Table of Contents

rti8Mag

Mag

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x

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

For the quarterly period ended September 30, 2017March 31, 2020

or

o

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

For the transition period from _________ to __________

Commission File Number 1-584

FERRO CORPORATION

(Exact name of registrant as specified in its charter)

OhioOH

(State or other jurisdiction of

incorporation or organization)

34-0217820

(I.R.S. Employer Identification No.)

6060 Parkland Boulevard

Suite 250

Mayfield Heights, OH

(Address of principal executive offices)

44124

(Zip Code)

216-875-5600

(Registrant’s telephone number, including area code)

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

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

YES ☒ NO ☐

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

Large accelerated filerAccelerated Filer

x

Accelerated filerFiler

o

Non-accelerated filerFiler

o

(Do not check if a smaller reporting company)

Smaller reporting companyReporting Company

o

Emerging growth companyGrowth Company

o

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

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $1.00

FOE

NYSE

At OctoberMarch 31, 2017,2020, there were 83,857,28982,242,817 shares of Ferro Common Stock, par value $1.00, outstanding.


TABLE OF CONTENTS

2


PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

Three Months Ended

March 31,

(Dollars in thousands, except per share amounts)

2020

2019

Net sales

$

252,326

$

263,382

Cost of sales

171,588

185,523

Gross profit

80,738

77,859

Selling, general and administrative expenses

56,046

56,931

Restructuring and impairment charges

1,165

1,740

Other expense (income):

Interest expense

5,530

6,295

Interest earned

(254)

(811)

Foreign currency losses (gains), net

(1,315)

1,964

Miscellaneous expense (income), net

(1,463)

46

Income before income taxes

21,029

11,694

Income tax expense

5,117

2,893

Income from continuing operations

15,912

8,801

Income from discontinued operations, net of income taxes

221

5,077

Net income

16,133

13,878

Less: Net income attributable to noncontrolling interests

10

274

Net income attributable to Ferro Corporation common shareholders

$

16,123

$

13,604

Earnings per share attributable to Ferro Corporation common shareholders:

Basic earnings:

Continuing operations

$

0.19

$

0.10

Discontinued operations

0.06

$

0.19

$

0.16

Diluted earnings:

Continuing operations

$

0.19

$

0.10

Discontinued operations

0.06

$

0.19

$

0.16



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2017

 

2016

 

2017

 

2016



 

(Dollars in thousands, except per share amounts)

Net sales

 

$

350,012 

 

$

288,527 

 

$

1,019,199 

 

$

863,955 

Cost of sales

 

 

246,396 

 

 

199,546 

 

 

708,447 

 

 

592,372 

Gross profit

 

 

103,616 

 

 

88,981 

 

 

310,752 

 

 

271,583 

Selling, general and administrative expenses

 

 

65,485 

 

 

55,588 

 

 

186,957 

 

 

166,105 

Restructuring and impairment charges

 

 

1,471 

 

 

26 

 

 

7,713 

 

 

1,694 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

7,248 

 

 

5,304 

 

 

19,921 

 

 

15,579 

Interest earned

 

 

(201)

 

 

(214)

 

 

(556)

 

 

(414)

Foreign currency losses, net

 

 

1,021 

 

 

867 

 

 

5,575 

 

 

2,867 

Loss on extinguishment of debt

 

 

 —

 

 

 —

 

 

3,905 

 

 

 —

Miscellaneous (income) expense, net

 

 

(1,726)

 

 

705 

 

 

(2,264)

 

 

(2,079)

Income before income taxes

 

 

30,318 

 

 

26,705 

 

 

89,501 

 

 

87,831 

Income tax expense

 

 

7,353 

 

 

6,157 

 

 

23,186 

 

 

22,659 

Income from continuing operations

 

 

22,965 

 

 

20,548 

 

 

66,315 

 

 

65,172 

Loss from discontinued operations, net of income taxes

 

 

 —

 

 

(29,222)

 

 

 —

 

 

(64,464)

Net income (loss)

 

 

22,965 

 

 

(8,674)

 

 

66,315 

 

 

708 

Less: Net income attributable to noncontrolling interests

 

 

148 

 

 

210 

 

 

575 

 

 

589 

Net income (loss) attributable to Ferro Corporation common shareholders

 

$

22,817 

 

$

(8,884)

 

$

65,740 

 

$

119 

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.27 

 

$

0.24 

 

$

0.79 

 

$

0.78 

Discontinued operations

 

 

 —

 

 

(0.35)

 

 

 —

 

 

(0.77)



 

$

0.27 

 

$

(0.11)

 

$

0.79 

 

$

0.01 

Diluted earnings (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.27 

 

$

0.24 

 

$

0.77 

 

$

0.77 

Discontinued operations

 

 

 —

 

 

(0.35)

 

 

 —

 

 

(0.77)



 

$

0.27 

 

$

(0.11)

 

$

0.77 

 

$

 —

See accompanying notes to condensed consolidated financial statements.

3


Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2017

 

2016

 

2017

 

2016



 

(Dollars in thousands)

Net income (loss)

 

$

22,965 

 

$

(8,674)

 

$

66,315 

 

$

708 

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

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) income

 

 

(2,996)

 

 

2,680 

 

 

18,081 

 

 

(2,267)

Cash flow hedging instruments, unrealized gain

 

 

104 

 

 

 —

 

 

104 

 

 

 —

Postretirement benefit liabilities (loss) gain

 

 

(33)

 

 

(2)

 

 

(21)

 

 

293 

Other comprehensive (loss) income, net of income tax

 

 

(2,925)

 

 

2,678 

 

 

18,164 

 

 

(1,974)

Total comprehensive income (loss)

 

 

20,040 

 

 

(5,996)

 

 

84,479 

 

 

(1,266)

Less: Comprehensive income attributable to noncontrolling interests

 

 

294 

 

 

191 

 

 

837 

 

 

450 

Comprehensive income (loss) attributable to Ferro Corporation

 

$

19,746 

 

$

(6,187)

 

$

83,642 

 

$

(1,716)

Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

Net income

$

16,133

$

13,878

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

Foreign currency translation income (loss)

(18,366)

3,508

Cash flow hedging instruments, unrealized loss

(9,040)

(4,314)

Other comprehensive loss, net of income tax

(27,406)

(806)

Total comprehensive income (loss)

(11,273)

13,072

Less: Comprehensive income (loss) attributable to noncontrolling interests

(84)

380

Comprehensive income (loss) attributable to Ferro Corporation

$

(11,189)

$

12,692

See accompanying notes to condensed consolidated financial statements.

4


Ferro Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

March 31,

December 31,

 

2017

 

2016

 

(Dollars in thousands)

(Dollars in thousands)

2020

2019

ASSETS

ASSETS

ASSETS

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,211 

 

$

45,582 

$

43,018

$

96,202

Accounts receivable, net

 

 

337,887 

 

 

259,687 

150,639

139,333

Inventories

 

 

286,848 

 

 

229,847 

266,275

264,476

Other receivables

 

 

50,057 

 

 

37,814 

63,777

69,365

Other current assets

 

 

19,533 

 

 

9,087 

16,838

22,373

Current assets held-for-sale

289,325

291,420

Total current assets

 

 

746,536 

 

 

582,017 

829,872

883,169

Other assets

 

 

 

 

 

 

Property, plant and equipment, net

 

 

288,774 

 

 

262,026 

295,899

302,249

Goodwill

 

 

197,819 

 

 

148,296 

170,778

172,209

Intangible assets, net

 

 

190,985 

 

 

137,850 

124,120

127,815

Deferred income taxes

 

 

106,081 

 

 

106,454 

100,391

98,714

Operating leased assets

17,294

20,088

Other non-current assets

 

 

45,472 

 

 

47,126 

78,302

72,023

Non-current assets held-for-sale

155,313

158,354

Total assets

 

$

1,575,667 

 

$

1,283,769 

$

1,771,969

$

1,834,621

LIABILITIES AND EQUITY

LIABILITIES AND EQUITY

LIABILITIES AND EQUITY

Current liabilities

 

 

 

 

 

 

Loans payable and current portion of long-term debt

 

$

18,477 

 

$

17,310 

$

8,730

$

8,703

Accounts payable

 

 

155,542 

 

 

127,655 

105,093

138,799

Accrued payrolls

 

 

40,950 

 

 

35,859 

27,697

27,447

Accrued expenses and other current liabilities

 

 

85,927 

 

 

65,203 

71,661

73,016

Current liabilities held-for-sale

122,366

133,780

Total current liabilities

 

 

300,896 

 

 

246,027 

335,547

381,745

Other liabilities

 

 

 

 

 

 

Long-term debt, less current portion

 

 

673,464 

 

 

557,175 

797,017

798,862

Postretirement and pension liabilities

 

 

170,199 

 

 

162,941 

168,216

174,021

Operating leased non-current liabilities

11,973

14,474

Other non-current liabilities

 

 

83,995 

 

 

62,594 

60,058

56,976

Non-current liabilities held-for-sale

37,620

38,341

Total liabilities

 

 

1,228,554 

 

 

1,028,737 

1,410,431

1,464,419

Equity

 

 

 

 

 

 

Ferro Corporation shareholders’ equity:

 

 

 

 

 

 

Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 83.8 million and 83.4 million shares outstanding at September 30, 2017, and December 31, 2016, respectively

 

 

93,436 

 

 

93,436 

Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 82.2 million and 82.0 million shares outstanding at March 31, 2020, and December 31, 2019, respectively

93,436

93,436

Paid-in capital

 

 

303,428 

 

 

306,566 

291,820

294,543

Retained earnings

 

 

180,430 

 

 

114,690 

278,139

262,016

Accumulated other comprehensive loss

 

 

(88,741)

 

 

(106,643)

(136,688)

(109,376)

Common shares in treasury, at cost

 

 

(151,900)

 

 

(160,936)

(174,911)

(180,243)

Total Ferro Corporation shareholders’ equity

 

 

336,653 

 

 

247,113 

351,796

360,376

Noncontrolling interests

 

 

10,460 

 

 

7,919 

9,742

9,826

Total equity

 

 

347,113 

 

 

255,032 

361,538

370,202

Total liabilities and equity

 

$

1,575,667 

 

$

1,283,769 

$

1,771,969

$

1,834,621

See accompanying notes to condensed consolidated financial statements.

5


Table of Contents

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



 

(In thousands)

Balances at December 31, 2015

 

9,431 

 

$

(166,020)

 

$

93,436 

 

$

314,854 

 

$

135,507 

 

$

(61,318)

 

$

7,822 

 

$

324,281 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

119 

 

 

 —

 

 

589 

 

 

708 

Other comprehensive (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,835)

 

 

(139)

 

 

(1,974)

Purchase of treasury stock

 

1,175 

 

 

(11,429)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(11,429)

Stock-based compensation transactions

 

(556)

 

 

15,095 

 

 

 —

 

 

(10,015)

 

 

 —

 

 

 —

 

 

 —

 

 

5,080 

Distributions to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(502)

 

 

(502)

Balances at September 30, 2016

 

10,050 

 

 

(162,354)

 

 

93,436 

 

 

304,839 

 

 

135,626 

 

 

(63,153)

 

 

7,770 

 

 

316,164 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2016

 

9,996 

 

 

(160,936)

 

 

93,436 

 

 

306,566 

 

 

114,690 

 

 

(106,643)

 

 

7,919 

 

 

255,032 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

65,740 

 

 

 —

 

 

575 

 

 

66,315 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

17,902 

 

 

262 

 

 

18,164 

Stock-based compensation transactions

 

(359)

 

 

9,036 

 

 

 —

 

 

(3,138)

 

 

 —

 

 

 —

 

 

 —

 

 

5,898 

Change in ownership interest

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,178 

 

 

2,178 

Distributions to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(474)

 

 

(474)

Balances at September 30, 2017

 

9,637 

 

$

(151,900)

 

$

93,436 

 

$

303,428 

 

$

180,430 

 

$

(88,741)

 

$

10,460 

 

$

347,113 

Ferro Corporation Shareholders

Common Shares

Accumulated

in Treasury

Other

Non-

Common

Paid-in

Retained

Comprehensive

controlling

Total

(In thousands)

Shares

Amount

Stock

Capital

Earnings

Loss

Interests

Equity

Balances at December 31, 2019

11,431 

$

(180,243)

$

93,436 

$

294,543 

$

262,016 

$

(109,376)

$

9,826 

$

370,202 

Net income

16,123 

10 

16,133 

Other comprehensive loss

(27,312)

(94)

(27,406)

Stock-based compensation transactions

(238)

5,332 

(2,723)

2,609 

Balances at March 31, 2020

11,193 

$

(174,911)

$

93,436 

$

291,820 

$

278,139 

$

(136,688)

$

9,742 

$

361,538 

Ferro Corporation Shareholders

Common Shares

Accumulated

in Treasury

Other

Non-

Common

Paid-in

Retained

Comprehensive

controlling

Total

(In thousands)

Shares

Amount

Stock

Capital

Earnings

Loss

Interests

Equity

Balances at December 31, 2018

10,433 

$

(165,545)

$

93,436 

$

298,123 

$

255,978 

$

(105,361)

$

9,218 

$

385,849 

Net income

13,604 

274 

13,878 

Other comprehensive income (loss)

(912)

106 

(806)

Purchase of treasury stock

1,441 

(25,000)

(25,000)

Stock-based compensation transactions

(370)

8,422 

(6,446)

1,976 

Balances at March 31, 2019

11,504 

$

(182,123)

$

93,436 

$

291,677 

$

269,582 

$

(106,273)

$

9,598 

$

375,897 

See accompanying notes to condensed consolidated financial statements.

6


Table of Contents

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows



 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

2017

 

2016



 

(Dollars in thousands)

Cash flows from operating activities

 

 

 

 

 

 

Net cash provided by operating activities

 

$

34,691 

 

$

6,742 

Cash flows from investing activities

 

 

 

 

 

 

Capital expenditures for property, plant and equipment and other long lived assets

 

 

(30,134)

 

 

(18,217)

Proceeds from sale of assets

 

 

 —

 

 

3,598 

Proceeds from sale of equity method investment

 

 

2,268 

 

 

 —

Business acquisitions, net of cash acquired

 

 

(71,930)

 

 

(11,417)

Other investing

 

 

551 

 

 

 —

Net cash used in investing activities

 

 

(99,245)

 

 

(26,036)

Cash flows from financing activities

 

 

 

 

 

 

Net (repayments) borrowings under loans payable

 

 

(10,803)

 

 

2,606 

Proceeds from revolving credit facility, maturing 2019

 

 

15,628 

 

 

212,906 

Principal payments on revolving credit facility, maturing 2019

 

 

(327,183)

 

 

(149,696)

Proceeds from term loan facility, maturing 2024

 

 

623,827 

 

 

 —

Principal payments on term loan facility, maturing 2024

 

 

(3,232)

 

 

 —

Principal payments on term loan facility, maturing 2021

 

 

(243,250)

 

 

(52,250)

Proceeds from revolving credit facility, maturing 2022

 

 

69,787 

 

 

 —

Principal payments on revolving credit facility, maturing 2022

 

 

(42,400)

 

 

 —

Principal payments on other long-term debt

 

 

(2,978)

 

 

 —

Proceeds from other long-term debt

 

 

2,700 

 

 

 —

Payment of debt issuance costs

 

 

(12,927)

 

 

(661)

Acquisition related contingent consideration payment

 

 

(1,315)

 

 

 —

Purchase of treasury stock

 

 

 —

 

 

(11,429)

Other financing activities

 

 

182 

 

 

416 

Net cash provided by financing activities

 

 

68,036 

 

 

1,892 

Effect of exchange rate changes on cash and cash equivalents

 

 

3,147 

 

 

(422)

Increase (decrease) in cash and cash equivalents

 

 

6,629 

 

 

(17,824)

Cash and cash equivalents at beginning of period

 

 

45,582 

 

 

58,380 

Cash and cash equivalents at end of period

 

$

52,211 

 

$

40,556 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

20,594 

 

$

15,032 

Income taxes

 

$

16,619 

 

$

12,929 

Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

Cash flows from operating activities

Net cash used in operating activities

$

(71,535)

$

(67,527)

Cash flows from investing activities

Capital expenditures for property, plant and equipment and other long-lived assets

(8,316)

(23,326)

Collections of financing receivables

28,827

20,186

Business acquisitions, net of cash acquired

(251)

Other investing activities

745

Net cash provided by (used in) investing activities

21,256

(3,391)

Cash flows from financing activities

Net borrowings under loans payable

137

33

Principal payments on term loan facility - Amended Credit Facility

(2,050)

(2,050)

Proceeds from revolving credit facility - Amended Credit Facility

180,000

104,174

Principal payments on revolving credit facility - Amended Credit Facility

(180,000)

(52,866)

Purchase of treasury stock

(25,000)

Other financing activities

216

(414)

Net cash provided by (used in) financing activities

(1,697)

23,877

Effect of exchange rate changes on cash and cash equivalents

(1,208)

377

Decrease in cash and cash equivalents

(53,184)

(46,664)

Cash and cash equivalents at beginning of period

104,402

104,301

Cash and cash equivalents at end of period

51,218

57,637

Less: Cash and cash equivalents of discontinued operations at end of period

8,200

8,200

Cash and cash equivalents of continuing operations at end of period

$

43,018

$

49,437

Cash paid during the period for:

Interest

$

7,853

$

8,232

Income taxes

$

4,431

$

3,940

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, 2016.2019.

As discussed in Note 3,We produce our products primarily in the third quarter of 2016, we completedEurope, Middle East and Africa (“EMEA”) region, the disposition ofUnited States (“U.S.”), the Europe-based Polymer Additives businessAsia Pacific region, and have classified the related operating results, net of income tax, as discontinued operations in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2016.Latin America.

During the first quarter of 2017, the Company renamed the Pigments, Powders and Oxides segment “Color Solutions.”

Operating results for the three and nine months ended September 30, 2017,March 31, 2020, are not necessarily indicative of the results expected in subsequent quarters or for the full year ending December 31, 2017.  2020.

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

Subsequent to the treatment of the Tile Coatings business as discontinued operations, the remaining businesses within Performance Coatings were included within the Performance Colors and Glass reportable segment, which as of January 1, 2020, was renamed Functional Coatings.

Certain reclassifications have been made to the prior year financial statements to conform to current year classifications. The reclassification relates to the balance sheet presentation of assets and liabilities as held for sale and statement of operations presentation of results classified as discontinued operations in relation to the Tile Coatings business transaction.

2.    Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In March 2016,This section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation: (Topic 718): Improvementsthat are applicable to Employee Share-Based Payment Accounting.  ASU 2016-09 is intended to simplify several aspectsthe Company.

The following ASUs were adopted as of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,January 1, 2020 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 asdid not have 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 award 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 award 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 nomaterial impact on the statements of cash flows since the Company has historically presented such payments as financing activities. consolidated financial statements:

NewAccounting Standards

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  ASU 2017-12 provides guidance to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.��This pronouncement is effective for fiscal years beginning after December 15, 2018, including interim

Standard

Description

ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, issued December, 2019

Simplifies the accounting for income taxes by removing certain exceptions and by: altering the recognition of franchise tax partially based on income; requiring evaluation of proper treatment of a step up in the tax basis of goodwill; specifying requirements regarding the allocation of tax expense to a legal entity that is not subject to tax; requiring the effect of an enacted change in tax laws or rates be reflected in the annual effective tax rate computation in the interim period that includes the enactment date, and; other minor codification improvements. ASU 2019-12 was early adopted by the Company.

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, issued June 2016

Changes the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of the financial asset. Additional disclosures are required regarding an entity’s assumptions, models and methods for estimating the expected credit loss.

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periods within those fiscal years. The Company is in the process of assessingNewAccounting Standards Not Yet Adopted

We are currently evaluating the impact that the adoption of this ASU will have on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation: (Topic 718): Scope of Modification Accounting.  ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.This pronouncement is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements.

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 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. 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 current goodwill impairment test. This pronouncement is effective for the annual or any interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019. 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 in evaluating whether transactions should be accounted for as acquisitions (or dispositions) of assets or businesses. This pronouncement is effective for 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 recognitionstatements 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 annual periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements.following ASUs:

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 fiscal years. The Company is in the process of assessing the impact the adoption of this ASU will have on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases: (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. The Company is in the process of assessing the impact the adoption of this ASU will have on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: (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.  We will adopt the new standard effective January 1, 2018, using the modified

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Standard

Description

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, issued March, 2020

Provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities through December 31, 2022.

ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, issued August, 2018

Modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This ASU is effective for fiscal years beginning after December 15, 2020 and is to be applied using a retrospective approach for all periods presented. Early adoption is permitted.

retrospective method.  We are nearing completion of our assessment and review of specific contracts and we do not currently believe ASU 2014-09 will have a material effect on our consolidated financial statements.

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

3. Revenue

Revenues disaggregated by geography and reportable segment for the three months ended March 31, 2020, follow:

(Dollars in thousands)

EMEA

United States

Asia Pacific

Latin America

Total

Functional Coatings

$

75,857

$

46,694

$

21,756

$

11,128

$

155,435

Color Solutions

37,889

41,159

9,296

8,547

96,891

Total net sales

$

113,746

$

87,853

$

31,052

$

19,675

$

252,326

Revenues disaggregated by geography and reportable segment for the three months ended March 31, 2019, follow:

(Dollars in thousands)

EMEA

United States

Asia Pacific

Latin America

Total

Functional Coatings

$

78,265

$

51,979

$

22,898

$

13,884

$

167,026

Color Solutions

35,567

43,599

8,825

8,365

96,356

Total net sales

$

113,832

$

95,578

$

31,723

$

22,249

$

263,382

4.    Discontinued Operations

During 2014, we commenced a process to market for salethe fourth quarter of 2019, substantially all of the assets and liabilities of our Europe-based Polymer Additives business.  We determined that the criteria to classify these assetsTile Coatings business were classified as held-for-sale under ASC Topic 360, Property, Plant and Equipment, were met at that time. On August 22, 2016, we completedin the dispositionaccompanying consolidated balance sheets. We entered into a definitive agreement to sell our Tile Coatings business which has historically been a part of our Performance Coatings reportable segment. Therefore, the Europe-based Polymer Additives business to Plahoma Two AG, an affiliate of the LIVIA Group.  The Company made a capital contribution of €12 million (approximately $13.6 million) to its subsidiaries that owned the assets prior to the close of the sale.  In August 2016, prior to the sale, an impairment charge of $26.8 million was recorded under ASC Topic 360 Property, Plant and Equipment. The charge was calculated as the difference of the executed transaction price and the carrying value of the assets. The impairment charge included $1.1 million associated with the reclassification of foreign currency translation loss from Accumulated other comprehensive loss (Note 17). We have classified the Europe-based Polymer Additives operating results, net of income tax, have been classified as discontinued operations in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2016.  all periods presented.

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The table below summarizes results for the Europe-based Polymer Additives assets,Tile Coatings business for the three and nine months ended September 30, 2016,March 31, 2020 and 2019 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 eachthe business to consolidated net assets excluding debt.

Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

Net sales

$

114,750

$

124,166

Cost of sales

86,902

100,169

Gross profit

27,848

23,997

Selling, general and administrative expenses

18,808

15,149

Restructuring and impairment charges

279

387

Interest expense

2,231

2,989

Interest earned

(24)

(15)

Foreign currency losses (gains), net

5,765

(1,226)

Miscellaneous expense, net

542

229

Income from discontinued operations before income taxes

247

6,484

Income tax expense

26

1,407

Income from discontinued operations, net of income taxes

221

5,077

Less: Net income (loss) attributable to noncontrolling interests

(23)

105

Net income attributable to Tile Coatings business

$

244

$

4,972

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

March 31,

December 31,

(Dollars in thousands)

2020

2019

Cash and cash equivalents

$

8,200

$

8,200

Accounts receivable, net

158,035

156,645

Inventories

98,502

101,127

Other receivables

21,747

22,442

Other current assets

2,841

3,006

Current assets held-for-sale

289,325

291,420

Property, plant and equipment, net

95,495

97,185

Goodwill

3

3

Amortizable intangible assets, net

39,293

39,692

Deferred income taxes

14,135

14,425

Other non-current assets

6,387

7,049

Non-current assets held-for-sale

155,313

158,354

Total assets held-for-sale

$

444,638

$

449,774



Loans payable and current portion of long-term debt

$

4,053

$

3,678

Accounts payable

84,719

96,998

Accrued payrolls

3,637

4,838

Accrued expenses and other current liabilities

29,957

28,266

Current liabilities held-for-sale

122,366

133,780

Long-term debt, less current portion

25,331

25,805

Postretirement and pension liabilities

7,629

7,473

Other non-current liabilities

4,660

5,063

Non-current liabilities held-for-sale

37,620

38,341

Total liabilities held-for-sale

$

159,986

$

172,121

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Three Months Ended

 

Nine Months Ended



September 30, 2016

 

September 30, 2016



(Dollars in thousands)

Net sales

$

3,831 

 

$

18,481 

Cost of sales

 

5,654 

 

 

28,473 

Gross loss

 

(1,823)

 

 

(9,992)

Selling, general and administrative expenses

 

588 

 

 

3,094 

Restructuring and impairment charges

 

26,843 

 

 

50,902 

Interest expense

 

49 

 

 

325 

Miscellaneous income

 

(4)

 

 

(392)

Loss from discontinued operations before income taxes

 

(29,299)

 

 

(63,921)

Income tax (benefit) expense

 

(77)

 

 

543 

Loss from discontinued operations, net of income taxes

$

(29,222)

 

$

(64,464)

4.    Acquisitions

Dip Tech Ltd.

On August 2, 2017, the Company acquired 100% of the equity interests of Dip Tech Ltd. (“Dip-Tech”), a leading provider of digital printing solutions for glass coatings, for $77.3 million, excluding customary adjustments. Dip-Tech is headquartered in Kfar Saba, Israel. The fair value of the consideration transferred wasfollowing table summarizes cash paid at closing of $60.4 million and contingent consideration of $16.9 million. The Company incurred acquisition costsflow data relating to discontinued operations for the three and nine months ended September 30, 2017, of $2.1 million, which is included in Selling, generalMarch 31, 2020 and administrative expenses in our condensed consolidated statements of operations. The acquired business contributed net sales of $6.4 million for the three and nine months ended September 30, 2017, and net loss attributable to Ferro Corporation of $1.1 million for the three and nine months ended September 30, 2017.  The net loss attributable to Ferro Corporation was driven by the amortization of inventory step up costs of $0.8 million and acquired intangible asset amortization2019:

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Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

Depreciation

$

$

2,927

Amortization of intangible assets

798

Capital expenditures

(1,147)

(4,982)

Non-cash investing activities - capital expenditures, consisting of unpaid capital expenditure liabilities at period end

667

2,428

costs of $0.6 million for the three and nine months ended September 30, 2017.  Dip-Tech incurred research and development costs of $1.1 million for the three and nine months ended September 30, 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 September 30, 2017, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $46.3 million of amortizable intangible assets, $38.2 million of goodwill, $11.5 million of a deferred tax liability,  $3.2 million of personal and real property and $1.1 million of net working capital on the condensed consolidated balance sheet.    

Gardenia Quimica S.A.

On August 3, 2017, the Company acquired the majority interest in Gardenia Quimica S.A. (“Gardenia”) for $3.0 million.  The Company previously owned 46% of Gardenia and recorded it as an equity method investment. In connection with this transaction, the Company now owns 83.5% and fully consolidates Gardenia. Due to a change of control that occurred, the Company recorded a gain on purchase of $2.6 million related to the difference between the Company’s carrying value and fair value of the previously held equity method investment.  

Smalti per Ceramiche, s.r.l

On April 24, 2017, the Company acquired 100% of the equity interests of S.P.C. Group s.r.l., and 100% of the equity interests of Smalti per Ceramiche, s.r.l. (“SPC”), for 17.9 million (approximately $19.4 million), including the assumption of debt of 5.7 million (approximately $6.2 million). SPC is a high-end tile coatings manufacturer based in Italy focused on fast-growing specialty products. SPC’s 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 Company incurred acquisition costs for the three and nine months ended September 30, 2017, of $0.1 million and $1.3 million, respectively, which is included in Selling, general and administrative expenses in our condensed consolidated statements of operations.

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 September 30, 2017, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $6.7 million of personal and real property, $5.9 million of amortizable intangible assets, $5.7 million of net working capital, $3.3 million of goodwill and $2.2 million of a deferred tax liability on the condensed consolidated balance sheet.    

Cappelle Pigments NV

On December 9, 2016, the Company acquired 100% of the equity interests of Belgium-based Cappelle Pigments NV (“Cappelle”), a leader in specialty, high-performance inorganic and organic pigments used in coatings, inks and plastics, for €49.8 million (approximately $52.7 million), including the assumption of debt of 9.8 million. The acquired business contributed net sales of $17.8 million and $55.8 million for the three and nine months ended September 30, 2017, respectively, and net income attributable to Ferro Corporation of $1.2 million and $2.3 million for the three and nine months ended September 30, 2017, respectively.

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 September 30, 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, $3.5 million of goodwill and $3.5 million of a deferred tax liability on the condensed consolidated balance sheet.

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Electro-Science Laboratories, Inc.

On October 31, 2016, the Company acquired 100% of the equity interests 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 $10.5 million and $31.8 million for the three and nine months ended September 30, 2017, respectively, and net income attributable to Ferro Corporation of $1.2 million and $3.9 million for the three and nine months ended September 30, 2017, respectively. The Company incurred acquisition costs for the nine months ended September 30, 2017, of $0.3 million, which is included in Selling, general and administrative expenses in our condensed consolidated statements of operations.

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 September 30, 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, $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 on the condensed consolidated balance sheet.

Delta Performance Products, LLC

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 allocation of the purchase price using 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. The Company 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 Benicarló, S.L.

On June 1, 2016, the Company acquired 100% of the equity interests of privately held Pinturas Benicarló, S.L. (“Pinturas”) for €16.5 million in cash (approximately $18.4 million). The information included herein has been prepared based on the allocation of the purchase price using 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. The Company recorded $8.8 million of amortizable intangible assets, $7.7 million of net working capital, $3.9 million of goodwill, $2.7 million of a deferred tax liability, and $0.7 million of personal and real property on the condensed consolidated balance sheet. 

Ferer Dis Ticaret Ve Kimyasallar Anonim Sirketi A.S.

On January 5, 2016, the Company completed the purchase of 100% of the equity interests of privately held Istanbul-based Ferer Dis Ticaret Ve Kimyasallar Anonim Sirketi A.S. (“Ferer”) for approximately $9.4 million. The information included herein has been prepared based on the allocation of the purchase price using 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. The Company recorded $4.5 million of goodwill, $3.3 million of amortizable intangible assets, $1.7 million of net working capital, $0.7 million of a deferred tax liability and $0.6 million of personal and real property on the condensed consolidated balance sheet. 

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5.    Inventories

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

March 31,

December 31,

 

2017

 

2016

 

(Dollars in thousands)

(Dollars in thousands)

2020

2019

Raw materials

 

$

92,387 

 

$

72,943 

$

78,501

$

80,176

Work in process

 

 

48,131 

 

 

38,859 

48,996

49,717

Finished goods

 

 

146,330 

 

 

118,045 

138,778

134,583

Total inventories

 

$

286,848 

 

$

229,847 

$

266,275

$

264,476

In the production of some of our products, we use precious metals, which we obtain from financial institutions under consignment agreements with terms of one year or less. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign. These fees were $0.3 million and $0.2$1.1 million for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and were $0.8 million and $0.6 million for the nine months ended September 30, 2017 and 2016, respectively.2019. We had on-hand precious metals owned by participants in our precious metals consignment program of $36.3$68.8 million at September 30, 2017,March 31, 2020, and $28.7$66.2 million at December 31, 2016,2019, measured at fair value based on market prices for identical assets and net of credits.assets.

6.    Property, Plant and Equipment

Property, plant and equipment is reported net of accumulated depreciation of $493.6$412.7 million at September 30, 2017,March 31, 2020 and $439.4$412.9 million at December 31, 2016. 2019. As discussed in Note 4, the assets of our Tile Coatings business were classified as held-for-sale under ASC Topic 360; Property, Plant, and Equipment. As such, additional accumulated depreciation of $135.3 million at March 31, 2020 and $137.6 million at December 31, 2019 were classified as Non-current assets held for sale.

Unpaid capital expenditure liabilities, which are non-cash investing activities, were $3.2$1.9 million at September 30, 2017,March 31, 2020 and $2.4$3.4 million at September 30, 2016. March 31, 2019.

We recorded a $3.9 million gain on sale of a closed site in Australia which was recorded in Miscellaneous (income) expense, net in our condensed consolidated statements of operations for the nine months ended September 30, 2016.

As discussed in Note 3, our Europe-based Polymer Additives assets had been classified as held-for-sale under ASC Topic 360, Property, Plant and Equipment from 2014 until the ultimate sale of the business in August 2016. As such, at each historical reporting date, these assets 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, representing the remaining carrying value of long-lived assets at that reporting date.  During the third quarter of 2016, prior to the sale, an impairment charge of $26.8 million, representing net working capital, was recorded under ASC Topic 360 Property, Plant and Equipment. The impairment charges of $26.8 million and $50.9 million are included in Loss from discontinued operations, net of income taxes in our condensed consolidated statements of operations for the three and nine months ended September 30, 2016, respectively.    

Fair Value Measurements Using

Total

Description

Level 1

Level 2

Level 3

Total

(Losses)

(Dollars in thousands)

December 31, 2016

Assets held for sale

$

 —

$

 —

$

 —

$

 —

$

(50,902)

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Table of Contents

7. Goodwill and Other Intangible Assets

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



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

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

 

 

4,145 

2,4

 

 —

 

 

37,371 

1,3

 

41,516 

Foreign currency adjustments

 

 

3,062 

 

 

1,582 

 

 

3,363 

 

 

8,007 

Goodwill, net at September 30, 2017

 

$

35,297 

 

$

42,003 

 

$

120,519 

 

$

197,819 

Functional

Color

(Dollars in thousands)

Coatings

Solutions

Total

Goodwill, net at December 31, 2019

$

121,902

$

50,307

$

172,209

Foreign currency adjustments

(1,049)

(382)

(1,431)

Goodwill, net at March 31, 2020

$

120,853

$

49,925

$

170,778

(1)

During the first quarter of 2017, the Company recorded a purchase price adjustment within the measurement period for goodwill related to the ESL acquisition.

(2)

During the second quarter of 2017, the Company recorded goodwill related to the SPC acquisition.  Refer to Note 4 for additional details. 

(3)

During the third quarter of 2017, the Company recorded goodwill related to the Dip-Tech acquisition. Refer to Note 4 for additional details.

(4)

During the third quarter of 2017, the Company recorded goodwill related to the Gardenia acquisition. Refer to Note 4 for additional details.

March 31,

December 31,

(Dollars in thousands)

2020

2019

Goodwill, gross

$

229,245

$

230,676

Accumulated impairment

(58,467)

(58,467)

Goodwill, net

$

170,778

$

172,209



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016



 

(Dollars in thousands)

Goodwill, gross

 

$

256,286 

 

$

206,763 

Accumulated impairment losses

 

 

(58,467)

 

 

(58,467)

Goodwill, net

 

$

197,819 

 

$

148,296 

Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. As of September 30, 2017,March 31, 2020, the Company is not aware of any events or circumstances that occurred which would require a goodwill impairment test.

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Table of Contents

Amortizable intangible assets consisted of the following:

 

 

 

 

 

 

 

September 30,

 

December 31,

March 31,

December 31,

 

2017

 

2016

 

(Dollars in thousands)

(Dollars in thousands)

2020

2019

Gross amortizable intangible assets:

 

 

 

 

 

 

Patents

 

$

5,334 

 

$

5,147 

$

5,394

$

5,434

Land rights

 

 

4,876 

 

 

4,746 

2,931

2,900

Technology/know-how and other

 

 

129,003 

 

 

84,837 

112,894

112,940

Customer relationships

 

 

92,678 

 

 

80,153 

65,618

66,454

Total gross amortizable intangible assets

 

 

231,891 

 

 

174,883 

186,837

187,728

Accumulated amortization:

 

 

 

 

 

 

Patents

 

 

(5,228)

 

 

(4,981)

(5,373)

(5,413)

Land rights

 

 

(2,825)

 

 

(2,698)

(1,449)

(1,378)

Technology/know-how and other

 

 

(40,723)

 

 

(34,775)

(53,411)

(50,973)

Customer relationships

 

 

(9,204)

 

 

(5,311)

(15,072)

(14,831)

Total accumulated amortization

 

 

(57,980)

 

 

(47,765)

(75,305)

(72,595)

Amortizable intangible assets, net

 

$

173,911 

 

$

127,118 

$

111,532

$

115,133

Indefinite-lived intangible assets consisted of the following:

 

 

 

 

 

 

 

September 30,

 

December 31,

March 31,

December 31,

 

2017

 

2016

 

(Dollars in thousands)

(Dollars in thousands)

2020

2019

Indefinite-lived intangibles assets:

 

 

 

 

 

 

Trade names and trademarks

 

$

17,074 

 

$

10,732 

$

12,588

$

12,682

8.    Debt

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



 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016



 

(Dollars in thousands)

Loans payable

 

$

10,409 

 

$

11,452 

Current portion of long-term debt

 

 

8,068 

 

 

5,858 

Loans payable and current portion of long-term debt

 

$

18,477 

 

$

17,310 

March 31,

December 31,

(Dollars in thousands)

2020

2019

Current portion of long-term debt

$

8,730

$

8,703

Current portion of long-term debt

$

8,730

$

8,703

Long-term debt consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

March 31,

December 31,

 

2017

 

2016

 

(Dollars in thousands)

 

 

 

 

 

 

Term loan facility, net of unamortized issuance costs, maturing 2021(1)

 

$

 —

 

$

239,530 

Term loan facility, net of unamortized issuance costs, maturing 2024(2)

 

 

641,842 

 

 

 —

Revolving credit facility, maturing 2019

 

 

 —

 

 

311,555 

Revolving credit facility, maturing 2022

 

 

27,387 

 

 

 —

(Dollars in thousands)

2020

2019

Term loan facility, net of unamortized issuance costs, maturing 2024(1)

$

799,950

$

801,764

Capital lease obligations

 

 

5,292 

 

 

3,720 

2,315

2,305

Other notes

 

 

7,011 

 

 

8,228 

3,482

3,496

Total long-term debt

 

 

681,532 

 

 

563,033 

805,747

807,565

Current portion of long-term debt

 

 

(8,068)

 

 

(5,858)

(8,730)

(8,703)

Long-term debt, less current portion

 

$

673,464 

 

$

557,175 

$

797,017

$

798,862

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Table of Contents

(1) The carrying value of the term loan facility, maturing 2021, was 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 $7.7 million.$3.7 million at March 31, 2020, and $3.9 million at December 31, 2019.

2014Amended Credit Facility

In 2014,On April 25, 2018, the Company entered into aan amendment (the “Amended Credit Facility”) to its existing credit facility that was amended(the “Credit Facility”), which Amended Credit Facility (a) provided a new revolving facility (the “2018 Revolving Facility”), which replaced the Company’s existing revolving facility, (b) repriced the (“Tranche B-1 Loans”), and (c) provided new tranches of term loans (“Tranche B-2 Loans” and “Tranche B-3 Loans”) denominated in U.S. dollars. The Amended Credit Facility will be used for ongoing working capital requirements and general corporate purposes. The Tranche B-2 Loans are borrowed by the Company and the Tranche B-3 Loans are borrowed on January 25, 2016,a joint and August 29, 2016, resulting inseveral basis by Ferro GmbH and Ferro Europe Holdings LLC.

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Table of Contents

The Amended Credit Facility consists of a $400$500 million secured revolving line of credit with a termmaturity of five years andFebruary 14, 2023, a $300$355 million secured term loan facility with a termmaturity of seven years from the original issuance date (the “Previous Credit Facility”) with a group of lenders that was replaced on February 14, 2017, by the Credit Facility (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 recorded2024, a charge of $3.9 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss on extinguishment of debt in our condensed consolidated statement of operations for the nine months ended September 30, 2017.

2017 Credit Facility

On February 14, 2017, the Company entered into a new credit facility (the “Credit Facility”) with a group of lenders to 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 with a term of five years, a $357.5$235 million secured term loan facility with a termmaturity of seven yearsFebruary 14, 2024 and a €250$230 million secured euro term loan facility with a termmaturity of seven years.February 14, 2024. The term loans are payable in equal quarterly installments in an amount equal to 0.25% of the original principal amount of the term loans, with the remaining balance due on the maturity date thereof. In addition, the Company is required, on an annual basis, to make a prepayment of term loans until they are fully paid and then to the revolving loans in an amount equal to a portion of the Company’s excess cash flow, as calculated pursuant to the Amended Credit Facility.Facility, which prepayment will be applied first to the term loans until they are paid in full, and then to the revolving loans.

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

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

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

The interest rates applicable to the Eurobase rate for term loans will be a Euro Interbank Offered Rate (“EURIBOR”)the highest of (i) the federal funds rate plus an0.50%, (ii) the syndication agent’s prime rate, (iii) the daily LIBOR rate plus 1.00% or (iv) 0.00%. The applicable margin.margin for base rate loans is 1.25%.

·

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 1.50%.

·

The LIBOR rate 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 EURIBOR rate loans is 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.

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

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

At September 30, 2017,March 31, 2020, the Company had borrowed $355.7$347.9 million under the secured term loan facilityTranche B-1 Loans at an interest rate of 3.73% and €248.83.70%, $230.3 million under the secured euro term loan facilityTranche B-2 Loans at an interest rate of 2.75%3.70%, and $225.4 million under the Tranche B-3 Loans at an interest rate of 3.70%. At September 30, 2017,March 31, 2020, there were no0 additional borrowings available under the term loan facilities. WeTranche B-1 Loans, Tranche B-2 Loans, or Tranche B-3 Loans. In connection with these borrowings, we entered into interest rate swap agreements in the second quarter of 2017.  These

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Table of Contents

swaps converted $150 million and €90 million of our term loans from variable interest rates to fixed interest rates.2018. At September 30, 2017,March 31, 2020, the effective interest rate for the term loan facilitiesTranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans, after adjusting for the interest rate swap, was 4.27% for the secured term loan facility5.05%, 2.74%, and 3.00% for the euro term loan facility.2.48%, respectively.

Interest Rate – Revolving Credit Line: The interest rates applicable to loans under the revolving credit line2018 Revolving Credit Facility will be, at the Company’s option, equal to either a base rate or a LIBOR rate plus, in both cases, an applicable variable margin. The variable margin will be based on the ratio of (a) the Company’s total consolidated net debt outstanding (as defined in the Amended Credit Agreement) at such time to (b) the Company’s consolidated EBITDA (as defined in the Amended Credit Agreement) computed for the period of four consecutive fiscal quarters most recently ended.

·

The base rate for revolving loans will be the highest of (i) the federal funds rate plus 0.50%, (ii) syndication agent’s prime rate or (iii) the daily LIBOR rate plus 1.00%.  The applicable margin for base rate loans will vary between 0.75% and 1.75%.

·

The LIBOR rate for revolving loans shall not be less than 0% and the applicable margin for LIBOR rate revolving loans will vary between 1.75% and 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.

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

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

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

At September 30, 2017,March 31, 2020, there were $27.4 million0 borrowings under the revolving credit line at an interest rate of 3.48%.2018 Revolving Credit Facility. After reductions for outstanding letters of credit secured by these facilities, we had $367.9$495.8 million of additional borrowings available under the revolving credit facilities at September 30, 2017.March 31, 2020.

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Table of Contents

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

Specific to the revolving credit facility,2018 Revolving Facility, the Company is subject to a financial covenant regarding the Company’s maximum leverage ratio. If an event of default occurs, all amounts outstanding under the Amended Credit Facility agreement may be accelerated and become immediately due and payable. At September 30, 2017,March 31, 2020, we were in compliance with the covenants of the Amended Credit Facility.

Credit Facility

On February 14, 2017, the Company entered into the Credit Facility with a group of lenders to refinance its then outstanding credit facility debt and to provide liquidity for ongoing working capital requirements and general corporate purposes. The Credit Facility consisted of a $400 million secured revolving line of credit with a term of five years, a $357.5 million 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. For further discussion of the Company’s Credit Facility, refer to Note 9 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

International Receivable Sales Programs

We have several international programs to sell without recourse trade accounts receivable to financial institutions. These transactions are treated as a sale and are accounted for as a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers. The Company continues to service the receivables sold in exchange for a fee. The servicing fee for the three months ended March 31, 2020, was immaterial. The program, whose maximum capacity is 100 million, is scheduled to expire in December 31, 2023. Generally, at the transfer date, the Company receives cash equal to approximately 65% of the value of the sold receivable. Cash proceeds at the transfer date from these arrangements are reflected in operating activities in our consolidated statement of cash flows. The proceeds from the deferred purchase price are reflected in investing activities.

The outstanding principal amount of receivables sold under this program was $20.9 million at March 31, 2020 and $19.3 million at December 31, 2019. The carrying amount of deferred purchase price was $7.4 million at March 31, 2020 and $6.6 million at December 31, 2019 and is recorded in Other receivables. Trade accounts receivable collected to be remitted were $12.8 million at March 31, 2020 and December 31, 2019 and is recorded in Accrued expenses and other current liabilities. As discussed in Note 4, during the fourth quarter of 2019, we entered into a definitive agreement to sell our Tile Coatings business. As such, our Tile Coatings business was classified as held-for-sale. At March 31, 2020 and December 31, 2019, $48.2 million and $52.6 million, respectively, of the outstanding principal amount of receivables sold under this program pertained to the Tile Coatings business. The carrying amount of the deferred purchase price at March 31, 2020 and December 31, 2019 was $20.6 million and $20.5 million, respectively. Both are recorded in Current assets held-for-sale in our consolidated balance sheets.

Activity from these programs for the three months ended March 31, 2020 and 2019 is detailed below:

Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

Trade accounts receivable sold to financial institutions

$

50,537

$

9,117

Cash proceeds from financial institutions (1)

35,390

6,554

(1)In the three months ended March 31, 2020 and 2019, our Tile Coatings business received cash proceeds from financial institutions of $29.7 million and $29.9 million, respectively. Refer to Note 4 for additional discussion of the Tile Coatings business and its classification as discontinued operations.

Other Financing Arrangements

We maintain other lines of credit to provide global flexibility for our short-term liquidity requirements. These facilities are uncommitted lines for our international operations and totaled $61.8 million and $7.3$28.1 million at September 30, 2017,March 31, 2020 and December 31, 2016, respectively.2019. The unused portions of these lines provided additional liquidity of $43.5$25.0 million at September 30, 2017,March 31, 2020 and $6.7 million at December 31, 2016.2019.

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Table of Contents

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:

March 31, 2020

Carrying

Fair Value

(Dollars in thousands)

Amount

Total

Level 1

Level 2

Level 3

Cash and cash equivalents

$

43,018

$

43,018

$

43,018

$

$

Term loan facility - Amended Credit Facility (1)

(799,950)

(709,631)

(709,631)

Other long-term notes payable

(3,482)

(1,594)

(1,594)

Cross currency swaps

27,833

27,833

27,833

Interest rate swaps

(26,773)

(26,773)

(26,773)

Foreign currency forward contracts, net

(947)

(947)

(947)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

September 30, 2017



 

Carrying

 

Fair Value



 

Amount

 

Total

 

Level 1

 

Level 2

 

Level 3



 

(Dollars in thousands)

Cash and cash equivalents

 

$

52,211 

 

$

52,211 

 

$

52,211 

 

$

 —

 

$

 —

Loans payable

 

 

(10,409)

 

 

(10,409)

 

 

 —

 

 

(10,409)

 

 

 —

Term loan facility, maturing 2024(1)

 

 

(641,842)

 

 

(644,916)

 

 

 —

 

 

(644,916)

 

 

 —

Revolving credit facility, maturing 2022

 

 

(27,387)

 

 

(27,835)

 

 

 —

 

 

(27,835)

 

 

 —

Other long-term notes payable

 

 

(7,011)

 

 

(3,781)

 

 

 —

 

 

(3,781)

 

 

 —

Interest rate swaps - asset

 

 

298 

 

 

298 

 

 

 —

 

 

298 

 

 

 —

Interest rate swaps - liability

 

 

(132)

 

 

(132)

 

 

 —

 

 

(132)

 

 

 —

Foreign currency forward contracts, net

 

 

52 

 

 

52 

 

 

 —

 

 

52 

 

 

 —

December 31, 2019

Carrying

Fair Value

(Dollars in thousands)

Amount

Total

Level 1

Level 2

Level 3

Cash and cash equivalents

$

96,202

$

96,202

$

96,202

$

$

Term loan facility - Amended Credit Facility (1)

(801,764)

(799,750)

(799,750)

Other long-term notes payable

(3,496)

(1,557)

(1,557)

Cross currency swaps

22,111

22,111

22,111

Interest rate swaps

(14,698)

(14,698)

(14,698)

Foreign currency forward contracts, net

601

601

601



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

December 31, 2016



 

Carrying

 

Fair Value



 

Amount

 

Total

 

Level 1

 

Level 2

 

Level 3



 

(Dollars in thousands)

Cash and cash equivalents

 

$

45,582 

 

$

45,582 

 

$

45,582 

 

$

 —

 

$

 —

Loans payable

 

 

(11,452)

 

 

(11,452)

 

 

 —

 

 

(11,452)

 

 

 —

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

 

 

(8,228)

 

 

(7,315)

 

 

 —

 

 

(7,315)

 

 

 —

Foreign currency forward contracts, net

 

 

350 

 

 

350 

 

 

 —

 

 

350 

 

 

 —

(1)The carrying valuesvalue of the term loan facilities arefacility is net of unamortized debt issuance costs of $7.7$3.7 million and $3.7$3.9 million for the period ended September 30, 2017,March 31, 2020, and December 31, 2016,2019, respectively.

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.  At September 30, 2017, the fair value of the term loan facility is based on market price information and is measured using the last available bid price of the instrument on a secondary market 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 performance risk.market. 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 performance risk. The fair values of our interest rate swaps and cross currency swaps are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair values of the foreign currency forward contracts are based on market prices for comparable contracts.

Derivative Instruments

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

Derivatives Designated as Hedging Instruments

Interest rate swaps. To reduce our exposure to interest rate changes on our variable-rate debt, we entered into interest rate swap agreements in the second quarter of 2017.  These swaps converted $150 millionCash Flow Hedges. For derivative instruments that are designated and €90 million of our term loans from variable interest

18


Table of Contents

rates to fixed interest rates.  These swaps qualify and were designated as cash flow hedges.  The effective portionshedges, the gain or loss on the derivative is recorded as a component of cash flow hedges are recorded in accumulatedAccumulated other comprehensive incomeloss (“AOCI”AOCL”) and are reclassified into earnings in the same period during which the underlying hedged items impacttransaction affects earnings.  The ineffective portions of cash flow hedges is recognized immediately into earnings. 

The Company did not have any ineffectiveness related to theutilizes interest rate swaps duringto limit exposure to market fluctuations on floating-rate debt.

During the threesecond quarter of 2018, the Company entered into variable to fixed interest rate swaps with a maturity date of February 14, 2024. The notional amount is $313.6 million at March 31, 2020. These swaps are hedging risk associated with the Tranche B-1 Loans. These interest rate swaps are designated as cash flow hedges.As of March 31, 2020, the Company expects it will reclassify net losses of approximately $7.1million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

15


The Company has converted a U.S. dollar denominated, variable rate debt obligation into a Euro fixed rate obligation using receive-float, pay-fixed cross currency swaps in the second quarter of 2018. These swaps are hedging currency and nine months ended September 30, 2017.    interest rate risk associated with the Tranche B-3 Loans. These cross currency swaps are designated as cash flow hedges.The notional amount is $225.4 million at March 31, 2020, with a maturity date of February 14, 2024. As of March 31, 2020, the Company expects it will reclassify net gains of approximately $1.7 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

The amount of gain (loss) recognized in AOCIAOCL and the amount of gainloss (gain) reclassified into earnings for the three months ended September 30, 2017March 31, 2020 and 2016, respectively,2019, follow:

Amount of Loss (Gain)

Amount of Gain (Loss)

Reclassified from

Location of Gain (Loss)

Recognized in AOCL

AOCL into Income

Reclassified from

(Dollars in thousands)

2020

2019

2020

2019

AOCL into Income

Interest rate swaps

$

(12,874)

$

(4,107)

$

(498)

$

178

Interest expense

Cross currency swaps

5,258

5,080

1,168

1,632

Interest expense

$

670

$

1,810

Total Interest expense

Cross currency swap

3,622

4,944

Foreign currency losses, net

$

3,622

$

4,944

Total Foreign currency losses, net

The total amounts of expense and the respective line items in which the effect of cash flow hedges is presented in the condensed consolidated statement of operations for the three months ended March 31, 2020 and 2019, are as follows:



 

 

 

 

 

 

 

 

 

 

 

 



 

Amount of Gain Recognized

 

Amount of Gain Reclassified



 

in AOCI - Effective Portion

 

from AOCI into Income - Effective Portion



 

2017

 

2016

 

2017

 

2016



 

(Dollars in thousands)

Interest rate swap

 

$

166 

 

$

 —

 

$

 —

 

$

 —

March 31,

March 31,

(Dollars in thousands)

2020

2019

Interest expense

$

5,530

$

6,295

Foreign currency losses (gains), net

(1,315)

1,964

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

In the second quarter of 2018, the Company entered into cross currency swap agreements under which we pay variable rate interest in Euros and receive variable rate interest in U.S. dollars. The notional amount is €96.0 million at March 31, 2020, with a maturity date of February 14, 2024. These swaps are hedging risk associated with the net investment in Euro denominated operations due to fluctuating exchange rates and are designated as net investment hedges. The changes in the fair value of these designated cross-currency swaps will be recognized in AOCL.

The amount of gain on net investment hedges recognized in AOCL, the amount reclassified into earnings and the amount of gain recognized in AOCI and the amount of gain reclassified into earnings for the nine months ended September 30, 2017 and 2016, respectively, follow:



 

 

 

 

 

 

 

 

 

 

 

 



 

Amount of Gain Recognized

 

Amount of Gain Reclassified



 

in AOCI - Effective Portion

 

from AOCI into Income - Effective Portion



 

2017

 

2016

 

2017

 

2016



 

(Dollars in thousands)

Interest rate swap

 

$

166 

 

$

 —

 

$

 —

 

$

 —

Net investment hedge. To help protect the value of the Company’s net investment in European operations against adverse changes in exchange rates, the Company uses non-derivative financial instruments, such as its foreign currency denominated debt, as economic hedges of its net investments in certain foreign subsidiaries. Net investment hedges that use foreign currency denominated debt to hedge net investments are not impacted by ASC Topic 820, Fair Value Measurements, as the debt used as a hedging instrument is marked to a value with respect to changes in spot foreign currency exchange rates and not with respect to other factors that may impact fair value. The effective portions of net investment hedges are recorded in AOCI as a part of the cumulative translation adjustment.  The ineffective portions of net investment hedges are recognized immediately into earnings.

 Effective May 1, 2017, the Company designated a portion of its euro denominated debt as a net investment hedge for accounting purposes.  The fair value of the net investment hedge is €79.4 million at September 30, 2017. The Company did not have any ineffectiveness related to net investment hedges during the three and nine months ended September 30, 2017. 

The amount of loss recognized in AOCI and the amount of loss reclassified into earningsincome on derivative (amount excluded from effectiveness testing) for the three months ended September 30, 2017March 31, 2020 and 2016, respectively,2019, follow:



 

 

 

 

 

 

 

 

 

 

 

 



 

Amount of (Loss) Recognized

 

Amount of Loss Reclassified from



 

in AOCI  - Effective Portion

 

AOCI into Income - Effective Portion



 

2017

 

2016

 

2017

 

2016



 

(Dollars in thousands)

Net investment hedge

 

$

(8,020)

 

$

 —

 

$

 —

 

$

 —

Amount of Gain

Amount of Gain

Recognized in Income on

Amount of Gain

Reclassified from

Derivative (Amount Excluded

Location of Gain

Recognized in AOCL

AOCL into Income

from Effectiveness Testing)

in Earnings

(Dollars in thousands)

2020

2019

2020

2019

2020

2019

Cross currency swaps

$

2,659

$

3,737

$

$

$

780

$

1,001

Interest expense

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The amount of loss recognized in AOCI and the amount of loss reclassified into earnings for the nine months ended September 30, 2017 and 2016, respectively, follow:



 

 

 

 

 

 

 

 

 

 

 

 



 

Amount of (Loss) Recognized

 

Amount of Loss Reclassified from



 

in AOCI - Effective Portion

 

AOCI into Income - Effective Portion



 

2017

 

2016

 

2017

 

2016



 

(Dollars in thousands)

Net investment hedge

 

$

(14,848)

 

$

 —

 

$

 —

 

$

 —

Derivatives Not Designated as Hedging Instruments

Foreign currency forward contracts.Currency Forward Contracts.  We manage foreign currency risks principally by entering into forward contracts to mitigate the impact of currency fluctuations on transactions. These forward contracts are not formally designated as hedges. Gains and losses on these foreign currency forward contracts are netted with gains and losses from currency fluctuations on transactions arising from international trade and reported as Foreign currency losses, net in the condensed consolidated statements of operations. We recognized net lossesgains of $1.4 million and $4.1$0.3 million in the three and nine months ended September 30, 2017, respectively,March 31, 2020 and net lossesgains of $1.2 million and $5.8$1.5 million in the three and nine months ended September 30, 2016,March 31, 2019, respectively, arising from the change in fair value of our financial instruments, which partially offset the related net gains and losses on international trade transactions. The notional amount of foreign currency forward contracts was $212.1$618.0 million at September 30, 2017,March 31, 2020 and $338.2$625.9 million at December 31, 2016.2019.

The following table presents the effect on our condensed consolidated statements of operations for the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, respectively, of our foreign currency forward contracts:



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Amount of (Loss)

 

 



 

Recognized in Earnings

 

 



 

Three Months Ended

 

 



 

September 30,

 

 



 

2017

 

2016

 

Location of (Loss) in Earnings



 

(Dollars in thousands)

 

 

Foreign currency forward contracts

 

$

(1,438)

 

$

(1,163)

 

Foreign currency losses, net

Amount of Gain (Loss)

Recognized in Earnings

Three Months Ended

March 31,

Location of Gain (Loss) in Earnings

(Dollars in thousands)

2020

2019

Foreign currency forward contracts

$

268

$

1,524

Foreign currency losses, net



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Amount of (Loss)

 

 



 

Recognized in Earnings

 

 



 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 



 

September 30,

 

 



 

 

 

 

 

 

 

 



 

2017

 

2016

 

Location of (Loss) in Earnings



 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

Foreign currency forward contracts

 

$

(4,149)

 

$

(5,848)

 

Foreign currency losses, net

20


Table of Contents

Location and Fair Value Amount of Derivative Instruments

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

March 31,

December 31,

 

2017

 

2016

 

Balance Sheet Location

 

(Dollars in thousands)

 

 

(Dollars in thousands)

2020

2019

Balance Sheet Location

Asset derivatives:

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

298 

 

$

 —

 

Other assets

Cross currency swaps

$

3,270

$

6,711

Other current assets

Cross currency swaps

24,563

15,400

Other non-current assets

Foreign currency forward contracts

 

 

620 

 

 

1,854 

 

Other current assets

1,189

1,474

Other current assets

Liability derivatives:

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

(132)

 

 

 —

 

Accrued expenses and other current liabilities

$

(7,054)

$

(3,723)

Accrued expenses and other current liabilities

Interest rate swaps

(19,719)

(10,975)

Other non-current liabilities

Foreign currency forward contracts

 

$

(568)

 

$

(1,504)

 

Accrued expenses and other current liabilities

(2,136)

(873)

Accrued expenses and other current liabilities

10.    Income Taxes

Income tax expense for the ninethree months ended September 30, 2017,March 31, 2020 was $23.2$5.1 million, or 25.9%24.3% of pre-tax income, compared with $22.7income. Income tax expense for the three months ended March 31, 2019 was $2.9 million, or 25.8%24.7% of pre-tax income in the prior-year same period.income. The tax expense induring the first ninethree months of 2017ended March 31, 2020 and 2016,March 31, 2019, as a percentage of pre-tax income, is lowerhigher than the U.S. federal statutory income tax rate of 35%21% primarily as a result of foreign statutory rate differences.

In response to the COVID-19 outbreak, various global legislation was passed in March 2020. The Company is still assessing the applicability of the stimulus elements within the global legislation, however, it is not expected to have a material impact on the income taxes in the Company's consolidated financial statements.

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Table of Contents

11.    Contingent Liabilities

We have recorded environmental liabilities of $6.6$5.7 million at September 30, 2017,March 31, 2020 and $7.2 million at December 31, 2016,2019, for costs associated with the remediation of certain of our current or former properties that have been contaminated. The liabilitybalance at September 30, 2017,March 31, 2020 and December 31, 2016, was2019, were primarily comprised of liabilities related to a non-operating facility in Brazil, and for retained environmental obligations related to a site in the United States that was part of the sale of our North American and Asian metal powders product linesline in 2013. TheThese costs include, but are not limited to, legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring, and related activities. The ultimate liability could be affected by numerous uncertainties, including the extent of contamination found, the required period of monitoring, and the ultimate cost of required remediation.remediation, and other circumstances.

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

In 2013, the Supreme Court in Argentina ruled favorably related to certain export taxes associated with a divested operation. The liability recorded at March 31, 2020 and December 31, 2019 is $0.5 million and $0.6 million, respectively.

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

12.    Retirement Benefits

Net periodic benefit cost (credit) cost of our U.S. pension plans (including our unfunded nonqualified plans), non-U.S. pension plans, and postretirement health care and life insurance benefit plans for the three months ended September 30, 2017March 31, 2020 and 2016,2019, respectively, follow:

U.S. Pension Plans

Non-U.S. Pension Plans

Other Benefit Plans

Three Months Ended March 31,

(Dollars in thousands)

2020

2019

2020

2019

2020

2019

Service cost

$

3

$

3

$

285

$

281

$

1

$

1

Interest cost

2,387

2,963

330

469

132

175

Expected return on plan assets

(3,708)

(3,153)

(112)

(166)

Amortization of prior service cost

(5)

5

Net periodic benefit (credit) cost

$

(1,318)

$

(187)

$

498

$

589

$

133

$

176

21Interest cost, expected return on plan assets and amortization of prior service cost are recorded in Miscellaneous expense (income), net on the condensed consolidated statement of operations.

18


Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

U.S. Pension Plans

 

Non-U.S. Pension Plans

 

Other Benefit Plans



 

Three Months Ended September 30,



 

2017

 

2016

 

2017

 

2016

 

2017

 

2016



 

(Dollars in thousands)

Service cost

 

$

 

$

 

$

432 

 

$

346 

 

$

 —

 

$

 —

Interest cost

 

 

3,666 

 

 

3,937 

 

 

621 

 

 

914 

 

 

211 

 

 

236 

Expected return on plan assets

 

 

(4,740)

 

 

(4,935)

 

 

(227)

 

 

(493)

 

 

 —

 

 

 —

Amortization of prior service cost

 

 

 

 

 

 

11 

 

 

12 

 

 

 —

 

 

 —

Net periodic benefit (credit) cost

 

$

(1,068)

 

$

(991)

 

$

837 

 

$

779 

 

$

211 

 

$

236 

Net periodic benefit (credit) cost for the nine months ended September 30, 2017 and 2016, respectively, follow:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

U.S. Pension Plans

 

Non-U.S. Pension Plans

 

Other Benefit Plans



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended September 30,



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

Service cost

 

$

13 

 

$

13 

 

$

1,259 

 

$

1,081 

 

$

 —

 

$

 —

Interest cost

 

 

10,997 

 

 

11,812 

 

 

1,801 

 

 

2,808 

 

 

632 

 

 

708 

Expected return on plan assets

 

 

(14,218)

 

 

(14,805)

 

 

(659)

 

 

(1,538)

 

 

 —

 

 

 —

Amortization of prior service cost

 

 

 

 

 

 

33 

 

 

34 

 

 

 —

 

 

 —

Net periodic benefit (credit) cost

 

$

(3,203)

 

$

(2,972)

 

$

2,434 

 

$

2,385 

 

$

632 

 

$

708 

13.    Stock-Based Compensation

On May 22, 2013,3, 2018, our shareholders approved the 20132018 Omnibus Incentive Plan (the “Plan”), which was adopted by the Board of Directors on February 22, 2013, subject to shareholder approval.2018. The Plan’s purpose is to promote the Company’s long-term financial interests and growth by attracting, retaining and motivating high qualityhigh-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 4,400,0004,500,000 shares of common stock to be issued for grants of several different types of long-term incentives including stock options, stock appreciation rights, restricted shares,awards, performance shares,awards, other common stock-based awards, and dividend equivalent rights.

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

In the first nine monthsquarter of 2017,2020, our Board of Directors granted 0.20.3 million stock options, 0.2 million performance share units, and 0.2 million restricted stock units under the Plan.

We estimate the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The following table details the weighted-average grant-date fair values and the assumptions used for estimating the fair values of stock option grants made during the ninethree months ended September 30, 2017:March 31, 2020:

Stock Options

Weighted-average grant-date fair value

$

7.29 

5.28

Expected life, in years

6.0 

5.2

Risk-free interest rate

1.9% - 2.31.4

%

Expected volatility

48.0% -51.535.1

%

The weighted average grant date fair value of our performance share units granted in the ninethree months ended September 30, 2017,March 31, 2020, was $14.89.$14.64. We measure the fair value of performance share units based on the closing market price of our common stock on the date of the grant. These shares are evaluated each reporting period for respective attainment rates against the performance criteria.

22


TableThe weighted-average grant date fair value of Contents

our restricted share units granted in the three months ended March 31, 2020, was $14.64. We measure the fair value of restricted share units based on the closing market price of our common stock on the date of the grant. The restricted share units vest over three years. The weighted-average grant date fair value per unit for grants made during the nine months ended September 30, 2017,  was $14.73.

We recognized stock-based compensation expense of $6.9$2.8 million for the ninethree months ended September 30, 2017,March 31, 2020 and $5.3 million for the nine months ended September 30, 2016.2019. At September 30, 2017,March 31, 2020, unearned compensation cost related to the unvested portion of all stock-based compensation awards was approximately $9.6$12.8 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of 2020.2022.

14.    Restructuring and Cost ReductionOptimization Programs

Total restructuring and impairment charges were $1.5 million and $7.7 million for the three and nine months ended September 30, 2017, respectively, and $0.0$1.2 million and $1.7 million for the three and nine months ended September 30, 2016,March 31, 2020 and March 31, 2019, respectively. IncludedAs discussed in Note 4, our Tile Coatings business was classified as held-for-sale during the fourth quarter of 2019. As such, there were additional restructuring charges of $0.3 million and $0.4 million for the ninethree months ended September 30, 2017, was an impairment chargeMarch 31, 2020 and March 31, 2019 classified as Net income from discontinued operations, net of $1.5 million relatedincome taxes.

In the second quarter of 2019, we developed and initiated a program across the organization with the objective of realigning the business and lowering our cost structure. The program involves our global operations and certain functions and initiatives to an equity method investment.  The remainderincrease operational efficiencies, some of the charges relate to our restructuring and cost reduction programs, which are primarily related to costsis associated with integration of our recent acquisitions, andacquisitions. As a result of these actions, the Company expects to incur total charges of approximately $8.0 million, substantially all of which will be for severance costs expected. The remaining activities of the program are expected to be recognized within the next 12 months. Charges associated with the program were $0.2 million for the three months ended March 31, 2020.

19


Table of Contents

The charges associated with these programs are further summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

Other

 

Asset

 

 

 

Employee

Other

 

Severance

 

Costs

 

Impairment

 

Total

 

(Dollars in thousands)

Balances at December 31, 2016

 

$

239 

 

$

1,489 

 

$

 —

 

$

1,728 

(Dollars in thousands)

Severance

Costs

Total

Balances at December 31, 2019

$

747

$

1,492

$

2,239

Restructuring charges

 

 

2,455 

 

 

2,583 

 

 

1,176 

 

 

6,214 

658

507

1,165

Cash payments

 

 

(2,555)

 

 

(1,529)

 

 

 —

 

 

(4,084)

(394)

(464)

(858)

Non-cash items

 

 

64 

 

 

(1,282)

 

 

(1,176)

 

 

(2,394)

(23)

(11)

(34)

Balances at September 30, 2017

 

$

203 

 

$

1,261 

 

$

 —

 

$

1,464 

Balances at March 31, 2020

$

988

$

1,524

$

2,512

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

15.    Leases

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

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

The components of lease cost are shown below:

Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

Income Statement Location

Operating lease cost(1)

$

1,259

$

1,360

Selling, general and administrative expenses

Operating lease cost(2)

2,131

2,234

Cost of sales

Finance lease cost

Amortization of right-of-use assets

72

51

Cost of sales

Interest of lease liabilities

7

3

Interest expense

Net lease cost

$

3,469

$

3,648

23

(1)Included in operating lease cost is $0.2 million of short-term lease costs for the three months ended March 31, 2020 and March 31, 2019 and $0.1 million of variable lease costs for the three months ended March 31, 2020 and March 31, 2019.

(2)Included in operating lease cost is $0.6 million of short-term lease costs for the three months ended March 31, 2020 and March 31, 2019 and $0.3 million and $0.2 million of variable lease costs for the three months ended March 31, 2020 and March 31, 2019, respectively.

Supplemental balance sheet information related to leases are shown below:

March 31,

December 31,

(Dollars in thousands)

2020

2019

Balance Sheet Location

Assets

Operating leased assets

$

17,294

$

20,088

Operating leased assets

Finance leased assets (1)

805

859

Property, plant and equipment, net

Total leased assets

$

18,099

$

20,947

Liabilities

Current

Operating

$

5,822

$

6,515

Accrued expenses and other current liabilities

Finance

466

438

Loans payable and current portion of long-term debt

Noncurrent

Operating

11,973

14,474

Operating lease non-current liabilities

Finance

1,849

1,867

Long-term debt, less current portion

Total lease liabilities

$

20,110

$

23,294

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

20


Table of Contents

15.Supplemental cash flow information related to leases are shown below:

Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from finance leases

$

7

$

3

Operating cash flows from operating leases

2,019

2,260

Financing cash flows from finance leases

65

45

Leased assets obtained in exchange for new finance lease liabilities

104

129

Leased assets obtained in exchange for new operating lease liabilities

1,499

24,035

March 31,

2020

Weighted-average remaining lease term (years)

Operating leases

4.1

Finance leases

5.9

Weighted-average discount rate

Operating leases

4.0%

Finance leases

5.3%

Maturities of lease liabilities are shown below as of March 31, 2020:

(Dollars in thousands)

Capital
Leases

Operating
Leases

Remaining in 2020

$

567

$

5,996

2021

520

5,666

2022

504

3,246

2023

448

1,929

2024

346

1,044

2025

279

789

Thereafter

418

1,688

Net minimum lease payments

$

3,082

$

20,358

Less: interest

767

2,563

Present value of lease liabilities

$

2,315

$

17,795

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Table of Contents

16.    Earnings Per Share

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

Three Months Ended

 

September 30,

 

September 30,

March 31,

(Dollars in thousands, except per share amounts)

2020

2019

Basic earnings per share computation:

Income from continuing operations

$

15,912

$

8,801

Less: Net income attributable to noncontrolling interests from continuing operations

33

169

Net income attributable to Ferro Corporation from continuing operations

15,879

8,632

Income from discontinued operations, net of income taxes

221

5,077

Less: Net income attributable to noncontrolling interests from discontinued operations

(23)

105

Net income attributable to Ferro Corporation from discontinued operations

244

4,972

Total

$

16,123

$

13,604

 

2017

 

2016

 

2017

 

2016

 

(Dollars in thousands, except per share amounts)

Basic earnings per share computation:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Ferro Corporation common shareholders

 

$

22,817 

 

$

(8,884)

 

$

65,740 

 

$

119 

Adjustment for loss from discontinued operations

 

 

 —

 

 

29,222 

 

 

 —

 

 

64,464 

Total

 

$

22,817 

 

$

20,338 

 

$

65,740 

 

$

64,583 

Weighted-average common shares outstanding

 

 

83,735 

 

 

83,268 

 

 

83,646 

 

 

83,263 

82,096

82,480

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

 

$

0.27 

 

$

0.24 

 

$

0.79 

 

$

0.78 

$

0.19

$

0.10

Diluted earnings per share computation:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Ferro Corporation common shareholders

 

$

22,817 

 

$

(8,884)

 

$

65,740 

 

$

119 

Adjustment for loss from discontinued operations

 

 

 —

 

 

29,222 

 

 

 —

 

 

64,464 

Net income attributable to Ferro Corporation common shareholders

$

15,879

$

8,632

Adjustment for income from discontinued operations

244

4,972

Total

 

$

22,817 

 

$

20,338 

 

$

65,740 

 

$

64,583 

$

16,123

$

13,604

Weighted-average common shares outstanding

 

 

83,735 

 

 

83,268 

 

 

83,646 

 

 

83,263 

82,096

82,480

Assumed exercise of stock options

 

 

808 

 

 

544 

 

 

671 

 

 

499 

297

596

Assumed exercise of deferred stock unit conditions

 

 

 —

 

 

80 

 

 

 —

 

 

 —

Assumed satisfaction of restricted stock unit conditions

 

 

424 

 

 

473 

 

 

383 

 

 

419 

85

145

Assumed satisfaction of performance stock unit conditions

 

 

483 

 

 

111 

 

 

474 

 

 

58 

Assumed satisfaction of performance share unit conditions

44

80

Weighted-average diluted shares outstanding

 

 

85,450 

 

 

84,476 

 

 

85,174 

 

 

84,239 

82,522

83,301

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

 

$

0.27 

 

$

0.24 

 

$

0.77 

 

$

0.77 

$

0.19

$

0.10

The number of anti-dilutive or unearned shares was 1.6 million and 1.8were 3.0 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and 2.3 million and 2.52.2 million for the three and nine months ended September 30, 2016, respectively.March 31, 2019. These shares wereare excluded from the calculation of diluted earnings per share due to their anti-dilutive impact.

16.17.    Share Repurchase Program

The Company’s Board of Directors has approved a share repurchase programs,program under which the Company is authorized to repurchase up to $100$150 million of the Company’s outstanding shares of Common Stockcommon stock on the open market, including through a Rule 10b5-1 plan, or in privately negotiated transactions.

The timing and amount of shares to be repurchased will be determined by the Company, based on evaluation of market and business conditions, share price, and other factors. 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.

ForAs of March 31, 2020, $46.2 million remains authorized under the nine months ended September 30, 2016,program for the Company repurchased 1,175,437 sharesrepurchase of common stock at an average price of $9.72 per share for a total cost of $11.4 million.  As of September 30, 2017, Company shares having an aggregate value of up to $50.0 million may still be purchased under the programs.stock.

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17.18.    Accumulated Other Comprehensive Income (Loss)Loss

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



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,



 

Postretirement

 

 

 

 

 

Net Gain

 

 

 

 

 

 



 

Benefit Liability

 

Translation

 

 

on Cash

 

Other

 

 

 



 

Adjustments

 

Adjustments

 

 

Flow Hedges

Adjustments

 

Total



 

(Dollars in thousands)

Balances at June 30, 2016

 

$

1,106 

 

$

(66,886)

 

$

 —

 

$

(70)

 

$

(65,850)

Other comprehensive income (loss) before reclassifications, before tax

 

 

 —

 

 

1,584 

 

 

 —

 

 

 —

 

 

1,584 

Reclassification to earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement benefit liabilities loss, before tax

 

 

(2)

 

 

 —

 

 

 —

 

 

 —

 

 

(2)

Foreign currency translation adjustment, before tax(1)

 

 

 —

 

 

1,115 

 

 

 —

 

 

 —

 

 

1,115 

Current period other comprehensive income (loss), before tax

 

 

(2)

 

 

2,699 

 

 

 —

 

 

 —

 

 

2,697 

Tax effect

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Current period other comprehensive income (loss), net of tax

 

 

(2)

 

 

2,699 

 

 

 —

 

 

 —

 

 

2,697 

Balances at September 30, 2016

 

$

1,104 

 

$

(64,187)

 

$

 —

 

$

(70)

 

$

(63,153)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2017

 

$

1,153 

 

$

(86,753)

 

$

 —

 

$

(70)

 

$

(85,670)

Other comprehensive income (loss) before reclassifications, before tax

 

 

 —

 

 

(141)

 

 

166 

 

 

 —

 

 

25 

Reclassification to earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement benefit liabilities income, before tax

 

 

(39)

 

 

 —

 

 

 —

 

 

 —

 

 

(39)

Current period other comprehensive income (loss), before tax

 

 

(39)

 

 

(141)

 

 

166 

 

 

 —

 

 

(14)

Tax effect

 

 

(6)

 

 

3,001 

 

 

62 

 

 

 —

 

 

3,057 

Current period other comprehensive income (loss), net of tax

 

 

(33)

 

 

(3,142)

 

 

104 

 

 

 —

 

 

(3,071)

Balances at September 30, 2017

 

$

1,120 

 

$

(89,895)

 

$

104 

 

$

(70)

 

$

(88,741)

Three Months Ended March 31,

Postretirement

Foreign

Net Gain (Loss)

Benefit Liability

Currency

on Cash Flow

(Dollars in thousands)

Adjustments

Items

Hedges

Total

Balances at December 31, 2018

$

1,126

$

(103,190)

$

(3,297)

$

(105,361)

Other comprehensive income before reclassifications, before tax

4,036

973

5,009

Reclassification to earnings:

Cash flow hedge loss, before tax

(6,754)

(6,754)

Current period other comprehensive income (loss), before tax

4,036

(5,781)

(1,745)

Tax effect

634

(1,467)

(833)

Current period other comprehensive income (loss), net of tax

3,402

(4,314)

(912)

Balances at March 31, 2019

$

1,126

$

(99,788)

$

(7,611)

$

(106,273)

Balances at December 31, 2019

$

1,206

$

(97,575)

$

(13,007)

$

(109,376)

Other comprehensive loss before reclassifications, before tax

(17,837)

(7,616)

(25,453)

Reclassification to earnings:

Cash flow hedge loss, before tax

(4,292)

(4,292)

Current period other comprehensive loss, before tax

(17,837)

(11,908)

(29,745)

Tax effect

435

(2,868)

(2,433)

Current period other comprehensive loss, net of tax

(18,272)

(9,040)

(27,312)

Balances at March 31, 2020

$

1,206

$

(115,847)

$

(22,047)

$

(136,688)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Nine Months Ended September 30,



 

Postretirement

 

 

 

 

 

Net Gain

 

 

 

 

 

 



 

Benefit Liability

 

Translation

 

 

on Cash

 

Other

 

 

 



 

Adjustments

 

Adjustments

 

 

Flow Hedges

 

Adjustments

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

Balances at December 31, 2015

 

$

811 

 

$

(62,059)

 

$

 —

 

$

(70)

 

$

(61,318)

Other comprehensive income (loss) before reclassifications, before tax

 

 

 —

 

 

(3,243)

 

 

 —

 

 

 —

 

 

(3,243)

Reclassification to earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement benefit liabilities income, before tax

 

 

320 

 

 

 —

 

 

 —

 

 

 —

 

 

320 

Foreign currency translation adjustment, before tax(1)

 

 

 —

 

 

1,115 

 

 

 —

 

 

 —

 

 

1,115 

Current period other comprehensive income (loss), before tax

 

 

320 

 

 

(2,128)

 

 

 —

 

 

 —

 

 

(1,808)

Tax effect

 

 

27 

 

 

 —

 

 

 —

 

 

 —

 

 

27 

Current period other comprehensive income (loss), net of tax

 

 

293 

 

 

(2,128)

 

 

 —

 

 

 —

 

 

(1,835)

Balances at September 30, 2016

 

$

1,104 

 

$

(64,187)

 

$

 —

 

$

(70)

 

$

(63,153)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2016

 

$

1,141 

 

$

(107,714)

 

$

 —

 

$

(70)

 

$

(106,643)

Other comprehensive income (loss) before reclassifications, before tax

 

 

 —

 

 

20,820 

 

 

166 

 

 

 —

 

 

20,986 

Reclassification to earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement benefit liabilities income, before tax

 

 

(30)

 

 

 —

 

 

 —

 

 

 —

 

 

(30)

Current period other comprehensive income (loss), before tax

 

 

(30)

 

 

20,820 

 

 

166 

 

 

 —

 

 

20,956 

Tax effect

 

 

(9)

 

 

3,001 

 

 

62 

 

 

 —

 

 

3,054 

Current period other comprehensive income (loss), net of tax

 

 

(21)

 

 

17,819 

 

 

104 

 

 

 —

 

 

17,902 

Balances at September 30, 2017

 

$

1,120 

 

$

(89,895)

 

$

104 

 

$

(70)

 

$

(88,741)

19.    Reporting for Segments

25


TableAs discussed in Note 4, during the fourth quarter of Contents

(1) Includes2019, we entered into a releasedefinitive agreement to sell our Tile Coatings business which has historically been the majority of accumulated foreign currency translation of $1.1 million related to the Company’s saleour Performance Coatings reportable segment. Substantially all of the Europe-based Polymer Additivesassets and liabilities of our Tile Coatings business (Note 3), which iswere classified as held-for-sale in the accompanying consolidated balance sheets and results are included within discontinued operation in Loss from discontinued operations, net of income taxes in our condensedthe consolidated statementsstatement of operations for all periods presented. The retained assets, liabilities and operations of the three and nine months ended September 30, 2016.Performance Coatings reportable segment are reflected within our Functional Coatings reportable segment.

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

 

Nine Months Ended

Three Months Ended

 

September 30,

 

September 30,

March 31,

 

2017

 

2016

 

2017

 

2016

 

(Dollars in thousands)

Performance Coatings

 

$

146,238 

 

$

130,453 

 

$

424,549 

 

$

399,166 

Performance Colors and Glass

 

 

110,578 

 

 

92,793 

 

 

320,733 

 

 

276,896 

(Dollars in thousands)

2020

2019

Functional Coatings

$

155,435

$

167,026

Color Solutions

 

 

93,196 

 

 

65,281 

 

 

273,917 

 

 

187,893 

96,891

96,356

Total net sales

 

$

350,012 

 

$

288,527 

 

$

1,019,199 

 

$

863,955 

$

252,326

$

263,382

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

Three Months Ended

 

September 30,

 

September 30,

March 31,

 

2017

 

2016

 

2017

 

2016

 

(Dollars in thousands)

Performance Coatings

 

$

35,470 

 

$

33,636 

 

$

109,205 

 

$

104,985 

Performance Colors and Glass

 

 

37,880 

 

 

32,282 

 

 

115,385 

 

 

100,825 

(Dollars in thousands)

2020

2019

Functional Coatings

$

47,817

$

48,230

Color Solutions

 

 

31,044 

 

 

23,178 

 

 

87,642 

 

 

65,868 

33,787

28,396

Other cost of sales

 

 

(778)

 

 

(115)

 

 

(1,480)

 

 

(95)

(866)

1,233

Total gross profit

 

 

103,616 

 

 

88,981 

 

 

310,752 

 

 

271,583 

80,738

77,859

Selling, general and administrative expenses

 

 

65,485 

 

 

55,588 

 

 

186,957 

 

 

166,105 

56,046

56,931

Restructuring and impairment charges

 

 

1,471 

 

 

26 

 

 

7,713 

 

 

1,694 

1,165

1,740

Other expense, net

 

 

6,342 

 

 

6,662 

 

 

26,581 

 

 

15,953 

2,498

7,494

Income before income taxes

 

$

30,318 

 

$

26,705 

 

$

89,501 

 

$

87,831 

$

21,029

$

11,694

19.    Subsequent Events

On November 1, 2017, the Company acquired 100% of the equity interests of Endeka Group, a global producer of high-value coatings and key raw materials for €63.8 million (approximately $74.3 million), excluding customary adjustments and fees. 

        The operating results related to the Endeka Group acquisition will be included in the Company’s condensed consolidated financial statements commencing on 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. 

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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 September 30, 2017, increasedMarch 31, 2020, decreased by $61.5$11.1 million, or 21.3%4.2%, compared with the prior-year same period. TheNet sales decreased by $11.6 million in Functional Coatings, which was partially mitigated by an increase in net sales was driven by higher salesof $0.5 million in Color Solutions, Performance Colors and Glass and Performance Coatings of $27.9 million, $17.8 million and $15.8 million, respectively.Solutions. During the three months ended September 30, 2017,March 31, 2020, gross profit increased $14.6$2.9 million, or 16.4%3.7%, compared with the prior-year same period; as a percentage of net sales, it decreasedincreased approximately 120240 basis points to 29.6%32.0%. Our total gross profit for the first quarter of 2020 was $80.7 million, compared with $77.9 million for the three months ended March 31, 2019. The increase in gross profit was attributable to higher gross profit across all of our segments, with increases in Color Solutions Performance Colors and Glass and Performanceof $5.4 million, partially offset by lower gross profit in Functional Coatings of $7.9 million, $5.6 million and $1.8 million, respectively.    $0.4 million.

For the three months ended September 30, 2017,March 31, 2020, selling, general and administrative (“SG&A”) expenses increased $9.9decreased $0.9 million, or 17.8%1.6%, compared with the prior-year same period. The increase was primarily driven by $6.7 millionAs a percentage of expenses relatednet sales, it increased approximately 60 basis points to acquisitions completed within the last year.22.2%.

For the three months ended September 30, 2017,March 31, 2020, net income was $23.0$16.1 million, compared with net lossincome of $8.7$13.9 million for the prior-year same period, and net income attributable to common shareholders was $22.8$16.1 million, compared with net lossincome attributable to common shareholders of $8.9$13.6 million for the prior-year same period. Income from continuing operations was $23.0$15.9 million for the three months ended September 30, 2017,March 31, 2020, compared with $20.5$8.8 million in 2019.

Outlook

While the novel coronavirus (“COVID-19”) pandemic did not have a significant effect on the Company’s reported results for the three months ended September 30, 2016.  Our total gross profit for the thirdfirst quarter of 2017 was $103.6 million, compared with $89.0 million for the three months ended September 30, 2016.

Outlook

For the remainder of 2017,2020, we expect a more negative impact on our business and results of operations in the second quarter of 2020 and perhaps thereafter. Having said that, we expect the impact of COVID-19 to be less severe in the future than it might otherwise be because many Ferro products and services support niche markets in “critical” or “essential” industries such as healthcare, food and beverage, energy, information technology, and defense, and these industries generally have been allowed by governments around the world to continue operating in spite of the pandemic. The extent to benefit from strong organic growth inwhich our businesses, in addition to contributions from recent acquisitions.  With respect to gross margins, we could continue tooperations will be impacted by the raw material headwinds that have been experienced throughoutpandemic will depend largely on future developments, including the year thus far, whichseverity of the pandemic and actions by government authorities to contain it or treat its impact, as more fully discussed below.

As we would expect to cover through pricing actions, product reformations and other optimization actions, with some lag.  We expect Selling, general and administrative costs to continue to leverage favorably as a percentage of Net sales, compared with the prior year.  Further, as we movemanage through the balance ofchallenges caused by the year,COVID-19 pandemic, controlling what we will continue to monitor currentcan and near-term increasing customer demand levels, and align our production and inventories accordingly. 

Weplanning for contingencies, we remain focused on executing our key strategic priorities. These include advancing our optimization initiatives, the integrationpreparation for and completion of the sale of our recent acquisitionsTile Coatings business and achievingcontinuing to develop innovative products that our customers need.

We anticipate continued uncertainty in macroeconomic conditions going forward. This may result in volatility in foreign exchange rates and in interest rates, which could impact our reported results through the identified synergies.course of 2020.

COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 has spread through Asia, Europe, the Middle East and North and South America, all regions in which we have operations. In response, government authorities have issued an evolving set of mandates, including requirements to shelter-in-place, curtail business operations, restrict travel, and avoid physical interaction. These mandates have substantially disrupted normal business activities in many segments of the global economy. We are monitoring the impact of the outbreak of COVID-19 on our business, including how it may impact our customers, employees, supply chain, and distribution network.

Our manufacturing facilities generally have continued to operate since the pandemic was declared in early March 2020, with most sites experiencing only relatively brief or no suspensions of activity. While COVID-19 did not have a significant effect on our reported results for the first quarter of 2020, we are unable to reliably predict the ultimate impact that it may have on our business, future results of operations, financial position or cash flows. We anticipate an adverse impact of COVID-19 on the U.S and global economies and expect a negative impact on our business in the second quarter and possibly in subsequent quarters, primarily as a result of reduced demand in certain of our end markets, such as the automotive sector. In addition, we may be required to take further precautionary and preemptive actions to comply with orders or directives of national, state or local authorities, and we may take additional actions that we determine to be in the best interests of our employees, customers, suppliers and other stakeholders, which could disrupt or restrict our ability to operate our facilities and travel to our domestic and international sites. The extent to which our operations will be impacted by COVID-19 in the remaining quarters of 2020 depends on a variety of factors, including, the duration, severity and scope of the pandemic, which remain uncertain.

24


Table of Contents

We believe we are well positioned from a liquidity perspective to manage through the effects of the COVID-19 pandemic. Subsequent to the end of the first quarter, we borrowed $180.0 million under our revolving credit facility out of an abundance of caution associated with the pandemic. As of May 5, 2020, we had liquidity of approximately $550.0 million, consisting of cash and availability under our various credit facilities, primarily our revolving credit facility. We are in compliance with the covenants under our various credit facilities and expect to remain in compliance. We will continue to drive innovationevaluate and optimization throughout our business.take action to preserve liquidity and generate cash flow during the crisis, including by limiting capital expenditures and discretionary spending, as appropriate and where possible.

Factors that could adversely affect our future performance include those described under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q and Item 1A of Part I of ourthe Annual Report on Form 10-K for the year ended December 31, 2016.2019.

2725


Table of Contents

Results of Operations - Consolidated

Comparison of the three months ended September 30, 2017March 31, 2020 and 2016 2019

For the three months ended September 30, 2017,March 31, 2020, net income from continuing operations was $23.0$15.9 million, compared with $20.5 million income from continuing operations for the three months ended September 30, 2016.  Net income was $23.0 million, compared with net loss of $8.7$8.8 million for the three months ended September 30, 2016.March 31, 2019. For the three months ended September 30, 2017,March 31, 2020, net income attributable to common shareholders was $22.8$16.1 million, or earnings per share of $0.27,$0.19, compared with net lossincome attributable to common shareholders of $8.9$13.6 million, or lossearnings per share of $0.11,$0.16, for the three months ended September 30, 2016.March 31, 2019.

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Three Months Ended

 

September 30,

 

 

 

 

 

 

March 31,

 

2017

 

2016

 

$ Change

 

% Change

 

(Dollars in thousands)

 

 

 

(Dollars in thousands)

2020

2019

$ Change

% Change

Net sales

 

$

350,012 

 

 

$

288,527 

 

 

$

61,485 

 

21.3 

%

$

252,326

$

263,382

$

(11,056)

(4.2)

%

Cost of sales

 

 

246,396 

 

 

 

199,546 

 

 

 

46,850 

 

23.5 

%

171,588

185,523

(13,935)

(7.5)

%

Gross profit

 

$

103,616 

 

 

$

88,981 

 

 

$

14,635 

 

16.4 

%

$

80,738

$

77,859

$

2,879

3.7

%

Gross profit as a % of net sales

 

 

29.6 

%

 

 

30.8 

%

 

 

 

 

 

 

32.0

%

29.6

%

Net sales increaseddecreased by $61.5$11.1 million, or 21.3%4.2%, infor the three months ended September 30, 2017,March 31, 2020, compared with the prior-year same period, driven by lower sales in Functional Coatings of $11.6 million, partially offset by higher sales in Color Solutions Performance Colors and Glass and Performance Coatings of $27.9 million, $17.8 million and $15.8 million, respectively.$0.5 million. The increasedecrease in net sales was driven in part by acquisitions including Cappelle, which contributed saleslower volume and mix of $17.8 million, ESL, which contributed sales of $10.5$6.2 million and SPC, which contributed salesunfavorable foreign currency impacts of $7.8$5.0 million, eachpartially mitigated by higher product pricing of which was acquired after the third quarter of 2016.  The increase in net sales was also driven by organic growth, with Color Solutions growing $10.1 million and Performance Coatings growing $7.2$0.1 million.

Gross Profit

Gross profit increased $14.6$2.9 million, or 16.4%3.7%, infor the three months ended September 30, 2017,March 31, 2020, compared with the prior-year same period, and as a percentage of net sales, it decreased 120increased approximately 240 basis points to 29.6%32.0%. The increase in gross profit was primarily attributable to increases across all of our segments, with increasesan increase in Color Solutions Performance Colors and Glass and Performanceof $5.4 million, partially offset by a decrease in Functional Coatings of $7.9 million, $5.6 million and $1.8 million, respectively.$0.4 million. The increase in gross profit was primarily driven by acquisitionslower raw material costs of $11.9 million, favorable product pricing of $6.0$4.5 million, lower manufacturing costs of $4.7$3.9 million and favorablehigher product pricing of $0.1 million, partially offset by unfavorable sales volume and mix of $4.1 million, unfavorable foreign currency impacts of $1.6 million, partially offset by higher raw material costs of $8.6 million and lower sales volumes and mix of $0.3$1.2 million.

Geographic Revenues

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Three Months Ended

 

September 30,

 

 

 

 

 

 

March 31,

 

2017

 

2016

 

$ Change

 

% Change

 

(Dollars in thousands)

 

 

 

(Dollars in thousands)

2020

2019

$ Change

% Change

Geographic Revenues on a sales origination basis

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

169,718 

 

$

124,801 

 

$

44,917 

 

36.0 

%

EMEA

$

113,746

$

113,832

$

(86)

(0.1)

%

United States

 

 

88,391 

 

 

77,211 

 

 

11,180 

 

14.5 

%

87,853

95,578

(7,725)

(8.1)

%

Asia Pacific

 

 

50,864 

 

 

46,646 

 

 

4,218 

 

9.0 

%

31,052

31,723

(671)

(2.1)

%

Latin America

 

 

41,039 

 

 

39,869 

 

 

1,170 

 

2.9 

%

19,675

22,249

(2,574)

(11.6)

%

Net sales

 

$

350,012 

 

$

288,527 

 

$

61,485 

 

21.3 

%

$

252,326

$

263,382

$

(11,056)

(4.2)

%

The increasedecline in net sales of $61.5$11.1 million, compared with the prior-year same period, was driven by an increasea decrease in sales from all regions. The increasedecrease in sales from Europethe United States was primarily attributable to lower sales in Functional Coatings and Color Solutions of $5.3 million and $2.4 million, respectively. The decrease in sales from Latin America was attributable to lower sales in Functional Coatings of $2.8 million, partially offset by higher sales in Color Solutions Performance Coatings and Performance Colors and Glass of $17.9 million, $14.7 million and $12.3 million, respectively.$0.2 million. The increasedecrease in sales from the United

28


Table of Contents

StatesAsia Pacific was attributable to lower sales in Functional Coatings of $1.1 million, partially offset by higher sales in Color Solutions and Performance Colors and Glass of $7.9 million and $3.9 million, respectively.$0.5 million. The increasedecrease in sales from Latin America and Asia PacificEMEA was attributable to lower sales in Functional Coatings of $2.4 million, partially offset by higher sales across all segments.in Color Solutions of $2.3 million.

26


Table of Contents

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



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

(Dollars in thousands)

 

 

 

Geographic Revenues on a shipped-to basis

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

161,764 

 

$

122,986 

 

$

38,778 

 

31.5 

%

Asia Pacific

 

 

75,274 

 

 

62,812 

 

 

12,462 

 

19.8 

%

United States

 

 

65,356 

 

 

60,172 

 

 

5,184 

 

8.6 

%

Latin America

 

 

47,618 

 

 

42,557 

 

 

5,061 

 

11.9 

%

     Net sales

 

$

350,012 

 

$

288,527 

 

$

61,485 

 

21.3 

%

Selling, General and Administrative Expenses

The following table includes SG&A components with significant changes between 20172020 and 2016.2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Three Months Ended

 

September 30,

 

 

 

 

 

 

March 31,

 

2017

 

2016

 

$ Change

 

% Change

 

(Dollars in thousands)

 

 

 

Personnel expenses

 

$

36,364 

 

$

29,634 

 

$

6,730 

 

22.7 

%

(Dollars in thousands)

2020

2019

$ Change

% Change

Personnel expenses (excluding R&D personnel expenses)

$

22,749

$

26,179

$

(3,430)

(13.1)

%

Research and development expenses

10,087

10,980

(893)

(8.1)

%

Business development

535

1,858

(1,323)

(71.2)

%

Incentive compensation

 

 

3,637 

 

 

2,153 

 

 

1,484 

 

68.9 

%

2,120

1,288

832

64.6

%

Stock-based compensation

 

 

1,510 

 

 

1,442 

 

 

68 

 

4.7 

%

2,759

2,769

(10)

(0.4)

%

Intangible asset amortization

1,678

2,343

(665)

(28.4)

%

Pension and other postretirement benefits

 

 

(20)

 

 

(109)

 

 

89 

 

(81.7)

%

158

245

(87)

(35.5)

%

Bad debt

 

 

289 

 

 

797 

 

 

(508)

 

(63.7)

%

136

6

130

NM

%

Business development

 

 

4,649 

 

 

3,660 

 

 

989 

 

27.0 

%

Intangible asset amortization

 

 

2,898 

 

 

1,555 

 

 

1,343 

 

86.4 

%

All other expenses

 

 

16,158 

 

 

16,456 

 

 

(298)

 

(1.8)

%

15,824

11,263

4,561

40.5

%

Selling, general and administrative expenses

 

$

65,485 

 

$

55,588 

 

$

9,897 

 

17.8 

%

$

56,046

$

56,931

$

(885)

(1.6)

%

SG&A expenses were $9.9$0.9 million higherlower in the three months ended September 30, 2017,March 31, 2020, compared with the prior-year same period. The higherlower SG&A expenses compared withto the prior-year same period are primarily driven by expenses associated with businesses acquired within the last year of approximately  $6.7 million. The acquisitions were the primary driver of the increase inlower personnel expenses, business development expenses and accounted for the entire increase in intangible asset amortization.  The increase in incentive compensation of $1.5 million was drivenresearch and development expenses, partially offset by the Company’s performance relativehigher miscellaneous expenses, primarily related to targets established for certain awards compared with the prior-year same period.increased consulting and legal services.

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.

29


Table of Contents

Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

$ Change

% Change

Strategic services

$

25,616

$

28,259

$

(2,643)

(9.4)

%

Functional services

25,551

24,615

936

3.8

%

Incentive compensation

2,120

1,288

832

64.6

%

Stock-based compensation

2,759

2,769

(10)

(0.4)

%

Selling, general and administrative expenses

$

56,046

$

56,931

$

(885)

(1.6)

%



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

(Dollars in thousands)

 

 

 

Strategic services

 

$

34,408 

 

$

29,385 

 

$

5,023 

 

17.1 

%

Functional services

 

 

25,930 

 

 

22,608 

 

 

3,322 

 

14.7 

%

Incentive compensation

 

 

3,637 

 

 

2,153 

 

 

1,484 

 

68.9 

%

Stock-based compensation

 

 

1,510 

 

 

1,442 

 

 

68 

 

4.7 

%

Selling, general and administrative expenses

 

$

65,485 

 

$

55,588 

 

$

9,897 

 

17.8 

%

Restructuring and Impairment Charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Three Months Ended

 

September 30,

 

 

 

 

 

 

March 31,

 

2017

 

2016

 

$ Change

 

% Change

 

(Dollars in thousands)

 

 

 

(Dollars in thousands)

2020

2019

$ Change

% Change

Employee severance

 

$

660 

 

$

20 

 

$

640 

 

3,200.0 

%

$

658

$

1,020

$

(362)

(35.5)

%

Other restructuring costs

 

 

811 

 

 

 

 

805 

 

13,416.7 

%

507

720

(213)

(29.6)

%

Restructuring and impairment charges

 

$

1,471 

 

$

26 

 

$

1,445 

 

5,557.7 

%

$

1,165

$

1,740

$

(575)

(33.0)

%

Restructuring and impairment charges increaseddecreased in the third quarter of 2017three months ended March 31, 2020, compared with the prior-year same period. The increase wasdecrease primarily duerelates to actions takenlower costs associated with optimization programs in connection with recent acquisitions designed to achieve our targeted synergies.the first three months of 2020.

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Three Months Ended

 

September 30,

 

 

 

 

 

 

March 31,

 

2017

 

2016

 

$ Change

 

% Change

 

(Dollars in thousands)

 

 

 

(Dollars in thousands)

2020

2019

$ Change

% Change

Interest expense

 

$

6,326 

 

$

4,967 

 

$

1,359 

 

27.4 

%

$

5,846

$

6,347

$

(501)

(7.9)

%

Amortization of bank fees

 

 

943 

 

 

347 

 

 

596 

 

171.8 

%

929

900

29

3.2

%

Interest swap amortization

(316)

(316)

%

Interest capitalization

 

 

(21)

 

 

(10)

 

 

(11)

 

110.0 

%

(929)

(636)

(293)

46.1

%

Interest expense

 

$

7,248 

 

$

5,304 

 

$

1,944 

 

36.7 

%

$

5,530

$

6,295

$

(765)

(12.2)

%

Interest expense increaseddecreased in the third quarter of 2017three months ended March 31, 2020, compared with the prior-year same period. The increasedecrease in interest expense was due to an increasedecreases in the average long-term debt balance and the average interest rate and an increase in capitalized interest during the three months ended September 30, 2017,March 31, 2020, compared with the prior-year same period and an increaseperiod.

27


Table of the amortization of debt issuance costs associated with the 2017 Credit Facility, partially offset by a favorable average borrowing rate as a result of the refinancing completed in the first quarter of 2017.Contents

Income Tax Expense

During the third quarter of 2017, incomeIncome tax expense for the three months ended March 31, 2020 was $7.4$5.1 million, or 24.3% of pre-tax income. In the third quarter of 2016, we recordedIncome tax expense of $6.2for the three months ended March 31, 2019 was $2.9 million, or 23.1%24.7% of pre-tax income. The tax expense infor the third quarter of 2017three months ended March 31, 2020 and 2016,March 31, 2019, as a percentage of pre-tax income, is lowerhigher than the U.S. federal statutory income tax rate of 35%,21% primarily as a result of foreign statutory rate differences.

30


Table of Contents

Results of Operations - Segment Information

Comparison of the three months ended September 30, 2017March 31, 2020 and 2016 2019

PerformanceFunctional Coatings

Three Months Ended

Change due to

March 31,

Volume /

(Dollars in thousands)

2020

2019

$ Change

% Change

Price

Mix

Currency

Other

Segment net sales

$

155,435

$

167,026

$

(11,591)

(6.9)

%

$

(43)

$

(8,023)

$

(3,525)

$

Segment gross profit

47,817

48,230

(413)

(0.9)

%

(43)

(3,434)

(1,038)

4,102

Gross profit as a % of segment net sales

30.8

%

28.9

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

 

 

 

 

 

 

 

Change due to



 

September 30,

 

 

 

 

 

 

 

 

 

 

Volume /

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change

 

Price

 

Mix

 

Currency

 

 

Acquisitions

Other



 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales

 

$

146,238 

 

 

$

130,453 

 

 

$

15,785 

 

12.1 

%

 

$

2,683 

 

$

3,428 

 

$

1,043 

 

$

8,631 

 

$

 —

Segment gross profit

 

 

35,470 

 

 

 

33,636 

 

 

 

1,834 

 

5.5 

%

 

 

2,683 

 

 

967 

 

 

697 

 

 

2,651 

 

 

(5,164)

Gross profit as a % of segment net sales

 

 

24.3 

%

 

 

25.8 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales increased in Performance Coatingsdecreased compared with the prior-year same period, primarily driven by lower sales from SPC of $7.8 million, and increases in sales of colors, frits and glazes,industrial, automotive and porcelain enamel products of $2.9$5.1 million, $2.4$3.2 million and $1.1$3.1 million, respectively.The increasedecrease in net sales was driven by salesunfavorable volume and mix of $8.0 million and foreign currency impacts of $3.5 million. Gross profit decreased from acquisitions of $8.6 million, higher salesthe prior-year same period primarily due to unfavorable volume and mix of $3.4 million higher product pricing of $2.7 million, and favorable foreign currency impacts of $1.0 million. Gross profit increased $1.8 million from the prior-year same period, primarily driven by gross profit from acquisitions of $2.7 million, favorable product pricing impacts of $2.7 million, higher sales volumes and mix of $1.0 million, and favorable foreign currency impacts of $0.7 million, partially offsetmitigated by higherfavorable raw material costs of $4.8$2.8 million and higherfavorable manufacturing costs of $0.4$1.3 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Three Months Ended

 

September 30,

 

 

 

 

 

 

March 31,

 

2017

 

2016

 

$ Change

 

% Change

 

(Dollars in thousands)

 

 

 

(Dollars in thousands)

2020

2019

$ Change

% Change

Segment net sales by Region

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

83,910 

 

$

69,171 

 

$

14,739 

 

21.3 

%

EMEA

$

75,857

$

78,265

$

(2,408)

(3.1)

%

United States

46,694

51,979

(5,285)

(10.2)

%

Asia Pacific

21,756

22,898

(1,142)

(5.0)

%

Latin America

 

 

26,699 

 

 

26,523 

 

 

176 

 

0.7 

%

11,128

13,884

(2,756)

(19.9)

%

Asia Pacific

 

 

24,264 

 

 

22,715 

 

 

1,549 

 

6.8 

%

United States

 

 

11,365 

 

 

12,044 

 

 

(679)

 

(5.6)

%

Total

 

$

146,238 

 

$

130,453 

 

$

15,785 

 

12.1 

%

$

155,435

$

167,026

$

(11,591)

(6.9)

%

The net sales increasedecrease of $15.8$11.6 million was primarily driven by increaseslower sales from all regions. The decrease in sales from Europe, Asia Pacific and Latin America, partially offset by lower sales in the United States. The increase in sales from EuropeStates was primarily attributable to SPC, which was acquired in second quarter of 2017, which contributed $7.8 million, and higherlower sales of colors, frits and glazes, andautomotive, porcelain enamel, industrial and electronic products of $3.0$1.5 million, $1.5 million, $1.3 million and $1.0 million, respectively. The increasedecrease in sales from Latin America was primarily attributable to lower sales from all groups.The decrease in sales from EMEA was primarily attributable to lower sales of industrial, automotive and porcelain enamel products of $4.3 million, $0.9 million and $0.8 million, respectively, partially mitigated by higher sales of electronic products of $3.4 million. The decrease in sales from Asia Pacific was drivenprimarily attributable to decreased sales of porcelain enamel, automotive and decoration products of $0.7 million, $0.6 million and $0.3 million, partially mitigated by higher sales of digital inks and porcelain enamelindustrial products of $1.1 million and $0.4$0.5 million. Latin America sales remained relatively flat and the decrease in sales in the United States is fully attributable to lower sales of porcelain enamel.

Performance Colors and GlassColor Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

Change due to

Three Months Ended

Change due to

 

September 30,

 

 

 

 

 

 

 

 

 

Volume /

 

 

 

 

 

 

 

 

 

March 31,

Volume /

 

2017

 

2016

 

$ Change

 

% Change

 

Price

 

Mix

 

Currency

 

Acquisitions

 

Other

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

2020

2019

$ Change

% Change

Price

Mix

Currency

Other

Segment net sales

 

$

110,578 

 

 

$

92,793 

 

 

$

17,785 

 

19.2 

%

 

$

490 

 

$

(1,519)

 

$

2,000 

 

$

16,814 

 

$

 —

$

96,891

$

96,356

$

535

0.6

%

$

169

$

1,851

$

(1,485)

$

Segment gross profit

 

 

37,880 

 

 

 

32,282 

 

 

5,598 

 

17.3 

%

 

 

490 

 

 

(1,536)

 

 

644 

 

 

5,397 

 

 

603 

33,787

28,396

5,391

19.0

%

169

(624)

(190)

6,036

Gross profit as a % of segment net sales

 

 

34.3 

%

 

 

34.8 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34.9

%

29.5

%

3128


Table of Contents

Net sales increased compared with the prior-year same period, primarily driven by $10.5higher sales of pigment products of $7.1 million, partially offset by decreased sales of sales from ESL, which was acquired in the fourth quartersurface technology products of 2016, and $6.4 million in sales from Dip-Tech, which was acquired in the third quarterand dispersions and colorants of 2017.$0.2 million. The increase in net sales was driven by acquisitionsfavorable volume and mix of $16.8 million, favorable foreign currency impacts of $2.0$1.9 million and higher product pricing of $0.5$0.2 million, partially offset by unfavorable volume and mixforeign currency impacts of $1.5 million. Gross profit increased from the prior-year same period, primarily due to acquisitions, which contributed $5.4 million, favorable manufacturing costs of $1.5$4.3 million, favorable foreign currency impactsraw material costs of $0.6$1.7 million and higher product pricing of $0.5$0.2 million, partially offsetmitigated by lowerunfavorable sales volumesvolume and mix of $1.5$0.6 million and unfavorable raw material costsforeign currency impacts of $0.9$0.2 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Three Months Ended

 

September 30,

 

 

 

 

 

 

March 31,

 

2017

 

2016

 

$ Change

 

% Change

 

(Dollars in thousands)

 

 

 

(Dollars in thousands)

2020

2019

$ Change

% Change

Segment net sales by Region

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

52,408 

 

$

40,149 

 

$

12,259 

 

30.5 

%

United States

 

 

35,836 

 

 

31,924 

 

 

3,912 

 

12.3 

%

$

41,159

$

43,599

$

(2,440)

(5.6)

%

EMEA

37,889

35,567

2,322

6.5

%

Asia Pacific

 

 

16,663 

 

 

15,112 

 

 

1,551 

 

10.3 

%

9,296

8,825

471

5.3

%

Latin America

 

 

5,671 

 

 

5,608 

 

 

63 

 

1.1 

%

8,547

8,365

182

2.2

%

Total

 

$

110,578 

 

$

92,793 

 

$

17,785 

 

19.2 

%

$

96,891

$

96,356

$

535

0.6

%

The net sales increase of $17.8$0.5 million was driven by higher sales from all regions.EMEA, Asia Pacific and Latin America, partially offset by lower sales from the United States. The increase in sales from EuropeEMEA was primarily attributable to $8.9 million in sales from acquisitions and higher sales in decorationof pigment products of $2.4$2.5 million, partially offset by decreased sales of dispersions and colorants of $0.2 million.The increase in sales from the United StatesAsia Pacific was primarily attributable to sales from acquisitions of $7.9 million, partially offset by a decrease in sales of automobile and industrial products of $2.1 million and $1.7 million, respectively. The increase from Asia Pacific was due to an increase in sales of decoration and automobile products of $0.9 million and $0.7 million, respectively. Sales from Latin America remained relatively flat.

Color Solutions



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

 

 

 

 

 

 

 

Change due to



 

September 30,

 

 

 

 

 

 

 

 

 

 

Volume /

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change

 

Price

 

Mix

 

Currency

 

Acquisitions

 

Other



 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales

 

$

93,196 

 

 

$

65,281 

 

 

$

27,915 

 

42.8 

%

 

$

2,781 

 

$

6,505 

 

$

860 

 

$

17,769 

 

$

 —

Segment gross profit

 

 

31,044 

 

 

 

23,178 

 

 

 

7,866 

 

33.9 

%

 

 

2,781 

 

 

305 

 

 

225 

 

 

3,841 

 

 

714 

Gross profit as a % of segment net sales

 

 

33.3 

%

 

 

35.5 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Net sales increased compared with the prior-year same period, primarily due to sales from Cappelle of $17.8 million, and higher sales of pigments and surface technology products of $6.6 million and $3.7 million, respectively.pigment products. The increase in net sales was driven by acquisitions of $17.8 million, higher volumes and mix of $6.5 million, higher product pricing of $2.8 million, and favorable foreign currency impacts of $0.9 million.  Gross profit increased from the prior-year same period, primarily due to acquisitions, which contributed $3.8 million, lower manufacturing costs of $3.6 million, higher product pricing of $2.8 million, favorable sales volumes

32


Table of Contents

and mix of $0.3 million, and favorable foreign currency impacts of $0.2 million, partially offset by higher raw material costs of $2.9 million. 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

(Dollars in thousands)

 

 

 

Segment net sales by Region

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

41,190 

 

$

33,243 

 

$

7,947 

 

23.9 

%

Europe

 

 

33,400 

 

 

15,481 

 

 

17,919 

 

115.7 

%

Asia Pacific

 

 

9,937 

 

 

8,819 

 

 

1,118 

 

12.7 

%

Latin America

 

 

8,669 

 

 

7,738 

 

 

931 

 

12.0 

%

Total

 

$

93,196 

 

$

65,281 

 

$

27,915 

 

42.8 

%

The net sales increase of $27.9 million was driven by higher sales from all regions.  The higher sales from Europe was driven by sales from Cappelle of $14.8 million and pigment products of $3.1 million.  The increasedecrease in sales from the United States was primarily driven by lower sales inof surface technology products of $3.7 million, sales from Cappelle of $3.0 million and sales in pigment products of $1.4 million. The increases in sales from Asia Pacific and Latin America of $1.1 million and $0.9 million, respectively, were fully attributable to higher sales for pigment products. 

Results of Operations - Consolidated

Comparison of the nine months ended September 30, 2017 and 2016 

For the nine months ended September 30, 2017,  income from continuing operations was $66.3  million, compared with $65.2 million income from continuing operations for the nine months ended September 30, 2016.  Net income was $66.3 million, compared with net income of $0.7 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, net income attributable to common shareholders was $65.7 million, or earnings per share of $0.79, compared with net income attributable to common shareholders of $0.1 million, or earnings per share of $0.01, for the nine months ended September 30, 2016.



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

 

Net sales

 

$

1,019,199 

 

 

$

863,955 

 

 

$

155,244 

 

18.0 

%

Cost of sales

 

 

708,447 

 

 

 

592,372 

 

 

 

116,075 

 

19.6 

%

Gross profit

 

$

310,752 

 

 

$

271,583 

 

 

$

39,169 

 

14.4 

%

Gross profit as a % of net sales

 

 

30.5 

%

 

 

31.4 

%

 

 

 

 

 

 

Net sales increased by  $155.2 million, or 18.0%, in the nine months ended September 30, 2017,  compared with the prior-year same period, driven by higher sales in Color Solutions, Performance Colors and Glass and Performance Coatings of $86.0 million, $43.8 million and $25.4 million, respectively.  The increase in net sales was driven largely by acquisitions, including Cappelle, which contributed sales of $55.8 million, ESL, which contributed sales of $31.8 million, and SPC, which contributed sales of $13.5 million, each of which was acquired after the third quarter of 2016. The increase in net sales was also driven by organic growth with Color Solutions growing $28.1 million, Performance Coatings growing $11.1 million and Performance Colors and Glass growing $1.8 million. 

Gross Profit

Gross profit increased $39.2 million, or 14.4%, in the nine months ended September 30, 2017, compared with the prior-year same period, and as a percentage of net sales, it decreased 90 basis points to  30.5%.  The increase in gross profit was attributable to increases across all of our segments, with increases in Color Solutions,  Performance Colors and Glass and Performance Coatings of

33


Table of Contents

$21.8 million, $14.6 million and $4.2 million, respectively.  The increase in gross profit was primarily driven by acquisitions of $31.2 million, lower manufacturing costs of $20.2 million, higher sales volumes and mix of $7.0 million, and favorable product pricing of $5.5$6.0 million, partially offset by higher raw material costs of $20.7 million and unfavorable foreign currency impacts of $2.6 million.    

Geographic Revenues

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



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

 

Geographic Revenues on a sales origination basis

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

490,008 

 

$

392,392 

 

$

97,616 

 

24.9 

%

United States

 

 

265,385 

 

 

224,234 

 

 

41,151 

 

18.4 

%

Asia Pacific

 

 

142,732 

 

 

134,470 

 

 

8,262 

 

6.1 

%

Latin America

 

 

121,074 

 

 

112,859 

 

 

8,215 

 

7.3 

%

     Net sales

 

$

1,019,199 

 

$

863,955 

 

$

155,244 

 

18.0 

%

The increase in net sales of $155.2 million, compared with the prior-year same period, was driven by higher sales from all regions. The increase in sales from Europe was attributable to higher sales in Color Solutions, Performance Colors and Glass and Performance Coatings of $53.8 million, $23.4 million and $20.5 million, respectively. The increase in sales from the United States was primarily attributable to higher sales in Color Solutions and Performance Colors and Glass of $26.5 million and $15.9  million.  The increase in sales from Latin America and Asia Pacific was attributable to higher sales across all segments.

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



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

 

Geographic Revenues on a shipped-to basis

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

464,872 

 

$

387,776 

 

$

77,096 

 

19.9 

%

Asia Pacific

 

 

220,095 

 

 

177,492 

 

 

42,603 

 

24.0 

%

United States

 

 

197,135 

 

 

180,390 

 

 

16,745 

 

9.3 

%

Latin America

 

 

137,097 

 

 

118,297 

 

 

18,800 

 

15.9 

%

     Net sales

 

$

1,019,199 

 

$

863,955 

 

$

155,244 

 

18.0 

%

34


Table of Contents

Selling, General and Administrative Expenses

The following table includes SG&A components with significant changes between 2017 and 2016.



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

 

Personnel expenses

 

$

102,872 

 

$

89,214 

 

$

13,658 

 

15.3 

%

Incentive compensation

 

 

7,932 

 

 

7,299 

 

 

633 

 

8.7 

%

Stock-based compensation

 

 

6,901 

 

 

5,279 

 

 

1,622 

 

30.7 

%

Pension and other postretirement benefits

 

 

(139)

 

 

33 

 

 

(172)

 

(521.2)

%

Bad debt

 

 

(78)

 

 

1,020 

 

 

(1,098)

 

(107.6)

%

Business development

 

 

11,260 

 

 

8,615 

 

 

2,645 

 

30.7 

%

Intangible asset amortization

 

 

7,037 

 

 

4,312 

 

 

2,725 

 

63.2 

%

All other expenses

 

 

51,172 

 

 

50,333 

 

 

839 

 

1.7 

%

Selling, general and administrative expenses

 

$

186,957 

 

$

166,105 

 

$

20,852 

 

12.6 

%

SG&A expenses were $20.9 million higher in the nine months ended September 30, 2017,  compared with the prior-year same period.  The higher SG&A expenses compared with the prior-year same period are primarily driven by businesses acquired within the last year of approximately  $17.2 million. The acquisitions were the primary driver of the increase in personnel expenses, and accounted for the entire increase in intangible asset amortization. The increase in business development expenses is due to higher professional fees. The increase in stock-based compensation expense of $1.6 million is driven by the Company’s performance relative to targets for certain awards compared with the prior-year same period, as well as increases in the Company’s stock price.

35


Table of Contents

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



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

(Dollars in thousands)

 

 

 

Strategic services

 

$

99,081 

 

$

86,801 

 

$

12,280 

 

14.1 

%

Functional services

 

 

73,043 

 

 

66,726 

 

 

6,317 

 

9.5 

%

Incentive compensation

 

 

7,932 

 

 

7,299 

 

 

633 

 

8.7 

%

Stock-based compensation

 

 

6,901 

 

 

5,279 

 

 

1,622 

 

30.7 

%

Selling, general and administrative expenses

 

$

186,957 

 

$

166,105 

 

$

20,852 

 

12.6 

%

Restructuring and Impairment Charges



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

 

Employee severance

 

$

2,455 

 

$

1,161 

 

$

1,294 

 

111.5 

%

Equity method investment impairment

 

 

1,499 

 

 

 —

 

 

1,499 

 

 —

%

Asset impairment

 

 

1,176 

 

 

 —

 

 

1,176 

 

 —

%

Other restructuring costs

 

 

2,583 

 

 

533 

 

 

2,050 

 

384.6 

%

Restructuring and impairment charges

 

$

7,713 

 

$

1,694 

 

$

6,019 

 

355.3 

%

Restructuring and impairment charges increased in the first nine months of 2017 compared with the prior-year same period. The increase was primarily due to an “other than temporary impairment” charge on an equity method investment of $1.5 million and 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 in connection with recent acquisitions designed to achieve our targeted synergies.

Interest Expense



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

 

Interest expense

 

$

17,591 

 

$

14,629 

 

$

2,962 

 

20.2 

%

Amortization of bank fees

 

 

2,375 

 

 

991 

 

 

1,384 

 

139.7 

%

Interest capitalization

 

 

(45)

 

 

(41)

 

 

(4)

 

9.8 

%

Interest expense

 

$

19,921 

 

$

15,579 

 

$

4,342 

 

27.9 

%

Interest expense increased in the first nine months of 2017 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 nine months ended September 30, 2017, compared with the prior-year same period and an increase of the amortization of debt issuance costs associated with the 2017 Credit Facility, partially offset by a favorable average borrowing rate as a result of the refinancing completed in the first quarter of 2017.

Income Tax Expense

During the first nine months of 2017, income tax expense was $23.2 million, or 25.9% of pre-tax income.  In the first nine months of 2016, we recorded tax expense of $22.7 million, or 25.8% of pre-tax income. The tax expense in the first nine months of 2017 and 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. 

36


Table of Contents

Results of Operations - Segment Information

Comparison of the nine months ended September 30, 2017 and 2016 

Performance Coatings



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 

 

 

Change due to



 

September 30,

 

 

 

 

 

 

 

 

 

 

Volume /

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change

 

Price

 

Mix

 

Currency

 

 

Acquisitions

Other



 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales

 

$

424,549 

 

 

$

399,166 

 

 

$

25,383 

 

6.4 

%

 

$

(427)

 

$

20,333 

 

$

(8,851)

 

$

14,328 

 

$

 —

Segment gross profit

 

 

109,205 

 

 

 

104,985 

 

 

 

4,220 

 

4.0 

%

 

 

(427)

 

 

6,174 

 

 

(2,006)

 

 

3,961 

 

 

(3,482)

Gross profit as a % of segment net sales

 

 

25.7 

%

 

 

26.3 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales increased in Performance Coatings compared with the prior-year same period, primarily driven by sales from SPC of $13.5 million and an increase in organic growth across all product lines.  The increase in net sales was driven by higher sales volume and mix of $20.3 million and sales from acquisitions of $14.3 million, partially offset by unfavorable foreign currency impacts of $8.9 million and lower product pricing of $0.4 million. Gross profit increased $4.2 million from the prior-year same period, primarily driven by lower manufacturing costs of $7.7 million, higher sales volumes and mix of $6.2 million and gross profit from acquisitions of $4.0 million, partially offset by higher raw material costs of $11.2 million, unfavorable foreign currency impacts of $2.0 million and unfavorable product pricing impacts of $0.4 million.



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

 

Segment net sales by Region

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

241,884 

 

$

221,422 

 

$

20,462 

 

9.2 

%

Latin America

 

 

80,268 

 

 

75,933 

 

 

4,335 

 

5.7 

%

Asia Pacific

 

 

68,670 

 

 

66,784 

 

 

1,886 

 

2.8 

%

United States

 

 

33,727 

 

 

35,027 

 

 

(1,300)

 

(3.7)

%

Total

 

$

424,549 

 

$

399,166 

 

$

25,383 

 

6.4 

%

The net sales increase of $25.4 million was driven by increases in sales from Europe, Latin America and Asia Pacific, partially offset by a decrease in sales from the United States. The increase in sales from Europe was primarily driven by sales from SPC of $13.5 million and an increase in sales of colors and porcelain enamel of $3.2 million and $2.6 million, respectively. The sales increase from Latin America was primarily drivenmitigated by higher sales of frits and glazes and porcelain enamel of $3.8 million and $0.8 million, respectively. The sales increase from Asia Pacific was primarily driven by higher sales of digital inks and porcelain enamel of $2.5 million and $0.9 million, respectively, partially offset by lower sales of frits and glazes of $1.7 million. The decrease in sales from the United States was attributable to lower sales of porcelain enamel. 

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Table of Contents

Performance Colors and Glass



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 

 

 

Change due to



 

September 30,

 

 

 

 

 

 

 

 

 

 

Volume /

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change

 

Price

 

Mix

 

Currency

 

Acquisitions

 

Other



 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales

 

$

320,733 

 

 

$

276,896 

 

 

$

43,837 

 

15.8 

%

 

$

1,672 

 

$

1,263 

 

$

(1,105)

 

$

42,007 

 

$

 —

Segment gross profit

 

 

115,385 

 

 

 

100,825 

 

 

 

14,560 

 

14.4 

%

 

 

1,672 

 

 

(1,881)

 

 

(488)

 

 

14,925 

 

 

332 

Gross profit as a % of segment net sales

 

 

36.0 

%

 

 

36.4 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The net sales increase of $43.8 million was driven by sales from ESL of $31.8 million, Dip-Tech of $6.4 million and organic growth in electronicpigment products of $4.3$3.4 million. The increase in net sales was driven by acquisitions of $42.0 million, higher product pricing of $1.7 million, and favorable volume and mix of $1.3 million,  partially offset by unfavorable foreign currency impacts of $1.1 million. Gross profit increased from the prior-year same period, primarily due to gross profit from acquisitions of $14.9 million, favorable manufacturing costs of $2.8 million, and higher product pricing of $1.7 million, partially offset by unfavorable raw material costs of $2.5 million, lower sales volumes and mix of $1.9 million, and unfavorable foreign currency impacts of $0.5 million.



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 



 

(Dollars in thousands)

 

 

 

Segment net sales by Region

 

 

 

 

 

 

 

 

 

 

 

 

Europe

 

$

144,586 

 

$

121,206 

 

$

23,380 

 

19.3 

%

United States

 

 

112,772 

 

 

96,833 

 

 

15,939 

 

16.5 

%

Asia Pacific

 

 

47,091 

 

 

44,102 

 

 

2,989 

 

6.8 

%

Latin America

 

 

16,284 

 

 

14,755 

 

 

1,529 

 

10.4 

%

Total

 

$

320,733 

 

$

276,896 

 

$

43,837 

 

15.8 

%

The net sales increase of $43.8 million was driven by higher sales from all regions. The increase in sales from Europe was primarily driven by higher sales from acquisitions. The increase in sales from the United States was driven by sales from ESL of $20.2 million, partially offset by a decrease in sales of industrial products. The increase from Asia Pacific was primarily due to higher sales of automobile and decoration products of $1.6 million and $0.8 million, respectively.  The increase from Latin America was primarily driven by an increase in sales of decoration products of $1.8 million, partially offset by a decrease in sales of automobile and industrial products. 

38


Table of Contents

Color Solutions



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 

 

 

Change due to



 

September 30,

 

 

 

 

 

 

 

 

 

 

Volume /

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change

 

Price

 

Mix

 

Currency

 

Acquisitions

 

Other



 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales

 

$

273,917 

 

 

$

187,893 

 

 

$

86,024 

 

45.8 

%

 

$

4,211 

 

$

24,208 

 

$

(317)

 

$

57,922 

 

$

 —

Segment gross profit

 

 

87,642 

 

 

 

65,868 

 

 

 

21,774 

 

33.1 

%

 

 

4,211 

 

 

2,664 

 

 

(145)

 

 

12,308 

 

 

2,736 

Gross profit as a % of segment net sales

 

 

32.0 

%

 

 

35.1 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales increased compared with the prior-year same period, primarily due to sales from Cappelle of $55.8 million, and higher sales of pigments and surface technology products of $17.8 million and $10.5 million, respectively.  The increase in net sales was driven by sales from acquisitions of $57.9 million, higher volumes and mix of $24.2 million, and higher product pricing of $4.2 million, partially offset by unfavorable foreign currency impacts of $0.3 million.  Gross profit increased from the prior-year same period due to gross profit from acquisitions of $12.3 million,  lower manufacturing costs of $9.7 million, higher product pricing of $4.2 million, and higher sales volumes and mix of $2.7 million, partially offset by unfavorable raw material costs of $7.0 million and unfavorable foreign currency impacts of $0.1 million.



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 

 

 

 



 

September 30,

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

$ Change

 

% Change



 

(Dollars in thousands)

 

 

 

Segment net sales by Region

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

118,886 

 

$

92,374 

 

$

26,512 

 

28.7 

%

Europe

 

 

103,538 

 

 

49,764 

 

 

53,774 

 

108.1 

%

Asia Pacific

 

 

26,971 

 

 

23,584 

 

 

3,387 

 

14.4 

%

Latin America

 

 

24,522 

 

 

22,171 

 

 

2,351 

 

10.6 

%

Total

 

$

273,917 

 

$

187,893 

 

$

86,024 

 

45.8 

%

The net sales increase of $86.0 million was driven by higher sales from all regions.  The increase in sales from Europe was primarily driven by sales from Cappelle of $46.7 million and higher sales of pigments of $7.1 million.  The increase in sales from the United States was primarily driven by sales from Cappelle of $9.1 million, surface technology products of $10.4 million and pigments of $5.0 million.  The increases in sales from Asia Pacific and Latin America of $3.3 million and $2.4 million, respectively, were driven by an increase in pigment products.    

Summary of Cash Flows for the ninethree months ended September 2017March 31, 2020 and 2016 2019



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

 

 



 

September 30,

 

 

 



 

2017

 

2016

 

$ Change



 

(Dollars in thousands)

Net cash provided by operating activities

 

$

34,691 

 

$

6,742 

 

$

27,949 

Net cash used in investing activities

 

 

(99,245)

 

 

(26,036)

 

 

(73,209)

Net cash provided by financing activities

 

 

68,036 

 

 

1,892 

 

 

66,144 

Effect of exchange rate changes on cash and cash equivalents

 

 

3,147 

 

 

(422)

 

 

3,569 

Increase (decrease) in cash and cash equivalents

 

$

6,629 

 

$

(17,824)

 

$

24,453 

Three Months Ended

March 31,

(Dollars in thousands)

2020

2019

$ Change

Net cash used in operating activities

$

(71,535)

$

(67,527)

$

(4,008)

Net cash provided by (used in) investing activities

21,256

(3,391)

24,647

Net cash provided by (used in) financing activities

(1,697)

23,877

(25,574)

Effect of exchange rate changes on cash and cash equivalents

(1,208)

377

(1,585)

Decrease in cash and cash equivalents

$

(53,184)

$

(46,664)

$

(6,520)

39


Table of Contents

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

Three Months Ended

 

September 30,

 

 

 

March 31,

 

2017

 

2016

 

$ Change

 

(Dollars in thousands)

(Dollars in thousands)

2020

2019

$ Change

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

$

66,315 

 

$

708 

 

$

65,607 

$

16,133

$

13,878

$

2,255

(Gain) on sale of assets and business

 

 

(1,214)

 

 

(3,459)

 

 

2,245 

Loss on sale of assets

487

164

323

Depreciation and amortization

 

 

36,040 

 

 

33,599 

 

 

2,441 

10,451

14,264

(3,813)

Interest amortization

 

 

2,375 

 

 

991 

 

 

1,384 

929

900

29

Restructuring and impairment

 

 

3,629 

 

 

37,173 

 

 

(33,544)

307

179

128

Loss on extinguishment of debt

 

 

3,905 

 

 

 —

 

 

3,905 

Accounts receivable

 

 

(44,952)

 

 

(44,370)

 

 

(582)

(50,541)

(43,733)

(6,808)

Inventories

 

 

(31,379)

 

 

(20,453)

 

 

(10,926)

(11,297)

(12,652)

1,355

Accounts payable

 

 

581 

 

 

(3,209)

 

 

3,790 

(39,651)

(43,680)

4,029

Other current assets and liabilities, net

 

 

(11,655)

 

 

9,479 

 

 

(21,134)

Other adjustments, net

 

 

11,046 

 

 

(3,717)

 

 

14,763 

Net cash provided by operating activities

 

$

34,691 

 

$

6,742 

 

$

27,949 

Other current asset, liabilities and adjustments, net

1,647

3,153

(1,506)

Net cash used in operating activities

$

(71,535)

$

(67,527)

$

(4,008)

Cash flows from operating activities. Cash flows provided byfrom operating activities decreased $4.0 million during the three months ended March 31, 2020 compared with the prior-year same period. The decrease in cash from operating activities was primarily due to a decrease in depreciation and amortization of $3.8 million and higher cash outflows for net working capital of $1.4 million, partially mitigated by an increase in net income of $2.3 million.

29


Cash flows used in investing activities. Cash flows from investing activities increased $27.9$24.6 million induring the first ninethree months of 2017ended March 31, 2020 compared with the prior-year same period. The increase in cash from investing activities was primarily due to higher earnings after consideration of non-cash items, partially offset by higherlower cash outflows for net working capital expenditures of $7.7$15.0 million and other current assets and liabilitieshigher collections of $6.3 million.financing receivables from the international receivable sales program (Note 8) of $8.6 million in the three months ended March 31, 2020, compared to the prior-year same period.

Cash flows from investingfinancing activities.Cash flows used in investingfrom financing activities increased $73.2decreased $25.6 million induring the first ninethree months of 2017ended March 31, 2020 compared with the prior-year same period. The increase was primarily due to higher cash outflows for acquisitions of $60.5 million, higher capital expenditures of $11.9 million, and lower proceeds from a closed site in Australia of $3.6 million which occurred during the nine months ended September 30, 2016. The cash outflow was partially offset by proceeds from the sale of an equity method investment of $2.3 million.

Cash flows from financing activities. Cash flows provided by financing activities increased $66.1 million in the first nine months of 2017 compared with the prior-year same period.  As further discussed in Note 8, during the nine months ended September 30, 2017, we paid off our Previous Credit Facility and entered into our Credit Facility, consisting of a $400 million secured revolving line of credit, a $357.5 million secured term loan facility and a €250 million secured euro term loan facility.  This transaction resulted in additional borrowings in the first nine months of 2017 of $82.2 million compared to the prior-year same period. Further, comparedCompared to the prior-year same period, net repayments under loans payable was $13.4 million higher.  Additionally, during the first nine months of 2017, we paid debt issuance costs related to the Credit Facility entered into during the period, partially offset by no repurchases of treasury stock being made during the first nine months of 2017. 

Capital Resources and Liquidity

2017 Credit Facility

On February 14, 2017, the Company entered into a new credit facility (the “Credit Facility”) with a group of lenders to 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 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 equal to 0.25% of the original principal amount of the term loans, with the remaining balance due on the maturity date thereof.  In addition, the Company is required, on an annual basis, to make a prepayment of term loans until they are fully paid and then to the revolving loans in an amount equal to a portion of the Company’s excess cash flow, as calculated pursuant to the Credit Facility.

40


Table of Contents

Subject to the satisfaction of certain conditions, the Company can request additional commitments under the revolving line of credit or term loans in the aggregate principal amount of up to $250 million to the extent that existing or new lenders agree to provide such additional commitments and/or term loans and, certain additional debt subject to satisfaction of 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 certain of the Company’s U.S. subsidiaries and 65% of the stock of certain of the Company’s direct foreign subsidiaries.

Interest Rate – Term 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 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.

·

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 1.50%.

·

The LIBOR rate 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 EURIBOR rate loans is 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 September 30, 2017, the Company had borrowed $355.7 million under the secured term loan facility at an interest rate of 3.73% and €248.8 million under the secured euro term loan facility at an interest rate of 2.75%. At September 30, 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 0.75% and 1.75%.

·

The LIBOR rate for revolving loans shall not be less than 0% and the applicable margin for LIBOR rate revolving loans will vary between 1.75% and 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 September 30, 2017, there were $27.4 million borrowings under the revolving credit line at an interest rate of 3.48%. After reductions for outstanding letters of credit secured by these facilities, we had $367.9 million of additional borrowings available under the revolving credit facilities at September 30, 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 tofrom the revolving credit facility decreased by $51.3 million, partially offset by lower cash outflows for the Company is subjectpurchase of treasury stock of $25.0 million.

Capital Resources and Liquidity

Refer to Note 8 to the consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a financial covenant regarding the Company’s maximum leverage ratio. If an eventdiscussion of default occurs, all amountsmajor debt instruments that were outstanding under the Credit Agreement may be accelerated and become immediately due and payable.  At September 30, 2017, we were in compliance with the covenants of the Credit Facility.during 2020.

41


Table of Contents

Off Balance Sheet Arrangements

Consignment and Customer Arrangements for Precious Metals.  We use precious metals, primarily silver, in the production of some of our products. We obtain precious metals from financial institutions under consignment agreements. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign and the period of consignment. These fees were $0.3$1.1 million and $0.2 million for the three months ended September 30, 2017March 31, 2020 and 2016.  2019. We had on hand precious metals owned by participants in our precious metals program of $36.3$68.8 million at September 30, 2017,March 31, 2020, and $28.7$66.2 million at December 31, 2016,2019, measured at fair value based on market prices for identical assets and net of credits.assets.

The consignment agreements under our precious metals program involve short-term commitments that typically mature within 30 to 90 days of each transaction and are typically renewed on an ongoing basis. As a result, the Company relies on the continued willingness of financial institutions to participate in these arrangements to maintain this source of liquidity. On occasion, we have been required to deliver cash collateral. While no deposits were outstanding at September 30, 2017,March 31, 2020, or December 31, 2016,  2019, we may be required to furnish cash collateral in the future based on the quantity and market value of the precious metals under consignment and the amount of collateral-free lines provided by the financial institutions. The amount of cash collateral required is subject to review by the financial institutions and can be changed at any time at their discretion, based in part on their assessment of our creditworthiness.

Bank Guarantees and Standby Letters of Credit.

At September 30, 2017,March 31, 2020, the Company and its subsidiaries had bank guarantees and standby letters of credit issued by financial institutions that totaled totaled $7.15.0 million. These agreements primarily relate to Ferro’s insurance programs, foreign energy purchase contracts and foreign tax payments.

Other Financing Arrangements

We maintain other lines of credit to provide global flexibility for Ferro’s short-term liquidity requirements. These facilities are uncommitted lines for our international operations and totaled $61.8 million and $7.3 million at September 30, 2017, and December 31, 2016, respectively. We had $43.5 million and $6.7 million of additional borrowings available under these lines at September 30, 2017, and December 31, 2016, respectively.

Liquidity Requirements

Our primary sources of liquidity are available cash and cash equivalents, available lines of credit under the revolving credit facility, and cash flows from operating activities. As of September 30, 2017,March 31, 2020, we had $52.2$43.0 million of cash and cash equivalents. The majority of our cash and cash equivalents were held by foreign subsidiaries. Cash generated in the U.S. is generally used to pay down amounts outstanding under our revolving credit facility and for general corporate purposes, including acquisitions. If needed, we could repatriate the majority of cash held by foreign subsidiaries without the need to accrue and pay U.S. income taxes. We do not anticipate a liquidity need requiring such repatriation of these funds to the U.S.

During the fourth quarter of 2019, we entered into a definitive agreement to sell our Tile Coatings business which has historically been a part of our Performance Coatings reportable segment. We expect to use the proceeds of the sale to settle long-term obligations.

Our liquidity requirements and uses primarily include debt service, purchase commitments, labor costs, working capital requirements, restructuring expenditures, acquisition costs, capital investments, precious metals cash collateral requirements, and postretirement obligations. We expect to meet these requirements in the long term through cash provided by operating activities and availability under existing credit facilities or other financing arrangements. Cash flows fromprovided by operating activities are primarily driven by earnings before non-cash charges and changes in working capital needs. WeAs of May 5, 2020, we had additional borrowing capacityliquidity of $411.4approximately $550.0 million, at September 30, 2017,consisting of cash and $112.0 million at December 31, 2016, availableavailability under our various credit facilities, primarily our revolving credit facility.

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

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As of September 30, 2017,March 31, 2020, we were in compliance with our maximum leverage ratio covenant of 4.25x4.00x as our actual ratio was 2.79x,2.76, providing $80.3$91.2 million of EBITDA cushion on the leverage ratio, as defined within the Amended Credit Facility. To the extent that economic conditions in key markets deteriorate or we are unable to meet our business projections and EBITDA, as defined within the Amended Credit Facility, falls below approximately $130$203 million for rollingthe most recently ended trailing four quarters, based on reasonably consistent net debt levels with those as of March 31, 2017,  

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2020, we could become unable to maintain compliance with our leverage ratio covenant. In such case, our lenders could demand immediate payment of outstanding amounts and we would need to seek alternate financing sources to pay off such debts and to fund our ongoing operations. Such financing may not be available on favorable terms, if at all.

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

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

Critical Accounting Policies and Their Application

There were no material changes to our critical accounting policies described in “Critical Accounting Policies” within Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016.2019.

Impact of Newly Issued Accounting Pronouncements

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

Risk Factors

Certain statements contained here and in future filings with the SEC reflect the Company’s expectations with respect to future performance and constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning the Company’s operations and business environment, which are difficult to predict and are beyond the control of the Company. Factors that could adversely affect our future financial performance include those described under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q and Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016.2019.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

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

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

March 31,

December 31,

 

2017

 

2016

 

(Dollars in thousands)

(Dollars in thousands)

2020

2019

Variable-rate debt:

 

 

 

 

 

 

Carrying amount

 

$

679,638 

 

$

562,537 

Carrying amount(1)

$

799,950

$

801,764

Fair value

 

 

683,160 

 

 

581,893 

709,631

799,750

Increase in annual interest expense from 1% increase in interest rates

 

 

4,311 

 

 

5,611 

2,637

2,656

Decrease in annual interest expense from 1% decrease in interest rates

 

 

(2,420)

 

 

(5,611)

(2,637)

(2,656)

Fixed-rate debt:

 

 

 

 

 

 

Carrying amount

 

 

7,011 

 

 

8,228 

3,482

3,496

Fair value

 

 

3,781 

 

 

7,315 

1,594

1,557

Change in fair value from 1% increase in interest rates

 

 

NM

 

 

NM

NM

NM

Change in fair value from 1% decrease in interest rates

 

 

NM

 

 

NM

NM

NM

Interest rate swaps:

 

 

 

 

 

 

Notional amount

 

 

256,326 

 

 

 —

313,614

314,412

Carrying amount and fair value

 

 

166 

 

 

 —

(26,773)

(14,698)

Change in fair value from 1% increase in interest rates

 

 

7,995 

 

 

 —

10,023

11,399

Change in fair value from 1% decrease in interest rates

 

 

(5,270)

 

 

 —

(6,887)

(10,676)

Cross currency swaps:

Notional amount

340,550

341,419

Carrying amount and fair value

27,833

22,111

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

(34,126)

(34,795)

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

34,126

34,795

Foreign currency forward contracts:

 

 

 

 

 

 

Notional amount

 

 

212,100 

 

 

338,186 

617,975

625,908

Carrying amount and fair value

 

 

52 

 

 

350 

(947)

601

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

 

 

4,406 

 

 

15,589 

7,185

3,540

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

 

 

(5,385)

 

 

(19,054)

(8,781)

(4,144)

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

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Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

As required by Rule 13a-15(b) of the Exchange Act, Ferro has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. The evaluation examined those disclosure controls and procedures as of September 30, 2017,March 31, 2020, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, 2017.March 31, 2020.

Changes in Internal Control over Financial Reporting

During the thirdfirst quarter of 2017,2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.We have not observed any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

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PART II — OTHER INFORMATION

Item 1.  Legal Proceedings

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

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

Item 1A.  Risk Factors

There were no material changesReference is made to the risk factors disclosedPart 1, Item 1A. “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019. The risk factor set forth below updates, and should be read together with, such risk factors. Furthermore, the impact of the novel coronavirus COVID-19 may exacerbate the risks discussed therein, any of which could have a material effect on the Company.

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

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

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

Our ability to payBoard of Directors has not declared any dividends on common stock dividends is limited by certain covenants in ourduring 2020 or 2019. The Company’s Amended Credit Facility restricts the amount of dividends we can pay on our common stock. Any future dividends declared would be at the discretion of our Board of Directors and would depend on our financial condition, results of operations, cash flows, contractual obligations, the terms our financing agreements at the time a dividend is considered, and other than dividends payable solely in Capital Securities, as defined in the agreement.relevant factors.

The following table summarizes purchases of our common stock by the Company and affiliated purchasers during the three months ended September 30, 2017:March 31, 2020:

Total Number of

Maximum Dollar

Shares Purchased

Amount that May

Total Number

as Part of Publicly

Yet Be Purchased

of Shares

Average Price

Announced Plans

Under the Plans

Purchased

Paid per Share

or Programs

or Programs

(Dollars in thousands, except for per share amounts)

July 1, 2017 to July 31, 2017

 —

$

 —

 —

$

50,000,000 

August 1, 2017 to August 31, 2017

 —

$

 —

 —

$

50,000,000 

September 1, 2017 to September 30, 2017

 —

$

 —

 —

$

50,000,000 

Total

 —

 —

Total Amount of

Maximum Dollar

Shares Purchased

Amount that May

Total Number

as Part of Publicly

Yet Be Purchased

of Shares

Average Price

Announced Plans

Under the Plans

(Dollars in thousands, except for per share amounts)

Purchased

Paid per Share

or Programs

or Programs

January 1, 2020 to January 31, 2020

$

$

$

46,192,535

February 1, 2020 to February 29, 2020

$

$

$

46,192,535

March 1, 2020 to March 31, 2020

$

$

$

46,192,535

Total

$

__________________________

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

Item 6.  Exhibits

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

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SIGNATURES

SIGNATURES

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

FERRO CORPORATION

(Registrant)

Date:

November 1, 2017May 11, 2020

/s/ Peter T. Thomas

Peter T. Thomas

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Date:

November 1, 2017May 11, 2020

/s/ Benjamin J. Schlater

Benjamin J. Schlater

Group Vice President and Chief Financial Officer

(Principal Financial Officer)

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EXHIBIT INDEX

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

Exhibit:

Exhibit:

3

Articles of incorporation and by-laws:

3.1

Eleventh Amended Articles of Incorporation of Ferro Corporation (incorporated by reference to Exhibit 4.1 to Ferro Corporation’s Registration Statement on Form S3, filed March 5, 2008).

3.2

Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro Corporation filed December 29, 1994 (incorporated by reference to Exhibit 4.2 to Ferro Corporation’s Registration Statement on Form S3, filed March 5, 2008).

3.3

Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro Corporation filed on June 23, 1998 (incorporated by reference to Exhibit 4.3 to Ferro Corporation’s Registration Statement on Form S3, filed March 5, 2008).

3.4

Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro Corporation filed on October 17, 2011 (incorporated by reference to Exhibit 3.1 to Ferro Corporation’s Current Report on Form 8-K, filed October 17, 2011).

3.5

Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro Corporation filed on April 25, 2014 (incorporated by reference to Exhibit 3.5 to Ferro’s Quarterly Report on Form 10-Q, for the quarter ended June 30, 2014).

3.6

Ferro Corporation Amended and Restated Code of Regulations (incorporated by reference to Exhibit 3.1 to Ferro Corporation's current Report on Form 8-K filed December 12, 2016.)2016).

31

Certifications:

31.1

Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).

The Company agrees, upon request, to furnish to the U.S. Securities and Exchange Commission a copy of any instrument authorizing long-term debt that does not authorize debt in excess of 10% of the total assets of the Company and its subsidiaries on a consolidated basis.

10.131.2

Credit Agreement, dated asCertification of February 14, 2017, among Ferro Corporation, the lenders party thereto, PNC Bank, National Association, as the administrative agent, collateral agent and a letter of credit issuer, Deutsche Bank AG New York Branch, as the syndication agent and as a letter of credit issuer, and the various financial institutions and other persons from timePrincipal Financial Officer Pursuant to time party thereto (incorporated by reference to Exhibit 10.1 to Ferro Corporation’s current Report on Form 8-K, filed February 17, 2017)Rule 13a-14(a)/15d-14(a).

10.232.1

Second Incremental Assumption Agreement, dated August 29, 2016, by and among Ferro Corporation, PNC Bank, National Association, as the administrative agent, the collateral agent and as an issuer, JPMorgan Chase Bank, N.A., as an issuer, and various financial institutions as lenders. (incorporated by referenceCertification of Principal Executive Officer Pursuant to Exhibit 10.1 to Ferro Corporation’s current Report on Form 8K, filed August 30, 2016).18 U.S.C. 1350.

10.332.2

Retention Agreement, dated September 1, 2016, by and between Jeffrey L. Rutherford and Ferro Corporation (incorporated by referenceCertification of Principal Financial Officer Pursuant to Exhibit 10.2 to Ferro Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016).*18 U.S.C. 1350.

10.4101

Separation Agreement and Release, dated January 3, 2017, by and between Jeffrey L. Rutherford and Ferro Corporation. (incorporated by reference to Exhibit 10.4 to Ferro Corporation’sInline XBRL Documents:

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Schema Document

101.CAL

Inline XBRL Calculation Linkbase Document

101.LAB

Inline XBRL Labels Linkbase Document

101.PRE

Inline XBRL Presentation Linkbase Document

101.DEF

Inline XBRL Definition Linkbase Document

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017).*

10.5

Change2020, formatted in Control Agreement, dated September 1, 2016, byInline XBRL and between Benjamin Schlater and Ferro Corporation. (incorporated by reference tocontained in Exhibit 10.5 to Ferro Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017).*101.

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Exhibit:

31

Certifications:

31.1

Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).

31.2

Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350.

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350.

101

XBRL Documents:

101.INS

XBRL Instance Document

101.SCH

XBRL Schema Document

101.CAL

XBRL Calculation Linkbase Document

101.LAB

XBRL Labels Linkbase Document

101.PRE

XBRL Presentation Linkbase Document

101.DEF

XBRL Definition Linkbase Document

__________________________

*Indicates management contract or compensatory plan, contract or arrangement in which one or more Directors and/or executives of Ferro Corporation may be participants.

**   Certain exhibits and schedules have been omitted and the registrant agrees to furnish a copy of any omitted exhibits and schedules to the Securities and Exchange Commission

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