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Table of Contents

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 March 31, 2021

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)

OH

(State or other jurisdiction of

incorporation or organization)

34-0217820

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

6060 Parkland Boulevard

Suite 250

Mayfield Heights, OH

(Address of principal executive offices)

44124

(Zip Code)

216-875-5600

(Registrant’s telephone number, including area code)

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

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

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

Large Accelerated Filer

x

Accelerated Filer

o

Non-accelerated Filer

o

Smaller Reporting Company

o

Emerging Growth Company

o

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

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $1.00

FOE

NYSE

At March 31, 2021, there were 82,624,463 shares of Ferro Common Stock, par value $1.00, outstanding.


Table of Contents

TABLE OF CONTENTS

Page

PART I

Item 1. Financial Statements (Unaudited)

3

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

23

Item 3. Quantitative and Qualitative Disclosures about Market Risk

31

Item 4. Controls and Procedures

32

PART II

Item 1. Legal Proceedings

33

Item 1A. Risk Factors

33

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

33

Item 3. Defaults Upon Senior Securities

33

Item 4. Mine Safety Disclosures

33

Item 5. Other Information

34

Item 6. Exhibits

34

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

Exhibit 32.2

2


Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

Three Months Ended

March 31,

(Dollars in thousands, except per share amounts)

2021

2020

Net sales

$

288,358

$

252,326

Cost of sales

193,255

171,588

Gross profit

95,103

80,738

Selling, general and administrative expenses

53,838

56,046

Restructuring and impairment charges

5,184

1,165

Other expense (income):

Interest expense

9,437

5,530

Interest earned

(597)

(254)

Foreign currency losses (gains), net

1,158

(1,315)

Loss on extinguishment of debt

1,981

Miscellaneous income, net

(2,100)

(1,463)

Income before income taxes

26,202

21,029

Income tax expense

7,644

5,117

Income from continuing operations

18,558

15,912

Income from discontinued operations, net of income taxes

89,842

221

Net income

108,400

16,133

Less: Net income attributable to noncontrolling interests

437

10

Net income attributable to Ferro Corporation common shareholders

$

107,963

$

16,123

Earnings per share attributable to Ferro Corporation common shareholders:

Basic earnings:

Continuing operations

$

0.22

$

0.19

Discontinued operations

1.09

$

1.31

$

0.19

Diluted earnings:

Continuing operations

$

0.22

$

0.19

Discontinued operations

1.08

$

1.30

$

0.19

See accompanying notes to condensed consolidated financial statements.

3


Table of Contents

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

Net income

$

108,400

$

16,133

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

Foreign currency translation loss

(61,101)

(18,366)

Cash flow hedging instruments, unrealized income (loss)

6,786

(9,040)

Postretirement benefit liabilities income

130

Other comprehensive loss, net of income tax

(54,185)

(27,406)

Total comprehensive income (loss)

54,215

(11,273)

Less: Comprehensive income (loss) attributable to noncontrolling interests

363

(84)

Comprehensive income (loss) attributable to Ferro Corporation

$

53,852

$

(11,189)

See accompanying notes to condensed consolidated financial statements.

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Ferro Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

March 31,

December 31,

(Dollars in thousands)

2021

2020

ASSETS

Current assets

Cash and cash equivalents

$

128,428

$

174,077

Accounts receivable, net

158,991

137,008

Inventories

251,366

260,332

Other receivables

56,733

72,272

Other current assets

22,127

18,261

Current assets held-for-sale

307,854

Total current assets

617,645

969,804

Other assets

Property, plant and equipment, net

328,403

330,045

Goodwill

173,493

175,351

Intangible assets, net

115,052

119,500

Deferred income taxes

112,771

115,962

Operating leased assets

14,694

15,446

Other non-current assets

26,921

80,618

Non-current assets held-for-sale

154,207

Total assets

$

1,388,979

$

1,960,933

LIABILITIES AND EQUITY

Current liabilities

Loans payable and current portion of long-term debt

$

13,393

$

8,839

Accounts payable

125,163

135,296

Accrued payrolls

24,670

27,166

Accrued expenses and other current liabilities

146,285

124,770

Current liabilities held-for-sale

107,545

Total current liabilities

309,511

403,616

Other liabilities

Long-term debt, less current portion

356,547

791,509

Postretirement and pension liabilities

167,783

181,610

Operating leased non-current liabilities

9,131

10,064

Other non-current liabilities

53,735

62,050

Non-current liabilities held-for-sale

71,149

Total liabilities

896,707

1,519,998

Equity

Ferro Corporation shareholders’ equity:

Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 82.6 million and 82.4 million shares outstanding at March 31, 2021, and December 31, 2020, respectively

93,436

93,436

Paid-in capital

288,538

293,682

Retained earnings

412,778

304,815

Accumulated other comprehensive loss

(143,821)

(89,710)

Common shares in treasury, at cost

(167,102)

(172,256)

Total Ferro Corporation shareholders’ equity

483,829

429,967

Noncontrolling interests

8,443

10,968

Total equity

492,272

440,935

Total liabilities and equity

$

1,388,979

$

1,960,933

See accompanying notes to condensed consolidated financial statements.

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Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

Ferro Corporation Shareholders

Common Shares

Accumulated

in Treasury

Other

Non-

Common

Paid-in

Retained

Comprehensive

controlling

Total

(In thousands)

Shares

Amount

Stock

Capital

Earnings

Loss

Interests

Equity

Balances at December 31, 2020

11,065 

$

(172,256)

$

93,436 

$

293,682 

$

304,815 

$

(89,710)

$

10,968 

$

440,935 

Net income

107,963 

437 

108,400 

Other comprehensive loss

(54,111)

(74)

(54,185)

Change in ownership interest

(2,530)

(2,888)

(5,418)

Stock-based compensation transactions

(255)

5,154 

(2,614)

2,540 

Balances at March 31, 2021

10,810 

$

(167,102)

$

93,436 

$

288,538 

$

412,778 

$

(143,821)

$

8,443 

$

492,272 

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 income

(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 

See accompanying notes to condensed consolidated financial statements.

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Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

Cash flows from operating activities

Net cash used in operating activities

$

(45,463)

$

(71,535)

Cash flows from investing activities

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

(10,877)

(8,316)

Collections of financing receivables

27,776

28,827

Proceeds from sale of businesses, net

415,230

Business acquisitions, net of cash acquired

(2,200)

Other investing activities

2

745

Net cash provided by investing activities

429,931

21,256

Cash flows from financing activities

Net borrowings under loans payable

4,533

137

Principal payments on term loan facility - Amended Credit Facility

(437,050)

(2,050)

Proceeds from revolving credit facility - Amended Credit Facility

180,000

Principal payments on revolving credit facility - Amended Credit Facility

(180,000)

Other financing activities

(4,100)

216

Net cash used in financing activities

(436,617)

(1,697)

Effect of exchange rate changes on cash and cash equivalents

(1,700)

(1,208)

Decrease in cash and cash equivalents

(53,849)

(53,184)

Cash and cash equivalents at beginning of period

182,277

104,402

Cash and cash equivalents at end of period

128,428

51,218

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

8,200

Cash and cash equivalents of continuing operations at end of period

$

128,428

$

43,018

Cash paid during the period for:

Interest

$

10,918

$

7,853

Income taxes

$

4,018

$

4,431

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

Ferro Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

1.    Basis of Presentation

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

We produce our products primarily in the Europe, Middle East and Africa (“EMEA”) region, the Americas and the Asia Pacific region.

Operating results for the three months ended March 31, 2021, are not necessarily indicative of the results expected in subsequent quarters or for the full year ending December 31, 2021.

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

On February 25, 2021, we completed the sale of our Tile Coatings business to Pigments Spain, S.L., a company of the Esmalglass-Itaca-Fritta group, which is a portfolio company of certain Lone Star Funds.

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

2.    Recent Accounting Pronouncements

Recently Adopted Accounting Standards

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

The following ASUs were adopted as of January 1, 2021 and did not have a material impact on the consolidated financial statements:

Standard

Description

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.

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Table of Contents

New Accounting Standards Not Yet Adopted

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

Standard

Description

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

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

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

3. Revenue

Revenues disaggregated by geography and reportable segment for the three months ended March 31, 2021, follow:

(Dollars in thousands)

EMEA

Americas

Asia Pacific

Total

Functional Coatings

$

87,372

$

67,918

$

29,532

$

184,822

Color Solutions

39,042

53,854

10,640

103,536

Total net sales

$

126,414

$

121,772

$

40,172

$

288,358

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

(Dollars in thousands)

EMEA

Americas

Asia Pacific

Total

Functional Coatings

$

75,857

$

57,822

$

21,756

$

155,435

Color Solutions

37,889

49,706

9,296

96,891

Total net sales

$

113,746

$

107,528

$

31,052

$

252,326

4.    Discontinued Operations

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

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

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The table below summarizes results for the Tile Coatings business for the three months ended March 31, 2021 and 2020, which are reflected in our consolidated statements of operations as discontinued operations. Interest expense has been allocated to the discontinued operations based on the ratio of net assets of the business to consolidated net assets excluding debt.

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

Net sales

$

83,579

$

114,750

Cost of sales

60,634

86,902

Gross profit

22,945

27,848

Selling, general and administrative expenses

20,327

18,808

Restructuring and impairment charges

303

279

Interest expense

1,682

2,231

Interest earned

(189)

(24)

Foreign currency losses, net

363

5,765

Gain on sale of business, net

(100,057)

Miscellaneous expense (income), net

251

542

Income from discontinued operations before income taxes

100,265

247

Income tax expense

10,423

26

Income from discontinued operations, net of income taxes

89,842

221

Less: Net income (loss) attributable to noncontrolling interests

64

(23)

Net income attributable to Tile Coatings business

$

89,778

$

244

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

December 31,

(Dollars in thousands)

2020

Cash and cash equivalents

$

8,200

Accounts receivable, net

211,548

Inventories

84,239

Other receivables

1,630

Other current assets

2,237

Current assets held-for-sale

307,854

Property, plant and equipment, net

93,430

Intangible assets, net

42,126

Deferred income taxes

12,267

Other non-current assets

6,384

Non-current assets held-for-sale

154,207

Total assets held-for-sale

$

462,061



Loans payable and current portion of long-term debt

$

3,927

Accounts payable

85,308

Accrued payrolls

5,946

Accrued expenses and other current liabilities

12,364

Current liabilities held-for-sale

107,545

Long-term debt, less current portion

56,359

Postretirement and pension liabilities

8,119

Other non-current liabilities

6,671

Non-current liabilities held-for-sale

71,149

Total liabilities held-for-sale

$

178,694

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The following table summarizes cash flow data relating to discontinued operations for the three months ended March 31, 2021 and 2020:

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

Capital expenditures

$

(1,074)

$

(1,106)

Gain on sale of discontinued operations

(100,057)

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

589

5.    Inventories

March 31,

December 31,

(Dollars in thousands)

2021

2020

Raw materials

$

72,101

$

81,344

Work in process

45,618

48,770

Finished goods

133,647

130,218

Total inventories

$

251,366

$

260,332

In the production of some of our products, we use precious metals, which we obtain from financial institutions under consignment agreements with terms of one year or less. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign. These fees were $0.6 million and $1.1 million for the three months ended March 31, 2021 and 2020. We had on-hand precious metals owned by participants in our precious metals consignment program of $96.7 million at March 31, 2021, and $87.2 million at December 31, 2020, measured at fair value based on market prices for identical assets.

6.    Property, Plant and Equipment

Property, plant and equipment is reported net of accumulated depreciation of $443.8 million at March 31, 2021 and $456.3 million at December 31, 2020. As discussed in Note 4, the assets of our Tile Coatings business were classified as held-for-sale under ASC Topic 360; Property, Plant, and Equipment. As such, additional accumulated depreciation of $135.3 million at December 31, 2020 was classified as Non-current assets held for sale.

Unpaid capital expenditure liabilities, which are non-cash investing activities, were $2.7 million at March 31, 2021 and $1.9 million at March 31, 2020.

7. Goodwill and Other Intangible Assets

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

Functional

Color

(Dollars in thousands)

Coatings

Solutions

Total

Goodwill, net at December 31, 2020

$

123,570

$

51,781

$

175,351

Foreign currency adjustments

(1,269)

(589)

(1,858)

Goodwill, net at March 31, 2021

$

122,301

$

51,192

$

173,493

March 31,

December 31,

(Dollars in thousands)

2021

2020

Goodwill, gross

$

231,960

$

233,818

Accumulated impairment

(58,467)

(58,467)

Goodwill, net

$

173,493

$

175,351

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 March 31, 2021, 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:

March 31,

December 31,

(Dollars in thousands)

2021

2020

Gross amortizable intangible assets:

Patents

$

5,520

$

5,589

Land rights

3,161

3,173

Technology/know-how and other

115,584

116,015

Customer relationships

66,814

68,142

Total gross amortizable intangible assets

191,079

192,919

Accumulated amortization:

Patents

(5,498)

(5,566)

Land rights

(1,646)

(1,630)

Technology/know-how and other

(63,036)

(61,104)

Customer relationships

(18,795)

(18,317)

Total accumulated amortization

(88,975)

(86,617)

Amortizable intangible assets, net

$

102,104

$

106,302

Indefinite-lived intangible assets consisted of the following:

March 31,

December 31,

(Dollars in thousands)

2021

2020

Indefinite-lived intangibles assets:

Trade names and trademarks

$

12,948

$

13,198

8.    Debt

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

March 31,

December 31,

(Dollars in thousands)

2021

2020

Current portion of long-term debt

$

13,393

$

8,839

Current portion of long-term debt

$

13,393

$

8,839

Long-term debt consisted of the following:

March 31,

December 31,

(Dollars in thousands)

2021

2020

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

$

358,897

$

793,731

Finance lease obligations

2,835

2,911

Other notes

8,208

3,706

Total long-term debt

369,940

800,348

Current portion of long-term debt

(13,393)

(8,839)

Long-term debt, less current portion

$

356,547

$

791,509

(1)The carrying value of the term loan facility, maturing 2024, is net of unamortized debt issuance costs of $1.5 million at March 31, 2021 and $3.7 million at December 31, 2020.

Amended Credit Facility

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

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Table of Contents

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

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

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

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

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

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

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

At March 31, 2021, the Company had borrowed $156.0 million under the Tranche B-1 Loans at an interest rate of 2.45%, $103.3 million under the Tranche B-2 Loans at an interest rate of 2.45%, and $101.1 million under the Tranche B-3 Loans at an interest rate of 2.45%. At March 31, 2021, there were no additional borrowings available under the Tranche B-1 Loans, Tranche B-2 Loans, or Tranche B-3 Loans. In connection with these borrowings, we entered into swap agreements in the second quarter of 2018. At March 31, 2021, the effective interest rate for all tranches of the term loan facility, inclusive of hedging activities, was 4.83%.

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

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

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 March 31, 2021, there were no borrowings under the 2018 Revolving Credit Facility. After reductions for outstanding letters of credit secured by these facilities, we had $495.8 million of additional borrowings available under the revolving credit facilities at March 31, 2021.

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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 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 March 31, 2021, we were in compliance with the covenants of the Amended Credit Facility.

As noted in Note 4, on February 25, 2021, we completed the sale of our Tile Coatings business. Proceeds from the close of the transaction, in addition to current cash balances, were used to pay down our term loan facility in the amount of $435.0 million on February 25, 2021. The debt pay-down reduced outstanding amounts of the Tranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans, by $188.3 million, $124.7 million and $122.0 million, respectively. In conjunction with the prepayment of debt, we recorded a charge of $2.0 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss on extinguishment of debt in our consolidated statement of operations for the quarter ended March 31, 2021.

Receivable Sales Programs

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

The outstanding principal amount of receivables sold under this program, which has not yet been collected from the customer, was $40.0 million at March 31, 2021 and $24.5 million at December 31, 2020. The carrying amount of deferred purchase price was $11.2 million at March 31, 2021 and $9.8 million at December 31, 2020 and is recorded in Other receivables. Trade accounts receivable collected from customers to be remitted to financial institutions were $45.1 million at March 31, 2021 and $36.0 million at December 31, 2020 recorded in Accrued expenses and other current liabilities.

Activity from these programs for the three months ended March 31, 2021 and 2020 is detailed below:

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

Trade accounts receivable sold to financial institutions

$

144,949

$

50,537

Cash proceeds from financial institutions (1)

115,099

35,390

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

Other Financing Arrangements

We maintain other lines of credit to provide global flexibility for our short-term liquidity requirements. These facilities are uncommitted lines for our international operations and totaled $25.0 million at March 31, 2021 and $28.1 million at December 31, 2020. The unused portions of these lines provided additional liquidity of $20.5 million and $25.0 million at March 31, 2021 and December 31, 2020.

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9.    Financial Instruments

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

March 31, 2021

Carrying

Fair Value

(Dollars in thousands)

Amount

Total

Level 1

Level 2

Level 3

Cash and cash equivalents

$

128,428

$

128,428

$

128,428

$

$

Term loan facility - Amended Credit Facility (1)

(358,897)

(356,090)

(356,090)

Other long-term notes payable

(8,208)

(6,749)

(6,749)

Cross currency swaps

786

786

786

Interest rate swaps

(21,158)

(21,158)

(21,158)

Foreign currency forward contracts, net

(5,095)

(5,095)

(5,095)

December 31, 2020

Carrying

Fair Value

(Dollars in thousands)

Amount

Total

Level 1

Level 2

Level 3

Cash and cash equivalents

$

174,077

$

174,077

$

174,077

$

$

Term loan facility - Amended Credit Facility (1)

(793,731)

(783,143)

(783,143)

Other long-term notes payable

(3,706)

(1,887)

(1,887)

Cross currency swaps

(5,162)

(5,162)

(5,162)

Interest rate swaps

(24,694)

(24,694)

(24,694)

Foreign currency forward contracts, net

2,019

2,019

2,019

(1)The carrying value of the term loan facility is net of unamortized debt issuance costs of $1.5 million and $3.7 million for the period ended March 31, 2021, and December 31, 2020, respectively.

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

Derivative Instruments

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

Derivatives Designated as Hedging Instruments

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

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

During the second quarter of 2018, the Company entered into variable to fixed interest rate swaps with a maturity date of February 14, 2024. The notional amount is $310.4 million at March 31, 2021. These swaps are hedging risk associated with the Tranche B-1, B-2 and B-3 Loans. These interest rate swaps are designated as cash flow hedges. As of March 31, 2021, the Company expects it will reclassify net losses of approximately $8.4 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

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The Company has converted a U.S. dollar denominated, variable rate debt obligation into a Euro fixed rate obligation using receive-float, pay-fixed cross currency swaps in the second quarter of 2018. These swaps are hedging currency and interest rate risk associated with the Tranche B-3 Loan. These cross-currency swaps are designated as cash flow hedges. In conjunction with the pay-down of debt discussed in Note 8, we terminated all cross-currency swaps, except for one, which we de-designated and re-designated to hedge the remaining Tranche B-3 Loan after the interest rate swaps. Due to the original designation layering, the other comprehensive loss from the cross-currency swap at re-designation and the other comprehensive loss from the terminated cross-currency swaps were written-off as the interest payments were deemed remote. The Company paid counterparties $3.5 million to settle the terminated derivatives, resulting in a net $4.5 million being reclassified from AOCL to Interest expense as a result of this remote transaction. The remaining notional amount is $38.8 million at March 31, 2021, with a maturity date of February 14, 2024. As of March 31, 2021, the Company expects it will reclassify net losses of approximately $0.1 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of this derivative.

The amount of gain (loss) recognized in AOCL and the amount of loss (gain) reclassified into earnings for the three months ended March 31, 2021 and 2020, 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)

2021

2020

2021

2020

AOCL into Income

Interest rate swaps

$

1,438

$

(12,874)

$

(1,772)

$

(498)

Interest expense

Cross currency swaps

2,696

5,258

(10)

1,168

Interest expense

$

(1,782)

$

670

Total Interest expense

Cross currency swap

2,927

3,622

Foreign currency losses, net

$

2,927

$

3,622

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, 2021 and 2020, are as follows:

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

Interest expense

$

9,437

$

5,530

Foreign currency losses (gains), net

1,158

(1,315)

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 net investment hedge was terminated in the fourth quarter of 2020. These swaps were hedging risk associated with the net investment in Euro denominated operations due to fluctuating exchange rates and were designated as net investment hedges. The changes in the fair value of these designated cross-currency swaps were recognized in AOCL.

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The amount of gain on net investment hedges recognized in AOCL, the amount reclassified into earnings and the amount of gain recognized in income on derivative (amount excluded from effectiveness testing) for the three months ended March 31, 2021 and 2020, follow:

Amount of Gain

Recognized in Income on

Amount of Gain

Derivative (Amount Excluded

Location of Gain

Recognized in AOCL

from Effectiveness Testing)

in Earnings

(Dollars in thousands)

2021

2020

2021

2020

Cross currency swaps

$

$

2,659

$

$

780

Interest expense

Derivatives Not Designated as Hedging Instruments

Foreign Currency Forward Contracts. We manage foreign currency risks principally by entering into forward contracts to mitigate the impact of currency fluctuations on transactions. These forward contracts are not formally designated as hedges. Gains and losses on these foreign currency forward contracts are netted with gains and losses from currency fluctuations on transactions arising from international trade and reported as Foreign currency losses, net in the condensed consolidated statements of operations. We recognized net losses of $6.3 million in the three months ended March 31, 2021 and net gains of $0.3 million in the three months ended March 31, 2020 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 $529.8 million at March 31, 2021 and $625.9 million at December 31, 2020.

The following table presents the effect on our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020, respectively, of our foreign currency forward contracts:

Amount of Gain

Recognized in Earnings

Three Months Ended

March 31,

Location of Gain (Loss) in Earnings

(Dollars in thousands)

2021

2020

Foreign currency forward contracts

$

(6,266)

$

268

Foreign currency losses, net

Location and Fair Value Amount of Derivative Instruments

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

March 31,

December 31,

(Dollars in thousands)

2021

2020

Balance Sheet Location

Asset derivatives:

Cross currency swaps

$

36

$

9

Other current assets

Cross currency swaps

750

Other non-current assets

Foreign currency forward contracts

862

2,649

Other current assets

Liability derivatives:

Interest rate swaps

$

(8,331)

$

(8,436)

Accrued expenses and other current liabilities

Interest rate swaps

(12,827)

(16,258)

Other non-current liabilities

Cross currency swaps

(67)

Accrued expenses and other current liabilities

Cross currency swaps

(5,104)

Other non-current liabilities

Foreign currency forward contracts

(5,957)

(630)

Accrued expenses and other current liabilities

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10.    Income Taxes

Income tax expense for the three months ended March 31, 2021 was $7.6 million, or 29.2% of pre-tax income. Income tax expense for the three months ended March 31, 2020 was $5.1 million, or 24.3% of pre-tax income. The tax expense during the three months ended March 31, 2021 and March 31, 2020, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21% primarily as a result of foreign statutory rate differences.

11.    Contingent Liabilities

We have recorded environmental liabilities of $5.3 million at March 31, 2021 and $5.7 million at December 31, 2020, for costs associated with the remediation of certain of our current or former properties that have been contaminated. The balance at March 31, 2021 and December 31, 2020, were primarily comprised of liabilities related to a non-operating facility in Brazil, and for retained environmental obligations related to a site in the United States that was part of the sale of our North American and Asian metal powders product line in 2013. These costs include, but are not limited to, legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring, and related activities. The ultimate liability could be affected by numerous uncertainties, including the extent of contamination found, the required period of monitoring, the ultimate cost of required remediation, and other circumstances.

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

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

12.    Retirement Benefits

Net periodic benefit cost (credit) of our U.S. pension plans (including our unfunded nonqualified plans), non-U.S. pension plans, and postretirement health care and life insurance benefit plans for the three months ended March 31, 2021 and 2020, respectively, follow:

U.S. Pension Plans

Non-U.S. Pension Plans

Other Benefit Plans

Three Months Ended March 31,

(Dollars in thousands)

2021

2020

2021

2020

2021

2020

Service cost

$

$

3

$

339

$

285

$

$

1

Interest cost

1,880

2,387

335

330

68

132

Expected return on plan assets

(3,824)

(3,708)

(114)

(112)

Amortization of prior service cost

(20)

(5)

Net periodic benefit (credit) cost

$

(1,944)

$

(1,318)

$

540

$

498

$

68

$

133

Interest 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.

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13.    Stock-Based Compensation

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

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

In the first quarter of 2021, our Board of Directors granted 0.3 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 three months ended March 31, 2021:

Stock Options

Weighted-average grant-date fair value

$

5.94

Expected life, in years

6.0

Risk-free interest rate

0.76

%

Expected volatility

40.39

%

The weighted average grant date fair value of our performance share units granted in the three months ended March 31, 2021, was $16.00. We measure the fair value of performance share units based on the closing market price of our common stock on the date of the grant. These shares are evaluated each reporting period for respective attainment rates against the performance criteria.

The weighted-average grant date fair value of our restricted share units granted in the three months ended March 31, 2021, was $15.07. We measure the fair value of restricted share units based on the closing market price of our common stock on the date of the grant. The restricted share units vest over three years.

We recognized stock-based compensation expense of $2.4 million for the three months ended March 31, 2021 and $2.8 million for the three months ended March 31, 2020. At March 31, 2021, unearned compensation cost related to the unvested portion of all stock-based compensation awards was approximately $13.1 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of 2023.

14.    Restructuring and Optimization Programs

Total restructuring charges were $5.2 million for the three months ended March 31, 2021 and $1.2 million for the three months ended March 31, 2020. As discussed in Note 4, our Tile Coatings business was classified as held-for-sale during the fourth quarter of 2019. As such, there were additional restructuring charges of $0.3 million for the three months ended March 31, 2021 and $0.3 million for the three months ended March 31, 2020 classified as Net income from discontinued operations, net of income taxes.

Organizational Optimization Plan

In conjunction with the pending sale of the Tile Coatings business, discussed in Note 4, we developed our Organizational Optimization Plan and initiated a program across the organization with the objective of realigning the business and lowering our cost structure in anticipation of the pending sale. As a result of these actions, the Company expects to incur total charges of approximately $5.7 million, substantially all of which will be for anticipated severance costs. The remaining activities of the program are expected to be recognized throughout the remainder of 2021. Charges associated with the program were $2.1 million for the three months ended March 31, 2021.

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Americas Manufacturing Optimization Plan

In the second quarter of 2019, we developed our Americas Manufacturing Optimization Plan and initiated a program across the organization with the objective of realigning the business and lowering our cost structure. The Americas Manufacturing Optimization Plan is focused on the construction of a new manufacturing center of excellence located in Villagran, Mexico. We are in the process of consolidating two plants located in the United States and two sites in Latin America into the expanded Villagran location. As a result of these actions, the Company expects to incur total charges of approximately $9.5 million, substantially all of which will be for anticipated severance costs. The remaining activities of the program are expected to be recognized within the next 12 months. Charges associated with the program were $1.7 million for the three months ended March 31, 2021 and $0.2 million for the three months ended March 31, 2020.

Global Optimization Plan

The program involves our global operations and certain functions and initiatives to increase operational efficiencies, some of which is associated with integration of our acquisitions. Actions associated with the Global Optimization Plan were substantially completed, and as such, we do not anticipate material charges related to this plan for the remainder of 2021. Charges associated with the program were $1.4 million for the three months ended March 31, 2021 and $1.0 million for the three months ended March 31, 2020.

The charges associated with these programs are further summarized below.

Employee

Other

(Dollars in thousands)

Severance

Costs

Total

Balances at December 31, 2020

$

5,510

$

4,460

$

9,970

Restructuring charges

3,849

1,335

5,184

Cash payments

(4,743)

(464)

(5,207)

Non-cash items

Balances at March 31, 2021

$

4,616

$

5,331

$

9,947

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

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15.    Earnings Per Share

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

Three Months Ended

March 31,

(Dollars in thousands, except per share amounts)

2021

2020

Basic earnings per share computation:

Income from continuing operations

$

18,558

$

15,912

Less: Net income attributable to noncontrolling interests from continuing operations

373

33

Net income attributable to Ferro Corporation from continuing operations

18,185

15,879

Income from discontinued operations, net of income taxes

89,842

221

Less: Net income (loss) attributable to noncontrolling interests from discontinued operations

64

(23)

Net income attributable to Ferro Corporation from discontinued operations

89,778

244

Total

$

107,963

$

16,123

Weighted-average common shares outstanding

82,497

82,096

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

$

0.22

$

0.19

Diluted earnings per share computation:

Net income attributable to Ferro Corporation from continuing operations

$

18,185

$

15,879

Net income attributable to Ferro Corporation from discontinued operations

89,778

244

Total

$

107,963

$

16,123

Weighted-average common shares outstanding

82,497

82,096

Assumed exercise of stock options

395

297

Assumed satisfaction of restricted stock unit conditions

159

85

Assumed satisfaction of performance share unit conditions

109

44

Weighted-average diluted shares outstanding

83,160

82,522

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

$

0.22

$

0.19

The number of anti-dilutive shares were 2.4 million for the three months ended March 31, 2021 and 3.0 million for the three months ended March 31, 2020. These shares are excluded from the calculation of diluted earnings per share due to their anti-dilutive impact.

16.    Share Repurchase Programs

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

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

As of March 31, 2021, $46.2 million remains authorized under the programs for the repurchase of common stock.

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17.    Accumulated Other Comprehensive Loss

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

Three Months Ended March 31,

Postretirement

Foreign

Net Loss

Benefit Liability

Currency

on Cash

(Dollars in thousands)

Adjustments

Items

Flow Hedges

Total

Balances at December 31, 2019

$

1,206

$

(97,575)

$

(13,007)

$

(109,376)

Other comprehensive income (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 income (loss), before tax

(17,837)

(11,908)

(29,745)

Tax effect

435

(2,868)

(2,433)

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

(18,272)

(9,040)

(27,312)

Balances at March 31, 2020

$

1,206

$

(115,847)

$

(22,047)

$

(136,688)

Balances at December 31, 2020

$

3,199

$

(70,482)

$

(22,427)

$

(89,710)

Other comprehensive income (loss) before reclassifications, before tax

(78,030)

4,134

(73,896)

Reclassification to earnings:

Postretirement benefit liabilities income, before tax

130

130

Currency translation reclassification to income on divestiture

17,305

17,305

Amount reclassification to income (remote transaction)

4,509

4,509

Cash flow hedge income loss, before tax

(1,145)

(1,145)

Current period other comprehensive income (loss), before tax

130

(60,725)

7,498

(53,097)

Tax effect

302

712

1,014

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

130

(61,027)

6,786

(54,111)

Balances at March 31, 2021

$

3,329

$

(131,509)

$

(15,641)

$

(143,821)

18.    Reporting for Segments

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

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

Functional Coatings

$

184,822

$

155,435

Color Solutions

103,536

96,891

Total net sales

$

288,358

$

252,326

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

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

Functional Coatings

$

61,876

$

47,817

Color Solutions

33,668

33,787

Other cost of sales

(441)

(866)

Total gross profit

95,103

80,738

Selling, general and administrative expenses

53,838

56,046

Restructuring and impairment charges

5,184

1,165

Other expense, net

9,879

2,498

Income before income taxes

$

26,202

$

21,029

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

Overview

Net sales for the three months ended March 31, 2021, increased by $36.0 million, or 14.3%, compared with the prior-year same period. Net sales increased by $29.4 million in Functional Coatings and $6.6 million in Color Solutions. During the three months ended March 31, 2021, gross profit increased $14.4 million, or 17.8%, compared with the prior-year same period; as a percentage of net sales, it increased approximately 100 basis points to 33.0%. Our total gross profit for the first quarter of 2021 was $95.1 million, compared with $80.7 million for the three months ended March 31, 2020. The increase in gross profit was attributable to higher gross profit in Functional Coatings of $14.1 million, partially offset by lower gross profit in Color Solutions of $0.1 million.

For the three months ended March 31, 2021, selling, general and administrative (“SG&A”) expenses decreased $2.2 million, or 3.9%, compared with the prior-year same period. As a percentage of net sales, it decreased approximately 350 basis points to 18.7%.

For the three months ended March 31, 2021, net income was $108.4 million, compared with $16.1 million for the prior-year same period, and net income attributable to common shareholders was $108.0 million, compared with $16.1 million for the prior-year same period. Income from continuing operations was $18.6 million for the three months ended March 31, 2021, compared with $15.9 million in 2020.

Outlook

With global economic conditions strengthening, Ferro has continued to experience the positive trends established in the second half of 2020 as customer markets recover. The impact of the COVID pandemic through the remainder of 2021 is unknown, even with the rollout of vaccines. Meanwhile, Ferro has benefitted from strategic actions taken prior to and during the pandemic to optimize our business, invest in technology platforms, align with macrotrends and focus on higher margin, higher-growth markets which has contributed to gross margin expansion in the first quarter of 2021.

Ferro is a technology-led, innovation-driven business with a profile for attractive, sustainable profitability and value creation. We provide products and services that are essential to our customers as they innovate to address trends in their markets and develop next-generation products. We sell our products and services in multiple markets and geographies around the world, which limits exposure to any one industry or region. In addition, we serve a diverse set of industries, including automotive, construction, appliances, healthcare, food and beverage, information technology, energy and defense. Many of our products and services support critical industries, which governments around the world generally have allowed to operate during the pandemic.

Ferro continues to maintain protocols for the safety and well-being of our personnel. We monitor the impact of the outbreak of COVID-19 on our business, including how it may impact our customers, employees, supply chain and distribution network and to take action, as appropriate, to address these circumstances. In some areas around the world, government mandates have been lifted and economic conditions have improved in certain sectors of the economy relative to 2020. Meanwhile, some regions have experienced increasing numbers of COVID-19 cases, and if this continues and if public authorities intensify efforts to contain the spread of COVID-19, normal business activity may be further disrupted, and economic conditions could weaken. In addition, COVID-related behavior changes are accelerating demand for certain products, especially those in industries supporting mobility, entertainment and personal technology, smart appliances, construction and sustainable product packaging.

In 2021, following the completion of the sale of our Tile Coatings Business, we are transitioning to a smaller, more agile and more streamlined global business with a more coherent and focused portfolio aligned with evolving megatrends.

We will continue to refine our manufacturing footprint, optimize logistics and streamline sourcing and procurement in our operations around the world.

Foreign currency rates may continue to be volatile through 2021 and changes in interest rates could adversely impact reported results. We expect cash flow from operating activities to continue to be positive for 2021.

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


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Results of Operations - Consolidated

Comparison of the three months ended March 31, 2021 and 2020

For the three months ended March 31, 2021, net income from continuing operations was $18.6 million, compared with $15.9 million for the three months ended March 31, 2020. For the three months ended March 31, 2021, net income attributable to common shareholders was $108.0 million, or earnings per share of $1.31, compared with net income attributable to common shareholders of $16.1 million, or earnings per share of $0.19, for the three months ended March 31, 2020.

Net Sales

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

% Change

Net sales

$

288,358

$

252,326

$

36,032

14.3

%

Cost of sales

193,255

171,588

21,667

12.6

%

Gross profit

$

95,103

$

80,738

$

14,365

17.8

%

Gross profit as a % of net sales

33.0

%

32.0

%

Net sales increased by $36.0 million, or 14.3%, for the three months ended March 31, 2021, compared with the prior-year same period, driven by higher sales in Functional Coatings and Color Solutions of $29.4 million and $6.6 million, respectively. The increase in net sales was driven by favorable volume and mix of $24.5 million, favorable foreign currency impacts of $9.3 million and higher product pricing of $2.2 million.

Gross Profit

Gross profit increased $14.4 million, or 17.8%, for the three months ended March 31, 2021, compared with the prior-year same period. As a percentage of net sales, gross profit increased approximately 100 basis points to 33.0%. The increase in gross profit was primarily attributable to an increase in Functional Coatings of $14.1 million, partially offset by a decrease in Color Solutions of $0.1 million. The increase in gross profit was primarily driven by favorable sales volume and mix of $9.7 million, favorable foreign currency impacts of $2.9 million, higher product pricing of $2.2 million and lower raw material costs of $2.1 million, partially offset by higher manufacturing costs of $2.5 million.

Geographic Revenues

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

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

% Change

Geographic Revenues on a sales origination basis

EMEA

$

126,414

$

113,746

$

12,668

11.1

%

Americas

121,772

107,528

14,244

13.2

%

Asia Pacific

40,172

31,052

9,120

29.4

%

Net sales

$

288,358

$

252,326

$

36,032

14.3

%

The increase in net sales of $36.0 million, compared with the prior-year same period, was driven by increases in sales from all regions. The increase in sales from EMEA was attributable to higher sales in Functional Coatings and Color Solutions of $11.5 million and $1.2 million, respectively. The increase in sales from the Americas was attributable to higher sales in Functional Coatings and Color Solutions of $10.1 million and $4.1 million, respectively. The increase in sales from Asia Pacific was attributable to higher sales in Functional Coatings and Color Solutions of $7.8 million and $1.3 million, respectively.

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

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

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

% Change

Personnel expenses (excluding R&D personnel expenses)

$

22,346

$

22,749

$

(403)

(1.8)

%

Research and development expenses

9,183

10,087

(904)

(9.0)

%

Business development

3,648

535

3,113

581.9

%

Incentive compensation

2,117

2,120

(3)

(0.1)

%

Stock-based compensation

2,630

2,759

(129)

(4.7)

%

Intangible asset amortization

1,350

1,678

(328)

(19.5)

%

Pension and other postretirement benefits

339

158

181

114.6

%

Bad debt

29

136

(107)

(78.7)

%

All other expenses

12,196

15,824

(3,628)

(22.9)

%

Selling, general and administrative expenses

$

53,838

$

56,046

$

(2,208)

(3.9)

%

SG&A expenses were $2.2 million lower in the three months ended March 31, 2021, compared with the prior-year same period. The lower SG&A expenses compared to the prior-year same period are primarily driven by lower other miscellaneous expenses, primarily related to travel and entertainment expenses, partially offset by higher business development costs.

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

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

% Change

Strategic services

$

24,454

$

25,616

$

(1,162)

(4.5)

%

Functional services

24,637

25,551

(914)

(3.6)

%

Incentive compensation

2,117

2,120

(3)

(0.1)

%

Stock-based compensation

2,630

2,759

(129)

(4.7)

%

Selling, general and administrative expenses

$

53,838

$

56,046

$

(2,208)

(3.9)

%

Restructuring and Impairment Charges

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

% Change

Employee severance

$

3,849

$

658

$

3,191

485.0

%

Other restructuring costs

1,335

507

828

163.3

%

Restructuring and impairment charges

$

5,184

$

1,165

$

4,019

345.0

%

Restructuring and impairment charges increased in the three months ended March 31, 2021, compared with the prior-year same period. The increase primarily relates to costs associated with our Organizational Optimization and American Manufacturing Optimization Plans compared with the prior-year same period. Refer to Note 14 to the consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of our optimization plans and related costs.

Interest Expense

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

% Change

Interest expense

$

9,725

$

5,846

$

3,879

66.4

%

Amortization of bank fees

604

929

(325)

(35.0)

%

Interest swap amortization

(316)

(316)

%

Interest capitalization

(576)

(929)

353

(38.0)

%

Interest expense

$

9,437

$

5,530

$

3,907

70.7

%

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Table of Contents

Interest expense increased in the three months ended March 31, 2021, compared with the prior-year same period. The increase in interest expense was primarily due to incremental interest expense recognized associated with the termination of certain cross-currency swap instruments and higher average interest rate, partially offset by a decrease in the average long-term debt balance during the three months ended March 31, 2021, compared with the prior-year same period.

Income Tax Expense

Income tax expense for the three months ended March 31, 2021 was $7.6 million, or 29.2% of pre-tax income. Income tax expense for the three months ended March 31, 2020 was $5.1 million, or 24.3% of pre-tax income. The tax expense for the three months ended March 31, 2021 and March 31, 2020, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21% primarily as a result of foreign statutory rate differences.

Results of Operations - Segment Information

Comparison of the three months ended March 31, 2021 and 2020

Functional Coatings

Three Months Ended

Change due to

March 31,

Volume /

(Dollars in thousands)

2021

2020

$ Change

% Change

Price

Mix

Currency

Other

Segment net sales

$

184,822

$

155,435

$

29,387

18.9

%

$

2,577

$

21,017

$

5,793

$

Segment gross profit

61,876

47,817

14,059

29.4

%

2,577

10,563

1,930

(1,011)

Gross profit as a % of segment net sales

33.5

%

30.8

%

Net sales increased compared with the prior-year same period, primarily driven by higher sales in porcelain enamel, electronics, automotive and industrial products of $10.1 million, $7.6 million, $6.7 million and $5.2 million, respectively, partially offset by lower sales in decoration products. The increase in net sales was driven by favorable volume and mix of $21.0 million, foreign currency impacts of $5.8 million and increased product pricing of $2.6 million. Gross profit increased from the prior-year same period primarily due to favorable volume and mix of $10.6 million, increased product pricing of $2.6 million, favorable foreign currency impacts of $1.9 million and favorable raw material costs of $0.7 million, partially offset by unfavorable manufacturing costs of $1.7 million.

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

% Change

Segment net sales by Region

EMEA

$

87,372

$

75,857

$

11,515

15.2

%

Americas

67,918

57,822

10,096

17.5

%

Asia Pacific

29,532

21,756

7,776

35.7

%

Total

$

184,822

$

155,435

$

29,387

18.9

%

The net sales increase of $29.4 million was primarily driven by higher sales from all regions. The increase in sales from EMEA was primarily attributable to higher sales of porcelain enamel, electronics, automotive and industrial products of $4.1 million, $2.8 million, $2.7 million and $2.3 million, respectively, partially offset by lower sales of decoration products. The increase in sales from the Americas was primarily attributable to higher sales of electronics, porcelain enamel and automotive products of $4.4 million, $4.0 million and $2.0 million, respectively. The increase in sales from Asia Pacific was primarily attributable to increased sales of industrial, automotive, porcelain enamel and electronics products of $3.1 million, $2.0 million, $2.0 million and $0.5 million, respectively.

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Table of Contents

Color Solutions

Three Months Ended

Change due to

March 31,

Volume /

(Dollars in thousands)

2021

2020

$ Change

% Change

Price

Mix

Currency

Other

Segment net sales

$

103,536

$

96,891

$

6,645

6.9

%

$

(397)

$

3,558

$

3,484

$

Segment gross profit

33,668

33,787

(119)

(0.4)

%

(397)

(910)

989

199

Gross profit as a % of segment net sales

32.5

%

34.9

%

Net sales increased compared with the prior-year same period, primarily driven by higher sales of pigment, surface technology and dispersions and colorants products of $4.0 million, $2.0 million and of $0.6 million, respectively. The increase in net sales was driven by favorable volume and mix of $3.5 million and favorable foreign currency impacts of $3.5 million, partially offset by lower pricing of $0.4 million. Gross profit decreased from the prior-year same period, primarily due to unfavorable manufacturing costs of $1.2 million, unfavorable sales volume and mix of $0.9 million and lower pricing of $0.4, partially mitigated by favorable raw material costs of $1.4 million and favorable foreign currency impacts of $1.0 million.

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

% Change

Segment net sales by Region

EMEA

$

39,042

$

37,889

$

1,153

3.0

%

Americas

53,854

49,706

4,148

8.3

%

Asia Pacific

10,640

9,296

1,344

14.5

%

Total

$

103,536

$

96,891

$

6,645

6.9

%

The net sales increase of $6.6 million was driven by higher sales from all regions. The increase in sales from the Americas was primarily driven by increased sales of surface technology, pigment and dispersions and colorants products of $2.8 million, $0.8 million and $0.5 million, respectively. The increase in sales from Asia Pacific was attributable to increased sales of pigment products of $2.1 million, partially offset by lower sales of surface technology of $0.8 million, respectively. The increase in sales from EMEA was primarily attributable to higher sales of pigment products of $1.1 million.

Summary of Cash Flows for the three months ended March 31, 2021 and 2020

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

Net cash used in operating activities

$

(45,463)

$

(71,535)

$

26,072

Net cash provided by investing activities

429,931

21,256

408,675

Net cash used in financing activities

(436,617)

(1,697)

(434,920)

Effect of exchange rate changes on cash and cash equivalents

(1,700)

(1,208)

(492)

Decrease in cash and cash equivalents

$

(53,849)

$

(53,184)

$

(665)

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Table of Contents

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

Three Months Ended

March 31,

(Dollars in thousands)

2021

2020

$ Change

Cash flows from operating activities:

Net income

$

108,400

$

16,133

$

92,267

Loss (gain) on sale of assets

(100,014)

487

(100,501)

Depreciation and amortization

11,093

10,451

642

Interest amortization

604

929

(325)

Restructuring and impairment

(23)

307

(330)

Loss on extinguishment of debt

1,981

1,981

Accounts receivable

(63,487)

(50,541)

(12,946)

Inventories

(2,495)

(11,297)

8,802

Accounts payable

(2,732)

(39,651)

36,919

Other current asset, liabilities and adjustments, net

1,210

1,647

(437)

Net cash used in operating activities

$

(45,463)

$

(71,535)

$

26,072

Cash flows from operating activities. Cash flows from operating activities increased $26.1 million during the three months ended March 31, 2021 compared with the prior-year same period. The increase in cash from operating activities was primarily due to lower cash outflows for net working capital of $32.8 million, partially offset by a decrease in net income, net of the gain on the sale of the Tile Coatings business.

Cash flows used in investing activities. Cash flows from investing activities increased $408.7 million during the three months ended March 31, 2021 compared with the prior-year same period. The increase in cash from investing activities was primarily due to the proceeds from the sale of the Tile Coatings business of $415.2 million, partially offset by higher cash outflows for capital expenditures of $2.6 million in the three months ended March 31, 2021, compared to the prior-year same period.

Cash flows from financing activities. Cash flows from financing activities decreased $434.9 million during the three months ended March 31, 2021 compared with the prior-year same period. The decrease in cash from financing activities was primarily due to increased principal payments on the Amended Credit Facility of $435.0 million compared to the prior-year same period.

Capital Resources and Liquidity

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

Off Balance Sheet Arrangements

Consignment and Customer Arrangements for Precious Metals.  We use precious metals, primarily silver, in the production of some of our products. We obtain precious metals from financial institutions under consignment agreements. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign and the period of consignment. These fees were $0.6 million and $1.1 million for the three months ended March 31, 2021 and 2020. We had on hand precious metals owned by participants in our precious metals program of $96.7 million at March 31, 2021, and $87.2 million at December 31, 2020, measured at fair value based on market prices for identical assets.

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

Bank Guarantees and Standby Letters of Credit. 

At March 31, 2021, the Company and its subsidiaries had bank guarantees and standby letters of credit issued by financial institutions that totaled $4.9 million. These agreements primarily relate to Ferro’s insurance programs, foreign energy purchase contracts and foreign tax payments.

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Table of Contents

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 March 31, 2021, we had $128.4 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.

On February 25, 2021, we completed the sale of our Tile Coatings business to Pigments Spain, S.L., a company of the Esmalglass-Itaca-Fritta group (the “Buyer”), which is a portfolio company of certain Lone Star Funds, for $460.0 million in cash, subject to post-closing adjustments. The transaction resulted in net proceeds of approximately $415.2 million after expenses. Proceeds from the close of the transaction, in addition to current cash balances, were used to pay down our term loan facility in the amount of $435.0 million on February 25, 2021. The debt pay-down reduced outstanding amounts of the Tranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans, by $188.3 million, $124.7 million and $122.0 million, respectively. In conjunction with the prepayment of debt, we recorded a charge of $2.0 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss on extinguishment of debt in our consolidated statement of operations for the quarter ended March 31, 2021.

Our liquidity requirements and uses primarily include debt service, purchase commitments, labor costs, working capital requirements, restructuring expenditures, acquisition costs, capital investments, strategic optimization plans, precious metals cash collateral requirements, and postretirement obligations. We expect to meet these requirements in the long term through cash provided by operating activities and availability under existing credit facilities or other financing arrangements. Cash flows provided by operating activities are primarily driven by earnings before non-cash charges and changes in working capital needs. As of March 31, 2021, we had liquidity of approximately $644.7 million, consisting of cash and availability under our various credit facilities, primarily our revolving credit facility.

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

As of March 31, 2021, we were in compliance with our maximum leverage ratio covenant of 4.00x as our actual ratio was 1.45, providing $138.7 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 $79 million for the most recently ended trailing four quarters, based on reasonably consistent net debt levels with those as of March 31, 2021, we could become unable to maintain compliance with our leverage ratio covenant. In such case, our lenders could demand immediate payment of outstanding amounts and we would need to seek alternate financing sources to pay off such debts and to fund our ongoing operations. Such financing may not be available on favorable terms, if at all.

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

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

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, 2020.

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Table of Contents

Impact of Newly Issued Accounting Pronouncements

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

Risk Factors

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

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Table of Contents

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

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

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

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

March 31,

December 31,

(Dollars in thousands)

2021

2020

Variable-rate debt:

Carrying amount(1)

$

358,897

$

793,731

Fair value

356,090

783,143

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

157

2,626

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

(157)

(2,626)

Fixed-rate debt:

Carrying amount

8,208

3,706

Fair value

6,749

1,887

Change in fair value from 1% increase in interest rates

NM

NM

Change in fair value from 1% decrease in interest rates

NM

NM

Interest rate swaps:

Notional amount

310,422

311,220

Carrying amount and fair value

(21,158)

(24,694)

Change in fair value from 1% increase in interest rates

7,736

8,407

Change in fair value from 1% decrease in interest rates

(4,541)

(3,131)

Cross currency swaps:

Notional amount

38,800

223,675

Carrying amount and fair value

786

(5,162)

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

(4,051)

(24,475)

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

4,051

24,475

Foreign currency forward contracts:

Notional amount

529,820

494,187

Carrying amount and fair value

(5,095)

2,019

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

(856)

(2,810)

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

1,046

3,435

(1)The carrying value of the term loan facility is net of unamortized debt issuance costs of $1.5 million and $3.7 million for the period ended March 31, 2021 and December 31, 2020, respectively.

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Table of Contents

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

As required by Rule 13a-15(b) of the Exchange Act, Ferro has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. The evaluation examined those disclosure controls and procedures as of March 31, 2021, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2021.

Changes in Internal Control over Financial Reporting

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

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Table of Contents

PART II — OTHER INFORMATION

Item 1.  Legal Proceedings

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

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

Item 1A.  Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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

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

The following table summarizes purchases of our common stock by the Company and affiliated purchasers during the three months ended March 31, 2021:

Total Amount of

Maximum Dollar

Shares Purchased

Amount that May

Total Number

as Part of Publicly

Yet Be Purchased

of Shares

Average Price

Announced Plans

Under the Plans

(Dollars in thousands, except for per share amounts)

Purchased

Paid per Share

or Programs

or Programs

January 1, 2021 to January 31, 2021

$

$

$

46,192,535

February 1, 2021 to February 28, 2021

$

$

$

46,192,535

March 1, 2021 to March 31, 2021

$

$

$

46,192,535

Total

$

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

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Table of Contents

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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Table of Contents

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:

May 10, 2021

/s/ Peter T. Thomas

Peter T. Thomas

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Date:

May 10, 2021

/s/ Benjamin J. Schlater

Benjamin J. Schlater

Group Vice President and Chief Financial Officer

(Principal Financial Officer)

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Table of Contents

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:

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).

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Certifications:

31.1

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

31.2

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

32.1

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

32.2

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

101

Inline XBRL Documents:

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Schema Document

101.CAL

Inline XBRL Calculation Linkbase Document

101.LAB

Inline XBRL Labels Linkbase Document

101.PRE

Inline XBRL Presentation Linkbase Document

101.DEF

Inline XBRL Definition Linkbase Document

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL and contained in Exhibit 101.

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