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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM
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(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended |
or
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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
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(Exact name of registrant as specified in its charter)
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| (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) |
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| (Registrant’s telephone number, including area code) |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO 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 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.
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x |
| Accelerated Filer | o | |
Non-accelerated Filer | o |
| Smaller Reporting Company | |
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| Emerging Growth Company |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
At March 31, 2021, there were
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TABLE OF CONTENTS
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| Page | |
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 | |
32 | ||
33 | ||
33 | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 33 | |
33 | ||
33 | ||
34 | ||
34 | ||
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Exhibit 31.1 |
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Exhibit 31.2 |
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Exhibit 32.1 |
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Exhibit 32.2 |
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
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| Three Months Ended | ||||
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| March 31, | ||||
(Dollars in thousands, except per share amounts) |
| 2021 |
| 2020 | ||
Net sales |
| $ | |
| $ | |
Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring and impairment charges |
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Other expense (income): |
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Interest expense |
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Interest earned |
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Foreign currency losses (gains), net |
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Loss on extinguishment of debt |
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Miscellaneous income, net |
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Income before income taxes |
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Income tax expense |
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Income from continuing operations |
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Income from discontinued operations, net of income taxes |
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Net income |
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Less: Net income attributable to noncontrolling interests |
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Net income attributable to Ferro Corporation common shareholders |
| $ | |
| $ | |
Earnings per share attributable to Ferro Corporation common shareholders: |
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Basic earnings: |
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Continuing operations |
| $ | |
| $ | |
Discontinued operations |
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| $ | |
| $ | |
Diluted earnings: |
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Continuing operations |
| $ | |
| $ | |
Discontinued operations |
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| $ | |
| $ | |
See accompanying notes to condensed consolidated financial statements.
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
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| Three Months Ended | ||||
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| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Net income |
| $ | |
| $ | |
Other comprehensive income (loss), net of income tax: |
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Foreign currency translation loss |
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Cash flow hedging instruments, unrealized income (loss) |
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Postretirement benefit liabilities income |
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Other comprehensive loss, net of income tax |
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Total comprehensive income (loss) |
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Less: Comprehensive income (loss) attributable to noncontrolling interests |
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Comprehensive income (loss) attributable to Ferro Corporation |
| $ | |
| $ | ( |
See accompanying notes to condensed consolidated financial statements.
Ferro Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
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| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
ASSETS | ||||||
Current assets |
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Cash and cash equivalents |
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| $ | |
Accounts receivable, net |
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Inventories |
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Other receivables |
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Other current assets |
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Current assets held-for-sale |
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Total current assets |
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Other assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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Deferred income taxes |
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Operating leased assets |
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Other non-current assets |
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Non-current assets held-for-sale |
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Total assets |
| $ | |
| $ | |
LIABILITIES AND EQUITY | ||||||
Current liabilities |
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Loans payable and current portion of long-term debt |
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Accounts payable |
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Accrued payrolls |
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Accrued expenses and other current liabilities |
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Current liabilities held-for-sale |
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Total current liabilities |
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Other liabilities |
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Long-term debt, less current portion |
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Postretirement and pension liabilities |
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Operating leased non-current liabilities |
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Other non-current liabilities |
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Non-current liabilities held-for-sale |
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Total liabilities |
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Equity |
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Ferro Corporation shareholders’ equity: |
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Common stock, par value $ |
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Paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Common shares in treasury, at cost |
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Total Ferro Corporation shareholders’ equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
| $ | |
| $ | |
See accompanying notes to condensed consolidated financial statements.
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Equity
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| Ferro Corporation Shareholders |
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| Common Shares |
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| Accumulated |
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| Other |
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| Common |
| Paid-in |
| Retained |
| Comprehensive |
| controlling |
| Total | ||||||
(In thousands) |
| Shares |
| Amount |
| Stock |
| Capital |
| Earnings |
| Loss |
| Interests |
| Equity | |||||||
Balances at December 31, 2020 |
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| $ | ( |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
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Other comprehensive loss |
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Change in ownership interest |
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Stock-based compensation transactions |
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Balances at March 31, 2021 |
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| $ | ( |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
| $ | |
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| Ferro Corporation Shareholders |
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| Common Shares |
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| Accumulated |
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| Other |
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| Common |
| Paid-in |
| Retained |
| Comprehensive |
| controlling |
| Total | ||||||
(In thousands) |
| Shares |
| Amount |
| Stock |
| Capital |
| Earnings |
| Loss |
| Interests |
| Equity | |||||||
Balances at December 31, 2019 |
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| $ | ( |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
| — |
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Other comprehensive income |
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Stock-based compensation transactions |
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Balances at March 31, 2020 |
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| $ | ( |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
| $ | |
See accompanying notes to condensed consolidated financial statements.
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
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| Three Months Ended | ||||
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| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Cash flows from operating activities |
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Net cash used in operating activities |
| $ | ( |
| $ | ( |
Cash flows from investing activities |
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Capital expenditures for property, plant and equipment and other long-lived assets |
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Collections of financing receivables |
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Proceeds from sale of businesses, net |
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Business acquisitions, net of cash acquired |
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Other investing activities |
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Net cash provided by investing activities |
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Cash flows from financing activities |
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Net borrowings under loans payable |
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Principal payments on term loan facility - Amended Credit Facility |
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Proceeds from revolving credit facility - Amended Credit Facility |
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Principal payments on revolving credit facility - Amended Credit Facility |
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Other financing activities |
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Net cash used in financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Decrease in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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Less: Cash and cash equivalents of discontinued operations at end of period |
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Cash and cash equivalents of continuing operations at end of period |
| $ | |
| $ | |
Cash paid during the period for: |
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Interest |
| $ | |
| $ | |
Income taxes |
| $ | |
| $ | |
See accompanying notes to condensed consolidated financial statements.
Ferro Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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.
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:
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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. |
We are currently evaluating the impact on our financial statements of the following ASUs:
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Standard |
| Description |
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, issued March, 2020 |
| Provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities through December 31, 2022. |
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Revenues disaggregated by geography and reportable segment for the three months ended March 31, 2021, follow:
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(Dollars in thousands) |
| EMEA |
| Americas |
| Asia Pacific |
| Total | ||||
Functional Coatings |
| $ | |
| $ | |
| $ | |
| $ | |
Color Solutions |
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Total net sales |
| $ | |
| $ | |
| $ | |
| $ | |
Revenues disaggregated by geography and reportable segment for the three months ended March 31, 2020, follow:
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(Dollars in thousands) |
| EMEA |
| Americas |
| Asia Pacific |
| Total | ||||
Functional Coatings |
| $ | |
| $ | |
| $ | |
| $ | |
Color Solutions |
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Total net sales |
| $ | |
| $ | |
| $ | |
| $ | |
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 $
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| Three Months Ended | ||||
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| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Net sales |
| $ | |
| $ | |
Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring and impairment charges |
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Interest expense |
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Interest earned |
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Foreign currency losses, net |
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Gain on sale of business, net |
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Miscellaneous expense (income), net |
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Income from discontinued operations before income taxes |
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Income tax expense |
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Income from discontinued operations, net of income taxes |
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Less: Net income (loss) attributable to noncontrolling interests |
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Net income attributable to Tile Coatings business |
| $ | |
| $ | |
The following table summarizes the assets and liabilities which are classified as held-for-sale at December 31, 2020:
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| December 31, | |
(Dollars in thousands) |
| 2020 | |
Cash and cash equivalents |
| $ | |
Accounts receivable, net |
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Inventories |
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Other receivables |
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Other current assets |
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Current assets held-for-sale |
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Property, plant and equipment, net |
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Intangible assets, net |
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Deferred income taxes |
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Other non-current assets |
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Non-current assets held-for-sale |
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Total assets held-for-sale |
| $ | |
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Loans payable and current portion of long-term debt |
| $ | |
Accounts payable |
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Accrued payrolls |
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Accrued expenses and other current liabilities |
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Current liabilities held-for-sale |
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Long-term debt, less current portion |
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Postretirement and pension liabilities |
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Other non-current liabilities |
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Non-current liabilities held-for-sale |
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Total liabilities held-for-sale |
| $ | |
The following table summarizes cash flow data relating to discontinued operations for the three months ended March 31, 2021 and 2020:
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| Three Months Ended | ||||
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| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Capital expenditures |
| $ | ( |
| $ | ( |
Gain on sale of discontinued operations |
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Non-cash investing activities - capital expenditures, consisting of unpaid capital expenditure liabilities at period end |
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| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Raw materials |
| $ | |
| $ | |
Work in process |
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Finished goods |
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Total inventories |
| $ | |
| $ | |
Property, plant and equipment is reported net of accumulated depreciation of $
Unpaid capital expenditure liabilities, which are non-cash investing activities, were $
Details and activity in the Company’s goodwill by segment follow:
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| Functional |
| Color |
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(Dollars in thousands) |
| Coatings |
| Solutions |
| Total | |||
Goodwill, net at December 31, 2020 |
| $ | |
| $ | |
| $ | |
Foreign currency adjustments |
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| ( |
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| ( |
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| ( |
Goodwill, net at March 31, 2021 |
| $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Goodwill, gross |
| $ | |
| $ | |
Accumulated impairment |
|
| ( |
|
| ( |
Goodwill, net |
| $ | |
| $ | |
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.
Amortizable intangible assets consisted of the following:
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|
| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Gross amortizable intangible assets: |
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|
Patents |
| $ | |
| $ | |
Land rights |
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| |
|
| |
Technology/know-how and other |
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| |
|
| |
Customer relationships |
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| |
|
| |
Total gross amortizable intangible assets |
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| |
|
| |
Accumulated amortization: |
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|
|
Patents |
|
| ( |
|
| ( |
Land rights |
|
| ( |
|
| ( |
Technology/know-how and other |
|
| ( |
|
| ( |
Customer relationships |
|
| ( |
|
| ( |
Total accumulated amortization |
|
| ( |
|
| ( |
Amortizable intangible assets, net |
| $ | |
| $ | |
Indefinite-lived intangible assets consisted of the following:
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|
| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Indefinite-lived intangibles assets: |
|
|
|
|
|
|
Trade names and trademarks |
| $ | |
| $ | |
Loans payable and current portion of long-term debt consisted of the following:
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|
| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Current portion of long-term debt |
| $ | |
| $ | |
Current portion of long-term debt |
| $ | |
| $ | |
Long-term debt consisted of the following:
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| March 31, |
| December 31, | ||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Term loan facility, net of unamortized issuance costs, maturing 2024(1) |
| $ | |
| $ | |
Finance lease obligations |
|
| |
|
| |
Other notes |
|
| |
|
| |
Total long-term debt |
|
| |
|
| |
Current portion of long-term debt |
|
| ( |
|
| ( |
Long-term debt, less current portion |
| $ | |
| $ | |
(1)The carrying value of the term loan facility, maturing 2024, is net of unamortized debt issuance costs of $
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.
The Amended Credit Facility consists of a $
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 $
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
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
The LIBOR rate for term loans shall not be less than
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 $
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
The LIBOR rate for revolving loans shall not be less than
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
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 $
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 €
The outstanding principal amount of receivables sold under this program, which has not yet been collected from the customer, was $
Activity from these programs for the three months ended March 31, 2021 and 2020 is detailed below:
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| Three Months Ended | ||||
|
| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Trade accounts receivable sold to financial institutions |
| $ | |
| $ | |
Cash proceeds from financial institutions (1) |
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| |
|
| |
(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 $
Other Financing Arrangements
The following financial instrument assets (liabilities) are presented at their respective carrying amount, fair value and classification within the fair value hierarchy:
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| March 31, 2021 | |||||||||||||
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| Carrying |
| Fair Value | |||||||||||
(Dollars in thousands) |
| Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | |
| $ | — |
| $ | — |
Term loan facility - Amended Credit Facility (1) |
|
| ( |
|
| ( |
|
| — |
|
| ( |
|
| — |
Other long-term notes payable |
|
| ( |
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| ( |
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| — |
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| ( |
|
| — |
Cross currency swaps |
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| |
|
| — |
|
| |
|
| — |
Interest rate swaps |
|
| ( |
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| ( |
|
| — |
|
| ( |
|
| — |
Foreign currency forward contracts, net |
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| ( |
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| ( |
|
| — |
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| ( |
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| — |
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| December 31, 2020 | |||||||||||||
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| Carrying |
| Fair Value | |||||||||||
(Dollars in thousands) |
| Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Cash and cash equivalents |
| $ | |
| $ | |
| $ | |
| $ | — |
| $ | — |
Term loan facility - Amended Credit Facility (1) |
|
| ( |
|
| ( |
|
| — |
|
| ( |
|
| — |
Other long-term notes payable |
|
| ( |
|
| ( |
|
| — |
|
| ( |
|
| — |
Cross currency swaps |
|
| ( |
|
| ( |
|
| — |
|
| ( |
|
| — |
Interest rate swaps |
|
| ( |
|
| ( |
|
| — |
|
| ( |
|
| — |
Foreign currency forward contracts, net |
|
| |
|
| |
|
| — |
|
| |
|
| — |
(1)The carrying value of the term loan facility is net of unamortized debt issuance costs of $
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
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 $
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:
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| 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 |
| $ | |
| $ | ( |
| $ | ( |
| $ | ( |
| Interest expense |
Cross currency swaps |
|
| |
|
| |
|
| ( |
|
| |
| Interest expense |
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| $ | ( |
| $ | |
| Total Interest expense |
Cross currency swap |
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| |
|
| |
| Foreign currency losses, net |
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| $ | |
| $ | |
| 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:
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| Three Months Ended | ||||
|
| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Interest expense |
| $ | |
| $ | |
Foreign currency losses (gains), net |
|
| |
|
| ( |
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.
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:
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| Amount of Gain |
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| Recognized in Income on |
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| ||||
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| 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 |
| $ |
|
| $ | |
| $ |
|
| $ | |
| 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 $
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:
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| Amount of Gain |
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| Recognized in Earnings |
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| Three Months Ended |
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| ||||
|
| March 31, |
| Location of Gain (Loss) in Earnings | ||||
(Dollars in thousands) |
| 2021 |
| 2020 |
|
| ||
Foreign currency forward contracts |
| $ | ( |
| $ | |
| 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.
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| March 31, |
| December 31, |
|
| ||
(Dollars in thousands) |
| 2021 |
| 2020 |
| Balance Sheet Location | ||
Asset derivatives: |
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Cross currency swaps |
| $ | |
| $ | |
| Other current assets |
Cross currency swaps |
|
| |
|
| — |
| Other non-current assets |
Foreign currency forward contracts |
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| |
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| |
| Other current assets |
Liability derivatives: |
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Interest rate swaps |
| $ | ( |
| $ | ( |
| Accrued expenses and other current liabilities |
Interest rate swaps |
|
| ( |
|
| ( |
| Other non-current liabilities |
Cross currency swaps |
|
| — |
|
| ( |
| Accrued expenses and other current liabilities |
Cross currency swaps |
|
| — |
|
| ( |
| Other non-current liabilities |
Foreign currency forward contracts |
|
| ( |
|
| ( |
| Accrued expenses and other current liabilities |
We have recorded environmental liabilities of $
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.
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:
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| U.S. Pension Plans |
| Non-U.S. Pension Plans |
| Other Benefit Plans | ||||||||||||
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| Three Months Ended March 31, | ||||||||||||||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
Service cost |
| $ | — |
| $ | |
| $ | |
| $ | |
| $ | — |
| $ | |
Interest cost |
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Expected return on plan assets |
|
| ( |
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| ( |
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| ( |
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| ( |
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| — |
|
| — |
Amortization of prior service cost |
|
| — |
|
| — |
|
| ( |
|
| ( |
|
| — |
|
| — |
Net periodic benefit (credit) cost |
| $ | ( |
| $ | ( |
| $ | |
| $ | |
| $ | |
| $ | |
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
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
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:
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| Stock Options | ||
Weighted-average grant-date fair value |
| $ | |
|
Expected life, in years |
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| |
|
Risk-free interest rate |
|
| | % |
Expected volatility |
|
| | % |
The weighted average grant date fair value of our performance share units granted in the three months ended March 31, 2021, was $
The weighted-average grant date fair value of our restricted share units granted in the three months ended March 31, 2021, was $
Total restructuring charges were $
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 $
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 $
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 $
The charges associated with these programs are further summarized below.
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| Employee |
| Other |
|
| |||
(Dollars in thousands) |
| Severance |
| Costs |
| Total | |||
Balances at December 31, 2020 |
| $ | |
| $ | |
| $ | |
Restructuring charges |
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Cash payments |
|
| ( |
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| ( |
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| ( |
Non-cash items |
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Balances at March 31, 2021 |
| $ | |
| $ | |
| $ | |
Details of the calculation of basic and diluted earnings per share are shown below:
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| Three Months Ended | ||||
|
| March 31, | ||||
(Dollars in thousands, except per share amounts) |
| 2021 |
| 2020 | ||
Basic earnings per share computation: |
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|
|
Income from continuing operations |
| $ | |
| $ | |
Less: Net income attributable to noncontrolling interests from continuing operations |
|
| |
|
| |
Net income attributable to Ferro Corporation from continuing operations |
|
| |
|
| |
Income from discontinued operations, net of income taxes |
|
| |
|
| |
Less: Net income (loss) attributable to noncontrolling interests from discontinued operations |
|
| |
|
| ( |
Net income attributable to Ferro Corporation from discontinued operations |
|
| |
|
| |
Total |
| $ | |
| $ | |
|
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|
|
|
Weighted-average common shares outstanding |
|
| |
|
| |
Basic earnings per share from continuing operations attributable to Ferro Corporation common shareholders |
| $ | |
| $ | |
Diluted earnings per share computation: |
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|
Net income attributable to Ferro Corporation from continuing operations |
| $ | |
| $ | |
Net income attributable to Ferro Corporation from discontinued operations |
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| |
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| |
Total |
| $ | |
| $ | |
|
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|
|
Weighted-average common shares outstanding |
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| |
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| |
Assumed exercise of stock options |
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| |
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| |
Assumed satisfaction of restricted stock unit conditions |
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| |
|
| |
Assumed satisfaction of performance share unit conditions |
|
| |
|
| |
Weighted-average diluted shares outstanding |
|
| |
|
| |
Diluted earnings per share from continuing operations attributable to Ferro Corporation common shareholders |
| $ | |
| $ | |
The Company’s Board of Directors has approved share repurchase programs under which the Company is authorized to repurchase up to $
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.
Changes in accumulated other comprehensive loss by component, net of tax, were as follows:
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| Three Months Ended March 31, | |||||||||||
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| Postretirement |
| Foreign |
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| Net Loss |
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| ||
|
| Benefit Liability |
| Currency |
|
| on Cash |
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| ||
(Dollars in thousands) |
| Adjustments |
| Items |
|
| Flow Hedges |
| Total | |||
Balances at December 31, 2019 |
| $ | |
| $ | ( |
| $ | ( |
| $ | ( |
Other comprehensive income (loss) before reclassifications, before tax |
|
|
|
|
| ( |
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| ( |
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| ( |
Reclassification to earnings: |
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Cash flow hedge loss, before tax |
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| ( |
|
| ( |
Current period other comprehensive income (loss), before tax |
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| ( |
|
| ( |
|
| ( |
Tax effect |
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| |
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| ( |
|
| ( |
Current period other comprehensive income (loss), net of tax |
|
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| ( |
|
| ( |
|
| ( |
Balances at March 31, 2020 |
| $ | |
| $ | ( |
| $ | ( |
| $ | ( |
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Balances at December 31, 2020 |
| $ | |
| $ | ( |
| $ | ( |
| $ | ( |
Other comprehensive income (loss) before reclassifications, before tax |
|
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|
| ( |
|
| |
|
| ( |
Reclassification to earnings: |
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Postretirement benefit liabilities income, before tax |
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Currency translation reclassification to income on divestiture |
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Amount reclassification to income (remote transaction) |
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| |
Cash flow hedge income loss, before tax |
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|
| ( |
|
| ( |
Current period other comprehensive income (loss), before tax |
|
| |
|
| ( |
|
| |
|
| ( |
Tax effect |
|
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| |
|
| |
|
| |
Current period other comprehensive income (loss), net of tax |
|
| |
|
| ( |
|
| |
|
| ( |
Balances at March 31, 2021 |
| $ | |
| $ | ( |
| $ | ( |
| $ | ( |
Net sales to external customers by segment are presented in the table below. Sales between segments were not material.
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| Three Months Ended | ||||
|
| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Functional Coatings |
| $ | |
| $ | |
Color Solutions |
|
| |
|
| |
Total net sales |
| $ | |
| $ | |
Each segment’s gross profit and reconciliation to income before income taxes are presented in the table below:
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| Three Months Ended | ||||
|
| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Functional Coatings |
| $ | |
| $ | |
Color Solutions |
|
| |
|
| |
Other cost of sales |
|
| ( |
|
| ( |
Total gross profit |
|
| |
|
| |
Selling, general and administrative expenses |
|
| |
|
| |
Restructuring and impairment charges |
|
| |
|
| |
Other expense, net |
|
| |
|
| |
Income before income taxes |
| $ | |
| $ | |
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.
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
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| Three Months Ended |
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|
| ||||||
|
| 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.
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| Three Months Ended |
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| ||||
|
| March 31, |
|
|
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|
| ||||
(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.
Selling, General and Administrative (“SG&A”) Expenses
The following table includes SG&A components with significant changes between 2021 and 2020.
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| Three Months Ended |
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|
| ||||
|
| 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.
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| Three Months Ended |
|
|
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|
| ||||
|
| 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
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| Three Months Ended |
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| ||||
|
| March 31, |
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| ||||
(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
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| Three Months Ended |
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| ||||
|
| 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 | % |
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
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| Three Months Ended |
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| Change due to | |||||||||||||||
|
| March 31, |
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| Volume / |
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| |||||||
(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 | % |
|
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|
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.
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| Three Months Ended |
|
|
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|
|
| ||||
|
| March 31, |
|
|
|
|
|
| ||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| $ Change |
| % Change | ||||
Segment net sales by Region |
|
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|
|
|
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.
Color Solutions
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| Three Months Ended |
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|
| Change due to | |||||||||||||||
|
| March 31, |
|
|
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|
|
| 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.
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|
|
|
|
|
| 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) |
The following table includes details of net cash provided by operating activities.
|
|
|
|
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|
|
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|
|
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|
|
| 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.
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.
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.
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.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
| 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.
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.
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:
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|
|
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|
|
|
| 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.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The exhibits listed in the attached Exhibit Index are the exhibits required by Item 601 of Regulation S-K.
SIGNATURES
Pursuant to the requirements of the Securities 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) |
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 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
31 | Certifications: | |
31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a). | |
31.2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a). | |
32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350. | |
32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350. | |
101 | Inline XBRL Documents: | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Schema Document | |
101.CAL | Inline XBRL Calculation Linkbase Document | |
101.LAB | Inline XBRL Labels Linkbase Document | |
101.PRE | Inline XBRL Presentation Linkbase Document | |
101.DEF | Inline XBRL Definition Linkbase Document | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL and contained in Exhibit 101. |