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EX-31.1 - EX-31.1 - FERRO CORPfoe-20180930xex31_1.htm

  rti8Mag

Mag

 

 

 

 

 





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 September 30, 2018



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 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



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





 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company



 

 

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.  



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

At October 31, 2018, there were 83,262,093 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

 

Nine Months Ended



 

September 30,

 

September 30,



 

2018

 

2017

 

2018

 

2017



 

(Dollars in thousands, except per share amounts)

Net sales

 

$

395,163 

 

$

350,012 

 

$

1,216,934 

 

$

1,019,199 

Cost of sales

 

 

289,676 

 

 

246,396 

 

 

866,116 

 

 

708,447 

Gross profit

 

 

105,487 

 

 

103,616 

 

 

350,818 

 

 

310,752 

Selling, general and administrative expenses

 

 

64,344 

 

 

65,941 

 

 

207,560 

 

 

188,368 

Restructuring and impairment charges

 

 

2,561 

 

 

1,471 

 

 

10,435 

 

 

7,713 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

8,553 

 

 

7,248 

 

 

24,715 

 

 

19,921 

Interest earned

 

 

(110)

 

 

(201)

 

 

(497)

 

 

(556)

Foreign currency losses, net

 

 

2,554 

 

 

1,021 

 

 

7,054 

 

 

5,575 

Loss on extinguishment of debt

 

 

 —

 

 

 —

 

 

3,226 

 

 

3,905 

Miscellaneous expense (income), net

 

 

74 

 

 

(2,182)

 

 

(523)

 

 

(3,675)

Income before income taxes

 

 

27,511 

 

 

30,318 

 

 

98,848 

 

 

89,501 

Income tax expense

 

 

11,368 

 

 

7,353 

 

 

29,246 

 

 

23,186 

Net income

 

 

16,143 

 

 

22,965 

 

 

69,602 

 

 

66,315 

Less: Net income attributable to noncontrolling interests

 

 

85 

 

 

148 

 

 

485 

 

 

575 

Net income attributable to Ferro Corporation common shareholders

 

$

16,058 

 

$

22,817 

 

$

69,117 

 

$

65,740 

Earnings per share attributable to Ferro Corporation common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.19 

 

$

0.27 

 

$

0.82 

 

$

0.79 

Diluted earnings per share

 

$

0.19 

 

$

0.27 

 

$

0.81 

 

$

0.77 











See accompanying notes to condensed consolidated financial statements.



 

3


 

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income











 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2018

 

2017

 

2018

 

2017



 

(Dollars in thousands)

Net income

 

$

16,143 

 

$

22,965 

 

$

69,602 

 

$

66,315 

Other comprehensive income, net of income tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) income

 

 

(5,380)

 

 

(2,996)

 

 

(29,908)

 

 

18,081 

Cash flow hedging instruments, unrealized gain

 

 

3,610 

 

 

104 

 

 

3,588 

 

 

104 

Postretirement benefit liabilities (loss) income

 

 

 —

 

 

(33)

 

 

17 

 

 

(21)

Other comprehensive (loss) income, net of income tax

 

 

(1,770)

 

 

(2,925)

 

 

(26,303)

 

 

18,164 

Total comprehensive income

 

 

14,373 

 

 

20,040 

 

 

43,299 

 

 

84,479 

Less: Comprehensive (loss) income attributable to noncontrolling interests

 

 

(115)

 

 

294 

 

 

106 

 

 

837 

Comprehensive income attributable to Ferro Corporation

 

$

14,488 

 

$

19,746 

 

$

43,193 

 

$

83,642 



See accompanying notes to condensed consolidated financial statements.



 

4


 

Ferro Corporation and Subsidiaries

Condensed Consolidated Balance Sheets







 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(Dollars in thousands)

ASSETS

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

126,278 

 

$

63,551 

Accounts receivable, net

 

 

381,435 

 

 

354,416 

Inventories

 

 

377,555 

 

 

324,180 

Other receivables

 

 

70,261 

 

 

67,137 

Other current assets

 

 

27,084 

 

 

16,448 

Total current assets

 

 

982,613 

 

 

825,732 

Other assets

 

 

 

 

 

 

Property, plant and equipment, net

 

 

353,878 

 

 

321,742 

Goodwill

 

 

214,750 

 

 

195,369 

Intangible assets, net

 

 

189,689 

 

 

187,616 

Deferred income taxes

 

 

102,606 

 

 

108,025 

Other non-current assets

 

 

38,423 

 

 

43,718 

Total assets

 

$

1,881,959 

 

$

1,682,202 

LIABILITIES AND EQUITY

Current liabilities

 

 

 

 

 

 

Loans payable and current portion of long-term debt

 

$

9,637 

 

$

25,136 

Accounts payable

 

 

217,266 

 

 

211,711 

Accrued payrolls

 

 

38,855 

 

 

48,201 

Accrued expenses and other current liabilities

 

 

78,809 

 

 

70,151 

Total current liabilities

 

 

344,567 

 

 

355,199 

Other liabilities

 

 

 

 

 

 

Long-term debt, less current portion

 

 

923,640 

 

 

726,491 

Postretirement and pension liabilities

 

 

159,895 

 

 

166,680 

Other non-current liabilities

 

 

65,856 

 

 

77,152 

Total liabilities

 

 

1,493,958 

 

 

1,325,522 

Equity

 

 

 

 

 

 

Ferro Corporation shareholders’ equity:

 

 

 

 

 

 

Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 83.7 million and 84.0 million shares outstanding at September 30, 2018, and December 31, 2017, respectively

 

 

93,436 

 

 

93,436 

Paid-in capital

 

 

296,069 

 

 

302,158 

Retained earnings

 

 

245,002 

 

 

171,744 

Accumulated other comprehensive loss

 

 

(101,392)

 

 

(75,468)

Common shares in treasury, at cost

 

 

(154,086)

 

 

(147,056)

Total Ferro Corporation shareholders’ equity

 

 

379,029 

 

 

344,814 

Noncontrolling interests

 

 

8,972 

 

 

11,866 

Total equity

 

 

388,001 

 

 

356,680 

Total liabilities and equity

 

$

1,881,959 

 

$

1,682,202 



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



 

(In thousands)

Balances at December 31, 2016

 

9,996 

 

$

(160,936)

 

$

93,436 

 

$

306,566 

 

$

114,690 

 

$

(106,643)

 

$

7,919 

 

$

255,032 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

65,740 

 

 

 —

 

 

575 

 

 

66,315 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

17,902 

 

 

262 

 

 

18,164 

Stock-based compensation transactions

 

(359)

 

 

9,036 

 

 

 —

 

 

(3,138)

 

 

 —

 

 

 —

 

 

 —

 

 

5,898 

Change in ownership interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,178 

 

 

2,178 

Distributions to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(474)

 

 

(474)

Balances at September 30, 2017

 

9,637 

 

 

(151,900)

 

 

93,436 

 

 

303,428 

 

 

180,430 

 

 

(88,741)

 

 

10,460 

 

 

347,113 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2017

 

9,386 

 

 

(147,056)

 

 

93,436 

 

 

302,158 

 

 

171,744 

 

 

(75,468)

 

 

11,866 

 

 

356,680 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

69,117 

 

 

 —

 

 

485 

 

 

69,602 

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(25,924)

 

 

(379)

 

 

(26,303)

Purchase of treasury stock

 

807 

 

 

(16,999)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(16,999)

Stock-based compensation transactions

 

(415)

 

 

9,969 

 

 

 —

 

 

(6,878)

 

 

 —

 

 

 —

 

 

 —

 

 

3,091 

Change in ownership interest

 

 —

 

 

 —

 

 

 —

 

 

789 

 

 

 —

 

 

 —

 

 

(2,228)

 

 

(1,439)

Distributions to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(772)

 

 

(772)

Adjustment for accounting standards update 2016-16

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,141 

 

 

 —

 

 

 —

 

 

4,141 

Balances at September 30, 2018

 

9,778 

 

$

(154,086)

 

$

93,436 

 

$

296,069 

 

$

245,002 

 

$

(101,392)

 

$

8,972 

 

$

388,001 



See accompanying notes to condensed consolidated financial statements.



 

6


 

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows







 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

2018

 

2017



 

(Dollars in thousands)

Cash flows from operating activities

 

 

 

 

 

 

Net cash provided by operating activities

 

$

35,686 

 

$

34,691 

Cash flows from investing activities

 

 

 

 

 

 

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

 

 

(64,154)

 

 

(30,134)

Proceeds from sale of equity method investment

 

 

 —

 

 

2,268 

Business acquisitions, net of cash acquired

 

 

(47,802)

 

 

(71,930)

Other investing activities

 

 

37 

 

 

551 

Net cash used in investing activities

 

 

(111,919)

 

 

(99,245)

Cash flows from financing activities

 

 

 

 

 

 

Net (repayments) under loans payable

 

 

(17,182)

 

 

(10,803)

Proceeds from revolving credit facility - 2014 Credit Facility

 

 

 —

 

 

15,628 

Principal payments on revolving credit facility - 2014 Credit Facility

 

 

 —

 

 

(327,183)

Proceeds from term loan facility - Credit Facility

 

 

 —

 

 

623,827 

Principal payments on term loan facility - 2014 Credit Facility

 

 

 —

 

 

(243,250)

Principal payments on term loan facility - Credit Facility

 

 

(304,060)

 

 

(3,232)

Principal payments on term loan facility - Amended Credit Facility

 

 

(4,100)

 

 

 —

Proceeds from term loan facility - Amended Credit Facility

 

 

466,075 

 

 

 —

Proceeds from revolving credit facility - Credit Facility

 

 

134,950 

 

 

69,787 

Principal payments on revolving credit facility - Credit Facility

 

 

(212,950)

 

 

(42,400)

Proceeds from revolving credit facility - Amended Credit Facility

 

 

168,023 

 

 

 —

Principal payments on revolving credit facility - Amended Credit Facility

 

 

(56,090)

 

 

 —

Proceeds from other long-term debt

 

 

 —

 

 

2,700 

Principal payments on other long-term debt

 

 

 —

 

 

(2,978)

Payment of debt issuance costs

 

 

(3,466)

 

 

(12,927)

Acquisition-related contingent consideration payment

 

 

(9,464)

 

 

(1,315)

Purchase of treasury stock

 

 

(16,999)

 

 

 —

Other financing activities

 

 

(3,516)

 

 

182 

Net cash provided by financing activities

 

 

141,221 

 

 

68,036 

Effect of exchange rate changes on cash and cash equivalents

 

 

(2,261)

 

 

3,147 

Increase in cash and cash equivalents

 

 

62,727 

 

 

6,629 

Cash and cash equivalents at beginning of period

 

 

63,551 

 

 

45,582 

Cash and cash equivalents at end of period

 

$

126,278 

 

$

52,211 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

24,857 

 

$

20,594 

Income taxes

 

$

17,577 

 

$

16,619 



 

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, 2017.



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



Operating results for the three and nine months ended September 30, 2018, are not necessarily indicative of the results expected in subsequent quarters or for the full year ending December 31, 2018.  



2.    Recent Accounting Pronouncements

Recently Adopted Accounting Standards

On April 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  ASU 2017-12 provides guidance to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The adoption of this ASU did not have an impact to the opening balance of Retained earnings. We will apply the guidance of this ASU to applicable future transactions.

On April 1, 2018, we adopted FASB ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2018-03 provides targeted improvements to address certain aspects of recognition, measurement presentation, and disclosure of financial instruments. The adoption of ASU 2018-03 did not have a material impact on the Company’s condensed consolidated financial statements.

On January 1, 2018, we adopted FASB ASU 2017-09, Compensation – Stock Compensation: (Topic 718): Scope of Modification Accounting.  ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This new guidance would only impact our consolidated financial statements if, in the future, we modified the terms of any of our share-based awards. We will apply the guidance of this ASU to applicable future transactions. The adoption of ASU 2017-09 did not have a material impact on the Company’s condensed consolidated financial statements.

On January 1, 2018, we adopted FASB ASU 2017-07, Compensation – Retirement Benefits: (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs.  ASU 2017-07 requires that an employer report the service cost component in the same line item as other compensation costs arising from services rendered during the period. The other components of net benefit costs are to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This ASU also allows only the service cost component of net benefit costs to be eligible for capitalization. We adopted this ASU using the retrospective approach for the presentation of the service cost component and the other components of the net periodic pension (credit) cost and net periodic postretirement benefit cost in the income statement. This resulted in the reclassification of income of $0.5 million and $1.4 million from Selling, general and administrative expenses to Other income, expense in our condensed consolidated statement of operations for the three and nine months ended September 30, 2018, respectively. The Company used a practical expedient where the amount disclosed in our Retirement Benefits footnote for the prior

8


 

year comparative period was the basis for the estimation for applying the retrospective presentation requirements. Other than this reclassification, the adoption of ASU 2017-07 did not have an impact on the Company’s condensed consolidated financial statements.

On January 1, 2018, we adopted FASB ASU 2017-01, Business Combinations: (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 is intended to clarify the definition of a business with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or dispositions) of assets or businesses. We will apply the guidance of this ASU to applicable future transactions. The adoption of ASU 2017-01 did not have a material impact on the Company’s condensed consolidated financial statements.

On January 1, 2018, we adopted FASB ASU 2016-16, Income Taxes: (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.  ASU 2016-16 is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory and requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. We adopted this ASU using the modified retrospective method.  The impact of adopting this guidance on the Company’s condensed consolidated financial statements resulted in an increase to  Retained earnings of $4.1 million and Deferred income taxes of $4.7 million and a decrease to Other receivables of $0.6 million on January 1, 2018.

On January 1, 2018, we adopted FASB ASU 2016-15, Statement of Cash Flow: (Topic 230): Classification of Certain Cash Receipts and Cash Payments.  ASU 2016-15 is intended to address eight specific cash flow issues with the objective of reducing the existing diversity in practice.  Adoption of ASU 2016-15 did not have a material effect on our condensed consolidated financial statements.



On January 1, 2018, we adopted FASB ASU 2014-09, Revenue from Contracts with Customers: (Topic 606) (“ASC 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 require significant judgment.  We have completed our assessment and review of specific contracts and have adopted this ASU using the modified retrospective method with no impact to the opening  Retained earnings balance. We expect the impact of the adoption of this ASU will not have a material effect on our consolidated financial statements on an ongoing basis.



New Accounting Standards

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This pronouncement is effective for fiscal years beginning after December 15, 2020. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements. 

In August 2018, the FASB issued ASU 2018-13,  Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.  ASU 2018-13 modifies the disclosure requirements on fair value measurements. This pronouncement is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements. 

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows a reclassification from Accumulated Other Comprehensive (Loss) Income to Retained Earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects. This pronouncement is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements. 

9


 

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: (Topic 350): Simplifying the Test for Goodwill Impairment.  ASU 2017-04 is intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the current goodwill impairment test. This pronouncement is effective for the annual or any interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019. The Company is in the process of assessing the impact that the adoption of this ASU will have on our consolidated financial statements.



In 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. In July 2018, the FASB issued ASU 2018-11, Targeted Improvements.  This ASU provides an additional transition method to adopt the new leasing standard. Under this new transition method, an entity initially applies the new leasing standard using a cumulative-effect adjustment to the opening balance of retained earnings but will continue to report comparative periods under existing guidance in accordance with ASC 840, Leases. The amendments in ASU 2018-11 are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company has elected to adopt ASU 2016-02 using this new transition method. The Company is in the process of assessing the impact the adoption of this ASU will have on our consolidated financial statements.



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



3.    Revenue



Revenue Recognition



Under ASC 606, revenues are recognized when control of the promised goods is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods.  In order to achieve that core principle, the Company applies the following five-step approach: 1) identify the contract with a customer, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when a performance obligation is satisfied.



The Company considers confirmed customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts, from an accounting perspective, with customers.  Under our standard contracts, the only performance obligation is the delivery of manufactured goods and the performance obligation is satisfied at a point in time, when the Company transfers control of the manufactured goodsThe Company may receive orders for products to be delivered over multiple dates that may extend across several reporting periods.  The Company invoices for each order and recognizes revenue for each distinct product upon shipment, once transfer of control has occurred.  Payment terms are standard for the industry and jurisdiction in which we operate.  In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment, to determine the net consideration to which the Company expects to be entitled.  Discounts or rebates are specifically stated in customer contracts or invoices, and are recorded as a reduction of revenue in the period the related revenue is recognized.  The product price as specified on the customer confirmed orders is considered the standalone selling price.  The Company allocates the transaction price to each distinct product based on its relative standalone selling price.  Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which generally occurs at shipment. We review material contracts to determine transfer of control based upon the business practices and legal requirements of each country.



The amount of shipping and handling fees invoiced to our customers at the time our product is shipped is included in net sales as we are the principal in those activities.  Sales, valued-added and other taxes collected from our customers and remitted to governmental authorities are excluded from net sales. 



There were no changes in amounts previously reported in the Company’s condensed consolidated financial statements due to adopting ASC 606.



10


 









Revenues disaggregated by geography and reportable segment  for the three months ended September 30, 2018, follow:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

EMEA

 

United States

 

Asia Pacific

 

Latin America

 

Total



 

(Dollars in thousands)

Performance Coatings

 

$

110,261 

 

$

12,170 

 

$

27,914 

 

$

25,594 

 

$

175,939 

Performance Colors and Glass

 

 

55,782 

 

 

43,087 

 

 

18,564 

 

 

5,844 

 

 

123,277 

Color Solutions

 

 

33,276 

 

 

43,699 

 

 

10,136 

 

 

8,836 

 

 

95,947 

   Total net sales

 

$

199,319 

 

$

98,956 

 

$

56,614 

 

$

40,274 

 

$

395,163 



Revenues disaggregated by geography and reportable segment for the three months ended September 30, 2017, follow:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

EMEA

 

United States

 

Asia Pacific

 

Latin America

 

Total



 

(Dollars in thousands)

Performance Coatings

 

$

83,910 

 

$

11,365 

 

$

24,264 

 

$

26,699 

 

$

146,238 

Performance Colors and Glass

 

 

52,408 

 

 

35,836 

 

 

16,663 

 

 

5,671 

 

 

110,578 

Color Solutions

 

 

33,400 

 

 

41,190 

 

 

9,937 

 

 

8,669 

 

 

93,196 

   Total net sales

 

$

169,718 

 

$

88,391 

 

$

50,864 

 

$

41,039 

 

$

350,012 



Revenues disaggregated by geography and reportable segment for the nine months ended September 30, 2018, follow:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

EMEA

 

United States

 

Asia Pacific

 

Latin America

 

Total



 

(Dollars in thousands)

Performance Coatings

 

$

355,510 

 

$

36,704 

 

$

82,990 

 

$

78,832 

 

$

554,036 

Performance Colors and Glass

 

 

180,801 

 

 

118,682 

 

 

53,142 

 

 

17,184 

 

 

369,809 

Color Solutions

 

 

109,985 

 

 

126,598 

 

 

30,606 

 

 

25,900 

 

 

293,089 

   Total net sales

 

$

646,296 

 

$

281,984 

 

$

166,738 

 

$

121,916 

 

$

1,216,934 



Revenues disaggregated by geography and reportable segment for the nine months ended September 30, 2017, follow:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

EMEA

 

United States

 

Asia Pacific

 

Latin America

 

Total



 

(Dollars in thousands)

Performance Coatings

 

$

241,884 

 

$

33,727 

 

$

68,670 

 

$

80,268 

 

$

424,549 

Performance Colors and Glass

 

 

144,586 

 

 

112,772 

 

 

47,091 

 

 

16,284 

 

 

320,733 

Color Solutions

 

 

103,538 

 

 

118,886 

 

 

26,971 

 

 

24,522 

 

 

273,917 

   Total net sales

 

$

490,008 

 

$

265,385 

 

$

142,732 

 

$

121,074 

 

$

1,019,199 





Practical Expedients and Exemptions



All material contracts have an original duration of one year or less and, as such, the Company uses the practical expedient applicable to such contracts, and has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period, or when the Company expects to recognize this revenue.



When the period of time between the transfer of control of the goods and the time the customer pays for the goods is one year or less, the Company uses the practical expedient allowed by ASC 606 that provides relief from adjusting the amount of promised consideration for the effects of a financing component.



We generally expense sales commissions when incurred because the amortization period is one year or less. These costs are recorded within Selling, general and administrative expenses.



11


 



4.    Acquisitions

UWiZ Technology Co., Ltd.

On September 25, 2018, the Company acquired 100% of the equity interests of UWiZ Technology Co., Ltd. (“UWiZ”) for TWD823.4 million (approximately $26.9 million) in cash.  The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches, and estimates made by management. As of September 30, 2018, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $12.5 million of net working capital, $7.1 million of goodwill, $6.6 million of amortizable intangible assets, $2.4 million of personal and real property and $1.7 million of deferred tax liability on the condensed consolidated balance sheet.    

Ernst Diegel GmbH

On August 31, 2018, the Company acquired 100% of the equity interests of Ernst Diegel GmbH (“Diegel”), including the real property of a related party, for €12.1 million (approximately $14.0 million) in cash.  The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches, and estimates made by management. As of September 30, 2018, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $7.0 million of personal and real property, $4.8 million of net working capital, $2.8 million of goodwill, $2.6 million of deferred tax liability and $2.0 million of amortizable intangible assets on the condensed consolidated balance sheet.    

MRA Laboratories, Inc.

On July 12, 2018, the Company acquired 100% of the equity interests of MRA Laboratories, Inc. (“MRA”) for $15.7 million in cash.  The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches, and estimates made by management. As of September 30, 2018, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $6.9 million of goodwill, $6.7 million of amortizable intangible assets,  $3.4 million of net working capital,  $1.6 million of deferred tax liability and $0.3 million of personal and real property on the condensed consolidated balance sheet. 

PT Ferro Materials Utama

On June 29, 2018, the Company acquired 66% of the equity interests of PT Ferro Materials Utama (“FMU”) for $2.7 million in cash, in addition to the forgiveness of debt of $9.2 million, bringing our total ownership to 100%. The Company previously recorded its investment in FMU as an equity method investment, and following this transaction, the Company fully consolidates FMU. Due to the change of control that occurred, the Company recorded a gain on purchase of $2.6 million, which is recorded in Miscellaneous expense (income), net, related to the difference between the Company’s carrying value and fair value of the previously held equity method investment during the second quarter of 2018.  

Endeka Group

On November 1, 2017, the Company acquired 100% of the equity interests of Endeka Group (“Endeka”), a global producer of high-value coatings and key raw materials for the ceramic tile market, for €72.8 million (approximately $84.8 million), including the assumption of debt of 13.1 million (approximately $15.3 million). The Company incurred acquisition costs for the nine months ended September 30, 2018, of $0.5 million, which is included in Selling, general and administrative expenses in our condensed consolidated statements of operations. The acquired business contributed net sales of $25.6 million and $86.8 million for the three and nine months ended September 30, 2018, respectively, and net income attributable to Ferro Corporation of $0.6 million and $9.4 million for the three and nine months ended September 30, 2018, respectively



12


 

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. During the first half of 2018, the Company adjusted the net working capital on the opening balance sheet and as such, the carrying amount of the personal and real property decreased $4.1 million. As of September 30, 2018, the purchase price allocation is subject to further adjustment until all information is fully evaluated by the Company. The Company preliminarily recorded $44.1 million of net working capital, $24.1 million of deferred tax assets, $17.7 million of personal and real property and $1.1 million of noncontrolling interest on the condensed consolidated balance sheet. 

Gardenia Quimica S.A.

On August 3, 2017, the Company acquired a majority interest of Gardenia Quimica S.A. (“Gardenia”) for $3.0 million. The Company previously owned 46% of Gardenia and recorded it as an equity method investment. Following  this transaction, the Company owned 83.5% and fully consolidates Gardenia. Due to the change of control that occurred, the Company recorded a gain on purchase of $2.6 million related to the difference between the Company’s carrying value and fair value of the previously held equity method investment during the third quarter of 2017.  On March 1, 2018, the Company acquired the remaining equity interest in Gardenia for $1.4 million.

Dip Tech Ltd.

On August 2, 2017, the Company acquired 100% of the equity interests of Dip Tech Ltd. (“Dip-Tech”), a leading provider of digital printing solutions for glass coatings, for $77.0 million. Dip-Tech is headquartered in Kfar Saba, Israel. The purchase price consideration consisted of cash paid at closing of $60.1 million, net of the net working capital adjustment, and contingent consideration of $16.9 million. The Company incurred acquisition costs of $0.1 million and $2.1 million for the nine months ended September 30,  2018 and 2017, respectively, which is included in Selling, general and administrative expenses in our condensed consolidated statements of operations. The acquired business contributed net sales of $7.7 million and $18.6 million for the three and nine months ended September 30, 2018, respectively, and net loss attributable to Ferro Corporation of $0.7 million and $4.7 million for the three and nine months ended September 30, 2018, respectivelyThe acquired business contributed net sales of $6.4 million for the three and nine months ended September 30, 2017, and net loss attributable to Ferro Corporation of $1.1 million for the three and nine months ended September 30, 2017.    The net loss attributable to Ferro Corporation was driven by acquired intangible asset amortization costs of $0.9 million and $2.9 million for the three and nine months ended September 30, 2018, respectively and $0.6 million for the three and nine months ended September 30, 2017.  Dip-Tech incurred research and development costs of $1.3 million and $4.6 million for the three and nine months ended September 30, 2018, respectively and $1.1 million for the three and nine months ended September 30, 2017.

The information included herein has been prepared based on the allocation of the purchase price using the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches, and estimates made by management. The Company recorded $41.2 million of amortizable intangible assets, $33.5 million of goodwill, $7.2 million of a deferred tax liability, $5.1 million of indefinite-lived intangible assets, $3.2 million of personal and real property and $1.2 million of net working capital on the condensed consolidated balance sheet.    

Smalti per Ceramiche, s.r.l

On April 24, 2017, the Company acquired 100% of the equity interests of S.P.C. Group s.r.l., and 100% of the equity interests of Smalti per Ceramiche, s.r.l. (“SPC”), for 18.7 million (approximately $20.3 million), including the assumption of debt of 5.7 million (approximately $6.2 million). SPC is a high-end tile coatings manufacturer based in Italy focused on fast-growing specialty products. SPC’s products, strong technology, design capabilities, and customer-centric business model are complementary to our Performance Coatings segment, and position us for continued growth in the high-end tile markets. 

The information included herein has been prepared based on the allocation of the purchase price using the fair value and useful lives of the assets acquired and liabilities assumed, which were determined with the assistance of third parties who performed independent valuations using discounted cash flow and comparative market approaches, and estimates made by management. The

13


 

Company recorded $6.1 million of personal and real property, $6.0 million of amortizable intangible assets, $5.2 million of goodwill, $5.0 million of net working capital and $2.0 million of a deferred tax liability on the condensed consolidated balance sheet.    





5.    Inventories







 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(Dollars in thousands)

Raw materials

 

$

130,660 

 

$

112,300 

Work in process

 

 

58,622 

 

 

39,454 

Finished goods

 

 

188,273 

 

 

172,426 

Total inventories

 

$

377,555 

 

$

324,180 



In the production of some of our products, we use precious metals, which we obtain from financial institutions under consignment agreements with terms of one year or less. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign. These fees were $0.5 million and $0.3 million for the three months ended September 30, 2018 and 2017, respectively, and were $1.3 million and $0.8 million for the nine months ended September 30, 2018 and 2017, respectively. We had on-hand precious metals owned by participants in our precious metals consignment program of $47.1 million at September 30, 2018, and $37.7  million at December 31, 2017, measured at fair value based on market prices for identical assets.  



6.    Property, Plant and Equipment

Property, plant and equipment is reported net of accumulated depreciation of $520.9 million at September 30, 2018, and $502.9 million at December 31, 2017. Unpaid capital expenditure liabilities, which are non-cash investing activities, were $7.7 million at September 30, 2018, and $3.2 million at September 30, 2017









14


 

7.   Goodwill and Other Intangible Assets 

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





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Performance

 

 



 

Performance

 

Color

 

Colors and

 

 



 

Coatings

 

Solutions

 

Glass

 

Total



 

(Dollars in thousands)

Goodwill, net at December 31, 2017

 

$

38,236 

 

$

42,535 

 

$

114,598 

 

$

195,369 

Acquisitions

 

 

5,140 

(2)

 

9,984 

(4)

 

8,236 

(1),(3)

 

23,360 

Foreign currency adjustments

 

 

(1,533)

 

 

(663)

 

 

(1,783)

 

 

(3,979)

Goodwill, net at September 30, 2018

 

$

41,843 

 

$

51,856 

 

$

121,051 

 

$

214,750 



(1) During the first quarter of 2018, the Company recorded a purchase price adjustment within the measurement period for goodwill related to the Dip-Tech acquisition.    

(2) During the second quarter of 2018, the Company recorded goodwill related to the FMU acquisition. 

(3) During the third quarter of 2018, the Company recorded goodwill related to the MRA acquisition.  Refer to Note 4 for additional details.

(4) During the third quarter of 2018, the Company recorded goodwill related to the UWiZ and Diegel acquisition. Refer to Note 4 for additional details.









 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(Dollars in thousands)

Goodwill, gross

 

$

273,217 

 

$

253,836 

Accumulated impairment

 

 

(58,467)

 

 

(58,467)

Goodwill, net

 

$

214,750 

 

$

195,369 



Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. As of September 30, 2018, the Company is not aware of any events or circumstances that occurred which would require a goodwill impairment test.

15


 

Amortizable intangible assets consisted of the following:





 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(Dollars in thousands)

Gross amortizable intangible assets:

 

 

 

 

 

 

Patents

 

$

5,200 

 

$

5,279 

Land rights

 

 

4,781 

 

 

4,947 

Technology/know-how and other

 

 

135,683 

 

 

131,070 

Customer relationships

 

 

98,468 

 

 

93,500 

     Total gross amortizable intangible assets

 

 

244,132 

 

 

234,796 

Accumulated amortization:

 

 

 

 

 

 

Patents

 

 

(5,149)

 

 

(5,226)

Land rights

 

 

(2,888)

 

 

(2,883)

Technology/know-how and other

 

 

(49,063)

 

 

(45,214)

Customer relationships

 

 

(14,270)

 

 

(11,114)

     Total accumulated amortization

 

 

(71,370)

 

 

(64,437)

            Amortizable intangible assets, net

 

$

172,762 

 

$

170,359 



Indefinite-lived intangible assets consisted of the following:





 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(Dollars in thousands)

Indefinite-lived intangibles assets:

 

 

 

 

 

 

Trade names and trademarks

 

$

16,927 

 

$

17,257 









































8.    Debt

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





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(Dollars in thousands)

Loans payable

 

$

 —

 

$

16,360 

Current portion of long-term debt

 

 

9,637 

 

 

8,776 

Loans payable and current portion of long-term debt

 

$

9,637 

 

$

25,136 



Long-term debt consisted of the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(Dollars in thousands)



 

 

 

 

 

 

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

 

$

810,837 

 

$

645,242 

Revolving credit facility

 

 

111,933 

 

 

78,000 

Capital lease obligations

 

 

4,182 

 

 

4,913 

Other notes

 

 

6,325 

 

 

7,112 

Total long-term debt

 

 

933,277 

 

 

735,267 

Current portion of long-term debt

 

 

(9,637)

 

 

(8,776)

Long-term debt, less current portion

 

$

923,640 

 

$

726,491 



(1)  The carrying value of the term loan facility, maturing 2024, is net of unamortized debt issuance costs of $5.1 million at September 30, 2018, and $7.5 million at December 31, 2017.

16


 

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”), (c) provided new tranches of term loans (“Tranche B-2 Loans” and “Tranche B-3 Loans”) denominated in U.S. dollars and borrowed by the Company’s existing credit facility and 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 $500 million secured revolving line of credit with a maturity of February 2023, a $355 million secured term loan facility with a maturity of February 2024, a $235 million secured term loan facility with a maturity of February 2024 and a $230 million secured term loan facility with a maturity of February 2024. The term loans are payable in equal quarterly installments in an amount equal to 0.25% of the original principal amount of the term loans, with the remaining balance due on the maturity date thereof.  In addition, the Company is required, on an annual basis, to make a prepayment in an amount equal to a portion of the Company’s excess cash flow, as calculated pursuant to the Amended Credit Facility, which prepayment will be applied first to the term loans until they are paid in full, and then to the revolving loans.

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

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

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

·

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

·

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

·

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

At September 30, 2018, the Company had borrowed $353.2 million under the Tranche B-1 Loans at an interest rate of 4.64%,  $233.8 million under the Tranche B-2 Loans at an interest rate of 4.64%, and $228.9 million under the Tranche B-3 Loans at an interest rate of 4.64%. At September 30, 2018, there were no additional borrowings available under the Tranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans.  

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

·

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

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·

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

·

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

At September 30, 2018, there were $111.9 million borrowings under the revolving credit line at an interest rate of 2.59%. After reductions for outstanding letters of credit secured by these facilities, we had $383.4 million of additional borrowings available under the revolving credit facilities at September 30, 2018.

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 September 30, 2018, we were in compliance with the covenants of the Amended Credit Facility.

Credit Facility

On February 14, 2017, the Company entered into a credit facility (the “Credit Facility”) with a group of lenders to refinance its then outstanding credit facility debt and to provide liquidity for ongoing working capital requirements and general corporate purposes. The Credit Facility consisted of a $400 million secured revolving line of credit with a term of five years, a $357.5 million secured term loan facility with a term of seven years and a €250 million secured Euro term loan facility with a term of seven years. For discussion of the Company’s Credit Facility, refer to Note 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

In conjunction with the refinancing of the Credit Facility, we recorded a charge of $3.2 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss on extinguishment of debt in our condensed consolidated statement of operations for the nine months ended September 30, 2018.



2014 Credit Facility

In 2014, the Company entered into a credit facility that was amended on January 25, 2016, and August 29, 2016, resulting in a  $400 million secured revolving line of credit with a term of five years and a $300 million secured term loan facility with a term of seven years from the original issuance date (the “2014 Credit Facility”) with a group of lenders that was replaced on February 14, 2017, by the Credit Facility (as defined above).  For discussion of the Company’s 2014 Credit Facility, refer to Note 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

In conjunction with the refinancing of the 2014 Credit Facility, we recorded a charge of $3.9 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss on extinguishment of debt in our condensed consolidated statement of operations for the nine months ended September 30, 2017.

Other Financing Arrangements

We maintain other lines of credit to provide global flexibility for our short-term liquidity requirements. These facilities are uncommitted lines for our international operations and totaled $40.3 million and $64.5 million at September 30, 2018, and December 31, 2017, respectively. The unused portions of these lines provided additional liquidity of $31.4 million at September 30, 2018, and $39.4 million at December 31, 2017.





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9.    Financial Instruments

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