8Mag

Mag

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~June 30, 2016~~March 31, 2017


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ 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 ☒ 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 or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~


Large accelerated filer	☒		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐
			Emerging growth company	☐

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

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

At ~~June 30, 2016,~~March 31, 2017, there were ~~83,228,350~~83,633,794 shares of Ferro Common Stock, par value $1.00, outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I
Item 1. Financial Statements (Unaudited)	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2422
Item 3. Quantitative and Qualitative Disclosures about Market Risk	4032
Item 4. Controls and Procedures	4133
PART II
Item 1. Legal Proceedings	4234
Item 1A. Risk Factors	4234
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4234
Item 3. Defaults Upon Senior Securities	4234
Item 4. Mine Safety Disclosures	4234
Item 5. Other Information	4234
Item 6. Exhibits	4234

Exhibit 10.4
Exhibit 10.5
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Operations



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2016		2015		2016		2015		2017		2016
	(Dollars in thousands, except per share amounts)								(Dollars in thousands, except per share amounts)
Net sales	$	297,977	$	268,214	$	575,428	$	530,986	$	320,555	$	277,451
Cost of sales		199,604		190,574		392,826		382,711		221,761		193,222
Gross profit		98,373		77,640		182,602		148,275		98,794		84,229
Selling, general and administrative expenses		57,871		52,695		110,517		102,151		58,958		52,646
Restructuring and impairment charges		787		1,116		1,668		1,625		3,018		881
Other expense (income):
Interest expense		5,428		3,110		10,275		6,260		6,224		4,847
Interest earned		(115)		(57)		(200)		(94)		(180)		(85)
Foreign currency losses, net		389		2,827		2,000		4,555
Miscellaneous expense (income), net		669		(161)		(2,784)		238
Foreign currency (gains) losses, net										(314)		1,611
Loss on extinguishment of debt										3,905		—
Miscellaneous income, net										(2,076)		(3,453)
Income before income taxes		33,344		18,110		61,126		33,540		29,259		27,782
Income tax expense		8,484		5,679		16,502		8,138		7,138		8,018
Income from continuing operations		24,860		12,431		44,624		25,402		22,121		19,764
(Loss) from discontinued operations, net of income taxes		(5,748)		(5,646)		(35,242)		(9,602)
Net income		19,112		6,785		9,382		15,800
Less: Net income (loss) attributable to noncontrolling interests		143		186		379		(1,769)
Net income attributable to Ferro Corporation common shareholders	$	18,969	$	6,599	$	9,003	$	17,569
Loss from discontinued operations, net of income taxes										—		(29,494)
Net income (loss)										22,121		(9,730)
Less: Net income attributable to noncontrolling interests										223		236
Net income (loss) attributable to Ferro Corporation common shareholders									$	21,898	$	(9,966)
Earnings (loss) per share attributable to Ferro Corporation common shareholders:
Basic earnings (loss):
Continuing operations	$	0.30	$	0.14	$	0.53	$	0.31	$	0.26	$	0.23
Discontinued operations		(0.07)		(0.06)		(0.42)		(0.11)		—		(0.35)
	$	0.23	$	0.08	$	0.11	$	0.20	$	0.26	$	(0.12)
Diluted earnings (loss):
Continuing operations	$	0.29	$	0.14	$	0.53	$	0.31	$	0.26	$	0.23
Discontinued operations		(0.07)		(0.06)		(0.42)		(0.11)		—		(0.35)
	$	0.22	$	0.08	$	0.11	$	0.20	$	0.26	$	(0.12)

See accompanying notes to condensed consolidated financial statements.

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Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

(Dollars in thousands)
Net income

$
19,112

$
6,785

$
9,382

$
15,800
Other comprehensive income (loss), net of income tax:

Foreign currency translation (loss) income

(3,269)

9,407

(4,947)

(28,389)
Postretirement benefit liabilities gain (loss)

27

(18)

295

(2)
Other comprehensive (loss) income, net of income tax

(3,242)

9,389

(4,652)

(28,391)
Total comprehensive income (loss)

15,870

16,174

4,730

(12,591)
Less: Comprehensive (loss) income attributable to noncontrolling interests

(9)

185

259

(2,908)
Comprehensive income (loss) attributable to Ferro Corporation

$
15,879

$
15,989

$
4,471

$
(9,683)



	Three Months Ended
	March 31,
	2017		2016
	(Dollars in thousands)
Net income (loss)	$	22,121	$	(9,730)
Other comprehensive income (loss), net of income tax:
Foreign currency translation income (loss)		7,211		(1,678)
Postretirement benefit liabilities (loss) gain		(4)		268
Other comprehensive income (loss), net of income tax		7,207		(1,410)
Total comprehensive income (loss)		29,328		(11,140)
Less: Comprehensive income attributable to noncontrolling interests		263		268
Comprehensive income (loss) attributable to Ferro Corporation	$	29,065	$	(11,408)

See accompanying notes to condensed consolidated financial statements.

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Ferro Corporation and Subsidiaries

Condensed Consolidated Balance Sheets



		June 30,		December 31,			March 31,		December 31,
		2016		2015			2017		2016
		(Dollars in thousands)					(Dollars in thousands)
ASSETS	ASSETS					ASSETS
Current assets
Cash and cash equivalents		$	49,416	$	58,380		$	92,829	$	45,582
Accounts receivable, net			278,931		231,970			289,476		259,687
Inventories			207,299		184,854			250,590		229,847
Deferred income taxes			—		12,088
Other receivables			32,008		34,088			38,280		37,814
Other current assets			15,479		15,695			10,183		9,087
Current assets held-for-sale			18,648		16,215
Total current assets			601,781		553,290			681,358		582,017
Other assets
Property, plant and equipment, net			252,548		260,429			257,993		262,026
Goodwill			141,162		145,669			148,203		148,296
Intangible assets, net			110,493		106,633			136,030		137,850
Deferred income taxes			100,126		87,385			109,555		106,454
Other non-current assets			48,206		48,767			51,094		47,126
Non-current assets held-for-sale			370		23,178
Total assets		$	1,254,686	$	1,225,351		$	1,384,233	$	1,283,769
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities
Loans payable and current portion of long-term debt		$	10,451	$	7,446		$	16,632	$	17,310
Accounts payable			129,946		120,380			139,880		127,655
Accrued payrolls			28,713		28,584			29,858		35,859
Accrued expenses and other current liabilities			60,525		54,664			70,433		65,203
Current liabilities held-for-sale			4,165		7,156
Total current liabilities			233,800		218,230			256,803		246,027
Other liabilities
Long-term debt, less current portion			485,436		466,108			618,335		557,175
Postretirement and pension liabilities			147,820		148,249			163,279		162,941
Other non-current liabilities			65,080		66,990			59,489		62,594
Non-current liabilities held-for-sale			1,643		1,493
Total liabilities			933,779		901,070			1,097,906		1,028,737
Equity
Ferro Corporation shareholders’ equity:
Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 83.2 million and 84.0 million shares outstanding at June 30, 2016, and December 31, 2015, respectively			93,436		93,436
Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 83.6 million and 83.4 million shares outstanding at March 31, 2017, and December 31, 2016, respectively								93,436		93,436
Paid-in capital			307,059		314,854			303,304		306,566
Retained earnings			144,510		135,507			136,588		114,690
Accumulated other comprehensive loss			(65,850)		(61,318)			(99,476)		(106,643)
Common shares in treasury, at cost			(166,329)		(166,020)			(155,707)		(160,936)
Total Ferro Corporation shareholders’ equity			312,826		316,459			278,145		247,113
Noncontrolling interests			8,081		7,822			8,182		7,919
Total equity			320,907		324,281			286,327		255,032
Total liabilities and equity		$	1,254,686	$	1,225,351		$	1,384,233	$	1,283,769

See accompanying notes to condensed consolidated financial statements.

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Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

Ferro Corporation Shareholders

Common Shares

Accumulated

in Treasury

Other

Non-

Common

Paid-in

Retained

Comprehensive

controlling

Total

Shares

Amount

Stock

Capital

Earnings

(Loss)

Interests

Equity

(Dollars in thousands)
Balances at December 31, 2014

6,445

$
(136,058)

$
93,436

$
317,404

$
71,407

$
(21,805)

$
11,632

$
336,016
Net income (loss)

—

—

—

—

17,569

—

(1,769)

15,800
Other comprehensive (loss)

—

—

—

—

—

(27,252)

(1,139)

(28,391)
Stock-based compensation transactions

(280)

8,003

—

(3,310)

—

—

—

4,693
Balances at June 30, 2015

6,165

(128,055)

93,436

314,094

88,976

(49,057)

8,724

328,118

Balances at December 31, 2015

9,431

(166,020)

93,436

314,854

135,507

(61,318)

7,822

324,281
Net income

—

—

—

—

9,003

—

379

9,382
Other comprehensive (loss)

—

—

—

—

—

(4,532)

(120)

(4,652)
Purchase of treasury stock

1,175

(11,429)

—

—

—

—

—

(11,429)
Stock-based compensation transactions

(399)

11,120

—

(7,795)

—

—

—

3,325
Balances at June 30, 2016

10,207

$
(166,329)

$
93,436

$
307,059

$
144,510

$
(65,850)

$
8,081

$
320,907



	Ferro Corporation Shareholders
	Common Shares									Accumulated
	in Treasury									Other		Non-
				Common		Paid-in		Retained		Comprehensive		controlling		Total
	Shares	Amount		Stock		Capital		Earnings		(Loss)		Interests		Equity
	(In thousands)
Balances at December 31, 2015	9,431	$	(166,020)	$	93,436	$	314,854	$	135,507	$	(61,318)	$	7,822	$	324,281
Net (loss) income	—		—		—		—		(9,966)		—		236		(9,730)
Other comprehensive (loss) income	—		—		—		—		—		(1,442)		32		(1,410)
Purchase of treasury stock	1,175		(11,429)		—		—		—		—		—		(11,429)
Stock-based compensation transactions	(352)		9,858		—		(8,030)		—		—		—		1,828
Balances at March 31, 2016	10,254		(167,591)		93,436		306,824		125,541		(62,760)		8,090		303,540

Balances at December 31, 2016	9,996		(160,936)		93,436		306,566		114,690		(106,643)		7,919		255,032
Net income	—		—		—		—		21,898		—		223		22,121
Other comprehensive income	—		—		—		—		—		7,167		40		7,207
Stock-based compensation transactions	(195)		5,229		—		(3,262)		—		—		—		1,967
Balances at March 31, 2017	9,801	$	(155,707)	$	93,436	$	303,304	$	136,588	$	(99,476)	$	8,182	$	286,327

See accompanying notes to condensed consolidated financial statements.

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Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows



	Six Months Ended				Three Months Ended
	June 30,				March 31,
	2016		2015		2017		2016
	(Dollars in thousands)				(Dollars in thousands)
Cash flows from operating activities
Net cash (used in) provided by operating activities	$	(1,975)	$	3,934
Net cash provided by (used in) operating activities					$	1,630	$	(10,161)
Cash flows from investing activities
Capital expenditures for property, plant and equipment and other long lived assets		(14,044)		(26,554)		(6,766)		(7,365)
Proceeds from sale of assets		3,597		125		2		3,586
Business acquisitions, net of cash acquired		(6,639)		(5,479)		—		(7,909)
Net cash (used in) investing activities		(17,086)		(31,908)
Net cash used in investing activities						(6,764)		(11,688)
Cash flows from financing activities
Net borrowings (repayments) under loans payable		3,031		(931)
Proceeds from revolving credit facility		163,516		105,000
Principal payments on revolving credit facility		(92,706)		—
Principal payments on term loan facility		(51,500)		(1,500)
Net (repayments) borrowings under loans payable						(3,985)		3,561
Proceeds from revolving credit facility, maturing 2019						15,628		117,834
Principal payments on revolving credit facility, maturing 2019						(327,183)		(40,212)
Proceeds from term loan facility, maturing 2024						623,827		—
Principal payments on term loan facility, maturing 2021						(243,250)		(50,750)
Payment of debt issuance costs		(301)		—		(12,712)		(301)
Purchase of treasury stock		(11,429)		—		—		(11,429)
Other financing activities		211		(181)		(390)		497
Net cash provided by financing activities		10,822		102,388		51,935		19,200
Effect of exchange rate changes on cash and cash equivalents		(725)		(3,501)		446		134
(Decrease) increase in cash and cash equivalents		(8,964)		70,913
Increase (decrease) in cash and cash equivalents						47,247		(2,515)
Cash and cash equivalents at beginning of period		58,380		140,500		45,582		58,380
Cash and cash equivalents at end of period	$	49,416	$	211,413	$	92,829	$	55,865
Cash paid during the period for:
Interest	$	9,283	$	7,045	$	6,535	$	4,763
Income taxes	$	7,432	$	9,482	$	4,097	$	2,669

See accompanying notes to condensed consolidated financial statements.

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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, ~~2015.~~2016.

~~The Company owned 51% of an operating affiliate~~As discussed in ~~Venezuela that was a consolidated subsidiary of Ferro. During~~Note 3, in the ~~fourth~~third quarter of ~~2015,~~2016, we ~~sold our interest in~~completed the operating affiliate in Venezuela for a cash purchase price of $0.5 million. During the first quarter of 2015, the Ministry of Economy, Finance, and Public Banking, and the Central Bank of Venezuela published a new exchange rate, the Foreign Exchange Marginal System (“SIMADI”). We concluded in March 2015 that SIMADI was the most relevant exchange mechanism available, and began using SIMADI to translate the local currency financial statements. As a result of the revaluation, we recognized a $1.9 million foreign currency loss and a $2.6 million loss due to lower of cost or market charges against our inventory, prior to the adjustment for losses allocated to our noncontrolling interest partner, which is recorded within Foreign currency losses, net and Cost of sales, respectively, within our condensed consolidated statement of operations for the six months ended June 30, 2015.

~~During the second quarter of 2014, substantially all of the assets and liabilities~~disposition of the Europe-based Polymer Additives business ~~were classified as held-for-sale. As further discussed in Note 3, we have classified the assets and liabilities as held-for-sale in the accompanying condensed consolidated balance sheets~~ and have classified the related operating results, net of income tax, as discontinued operations in the accompanying condensed consolidated statements of operations for ~~all periods presented.~~the three months ended March 31, 2016.

During the first quarter of 2017, the Company renamed the Pigments, Powders and Oxides segment “Color Solutions” to align with our go-to-market strategy.

Operating results for the three ~~and six~~ months ended ~~June 30, 2016,~~March 31, 2017, are not necessarily indicative of the results expected in subsequent quarters or for the full year ending December 31, ~~2016.~~2017.

2. Recent Accounting Pronouncements

Recently Adopted Accounting Standards ~~Adopted in the period ended June 30, 2016~~

In ~~November 2015,~~March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2015-17,~~ ~~Income Taxes: Topic 740: Balance Sheet Classification of Deferred Taxes~~. ASU 2015-17 requires deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position. During the second quarter of 2016, we elected to prospectively adopt ASU 2015-17, thus reclassifying current deferred tax assets to noncurrent on the accompanying condensed consolidated balance sheets as of June 30, 2016. The prior reporting period was not retrospectively adjusted. Other than this reclassification, the adoption of ASU 2015-17 did not have an impact on the Company’s condensed consolidated financial statements.

~~NewAccounting Standards~~

~~In March 2016, the FASB issued ASU~~ 2016-09, Compensation – Stock Compensation: ~~Topic 718:~~(Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This new guidance requires all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled. Cash flow related to excess tax benefits will no longer be classified as a financing activity on the statement of cash flows but will be presented with all other income tax cash flows as an operating activity. The new guidance also provides an accounting policy election to account for forfeitures as they occur. Finally, the updated standard also allows the Company to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and clarifies that all cash tax payments made on an employee’s behalf for withheld shares should be presented as financing activities on the statement of cash flows.

The Company adopted ASU 2016-09, in the first quarter of 2017. As a result of the adoption, tax benefits of $0.3 million were recorded in income tax expense. The Company has elected to account for forfeitures as they occur. In addition, the Company elected to apply the presentation requirements for cash flows related to excess tax benefits prospectively. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact on the statements of cash flows since the Company has historically presented such payments as financing activities.

NewAccounting Standards

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits: (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs. ASU 2017-07 requires that an employer report the service cost component in the same line item as other compensation costs arising from services rendered during the period. The other components of net benefit costs are to be presented in the income statement separately from the service costs component and outside a

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subtotal of income from operations. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. This pronouncement is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 is intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This pronouncement is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations: (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or dispositions) of assets or businesses. This pronouncement is effective for the annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes: (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory and requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This pronouncement is effective for the annual periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow: (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 is intended to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. This pronouncement is effective for fiscal years beginning after December 15, 2017, and interim periods within those ~~annual periods.~~fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact the adoption of this ASU will have on our ~~condensed~~ consolidated financial statements.

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In February 2016, the FASB issued ASU 2016-02, Leases: ~~Topic 842.~~(Topic 842). ASU 2016-02 requires companies to recognize a lease liability and asset on the balance sheet for operating leases with a term greater than one year. This pronouncement is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact the adoption of this ASU will have on our ~~condensed~~ consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: ~~Topic 606~~(Topic 606). This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. ~~The Company~~Our evaluation of ASU 2014-09 is ~~in the process of assessing the impact the adoption of this~~ongoing. While we anticipate some changes to revenue recognition for certain customer contracts, we do not currently believe ASU 2014-09 will have a material effect on our ~~condensed~~ consolidated financial statements.

No other new accounting pronouncements issued or with effective dates during fiscal ~~2016~~2017 had or are expected to have a material impact of the Company’s ~~condensed~~ consolidated financial statements.

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3. Discontinued Operations

During ~~the second quarter of~~ 2014, we commenced a process to market for sale ~~all of the assets within~~ our Europe-based Polymer Additives ~~business, including the Antwerp, Belgium dibenzoates manufacturing assets, and related Polymer Additives European headquarters and lab facilities.~~business. We determined that the criteria to classify these assets as held-for-sale under ASC Topic 360, Property, Plant and Equipment, ~~have been~~were met. On August 22, 2016, we completed the disposition of the Europe-based Polymer Additives business to Plahoma Two AG, an affiliate of the LIVIA Group. We have classified the Europe-based Polymer Additives ~~assets and liabilities as held-for-sale in the accompanying condensed consolidated balance sheets and have classified the related~~ operating results, net of income tax, as discontinued operations in the accompanying condensed consolidated statements of operations for ~~all periods presented. We expect resolution with respect to these assets during~~ the third quarter, which could result in additional impairment charges and other related expenses of $25 million to $30 million. Additional impairment of the asset group’s net working capital would be recognized upon disposition.three months ended March 31, 2016.

The table below summarizes results for the Europe-based Polymer Additives assets, for the three ~~and six~~ months ended ~~June 30,~~March 31, 2016, ~~and 2015,~~ which are reflected in our condensed consolidated statements of operations as discontinued operations. Interest expense has been allocated to the discontinued operations based on the ratio of net assets of each business to consolidated net assets excluding debt.

Three Months Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

(Dollars in thousands)
Net sales

$
6,900

$
7,837

$
14,650

$
19,736
Cost of sales

10,789

11,903

22,819

26,458
Gross loss

(3,889)

(4,066)

(8,169)

(6,722)
Selling, general and administrative expenses

1,502

1,009

2,505

2,228
Restructuring and impairment charges

—

—

24,059

—
Interest expense

40

206

276

319
Miscellaneous expense (income)

30

365

(387)

333
(Loss) from discontinued operations before income taxes

(5,461)

(5,646)

(34,622)

(9,602)
Income tax expense

287

—

620

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

$
(5,748)

$
(5,646)

$
(35,242)

$
(9,602)



	Three Months Ended
	March 31, 2016
	(Dollars in thousands)
Net sales	$	7,750
Cost of sales		12,030
Gross loss		(4,280)
Selling, general and administrative expenses		1,003
Restructuring and impairment charges		24,059
Interest expense		237
Miscellaneous income		(418)
Loss from discontinued operations before income taxes		(29,161)
Income tax expense		333
Loss from discontinued operations, net of income taxes	$	(29,494)

4. Acquisitions

Cappelle

On December 9, 2016, the Company acquired 100% of the share capital of Belgium-based Cappelle Pigments NV (“Cappelle”), a leader in specialty, high-performance inorganic and organic pigments used in coatings, inks and plastics, for €40.0 million (approximately $42.4 million). The acquired business contributed net sales of $19.0 million and net income attributable to Ferro Corporation of $0.6 million for the three months ended March 31, 2017.

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches and estimates made by management. As of March 31, 2017, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $28.6 million of net working capital, $24.1 million of personal and real property, $10.3 million of debt, $3.5 million of goodwill and $3.5 million of a deferred tax liability on the condensed consolidated balance sheet.

ESL

On October 31, 2016, the Company acquired 100% of the membership interest of Electro-Science Laboratories, Inc. (“ESL”), a leader in electronic packaging materials, for $78.5 million. ESL is headquartered in King of Prussia, Pennsylvania. The acquisition of ESL enhances the Company’s position in the electronic packaging materials space with complementary products, and provides a platform for growth in our Performance Colors and Glass segment. ESL produces thick-film pastes and ceramics tape systems that enable important functionality in a wide variety of industrial and consumer applications. The acquired business contributed net sales of $10.8 million and net income attributable to Ferro Corporation of $0.8 million for the three months ended March 31, 2017. The Company

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incurred acquisition costs for the three months ended March 31, 2017, of $0.3 million, which is included in Selling, general and administrative expenses in our condensed consolidated statements of operations.

The ~~following table summarizes~~information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which ~~are classified as held-for-sale at June 30, 2016,~~were determined with the assistance of third parties who performed independent valuations using discounted cash flow and ~~December~~comparative market approaches and estimates made by management. As of March 31, ~~2015:~~

June 30, 2016

December 31, 2015

(Dollars in thousands)
Accounts receivable, net

$
3,857

$
4,028
Inventories

11,066

9,733
Other current assets

3,725

2,454
Current assets held-for-sale

18,648

16,215
Property, plant and equipment, net

—

22,973
Other non-current assets

370

205
Total assets held-for-sale

$
19,018

$
39,393

Accounts payable

$
3,514

$
5,736
Accrued expenses and other current liabilities

651

1,420
Current liabilities held-for-sale

4,165

7,156
Other non-current liabilities

1,643

1,493
Total liabilities held-for-sale

$
5,808

$
8,649

~~Included within non-current~~2017, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $39.7 million of intangible assets, ~~are~~$19.0 million of goodwill, $18.9 million of net working capital, $2.9 million of personal and real property and $2.0 million of a deferred tax liability related to the amortizable intangibles assets ~~of $37.8 million at June 30, 2016, and $25.0 million at December 31, 2015, which are fully reserved for at both periods.~~on the condensed consolidated balance sheet.

~~4. Acquisitions~~Delta Performance Products

On August 1, 2016, the Company acquired certain assets of Delta Performance Products, LLC, for a cash purchase price of $4.4 million. The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches and estimates made by management. As of March 31, 2017, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $3.2 million of amortizable intangible assets, $0.6 million of net working capital, $0.4 million of goodwill and $0.2 million of a deferred tax asset on the condensed consolidated balance sheet.

Pinturas

On June 1, 2016, the Company acquired 100% of the equity of privately held Pinturas Benicarló, S.L. (“Pinturas”) for ~~€16.2~~€16.5 million in cash (approximately ~~$18.0~~$18.4 million). The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches and estimates made by management. As of ~~June 30, 2016,~~March 31, 2017, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded ~~$8.5~~$8.8 million of amortizable intangible assets, ~~$3.8~~$7.7 million of net working capital, $3.9 million of goodwill, ~~$0.7 million of personal and real property, $2.6~~$2.7 million of a deferred tax liability related to the amortizable intangible assets, and ~~$7.6~~$0.7 million of ~~net working capital~~personal and real property on the condensed consolidated balance sheet.

Ferer

On January 5, 2016, the Company completed the purchase of 100% of the equity of privately held Istanbul-based Ferer Dis Ticaret Ve Kimyasallar Anonim Sirketi A.S. (“Ferer”) on a cash-free and debt-free basis for approximately $9.4 million in ~~cash, subject to customary working capital and other adjustments.~~cash. The information included herein has been prepared based on the ~~preliminary~~ allocation of the purchase price using ~~estimates of~~ the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches and estimates made by management. ~~As of June 30, 2016, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company.~~ The Company ~~preliminarily~~ recorded $4.5 million of goodwill, $3.3 million of amortizable intangible assets, ~~$4.5~~$1.7 million of ~~goodwill, $0.6 million of personal and real property,~~net working capital, $0.7 million of a deferred tax liability related to the amortizable intangible assets and ~~$1.7 million of net working capital on the condensed consolidated balance sheet.~~

~~Al Salomi~~

On November 17, 2015, the Company acquired 100% of the equity of Egypt-based tile coatings manufacturer Al Salomi for Frits and Glazes (“Al Salomi”) for EGP 307 million (approximately $38.2 million), including the assumption of debt. The acquired business

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contributed net sales of $6.4 million and $12.0 million for the three and six months ended June 30, 2016 and net income attributable to Ferro Corporation of $1.6 million and $2.2 million for the three and six months ended June 30, 2016.

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches and estimates made by management. As of June 30, 2016, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $15.0 million of amortizable intangible assets, $14.3 million of goodwill, $10.7$0.6 million of personal and real property ~~$4.8 million of a deferred tax liability related to the amortizable intangible assets, and $3.0 million of net working capital on the condensed consolidated balance sheet.~~

~~Nubiola~~

On July 7, 2015, the Company acquired the entire share capital of Corporación Química Vhem, S.L., Dibon USA, LLC and Ivory Corporation, S.A. (together with their direct and indirect subsidiaries, “Nubiola”) on a cash-free and debt-free basis for €167 million (approximately $184.2 million). The acquisition was funded with excess cash and borrowings under the Company’s existing revolving credit facility. See Note 8 for additional detail on the revolving credit facility. During the second quarter of 2016, the Company had a purchase price adjustment due to the settlement of an escrow that reduced the fair value of net assets acquired to $168.1 million. As a result of the purchase price adjustment, the carrying amount of goodwill decreased by $11.7 million, intangibles decreased $6.4 million and the related deferred tax liability decreased $1.9 million. The impact of the change on the condensed consolidated statements of operations was not material. Nubiola is a worldwide producer of specialty inorganic pigments and the world’s largest producer of Ultramarine Blue. Nubiola also produces specialty Iron Oxides, Chrome Oxide Greens and Corrosion Inhibitors. Nubiola has production facilities in Spain, Colombia, Romania, and India and a joint venture in China.

~~The following table summarizes the preliminary purchase price allocations:~~


	~~June 30, 2016~~
	~~(Dollars in thousands)~~
~~Net working capital~~ ~~(1)~~	$	~~46,642~~
~~Cash and equivalents~~		~~19,966~~
~~Personal property~~		~~39,444~~
~~Real property~~		~~28,510~~
~~Intangible assets~~		~~26,757~~
~~Other assets and liabilities~~		~~(20,733)~~
~~Goodwill~~		~~27,498~~
~~Net assets acquired~~	$	~~168,084~~

~~(1)~~

~~Net working capital is defined as current assets, less cash, less current liabilities, and includes an estimate of potential transactional adjustments.~~

The acquired business contributed net sales of $30.8 million and $64.2 million for the three and six months ended June 30, 2016 and net income attributable to Ferro Corporation of $9.0 million and $14.2 million for the three and six months ended June 30, 2016.

The estimated fair value of the receivables acquired is $24.5 million, with a gross contractual amount of $25.2 million. The Company preliminarily recorded acquired intangible assets subject to amortization of $21.1 million, which is comprised of $5.4 million of customer relationships and $15.7 million of technology/know-how, which will be amortized over 20 years and 15 years, respectively. The Company preliminarily recorded acquired indefinite-lived intangible assets of $5.6 million related to trade names and trademarks. Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the

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~~liabilities assumed in the acquisition and is a result of anticipated synergies. Goodwill is not expected to be deductible for tax purposes.~~

~~The following unaudited pro froma information represents the consolidated results of the Company as if the Nubiola acquisition occurred as of January 1, 2014:~~

Three months ended June 30, 2015

Six months ended June 30, 2015

(unaudited)

(In thousands, except per share amounts)

Net sales

$
326,905

$
622,727
Net income attributable to Ferro Corporation common shareholders

$
14,666

$
30,927
Net earnings per share attributable to Ferro Corporation common shareholders - Basic

$
0.17

$
0.35
Net earnings per share attributable to Ferro Corporation common shareholders - Diluted

$
0.17

$
0.35

~~The unaudited pro forma information has been adjusted with the respect to certain aspects of the acquisition to reflect the following:~~

~~Additional depreciation and amortization expenses that would have been recognized assuming fair value adjustments to the existing Nubiola assets acquired, including intangible assets and fixed assets.~~

~~Elimination of revenue and cost of goods sold for sales from Nubiola to the Company, which would be eliminated as intercompany transactions for Nubiola and the Company on a consolidated basis.~~

~~Increased interest expense due to additional borrowings to fund the acquisition.~~

~~Acquisition-related costs, which were included in the Company’s results.~~

~~Adjustments for the income tax effect of the pro forma adjustments related to the acquisition.~~

~~Thermark~~

In February 2015, the Company acquired TherMark Holdings, Inc., a leader in laser marking technology, for a cash purchase price of $5.5 million. The Company recorded $4.6 million of amortizable intangible assets, $2.5 million of goodwill, $1.7 million of a deferred tax liability related to the amortizable intangible assets, and $0.1 million of net working capital on the condensed consolidated balance sheet.

5. Inventories



	June 30,		December 31,		March 31,		December 31,
	2016		2015		2017		2016
	(Dollars in thousands)				(Dollars in thousands)
Raw materials	$	62,518	$	56,291	$	84,913	$	72,943
Work in process		34,890		33,099		43,267		38,859
Finished goods		109,891		95,464		122,410		118,045
Total inventories	$	207,299	$	184,854	$	250,590	$	229,847

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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 $0.2 million for the three months ended ~~June 30, 2016~~March 31, 2017 and ~~2015, and were $0.4 million for the six months ended June 30, 2016 and 2015.~~2016. We had on-hand precious metals owned by participants in our precious metals consignment program of ~~$26.6~~$31.9 million at ~~June 30, 2016,~~March 31, 2017, and ~~$20.5~~$28.7 million at December 31, ~~2015,~~2016, measured at fair value based on market prices for identical assets and net of credits.

6. Property, Plant and Equipment

Property, plant and equipment is reported net of accumulated depreciation of ~~$437.0~~$452.2 million at ~~June 30, 2016,~~March 31, 2017, and ~~$421.3~~$439.4 million at December 31, ~~2015.~~2016. Unpaid capital expenditure liabilities, which are non-cash investing activities, were ~~$2.1~~$2.5 million at ~~June 30, 2016,~~March 31, 2017, and ~~$3.8~~$3.5 million at ~~June 30, 2015.~~ March 31, 2016.

We recorded a $3.9 million gain on sale of a closed site in Australia which was recorded in Miscellaneous (income), net in our condensed consolidated statements of operations for the three months ended March 31, 2016.

As discussed in Note 3, ~~- Discontinued Operations, during the second quarter of 2014,~~ our Europe-based Polymer Additives assets ~~were~~had been classified as held-for-sale under ASC Topic 360, Property, Plant and ~~Equipment.~~Equipment until the ultimate sale of the business in August 2016. As such, at each historical reporting date, these assets ~~are~~were tested for impairment comparing the fair value of the assets, less costs to sell, to the carrying value. The fair value was determined using both the market approach and income approach, utilizing Level 3 measurements within the fair value hierarchy, which indicated the fair value, less costs to sell, was less than the carrying value during the first quarter of 2016, resulting in an impairment charge of $24.1 million, ~~during the six months ended June 30, 2016. The impairment charge of $24.1 million,~~ representing the remaining carrying value of long-lived assets at that reporting date. The impairment charge of $24.1 million is included in Loss from discontinued operations, net of income taxes in our condensed consolidated statements of operations for the ~~six~~three months ended ~~June 30,~~March 31, 2016.

The following table presents information about the Company's impairment charges on assets that were measured on a fair value basis for the six months ended June 30, 2016, and for the year ended December 31, 2015. The table also indicates the level within the fair value hierarchy of the valuation techniques used by the Company to determine the fair value:

Fair Value Measurements Using

Total
Description

Level 1

Level 2

Level 3

Total

(Losses)

(Dollars in thousands)
June 30, 2016

Assets held for sale

$
—

$
—

$
13,210

$
13,210

$
(24,059)
December 31, 2015

Assets held for sale

$
—

$
—

$
33,711

$
33,711

$
(11,792)

~~The inputs to the valuation techniques used to measure fair value are classified into the following categories:~~

~~Level 1: Quoted market prices in active markets for identical assets or liabilities.~~

~~Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.~~

~~Level 3: Unobservable inputs that are not corroborated by market data.~~

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7. Goodwill and Other Intangible Assets

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

Pigments,

Performance

Performance

Powders and

Colors and

Coatings

Oxides

Glass

Total

(Dollars in thousands)
December 31, 2015

Gross goodwill

$
88,753

$
48,794

$
53,391

$
190,938
Accumulated impairment losses

(45,269)

—

—

(45,269)

43,484

48,794

53,391

145,669
Acquisitions

—

(11,653)
(3)

8,286
(1), (2)

(3,367)
Foreign currency adjustments

(1,278)

179

(41)

(1,140)
June 30, 2016

Gross goodwill

87,475

37,320

61,636

186,431
Accumulated impairment losses

(45,269)

—

—

(45,269)

$
42,206

$
37,320

$
61,636

$
141,162


					Performance
	Performance		Color		Colors and
	Coatings		Solutions		Glass			Total
	(Dollars in thousands)
Goodwill, net at December 31, 2016	$	28,090	$	40,421	$	79,785		$	148,296
Acquisitions		—		—		(854)	1		(854)
Foreign currency adjustments		279		211		271			761
Goodwill, net at March 31, 2017	$	28,369	$	40,632	$	79,202		$	148,203

(1)

During the first quarter of ~~2016, the Company recorded goodwill related to the Ferer acquisition. Refer to Note 4 for additional details.~~

~~(2)~~

~~During the second quarter of 2016, the Company recorded goodwill related to the Pinturas acquisition. Refer to Note 4 for additional details.~~

~~(3)~~

~~During the second quarter of 2016,~~2017, the Company recorded a purchase price adjustment within the measurement period for goodwill related to the ~~Nubiola~~ESL acquisition. ~~Refer to Note 4 for additional details.~~

Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed in the acquisition.


	March 31,		December 31,
	2017		2016
	(Dollars in thousands)
Goodwill, gross	$	206,670	$	206,763
Accumulated impairment losses		(58,467)		(58,467)
Goodwill, net	$	148,203	$	148,296

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Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. As of ~~June 30, 2016,~~March 31, 2017, the Company is not aware of any events or circumstances that occurred which would require a goodwill impairment test.

Amortizable intangible assets consisted of the following:


	June 30,		December 31,		March 31,		December 31,
	2016		2015		2017		2016
	(Dollars in thousands)				(Dollars in thousands)
Gross amortizable intangible assets:
Patents	$	5,238	$	5,229	$	5,170	$	5,147
Land rights		4,875		4,947		4,770		4,746
Technology/know-how and other		82,387		66,558		86,028		84,837
Customer relationships		51,842		46,320		80,505		80,153
Total gross amortizable intangible assets		144,342		123,054		176,473		174,883
Accumulated amortization:
Patents		(4,986)		(4,880)		(5,023)		(4,981)
Land rights		(2,697)		(2,671)		(2,733)		(2,698)
Technology/know-how and other		(32,166)		(16,473)		(37,051)		(34,775)
Customer relationships		(3,480)		(2,234)		(6,479)		(5,311)
Total accumulated amortization		(43,329)		(26,258)		(51,286)		(47,765)
Amortizable intangible assets, net	$	101,013	$	96,796	$	125,187	$	127,118

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Indefinite-lived intangible assets consisted of the following:


	June 30,		December 31,		March 31,		December 31,
	2016		2015		2017		2016
	(Dollars in thousands)				(Dollars in thousands)
Indefinite-lived intangibles assets:
Trade names and trademarks	$	9,480	$	9,837	$	10,843	$	10,732

8. Debt

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



	June 30,		December 31,		March 31,		December 31,
	2016		2015		2017		2016
	(Dollars in thousands)				(Dollars in thousands)
Loans payable	$	5,819	$	2,749	$	8,029	$	11,452
Current portion of long-term debt		4,632		4,697		8,603		5,858
Loans payable and current portion of long-term debt	$	10,451	$	7,446	$	16,632	$	17,310

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Long-term debt consisted of the following:



	June 30,		December 31,		March 31,		December 31,
	2016		2015		2017		2016
	(Dollars in thousands)				(Dollars in thousands)

Term loan facility, net of unamortized issuance costs	$	240,598	$	291,717
Revolving credit facility		240,810		170,000
Term loan facility, net of unamortized issuance costs, maturing 2021(1)					$	—	$	239,530
Term loan facility, net of unamortized issuance costs, maturing 2024(2)						615,594		—
Revolving credit facility, maturing 2019						—		311,555
Capital lease obligations		3,945		4,478		3,562		3,720
Other notes		4,715		4,610		7,782		8,228
Total long-term debt		490,068		470,805		626,938		563,033
Current portion of long-term debt		(4,632)		(4,697)		(8,603)		(5,858)
Long-term debt, less current portion	$	485,436	$	466,108	$	618,335	$	557,175

(1) The carrying value of the term loan facility, maturing 2021, is net of unamortized debt issuance costs of $3.7 million.

(2) The carrying value of the term loan facility, maturing 2024, is net of unamortized debt issuance costs of $8.2 million.

2014 Credit Facility

~~On July 31,~~In 2014, the Company entered into a credit facility ~~(the “Credit Facility”) with~~that was amended on January 25, 2016, and August 29, 2016, resulting in a ~~group of lenders to refinance the majority of its then outstanding debt. The Credit Facility consisted of a $200~~$400 million secured revolving line of credit with a term of five years and a $300 million secured term loan facility with a term of seven ~~years. On January 25, 2016,~~years from the ~~Company amended~~original issuance date (the “Previous Credit Facility”) with a group of lenders that was replaced on February 14, 2017 by the Credit Facility ~~by entering~~(as defined below). For discussion of the Company’s Previous Credit Facility, refer to Note 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

In conjunction with the refinancing of the Previous Credit Facility, we recorded a charge of $3.9 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss of extinguishment of debt in our condensed consolidated statement of operations for the three months ended March 31, 2017.

2017 Credit Facility

On February 14, 2017, the Company entered into ~~the Incremental Assumption Agreement~~a new credit facility (the ~~“Incremental Agreement”~~“Credit Facility”) with a group of lenders to ~~increase the~~refinance its then outstanding credit facility debt and to provide liquidity for ongoing working capital requirements and general corporate purposes.

The Credit Facility consists of a $400 million secured revolving line of credit ~~commitment~~with a term of five years, a $357.5 million secured term loan facility with a term of seven years and a €250 million secured euro term loan facility with a term of seven years. The term loans are payable in equal quarterly installments in an amount ~~from $200 million~~equal to ~~$300 million. The Company then used a portion~~0.25% of the ~~increase in the revolving line of credit to repay $50 million~~original principal amount of the term ~~loan facility. The Credit Facility was amended and a portion of the outstanding term~~ loans, ~~were repaid to increase the amount of total liquidity available under the Credit Facility and reduce the total cost of borrowings.~~

~~Principal payments on the term loan facility of $0.75 million quarterly, are payable commencing December 31, 2014,~~ with the remaining balance due on the maturity ~~date. At June 30, 2016, after taking into account all prior quarterly payments and the $50 million prepayment that was made in January 2016,~~date thereof. In addition, the Company ~~had borrowed $244.8 million under the term loan facility at~~is required, on an annual ~~rate~~basis, to make a prepayment of ~~4.0%. There~~term loans until they are ~~no additional borrowings available under~~fully paid and then to the ~~term loan facility.~~ revolving loans in an amount equal to a portion of the Company’s excess cash flow, as calculated pursuant to the Credit Facility.

Subject to the satisfaction of certain conditions, the Company can request ~~up to $100 million of~~ additional commitments under ~~the Credit Facility, though the lenders are not required to provide such additional commitments. In addition, up to $100 million of~~ the revolving line of credit ~~will be available to certain of the Company’s subsidiaries~~or term loans in the ~~form~~aggregate principal amount of ~~revolving~~up to $250 million to the extent that existing or new lenders agree to provide such additional commitments and/or term loans ~~denominated in Euros.~~and, certain additional debt subject to satisfaction of certain covenant levels.

~~Table of Contents~~

pledge of 100% of the stock of ~~most~~certain of the Company’s U.S. subsidiaries and 65% of ~~most of~~ the stock of certain of the Company’s ~~first tier~~direct foreign subsidiaries.

Interest Rate – Term ~~Loan:~~Loans: The interest rates applicable to the U.S. term loans will be, at the Company’s option, equal to either a base rate or a ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR rate plus, in both cases, an applicable margin. The interest rates applicable to the Euro term loans will be a Euro Interbank Offered Rate (“EURIBOR”) rate plus an applicable margin.

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The base rate for U.S. term loans will be the highest of (i) the federal funds rate plus 0.50%, (ii) syndication agent’s prime rate or (iii) the daily LIBOR rate plus 1.00%.

The applicable margin for base rate loans is ~~2.25%~~1.50%.

The LIBOR rate ~~will be set as quoted by Bloomberg and~~for U.S. term loans shall not be less than 0.75% and the applicable margin for LIBOR rate U.S. term loans is 2.50%.

The EURIBOR rate for Euro term loans shall not be less than 0% and the applicable margin for ~~LIBOR~~EURIBOR rate loans is ~~3.25%~~2.75%.

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

At March 31, 2017, the Company had borrowed $357.5 million under the secured term loan facility at an interest rate of 3.54% and €250 million under the secured euro term loan facility at an interest rate of 2.75%. At March 31, 2017, there were no additional borrowings available under the term loan facilities.

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

The base rate for revolving loans will be the highest of (i) the federal funds rate plus 0.50%, (ii) syndication agent’s prime rate or (iii) the daily LIBOR rate plus 1.00%.

The applicable margin for base rate loans will vary between ~~1.50%~~0.75% and ~~2.00%~~1.75%.

The LIBOR rate ~~will~~for revolving loans shall not be ~~set as quoted by Bloomberg for U.S. Dollars.~~

~~The~~less than 0% and the applicable margin for LIBOR ~~Rate Loans~~rate revolving loans will vary between ~~2.50%~~1.75% and ~~3.00%~~2.75%.

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

At ~~June 30, 2016, the Company had borrowed $240.8 million~~March 31, 2017, there were no borrowings under the revolving credit facilities at an annual weighted average interest rate of 3.6%. The borrowing on the revolving credit facilities was used to fund the acquisitions, the share repurchase programs, and for other general business purposes.line. After reductions for outstanding letters of credit secured by these facilities, we had ~~$54.8~~$395.6 million of additional borrowings available under the revolving credit facilities at ~~June 30, 2016.~~March 31, 2017.

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

Specific to the revolving credit facility, the Company is subject to a financial ~~covenants~~covenant regarding the Company’s ~~outstanding net indebtedness and interest coverage ratios.~~

maximum leverage ratio. If an event of default occurs, all amounts outstanding under the Credit Facility may be accelerated and become immediately due and payable. At ~~June 30, 2016,~~March 31, 2017, we were in compliance with the covenants of the Credit Facility.

Other Financing Arrangements

We maintain other lines of credit to provide global flexibility for our short-term liquidity requirements. These facilities are uncommitted lines for our international operations and totaled ~~$7.6~~$33.1 million and ~~$8.0~~$7.3 million at ~~June 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, respectively. The unused portions of these lines provided additional liquidity of ~~$6.1~~$32.0 million at ~~June 30, 2016,~~March 31, 2017, and ~~$7.3~~$6.7 million at December 31, ~~2015.~~2016.

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9. Financial Instruments

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



	June 30, 2016										March 31, 2017
	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	$	49,416	$	49,416	$	49,416	$	—	$	—	$	92,829	$	92,829	$	92,829	$	—	$	—
Loans payable		(5,819)		(5,819)		—		(5,819)		—		(8,029)		(8,029)		—		(8,029)		—
Term loan facility(1)		(240,598)		(241,186)		—		(241,186)		—
Revolving credit facility		(240,810)		(238,355)		—		(238,355)		—
Term loan facility, maturing 2024(1)												(615,594)		(618,318)		—		(618,318)		—
Other long-term notes payable		(4,715)		(4,046)		—		(4,046)		—		(7,782)		(6,918)		—		(6,918)		—
Foreign currency forward contracts, net		2,336		2,336		—		2,336		—		237		237		—		237		—



	December 31, 2015										December 31, 2016
	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	$	58,380	$	58,380	$	58,380	$	—	$	—	$	45,582	$	45,582	$	45,582	$	—	$	—
Loans payable		(2,749)		(2,749)		—		(2,749)		—		(11,452)		(11,452)		—		(11,452)		—
Term loan facility(1)		(291,717)		(297,552)		—		(297,552)		—
Revolving credit facility		(170,000)		(169,019)		—		(169,019)		—
Term loan facility, maturing 2021(1)												(239,530)		(252,052)		—		(252,052)		—
Revolving credit facility, maturing 2019												(311,555)		(318,389)		—		(318,389)		—
Other long-term notes payable		(4,610)		(3,956)		—		(3,956)		—		(8,228)		(7,315)		—		(7,315)		—
Foreign currency forward contracts, net		(1,207)		(1,207)		—		(1,207)		—		350		350		—		350		—

(1) The carrying value of the term loan facility is net of unamortized debt issuance costs.

The fair values of cash and cash equivalents are based on the fair values of identical assets. The fair values of 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~~At March 31, 2017, the fair ~~values~~value of the term loan facility is based on market price information and is measured using the last available bid price of the instrument on a secondary market and at December 31, 2016, is based on the present value of expected future cash flows and interest rates that would be currently available to the Company for issuance of similar types of debt instruments with similar terms and remaining maturities adjusted for the Company's non-performance risk. The revolving credit facility and other long-term notes payable are based on the present value of expected future cash flows and interest rates that would be currently available to the Company for issuance of similar types of debt instruments with similar terms and remaining maturities adjusted for the Company's non-performance risk.

Derivative Instruments

Foreign currency forward contracts. We manage foreign currency risks principally by entering into forward contracts to mitigate the impact of currency fluctuations on transactions. These forward contracts are not formally designated as hedges. Gains and losses on these foreign currency forward contracts are netted with gains and losses from currency fluctuations on transactions arising from international trade and reported as Foreign currency (gains) losses, net in the condensed consolidated statements of operations. We recognized net foreign currency ~~losses~~gains of ~~$0.4 million and $2.0~~$0.3 million in the three ~~and six~~ months ended ~~June 30, 2016, respectively,~~March 31, 2017, and net foreign currency losses of ~~$2.8 million and $4.6~~$1.6 million in the three ~~and six~~ months ended ~~June 30, 2015, respectively,~~March 31, 2016, 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, such as timing of transactions. We recognized net gains of ~~$5.9~~$0.2 million in the three months ended March 31, 2017, and net losses of ~~$4.7~~$10.6 million in the three ~~and six~~ months ended ~~June 30,~~March 31, 2016, ~~respectively, and net losses of $0.3 million and net gains of $1.3 million in the three and six months ended June 30, 2015, respectively,~~ arising from the change in fair value of our financial instruments, which offset the related net gains and losses on international trade transactions. The fair values of these contracts are based on market prices for comparable contracts. The notional amount of foreign currency forward contracts was ~~$278.0~~$188.2 million at ~~June 30, 2016,~~March 31, 2017, and ~~$338.4~~$338.2 million at December 31, ~~2015.~~2016.

The following table presents the effect on our condensed consolidated statements of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively, of our foreign currency forward contracts:

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Amount of Gain (Loss)

Recognized in Earnings

Three Months Ended

June 30,

2016

2015

Location of Gain (Loss) in Earnings

(Dollars in thousands)

Foreign currency forward contracts

$
5,884

$
(317)

Foreign currency losses, net



	Amount of Gain (Loss)
	Recognized in Earnings
	Three Months Ended
	March 31,
	2017		2016		Location of Gain (Loss) in Earnings
	(Dollars in thousands)
Foreign currency forward contracts	$	243	$	(10,569)	Foreign currency (gains) losses, net

Amount of (Loss) Gain

Recognized in Earnings

Six Months Ended

June 30,

2016

2015

Location of (Loss) Gain in Earnings

(Dollars in thousands)

Foreign currency forward contracts

$
(4,684)

$
1,328

Foreign currency losses, net

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



	June 30,		December 31,			March 31,		December 31,
	2016		2015		Balance Sheet Location	2017		2016		Balance Sheet Location
	(Dollars in thousands)					(Dollars in thousands)
Asset derivatives:
Foreign currency forward contracts	$	2,722	$	913	Other current assets	$	512	$	1,854	Other current assets
Liability derivatives:
Foreign currency forward contracts	$	(386)	$	(2,120)	Accrued expenses and other current liabilities	$	(275)	$	(1,504)	Accrued expenses and other current liabilities

10. Income Taxes

~~During the first half of 2016, income~~Income tax expense for the three months ended March 31, 2017, was ~~$16.5~~$7.1 million, or ~~27.0%~~24.4% of pre-tax ~~income. In the first half of 2015,~~ income, ~~tax expense was $8.1~~compared with $8.0 million, or ~~24.3%~~28.9% of pre-tax ~~income.~~income in the prior-year same period. The tax expense in the first ~~half~~quarter of ~~2016~~2017 and ~~2015,~~2016, as a percentage of pre-tax income, is lower than the U.S. federal statutory income tax rate of 35% primarily as a result of foreign statutory rate differences. The first half of 2015 tax expense was further lowered as a result of the amount of pre-tax losses in jurisdictions for which no tax benefit is recognized in proportion to the amount of pre-tax income in jurisdictions with no tax expense due to the utilization of fully valued tax attributes. Additionally, the first half of 2015 tax expense was benefited by certain discrete items, which had a favorable impact on the rate of approximately 5%, taking it from approximately 29.0% to 24.3%.

11. Contingent Liabilities

We have recorded environmental liabilities of ~~$7.9~~$7.3 million at ~~June 30, 2016,~~March 31, 2017, and ~~$7.4~~$7.2 million at December 31, ~~2015,~~2016, for costs associated with the remediation of certain of our properties that have been contaminated. The liability at ~~June 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, was primarily related to a non-operating facility in Brazil, and for retained environmental obligations related to a site in the United States that was part of the sale of our North American and Asian metal powders product lines in 2013. 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.

In ~~the fourth quarter of~~ 2013, the Supreme Court in Argentina ruled unfavorably related to certain export taxes associated with a divested operation. As a result of this ruling, we ~~have~~ recorded an $8.7 million liability December 31, 2016. During the first quarter of 2017, the Company participated in a ~~$8.3~~newly available tax regime, resulting in the reduction of interest on these outstanding tax liabilities of $4.5 million. The liability recorded at March 31, 2017, is $4.6 million, and will be paid down over a ~~$7.8 million liability at June 30, 2016, and December 31, 2015, respectively.~~five-year term.

~~Table of Contents~~

There are various lawsuits and claims pending against the Company and its consolidated subsidiaries. We do not currently expect the resolution of these lawsuits and claims to materially affect the consolidated financial position, results of operations, or cash flows of the Company.

12. 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 for the three months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively, follow:

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	U.S. Pension Plans				Non-U.S. Pension Plans				Other Benefit Plans				U.S. Pension Plans				Non-U.S. Pension Plans				Other Benefit Plans
	Three Months Ended June 30,												Three Months Ended March 31,
	2016		2015		2016		2015		2016		2015		2017		2016		2017		2016		2017		2016
	(Dollars in thousands)												(Dollars in thousands)
Service cost	$	4	$	5	$	371	$	383	$	—	$	—	$	4	$	4	$	404	$	363	$	—	$	—
Interest cost		3,937		4,697		954		915		236		242		3,666		3,937		573		939		211		236
Expected return on plan assets		(4,935)		(7,291)		(525)		(674)		—		—		(4,740)		(4,935)		(210)		(520)		—		—
Amortization of prior service cost		3		3		11		15		—		—		2		3		10		11		—		—
Net periodic benefit (credit) cost	$	(991)	$	(2,586)	$	811	$	639	$	236	$	242	$	(1,068)	$	(991)	$	777	$	793	$	211	$	236

~~Net periodic benefit (credit) cost for the six months ended June 30, 2016 and 2015, respectively, follow:~~

U.S. Pension Plans

Non-U.S. Pension Plans

Other Benefit Plans

Six Months Ended June 30,

2016

2015

2016

2015

2016

2015

(Dollars in thousands)
Service cost

$
9

$
9

$
734

$
774

$
—

$
—
Interest cost

7,875

9,395

1,893

1,838

472

485
Expected return on plan assets

(9,870)

(14,583)

(1,045)

(1,349)

—

—
Amortization of prior service cost

6

6

22

30

—

—
Net periodic benefit (credit) cost

$
(1,980)

$
(5,173)

$
1,604

$
1,293

$
472

$
485

Net periodic benefit (credit) for our U.S. pension plans for the six months ended June 30, 2016 decreased from the prior year due to reduced plan assets as a result of executing our terminated-vested buyout program in the fourth quarter of 2015. Net periodic benefit cost for our non-U.S. pension plans and our postretirement health care and life insurance benefit plans did not change significantly compared with the prior-year same period.

In 2015, the Company initiated and executed on a buyout of terminated vested participants in our U.S defined benefit pension plan. In October 2015, the buyout was funded and reduced plan assets and liability by approximately $71 million.

13. Stock-Based Compensation

On 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 and thereby align their interests with those of the Company’s 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~~stock-based awards, and dividend equivalent rights.

In the first ~~half~~quarter of ~~2016,~~2017, our Board of Directors granted ~~0.3~~0.2 million stock options, ~~0.3~~0.2 million performance share units and ~~0.3~~0.2 million ~~deferred~~restricted stock units under the Plan.

~~Table of Contents~~

We estimate the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The following table details the weighted-average grant-date fair values and the assumptions used for estimating the fair values of stock option grants made during the ~~six~~three months ended ~~June 30, 2016:~~March 31, 2017:



	Stock Options
Weighted-average grant-date fair value	$	~~4.92~~7.26
Expected life, in years		6.0
Risk-free interest rate		~~1.6~~2.3	%
Expected volatility		~~53.6~~51.5	%

The weighted average grant date fair value of our performance share units granted in the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, was ~~$10.02.~~$14.89. We measure the fair value of performance share units based on the closing market price of our common stock on the date of the grant. These shares are evaluated each reporting period for likelihood of achieving the performance criteria.

We measure the fair value of ~~deferred~~restricted stock units based on the closing market price of our common stock on the date of the ~~grant, which is when the awards immediately vest.~~grant. The restricted stock units vest over three years. The weighted-average grant date fair value per unit for grants made during the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, was ~~$10.43.~~$14.27.

We recognized stock-based compensation expense of ~~$2.2~~$2.7 million for the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, and ~~$8.0~~$1.6 million for the ~~six~~three months ended ~~June 30, 2015.~~March 31, 2016. At ~~June 30, 2016,~~March 31, 2017, unearned compensation cost related to the unvested portion of all stock-based compensation awards was approximately ~~$10.5~~$10.4 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of ~~2019.~~2020.

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14. Restructuring and Cost Reduction Programs

In 2013, we initiated a Global Cost Reduction Program that was designed to address three key areas of the company - (1) business realignment, (2) operational efficiency and (3) corporate and back office functions. Business realignment was targeted at right-sizing our commercial management organizations globally. The operational efficiency component of the program was designed to improve the efficiency of our plant operations and supply chain. The corporate and back office initiative relates to work that we are doing with our strategic partners in the areas of finance and accounting and information technology outsourcing, and procurement. The restructuring charges for the three and six months ended June 30, 2016, primarily consists of implementing this strategy for our recently acquired acquisitions. The cumulative charges incurred to date associated with this Program are $51.3 million. Total costs related to the Program expected to be incurred, as of June 30, 2016, are approximately $51.3 million. Total restructuring and impairment charges were ~~$0.8~~approximately $3.0 million and ~~$1.7~~$0.9 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2017, and March 31, 2016, ~~respectively, and $1.1 million and $1.5 million for the three and six months ended June 30, 2015,~~ respectively.

The activities and accruals summarized below are primarily related to costs associated with integration of our ~~restructuring and cost reduction programs are summarized below:~~recent acquisitions:



	Employee		Other				Employee		Other		Asset
	Severance		Costs		Total		Severance		Costs		Impairment		Total
	(Dollars in thousands)						(Dollars in thousands)
Balances at December 31, 2015	$	693	$	2,077	$	2,770
Balances at December 31, 2016							$	239	$	1,489	$	—	$	1,728
Restructuring charges		1,141		527		1,668		980		862		1,176		3,018
Cash payments		(1,144)		(932)		(2,076)		(81)		(109)		—		(190)
Non-cash items		19		36		55		—		(522)		(1,176)		(1,698)
Balances at June 30, 2016	$	709	$	1,708	$	2,417
Balances at March 31, 2017							$	1,138	$	1,720	$	—	$	2,858

We expect to make cash payments to settle the remaining liability for employee ~~termination~~severance benefits and other costs primarily over the next twelve months where applicable, except where legal or contractual ~~restrictions prevent us from doing so.~~obligations would require it to extend beyond that period.

~~Table of Contents~~

15. Earnings Per Share

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



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2016		2015		2016		2015		2017		2016
	(Dollars in thousands, except per share amounts)								(Dollars in thousands, except per share amounts)
Basic earnings per share computation:
Net income attributable to Ferro Corporation common shareholders	$	18,969	$	6,599	$	9,003	$	17,569
Net income (loss) attributable to Ferro Corporation common shareholders									$	21,898	$	(9,966)
Adjustment for loss from discontinued operations		5,748		5,646		35,242		9,602		—		29,494
Total	$	24,717	$	12,245	$	44,245	$	27,171	$	21,898	$	19,528
Weighted-average common shares outstanding		83,209		87,264		83,260		87,189		83,530		83,311
Basic earnings per share from continuing operations attributable to Ferro Corporation common shareholders	$	0.30	$	0.14	$	0.53	$	0.31	$	0.26	$	0.23
Diluted earnings per share computation:
Net income attributable to Ferro Corporation common shareholders	$	18,969	$	6,599	$	9,003	$	17,569
Net income (loss) attributable to Ferro Corporation common shareholders									$	21,898	$	(9,966)
Adjustment for loss from discontinued operations		5,748		5,646		35,242		9,602		—		29,494
Total	$	24,717	$	12,245	$	44,245	$	27,171	$	21,898	$	19,528
Weighted-average common shares outstanding		83,209		87,264		83,260		87,189		83,530		83,311
Assumed exercise of stock options		551		552		462		547		516		370
Assumed exercise of deferred stock unit conditions		80		108		—		87
Assumed satisfaction of restricted stock unit conditions		473		300		419		264		574		385
Assumed satisfaction of performance stock unit conditions		111		576		58		569		268		224
Weighted-average diluted shares outstanding		84,424		88,800		84,199		88,656		84,888		84,290
Diluted earnings per share from continuing operations attributable to Ferro Corporation common shareholders	$	0.29	$	0.14	$	0.53	$	0.31	$	0.26	$	0.23

The number of anti-dilutive or unearned shares was ~~2.5~~2.1 million for the three months ended March 31, 2017, and 2.8 million for the three ~~and six~~ months ended ~~June 30, 2016, respectively, and 2.0 million and 2.1 million for the three and six months ended June 30, 2015.~~March 31, 2016. These shares were excluded from the calculation of diluted earnings per share due to their anti-dilutive impact.

16. Share Repurchase Program

~~On July 29, 2015, the~~The Company’s Board of Directors approved a share repurchase ~~program,~~programs, under which the Company ~~was~~is authorized to repurchase up to ~~$25~~$100 million of the Company’s outstanding shares of Common Stock on the open market, including through a Rule 10b5-1 plan, or in privately negotiated transactions. ~~On February 18, 2016, and October 16, 2015, the Company’s Board~~

Table of ~~Directors approved follow-on share repurchase programs, authorizing the Company to repurchase an additional $25 million of the Company’s outstanding shares of common stock under each program.~~Contents

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

For the ~~six~~three months ended ~~June 30,~~March 31, 2016, the Company repurchased 1,175,437 shares of common stock at an average price of $9.72 per share for a total cost of $11.4 million. ~~Under the total share repurchase programs, the Company repurchased 4,458,345 shares of common stock, at an average price of $11.~~21 ~~per share, for a total cost of $50.0 million.~~ As of ~~June 30, 2016, $25.0~~March 31, 2017, $50.0 million may still be purchased under the programs.

~~Table of Contents~~

17. Accumulated Other Comprehensive Income (Loss)

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

Three Months Ended June 30,

Postretirement

Benefit Liability

Translation

Other

Adjustments

Adjustments

Adjustments

Total

(Dollars in thousands)
Balances at March 31, 2015

$
904

$
(59,281)

$
(70)

$
(58,447)
Other comprehensive income (loss) before reclassifications

—

9,408

—

9,408
Amounts reclassified from accumulated other comprehensive (loss) income

(18)

—

—

(18)
Net current period other comprehensive (loss) income

(18)

9,408

—

9,390
Balances at June 30, 2015

$
886

$
(49,873)

$
(70)

$
(49,057)

Balances at March 31, 2016

1,079

(63,769)

(70)

(62,760)
Other comprehensive income (loss) before reclassifications

—

(3,117)

—

(3,117)
Amounts reclassified from accumulated other comprehensive income (loss)

27

—

—

27
Net current period other comprehensive income (loss)

27

(3,117)

—

(3,090)
Balances at June 30, 2016

$
1,106

$
(66,886)

$
(70)

$
(65,850)

Six Months Ended June 30,

Postretirement

Benefit Liability

Translation

Other

Adjustments

Adjustments

Adjustments

Total

(Dollars in thousands)
Balances at December 31, 2014

$
888

$
(22,623)

$
(70)

$
(21,805)
Other comprehensive income (loss) before reclassifications

—

(27,250)

—

(27,250)
Amounts reclassified from accumulated other comprehensive (loss) income

(2)

—

—

(2)
Net current period other comprehensive (loss) income

(2)

(27,250)

—

(27,252)
Balances at June 30, 2015

886

(49,873)

(70)

(49,057)

Balances at December 31, 2015

811

(62,059)

(70)

(61,318)
Other comprehensive income (loss) before reclassifications

—

(4,827)

—

(4,827)
Amounts reclassified from accumulated other comprehensive income (loss)

295

—

—

295
Net current period other comprehensive income (loss)

295

(4,827)

—

(4,532)
Balances at June 30, 2016

$
1,106

$
(66,886)

$
(70)

$
(65,850)



	Three Months Ended March 31,
		Postretirement
		Benefit Liability		Translation		Other
		Adjustments		Adjustments		Adjustments		Total
		(Dollars in thousands)
Balance at December 31, 2015		$	811	$	(62,059)	$	(70)	$	(61,318)
Other comprehensive income (loss) before reclassifications			—		(1,710)		—		(1,710)
Reclassification to earnings:
Postretirement benefit liabilities income			268		—		—		268
Net current period other comprehensive income (loss)			268		(1,710)		—		(1,442)
Balance at March 31, 2016		$	1,079	$	(63,769)	$	(70)	$	(62,760)

Balance at December 31, 2016			1,141		(107,714)		(70)		(106,643)
Other comprehensive income (loss) before reclassifications			—		7,171		—		7,171
Reclassification to earnings:
Postretirement benefit liabilities (loss)			(4)		—		—		(4)
Other			—		—		—		—
Net current period other comprehensive (loss) income			(4)		7,171		—		7,167
Balance at March 31, 2017		$	1,137	$	(100,543)	$	(70)	$	(99,476)

~~Table of Contents~~

18. Reporting for Segments

In the first quarter of 2017, the Company’s Pigments, Powders and Oxides segment was renamed Color Solutions.

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



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2016		2015		2016		2015		2017		2016
	(Dollars in thousands)								(Dollars in thousands)
Performance Coatings	$	140,589	$	139,460	$	268,713	$	276,246	$	126,565	$	128,124
Performance Colors and Glass		95,933		98,729		184,103		198,193		103,518		88,170
Pigments, Powders and Oxides		61,455		30,025		122,612		56,547
Color Solutions										90,472		61,157
Total net sales	$	297,977	$	268,214	$	575,428	$	530,986	$	320,555	$	277,451

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

Table of Contents



	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2016		2015		2016		2015		2017		2016
	(Dollars in thousands)								(Dollars in thousands)
Performance Coatings	$	39,234	$	35,144	$	71,349	$	64,019	$	33,489	$	32,115
Performance Colors and Glass		36,705		33,389		68,543		67,878		37,418		31,838
Pigments, Powders and Oxides		22,404		9,292		42,690		17,146
Color Solutions										28,182		20,286
Other cost of sales		30		(185)		20		(768)		(295)		(10)
Total gross profit		98,373		77,640		182,602		148,275		98,794		84,229
Selling, general and administrative expenses		57,871		52,695		110,517		102,151		58,958		52,646
Restructuring and impairment charges		787		1,116		1,668		1,625		3,018		881
Other expense, net		6,371		5,719		9,291		10,959		7,559		2,920
Income before income taxes	$	33,344	$	18,110	$	61,126	$	33,540	$	29,259	$	27,782

19. Subsequent Event

On April 24, 2017, the Company acquired 100% of the equity interests of S.P.C. Group s.r.l., a company duly organized under the laws of Italy, and 100% of the equity interests of Smalti per Ceramiche, s.r.l. (“SPC”), a company duly organized under the laws of Italy, for €19.8 million, subject to customary working capital adjustments. SPC is a high-end tile coatings manufacturer based in Italy that focuses on fast-growing specialty products. SPC products, strong technology, design capabilities, and customer-centric business model are complementary to our Performance Coatings segment, and position us for continued growth in the high-end tile markets.

The operating results will be included in the Company’s condensed consolidated financial statements commencing April 24, 2017, the date of the acquisition.

Due to the timing of the acquisition, the Company’s initial purchase price accounting was incomplete at the time these financial statements were issued. As such, the Company cannot disclose the allocation of the acquisition price to acquired assets and liabilities and the related disclosures at this time.

2321

Table of Contents

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

Overview

Net sales for the three months ended ~~June 30, 2016,~~March 31, 2017, increased by ~~$29.8~~$43.1 million, or ~~11.1%~~15.5%, compared with the prior-year same period. The increase in net sales was ~~primarily~~ driven by higher sales ~~from Nubiola~~in Color Solutions (formerly Pigments, Powders and Oxides) and Performance Colors and Glass of ~~$30.8~~$29.3 million ~~which was acquired~~and $15.3 million, respectively, partially offset by lower sales in ~~the third quarter~~Performance Coatings of ~~2015.~~$1.6 million. During the three months ended ~~June 30, 2016,~~March 31, 2017, gross profit increased ~~$20.7~~$14.6 million, or ~~26.7%~~17.3%, compared with the prior-year same period; ~~and,~~ as a percentage of net sales, it increased approximately ~~410~~40 basis points to ~~33.0%~~30.8%. The increase ~~was driven by higher~~in gross profit was attributable to ~~Pigments, Powders and Oxides, Performance Coatings, and~~increases across all of our segments, with increases in Color Solutions, Performance Colors and Glass and Performance Coatings of ~~$13.1~~$7.9 million, ~~$4.1~~$5.6 million and ~~$3.3~~$1.4 million, respectively.

For the three months ended ~~June 30, 2016,~~March 31, 2017, selling, general and administrative (“SG&A”) expenses increased ~~$5.2~~$6.3 million, or ~~9.8%~~12.0%, compared with the prior-year same period. The increase was primarily driven by ~~higher SG&A~~$4.8 million of expenses related to ~~Nubiola of $2.9 million and an increase in pension and other postretirement benefits of $1.8 million which is a result of~~acquisitions completed within the ~~effect of a lower expected return on plan assets in the current year as a result of executing our terminated-vested buyout program in the fourth quarter of 2015.~~last year.

For the three months ended ~~June 30, 2016,~~March 31, 2017, net income was ~~$19.1~~$22.1 million, compared with net ~~income~~loss of ~~$6.8~~$9.7 million for the prior-year same period, and net income attributable to common shareholders was ~~$19.0~~$21.9 million, compared with net ~~income~~loss attributable to common shareholders of ~~$6.6~~$10.0 million for the prior-year same period. Income from continuing operations was ~~$24.9~~$22.1 million for the three months ended ~~June 30, 2016,~~March 31, 2017, compared with income from continuing operations of ~~$12.4~~$19.8 million for the three months ended ~~June 30, 2015.~~March 31, 2016. Our total gross profit for the ~~second~~first quarter of ~~2016~~2017 was ~~$98.4~~$98.8 million, compared with ~~$77.6~~$84.2 million for the three months ended ~~June 30, 2015.~~March 31, 2016.

Outlook

The Company delivered strong performance in the second quarter of 2016, despite challenging economic conditions in Latin America and Asia. Sales increased 11% due to recent acquisitions. In addition,For 2017, we expect that gross profit, as a percentage of net sales, increased to 33.0% from 28.9%. Partially offsetting the higher gross profit were increased SG&A costs, primarily driven by recent acquisitions and a reduction in pension and postretirement benefits income. Our effective tax rate for the second quarter of 2016 was 25.4%, compared with 31.4% in the second quarter of 2015. Wemargin will continue to ~~expect the full year 2016 tax rate to be in the range of 27% - 28%.~~

~~For the remainder of 2016, we anticipate benefitting from~~grow at a measured pace based on strategic actions taken to improve growth in our core businesses and ~~will continue to benefit~~contriubtions from recent acquisitions. We expect tile sales, particularly in Asia, the Middle East and North Africa, and Southern Europe will continue to stabilize and rebound, providing growth. Certain economies where we, or our customers, participate, however,Raw material costs are expected to ~~remain weak, including Argentina~~increase in 2017, however we expect to offset these cost increases through pricing actions, product reformulations and ~~Brazil. The net impact is expected to result in increased sales growth over the remainder of the year, before consideration of~~optimization actions. In addition, foreign currency ~~impacts. Gross profit as a percentage of net sales is expected~~exchange rates continue to be ~~greater than 2015 levels due to strong volumes~~volatile, and ~~a richer product mix.~~we anticipate that changes in rates will adversely impact reported results.

We remain focused on the integration of ~~Vetriceramici, Nubiola, Al Salomi, Ferer, and Pinturas~~our recent acquisitions and continue to work toward achieving the identified synergies. We will continue to focus on opportunities to optimize our cost structure and make our business processes and systems more efficient, and to leverage tax planning opportunities. We continue to expect cash flow from operating activities to be positive for the year, providing additional liquidity.

Further, we are continuing efforts to divest our Europe-based Polymer Additives assets, including the Antwerp, Belgium dibenzoates manufacturing assets, and related Polymer Additives European headquarters and lab facilities. The assets associated with this facility are currently classified as held-for-sale on our condensed consolidated balance sheets.

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, ~~2015.~~

2016.

2422

Table of Contents

Results of Operations - Consolidated

Comparison of the three months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~

For the three months ended ~~June 30, 2016,~~March 31, 2017, income from continuing operations was ~~$24.9~~$22.1 million, compared with ~~$12.4~~$19.8 million income from continuing operations for the three months ended ~~June 30, 2015.~~March 31, 2016. Net income was ~~$19.1~~$22.1 million, compared with net ~~income~~loss of ~~$6.8~~$9.7 million for the three months ended ~~June 30, 2015.~~March 31, 2016. For the three months ended ~~June 30, 2016,~~March 31, 2017, net income attributable to common shareholders was ~~$19.0~~$21.9 million, or earnings per share of ~~$0.23,~~$0.26, compared with net ~~income~~loss attributable to common shareholders of ~~$6.6~~$10.0 million, or ~~earnings~~loss per share of ~~$0.08,~~$0.12, for the three months ended ~~June 30, 2015.~~March 31, 2016.

Net Sales



	Three Months Ended										Three Months Ended
	June 30,										March 31,
	2016			2015			$ Change		% Change		2017			2016			$ Change		% Change
	(Dollars in thousands)										(Dollars in thousands)
Net sales		297,977			268,214			29,763	11.1	%		320,555			277,451			43,104	15.5	%
Cost of sales		199,604			190,574			9,030	4.7	%		221,761			193,222			28,539	14.8	%
Gross profit	$	98,373		$	77,640		$	20,733	26.7	%	$	98,794		$	84,229		$	14,565	17.3	%
Gross profit as a % of net sales		33.0	%		28.9	%						30.8	%		30.4	%

Net sales increased by ~~$29.8~~$43.1 million, or ~~11.1%~~15.5%, in the three months ended ~~June 30, 2016,~~March 31, 2017, compared with the prior-year same period, driven by higher sales in ~~Pigments, Powders and Oxides~~Color Solutions and Performance ~~Coatings~~Colors and Glass of ~~$31.4~~$29.3 million and ~~$1.1~~$15.3 million, respectively, partially offset by lower sales in Performance ~~Colors and Glass~~Coatings of ~~$2.8~~$1.6 million. The increase in net sales was ~~primarily~~ driven by the sales from ~~Nubiola~~Cappelle of ~~$30.8~~$19.0 million, ~~which was acquired in~~ESL of $10.8 million, and Pinturas of $2.0 million, all acquisitions completed after the ~~third~~first quarter of ~~2015.~~ 2016, as well as strong growth in pigment products and surface technology products of $5.6 million and $3.7 million, respectively.

Gross Profit

Gross profit increased ~~$20.7~~$14.6 million, or ~~26.7%~~17.3%, in the three months ended ~~June 30, 2016,~~March 31, 2017, compared towith the prior-year same period, and as a percentage of net sales, it increased ~~410~~40 basis points to ~~33.0%~~30.8%. The ~~increase was driven by an~~ increase in gross profit was attributable to ~~Pigments, Powders and Oxides, Performance Coatings, and~~increases across all of our segments, with increases in Color Solutions, Performance Colors and Glass and Performance Coatings of ~~$13.1~~$7.9 million, ~~$4.1~~$5.6 million and ~~$3.3~~$1.4 million, respectively. The increase in gross profit was primarily due to lower manufacturing costs of $9.0 million, increased gross profit from acquisitions of $7.5 million and higher sales volumes and mix of ~~$12.6~~$5.7 million, ~~lower~~partially offset by higher raw material costs of ~~$7.9~~$2.8 million, ~~and lower manufacturing costs of $7.2 million, partially offset by~~ unfavorable product pricing of ~~$5.5~~$2.4 million and unfavorable foreign currency impacts of ~~$1.7~~$2.2 million.

Geographic Revenues

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



	Three Months Ended								Three Months Ended
	June 30,								March 31,
	2016		2015		$ Change		% Change		2017		2016		$ Change		% Change
	(Dollars in thousands)								(Dollars in thousands)
Geographic Revenues on a sales origination basis
Europe	$	138,888	$	121,018	$	17,870	14.8	%	$	148,923	$	128,700	$	20,223	15.7	%
United States		76,853		72,875		3,978	5.5	%		88,380		70,171		18,209	25.9	%
Asia Pacific		44,887		38,252		6,635	17.3	%		44,208		42,939		1,269	3.0	%
Latin America		37,349		36,069		1,280	3.5	%		39,044		35,641		3,403	9.5	%
Net sales	$	297,977	$	268,214	$	29,763	11.1	%	$	320,555	$	277,451	$	43,104	15.5	%

The increase in net sales of ~~$29.8~~$43.1 million, compared with the prior-year same period, was driven by an increase in sales ~~across~~from all regions. The increase in sales from Europe was primarily attributable to higher sales ~~from recent acquisitions, including Nubiola sales~~in Color Solutions and Performance Colors and Glass of ~~$12.1 million, Al Salomi sales of $6.5~~$17.6 million and ~~Ferer sales of $1.6~~$5.5 million, respectively, partially offset by a decrease in electronic products sales of $4.3 million. The increase in sales in Asia Pacific was primarily attributable to Nubiola sales of $4.3 million, which was acquired in the third quarter of 2015 and an increase in sales in Performance Coatings of ~~$1.8~~$2.9 million. ~~The increase in sales in the United States was~~

2523

Table of Contents

The increase in sales from the United States was attributable to ~~Nubiola~~higher sales ~~of $8.2 million, partially offset by lower sales~~ in Color Solutions and Performance Colors and Glass of ~~$5.5~~$10.1 million and $8.6 million. The increase in sales infrom Latin America was attributable to ~~Nubiola~~higher sales ~~of $6.1 million, partially offset by lower~~across all segments. The increase in sales from Asia Pacific was primarily attributable to increased sales in ~~Performance Coatings of $4.3 million.~~Color Solutions.

The following table presents our sales on the basis of where sold products were shipped.


	Three Months Ended								Three Months Ended
	June 30,								March 31,
	2016		2015		$ Change		% Change		2017		2016		$ Change		% Change
	(Dollars in thousands)								(Dollars in thousands)
Geographic Revenues on a shipped-to basis
Europe	$	136,454	$	119,032	$	17,422	14.6	%	$	140,539	$	128,336	$	12,203	9.5	%
United States		60,590		52,422		8,168	15.6	%		66,918		59,628		7,290	12.2	%
Asia Pacific		60,152		55,274		4,878	8.8	%		70,121		54,528		15,593	28.6	%
Latin America		40,781		41,486		(705)	(1.7)	%		42,977		34,959		8,018	22.9	%
Net sales	$	297,977	$	268,214	$	29,763	11.1	%	$	320,555	$	277,451	$	43,104	15.5	%

~~Selling, General and Administrative Expenses~~

~~The following table includes significant components of SG&A and their respective changes between 2016 and 2015:~~

Three Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Personnel expenses

$
28,751

$
27,832

$
919

3.3
%
Incentive compensation

3,161

72

3,089

4,290.3
%
Stock-based compensation

2,211

5,866

(3,655)

(62.3)
%
Pension and other postretirement benefits

104

(1,705)

1,809

(106.1)
%
Bad debt

345

140

205

146.4
%
Business development

3,855

3,021

834

27.6
%
All other expenses

19,444

17,469

1,975

11.3
%
Selling, general and administrative expenses

$
57,871

$
52,695

$
5,176

9.8
%

SG&A expenses were $5.2 million higher in the three months ended June 30, 2016, compared with the prior-year same period. Included in SG&A expenses were $2.9 million and $0.4 million of expenses attributable to Nubiola and Ferer, which were acquired in the third quarter of 2015 and the first quarter of 2016, respectively. The increase in incentive compensation expense of $3.1 million is a result of the Company’s performance relative to targets for certain awards compared with the prior year. The increase in pension and other postretirement benefits of $1.8 million is a result of the effect of a lower expected return on plan assets in the current year as a result of executing our terminated-vested buyout program in the fourth quarter of 2015. These increases were partially mitigated by lower stock-based compensation expense of $3.7 million.

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

~~Table of Contents~~

Three Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Strategic services

$
29,012

$
26,261

$
2,751

10.5
%
Functional services

23,487

20,496

2,991

14.6
%
Incentive compensation

3,161

72

3,089

4,290.3
%
Stock-based compensation

2,211

5,866

(3,655)

(62.3)
%
Selling, general and administrative expenses

$
57,871

$
52,695

$
5,176

9.8
%

SG&A expenses were $5.2 million higher in the three months ended June 30, 2016, compared with the prior-year same period. The increase in strategic and functional services was driven by an increase in expenses from recently acquired acquisitions of $2.5 million and $1.1 million, respectively. The increase in functional services was also driven by the increase in pension and other postretirement benefits of $1.8 million.

~~Restructuring and Impairment Charges~~

Three Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Employee severance

$
609

$
1,019

$
(410)

(40.2)
%
Other restructuring costs

178

97

81

83.5
%
Restructuring and impairment charges

$
787

$
1,116

$
(329)

(29.5)
%

Restructuring and impairment charges decreased in the second quarter of 2016 compared with the prior-year same period. The decrease was primarily due to less costs associated with employee severance during the three months ended June 30, 2016, compared with the prior-year same period.

~~Interest Expense~~

Three Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Interest expense

$
5,118

$
3,325

$
1,793

53.9
%
Amortization of bank fees

329

289

40

13.8
%
Interest capitalization

(19)

(504)

485

(96.2)
%
Interest expense

$
5,428

$
3,110

$
2,318

74.5
%

Interest expense increased the second quarter of 2016 compared with the prior-year same period. The increase in interest expense was due to an increase in the average long-term debt balance during the three months ended June 30, 2016, compared with the prior-year same period, as well as less interest capitalization associated with long-term capital projects.

~~Income Tax Expense~~

During the second quarter of 2016, income tax expense was $8.5 million, or 25.4% of pre-tax income. In the second quarter of 2015, we recorded tax expense of $5.7 million, or 31.4% of pre-tax income. The tax expense in the second quarter of 2016 and 2015, as a percentage of pre-tax income, is lower than the U.S. federal statutory income tax rate of 35% primarily as a result of foreign statutory rate differences. Second quarter 2015 tax expense was further lowered as a result of pre-tax losses in jurisdictions for which no tax benefit was recognized net against the benefit of pre-tax income in jurisdictions with no tax expense due to the utilization of fully valued tax attributes.

~~Table of Contents~~

~~Results of Operations - Segment Information~~

~~Comparison of the three months ended June 30, 2016 and 2015~~

~~Performance Coatings~~

Three Months Ended

Change due to

June 30,

Volume /

2016

2015

$ Change

% Change

Price

Mix

Currency

Other

(Dollars in thousands)

Segment net sales

$
140,589

$
139,460

$
1,129

0.8
%

$
(4,941)

$
13,647

$
(7,577)

$
—
Segment gross profit

39,234

35,144

4,090

11.6
%

(4,941)

3,932

(1,621)

6,720
Gross profit as a % of segment net sales

27.9
%

25.2
%

Net sales increased in Performance Coatings compared with the prior-year same period, driven by an increase in sales from Al Salomi of $6.5 million, which was acquired in the fourth quarter of 2015, $0.8 million in porcelain enamel, and $0.2 million in other tile products, partially offset by decrease of $4.0 million in frits and glazes, $1.1 million in digital inks, $0.7 million in color products, and $0.6 million due to the sale of our interest in an operating affiliate in Venezuela (“Venezuela”) in the fourth quarter of 2015. The increase in net sales was driven by increased sales volume and mix of $13.6 million, partially offset by unfavorable foreign currency impacts of $7.6 million and lower product pricing of $4.9 million. Gross profit increased $4.1 million from the prior-year same period, primarily driven by higher sales volumes and mix of $3.9 million, lower manufacturing costs of $3.9 million, and lower raw materials of $2.8 million, partially offset by unfavorable product pricing impacts of $4.9 million and unfavorable foreign currency impacts of $1.6 million.

Three Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Segment net sales by Region

Europe

$
80,224

$
76,395

$
3,829

5.0
%
Latin America

26,165

31,036

(4,871)

(15.7)
%
Asia Pacific

22,502

20,751

1,751

8.4
%
United States

11,698

11,278

420

3.7
%
Total

$
140,589

$
139,460

$
1,129

0.8
%

The net sales increase of $1.1 million was driven by increases in Europe, Asia Pacific and the United States, partially offset by a decrease in Latin America. The increase in sales in Europe was primary attributable to $6.5 million in sales from Al Salomi, which was acquired in the fourth quarter of 2015, partially offset by a decrease in sales in other tile product lines and color products of $1.3 million and $1.1 million, respectively. The sales increase in Asia Pacific was driven by higher sales in digital inks and frits and glazes of $1.0 million and $1.0 million, respectively, and the increase in sales in the United States was driven by higher sales in porcelain enamel of $0.4 million. The sales decrease in Latin America was primarily driven by lower sales in frits and glazes of $6.5 million, partially mitigated by increased sales in other tile product lines of $1.5 million.

~~Table of Contents~~

~~Performance Colors and Glass~~

Three Months Ended

Change due to

June 30,

Volume /

2016

2015

$ Change

% Change

Price

Mix

Currency

Other

(Dollars in thousands)

Segment net sales

$
95,933

$
98,729

$
(2,796)

(2.8)
%

$
(289)

$
(1,922)

$
(585)

$
—
Segment gross profit

36,705

33,389

3,316

9.9
%

(289)

(2,164)

(109)

5,878
Gross profit as a % of segment net sales

38.3
%

33.8
%

Net sales decreased compared with the prior-year same period, primarily driven by lower sales of our electronics and decoration products of $4.2 million and $2.5 million, respectively, partially mitigated by higher sales of automotive products of $2.1 million and $1.2 million of sales attributable to Ferer, which was acquired in the first quarter of 2016. Net sales were impacted by unfavorable volume and mix of $1.9 million, unfavorable foreign currency impacts of $0.6 million, and lower product pricing of $0.3 million. Gross profit increased from the prior-year same period, primarily due to lower raw material costs of $3.6 million and favorable manufacturing costs of $2.2 million, partially offset by lower sales volumes and mix of $2.2 million, lower product pricing of $0.3 million and unfavorable foreign currency impacts of $0.1 million.

Three Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Segment net sales by Region

Europe

$
41,960

$
40,070

$
1,890

4.7
%
United States

34,420

39,883

(5,463)

(13.7)
%
Asia Pacific

14,750

14,123

627

4.4
%
Latin America

4,803

4,653

150

3.2
%
Total

$
95,933

$
98,729

$
(2,796)

(2.8)
%

The net sales decline of $2.8 million was driven by lower sales in the United States, partially mitigated by increased sales in Europe, Asia Pacific and Latin America. The decrease in sales in the United States was attributable to lower sales in electronics and decoration products of $4.3 million and $1.2 million, respectively. The increase in Europe was primarily attributable to $1.2 million and $0.6 million in sales from Ferer and Pinturas, which were acquired in the first quarter of 2016 and the second quarter of 2016, respectively. The increases in Asia Pacific and Latin America were primarily due to higher sales of automotive products of $1.0 million and $0.2 million, respectively.

~~Pigments, Powders and Oxides~~

Three Months Ended

Change due to

June 30,

Volume /

2016

2015

$ Change

% Change

Price

Mix

Currency

Other

(Dollars in thousands)

Segment net sales

$
61,455

$
30,025

$
31,430

104.7
%

$
(288)

$
31,762

$
(44)

$
—
Segment gross profit

22,404

9,292

13,112

141.1
%

(288)

10,785

(5)

2,620
Gross profit as a % of segment net sales

36.5
%

30.9
%

Net sales increased compared with the prior-year same period, primarily due to sales from Nubiola of $30.8 million, which was acquired in the third quarter of 2015. Net sales were positively impacted by higher volumes and mix, excluding the increase from Nubiola, of $1.0 million, partially offset by lower product pricing of $0.3 million. Gross profit increased from the prior-year same

~~Table of Contents~~

period, primarily due to favorable sales volumes and mix of $10.8 million, favorable raw material costs of $1.5 million, and lower manufacturing costs of $1.1 million, partially offset by unfavorable product pricing of $0.3 million.

Three Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Segment net sales by Region

United States

$
30,735

$
21,714

$
9,021

41.5
%
Europe

16,704

4,553

12,151

266.9
%
Asia Pacific

7,635

3,378

4,257

126.0
%
Latin America

6,381

380

6,001

1,579.2
%
Total

$
61,455

$
30,025

$
31,430

104.7
%

Net sales increased $31.4 million, primarily driven by increased sales from Nubiola of $30.8 million, which was acquired in the third quarter of 2015, and contributed to the increased sales in all regions.

~~Comparison of the six months ended June 30, 2016 and 2015~~

For the six months ended June 30, 2016, income from continuing operations was $44.6 million, compared with $25.4 million income from continuing operations for the six months ended June 30, 2015. Net income was $9.4 million, which includes an impairment charge from discontinued operations of $24.1 million, for the six months ended June 30, 2016, compared with net income of $15.8 million for the six months ended June 30, 2015. For the six months ended months ended June 30, 2016, net income attributable to common shareholders was $9.0 million, or earnings per share of $0.11, compared with net income attributable to common shareholders of $17.6 million, or earnings per share of $0.20, for the six months ended June 30, 2015.

~~Net Sales~~

Six Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Net sales

575,428

530,986

44,442

8.4
%
Cost of sales

392,826

382,711

10,115

2.6
%
Gross profit

$
182,602

$
148,275

$
34,327

23.2
%
Gross profit as a % of net sales

31.7
%

27.9
%

Net sales increased by $44.4 million, or 8.4%, in the six months ended June 30, 2016, compared with the prior-year same period driven by higher sales in Pigments, Powders and Oxides of $66.1 million, partially offset by lower sales in Performance Colors and Glass and Performance Coatings of $14.1 million and $7.5 million, respectively. The increase in net sales was primarily driven by the sales from Nubiola of $64.2 million, which was acquired in the third quarter of 2015, partially offset by a decrease in electronic and decoration products of $10.0 million and $7.0 million, respectively.

~~Gross Profit~~

Gross profit increased $34.3 million, or 23.2%, in the six months ended June 30, 2016, compared with the prior-year same period, and as a percentage of net sales, it increased 380 basis points to 31.7%. The increase in gross profit was driven by increases in Pigments, Powders and Oxides, Performance Coatings and Performance Colors and Glass of $25.5 million, $7.3 million and $0.7 million, respectively. The increase was primarily due to higher sales volumes and mix of $21.6 million, lower raw material costs of $14.6 million and lower manufacturing costs of $12.8 million, partially offset by unfavorable product pricing of $10.7 million and unfavorable foreign currency impacts of $4.9 million.

~~Table of Contents~~

~~Geographic Revenues~~

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

Six Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Geographic Revenues on a sales origination basis

Europe

$
267,591

$
236,854

$
30,737

13.0
%
United States

147,023

141,686

5,337

3.8
%
Asia Pacific

87,824

77,189

10,635

13.8
%
Latin America

72,990

75,257

(2,267)

(3.0)
%
Net sales

$
575,428

$
530,986

$
44,442

8.4
%

The increase in net sales of $44.4 million, compared with the prior-year same period, was driven by increases in Europe, Asia Pacific and the United States of $30.7 million, $10.6 million and $5.3 million, respectively, partially offset by a decrease in Latin America of $2.3 million. The increases in Europe and Asia Pacific were primarily attributable to Nubiola sales of $25.0 million and $8.4 million, respectively, which was acquired in the third quarter of 2015. The increase in the United States was attributable to Nubiola sales of $17.0 million, partially offset by lower sales in Performance Colors and Glass of $12.4 million. The decrease in sales in Latin America was due to the sale of our interest in an operating affiliate in Venezuela in the fourth quarter of 2015, which accounted for $5.0 million of the decrease, partially offset by higher sales in Pigments, Powders and Oxides.

~~The following table presents our sales on the basis of where sold products were shipped.~~

Six Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Geographic Revenues on a shipped-to basis

Europe

$
264,790

$
233,915

$
30,875

13.2
%

United States

120,218

103,150

17,068

16.5
%

Asia Pacific

114,680

107,023

7,657

7.2
%

Latin America

75,740

86,898

(11,158)

(12.8)
%

Net sales

$
575,428

$
530,986

$
44,442

8.4
%

Selling, General and Administrative Expenses

The following table includes SG&A components with significant changes between ~~2016~~2017 and ~~2015:~~

2016



	Six Months Ended
	June 30,
									Three Months Ended
	2016		2015		$ Change		% Change		March 31,
									2017		2016		$ Change		% Change
	(Dollars in thousands)								(Dollars in thousands)
Personnel expenses	$	59,580	$	56,865	$	2,715	4.8	%	$	32,904	$	30,829	$	2,075	6.7	%
Incentive compensation		5,146		1,724		3,422	198.5	%		1,830		1,985		(155)	(7.8)	%
Stock-based compensation		3,837		7,980		(4,143)	(51.9)	%		2,723		1,626		1,097	67.5	%
Pension and other postretirement benefits		142		(3,394)		3,536	(104.2)	%		(80)		38		(118)	(310.5)	%
Bad debt		223		(150)		373	(248.7)	%		(241)		(122)		(119)	97.5	%
Business development		4,955		4,639		316	6.8	%		2,361		1,100		1,261	114.6	%
Intangible asset amortization										2,051		1,500		551	36.7	%
All other expenses		36,634		34,487		2,147	6.2	%		17,410		15,690		1,720	11.0	%
Selling, general and administrative expenses	$	110,517	$	102,151	$	8,366	8.2	%	$	58,958	$	52,646	$	6,312	12.0	%

~~Table of Contents~~

SG&A expenses were ~~$8.4~~$6.3 million higher in the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, compared with the prior-year same period. Included in SG&A expenses were ~~$6.4 million and $0.8~~$4.8 million of expenses ~~attributable~~related to ~~Nubiola and Ferer, which were~~acquisitions acquired inwithin the ~~third quarter of 2015 and the first quarter of 2016, respectively.~~last year. The increase in ~~incentive~~stock-based compensation expense of ~~$3.4~~$1.1 million ~~was~~is a result of the Company’s performance relative to targets for certain awards compared with the ~~prior year.~~prior-year same period. The increase in ~~pension and other postretirement benefits of $3.5 million~~business development expenses is a result of the effect of a lower expected return on plan assets in the current year as a result of executing our terminated-vested buyout program in the fourth quarter of 2015. These increases were offset by lower stock-based compensation expense of $4.1 million.higher professional fees.

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


	Six Months Ended								Three Months Ended
	June 30,								March 31,

	2016		2015		$ Change		% Change		2017		2016		$ Change		% Change
	(Dollars in thousands)								(Dollars in thousands)
Strategic services	$	57,416	$	51,982	$	5,434	10.5	%	$	31,693	$	28,404	$	3,289	11.6	%
Functional services		44,118		40,465		3,653	9.0	%		22,712		20,631		2,081	10.1	%
Incentive compensation		5,146		1,724		3,422	198.5	%		1,830		1,985		(155)	(7.8)	%
Stock-based compensation		3,837		7,980		(4,143)	(51.9)	%		2,723		1,626		1,097	67.5	%
Selling, general and administrative expenses	$	110,517	$	102,151	$	8,366	8.2	%	$	58,958	$	52,646	$	6,312	12.0	%

SG&A expenses were $8.4 million higher in the six months ended June 30, 2016, compared with the prior-year same period. The increase in strategic and functional services was driven by an increase in expenses from recently acquired businesses

Table of ~~$5.2 million and $2.5 million, respectively.~~ Contents

Restructuring and Impairment Charges



	Six Months Ended
	June 30,
									Three Months Ended
	2016		2015		$ Change		% Change		March 31,
									2017		2016		$ Change		% Change
	(Dollars in thousands)								(Dollars in thousands)
Employee severance	$	1,141	$	1,290	$	(149)	(11.6)	%	$	980	$	532	$	448	84.2	%
Asset impairment										1,176		—		1,176	NM
Other restructuring costs		527		335		192	57.3	%		862		349		513	147.0	%
Restructuring and impairment charges	$	1,668	$	1,625	$	43	2.6	%	$	3,018	$	881	$	2,137	242.6	%

Restructuring and impairment charges ~~did not change significantly~~increased in the first ~~six months~~quarter of ~~2016~~2017 compared with the prior-year same period. The increase was primarily due to costs associated with a restructuring plan in Italy, which includes $1.2 million of asset impairment associated with assets that have been taken out of service, as well as actions taken at our recent acquisitions associated with achieving our targeted synergies.

Interest Expense



	Six Months Ended
	June 30,
									Three Months Ended
	2016		2015		$ Change		% Change		March 31,
									2017		2016		$ Change		% Change
	(Dollars in thousands)								(Dollars in thousands)
Interest expense	$	9,662	$	6,603	$	3,059	46.3	%	$	5,748	$	4,544	$	1,204	26.5	%
Amortization of bank fees		644		586		58	9.9	%		479		315		164	52.1	%
Interest capitalization		(31)		(929)		898	(96.7)	%		(3)		(12)		9	(75.0)	%
Interest expense	$	10,275	$	6,260	$	4,015	64.1	%	$	6,224	$	4,847	$	1,377	28.4	%

Interest expense increased in the first ~~six months~~quarter of ~~2016~~2017 compared with the prior-year same period. As discussed in Note 8, the Company refinanced its debt in the first quarter of 2017, which resulted in a lower interest rate. The increase in interest expense was due to an increase in the average long-term debt balance ~~for~~during the ~~2016 period,~~three months ended March 31, 2017, compared with the prior-year same ~~period, as well as less interest capitalization associated with long-term capital projects.~~period.

~~Table of Contents~~

Income Tax Expense

During the first ~~half~~quarter of ~~2016,~~2017, income tax expense was ~~$16.5~~$7.1 million, or ~~27.0%~~24.4% of pre-tax income. In the first ~~half~~quarter of ~~2015, income~~2016, we recorded tax expense ~~was $8.1~~of $8.0 million, or ~~24.3%~~28.9% of pre-tax income. The tax expense in the first ~~half~~quarter of ~~2016~~2017 and ~~2015,~~2016, as a percentage of pre-tax income, is lower than the U.S. federal statutory income tax rate of 35%, primarily as a result of foreign statutory rate differences. The first half of 2015 tax expense was further lowered as a result of the amount of pre-tax losses in jurisdictions for which no tax benefit is recognized in proportion to the amount of pre-tax income in jurisdictions with no tax expense due to the utilization of fully valued tax attributes. Additionally, the first half of 2015 tax expense was benefited by certain discrete items, which had a favorable impact on the rate of approximately 5%, taking it from approximately 29.0% to 24.3%.

Results of Operations - Segment Information

Comparison of the ~~six~~three months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~

Performance Coatings



	Six Months Ended											Change due to
	June 30,												Volume /
																			Three Months Ended											Change due to
	2016			2015			$ Change		% Change		Price		Mix		Currency		Other		March 31,												Volume /
																			2017			2016			$ Change		% Change		Price		Mix		Currency		Other
	(Dollars in thousands)																		(Dollars in thousands)
Segment net sales	$	268,713		$	276,246		$	(7,533)	(2.7)	%	$	(11,406)	$	22,392	$	(18,519)	$	—	$	126,565		$	128,124		$	(1,559)	(1.2)	%	$	(3,591)	$	7,420	$	(5,388)	$	—
Segment gross profit		71,349			64,019			7,330	11.4	%		(11,406)		8,877		(3,732)		13,591		33,489			32,115			1,374	4.3	%		(3,591)		2,623		(1,467)		3,809
Gross profit as a % of segment net sales		26.6	%		23.2	%														26.5	%		25.1	%

Table of Contents

Net sales ~~declined~~decreased in Performance Coatings compared with the prior-year same period, primarily driven by a decrease in sales of ~~$11.5~~$1.6 million ~~in frits and glazes, $5.0 million due to the sale~~ of Venezuela, which was sold in the fourth quarter of 2015, and $2.5 million in porcelain enamel, partially mitigated by $12.0 million in sales from Al Salomi, which was acquired in the fourth quarter of 2015.color products. The decrease in net sales was driven by unfavorable foreign currency impacts of ~~$18.5~~$5.4 million and lower product pricing of ~~$11.4 million and unfavorable mix of $2.3~~$3.6 million, partially mitigated by increased sales volume and favorable mix of ~~$24.7~~$7.4 million. Gross profit increased ~~$7.3~~$1.4 million from the prior-year same period, primarily driven by lower manufacturing costs of ~~$9.0~~$5.0 million and higher sales volumes and favorable mix of ~~$8.9 million, and lower raw materials costs of $4.6~~$2.6 million, partially offset by unfavorable product pricing impacts of ~~$11.4~~$3.6 million, ~~and~~ unfavorable foreign currency impacts of ~~$3.7~~$1.5 million and higher raw material costs of $1.2 million.



	Six Months Ended
	June 30,
									Three Months Ended
	2016		2015		$ Change		% Change		March 31,
									2017		2016		$ Change		% Change
	(Dollars in thousands)								(Dollars in thousands)
Segment net sales by Region
Europe	$	152,251	$	144,106	$	8,145	5.7	%	$	69,160	$	72,026	$	(2,866)	(4.0)	%
Latin America		49,410		64,710		(15,300)	(23.6)	%		25,330		23,245		2,085	9.0	%
Asia Pacific		44,069		43,666		403	0.9	%		21,317		21,568		(251)	(1.2)	%
United States		22,983		23,764		(781)	(3.3)	%		10,758		11,285		(527)	(4.7)	%
Total	$	268,713	$	276,246	$	(7,533)	(2.7)	%	$	126,565	$	128,124	$	(1,559)	(1.2)	%

The net sales decrease of ~~$7.5~~$1.6 million was driven by ~~declines~~decreases in ~~Latin America and~~sales from Europe, the United States and Asia Pacific, partially mitigated by an increase from Latin America. The decrease in ~~Europe and Asia Pacific. The~~ sales ~~decline in Latin America~~from Europe was primarily ~~driven by lower~~attributable to a decrease in sales ~~from Venezuela~~ of ~~$5.0~~digital inks and colors of $1.6 million ~~which was sold~~and $1.3 million, respectively. The decrease in ~~the fourth quarter of 2015, and lower~~ sales ~~in frits and glazes of $13.4 million, partially mitigated by increased sales in other tile products of $2.8 million. The sales decline in~~from the United States was fully attributable to lower sales inof porcelain enamel and the decrease from Asia Pacific was driven by lower sales of frits and glazes. The sales increase from Latin America was primarily driven by higher sales of digital inks of $1.1 million and higher sales of frits and glazes of $0.8 million. ~~The~~

Performance Colors and Glass



	Three Months Ended											Change due to
	March 31,												Volume /
	2017			2016			$ Change		% Change		Price		Mix		Currency		Acquisitions		Other
	(Dollars in thousands)
Segment net sales	$	103,518		$	88,170		$	15,348	17.4	%	$	621	$	3,514	$	(1,595)	$	12,808	$	—
Segment gross profit		37,418			31,838			5,580	17.5	%		621		1,214		(550)		3,820		475
Gross profit as a % of segment net sales		36.1	%		36.1	%

Net sales increased compared with the prior-year same period, primarily driven by $10.8 million of sales attributable to ESL, $2.0 million of sales attributable to Pinturas, both acquisitions completed in 2016 after the first quarter, and $2.4 million from higher sales of electronics products (excluding ESL). Net sales were impacted by favorable volume and mix of $3.5 million, an increase in sales ~~in Europe was primary attributable to $12.0~~from acquisitions of $12.8 million ~~in sales from Al Salomi, which was acquired in the fourth quarter~~and higher product pricing of ~~2015,~~$0.6 million, partially offset by ~~decreased~~unfavorable foreign currency impacts of $1.6 million. Gross profit increased from the prior-year same period, primarily due to gross profit from acquisitions of $3.8 million, favorable manufacturing costs of $1.1 million, higher sales ~~in digital inks~~volumes and mix of ~~$3.0~~$1.2 million and higher product pricing of $0.6 million, partially offset by unfavorable raw material costs of $0.6 million and unfavorable foreign currency impacts of $0.6 million. ~~The increase in~~

3326

Table of Contents



	Three Months Ended
	March 31,
	2017		2016		$ Change		% Change
	(Dollars in thousands)
Segment net sales by Region
Europe	$	44,586	$	39,096	$	5,490	14.0	%
United States		39,104		30,489		8,615	28.3	%
Asia Pacific		14,633		14,241		392	2.8	%
Latin America		5,195		4,344		851	19.6	%
Total	$	103,518	$	88,170	$	15,348	17.4	%

The net sales increase of $15.3 million was driven by higher sales from all regions. The increase in sales from the United States was attributable to an increase in sales of electronics products of $8.9 million. The increase in sales from Europe was primarily attributable to $3.8 million and $2.0 million in sales from ESL and Pinturas, respectively. The increase from Asia Pacific was primarily due to ~~increased~~higher sales ~~in digital inks and frits and glazes~~ of ~~$1.8~~electronics products of $0.6 million and ~~$0.5 million, partially offset by decreased~~the increase from Latin America was attributable to an increase in sales ~~in porcelain enamel~~ of ~~$1.9~~decoration products of $0.9 million.

~~Performance Colors and Glass~~Color Solutions



	Six Months Ended											Change due to
	June 30,												Volume /
																			Three Months Ended											Change due to
	2016			2015			$ Change		% Change		Price		Mix		Currency		Other		March 31,												Volume /
																			2017			2016			$ Change		% Change		Price		Mix		Currency		Acquisitions		Other
	(Dollars in thousands)																		(Dollars in thousands)
Segment net sales	$	184,103		$	198,193		$	(14,090)	(7.1)	%	$	636	$	(11,373)	$	(3,353)	$	—	$	90,472		$	61,157		$	29,315	47.9	%	$	603	$	9,423	$	(629)	$	19,918	$	—
Segment gross profit		68,543			67,878			665	1.0	%		636		(8,654)		(1,043)		9,726		28,182			20,286			7,896	38.9	%		603		1,906		(215)		3,714		1,888
Gross profit as a % of segment net sales		37.2	%		34.2	%														31.1	%		33.2	%

Net sales ~~decreased~~increased compared with the prior-year same period, primarily ~~driven by lower~~due to sales from Cappelle, and higher sales of ~~our electronics, decoration~~surface technology and ~~industrial~~pigment products of ~~$10.0~~$19.0 million, ~~$7.0~~$3.7 million, and ~~$1.7~~$5.6 million, ~~respectively, partially mitigated by increased sales attributable to Ferer of $2.8 million, which was acquired in the first quarter of 2016, and automobile products of $1.8 million.~~respectively. Net sales were positively impacted by ~~unfavorable volume~~higher sales from acquisitions of $19.9 million, higher volumes and mix of ~~$11.4~~$9.4 million and higher product pricing of $0.6 million, partially offset by unfavorable foreign currency impacts ~~of $3.4 million, partially mitigated by higher product pricing~~ of $0.6 million. Gross profit increased from the prior-year same period, primarily due to ~~lower raw material costs~~gross profit from acquisitions of ~~$7.3~~$3.7 million, lower manufacturing costs of ~~$2.4~~$2.9 million, favorable sales volumes and mix of $1.9 million and higher product pricing of $0.6 million, partially offset by ~~lower sales volumes and mix~~unfavorable raw material costs of ~~$8.7~~$1.0 million and unfavorable foreign currency impacts of ~~$1.0~~$0.2 million.



	Six Months Ended
	June 30,
									Three Months Ended
	2016		2015		$ Change		% Change		March 31,
									2017		2016		$ Change		% Change
	(Dollars in thousands)								(Dollars in thousands)
Segment net sales by Region
United States									$	38,518	$	28,397	$	10,121	35.6	%
Europe	$	81,057	$	83,517	$	(2,460)	(2.9)	%		35,177		17,578		17,599	100.1	%
United States		64,909		77,331		(12,422)	(16.1)	%
Asia Pacific		28,990		27,597		1,393	5.0	%		8,258		7,130		1,128	15.8	%
Latin America		9,147		9,748		(601)	(6.2)	%		8,519		8,052		467	5.8	%
Total	$	184,103	$	198,193	$	(14,090)	(7.1)	%	$	90,472	$	61,157	$	29,315	47.9	%

The net sales ~~decline~~increase of ~~$14.1~~$29.3 million was driven by ~~lower sales in the United States, Europe, and Latin America, partially mitigated by~~ increased sales ~~in Asia Pacific.~~from all regions. The ~~decrease~~increased sales from Europe was primarily driven by sales from Cappelle of $15.9 million. The increase in sales infrom the United States was ~~attributable to lower~~driven by sales ~~across all product lines, and the decline in sales in Europe and Latin America was primarily due to lower sales~~from Cappelle of ~~decoration~~$3.1 million, surface technology products of ~~$4.2~~$3.7 million and ~~$0.8 million, respectively. The decreased sales in Europe was partially mitigated by increased sales attributable to Ferer~~pigments of ~~$2.8 million, which was acquired in the first quarter of 2016.~~$2.4 million. The increase in sales infrom Asia Pacific was ~~primarily due~~attributable to higher sales ~~of automotive products of $1.9 million, partially offset by lower sales in industrial products of $0.4 million.~~for all products.

3427

Table of Contents

~~Pigments, Powders and Oxides~~

Six Months Ended

Change due to

June 30,

Volume /

2016

2015

$ Change

% Change

Price

Mix

Currency

Other

(Dollars in thousands)

Segment net sales

$
122,612

$
56,547

$
66,065

116.8
%

$
101

$
66,355

$
(391)

$
—
Segment gross profit

42,690

17,146

25,544

149.0
%

101

21,406

(107)

4,144
Gross profit as a % of segment net sales

34.8
%

30.3
%

Net sales increased compared with the prior-year same period, primarily due to higher sales from Nubiola of $64.2 million, which was acquired in the third quarter of 2015. Net sales were positively impacted by higher volumes and mix of $66.4 million and favorable product pricing of $0.1 million, partially offset by unfavorable foreign currency impacts of $0.4 million. Gross profit increased from the prior-year same period, primarily due to higher sales volumes and mix of $21.4 million, favorable raw material costs of $2.7 million, lower manufacturing costs of $1.4 million and favorable product pricing of $0.1 million, partially offset by unfavorable foreign currency impacts of $0.1 million.

Six Months Ended

June 30,

2016

2015

$ Change

% Change

(Dollars in thousands)

Segment net sales by Region

United States

$
59,131

$
40,591

$
18,540

45.7
%
Europe

34,283

9,231

25,052

271.4
%
Asia Pacific

14,765

5,926

8,839

149.2
%
Latin America

14,433

799

13,634

1,706.4
%
Total

$
122,612

$
56,547

$
66,065

116.8
%

Net sales increased $66.1 million, primarily driven by increased sales from Nubiola of $64.2 million, which was acquired in the third quarter of 2015, and contributed to the increased sales in all regions.

Summary of Cash Flows for the ~~six~~three months ended ~~June~~March 2017 and 2016 ~~and 2015~~

Six Months Ended

June 30,

2016

2015

$ Change

(Dollars in thousands)
Net cash (used in) provided by operating activities

$
(1,975)

$
3,934

$
(5,909)
Net cash (used in) investing activities

(17,086)

(31,908)

14,822
Net cash provided by financing activities

10,822

102,388

(91,566)
Effect of exchange rate changes on cash and cash equivalents

(725)

(3,501)

2,776
(Decrease) increase in cash and cash equivalents

$
(8,964)

$
70,913

$
(79,877)



	Three Months Ended
	March 31,
	2017		2016		$ Change
	(Dollars in thousands)
Net cash provided by (used in) operating activities	$	1,630	$	(10,161)	$	11,791
Net cash used in investing activities		(6,764)		(11,688)		4,924
Net cash provided by financing activities		51,935		19,200		32,735
Effect of exchange rate changes on cash and cash equivalents		446		134		312
Increase (decrease) in cash and cash equivalents	$	47,247	$	(2,515)	$	49,762

~~Table of Contents~~

~~Details~~The following table includes details of net cash provided by operating ~~activities follows:~~activities.



	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2016		2015		$ Change		2017		2016		$ Change
	(Dollars in thousands)						(Dollars in thousands)
Cash flows from operating activities:
Net income	$	9,382	$	15,800	$	(6,418)
(Gain) loss on sale of assets and business		(3,774)		988		(4,762)
Net income (loss)							$	22,121	$	(9,730)	$	31,851
Loss (gain) on sale of assets and business								419		(4,083)		4,502
Depreciation and amortization		21,929		16,146		5,783		11,375		10,672		703
Interest amortization		644		586		58		479		315		164
Restructuring and impairment		23,651		(32)		23,683		2,828		24,164		(21,336)
Devaluation of Venezuela		—		3,343		(3,343)
Loss on extinguishment of debt								3,905		—		3,905
Accounts receivable		(41,687)		(17,757)		(23,930)		(26,619)		(23,582)		(3,037)
Inventories		(17,695)		1,153		(18,848)		(17,114)		(7,706)		(9,408)
Accounts payable		3,226		(1,511)		4,737		8,188		5,555		2,633
Other current assets and liabilities, net		2,968		(20,786)		23,754		(3,265)		1,876		(5,141)
Other adjustments, net		(619)		6,004		(6,623)		(687)		(7,642)		6,955
Net cash (used in) provided by operating activities	$	(1,975)	$	3,934	$	(5,909)
Net cash provided by (used in) operating activities							$	1,630	$	(10,161)	$	11,791

Cash flows from operating activities. Cash flows provided by operating activities ~~decreased~~increased $11.8 million in the first ~~six~~three months of ~~2016~~2017 compared with the prior-year same period. The ~~decrease~~increase was due to ~~higher cash outflows for working capital of $38.0 million, partially mitigated by lower cash outflows for other assets and liabilities and~~ higher earnings after consideration of non-cash ~~items.~~items, partially offset by higher cash outflows for net working capital of $9.8 million.

Cash flows from investing activities. Cash flows used in investing activities decreased ~~$14.8~~$4.9 million in the first ~~six~~three months of ~~2016~~2017 compared with the prior-year same period. The decrease was primarily due to lower ~~capital expenditures~~cash outflows for business acquisitions of ~~$12.5~~$7.9 million, ~~and was driven~~partially offset by lower ~~spend for~~sales proceeds of $3.6 million, which primarily consisted of the ~~Antwerp, Belgium facility, which was substantially completed~~proceeds from a closed site in Australia during the ~~fourth quarter of 2015.~~three months ended March 31, 2016.

Cash flows from financing activities. Cash flows provided by financing activities ~~decreased $91.6~~increased $32.7 million in the first ~~six~~three months of ~~2016~~2017 compared with the prior-year same ~~period, driven by~~period. As further discussed in Note 8, during the ~~$50.0~~three months ended March 31, 2017, we paid off our Previous Credit Facility and entered into our Credit Facility, consisting of a $400 million ~~prepayment on the~~secured revolving line of credit, a $357.5 million secured term loan facility ~~that~~and a €250 million secured euro term loan facility. This transaction resulted in additional borrowings in the first quarter of $42.1 million compared to the prior-year same period. Further, compared to the prior-year same period, net repayments under loans payable was ~~made~~$7.5 million higher. Additionally, during the first quarter of 2017, we paid $12.7 million in ~~January 2016, a net borrowing decrease on~~debt issuance costs related to the ~~revolving credit facility of $34.2 million, and~~Credit Facility entered into during the ~~purchase~~period, partially offset by lower purchases of treasury stock during the first quarter of ~~$11.4 million.~~2017.

Table of Contents

Capital Resources and Liquidity

2017 Credit Facility

On ~~July 31, 2014,~~February 14, 2017, the Company entered into a new credit facility (the “Credit Facility”) with a group of lenders to refinance ~~the majority of~~ its then outstanding ~~debt.~~ credit facility debt and to provide liquidity for ongoing working capital requirements and general corporate purposes.

The Credit Facility ~~consisted~~consists of a ~~$200~~$400 million secured revolving line of credit with a term of five years, ~~and~~ a ~~$300~~$357.5 million secured term loan facility with a term of seven years and a €250 million secured euro term loan facility with a term of seven years. ~~On January 25, 2016, the Company amended the Credit Facility by entering into the Incremental Assumption Agreement (the “Incremental Agreement”)~~The term loans are payable in equal quarterly installments in an amount equal to ~~increase the revolving line of credit commitment amount from $200 million to $300 million. The Company then used a portion~~0.25% of the ~~increase in the revolving line of credit to repay $50 million~~original principal amount of the term ~~loan facility. The Credit Facility was amended and a portion of the outstanding term~~ loans, ~~were repaid to increase the amount of total liquidity available under the Credit Facility and reduce the total cost of borrowings.~~

~~Principal payments on the term loan facility of $0.75 million quarterly, are payable commencing December 31, 2014,~~ with the remaining balance due on the maturity ~~date. At June 30, 2016,~~date thereof. In addition, the Company ~~had borrowed $244.8 million under the term loan facility, taking into account all prior quarterly payments and the $50 million prepayment that was made in January 2016, at~~is required, on an annual ~~rate~~basis, to make a prepayment of ~~4.0%. There~~term loans until they are ~~no additional borrowings available under~~fully paid and then to the ~~term loan facility.~~ revolving loans in an amount equal to a portion of the Company’s excess cash flow, as calculated pursuant to the Credit Facility.

~~Table~~and, certain additional debt subject to satisfaction of ~~Contents~~certain covenant levels.

Certain of the Company’s U.S. subsidiaries have guaranteed the Company’s obligations under the Credit Facility and such obligations are secured by (a) substantially all of the personal property of the Company and the U.S. subsidiary guarantors and (b) a pledge of 100% of the stock of ~~most~~certain of the Company’s U.S. subsidiaries and 65% of ~~most of~~ the stock of certain of the Company’s ~~first tier~~direct foreign subsidiaries.