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  • 10-Q (Nov 1, 2017)
  • 10-Q (Jul 26, 2017)
  • 10-Q (Apr 25, 2017)
  • 10-Q (Nov 2, 2016)
  • 10-Q (Apr 26, 2016)
  • 10-Q (Nov 4, 2015)

 
8-K

 
Other

Ferro 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
20160331 10-Q Q1



 

 

 

 





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549









FORM 10-Q













 

(Mark One)

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

For the quarterly period ended March 31, 2016



or





 

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

For the transition period from _________ to __________



Commission File Number 1-584







FERRO CORPORATION

(Exact name of registrant as specified in its charter)













 

 

 

 



Ohio

(State or other jurisdiction of

incorporation or organization)

 

34-0217820

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

 



 

 

 

 



6060 Parkland Boulevard

Suite 250

Mayfield Heights, OH

(Address of principal executive offices)

 

44124

(Zip Code)

 



 

 

 

 



216-875-5600

(Registrant’s telephone number, including area code)

 













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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES NO

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





 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company



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

At March 31, 2016, there were 83,181,350 shares of Ferro Common Stock, par value $1.00, outstanding.





 

 

 

 





 

2


 

PART I — FINANCIAL INFORMATION



Item 1.  Financial Statements (Unaudited)



Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Operations







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2016

 

2015



 

(Dollars in thousands, except per share amounts)

Net sales

 

$

277,451 

 

$

262,772 

Cost of sales

 

 

193,222 

 

 

192,137 

Gross profit

 

 

84,229 

 

 

70,635 

Selling, general and administrative expenses

 

 

52,646 

 

 

49,456 

Restructuring and impairment charges

 

 

881 

 

 

509 

Other expense (income):

 

 

 

 

 

 

Interest expense

 

 

4,847 

 

 

3,150 

Interest earned

 

 

(85)

 

 

(37)

Foreign currency losses, net

 

 

1,611 

 

 

1,728 

Miscellaneous (income) expense, net

 

 

(3,453)

 

 

399 

Income before income taxes

 

 

27,782 

 

 

15,430 

Income tax expense

 

 

8,018 

 

 

2,459 

Income from continuing operations

 

 

19,764 

 

 

12,971 

Loss from discontinued operations, net of income taxes

 

 

(29,494)

 

 

(3,956)

Net (loss) income

 

 

(9,730)

 

 

9,015 

Less: Net income (loss) attributable to noncontrolling interests

 

 

236 

 

 

(1,955)

Net (loss) income attributable to Ferro Corporation common shareholders

 

$

(9,966)

 

$

10,970 

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

 

 

 

 

 

 

Basic earnings (loss):

 

 

 

 

 

 

Continuing operations

 

$

0.23 

 

$

0.17 

Discontinued operations

 

 

(0.35)

 

 

(0.05)



 

$

(0.12)

 

$

0.12 

Diluted earnings (loss):

 

 

 

 

 

 

Continuing operations

 

$

0.23 

 

$

0.17 

Discontinued operations

 

 

(0.35)

 

 

(0.04)



 

$

(0.12)

 

$

0.13 











See accompanying notes to condensed consolidated financial statements.



 

3


 

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2016

 

2015



 

(Dollars in thousands)

Net (loss) income

 

$

(9,730)

 

$

9,015 

Other comprehensive loss, net of income tax:

 

 

 

 

 

 

Foreign currency translation (loss)

 

 

(1,678)

 

 

(37,796)

Postretirement benefit liabilities gain

 

 

268 

 

 

16 

Other comprehensive (loss), net of income tax

 

 

(1,410)

 

 

(37,780)

Total comprehensive (loss)

 

 

(11,140)

 

 

(28,765)

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

268 

 

 

(3,093)

Comprehensive (loss) attributable to Ferro Corporation

 

$

(11,408)

 

$

(25,672)



See accompanying notes to condensed consolidated financial statements.



 

4


 

Ferro Corporation and Subsidiaries

Condensed Consolidated Balance Sheets







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2016

 

2015



 

(Dollars in thousands)

ASSETS

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,865 

 

$

58,380 

Accounts receivable, net

 

 

261,435 

 

 

231,970 

Inventories

 

 

195,416 

 

 

184,854 

Deferred income taxes

 

 

11,964 

 

 

12,088 

Other receivables

 

 

33,247 

 

 

34,088 

Other current assets

 

 

10,613 

 

 

15,695 

Current assets held-for-sale

 

 

19,973 

 

 

16,215 

Total current assets

 

 

588,513 

 

 

553,290 

Other assets

 

 

 

 

 

 

Property, plant and equipment, net

 

 

258,752 

 

 

260,429 

Goodwill

 

 

150,564 

 

 

145,669 

Intangible assets, net

 

 

111,429 

 

 

106,633 

Deferred income taxes

 

 

88,995 

 

 

87,385 

Other non-current assets

 

 

48,298 

 

 

48,767 

Non-current assets held-for-sale

 

 

226 

 

 

23,178 

Total assets

 

$

1,246,777 

 

$

1,225,351 

LIABILITIES AND EQUITY

Current liabilities

 

 

 

 

 

 

Loans payable and current portion of long-term debt

 

$

11,148 

 

$

7,446 

Accounts payable

 

 

130,444 

 

 

120,380 

Accrued payrolls

 

 

24,922 

 

 

28,584 

Accrued expenses and other current liabilities

 

 

59,917 

 

 

54,664 

Current liabilities held-for-sale

 

 

6,968 

 

 

7,156 

Total current liabilities

 

 

233,399 

 

 

218,230 

Other liabilities

 

 

 

 

 

 

Long-term debt, less current portion

 

 

493,212 

 

 

466,108 

Postretirement and pension liabilities

 

 

150,123 

 

 

148,249 

Other non-current liabilities

 

 

64,911 

 

 

66,990 

Non-current liabilities held-for-sale

 

 

1,592 

 

 

1,493 

Total liabilities

 

 

943,237 

 

 

901,070 

Equity

 

 

 

 

 

 

Ferro Corporation shareholders’ equity:

 

 

 

 

 

 

Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 83.2 million and 84.0 million shares outstanding at March 31, 2016, and December 31, 2015, respectively

 

 

93,436 

 

 

93,436 

Paid-in capital

 

 

306,824 

 

 

314,854 

Retained earnings

 

 

125,541 

 

 

135,507 

Accumulated other comprehensive loss

 

 

(62,760)

 

 

(61,318)

Common shares in treasury, at cost

 

 

(167,591)

 

 

(166,020)

Total Ferro Corporation shareholders’ equity

 

 

295,450 

 

 

316,459 

Noncontrolling interests

 

 

8,090 

 

 

7,822 

Total equity

 

 

303,540 

 

 

324,281 

Total liabilities and equity

 

$

1,246,777 

 

$

1,225,351 



See accompanying notes to condensed consolidated financial statements.



 

5


 

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Ferro Corporation Shareholders

 

 

 

 

 

 



 

Common Shares

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 



 

in Treasury

 

 

 

 

 

 

 

 

 

Other

 

Non-

 

 

 



 

 

 

 

 

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

controlling

 

Total



 

Shares

 

Amount

 

Stock

 

Capital

 

Earnings

 

(Loss)

 

Interests

 

Equity



 

(Dollars in thousands)

Balances at December 31, 2014

 

6,445 

 

$

(136,058)

 

$

93,436 

 

$

317,404 

 

$

71,407 

 

$

(21,805)

 

$

11,632 

 

$

336,016 

Net income (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,970 

 

 

 —

 

 

(1,955)

 

 

9,015 

Other comprehensive (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(36,642)

 

 

(1,138)

 

 

(37,780)

Stock-based compensation transactions

 

(269)

 

 

7,559 

 

 

 —

 

 

(5,516)

 

 

 —

 

 

 —

 

 

 —

 

 

2,043 

Balances at March 31, 2015

 

6,176 

 

 

(128,499)

 

 

93,436 

 

 

311,888 

 

 

82,377 

 

 

(58,447)

 

 

8,539 

 

 

309,294 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2015

 

9,431 

 

 

(166,020)

 

 

93,436 

 

 

314,854 

 

 

135,507 

 

 

(61,318)

 

 

7,822 

 

 

324,281 

Net (loss) income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(9,966)

 

 

 —

 

 

236 

 

 

(9,730)

Other comprehensive (loss) income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,442)

 

 

32 

 

 

(1,410)

Purchase of treasury stock

 

1,175 

 

 

(11,429)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(11,429)

Stock-based compensation transactions

 

(352)

 

 

9,858 

 

 

 —

 

 

(8,030)

 

 

 —

 

 

 —

 

 

 —

 

 

1,828 

Balances at March 31, 2016

 

10,254 

 

$

(167,591)

 

$

93,436 

 

$

306,824 

 

$

125,541 

 

$

(62,760)

 

$

8,090 

 

$

303,540 



See accompanying notes to condensed consolidated financial statements.



 

6


 

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2016

 

2015



 

(Dollars in thousands)

Cash flows from operating activities

 

 

 

 

 

 

Net cash used in operating activities

 

$

(10,161)

 

$

(10,269)

Cash flows from investing activities

 

 

 

 

 

 

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

 

 

(7,365)

 

 

(14,879)

Proceeds from sale of assets

 

 

3,586 

 

 

91 

Business acquisitions, net of cash acquired

 

 

(7,909)

 

 

(5,479)

Net cash used in investing activities

 

 

(11,688)

 

 

(20,267)

Cash flows from financing activities

 

 

 

 

 

 

Net borrowings (repayments) under loans payable

 

 

3,561 

 

 

(2,567)

Proceeds from revolving credit facility

 

 

117,834 

 

 

 —

Principal payments on revolving credit facility

 

 

(40,212)

 

 

 —

Principal payments on term loan facility

 

 

(50,750)

 

 

(750)

Payment of debt issuance costs

 

 

(301)

 

 

 —

Purchase of treasury stock

 

 

(11,429)

 

 

 —

Other financing activities

 

 

497 

 

 

769 

Net cash provided by (used in) financing activities

 

 

19,200 

 

 

(2,548)

Effect of exchange rate changes on cash and cash equivalents

 

 

134 

 

 

(2,241)

Decrease in cash and cash equivalents

 

 

(2,515)

 

 

(35,325)

Cash and cash equivalents at beginning of period

 

 

58,380 

 

 

140,500 

Cash and cash equivalents at end of period

 

$

55,865 

 

$

105,175 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

4,763 

 

$

3,409 

Income taxes

 

$

2,669 

 

$

6,141 



 

See accompanying notes to condensed consolidated financial statements.



 

7


 

Ferro Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements



1.    Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Ferro Corporation (“Ferro,” “we,” “us” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. These statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015.



The Company owned 51% of an operating affiliate in Venezuela that was a consolidated subsidiary of Ferro.  During the fourth quarter of 2015, we sold our interest in the operating affiliate in Venezuela for a cash purchase price of $0.5 million. During the first quarter of 2015, the Ministry of Economy, Finance, and Public Banking, and the Central Bank of Venezuela published a new exchange rate, the Foreign Exchange Marginal System (“SIMADI”). We concluded in March 2015 that SIMADI was the most relevant exchange mechanism available, and began using SIMADI to translate the local currency financial statements.  As a result of the revaluation, we recognized a $1.9 million foreign currency loss and a $2.6 million loss due to lower of cost or market charges against our inventory, prior to the adjustment for losses allocated to our noncontrolling interest partner, which is recorded within Foreign currency losses, net and Cost of sales, respectively, within our condensed consolidated statement of operations for the three months ended March 31, 2015.



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



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





2.    Recent Accounting Pronouncements

New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“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, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is in the process of assessing the impact the adoption of this ASU will have on our condensed consolidated financial statements.



In November 2015, the FASB issued ASU 2015-17, Income Taxes: Topic 740: Balance Sheet Classification of Deferred Taxes.  ASU 2015-17 requires deferred tax assets and liabilities to be classified as noncurrent in a classified statement of financial position.  This pronouncement is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted.  ASU 2015-17 may be applied either on a retrospective or prospective basis.  The Company is in the process of assessing the impact the adoption of this ASU will have on our condensed consolidated financial statements.



8


 

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



In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Topic 718: Improvements to Employee Share-Based Payment Accounting.  ASU 2016-09 is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.    This pronouncement is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted.  The Company is in the process of assessing the impact the adoption of this ASU will have on our condensed consolidated financial statements.



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



3.    Discontinued Operations



During the second quarter of 2014, we commenced a process to market for sale all of the assets within our Europe-based Polymer Additives business, including the Antwerp, Belgium dibenzoates manufacturing assets, and related Polymer Additives European headquarters and lab facilities.  We determined that the criteria to classify these assets as held-for-sale under ASC Topic 360, Property, Plant and Equipment, have been met.  We have classified the Europe-based Polymer Additives assets and liabilities as held-for-sale in the accompanying condensed consolidated balance sheets and have classified the related operating results, net of income tax, as discontinued operations in the accompanying condensed consolidated statements of operations for all periods presented. Though the sale process of these assets has taken longer than initially expected, we continue to believe that it is probable that we will sell the Europe-based Polymer Additives assets within a year.



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







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2016

 

2015



 

(Dollars in thousands)

Net sales

 

$

7,750 

 

$

11,899 

Cost of sales

 

 

12,030 

 

 

14,555 

Gross loss

 

 

(4,280)

 

 

(2,656)

Selling, general and administrative expenses

 

 

1,003 

 

 

1,219 

Restructuring and impairment charges

 

 

24,059 

 

 

 —

Interest expense

 

 

237 

 

 

113 

Gain on sale of business

 

 

(539)

 

 

 —

Miscellaneous expense (income), net

 

 

121 

 

 

(32)

(Loss) from discontinued operations before income taxes

 

 

(29,161)

 

 

(3,956)

Income tax expense

 

 

333 

 

 

 —

(Loss) from discontinued operations, net of income taxes

 

$

(29,494)

 

$

(3,956)





9


 

The following table summarizes the assets and liabilities which are classified as held-for-sale at March 31, 2016, and December 31, 2015:





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015



 

(Dollars in thousands)

Accounts receivable, net

 

$

4,352 

 

$

4,028 

Inventories

 

 

11,199 

 

 

9,733 

Other current assets

 

 

4,422 

 

 

2,454 

Current assets held-for-sale

 

 

19,973 

 

 

16,215 

Property, plant and equipment, net

 

 

 —

 

 

22,973 

Other non-current assets

 

 

226 

 

 

205 

Total assets held-for-sale

 

$

20,199 

 

$

39,393 



 

 

 

 

 

 

Accounts payable

 

$

6,339 

 

$

5,736 

Accrued expenses and other current liabilities

 

 

629 

 

 

1,420 

Current liabilities held-for-sale

 

 

6,968 

 

 

7,156 

Other non-current liabilities

 

 

1,592 

 

 

1,493 

Total liabilities held-for-sale

 

$

8,560 

 

$

8,649 



Included within non-current assets is a deferred tax asset of $36.6 million at March 31, 2016, and $25.0 million at December 31, 2015, which were fully reserved for at both periods.



4.    Acquisitions



Ferer



On January 5, 2016, the Company completed the purchase of 100% of the equity of privately held Istanbul-based Ferer Dis Ticaret Ve Kimyasallar Anonim Sirketi A.S. (“Ferer”) on a cash-free and debt-free basis for approximately $9.4 million in cash, subject to customary working capital and other adjustments. The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches and estimates made by management. As of March 31, 2016, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $3.2 million of amortizable intangible assets, $4.3 million of goodwill, $0.6 million of personal and real property, $0.6 million of a deferred tax liability related to the amortizable intangible assets, and $1.9 million of net working capital on the condensed consolidated balance sheet. 



Al Salomi

On November 17, 2015, the Company acquired 100% of the equity of Egypt-based tile coatings manufacturer Al Salomi for Frits and Glazes (“Al Salomi”) for EGP 307 million (approximately $38.2 million), including the assumption of debt.  The acquired business contributed net sales of $5.6 million and net income attributable to Ferro Corporation of $0.6 million for the three months ended March 31, 2016. 

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches and estimates made by management. As of March 31, 2016, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $15.0 million of amortizable intangible assets, $14.3 million of goodwill, $10.7 million of personal and real property, $4.8 million of a deferred tax liability related to the amortizable intangible assets, and $3.0 million of net working capital on the condensed consolidated balance sheet. 



Nubiola



On July 7, 2015, the Company acquired the entire share capital of Corporación Química Vhem, S.L., Dibon USA, LLC and Ivory Corporation, S.A. (together with their direct and indirect subsidiaries, “Nubiola”) on a cash-free and debt-free basis for €167 million

10


 

(approximately $184.2 million).  The acquisition was funded with excess cash and borrowings under the Company’s existing revolving credit facility.  See Note 8 for additional detail on the revolving credit facility.  Nubiola is a worldwide producer of specialty inorganic pigments and the world’s largest producer of Ultramarine Blue. Nubiola also produces specialty Iron Oxides, Chrome Oxide Greens and Corrosion Inhibitors. Nubiola has production facilities in Spain, Colombia, Romania, and India and a joint venture in China. 

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches and estimates made by management. As of March 31, 2016, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company.

The following table summarizes the preliminary purchase price allocations:





 

 

 



 

July 7, 2015



 

(Dollars in thousands)

Net working capital (1) 

 

$

46,642 

Cash and equivalents

 

 

19,966 

Personal property

 

 

39,444 

Real property

 

 

28,510 

Intangible assets

 

 

33,152 

Other assets and liabilities

 

 

(22,660)

Goodwill

 

 

39,151 

Net assets acquired

 

$

184,205 

(1)

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

 

The acquired business contributed net sales of $33.4 million and net income attributable to Ferro Corporation of $5.2 million for the three months ended March 31, 2016.  The Company incurred acquisition related costs of $0.2 million for the three months ended March 31, 2016, which is recorded within Selling, general and administrative expenses, within our condensed consolidated statements of operations. 

The estimated fair value of the receivables acquired is $24.5 million, with a gross contractual amount of $25.2 million.  The Company preliminarily recorded acquired intangible assets subject to amortization of $27.0 million, which is comprised of $10.3 million of customer relationships and $16.7 million of technology/know-how, which will be amortized over 20 years and 15 years, respectively.  The Company preliminarily recorded acquired indefinite-lived intangible assets of $6.2 million related to trade names and trademarks.  Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed in the acquisition and is a result of anticipated synergies.  Goodwill is not expected to be deductible for tax purposes.    

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





 

 

 

 

 



 

 

 

 



 

Three months ended March 31, 2015

 

 



 

(unaudited)

 

 



 

(In thousands, except per share amounts)

 

 



 

 

 

 

 

Net sales

 

$

295,822 

 

 

Net income attributable to Ferro Corporation common shareholders

 

$

16,184 

 

 

Net earnings per share attributable to Ferro Corporation common shareholders - Basic

 

$

0.19 

 

 

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

 

$

0.18 

 

 



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

11


 

·

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

·

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

·

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

·

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

·

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



Thermark

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





5.    Inventories







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2016

 

2015



 

(Dollars in thousands)

Raw materials

 

$

60,060 

 

$

56,291 

Work in process

 

 

35,921 

 

 

33,099 

Finished goods

 

 

99,435 

 

 

95,464 

Total inventories

 

$

195,416 

 

$

184,854 



In the production of some of our products, we use precious metals, some of which we obtain from financial institutions under consignment agreements with terms of one year or less. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign. These fees were $0.2 million for the three months ended March 31, 2016 and 2015. We had on-hand precious metals owned by participants in our precious metals consignment program of $23.5 million at March 31, 2016, and $20.5 million at December 31, 2015, measured at fair value based on market prices for identical assets and net of credits.





6.    Property, Plant and Equipment

Property, plant and equipment is reported net of accumulated depreciation of $435.1 million at March 31, 2016, and $421.3 million at December 31, 2015. Unpaid capital expenditure liabilities, which are non-cash investing activities, were $3.5 million at March 31, 2016, and $4.0 million at March 31, 2015



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



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

12


 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Fair Value Measurements Using

 

Total

Description

 

Level 1

 

Level 2

 

Level 3

 

Total

 

(Losses)



 

(Dollars in thousands)

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held for sale

 

$

 —

 

$

 —

 

$

11,639 

 

$

11,639 

 

$

(24,059)

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held for sale

 

$

 —

 

$

 —

 

$

33,711 

 

$

33,711 

 

$

(11,792)



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



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

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

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





7.   Goodwill and Other Intangible Assets 

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





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Pigments,

 

Performance

 

 



 

Performance

 

Powders and

 

Colors and

 

 



 

Coatings

 

Oxides

 

Glass

 

Total



 

(Dollars in thousands)

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Gross goodwill

 

$

88,753 

 

$

48,794 

 

$

53,391 

 

$

190,938 

Accumulated impairment losses

 

 

(45,269)

 

 

 —

 

 

 —

 

 

(45,269)



 

 

43,484 

 

 

48,794 

 

 

53,391 

 

 

145,669 

Acquisitions

 

 

 —

 

 

 —

 

 

4,328 

(1)

 

4,328 

Foreign currency adjustments

 

 

(715)

 

 

656 

 

 

626 

 

 

567 

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Gross goodwill

 

 

88,038 

 

 

49,450 

 

 

58,345 

 

 

195,833 

Accumulated impairment losses

 

 

(45,269)

 

 

 —

 

 

 —

 

 

(45,269)



 

$

42,769 

 

$

49,450 

 

$

58,345 

 

$

150,564 



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

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

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, 2016, the Company is not aware of any events or circumstances that occurred which would require a goodwill impairment test.



13


 

Amortizable intangible assets consisted of the following:





 

 

 

 

 

 

 

 

 



 

 

 

March 31,

 

December 31,



 

 

 

2016

 

2015



 

 

 

 

(Dollars in thousands)

Gross amortizable intangible assets:

 

 

 

 

 

 

 

 

 

Patents

 

 

 

 

$

5,291 

 

$

5,229 

Land rights

 

 

 

 

 

4,967 

 

 

4,947 

Technology/know-how and other

 

 

 

 

 

69,150 

 

 

66,558 

Customer relationships

 

 

 

 

 

50,228 

 

 

46,320 

     Total gross amortizable intangible assets

 

 

 

 

 

129,636 

 

 

123,054 

Accumulated amortization:

 

 

 

 

 

 

 

 

 

Patents

 

 

 

 

 

(4,983)

 

 

(4,880)

Land rights

 

 

 

 

 

(2,705)

 

 

(2,671)

Technology/know-how and other

 

 

 

 

 

(17,497)

 

 

(16,473)

Customer relationships

 

 

 

 

 

(3,287)

 

 

(2,234)

     Total accumulated amortization

 

 

 

 

 

(28,472)

 

 

(26,258)

            Amortizable intangible assets, net

 

 

 

 

$

101,164 

 

$

96,796 



Indefinite-lived intangible assets consisted of the following:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

March 31,

 

December 31,

 



 

 

 

2016

 

2015

 



 

 

 

 

(Dollars in thousands)

Indefinite-lived intangibles assets:

 

 

 

 

 

 

 

 

 

 

Trade names and trademarks

 

 

 

 

$

10,265 

 

$

9,837 

 

















8.    Debt

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





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2016

 

2015



 

(Dollars in thousands)

Loans payable

 

$

6,492 

 

$

2,749 

Current portion of long-term debt

 

 

4,656