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, 2013.
The Company owns 51% of an operating affiliate in Venezuela that is accounted for as a fully consolidated subsidiary of Ferro. In the first
quarter of 2014 the Venezuelan government expanded and introduced alternative market mechanisms for monetary exchange between the local currency, the Bolivar, and the United States Dollar. As a result of changes in the political and economic
environment in the country, we began to remeasure the monetary assets and liabilities of the entity utilizing the most relevant exchange mechanism available. The impact of the remeasurement in the first quarter of 2014 prior to adjustment for losses
allocated to our noncontrolling interest partner was a $1.6 million loss which is recorded within foreign currency losses, net within our condensed consolidated statement of operations. In the event that other markets become more relevant in future
periods, additional losses or gains on remeasurement could occur.
During the second quarter of 2014, substantially all of the assets and
liabilities of the Specialty Plastics and Polymer Additives reportable segments have been classified as held-for-sale in the accompanying condensed consolidated balance sheets. Additionally, the related operating results, net of tax, have been
classified as discontinued operations in the accompanying condensed consolidated statements of operations and these notes for all periods presented. Refer to Note 12 for further details.
Operating results for the three and six months ended June 30, 2014, are not necessarily indicative of the results expected in subsequent
quarters or for the full year ending December 31, 2014.
|
2.
|
Recent Accounting Pronouncements
|
Accounting Standards Adopted in the period ended June 30, 2014
On January 1, 2014, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
2013-05,
Parent’s Accounting for the Cumulative Translation Adjustments upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investments in a Foreign Entity
, which is codified in ASC Topic 830,
Foreign Currency Matters. This pronouncement clarifies the application of Subtopic 810-10, Consolidation—Overall, and Subtopic 830-30, Foreign Currency Matters—Translation of Financial Statements, related to the release of the cumulative
translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a foreign entity, and the treatment of business combinations achieved in
stages involving a foreign entity. The adoption of this pronouncement did not have a material effect on our condensed consolidated financial statements.
New Accounting Standards
In April
2014, the FASB issued ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
,
which is codified in ASC Topic 205, Presentation of Financial Statements and ASC Topic 360, Property, Plant,
and Equipment. This pronouncement changes the definition of a discontinued operation to include only those
8
disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results, and changes the criteria and
enhances disclosures for reporting discontinued operations. The pronouncement is to be applied prospectively, and is effective for our fiscal year that begins January 1, 2015. We do not expect that the adoption of this pronouncement will have a
material effect on our consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (the “FASB”)
issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers: Topic 606”. This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model
for recognizing revenue, the application of which will require significant judgment. This standard is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The Company is in the process
of assessing the impact the adoption of this ASU will have on our consolidated financial statements.
In June 2014, the FASB issued ASU
No. 2014-12, “Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU 2014-12 requires a
reporting entity to treat a performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. It is effective for annual periods, and interim periods within those annual periods,
beginning after December 15, 2015. Early adoption is permitted. ASU 2014-12 may be adopted either prospectively for share-based payment awards granted or modified on or after the effective date, or retrospectively, using a modified retrospective
approach. The modified retrospective approach would apply to share-based payment awards outstanding as of the beginning of the earliest annual period presented in the financial statements on adoption, and to all new or modified awards thereafter.
The Company will determine if this pronouncement will have a material impact on our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
Raw materials
|
|
$
|
47,261
|
|
|
$
|
45,542
|
|
|
Work in process
|
|
|
35,048
|
|
|
|
29,436
|
|
|
Finished goods
|
|
|
77,777
|
|
|
|
69,802
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
160,086
|
|
|
$
|
144,780
|
|
|
|
|
|
|
|
|
|
|
|
In the production of some of our products, we use precious metals, some of which we obtain from financial
institutions under consignment agreements with terms of one year or less. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign. These fees were $0.2 million and $0.8 million for the
three months ended June 30, 2014 and 2013, respectively, and were $0.4 million and $1.8 million for the six months ended June 30, 2014 and 2013, respectively. We had on hand precious metals owned by participants in our precious metals
consignment program of $29.0 million at June 30, 2014, and $30.8 million at December 31, 2013, measured at fair value based on market prices for identical assets and net of credits.
|
4.
|
Property, Plant and Equipment
|
Property, plant and equipment is reported net of accumulated depreciation of $469.3 million at June 30, 2014, and
$449.5 million at December 31, 2013. Unpaid capital expenditure liabilities, which are non-cash investing activities, were $4.0 million at June 30, 2014, and $2.7 million at June 30, 2013.
During the first quarter of 2013, we sold assets related to our solar pastes product line. The consideration for the assets sold was $10.9
million, and resulted in a gain on the transaction of $9.0 million and is included within miscellaneous expense (income) within the condensed consolidated statement of operations for the six months ended June 30, 2013.
During the fourth quarter of 2013, we tested certain property, plant and equipment held for use for impairment under ASC Topic 360, Property,
Plant and Equipment. Triggered by a change in expected use of one of our Performance Coatings operating facilities in Suzhou, China in the fourth quarter of 2013, we performed the two step impairment analysis as prescribed by ASC Topic 360. As that
analysis indicated that the carrying value of those assets was no longer recoverable, we estimated the fair value of the assets within the asset group using adjusted market prices for similar assets, a Level 3 classification in the fair value
hierarchy. As a result of the analysis, assets held for use with a carrying value of $20.5 million were written down to $13.0 million. The impairment charge of $7.5 million is included in restructuring and impairment charges in our statements of
operations for the year-ended December 31, 2013.
During the second quarter of 2014, we sold non-operating real estate assets located
in South Plainfield, New Jersey and in Criciuma, Brazil for gains of $1.2 million and $0.4 million respectively. The gains on sale were offset by losses associated with the write off of tenant improvements and the loss on sale of our corporate
related real estate of $1.3 million and $3.5 million
9
respectively. The net loss of $3.3 million related to these transactions is recorded in miscellaneous expense (income), net within our condensed consolidated statements of operations.
As further discussed in Note 12—Discontinued Operations, during the second quarter of 2014, the assets located at our Antwerp, Belgium
manufacturing facility were classified as held-for-sale under ASC Topic 360, Property, Plant and Equipment. As such, these assets were tested for impairment comparing the fair value of the assets less costs to sell to the carrying value. The fair
value was determined using both the market approach and income approach, utilizing Level 3 measurements within the fair value hierarchy, which indicated the fair value less costs to sell is less than the carrying value. As a result of the analysis,
assets held-for-sale with a carrying value of $61.5 million were written down to $47.1 million. The impairment charge of $14.4 million is included in (loss) income from discontinued operations, net of taxes in our condensed consolidated statements
of operations.
The following table presents information about the Company’s impairment charges on assets that were measured on a
fair value basis for the six months ended June 30, 2014 and for the year ended December 31, 2013. The table also indicates the fair value hierarchy of the valuation techniques used by the Company to determine the fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
Total
(Losses)
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
|
—
|
|
|
|
—
|
|
|
|
47,127
|
|
|
|
47,127
|
|
|
|
(14,365
|
)
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
Assets held for use
|
|
|
—
|
|
|
|
—
|
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
(7,484
|
)
|
The inputs to the valuation techniques used to measure fair value are classified into the following
categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following table provides quantitative information about the significant unobservable inputs used by the Company to determine the fair
value of non-recurring items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value
Measurements
|
|
|
|
Fair Value
|
|
|
Valuation
Technique
|
|
Unobservable
input
|
|
Range
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets held for sale
|
|
|
47,127
|
|
|
Discounted
Cash Flow
|
|
Discount Rate
|
|
15% - 20%
|
|
|
|
|
|
|
|
Market
Comparable
|
|
Market
Comparable
Values
|
|
N/A
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets held for use
|
|
|
13,000
|
|
|
Income
Capitalization
|
|
Market
Capitalization
Rate
|
|
10%
|
|
|
|
|
|
|
|
Market
Comparable
(A)
|
|
Market
Comparable
Values
|
|
N/A
|
|
(A)
|
Fair value measurements based on adjusted market prices were developed by a third-party source using comparable sales values adjusted for the date of sale, age, condition, size, location, physical characteristics and
circumstances influencing the sale, subject to the Company’s corroboration for reasonableness. The Company does not have access to certain unobservable inputs used by this third party to determine the estimated fair value.
|
10
Loans payable and current portion of long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
Loans payable to banks
|
|
$
|
1,774
|
|
|
$
|
2,561
|
|
|
Domestic accounts receivable asset securitization program
|
|
|
—
|
|
|
|
41,000
|
|
|
Current portion of long-term debt
|
|
|
1,244
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable and current portion of long-term debt
|
|
$
|
3,018
|
|
|
$
|
44,729
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
7.875% Senior Notes
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
Revolving credit facility
|
|
|
97,568
|
|
|
|
9,204
|
|
|
Capital lease obligations
|
|
|
4,798
|
|
|
|
5,816
|
|
|
Other notes
|
|
|
3,676
|
|
|
|
3,617
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
356,042
|
|
|
|
268,637
|
|
|
Current portion of long-term debt
|
|
|
(1,244
|
)
|
|
|
(1,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
354,798
|
|
|
$
|
267,469
|
|
|
|
|
|
|
|
|
|
|
|
Receivable Sales Programs
We had an asset securitization program for Ferro’s U.S. trade accounts receivable where we sold undivided variable percentage interests in
our domestic receivables to various purchasers, and could obtain up to $50.0 million in the form of cash or letters of credit. Advances received under this program were accounted for as borrowings secured by the receivables and included in net
cash provided by financing activities. The purchasers had no recourse to Ferro’s other assets for failure of payment of the receivables as a result of the lack of creditworthiness, or financial inability to pay, of the related obligor. In May
2014, the program expired and amounts outstanding were repaid at that time.
7.875% Senior Notes
In 2010, we issued $250.0 million of 7.875% Senior Notes due 2018 (the “Senior Notes”). The Senior Notes were issued at par
and bear interest at a rate of 7.875% per year, payable semi-annually in arrears on February 15 and August 15 of each year.
The Senior Notes mature on August 15, 2018. We may redeem some or all of the Senior Notes prior to August 15, 2014, at a price equal
to the principal amount plus a defined applicable premium. The applicable premium on any redemption date is the greater of 1.0% of the principal amount of the note or the excess of (1) the present value at such redemption date of the redemption
price of the note at August 15, 2014, plus all required interest payments due on the note through August 15, 2014, computed using a discount rate equal to the Treasury Rate as of the redemption date plus 50 basis points; or (2) the
principal amount of the note. In addition, we may redeem some or all of the Senior Notes beginning August 15, 2014, at prices ranging from 100% to 103.938% of the principal amount.
The Senior Notes are unsecured obligations and rank equally in right of payment with any other unsecured, unsubordinated obligations. The
Senior Notes contain certain affirmative and negative covenants customary for high-yield debt securities, including, without limitation, restrictions on our ability to incur additional debt, create liens, pay dividends or make other distributions or
repurchase our common stock and sell assets outside the ordinary course of business. At June 30, 2014, we were in compliance with the covenants under the Senior Notes’ indenture.
11
In July 2014, the Company commenced a tender offer for any and all of its outstanding 7.875%
Senior Notes due 2018 (the “Notes”) at a price of $1,043.62 per $1,000.00 principal amount of Notes validly tendered, not validly withdrawn and accepted for purchase in the tender offer. The aggregate principal amount of Notes outstanding
on June 30, 2014 is $250 million. The Company intends to redeem any Notes that remain outstanding after the completion of the tender offer. The Company expects to record a charge of approximately $13.0 to $14.0 million in the third quarter,
which is comprised of a repurchase premium on the Notes of approximately $10.0 to $11.0 million and $3.0 million related to the write-off of the unamortized issuance costs.
Revolving Credit Facility
In
2010, we entered into the Third Amended and Restated Credit Agreement with a group of lenders for a five-year, $350.0 million multi-currency senior revolving credit facility (the “2010 Credit Facility”).
In March 2013, we amended the 2010 Credit Facility (the “2013 Amended Credit Facility”) to provide additional operating flexibility.
The primary effects of the 2013 Amended Credit Facility were to:
|
|
•
|
|
Decrease the Revolving Loan Commitment Amount from $350.0 million to $250.0 million;
|
|
|
•
|
|
Amend the calculation of EBITDA to provide for a restructuring expense add-back attributable to the Company’s restructuring programs of $30.0 million in 2013, $20.0 million in 2014 and $10.0 million in 2015, with
no aggregate limit on restructuring expense;
|
|
|
•
|
|
Increase the maximum permitted leverage ratio to the levels stated below.
|
|
|
•
|
|
Amend the requirements for Permitted Acquisitions such that for the Company to consummate a Permitted Acquisition the Company must have minimum liquidity of $100.0 million and the Company’s Secured Leverage Ratio
must be less than 1.50.
|
The 2013 Amended Credit Facility matures on August 24, 2015, and is secured by substantially
all of Ferro’s assets. After reductions for borrowings and outstanding letters of credit secured by these facilities, we had $147.4 million of additional borrowings available at June 30, 2014. The interest rate under the 2013 Amended
Credit Facility is the sum of (A) either (1) LIBOR or (2) the higher of the Federal Funds Rate plus 0.5%, the Prime Rate, or LIBOR plus 1.0% and (B) a variable margin based on the Company’s leverage. At June 30, 2014,
the interest rate was 3.4%.
Under the 2013 Amended Credit Facility, we are subject to a number of financial covenants, including
limitations on the payment of common stock dividends. At June 30, 2014, we were in compliance with the covenants of the 2013 Amended Credit Facility.
Other Financing Arrangements
We
maintain other lines of credit to provide global flexibility for Ferro’s short-term liquidity requirements. These facilities are uncommitted lines for our international operations and totaled $16.3 million and $17.1 million at June 30,
2014 and December 31, 2013, respectively. The unused portions of these lines provided additional liquidity of $14.3 million at June 30, 2014, and $10.1 million at December 31, 2013.
12
The following financial instrument assets (liabilities) are presented at their respective carrying amount, fair value and
classification within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
50,189
|
|
|
$
|
50,189
|
|
|
$
|
50,189
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Loans payable
|
|
|
(1,774
|
)
|
|
|
(1,774
|
)
|
|
|
—
|
|
|
|
(1,774
|
)
|
|
|
—
|
|
|
7.875% Senior Notes
|
|
|
(250,000
|
)
|
|
|
(261,563
|
)
|
|
|
(261,563
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Revolving Credit Facility
|
|
|
(97,568
|
)
|
|
|
(100,134
|
)
|
|
|
|
|
|
|
(100,134
|
)
|
|
|
—
|
|
|
Other long-term notes payable
|
|
|
(3,676
|
)
|
|
|
(3,037
|
)
|
|
|
—
|
|
|
|
(3,037
|
)
|
|
|
—
|
|
|
Foreign currency forward contracts, net
|
|
|
75
|
|
|
|
75
|
|
|
|
—
|
|
|
|
75
|
|
|
|
—
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
28,328
|
|
|
$
|
28,328
|
|
|
$
|
28,328
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Loans payable
|
|
|
(43,561
|
)
|
|
|
(43,561
|
)
|
|
|
—
|
|
|
|
(43,561
|
)
|
|
|
—
|
|
|
7.875% Senior Notes
|
|
|
(250,000
|
)
|
|
|
(266,250
|
)
|
|
|
(266,250
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Revolving credit facility
|
|
|
(9,204
|
)
|
|
|
(9,496
|
)
|
|
|
—
|
|
|
|
(9,496
|
)
|
|
|
—
|
|
|
Other long-term notes payable
|
|
|
(3,617
|
)
|
|
|
(2,988
|
)
|
|
|
—
|
|
|
|
(2,988
|
)
|
|
|
—
|
|
|
Foreign currency forward contracts, net
|
|
|
(2,255
|
)
|
|
|
(2,255
|
)
|
|
|
—
|
|
|
|
(2,255
|
)
|
|
|
—
|
|
The fair values of cash and cash equivalents are based on the fair values of identical assets. The fair values
of loans payable are based on the present value of expected future cash flows and approximate their carrying amounts due to the short periods to maturity. The fair value of the 7.875% Senior Notes is based on trades in an active market. At
June 30, 2014, the quoted market price was $104.63 per $100.00 reflecting a yield of 6.57%. The fair values of the revolving credit facility and the other long-term notes are based on the present value of expected future cash flows and
assumptions about current interest rates and the creditworthiness of the Company that market participants would use in pricing the debt.
Foreign currency forward contracts.
We manage foreign currency risks principally by entering into forward contracts to mitigate
the impact of currency fluctuations on transactions. 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 consolidated statements of operations. Net foreign currency loss was approximately $0 and $1.4 million for the three and six months ended June 30,
2014, respectively, and is primarily comprised of the foreign exchange impact on transactions in countries where it is not economically feasible for us to enter into hedging arrangements and hedging inefficiencies, such as timing of transactions. We
incurred net losses of $0.1 million and net gains of $2.3 million in the three and six months ended June 30, 2014, respectively, arising from the change in fair value of our financial instruments, which offset the related net gains and losses
on international trade transactions. The fair values of these contracts are based on market prices for comparable contracts. The notional amount of foreign currency forward contracts was $259.1 million at June 30, 2014, and $244.9 million at
December 31, 2013.
13
The following table presents the effect on our consolidated statements of operations for the
three months ended June 30, 2014 and 2013, respectively, of our foreign currency forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss
Recognized in Earnings
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Location of Loss in Earnings
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
(94
|
)
|
|
$
|
(4,964
|
)
|
|
Foreign currency losses, net
|
The following table presents the effect on our consolidated statements of operations for the six months ended
June 30, 2014 and 2013, respectively, of our foreign currency forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
Recognized in Earnings
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Location of Gain (Loss) in Earnings
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
2,307
|
|
|
$
|
(4,000
|
)
|
|
Foreign currency losses, net
|
The following table presents the fair values on our consolidated balance sheets of foreign currency forward
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
Balance Sheet Location
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Asset derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
794
|
|
|
$
|
186
|
|
|
Other current assets
|
|
Liability derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
(720
|
)
|
|
$
|
(2,441
|
)
|
|
Accrued expenses and other current liabilities
|
Income tax expense for the six months ended June 30, 2014, was $7.7 million. In the six months ended June 30, 2013
we recorded income tax expense of $3.2 million. The 2014 tax expense for the first half of 2014 relative to the 2014 pre-tax income was lower than the Company’s statutory tax rate primarily due to pre-tax income in certain jurisdictions with no
tax expense due to the utilization of fully valued tax attributes. The 2013 tax expense for the first half of 2013, as a percentage of pre-tax income, was high due to the impact of pre-tax losses in jurisdictions for which no tax benefit is
recognized.
|
8.
|
Contingent Liabilities
|
We have recorded environmental liabilities of $10.4 million at June 30, 2014, and $9.7 million at December 31,
2013, for costs associated with the remediation of certain of our properties that have been contaminated. The balance at June 30, 2014, and December 31, 2013, was primarily comprised of liabilities related to a non-operating facility in
Brazil, and for retained environmental obligations related to a site in the United States that was part of the sale of our North American and Asian metal powders product lines in the fourth quarter of 2013. The costs include legal and consulting
fees, site studies, the design and implementation of remediation plans, post-remediation monitoring and related activities. The ultimate liability could be affected by numerous uncertainties, including the extent of contamination found, the required
period of monitoring and the ultimate cost of required remediation.
In the fourth quarter of 2013, the Supreme Court in Argentina ruled
unfavorably related to certain export taxes associated with a divested operation. As a result of this ruling, we recorded a $6.8 million liability as of June 30, 2014, and December 31, 2013.
There are various lawsuits and claims pending against the Company and its consolidated subsidiaries. We do not currently expect the resolution
of these lawsuits and claims to materially affect the consolidated financial position, results of operations, or cash flows of the Company.
14
Net periodic benefit (credit) cost of our U.S. pension plans (including our unfunded nonqualified plans), non-U.S. pension
plans, and postretirement health care and life insurance benefit plans for the three months ended June 30, 2014 and 2013, respectively, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
|
Non-U.S. Pension
Plans
|
|
|
Other Benefit
Plans
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
Service cost
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
460
|
|
|
$
|
525
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
|
|
4,924
|
|
|
|
4,485
|
|
|
|
1,314
|
|
|
|
1,218
|
|
|
|
300
|
|
|
|
285
|
|
|
Expected return on plan assets
|
|
|
(7,034
|
)
|
|
|
(6,181
|
)
|
|
|
(808
|
)
|
|
|
(739
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of prior service cost (credit)
|
|
|
3
|
|
|
|
3
|
|
|
|
16
|
|
|
|
8
|
|
|
|
(26
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (credit) cost
|
|
$
|
(2,102
|
)
|
|
$
|
(1,689
|
)
|
|
$
|
982
|
|
|
$
|
1,012
|
|
|
$
|
274
|
|
|
$
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (credit) cost for the six months ended June 30, 2014 and 2013, respectively, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
|
Non-U.S. Pension
Plans
|
|
|
Other Benefit
Plans
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
Service cost
|
|
$
|
10
|
|
|
$
|
8
|
|
|
$
|
911
|
|
|
$
|
1,058
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
|
|
9,848
|
|
|
|
8,970
|
|
|
|
2,615
|
|
|
|
2,448
|
|
|
|
602
|
|
|
|
570
|
|
|
Expected return on plan assets
|
|
|
(14,067
|
)
|
|
|
(12,362
|
)
|
|
|
(1,605
|
)
|
|
|
(1,487
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of prior service cost (credit)
|
|
|
6
|
|
|
|
6
|
|
|
|
31
|
|
|
|
14
|
|
|
|
(53
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (credit) cost
|
|
$
|
(4,203
|
)
|
|
$
|
(3,378
|
)
|
|
$
|
1,952
|
|
|
$
|
2,033
|
|
|
$
|
549
|
|
|
$
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (credit) for our U.S. pension plans for the six months ended June 30, 2014,
increased from the effects of larger plan asset balances resulting in increased expected returns partially offset by the effect of a higher discount rate. Net periodic benefit cost for our non-U.S. pension plans and postretirement health care and
life insurance benefit plans did not change significantly compared with the same period in the prior year. During the first half of 2014, we made contributions to our U.S pension plans of $22 million, resulting in the improvement of the plans’
funded status compared with December 31, 2013.
|
10.
|
Stock-Based Compensation
|
On May 22, 2013, our shareholders approved the 2013 Omnibus Incentive Plan (the “Plan”), which was adopted by
the Board of Directors on February 22, 2013, subject to shareholder approval. The Plan’s purpose is to promote the Company’s long-term financial interests and growth by attracting, retaining and motivating high quality key employees
and directors, to achieve the Company’s short- and long-range performance goals and objectives, thereby aligning their interests with those of its shareholders. The Plan reserves 4,400,000 shares of common stock to be issued for grants of
several different types of long-term incentives, including stock options, stock appreciation rights, restricted shares, performance shares, other common stock based awards, and dividend equivalent rights. No future grants may be made under the
previous incentive plans. However, any outstanding awards or grants made under the previous incentive plans will continue until the end of their specified terms.
15
During the first half of 2014, our Board of Directors granted 0.2 million stock options,
0.2 million performance share units and 0.1 million restricted stock units under The Plan. Additionally, during the second quarter of 2014, outside directors were issued 0.1 million deferred stock units at a fair value of $13.31, the
closing market price of our common stock on the date of the grant, which was expensed immediately due to terms of the agreement.
We
estimate the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The following table details the weighted-average grant-date fair values and the assumptions used for estimating the fair values of stock
option grants made during the six months ended June 30, 2014:
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
Weighted-average grant-date fair value
|
|
$
|
9.54
|
|
|
Expected life, in years
|
|
|
6.0
|
|
|
Risk-free interest rate
|
|
|
2.2
|
%
|
|
Expected volatility
|
|
|
86.3
|
%
|
The weighted average grant date fair value of our performance share units was $13.09. We measure the fair
value of performance share units based on the closing market price of our common stock on the date of the grant. These shares are currently expensed at target and are evaluated each reporting period for likelihood of achieving the performance
criteria.
We measure the fair value of deferred stock units based on the closing market price of our common stock on the date of the
grant. The weighted-average fair value per unit for grants made during the six months ended June 30, 2014, was $13.17.
We recognized
stock-based compensation expense of $5.9 million for the six months ended June 30, 2014, and $2.6 million for the six months ended June 30, 2013. At June 30, 2014, unearned compensation cost related to the unvested portion
of all stock-based awards was approximately $8.9 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of 2017.
|
11.
|
Restructuring and Cost Reduction Programs
|
In 2013, we initiated a Global Cost Reduction Program that was designed to address 3 key areas of the
company—(1) business realignment, (2) operational efficiency and (3) corporate and back office functions. Business realignment was targeted at right-sizing our commercial management organizations globally. The operational
efficiency component of the program was designed to improve the efficiency of our plant operations and supply chain. The corporate and back office initiative is principally comprised of work that we are doing with our strategic partners in the areas
of finance and accounting and information technology outsourcing, and procurement. The cumulative charges incurred to date associated with these programs are $38.4 million. Total costs related to the program expected to be incurred are
approximately $42.1 million. Total restructuring charges were $2.0 million and $6.3 million for the three and six months ended June 30, 2014, respectively.
The activities and accruals related to our restructuring and cost reduction programs are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance
|
|
|
Other
Costs
|
|
|
Asset
Impairment
|
|
|
Total
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balances at December 31, 2013
|
|
$
|
6,999
|
|
|
$
|
4,579
|
|
|
$
|
—
|
|
|
$
|
11,578
|
|
|
Restructuring charges
|
|
|
2,253
|
|
|
|
4,055
|
|
|
|
—
|
|
|
|
6,308
|
|
|
Cash payments
|
|
|
(7,912
|
)
|
|
|
(7,797
|
)
|
|
|
—
|
|
|
|
(15,709
|
)
|
|
Non-cash items
|
|
|
13
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2014
|
|
$
|
1,353
|
|
|
$
|
833
|
|
|
$
|
—
|
|
|
$
|
2,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to make cash payments to settle the remaining liability for employee termination benefits and other
costs over the next twelve months, except where legal or contractual restrictions prevent us from doing so.
16
|
12.
|
Discontinued Operations
|
During the first quarter of 2013, we completed the sale of the stock of our pharmaceuticals business, Ferro Pfanstiehl
Laboratories, Inc. (“FPL”), which was previously reported within the Pharmaceuticals reportable segment. Consideration was comprised of a $16.9 million cash payment, and the transaction also included an earn-out incentive of up to $8.0
million based on achieving certain earnings targets over a two-year period. In March 2013, prior to the sale, an impairment loss of $8.7 million associated with the long lived assets of FPL was recorded under ASC Topic 360 Property, Plant and
Equipment. The write down was determined by estimating the fair value of the assets less cost to sell of $14.8 million using the market approach considering a bona fide purchase offer, a Level 3 measurement within the fair value hierarchy. Ferro has
classified FPL’s operating results, net of tax, as discontinued operations in the accompanying condensed consolidated statements of income for the six months ended June 30, 2013.
During the second quarter of 2014, we entered into a definitive agreement to sell substantially all of the assets in our Specialty Plastics
reportable segment to A. Schulman, Inc. and its wholly owned subsidiary, A. Schulman Castellon, S.L.U. (collectively “Schulman”) for a cash purchase price of $91.0 million. The transaction closed on July 1, 2014 and resulted in
proceeds of approximately $88.0 million after taxes and expenses, and a gain of approximately $55.0 million that will be recognized in the third quarter. Assets included in the transaction are Ferro’s plastics manufacturing sites in Stryker,
Ohio; Evansville and Plymouth, Indiana; Carpentersville, Illinois; and Castellon Spain. We have classified the Specialty Plastics reportable segment assets and liabilities as held-for-sale in the accompanying condensed consolidated balance sheets
and have classified the operating results, net of tax, as discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented.
During the second quarter of 2014, we commenced a process to market for sale all of the assets within our Polymer Additives reportable
segment. At June 30, 2014 we determined that the criteria to classify these assets as held-for-sale under ASC Topic 360 Property, Plant and Equipment have been met. As such, we have classified these assets and liabilities as held-for-sale in
the accompanying condensed consolidated balance sheets and have classified the related operating results, net of tax, as discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented. For
purposes of applying the guidance within ASC 360, the assets have been categorized into two disposal groups: (1) the Antwerp, Belgium manufacturing assets (“Antwerp”) and (2) the remainder of the Polymer Additives reportable
segment (“PAD”) collectively (“Polymer Additives reportable segment”). As the disposal groups have met the criteria to be recorded as held-for-sale, they are required to be recorded at the lesser of carrying value, or fair value
less costs to sell. As the estimated fair value of PAD less costs to sell exceeds the carrying value of this disposal group, a gain is expected to be recognized in the period the sale is completed, therefore, no adjustments have been made to its
carrying value. As discussed in Note 4—Property, Plant and Equipment, the Antwerp assets, which had a carrying value of $61.5 million, were written down to $47.1 million and a $14.4 million impairment charge was recorded. This impairment charge
has been recorded in (loss) income from discontinued operations, net of tax.
The table below summarizes results for the FPL, Plastics and
the Polymer Additives reportable segments for the three and six months ended June 30, 2014 and 2013, which are reflected in our condensed consolidated statements of operations as discontinued operations. Interest expense has been allocated to
the discontinued operations based on the ratio of net assets of each business to consolidated net assets excluding debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
Net sales
|
|
$
|
111,465
|
|
|
$
|
116,433
|
|
|
$
|
222,474
|
|
|
$
|
243,090
|
|
|
Cost of sales
|
|
|
92,314
|
|
|
|
103,968
|
|
|
|
188,801
|
|
|
|
213,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
19,151
|
|
|
|
12,465
|
|
|
|
33,673
|
|
|
|
29,898
|
|
|
Selling, general and administrative expenses
|
|
|
6,438
|
|
|
|
6,466
|
|
|
|
12,645
|
|
|
|
14,292
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment charges
|
|
|
14,362
|
|
|
|
380
|
|
|
|
14,364
|
|
|
|
9,062
|
|
|
Interest expense
|
|
|
1,533
|
|
|
|
1,959
|
|
|
|
2,905
|
|
|
|
4,553
|
|
|
Miscellaneous income, net
|
|
|
30
|
|
|
|
383
|
|
|
|
136
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations before income taxes
|
|
|
(3,212
|
)
|
|
|
3,277
|
|
|
|
3,623
|
|
|
|
1,642
|
|
|
Income tax expense
|
|
|
308
|
|
|
|
194
|
|
|
|
559
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of taxes
|
|
$
|
(3,520
|
)
|
|
$
|
3,083
|
|
|
$
|
3,064
|
|
|
$
|
1,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the assets and liabilities which are classified as held-for-sale at
June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
Accounts receivable, net
|
|
$
|
64,089
|
|
|
$
|
49,647
|
|
|
Inventories
|
|
|
62,693
|
|
|
|
45,436
|
|
|
Other current assets
|
|
|
5,533
|
|
|
|
6,232
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets held-for-sale
|
|
|
132,315
|
|
|
|
101,315
|
|
|
Property, plant and equipment, net
|
|
|
63,724
|
|
|
|
71,849
|
|
|
Other non-current assets
|
|
|
445
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets held-for-sale
|
|
|
196,484
|
|
|
|
173,417
|
|
|
Accounts payable
|
|
|
34,312
|
|
|
|
33,235
|
|
|
Accrued expenses and other current liabilities
|
|
|
6,643
|
|
|
|
6,780
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities held-for-sale
|
|
$
|
40,955
|
|
|
$
|
40,015
|
|
|
Other non-current liabilities
|
|
|
3,152
|
|
|
|
2,893
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities held-for-sale
|
|
$
|
44,107
|
|
|
$
|
42,908
|
|
18
Details of the calculation of basic and diluted earnings per share are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Basic earnings per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Ferro Corporation common shareholders
|
|
$
|
9,959
|
|
|
$
|
(2,130
|
)
|
|
$
|
27,164
|
|
|
$
|
(1,247
|
)
|
|
Adjustment for income (loss) from discontinued operations
|
|
|
3,520
|
|
|
|
(3,083
|
)
|
|
|
(3,064
|
)
|
|
|
(1,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,479
|
|
|
$
|
(5,213
|
)
|
|
$
|
24,100
|
|
|
$
|
(2,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
86,936
|
|
|
|
86,529
|
|
|
|
86,857
|
|
|
|
86,484
|
|
|
Basic earnings (loss) per share from continuing operations attributable to Ferro Corporation common shareholders
|
|
$
|
0.15
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.28
|
|
|
$
|
(0.03
|
)
|
|
Diluted earnings per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Ferro Corporation common shareholders
|
|
$
|
9,959
|
|
|
$
|
(2,130
|
)
|
|
$
|
27,164
|
|
|
$
|
(1,247
|
)
|
|
Adjustment for income (loss) from discontinued operations
|
|
|
3,520
|
|
|
|
(3,083
|
)
|
|
|
(3,064
|
)
|
|
|
(1,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,479
|
|
|
$
|
(5,213
|
)
|
|
$
|
24,100
|
|
|
$
|
(2,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
86,936
|
|
|
|
86,529
|
|
|
|
86,857
|
|
|
|
86,484
|
|
|
Assumed exercise of stock options
|
|
|
522
|
|
|
|
—
|
|
|
|
544
|
|
|
|
—
|
|
|
Assumed satisfaction of deferred stock unit conditions
|
|
|
—
|
|
|
|
—
|
|
|
|
45
|
|
|
|
—
|
|
|
Assumed satisfaction of restricted stock unit conditions
|
|
|
207
|
|
|
|
—
|
|
|
|
222
|
|
|
|
—
|
|
|
Assumed satisfaction of performance stock unit conditions
|
|
|
650
|
|
|
|
—
|
|
|
|
625
|
|
|
|
—
|
|
|
Assumed satisfaction of restricted share conditions
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares outstanding
|
|
|
88,315
|
|
|
|
86,529
|
|
|
|
88,309
|
|
|
|
86,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share from continuing operations attributable to Ferro Corporation common shareholders
|
|
$
|
0.15
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.27
|
|
|
$
|
(0.03
|
)
|
The number of anti-dilutive or unearned shares, including shares related to contingently convertible debt, was
2.5 million for the three and six months ended June 30, 2014, respectively, and 6.1 million for the three and six months ended June 30, 2013, respectively.
19
|
14.
|
Accumulated Other Comprehensive Income (Loss)
|
Changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended June 30,
2014, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Benefit
Liability
Adjustments
|
|
|
Translation
Adjustments
|
|
|
Other
Adjustments
|
|
|
Total
|
|
|
|
|
(Dollars in thousands)
|
|
|
Beginning accumulated other comprehensive income (loss)
|
|
$
|
1,906
|
|
|
$
|
6,451
|
|
|
$
|
(70
|
)
|
|
$
|
8,287
|
|
|
Other comprehensive loss before reclassifications
|
|
|
—
|
|
|
|
187
|
|
|
|
—
|
|
|
|
187
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive loss
|
|
|
(14
|
)
|
|
|
187
|
|
|
|
—
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending accumulated other comprehensive income (loss)
|
|
$
|
1,892
|
|
|
$
|
6,638
|
|
|
$
|
(70
|
)
|
|
$
|
8,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in accumulated other comprehensive income (loss) by component, net of tax, for the six months ended
June 30, 2014, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Benefit
Liability
Adjustments
|
|
|
Translation
Adjustments
|
|
|
Other
Adjustments
|
|
|
Total
|
|
|
|
|
(Dollars in thousands)
|
|
|
Beginning accumulated other comprehensive income (loss)
|
|
$
|
1,942
|
|
|
$
|
6,621
|
|
|
$
|
(70
|
)
|
|
$
|
8,493
|
|
|
Other comprehensive loss before reclassifications
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
17
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(50
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive loss
|
|
|
(50
|
)
|
|
|
17
|
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending accumulated other comprehensive income (loss)
|
|
$
|
1,892
|
|
|
$
|
6,638
|
|
|
$
|
(70
|
)
|
|
$
|
8,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Reporting for Segments
|
As discussed in Note 12, substantially all of the assets of the Specialty Plastics reportable segment and Polymer Additives
reportable segments were held-for-sale at June 30, 2014, with their operations included in discontinued operations on the condensed consolidated statements of operations. The retained assets and operations of the Specialty Plastics reportable
segment, which includes the manufacturing facilities in Edison, New Jersey, and Venezuela, are reflected within Pigments, Powders and Oxides and Performance Coatings reportable segments, respectively. All periods presented reflect these changes to
the composition of our reportable segments.
Net sales to external customers by segment are presented in the table below. Sales between
segments were not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
Performance Coatings
|
|
$
|
156,789
|
|
|
$
|
157,000
|
|
|
$
|
301,949
|
|
|
$
|
297,676
|
|
|
Performance Colors and Glass
|
|
|
106,109
|
|
|
|
106,447
|
|
|
|
209,479
|
|
|
|
204,574
|
|
|
Pigments, Powders and Oxides
|
|
|
31,319
|
|
|
|
55,575
|
|
|
|
63,516
|
|
|
|
112,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
294,217
|
|
|
$
|
319,022
|
|
|
$
|
574,944
|
|
|
$
|
614,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Each segment’s gross profit and reconciliations to income (loss) before income taxes are
presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
Performance Coatings
|
|
$
|
37,823
|
|
|
$
|
35,557
|
|
|
$
|
71,240
|
|
|
$
|
64,477
|
|
|
Performance Colors and Glass
|
|
|
35,352
|
|
|
|
31,232
|
|
|
|
69,724
|
|
|
|
58,490
|
|
|
Pigments, Powders and Oxides
|
|
|
7,121
|
|
|
|
9,879
|
|
|
|
14,663
|
|
|
|
18,557
|
|
|
Other cost of sales
|
|
|
(1,842
|
)
|
|
|
(1,479
|
)
|
|
|
(2,220
|
)
|
|
|
(2,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
78,454
|
|
|
|
75,189
|
|
|
|
153,407
|
|
|
|
139,022
|
|
|
Selling, general and administrative expenses
|
|
|
49,260
|
|
|
|
57,850
|
|
|
|
100,629
|
|
|
|
112,797
|
|
|
Restructuring and impairment charges
|
|
|
1,958
|
|
|
|
13,070
|
|
|
|
6,308
|
|
|
|
22,524
|
|
|
Other expense, net
|
|
|
8,142
|
|
|
|
6,993
|
|
|
|
14,746
|
|
|
|
3,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
19,094
|
|
|
$
|
(2,724
|
)
|
|
$
|
31,724
|
|
|
$
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 12, in July 2014 the Company sold substantially all of the assets in its Specialty Plastics reportable
segment.
In July 2014, the Company has acquired certain commercial assets of a reseller of Ferro porcelain enamel products in Turkey for
a cash purchase price of approximately $7.0 million.
As discussed in Note 5, in July 2014, we commenced a tender offer for all of our
outstanding 7.875% Senior Notes due 2018.
21
