneous income, net

   (2  (11
  

 

 

  

 

 

 

(Loss) income from discontinued operations before income taxes

   (8,421  1,420  

Income tax expense

   —      503  
  

 

 

  

 

 

 

(Loss) income from discontinued operations, net of income taxes

  $(8,421 $917  
  

 

 

  

 

 

 

The following is a summary of the assets and liabilities of FPL at December 31, 2012, which are presented separately on the condensed consolidated balance sheet:

 

   (Dollars in
thousands)
 

Inventories

  $6,267  

Other current assets

   22  
  

 

 

 

Current assets of discontinued operations

   6,289  
  

 

 

 

Property, plant and equipment, net

   15,346  
  

 

 

 

Other assets of discontinued operations

   15,346  
  

 

 

 

Accounts payable

   880  

Accrued payrolls

   47  

Accrued expenses and other current liabilities

   373  
  

 

 

 

Current liabilities of discontinued operations

  $1,300  
  

 

 

 

13. Earnings (Loss) Per Share

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

 

  Three months ended
March 31,
   Three months ended
September 30,
 Nine months ended
September 30,
 
  2013   As adjusted 2012   2013   As adjusted
2012
 2013   As adjusted
2012
 
  (In thousands, except per share amounts)   (In thousands, except per share amounts) 

Basic earnings per share computation:

    

Net income attributable to Ferro Corporation common shareholders

  $883    $3,846  

Basic earnings (loss) per share computation:

       

Net income (loss) attributable to Ferro Corporation common shareholders

  $12,652    $(316,114 $11,405    $(310,392

Adjustment for loss (income) from discontinued operations

   8,421     (707   —       118   8,421     (917
  

 

   

 

   

 

   

 

  

 

   

 

 

Total

  $9,304    $3,139    $12,652    $(315,996 $19,826    $(311,309
  

 

   

 

   

 

   

 

  

 

   

 

 

Weighted-average common shares outstanding

   86,439     86,233     86,426     86,296    86,464     86,274  

Basic earnings per share from continuing operations attributable to Ferro Corporation common shareholders

  $0.11    $0.03  

Diluted earnings per share computation:

    

Net income attributable to Ferro Corporation common shareholders

  $883    $3,846  

Basic earnings (loss) per share from continuing operations attributable to Ferro Corporation common shareholders

  $0.15    $(3.66 $0.23    $(3.61

Diluted earnings (loss) per share computation:

       

Net income (loss) attributable to Ferro Corporation common shareholders

  $12,652    $(316,114 $11,405    $(310,392

Adjustment for loss (income) from discontinued operations

   8,421     (707   —       118    8,421     (917
  

 

   

 

   

 

   

 

  

 

   

 

 

Total

  $9,304    $3,139    $12,652    $(315,996 $19,826    $(311,309
  

 

   

 

   

 

   

 

  

 

   

 

 

Weighted-average common shares outstanding

   86,439     86,233     86,426     86,296    86,464     86,274  

Assumed exercise of stock options

   98     191     200     —      112     —    

Assumed satisfaction of deferred stock unit conditions

   62     23     77     —      63     —    

Assumed satisfaction of restricted stock unit conditions

   35     —       120     —      84     —    

Assumed satisfaction of performance stock unit conditions

   45     —       375     —      247     —    

Assumed satisfaction of restricted share conditions

   97     248     52     —      63     —    
  

 

   

 

   

 

   

 

  

 

   

 

 

Weighted-average diluted shares outstanding

   86,776     86,695     87,250     86,296    87,033     86,274  
  

 

   

 

   

 

   

 

  

 

   

 

 

Diluted earnings per share from continuing operations attributable to Ferro Corporation common shareholders

  $0.11    $0.03  

Diluted earnings (loss) per share from continuing operations attributable to Ferro Corporation common shareholders

  $0.15    $(3.66 $0.23    $(3.61

The number of anti-dilutive or unearned shares, including shares related to contingently convertible debt, was 5.32.0 million and 2.4 million for the three and nine months ended March 31,September 30, 2013, respectively, and 6.97.5 million for the three and nine months ended March 31,September 30, 2012.

14. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31,September 30, 2013, were as follows:

 

  Postretirement
Benefit Liability
Adjustments
 Translation
Adjustments
 Other
Adjustments
 Total   Postretirement
Benefit
Liability
Adjustments
 Translation
Adjustments
   Other
Adjustments
 Total 
  (Dollars in thousands)   (Dollars in thousands) 

Beginning accumulated other comprehensive income (loss)

  $2,647   $14,080   $(77 $16,650    $2,510   $5,911    $(77 $8,344  

Other comprehensive income before reclassifications

   —      (3,003  —      (3,003   —     4,203     —     4,203  

Amounts reclassified from accumulated other comprehensive income

   (68  —      —      (68

Amounts reclassified from accumulated other comprehensive income (loss)

   (34 —       —     (34
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

 

Net current period other comprehensive income

   (68  (3,003  —      (3,071

Net current period other comprehensive (loss) income

   (34  4,203     —      4,169  
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

 

Ending accumulated other comprehensive income (loss)

  $2,579   $11,077   $(77 $13,579    $2,476   $10,114    $(77 $12,513  
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

 

Changes in accumulated other comprehensive income (loss) by component, net of tax, for the nine months ended September 30, 2013, were as follows:

   Postretirement
Benefit
Liability
Adjustments
  Translation
Adjustments
  Other
Adjustments
  Total 
   (Dollars in thousands) 

Beginning accumulated other comprehensive income (loss)

  $2,647   $14,080   $(77 $16,650  

Other comprehensive loss before reclassifications

   —      (3,966  —      (3,966

Amounts reclassified from accumulated other comprehensive income (loss)

   (171  —      —      (171
  

 

 

  

 

 

  

 

 

  

 

 

 

Net current period other comprehensive loss

   (171  (3,966  —      (4,137
  

 

 

  

 

 

  

 

 

  

 

 

 

Ending accumulated other comprehensive income (loss)

  $2,476   $10,114   $(77 $12,513  
  

 

 

  

 

 

  

 

 

  

 

 

 

15. Reporting for Segments

During the first quarter of 2013, the Company reorganized its operating segments to reflect the current structure under which performance is evaluated, strategic decisions are made and resources are allocated. The new structure aligns the continuing product lines of our former Electronic Materials segment with our continuing operating segments. Under the new structure, we will continue to report Specialty Plastics, Polymer Additives and Performance Coatings, which aggregates our Tile Coating Systems and Porcelain Enamel operating segments, consistent with the manner in which they have historically been reported. The Glass Systems and Performance Pigments and Colors operating segments that aggregated into the historically reported Color and Glass Performance Materials segment, now include our continuing product lines that were historically reported within the Electronic Materials segment, and as a result of such inclusion, fail to meet the aggregation criteria for continuing to report as one segment. These operating segments will now be reported as the Pigments, Powders and Oxides, and Performance Colors and Glass segments. As discussed in Note 12, our pharmaceuticals business that comprised the Pharmaceuticals segment was sold in the first quarter, and is reported as a discontinued operation.

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

 

  Three months ended
March 31,
   Three months ended
September 30,
   Nine months ended
September 30,
 
  2013   2012   2013   As adjusted
2012
   2013   As adjusted
2012
 
  (Dollars in thousands)   (Dollars in thousands)   (Dollars in thousands) 

Pigments, Powders and Oxides

  $54,787    $69,223    $47,647    $64,053    $155,948    $219,398  

Performance Colors and Glass

   98,127     103,908     94,059     86,398     298,633     294,806  

Performance Coatings

   138,902     152,514     151,873     137,228     445,969     447,065  

Polymer Additives

   80,869     87,724     71,599     79,881     229,266     251,055  

Specialty Plastics

   44,839     47,056     42,926     41,305     131,267     132,512  
  

 

   

 

   

 

   

 

   

 

   

 

 

Total net sales

  $417,524    $460,425    $408,104    $408,865    $1,261,083    $1,344,836  
  

 

   

 

   

 

   

 

   

 

   

 

 

In the first quarter, in conjunction with the changes to operating segments, we have changed the profitability metric utilized by management to evaluate segment performance. The metric that was utilized historically was segment income, and segment gross profit is the metric that willis now be utilized. We measure segment gross profit for internal reporting purposes by excluding certain other cost of sales, which includes costs associated with facilities that have been idled or closed. Each segment’s gross profit and a reconciliation to income (loss) before income taxes from continuing operations follows:

 

  Three months ended
March 31,
   Three months ended
September 30,
 Nine months ended
September 30,
 
  2013 As adjusted
2012
   2013 As adjusted
2012
 2013 As adjusted
2012
 
  (Dollars in thousands)   (Dollars in thousands) (Dollars in thousands) 

Pigments, Powders and Oxides

  $8,173   $7,032    $8,390   $7,231   $25,882   $28,363  

Performance Colors and Glass

   27,258    28,908     28,713   21,086   87,203   77,220  

Performance Coatings

   28,592    30,359     36,410   23,858   100,237   85,328  

Polymer Additives

   8,854    11,439     6,251   8,907   20,616   26,871  

Specialty Plastics

   7,389    8,659     6,881   6,984   22,116   23,207  

Other cost of sales

   (1,029  (676   (2,398 (7,356 (4,916 (8,740
  

 

  

 

   

 

  

 

  

 

  

 

 

Total gross profit

   79,237    85,721     84,247    60,710    251,138    232,249  

Selling, general and administrative expenses

   61,592    72,508     59,078    63,863    184,986    202,675  

Restructuring and impairment charges

   9,454    311     3,834    198,695    26,738    203,734  

Other (income) expense, net

   (1,766  6,830  

Other expense, net

   7,817    8,325    15,386    23,204  
  

 

  

 

   

 

  

 

  

 

  

 

 

Income before income taxes

  $9,957   $6,072  

Income (loss) before income taxes

  $13,518   $(210,173 $24,028   $(197,364
  

 

  

 

   

 

  

 

  

 

  

 

 

Segment assets primarily consist of trade accounts receivable; inventories; property, plant and equipment; and intangible assets. Unallocated assets primarily include cash and cash equivalents, other receivables and deferred income taxes. As a result of the change in segments and the re-allocation of goodwill due to changes in reporting units, total segment assets under the new structure at March 31, 2013 are presented below and total segment assets at December 31, 2012 have been adjusted to also reflect the new structure.

   March 31,   December 31, 
   2013   2012 
   (Dollars in thousands) 

Pigments, Powders and Oxides

  $109,886    $112,504  

Performance Colors and Glass

   236,220     232,737  

Performance Coatings

   352,894     366,068  

Polymer Additives

   129,559     110,865  

Specialty Plastics

   53,449     48,327  

Unallocated assets

   178,678     208,602  
  

 

 

   

 

 

 

Total assets

  $1,060,686    $1,079,103  
  

 

 

   

 

 

 

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

Overview

During the three months ended March 31,September 30, 2013, we completedsales were flat compared to the saleprior-year same period. Increases in sales excluding precious metals in Performance Colors and Glass and Performance Coatings were partially offset by lower sales in Polymer Additives due to the accelerated deselection of assets relatedcertain plasticizer products, and in Pigments, Powders and Oxides due to the exit of solar pastes and exitedin the product line, which represents afirst quarter of 2013. The decrease in sales of precious metals was primarily in Pigments, Powders and grossOxides and driven by the exit of solar pastes. Gross profit increased approximately $24 million in the firstthird quarter of 2013 compared to the first quarterprior-year same period, or 550 basis points as a percentage of 2012. However, this action will resultnet sales excluding precious metals, to 21.8%. The favorability was driven by our cost reduction initiatives, increased net sales excluding precious metals and improved business mix, partially offset by lower sales in significant improvements in profitability forPolymer Additives and the full year. In addition, we completed the saleimpact of the stockexit of our pharmaceuticals business, which is in line with our strategy to divest non-core businesses and drive earnings growth and profitability in our core Performance Materials and Performance Chemicals businesses.solar pastes.

Additionally, weWe continue to execute against our cost savings plans, which has resulted in significantadditional savings in the firstthird quarter of 2013 compared with the prior-year same period. Further, we have announced additional plannedthat we now expect to achieve cost savings which we expect to be approximately $70of greater than $100 million by 2014.

In addition to the impactend of solar pastes, we also experienced a continued decline in demand for certain plasticizer products in our Polymer Additives segment driven by changing environmental regulations, weakness in Europe and raw material challenges in our Performance Coatings segment.2015.

For the three months ended March 31,September 30, 2013, Ferro’sFerro net income was $0.5$13.0 million, compared with net incomeloss of $4.0$315.7 million in 2012, and net income attributable to common shareholders was $0.9$12.7 million, compared towith net incomeloss attributable to common shareholders of $3.8$316.1 million in 2012. Income from continuing operations was $8.9$13.0 million in the three months ended March 31,September 30, 2013, compared with net incomeloss from continuing operations of $3.3$315.6 million in 2012. Our total segment gross profit for the firstthird quarter of 2013 was $79.2$84.2 million, compared with $85.7$60.7 million in 2012. We incurred restructuring charges of $9.5$3.8 million associated with actions primarily related to our European and corporate operations in the firstthird quarter. Further, we recorded a gain on

For the salenine months ended September 30, 2013, Ferro net income was $11.6 million, compared with net loss of assets related$309.6 million in 2012, and net income attributable to solar pastescommon shareholders was $11.4 million, compared with net loss attributable to common shareholders of $9.0 million.$310.4 million in 2012. Income from continuing operations was $20.0 million in the nine months ended September 30, 2013, compared with net loss from continuing operations of $310.5 million in 2012. Our total segment gross profit for the nine months ended September 30, 2013 was $251.1 million, compared with $232.2 million in 2012. We incurred restructuring and impairment charges of $26.7 million in the nine months ended September 30, 2013.

Outlook

We have made considerablecontinued to make progress against our strategic objectives during the firstthird quarter of 2013, and expect the momentum that has been built to continue through the remainder of the year.2013. We have executed against our cost reduction plans, for the first quarter, and have additional actions underway in the areas of (1) business realignment, (2) operational efficiency, and (3) corporate and back office functions, which are expected to drive cost savings of approximately $70$45 million by 2014.for full year 2013. These actions, in addition to the cost savings from exiting solar pastes willduring the first quarter of 2013 have significantly improveimproved the Company’s cost structure.

In the fourth quarter, we expect to realize the continued benefits from our cost reduction plans, however, we also expect our normal seasonal business pattern, which is characterized by lower customer demand and reduced plant utilization due to holiday shutdowns.

Factors that could adversely affect our future performance include those described under the heading “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012.

Results of Operations—Consolidated

For the three and nine months ended March 31,September 30, 2012, amounts originally reported have been adjusted for the effects of applying retrospectively the change in accounting principlediscontinued operations of FPL as described in Note 2, Recent Accounting Pronouncements12, Discontinued Operations and Changethe changes in Accounting Principle, toour reportable segments as described in Note 15, Reporting for Segments. Both notes are part of the condensed consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q. Additionally, all periods presented reflect FPL as a discontinued operation.

Comparison of the three months ended March 31,September 30, 2013 and 2012

For the three months ended March 31,September 30, 2013, Ferro net income was $0.5$13.0 million, compared with net incomeloss of $4.0$315.7 million for the three months ended March 31,September 30, 2012. For the three months ended March 31,September 30, 2013, Ferro net income attributable to common shareholders was $0.9$12.7 million, or $0.01$0.15 per share, compared with Ferro net incomeloss attributable to common shareholders of $3.8$316.1 million, or $0.04$3.66 loss per share, for the three months ended March 31,September 30, 2012.

Net Sales

 

  Three months ended
March 31,
       Three months ended
September 30,
     
  2013 2012 $ Change % Change   2013 2012 $ Change % Change 
  (Dollars in thousands)     (Dollars in thousands)   

Net sales excluding precious metals

  $386,787   $417,903   $(31,116  (7.4)%   $387,025   $372,904   $14,121   3.8

Sales of precious metals

   30,737    42,522    (11,785  (27.7)%    21,079   35,961   (14,882 (41.4)% 
  

 

  

 

  

 

    

 

  

 

  

 

  

Net sales

   417,524    460,425    (42,901  (9.3)%    408,104    408,865    (761  (0.2)% 

Cost of sales

   338,287    374,704    (36,417  (9.7)%    323,857    348,155    (24,298  (7.0)% 
  

 

  

 

  

 

    

 

  

 

  

 

  

Gross profit

  $79,237   $85,721   $(6,484  (7.6)%   $84,247   $60,710   $23,537    38.8
  

 

  

 

  

 

    

 

  

 

  

 

  

Gross profit as a % of net sales excluding precious metals

   20.5  20.5     21.8  16.3  

Net sales decreased by 9.3%0.2% in the three months ended March 31,September 30, 2013, compared with the prior-year same period. Net sales excluding precious metals increased $14.1 million, driven by increased sales in our Performance Coatings, Performance Colors and Glass and Specialty Plastics segments, partially offset by decreased sales in our Polymer Additives and Pigments, Powders and Oxides segments. The exit of solar pastes during the first quarter of 2013 drove a significant decrease in net sales compared to the prior-year, and also drove the significant decrease in sales of precious metals. Additionally, sales of our Performance Coatings products decreasedmetals compared to the prior-year primarily due to the increasingly competitive sales environment, in combination with reduced demand and Polymer Additives sales continued to decline due to reduced demand for certain plasticizer products resulting from changing environmental regulations.prior year.

Gross Profit

Gross profit decreased 7.6%increased 38.8% in the three months ended March 31,September 30, 2013, compared to the prior-year same period. The significant drivers of the reducedincreased gross profit are the exit of solar pastes, certain inventory obsolescence charges taken during the first quarter of 2013,strong demand and reduced volumeslower raw material and production costs in our Performance Coatings segment and favorable product mix in our Performance Colors and Glass segment. These increases were partially offset by unfavorable product mix in our Pigments, Powders and Oxides segment and the impact of reduced demand for certain plasticizer products in our Polymer Additives segments. Grosssegment. Additionally, during the third quarter of 2012, inventory charges related to obsolete solar pastes impacted gross profit percentage increased to 19.0% of net sales in the three months ended March 31, 2013 from 18.6% in the prior-year same period, and was driven by favorable mix.

approximately $5 million.

Selling, General and Administrative ExpenseExpenses

The following table presents our segments summarized into their respective operating groups, with Pigments, Powders and Oxides, Performance Colors and Glass, and Performance Coatings comprising Performance Materials, and Polymer Additives and Specialty Plastics comprising Performance Chemicals. In conjunction with the changes to segments, we also changed the profitability metric utilized by management to evaluate segment performance, as discussed in Note 15. The metric that was utilized historically was segment income, which included selling, general and administrative (“SG&A”) expenses that were directly incurred by each segment, as well as certain allocated costs. Segment gross profit is the metric that is now utilized. Further, we have refined our approach to managing SG&A expenses and are intensely focused on analyzing expenses at the individual site level, and also across functional areas within the Company, as opposed to the segment level, and will evaluate performance in this manner.

 

   Three months ended
March 31,
        
   2013   2012   $ Change  % Change 
   (Dollars in thousands)    

Performance materials

  $40,228    $47,585    $(7,357  (15.5)% 

Performance chemicals

   6,248     6,921     (673  (9.7)% 

Corporate

   15,116     18,002     (2,886  (16.0)% 
  

 

 

   

 

 

   

 

 

  

Total selling, general and administrative expense

  $61,592    $72,508    $(10,916  (15.1)% 
  

 

 

   

 

 

   

 

 

  
   Three months ended
September 30,
        
   2013   2012   $ Change  % Change 
   (Dollars in thousands)    

Performance Materials

  $34,205    $42,620    $(8,415  (19.7)% 

Performance Chemicals

   5,864     6,709     (845  (12.6)% 

Corporate

   19,009     14,534     4,475    30.8
  

 

 

   

 

 

   

 

 

  

Selling, general and administrative expenses

  $59,078    $63,863    $(4,785  (7.5)% 
  

 

 

   

 

 

   

 

 

  

SG&A expenses were $10.9$4.8 million lower in the three months ended March 31,September 30, 2013 compared with the prior-year same period. As a percentage of sales, SG&A expenses declined 0.9%decreased 110 basis points from 15.7%15.6% in the third quarter of 2012 to 14.5% in the third quarter of 2013. The primary drivers of the change in SG&A expenses were lower bad debt expense in the third quarter of 2013 compared to the prior-year same period, and lower pension and other postretirement benefit expense resulting from a lower discount rate and higher plan assets, generating higher expected returns, compared to the prior-year same period. Personnel expenses decreased compared to the prior year driven by the exit of solar pastes and the various personnel actions taken during 2012 and into 2013, however, there was an increase in incentive compensation of approximately $11 million compared to the prior-year same period. The change in other SG&A expenses was primarily driven by a charge taken for a reserve required in the third quarter of 2012 that did not recur in the current year, partially offset by higher professional fees.

The following table includes SG&A components with significant changes between 2013 and 2012:

   Three months ended
September 30,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Personnel expenses

  $32,554   $42,033   $(9,479  (22.6)% 

Incentive compensation

   7,350    (4,090  11,440    NM  

Stock-based compensation

   1,744    1,894    (150  (7.9)% 

Pension and other postretirement benefits

   (425  1,146    (1,571  NM  

Idle sites

   —      476    (476  (100.0)% 

Bad debt expense

   (89  2,759    (2,848  NM  

Other

   17,944    19,645    (1,701  (8.7)% 
  

 

 

  

 

 

  

 

 

  

Selling, general and administrative expenses

  $59,078   $63,863   $(4,785  (7.5)% 
  

 

 

  

 

 

  

 

 

  

NM — Not meaningful

Restructuring and Impairment Charges

   Three months ended
September 30,
       
   2013   2012  $ Change  % Change 
   (Dollars in thousands)    

Employee severance

  $478    $(34 $512    NM  

Other restructuring costs

   3,356     (83  3,439    NM  

Impairment

   —       198,812    (198,812  NM  
  

 

 

   

 

 

  

 

 

  

Restructuring and impairment charges

  $3,834    $198,695   $(194,861  NM  
  

 

 

   

 

 

  

 

 

  

NM — Not meaningful

Restructuring and impairment charges decreased significantly in the third quarter of 2013 compared to the prior-year same period. The drivers of the decrease were the significant nonrecurring impairments of goodwill and property, plant and equipment in the third quarter of 2012, partially offset by additional charges related to our ongoing restructuring plans during the third quarter of 2013.

Interest Expense

Interest expense in the third quarter of 2013 was consistent with the prior-year same period. The components of interest expense are as follows:

   Three months ended
September 30,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Interest expense

  $6,592   $6,507   $85    1.3

Amortization of bank fees

   393    483    (90  (18.6)% 

Interest capitalization

   (219  (274  55    (20.1)% 
  

 

 

  

 

 

  

 

 

  

Interest expense

  $6,766   $6,716   $50    0.7
  

 

 

  

 

 

  

 

 

  

Income Tax Expense

During the third quarter of 2013, income tax expense was $0.5 million compared with the income tax expense of $105.4 million in the third quarter of 2012. Income tax expense for the current period was less than the expense recorded in the prior-year same period primarily due to the reserve that was recorded in the third quarter of 2012 on a significant portion of our deferred tax assets.

Results of Operations—Segment Information

Comparison of the three months ended September 30, 2013 and 2012

Performance Materials

Pigments, Powders and Oxides

   Three months ended
September 30,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Segment net sales excluding precious metals

  $35,551   $38,286   $(2,735  (7.1)% 

Segment precious metal sales

   12,096    25,767    (13,671  (53.1)% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Segment net sales

   47,647    64,053    (16,406  (25.6)% 

Segment gross profit

   8,390    7,231    1,159    16.0

Gross profit as a % of segment net sales excluding precious metals

   23.6  18.9  

Sales in Pigments, Powders and Oxides decreased due to the exit of solar pastes during the first quarter of 20122013, which comprised approximately $4 million of the decrease in net sales excluding precious metals from the prior-year same period. The decrease in sales related to 14.8%the exit of solar pastes was partially mitigated by increased sales of our metal powders products produced in the United States compared to the prior year. The decreased sales from the exit of solar pastes were further mitigated by tolling revenue of approximately $1 million during the third quarter of 2013 related to a supply agreement entered into with the buyer of our solar pastes assets. Sales were unfavorably impacted by product mix, including the shift away from solar pastes products, which was only partially mitigated by increased volume and pricing benefits in the third quarter. The decrease in precious metal sales was primarily driven by the exit of solar pastes. Regionally, the United States drove the decrease in sales, primarily due to the exit of solar pastes. Gross profit increased from the prior-year same period primarily due to favorable production costs and higher volume, partially offset by unfavorable mix.

Performance Colors and Glass

   Three months ended
September 30,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Segment net sales excluding precious metals

  $85,076   $76,204   $8,872    11.6

Segment precious metal sales

   8,983    10,194    (1,211  (11.9)% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Segment net sales

   94,059    86,398    7,661    8.9

Segment gross profit

   28,713    21,086    7,627    36.2

Gross profit as a % of segment net sales excluding precious metals

   33.7  27.7  

Net sales excluding precious metals increased compared to the prior-year same period, primarily driven by sales of our glass products. Sales of our glass products increased over the prior-year same period by approximately $7 million, with the remainder of the increase primarily coming from our electronic packaging materials products. Net sales excluding precious metals were impacted by favorable product mix, favorable pricing, and higher volume compared to the prior-year same period. Regionally, Europe and the United States increased approximately $5 million and $2 million, respectively, compared to the prior-year same period. Other regions increased by approximately $1 million in total. Gross profit increased from the prior-year same period due to favorable volume and product mix, favorable pricing, and favorable production costs.

Performance Coatings

   Three months ended
September 30,
        
   2013  2012  $ Change   % Change 
   (Dollars in thousands)     

Segment net sales

  $151,873   $137,228   $14,645     10.7

Segment gross profit

   36,410    23,858    12,552     52.6

Gross profit as a % of segment net sales

   24.0  17.4   

Sales increased in Performance Coatings due to higher sales of our inks products and porcelain enamel products compared to the prior-year same period. The impact of these increases was approximately $12 million, with the balance of the increase due to higher sales of other tile coating products. Sales were favorably impacted by higher volumes and mix, partially offset by unfavorable pricing, most significantly related to our tile products. Regionally, Europe drove the largest increase in sales, approximately $11 million, due to increased customer demand and favorable product mix. Asia-Pacific and the United States also both increased by approximately $2 million and $1 million, respectively. Gross profit increased from the prior-year same period primarily due to favorable raw material and production costs and higher volume, partially offset by unfavorable pricing impacts.

Performance Chemicals

Polymer Additives

   Three months ended
September 30,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Segment net sales

  $71,599   $79,881   $(8,282  (10.4)% 

Segment gross profit

   6,251    8,907    (2,656  (29.8)% 

Gross profit as a % of segment net sales

   8.7  11.2  

Sales decreased in Polymer Additives primarily due to the continued decline in sales volume of certain plasticizer products, which is being driven by changing environmental regulations. Regionally, sales declined in the United States by approximately $8 million, comprising the majority of the decrease in the segment. Approximately $6 million of the United States sales decline related to lower volume of the noted plasticizer products. Gross profit decreased from the prior-year same period as a result of the lower sales volume, unfavorable pricing impacts, and unfavorable manufacturing costs.

Specialty Plastics

   Three months ended
September 30,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Segment net sales

  $42,926   $41,305   $1,621    3.9

Segment gross profit

   6,881    6,984    (103  (1.5)% 

Gross profit as a % of segment net sales

   16.0  16.9  

Sales increased in Specialty Plastics primarily due to strong demand for certain plastic colorants products and filled and reinforced plastics products. Sales were favorably impacted by higher volume, which was only partially offset by unfavorable price and mix impacts. Regionally, Europe and Latin America drove a sales increase totaling approximately $3 million, which was partially offset by a sales decrease in the United States of approximately $1 million. Gross profit was flat compared to the prior-year same period.

   Three months ended
September 30,
        
   2013   2012   $ Change  % Change 
   (Dollars in thousands)    

Geographic Revenues

       

United States

  $157,421    $173,648    $(16,227  (9.3)% 

International

   250,683     235,217     15,466    6.6
  

 

 

   

 

 

   

 

 

  

Total

  $408,104    $408,865    $(761  (0.2)% 
  

 

 

   

 

 

   

 

 

  

Net sales declined slightly compared to the prior-year same period, with a decrease in the United States being partially mitigated by increased net sales in international regions. In the third quarter of 2013, sales originating in the United States were 39% of total net sales, compared with 42% of net sales in the third quarter of 2012. The decline in sales in the United States was primarily driven by the exit of solar pastes, in combination with reduced demand for certain plasticizer products that is being driven by changing environmental regulations. The increase in international regions was primarily driven by increased sales in Europe across all segments except for Polymer Additives, resulting in increased sales of approximately $18 million compared to the prior-year same period. Further, Latin America experienced slight increases across most segments. Higher sales in Europe and Latin America were partially offset by decreased sales in Asia-Pacific of approximately $5 million, which were primarily due to the exit of solar pastes and lower sales of metal powders products.

Results of Operations—Consolidated

Comparison of the nine months ended September 30, 2013 and 2012

For the nine months ended September 30, 2013, Ferro net income was $11.6 million, compared with net loss of $309.6 million for the nine months ended September 30, 2012. For the nine months ended September 30, 2013, Ferro net income attributable to common shareholders was $11.4 million, or $0.13 per share, compared with Ferro net loss attributable to common shareholders of $310.4 million, or $3.60 loss per share, for the nine months ended September 30, 2012.

Net Sales

   Nine months ended
September 30,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Net sales excluding precious metals

  $1,181,470   $1,211,992   $(30,522  (2.5)% 

Sales of precious metals

   79,613    132,844    (53,231  (40.1)% 
  

 

 

  

 

 

  

 

 

  

Net sales

   1,261,083    1,344,836    (83,753  (6.2)% 

Cost of sales

   1,009,945    1,112,587    (102,642  (9.2)% 
  

 

 

  

 

 

  

 

 

  

Gross profit

  $251,138   $232,249   $18,889    8.1
  

 

 

  

 

 

  

 

 

  

Gross profit as a % of net sales excluding precious metals

   21.3  19.2  

Net sales decreased by 6.2% in the nine months ended September 30, 2013, compared with the prior-year same period. Net sales excluding precious metals decreased $30.5 million, driven by decreased sales in our Pigments, Powders and Oxides segment, primarily due to the exit of solar pastes during the first quarter of 2013, and decreased sales in our Polymer Additives segment. Partially mitigating these decreases were increased sales in our Performance Colors and Glass segment. The exit of solar pastes during the first quarter of 2013 was also the primary driver of the decrease in sales of precious metals compared to the prior year.

Gross Profit

Gross profit increased 8.1% in the nine months ended September 30, 2013, compared to the prior-year same period. The significant drivers of the increased gross profit are favorable product mix in our Performance Colors and Glass segment and strong demand and lower raw material and production costs, partially offset by unfavorable price impacts, in our Performance Coatings segment. These increases were partially offset by unfavorable mix in our Pigments, Powders and Oxides segment and the impact of reduced demand for certain plasticizer products and unfavorable production costs in our Polymer Additives segment. Additionally, in the prior year, inventory charges related to obsolete solar pastes impacted gross profit by approximately $5 million.

Selling, General and Administrative Expenses

The following table presents our segments summarized into their respective operating groups, with Pigments, Powders and Oxides, Performance Colors and Glass, and Performance Coatings comprising Performance Materials, and Polymer Additives and Specialty Plastics comprising Performance Chemicals. In conjunction with the changes to segments, we also changed the profitability metric utilized by management to evaluate segment performance, as discussed in Note 15. The metric that was utilized historically was segment income, which included selling, general and administrative (“SG&A”) expenses that were directly incurred by each segment, as well as certain allocated costs. Segment gross profit is the metric that is now utilized. Further, we have refined our approach to managing SG&A expenses and are intensely focused on analyzing expenses at the individual site level, and also across functional areas within the Company, as opposed to the segment level, and will evaluate performance in this manner.

   Nine months ended
September 30,
        
   2013   2012   $ Change  % Change 
   (Dollars in thousands)    

Performance Materials

  $113,700    $137,393    $(23,693  (17.2)% 

Performance Chemicals

   17,575     24,294     (6,719  (27.7)% 

Corporate

   53,711     40,988     12,723    31.0
  

 

 

   

 

 

   

 

 

  

Selling, general and administrative expenses

  $184,986    $202,675    $(17,689  (8.7)% 
  

 

 

   

 

 

   

 

 

  

SG&A expenses were $17.7 million lower in the nine months ended September 30, 2013 compared with the prior-year same period. As a percentage of sales, SG&A expenses decreased 40 basis points from 15.1% for the nine months ended September 30, 2012 to 14.7% for the nine months ended September 30, 2013. The primary drivers of the reduction in SG&A expenseexpenses were the various personnel actions taken during 2012 and into the first quarter of 2013, which drove the decreasedecreases in personnel expenses and stock-based compensation expense. The decreases were partially offset by an increase in incentive compensation of approximately $14 million in the first nine months of 2013 compared to the prior-year same period. In addition, a lower discount rate and increased expected returns on our pension plan assets has reduced pension and other postretirement benefit expense in the first quarternine months of 2013 compared to the prior-year same period, and ourperiod. Our expenses related to an initiative to streamlineidle sites have decreased in the current year as a result of selling the majority of our idle sites in the current year, and standardize business processes and improve management information systems tools haveour bad debt expense has decreased approximately $2 million compared to the prior-year as a result of the project being placed into service during 2012.same period.

The following table includes SG&A components with significant changes between 2013 and 2012:

 

  Three months ended
March 31,
         Nine months ended
September 30,
       
  2013 2012   $ Change % Change   2013 2012   $ Change % Change 
  (Dollars in thousands)     (Dollars in thousands)   

Personnel expenses

  $42,250   $46,993    $(4,743  (10.1)%   $107,881   $130,850    $(22,969 (17.6)% 

Incentive compensation

   14,147   115     14,032   NM  

Stock-based compensation

   4,392   5,699     (1,307 (22.9)% 

Pension and other postretirement benefits

   (412  1,318     (1,730  NM     (1,258 1,108     (2,366 NM  

Management information systems tools initiative

   —      1,209     (1,209  (100.0)% 

Idle sites

   —     1,791     (1,791 (100.0)% 

Bad debt expense

   (92  1,038     (1,130  NM     1,835   4,174     (2,339 (56.0)% 

Stock-based compensation

   1,346    2,043     (697  (34.1)% 

Idle sites

   363    706     (343  (48.6)% 

Other

   18,137    19,201     (1,064  (5.5)%    57,989   58,938     (949 (1.6)% 
  

 

  

 

   

 

    

 

  

 

   

 

  

Selling, general and administrative expense

  $61,592   $72,508    $(10,916 

Selling, general and administrative expenses

  $184,986   $202,675    $(17,689  (8.7)% 
  

 

  

 

   

 

    

 

  

 

   

 

  

 

NM — Not meaningful

Restructuring and Impairment Charges

 

  Three months ended
March 31,
           Nine months ended
September 30,
       
  2013   2012   $ Change   % Change   2013 2012   $ Change % Change 
  (Dollars in thousands)       (Dollars in thousands)   

Employee severance

  $8,170    $311    $7,859     NM    $19,647   $4,858    $14,789   NM  

Other restructuring costs

   1,284     —       1,284     100.0   7,094   —       7,094   NM  

Impairment

   (3 198,876     (198,879 NM  
  

 

   

 

   

 

     

 

  

 

   

 

  

Restructuring and impairment

  $9,454    $311    $9,143     NM  

Restructuring and impairment charges

  $26,738   $203,734    $(176,996  NM  
  

 

   

 

   

 

     

 

  

 

   

 

  

 

NM — Not meaningful

Restructuring and impairment charges increaseddecreased significantly in the first quarternine months of 2013 compared to the prior-year same period. The drivers of the increase aredecrease were the varioussignificant nonrecurring impairments of goodwill and property, plant and equipment in the third quarter of 2012, partially offset by charges related to our ongoing restructuring actions that have been takenplans during the first quarter, as well as expense incurred during the first quarter related to the disposalnine months of the leased corporate aircraft.2013.

Interest Expense

Interest expense in the first quarternine months of 2013 increased compared to the prior-year same period, primarily due to the write-off of deferred financing fees resulting from amending our revolving credit facility and the commitment amount being reduced from $350.0 million to $250.0 million.million, and reduced capitalization of interest costs resulting from an information systems tools project that did not recur in the current year. The components of interest expense are as follows:

 

  Three months ended
March 31,
       Nine months ended
September 30,
       
  2013 2012 $ Change % Change   2013 2012 $ Change   % Change 
  (Dollars in thousands)     (Dollars in thousands)     

Interest expense

  $6,226   $6,245   $(19  (0.3)%   $19,763   $19,495   $268     1.4

Amortization of bank fees

   1,075    496    579    NM     1,885   1,459   426     29.2

Interest capitalization

   (4  (367  363    (98.9)%    (614 (1,388 774     (55.8)% 
  

 

  

 

  

 

    

 

  

 

  

 

   

Interest expense

  $7,297   $6,374   $923    14.5  $21,034   $19,566   $1,468     7.5
  

 

  

 

  

 

    

 

  

 

  

 

   

NM — Not meaningful

Income Tax Expense

During the first quarter of 2013, incomeIncome tax expense for the nine months ended September 30, 2013 was $1.0$4.0 million, or 10.2%16.8% of pre-tax income. In the first three months of 2012,prior-year same period, we recorded income tax expense of $2.8$113.1 million, or 46.3%(57.3)% of pre-tax income. The decreasechange in the effective tax rate was primarily due to the resultreserve for a significant portion of differencesthe Company’s deferred tax assets, which was recorded in pre-tax loss or income in loss jurisdictions with full valuation allowances for which no tax benefit or expense is recognized.the third quarter of 2012.

Results of Operations—Segment Information

Comparison of the threenine months ended March 31,September 30, 2013 and 2012

Performance Materials

Pigments, Powders and Oxides

 

  Three months ended
March 31,
       Nine months ended
September 30,
     
  2013 2012 $ Change % Change   2013 2012 $ Change % Change 
  (Dollars in thousands)     (Dollars in thousands)   

Segment net sales excluding precious metals

  $35,505   $42,874   $(7,369  (17.2)%   $110,146   $124,429   $(14,283 (11.5)% 

Segment precious metal sales

   19,282    26,349    (7,067  (26.8)%    45,802   94,969   (49,167 (51.8)% 
  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

 

Segment net sales

   54,787    69,223    (14,436  (20.9)%    155,948    219,398    (63,450  (28.9)% 

Segment gross profit

   8,173    7,032    1,141    16.2   25,882    28,363    (2,481  (8.7)% 

Gross profit as a % of segment net sales excluding precious metals

   23.0  16.4     23.5  22.8  

Sales in Pigments, Powders and Oxides decreased primarily due to the exit of solar pastes during the first quarter of 2013, which comprised approximately $5$19 million of the decrease in net sales excluding precious metals from the prior-year same period. The decreased sales from the exit of solar pastes were partially mitigated by tolling revenue of approximately $3 million during the period related to a supply agreement entered into with the remainderbuyer of our solar pastes assets. Net sales excluding precious metals were unfavorably impacted by product mix, including the shift away from solar pastes products, and unfavorable pricing impacts, which was only partially mitigated by higher volume. The decrease in precious metal sales was driven by the exit of solar pastes. Regionally, the United States drove the decrease attributablein sales, due to reduced demand for certain pigmentsthe exit of solar pastes. Gross profit decreased from the prior-year same period primarily due to unfavorable mix, which was partially mitigated by favorable production costs and higher volume.

Performance Colors and Glass

   Nine months ended
September 30,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Segment net sales excluding precious metals

  $264,822   $256,931   $7,891    3.1

Segment precious metal sales

   33,811    37,875    (4,064  (10.7)% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Segment net sales

   298,633    294,806    3,827    1.3

Segment gross profit

   87,203    77,220    9,983    12.9

Gross profit as a % of segment net sales excluding precious metals

   32.9  30.1  

Net sales excluding precious metals increased compared to the prior-year same period, primarily driven by sales of our glass products. Gross profitSales of our glass products increased over the prior-year same period due to increased profitability of our metal powders product line,by approximately $12 million, partially offset by inventory obsolescence chargesdecreased sales of our colors products of approximately $2 million$4 million. Net sales excluding precious metals were favorably impacted by pricing and product mix, partially offset by lower volume. Regionally, Latin America, Europe and the exit of solar pastes.

Performance ColorsUnited States increased over the prior-year same period, and Glass

   Three months ended
March 31,
       
   2013  2012  $ Change  % Change 
   (Dollars in thousands)    

Segment net sales excluding precious metals

  $86,672   $87,735   $(1,063  (1.2)% 

Segment precious metal sales

   11,455    16,173    (4,718  (29.2)% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Segment net sales

   98,127    103,908    (5,781  (5.6)% 

Segment gross profit

   27,258    28,908    (1,650  (5.7)% 

Gross profit as a % of segment net sales excluding precious metals

   31.4  32.9  

Sales in Performance Colors and Glass decreased primarily due to lower volumes in our colors, container glass and dental glass product lines, partially mitigated by strong volumes in our automotive glass products.Asia Pacific was flat. Gross profit also decreasedincreased from the prior-year same period as a result of favorable pricing and production costs, partially offset by unfavorable volume and mix, as well as unfavorable pricing.mix.

Performance Coatings

 

  Three months ended
March 31,
       Nine months ended
September 30,
     
  2013 2012 $ Change % Change   2013 2012 $ Change % Change 
  (Dollars in thousands)     (Dollars in thousands)   

Segment net sales

   138,902    152,514    (13,612  (8.9)%   $445,969   $447,065   $(1,096 (0.2)% 

Segment gross profit

   28,592    30,359    (1,767  (5.8)%    100,237   85,328   14,909   17.5

Gross profit as a % of segment net sales

   20.6  19.9     22.5 19.1  

The sales decreaseSales decreased in Performance Coatings was driven by both Tile Coating Systems and Porcelain Enamel. Sales in Tile Coating Systems decreased primarily due to unfavorable pricing,lower sales of our tile colors products of approximately $16 million, which impactedwas partially mitigated by increased sales byof inks of approximately $8$11 million as a resultand other tile coating products and porcelain enamel products of significant reductions in raw material prices, as well as reduced volumes that were largely driven by the sale in 2012 of a business in Latin America that contributed to first quarter 2012 sales. Sales in Porcelain Enamel decreased by approximately $6$3 million compared to the prior-year same period, primarilyperiod. Sales were unfavorably impacted by price, partially mitigated by higher volume and mix. Regionally, Latin America was the most significant decrease, approximately $12 million, due to reduced customer demand and the impact of selling our borate mine in Argentina that contributed to Performance Coatings sales in the prior-year same period. Sales in the United States also decreased approximately $1 million compared to the prior-year same period. The decreased sales were partially mitigated by increased sales in Europe, driven by lower volumes as a resultincreased sales of continued weakness in Europe, in combination with reduced demand in North Americaboth tile and Latin America.porcelain enamel products, and Asia-Pacific, driven by increased sales of porcelain enamel products. Gross profit in Tile Coating Systems and Porcelain Enamel decreased compared toincreased from the prior-year same period primarily due to favorable raw material and production costs and higher volume, partially offset by unfavorable volume and mix.

pricing impacts.

Performance Chemicals

Polymer Additives

 

  Three months ended
March 31,
       Nine months ended
September 30,
     
  2013 2012 $ Change % Change   2013 2012 $ Change % Change 
  (Dollars in thousands)     (Dollars in thousands)   

Segment net sales

  $80,869   $87,724   $(6,855  (7.8)%   $229,266   $251,055   $(21,789 (8.7)% 

Segment gross profit

   8,854    11,439    (2,585  (22.6)%    20,616   26,871   (6,255 (23.3)% 

Gross profit as a % of segment net sales

   10.9  13.0     9.0 10.7  

Sales decreased in Polymer Additives primarily due to the continued decline in demand forsales volume of certain plasticizer products that is being driven by changing environmental regulations, as well as the weaknessregulations. Regionally, this drove a decrease in Europe.United States sales of approximately $18 million and Europe sales of approximately $5 million, which were partially mitigated by increased sales in Latin America of approximately $2 million. Gross profit decreased from the prior-year same period as a result of the declinereduced sales volume, partially offset by favorable pricing impacts, primarily in volumes and the unfavorable impact of raw material costs.Europe.

Specialty Plastics

 

  Three months ended
March 31,
       Nine months ended
September 30,
     
  2013 2012 $ Change % Change   2013 2012 $ Change % Change 
  (Dollars in thousands)     (Dollars in thousands)   

Segment net sales

  $44,839   $47,056   $(2,217  (4.7)%   $131,267   $132,512   $(1,245 (0.9)% 

Segment gross profit

   7,389    8,659    (1,270  (14.7)%    22,116   23,207   (1,091 (4.7)% 

Gross profit as a % of segment net sales

   16.5  18.4     16.8 17.5  

Sales decreased in Specialty Plastics primarily due to unfavorable product mix. Regionally, the performanceUnited States drove the majority of the decrease, approximately $5 million, which was partially mitigated by increases in the first quarter of 2012 being extraordinarily high, as a result of numerous customers adjusting inventory to normalized levels after destocking in late 2011,Europe and certain customers pre-purchasing large volumes based on commodity pricing concerns, in addition to exiting certain low profitability customers. Lower sales volumes were partially offset by favorable pricing.Latin America that totaled approximately $4 million. Gross profit also decreased from the prior-year same period, primarily due to unfavorable volumesproduction costs, unfavorable mix and sales mix, in combination with unfavorable raw materials cost.pricing impacts.

 

  Three months ended
March 31,
         Nine months ended
September 30,
       
  2013   2012   $ Change % Change   2013   2012   $ Change % Change 
  (Dollars in thousands)     (Dollars in thousands)   

Geographic Revenues

              

United States

  $174,403    $203,771    $(29,368  (14.4)%   $506,439    $586,192    $(79,753 (13.6)% 

International

   243,121     256,654     (13,533  (5.3)%    754,644     758,644     (4,000 (0.5)% 
  

 

   

 

   

 

    

 

   

 

   

 

  

Total

  $417,524    $460,425    $(42,901  (9.3)%   $1,261,083    $1,344,836    $(83,753  (6.2)% 
  

 

   

 

   

 

    

 

   

 

   

 

  

Net sales declined in the United States and international regions compared to the prior-year same period. In the first quarternine months of 2013, sales originating in the United States were 42%40% of total net sales, compared with 44% of net sales in the first quarternine months of 2012. TheApproximately $55 million of the decline in sales in the United States was primarily driven by the exit of solar pastes, in combination withincluding sales of precious metals, and approximately $18 million was due to reduced demand for certain plasticizer products.products, which is being driven by changing environmental regulations. International sales decreased approximately $12 million, primarily due to reduced sales of our Performance Coatings products in Latin America, continued weaknessreduction in demand for certain plasticizer products in Europe totaling approximately $5 million, and the impact of the exit of solar pastes on Asia-Pacific, reduced demand for certain plasticizer products that has also had a significant impact on Europe, as well as reduced demand fortotaling approximately $9 million. The declines in international regions were partially mitigated by increased sales of our Performance Coatings and Specialty Plastics products in bothEurope, totaling approximately $12 million, container glass products sales in Latin America of approximately $6 million, and Europe.

Performance Coatings products sales in Asia-Pacific of approximately $2 million.

Summary of Cash Flows for the threenine months ended March 31,September 30, 2013 and 2012

 

  Three months ended
March 31,
     Nine months ended
September 30,
   
  2013 2012 $ Change   2013 2012 $ Change 
  (Dollars in thousands)   (Dollars in thousands) 

Net cash used for operating activities

   (17,106  (10,975  (6,131

Net cash provided by operating activities

   3,003   19,536   (16,533

Net cash provided by (used for) investing activities

   24,962    (22,211  47,173     12,878   (43,763 56,641  

Net cash (used for) provided by financing activities

   (4,187  33,489    (37,676   (9,664 26,072   (35,736

Effect of exchange rate changes on cash and cash equivalents

   (348  (23  (325   60   (19 79  
  

 

  

 

  

 

   

 

  

 

  

 

 

Increase in cash and cash equivalents

  $3,321   $280   $3,041    $6,277   $1,826   $4,451  
  

 

  

 

  

 

   

 

  

 

  

 

 

Details of net cash used forprovided by operating activities were as follows:

 

  Three months ended
March 31,
     Nine months ended
September 30,
   
  2013 2012 $ Change   2013 2012 $ Change 
  (Dollars in thousands)   (Dollars in thousands) 

Cash flows from operating activities:

        

Net income

  $520   $3,970   $(3,450

Gain on sale of assets and business

   (10,895  (208  (10,687

Net income (loss)

  $11,582   $(309,562 $321,144  

(Gain) loss on sale of assets and business

   (10,686 1,018   (11,704

Restructuring and impairment charges

   1,859    (159  2,018     4,355   311,084   (306,729

Depreciation and amortization

   13,264    13,879    (615   38,000   41,734   (3,734

Accounts receivable

   (13,946  (33,733  19,787     (23,079 (23,006 (73

Inventories

   (6,095  (11,929  5,834     12,118   15,637   (3,519

Accounts payable

   8,233    11,554    (3,321   (5,864 (4,254 (1,610

Other changes in current assets and liabilities, net

   (13,579  14,404    (27,983   (8,363 7,814   (16,177

Other adjustments, net

   3,533    (8,753  12,286     (15,060 (20,929 5,869  
  

 

  

 

  

 

   

 

  

 

  

 

 

Net cash used for operating activities

  $(17,106 $(10,975 $(6,131

Net cash provided by operating activities

  $3,003   $19,536   $(16,533
  

 

  

 

  

 

   

 

  

 

  

 

 

Cash flows from operating activities.Cash flows from operating activities decreased by $6.1$16.5 million in the first threenine months of 2013 compared with the prior-year same period. The decrease in cash flows was primarily the result of increased cash outflows related to our restructuring activities of $7.6$22.4 million during the first threenine months of 2013. Reconciling net income to cash flows from operating activities included approximately $1.9$4.4 million of non-cash restructuring charges, depreciation and amortization, as well as the net financial statement impact of the sale of solar assets and Ferro Pfansteihl Laboratories, Inc. (“FPL”). Approximately $12.3$25.5 million in interest was paid during the current quarteryear compared to $12.1$25.3 million in the first threenine months of 2012. Interest payments were primarily comprised of semiannual interest on our outstanding senior notes. Accounts receivable and inventoriesInventories increased from year end, but less than the increase in the prior-year same period, which is primarily the result of decreased sales compared to the prior-year, as well as stronger inventory management. The increase in accounts receivables from year end is consistent with that seen in the first nine months of 2012.

Cash flows from investing activities.Cash flows from investing activities increased $47.2$56.6 million in the first threenine months of 2013 compared with the prior-year same period. Cash received for the sale of solar assets and FPL, totaling $27.7 million, comprised the majority of the increase. Capital expenditures decreased to $8.2$21.2 million in the first threenine months of 2013 from $22.6$46.2 million in the prior-year samefor the comparable period.

Cash flows from financing activities. Cash flows from financing activities decreased $37.7$35.7 million in the first threenine months of 2013 compared with the prior-year same period. In the first threenine months of 2013, we reducedincreased borrowings under our domestic accounts receivable asset securitization program by $10.0$8 million and increased borrowings through our revolving credit facility by $4.0$16.9 million. The additional borrowings from the credit facility were used primarily to fund the extinguishment of our 6.50% convertible senior notes which matured during the third quarter. In the first quarternine months of 2012, we borrowed $30.0$20.0 million through our domestic accounts receivable asset securitization program and $2.2$3.2 million through our revolving credit facility.

Capital Resources and Liquidity

7.875% Senior Notes

The 7.875% Senior Notes (the “Senior Notes”) were issued in 2010 at par, bear interest at a rate of 7.875% per year, payable semi-annually in arrears on February 15th and August 15th, and mature on August 15, 2018. The principal amount outstanding was $250.0 million at March 31,September 30, 2013, and December 31, 2012. Through August 15, 2013, we may redeem up to 35% of the Senior Notes at a price equal to 107.875% of the principal amount using proceeds of certain equity offerings. We may also redeem some or all of the Senior Notes prior to August 15, 2014, at a price equal to the principal amount plus a defined applicable premium. The applicable premium on any redemption date is the greater of 1% of the principal amount of the note or the excess of (1) the present value at such redemption date of the redemption price of the note at August 15, 2014, plus all required interest payments due on the note through August 15, 2014, computed using a discount rate equal to the Treasury Rate as of the redemption date plus 50 basis points; over (2) the principal amount of the note. In addition, we may redeem some or all of the Senior Notes beginning August 15, 2014, at prices ranging from 100% to 103.938% of the principal amount.

The Senior Notes are unsecured obligations and rank equally in right of payment with any other unsecured, unsubordinated obligations. The Senior Notes contain certain affirmative and negative covenants customary for high-yield debt securities, including, but not limited to, restrictions on our ability to incur additional debt, create liens, pay dividends or make other distributions or repurchase our common stock and sell assets outside the ordinary course of business. At March 31,September 30, 2013, we were in compliance with the covenants under the Senior Notes’ indenture.

6.5%6.50% Convertible Senior Notes

The 6.5%6.50% Convertible Senior Notes (the “Convertible Notes”) were issued in 2008, bear interestrepaid at a rate of 6.5% per year, payable semi-annually in arrears on February 15th and August 15th, and maturematurity on August 15, 2013. We separately account for the liability and equity components of the Convertible Notes in a manner that, when interest cost is recognized in subsequent periods, will reflect our nonconvertible debt borrowing rate at the time the Convertible Notes were issued. The effective interest rate on the liability component is 9.5%. Under certain circumstances, holders of the Convertible Notes may convert their notes prior to maturity. The Convertible Notes are unsecured obligations and rank equally in right of payment with any other unsecured, unsubordinated obligations. The principal amount outstanding at maturity was $35.1 million at March 31, 2013, and $35.1 million at December 31, 2012. At March 31, 2013, we were in compliance with the covenants under the Convertible Notes’ indenture.million.

Revolving Credit Facility

In 2010, we entered into the Third Amended and Restated Credit Agreement with a group of lenders for a five-year, $350 million multi-currency senior revolving credit facility (the “2010 Credit Facility”). In March 2013, we amended the 2010 Credit Facility (the “2013 Amended Credit Facility”) to provide additional operating flexibility. The primary effects of the 2013 Amended Credit Facility were to:

 

Decrease the Revolving Loan Commitment Amount from $350.0 million to $250.0 million;

 

Amend the calculation of EBITDA to provide for a restructuring expense add-back attributable to the Company’s restructuring programs of $30.0 million in 2013, $20.0 million in 2014 and $10.0 million in 2015, with no aggregate limit on restructuring expense;

 

Increase the maximum permitted leverage ratio such that for (i) the first, second and third quarters of 2013, it shall increase from 3.50 to 4.25; (ii) the fourth quarter of 2013 and first quarter of 2014, it shall increase from 3.50 to 4.00; (iii) the second and third quarters of 2014, it shall increase from 3.50 to 3.75; and (iv) the fourth quarter of 2014 and thereafter, it will be 3.50; and

 

Amend the requirements for Permitted Acquisitions such that for the Company to consummate a Permitted Acquisition the Company must have minimum liquidity of $100.0 million and the Company’s Secured Leverage Ratio must be less than 1.50.

The 2013 Amended Credit Facility matures on August 24, 2015, and is secured by substantially all of Ferro’s assets. After reductions for outstanding letters of credit, we had $239.2$225.0 million of additional borrowings available at March 31,September 30, 2013. The interest rate under the 2013 Amended Credit Facility is the sum of (A) either (1) LIBOR or (2) the higher of the Federal Funds Rate plus 0.5%, the Prime Rate, or LIBOR plus 1.0% and (B) a variable margin based on the Company’s leverage. At March 31,September 30, 2013, the interest rate was 3.7%3.4%.

Under the 2013 Amended Credit Facility, we are subject to a number of financial covenants, including limitations on the payment of common stock dividends. At March 31,September 30, 2013, we were in compliance with the covenants of the 2013 Amended Credit Facility.

Domestic Receivable Sales Programs

We have an asset securitization program for Ferro’s U.S. trade accounts receivable. We sell interests in our domestic receivables to various purchasers, and we may obtain up to $50.0 million in the form of cash or letters of credit. Advances received under this program are accounted for as borrowings secured by the receivables and included in net cash provided by financing activities. In 2012,the second quarter of 2013, we extended the maturity of this credit facility through May 2013. The Company intends to renew or replace this program prior to its scheduled expiration; however, there can be no assurances that the company will be able to do so.2014. At March 31,September 30, 2013, advances received of $30.0$48.0 million were secured by $88.2$77.6 million of accounts receivable, and based on available and qualifying receivables, $20.0$2.0 million of additional borrowings were available under the program. At December 31, 2012, we had borrowed $40.0 million under this facility. During the third quarter of 2013 we amended the agreement. The interest rate under this programthe amended agreement is the sum of (A) either (1) commercial paper rates, (2) LIBOR rates or (3)(2) the federal funds rate plus 0.5% or the prime rate and (B) a fixed margin. At March 31,September 30, 2013, the interest rate was 0.6%.

International Receivable Sales Programs

We have several international programs to sell with recourse trade accounts receivable to financial institutions. Advances received under these programs are accounted for as borrowings secured by the receivables and included in net cash provided by financing activities. At March 31,September 30, 2013, commitments supporting these programs totaled $17.9$18.9 million, advances received of $5.5$5.6 million were secured by $8.3$8.7 million of accounts receivable, and based on available and qualifying receivables, $0.3$0.2 million of additional borrowings were available under the programs. At December 31, 2012, we had borrowed $6.1 million under this facility. The interest rates under these programs are based on EURIBOR rates plus 1.75%. At March 31,September 30, 2013, the weighted-average interest rate was 1.9%.

Off Balance Sheet Arrangements

Consignment Arrangements for Precious Metals. In the production of some of our products, we use precious metals, some of 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. We had on hand precious metals owned by participants in our precious metals program of $93.4$89.5 million at March 31,September 30, 2013, and $112.2 million at December 31, 2012, measured at fair value based on market prices for identical assets and net of credits. On occasion, we have been required to deliver cash collateral. While no deposits were outstanding at March 31,September 30, 2013, or December 31, 2012, 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.

Cash and Cash Equivalents

As of September 30, 2013, we had $35.9 million of cash and cash equivalents, of which $35.6 million was held in foreign countries. Cash generated in the U.S. is generally used to pay down amounts outstanding under our revolving credit facility. If needed, we could repatriate the majority of foreign cash 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.

Liquidity Requirements

Our liquidity requirements primarily include debt service, purchase commitments, labor costs, working capital requirements, restructuring expenditures, capital investments, 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 from operating activities are primarily driven by earnings before noncash charges and changes in working capital needs. We had additional borrowing capacity of $277.5$238.5 million at March 31,September 30, 2013, and $361.5 million at December 31, 2012, available under various credit facilities, primarily our revolving credit facility. We have taken a variety of actions to enhance liquidity and to ensure short-term covenant compliance, including ongoing restructuring activities, suspension of dividend payments on our common stock in 2009, and the sale of assets related to our solar pastes product line in 2013.

Our credit facilities and the indenture governing our senior notes contain a number of restrictive covenants, including those described in more detail in Note 6 to the consolidated financial statements under Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2012. These covenants include customary operating restrictions that limit our ability to engage in certain activities, including additional loans and investments; prepayments, redemptions and repurchases of debt; and mergers, acquisitions and asset sales. We are also subject to customary financial covenants under our credit facilities, including a leverage ratio and an interest coverage ratio. These covenants under our credit facilities restrict the amount of our borrowings, reducing our flexibility to fund ongoing operations and strategic initiatives. These facilities and our senior notes are described in more detail in “Capital Resources and Liquidity” under Item 7 and in Note 6 to the consolidated financial statements under Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2012.

We may from time to time seek to retire or repurchase our outstanding debt through open market purchases, privately negotiated transactions, or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.

Difficulties experienced in global capital markets could affect the ability or willingness of counterparties to perform under our various lines of credit, receivable sales programs, forward contracts, and precious metals program. These counterparties are major, reputable, multinational institutions, all having investment-grade credit ratings, except for one, which is not rated. 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. A reduced forecast for our solar pastes sales and a diminished outlook for our future opportunities in the solar market led to our decision to sell assets related to our solar pastes product line in 2013. 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 definitive agreements relating to those transactions.

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, 2012.

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 I of our Annual Report on Form 10-K for the year ended December 31, 2012.

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. 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 that offset these gains and losses.

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

 

  March 31,
2013
 December 31,
2012
   September 30,
2013
 December 31,
2012
 
  (Dollars in thousands)   (Dollars in thousands) 

Variable-rate debt and utilization of accounts receivable sales programs:

      

Change in annual interest expense from 1% change in interest rates

  $453   $543    $763   $543  

Fixed-rate debt:

      

Carrying amount

   289,289    289,148     255,421   289,148  

Fair value

   300,631    270,240     267,011   270,240  

Change in fair value from 1% increase in interest rates

   (11,227  (10,113   (10,324 (10,113

Change in fair value from 1% decrease in interest rates

   11,846    10,668     10,844   10,668  

Foreign currency forward contracts:

      

Notional amount

   249,074    250,680     231,342   250,680  

Carrying amount and fair value

   2,715    (4,758   (2,467 (4,758

Change in fair value from 10% appreciation of U.S. dollar

   12,880    13,205     11,455   13,205  

Change in fair value from 10% depreciation of U.S. dollar

   (15,742  (16,140   (14,000 (16,140

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 March 31,September 30, 2013, 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 March 31,September 30, 2013.

Changes in Internal Control over Financial Reporting

During the firstthird quarter of 2013, 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.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

There are various lawsuits and claims pending against the Company and its consolidated subsidiaries. We do not currently expect the ultimate liabilities, if any, and expenses related to such lawsuits and claims to materially affect the consolidated financial position, results of operations, or cash flows of the Company.

Litigation Related to A. Schulman, Inc.’s Proposal to Acquire All Outstanding Shares of the Company—On March 29, 2013, a purported shareholder of the Company filed a putative shareholder derivative and class action lawsuit in the Cuyahoga County, Ohio, Court of Common Pleas (Turberg v. Lawrence et al., No. 13-CV-803886), and on April 9, 2013, a purported shareholder of the Company filed a substantially similar putative shareholder derivative and class action lawsuit in the United States District Court for the Northern District of Ohio (Raul v. Hipple et al., No. 1:13-cv-00783). Both complaints assert claims on behalf of the Company and the Company’s common shareholders and allege, among other things, that members of the Company’s current Board of Directors violated their fiduciary duties. The complaints relate generally to the proposal by A. Schulman, Inc. publicized on March 4, 2013 to acquire all outstanding common shares of the Company and the Board’s response to that proposal. Both actions seek a declaration that the Board violated its fiduciary duties, an injunction against the Board initiating defensive measures to prevent an acquisition, other declaratory and equitable relief, and attorneys’ fees.

The defendant directors believe the allegations against them lack merit and intend to defend the lawsuits vigorously. Because these proceedings are at the preliminary stages of litigation, their outcome cannot be predicted at this time.

Item 1A. Risk Factors

There were no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

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

Our ability to pay common stock dividends is limited by certain covenants in our 2010 Credit Facility, as amended, and the bond indenture governing the Senior Notes. The covenant in our 2010 Credit Facility, as amended, is the more limiting of the two covenants and is described under the Revolving Credit Facility in Note 6 within Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The following table summarizes purchases of our common stock by the Company and affiliated purchasers during the three months ended March 31,September 30, 2013:

 

   Total Number of
Shares
Purchased (1)
   Average Price
Paid per Share
   Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
   Maximum
Number of
Shares that May
Yet Be
Purchased
Under the Plans
or Programs
 
   (In thousands, except for per share amounts) 

January 1, 2013 to January 31, 2013

   —      $—       —       —    

February 1, 2013 to February 28, 2013

   16     5.58     —       —    

March 1, 2013 to March 31, 2013

   —       —       —       —    
  

 

 

     

 

 

   

Total

   16       —      
  

 

 

     

 

 

   
Total Number
of Shares
Purchased(1)
Average Price
Paid per Share
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
(In thousands, except for per share amounts)

July 1, 2013 to July 31, 2013

—  $—  —  —  

August 1, 2013 to August 31, 2013

—  —  —  —  

September 1, 2013 to September 30, 2013

—  —  —  —  

Total

—  —  

 

(1) 

Consists of shares of common stock surrendered by employees to meet minimum tax withholding obligations under current and previous long-term incentive plans.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

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.

SIGNATURES

Pursuant to the requirements of the Securities 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: April 24,October 23, 2013  
  

/s/ Peter T. Thomas

  

  Peter T. Thomas
  

Interim President and Chief Executive Officer

(Principal Executive Officer)

Date: April 24,October 23, 2013  
  

/s/ Jeffrey L. Rutherford

  

  Jeffrey L. Rutherford
  

Vice President and Chief Financial Officer

(Principal Financial Officer)

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:

 

Exhibit:
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 14, 2011 (incorporated by reference to Exhibit 3.1 to Ferro Corporation’s Current Report on Form 8-K, filed October 17, 2011).
3.5  Ferro Corporation Amended and Restated Code of Regulations (incorporated by reference to Exhibit 3.13.5 to Ferro Corporation’s CurrentQuarterly Report on Form 8-K, filed December 14, 2011).10-Q for the quarter ended June 30, 2013.)
4  Instruments defining rights of security holders, including indentures:
4.1  Senior Indenture, dated as of March 5, 2008, by and between Ferro Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.5 to Ferro Corporation’s Registration Statement on Form S-3, filed March 5, 2008).
4.2  First Supplemental Indenture, dated August 19, 2008, by and between Ferro Corporation and U.S. Bank National Association (with Form of 6.50% Convertible Senior Note due 2013) (incorporated by reference to Exhibit 4.2 to Ferro Corporation’s Current Report on Form 8-K, filed August 19, 2008).
4.3  Form of Indenture, by and between Ferro Corporation and Wilmington Trust FSB (incorporated by reference to Exhibit 4.1 to Ferro Corporation’s Registration Statement on Form S-3ASR, filed July 27, 2010).
4.4  First Supplemental Indenture, dated August 24, 2010, by and between Ferro Corporation and Wilmington Trust FSB (with Form of 7.875% Senior Notes due 2018) (incorporated by reference to Exhibit 4.1 to Ferro Corporation’s Current Report on Form 8-K, filed August 24, 2010).
  The Company agrees, upon request, to furnish to the U.S. Securities and Exchange Commission a copy of any instrument authorizing long-term debt that does not authorize debt in excess of 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
10  Material Contracts:
10.1  Third Amendment to Third Amended and Restated Credit Agreement, dated March 28, 2013, by and among Ferro Corporation, certain of Ferro Corporation’s subsidiaries, PNC Bank, National Association, as the Administrative Agent and the Collateral Agent, and various financial institutions as Lenders (incorporated by reference to Exhibit 10.1 to Ferro Corporation’s Current Report on Form 8-K, filed March 28, 2013).
10.2SecondFourth Amendment to Amended and Restated Receivables Purchase Agreement, dated as of September 20, 2013, by and among Ferro Finance Corporation, Ferro Corporation, Market Street Funding LLC and PNC Bank, National Association, as Agent and LC Bank (incorporated by reference to Exhibit 10.1 to Ferro Corporation’s Current Report on Form 8-K, filed March 29, 2013).
10.3Second Amendment to Purchase and Contribution Agreement by and between Ferro Corporation and Ferro Finance Corporation (incorporated by reference to Exhibit 10.2 to Ferro Corporation’s Current Report on Form 8-K, filed March 29, 2013).
10.4Termination Agreement by and between Ferro Corporation and Ferro Pfanstiehl Laboratories Inc. (incorporated by reference to Exhibit 10.3 to Ferro Corporation’s Current Report on Form 8-K, filed March 29, 2013).
10.5Change in Control Agreement, dated March 22, 2013, between Peter T. Thomas and Ferro Corporation.*Market Street Funding LLC.
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.

Exhibit:

Exhibit:
101  XBRL Documents:
101.INS  XBRL Instance Document**
101.SCH  XBRL Schema Document**
101.CAL  XBRL Calculation Linkbase Document**
101.LAB  XBRL Labels Linkbase Document**
101.PRE  XBRL Presentation Linkbase Document**
101.DEF  XBRL Definition Linkbase Document**

 

*Indicates management contract or compensatory plan, contract or arrangement in which one or more Directors and/or executives of Ferro Corporation may be participants.
**In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.

 

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