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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, 2021
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)
______________________________
OH
(State or other jurisdiction of
incorporation or organization)
34-0217820
(I.R.S. Employer Identification No.)
6060 Parkland Boulevard Suite 250,
Mayfield Heights, OH
(Address of principal executive offices)
44124
(Zip Code)
(216) 875-5600
(Registrant’s telephone number, including area code)
______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o
Non-accelerated filer o Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $1.00 FOE NYSE
At September 30, 2021, there were 82,742,307 shares of Ferro Common Stock, par value $1.00, outstanding.

TABLE OF CONTENTS
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in thousands, except per share amounts) 2021 2020 2021 2020
Net sales $ 277,228 $ 241,877 $ 859,917 $ 699,004
Cost of sales 193,850 171,711 586,601 484,356
Gross profit 83,378 70,166 273,316 214,648
Selling, general and administrative expenses 54,520 47,820 167,384 154,407
Restructuring and impairment charges 602 2,447 7,756 12,231
Other expense (income):
Interest expense 5,436 4,767 19,879 16,474
Interest earned (88) (474) (737) (1,035)
Foreign currency losses, net 426 1,450 4,793 1,278 
Loss on extinguishment of debt — — 1,981 —
Miscellaneous income, net (2,997) (438) (5,350) (2,604)
Income before income taxes 25,479 14,594  77,610 33,897
Income tax expense 13,800 5,047 29,946 10,364 
Income from continuing operations 11,679 9,547  47,664 23,533
Income (loss) from discontinued operations, net of income taxes (822) 5,367  87,484 2,350 
Net income 10,857 14,914  135,148 25,883
Less: Net income attributable to noncontrolling interests 482 440 1,301 826
Net income attributable to Ferro Corporation
   common shareholders
$ 10,375 $ 14,474  $ 133,847 $ 25,057
Earnings (loss) per share attributable to Ferro Corporation common shareholders:
Basic earnings (loss):
Continuing operations $ 0.14 $ 0.11  $ 0.56 $ 0.28
Discontinued operations (0.01) 0.07  1.06 0.03 
$ 0.13 $ 0.18  $ 1.62 $ 0.31
Diluted earnings (loss):
Continuing operations $ 0.13 $ 0.11  $ 0.56 $ 0.27
Discontinued operations (0.01) 0.06  1.05 0.03 
$ 0.12 $ 0.17  $ 1.61 $ 0.30
See accompanying notes to condensed consolidated financial statements.
3
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 2021 2020
Net income $ 10,857 $ 14,914  $ 135,148 $ 25,883
Other comprehensive income (loss), net of income tax:
Foreign currency translation gain (loss) (3,997) 13,831 (64,411) (678)
Cash flow hedging instruments, unrealized income (loss) 1,553 269  9,622 (10,331)
Postretirement benefit liabilities income 2  — 131 —
Other comprehensive income (loss), net of income tax (2,442) 14,100 (54,658) (11,009)
Total comprehensive income 8,415 29,014  80,490 14,874 
Less: Comprehensive income attributable to
    noncontrolling interests
935  197 1,141 453
Comprehensive income attributable to Ferro Corporation $ 7,480 $ 28,817  $ 79,349 $ 14,421 
See accompanying notes to condensed consolidated financial statements.
4
Ferro Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands) September 30,
2021 		December 31,
2020
ASSETS
Current assets
Cash and cash equivalents $ 148,754 $ 174,077
Accounts receivable, net 157,610 137,008
Inventories 267,994 260,332
Other receivables 65,654 72,272
Other current assets 20,835 18,261
Current assets held-for-sale — 307,854
Total current assets 660,847 969,804
Other assets
Property, plant and equipment, net 326,982 330,045
Goodwill 172,968 175,351
Intangible assets, net 110,049 119,500
Deferred income taxes 108,426 115,962
Operating leased assets 13,387 15,446
Other non-current assets 26,604 80,618
Non-current assets held-for-sale — 154,207
Total assets $ 1,419,263 $ 1,960,933
LIABILITIES AND EQUITY
Current liabilities
Loans payable and current portion of long-term debt $ 8,888 $ 8,839
Accounts payable 127,526 135,296
Accrued payrolls 38,642 27,166
Accrued expenses and other current liabilities 147,456 124,770
Current liabilities held-for-sale — 107,545
Total current liabilities 322,512 403,616
Other liabilities
Long-term debt, less current portion 352,695 791,509
Postretirement and pension liabilities 161,548 181,610
Operating leased non-current liabilities 8,624 10,064
Other non-current liabilities 51,882 62,050
Non-current liabilities held-for-sale — 71,149
Total liabilities 897,261 1,519,998
Equity
Ferro Corporation shareholders’ equity:
Common stock, par value $1.00 per share; 300.0 million shares authorized;
  93.4 million shares issued; 82.7 million and 82.4 million shares outstanding at September 30, 2021, and December 31, 2020, respectively
93,436 93,436
Paid-in capital 289,899 293,682
Retained earnings 438,662 304,815
Accumulated other comprehensive loss (144,208) (89,710)
Common shares in treasury, at cost (165,008) (172,256)
Total Ferro Corporation shareholders’ equity 512,781 429,967
Noncontrolling interests 9,221 10,968
Total equity 522,002 440,935
Total liabilities and equity $ 1,419,263 $ 1,960,933
See accompanying notes to condensed consolidated financial statements.
5
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Equity
Ferro Corporation Shareholders Non-
controlling
Interests 		Total
Equity
Common Shares
in Treasury 		Common
Stock 		Paid-in
Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Loss
(In thousands) Shares Amount
Balances at December 31, 2020 11,065  $ (172,256) $ 93,436  $ 293,682  $ 304,815  $ (89,710) $ 10,968  $ 440,935 
Net income (loss) —  —  —  —  107,963  —  437  108,400 
Other comprehensive income (loss) —  —  —  —  —  (54,111) (74) (54,185)
Change in ownership interest —  —  —  (2,530) —  —  (2,888) (5,418)
Stock-based compensation transactions (255) 5,154  —  (2,614) —  —  —  2,540 
Balances at March 31, 2021 10,810  (167,102) 93,436  288,538  412,778  (143,821) 8,443  492,272 
Net income (loss) —  —  —  —  15,509  —  382  15,891 
Other comprehensive income (loss) —  —  —  —  —  2,508  (539) 1,969 
Stock-based compensation transactions (79) 1,413  —  747  —  —  —  2,160 
Balances at June 30, 2021 10,731  (165,689) 93,436  289,285  428,287  (141,313) 8,286  512,292 
Net income (loss) —  —  —  —  10,375  —  482  10,857 
Other comprehensive income (loss) —  —  —  —  —  (2,895) 453  (2,442)
Stock-based compensation transactions (38) 681  —  614  —  —  —  1,295 
Balances at September 30, 2021 10,693  $ (165,008) $ 93,436  $ 289,899  $ 438,662  $ (144,208) $ 9,221  $ 522,002 
Ferro Corporation Shareholders Non-
controlling
 Interests 		Total
 Equity
Common Shares
in Treasury 		Common
Stock 		Paid-in
 Capital 		Retained
Earnings 		Accumulated
Other
Comprehensive
Loss
(In thousands) Shares Amount
Balances at December 31, 2019 11,431  $ (180,243) $ 93,436  $ 294,543  $ 262,016  $ (109,376) $ 9,826  $ 370,202 
Net income (loss) —  —  —  —  16,123  —  10  16,133 
Other comprehensive income (loss) —  —  —  —  —  (27,312) (94) (27,406)
Stock-based compensation transactions (238) 5,332  —  (2,723) —  —  —  2,609 
Balances at March 31, 2020 11,193  (174,911) 93,436  291,820  278,139  (136,688) 9,742  361,538 
Net income (loss) —  —  —  —  (5,540) —  376  (5,164)
Other comprehensive income (loss) —  —  —  —  —  2,333  (36) 2,297 
Stock-based compensation transactions (8) 159  —  1,825  —  —  —  1,984 
Balances at June 30, 2020 11,185  (174,752) 93,436  293,645  272,599  (134,355) 10,082  360,655 
Net income (loss) —  —  —  —  14,474  —  440  14,914 
Other comprehensive income (loss) —  —  —  —  —  14,343  (243) 14,100 
Stock-based compensation transactions (40) 807  —  432  —  —  —  1,239 
Balances at September 30, 2020 11,145  $ (173,945) $ 93,436  $ 294,077  $ 287,073  $ (120,012) $ 10,279  $ 390,908 
See accompanying notes to condensed consolidated financial statements.
6
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020
Cash flows from operating activities
Net cash used in operating activities $ (64,949) $ (106,481)
Cash flows from investing activities
Capital expenditures for property, plant and equipment and other long-lived assets (25,684) (21,681)
Collections of financing receivables 90,662 97,299
Proceeds from sale of businesses, net 415,230 —
Business acquisitions, net of cash acquired (2,200) —
Other investing activities 436 803
Net cash provided by investing activities 478,444 76,421
Cash flows from financing activities
Net payments under loans payable (31) (683)
Principal payments on term loan facility - Amended Credit Facility (441,150) (6,150)
Proceeds from revolving credit facility - Amended Credit Facility 50,000 398,336
Principal payments on revolving credit facility - Amended Credit Facility (50,000) (392,596)
Other financing activities (4,022) (728)
Net cash used in financing activities (445,203) (1,821)
Effect of exchange rate changes on cash and cash equivalents (1,815) 174 
Decrease in cash and cash equivalents (33,523) (31,707)
Cash and cash equivalents at beginning of period 182,277 104,402
Cash and cash equivalents at end of period 148,754 72,695
Less: Cash and cash equivalents of discontinued operations at end of period — 8,200
Cash and cash equivalents of continuing operations at end of period $ 148,754 $ 64,495
Cash paid during the period for:
Interest $ 21,943 $ 20,176
Income taxes 16,637 13,005
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 unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020.
We produce our products primarily in the Europe, Middle East and Africa (“EMEA”) region, the Americas region and the Asia Pacific region.
Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results expected in the subsequent quarter or for the full year ending December 31, 2021.
During the fourth quarter of 2019, substantially all of the assets and liabilities of our Tile Coatings business were classified as held-for-sale in the accompanying consolidated balance sheets. As further discussed in Note 4, we entered into a definitive agreement to sell our Tile Coatings business, which has historically been included in the Performance Coatings reportable segment. Therefore, the associated operating results, net of income tax, have been classified as discontinued operations in the accompanying consolidated statements of operations for all periods presented. Throughout this Quarterly Report on Form 10-Q, with the exception of the statements of cash flows and unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
On February 25, 2021, we completed the sale of our Tile Coatings business to Pigments Spain, S.L., a company of the Esmalglass-Itaca-Fritta group, which is a portfolio company of certain Lone Star Funds.
Certain reclassifications have been made to the prior year financial statements to conform to current year classifications. The reclassification relates to the balance sheet presentation of assets as held for sale in relation to the Tile Coatings business transaction. Additional reclassification relates to the disclosure of revenue disaggregation by geographic regions. As of January 1, 2021, the United States and Latin America regions were combined into the Americas region.
Pending Merger
On May 11, 2021, Ferro, PMHC II Inc., a Delaware corporation (“Prince”) and PMHC Fortune Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Prince (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Ferro (the “Merger”), with Ferro continuing as the surviving corporation in the Merger and as a direct or indirect wholly owned subsidiary of Prince. The board of directors of Ferro has approved the Merger Agreement.
On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), and as a result of the Merger, each share of common stock of Ferro (“Ferro Common Stock”) that is issued and outstanding immediately prior to the Effective Time (other than (i) shares of Ferro Common Stock held by Ferro as treasury stock or held directly by Prince or any subsidiary of Prince (including Merger Sub) immediately prior to the Effective Time (which will be canceled without payment of any consideration), (ii) shares of Ferro Common Stock for which dissenters rights have been properly exercised and perfected and not withdrawn and (iii) shares of restricted stock) will be converted into the right to receive $22.00 in cash, without interest (the “Merger Consideration”).
Pursuant to the Merger Agreement, as of the Effective Time, each option to acquire shares of Ferro Common Stock, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such option, multiplied by (B) the excess, if any, of the Merger Consideration over the applicable per share exercise price of such option.

8
In addition, pursuant to the Merger Agreement, as of the Effective Time, (i) each outstanding share of Ferro restricted stock, each restricted share unit (other than performance share units), deferred share unit, phantom share unit or similar stock right, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such right, multiplied by (B) the Merger Consideration, and (ii) each Ferro performance-based share unit, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such performance-based share unit, calculated based on the greater of (x) actual performance achieved in accordance with the terms of such performance-based share unit and the Merger Agreement and (y) target level performance over the entire performance period applicable with respect to such performance-based share unit, multiplied by (B) the Merger Consideration.
Ferro and Prince have agreed to use their respective reasonable best efforts to consummate the Merger, including making filings with and seeking approvals from certain governmental entities necessary in connection with the Merger, including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). In furtherance thereof, Prince has agreed to accept certain divestitures or restrictions on the assets of Prince, Ferro and their respective subsidiaries, if and to the extent necessary to obtain such approvals, subject to certain specified limitations set forth in the Merger Agreement.
Consummation of the Merger is subject to certain customary conditions, including (i) the adoption of the Merger Agreement by the holders of two-thirds of the outstanding shares of Ferro Common Stock, (ii) the absence of any law prohibiting or order preventing the consummation of the Merger, (iii) the receipt of certain regulatory approvals, including expiration or termination of any applicable waiting period under the HSR Act, (iv) the absence of a material adverse effect with respect to Ferro, and (v) compliance in all material respects on the part of each of Ferro and Prince with such party’s covenants under the Merger Agreement. The obligation of each party to consummate the Merger is also conditioned upon the other party’s representations and warranties being true and correct, subject to certain materiality exceptions.
2.    Recent Accounting Pronouncements
Recently Adopted Accounting Standards
This section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
New Accounting Standards Not Yet Adopted
We are currently evaluating the impact on our financial statements of the following ASU:
Standard Description
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, issued March, 2020
Provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities through December 31, 2022.
No other new accounting pronouncements issued had, or are expected to have, a material impact on the Company’s consolidated financial statements.
3.    Revenue
Revenues disaggregated by geography and reportable segment for the three months ended September 30, 2021, follow:
(Dollars in thousands) EMEA Americas Asia Pacific Total
Functional Coatings $ 81,508 $ 66,005 $ 32,055 $ 179,568
Color Solutions 34,186 52,692 10,782 97,660
Total net sales $ 115,694 $ 118,697 $ 42,837 $ 277,228

9
Revenues disaggregated by geography and reportable segment for the three months ended September 30, 2020, follow:
(Dollars in thousands) EMEA Americas Asia Pacific Total
Functional Coatings $ 65,081 $ 62,358 $ 26,779 $ 154,218
Color Solutions 30,472 46,421 10,766 87,659
Total net sales $ 95,553 $ 108,779 $ 37,545 $ 241,877
Revenues disaggregated by geography and reportable segment for the nine months ended September 30, 2021, follow:
(Dollars in thousands) EMEA Americas Asia Pacific Total
Functional Coatings $ 261,449 $ 205,969 $ 91,881 $ 559,299
Color Solutions 111,186 156,560 32,872 300,618
Total net sales $ 372,635 $ 362,529 $ 124,753 $ 859,917
Revenues disaggregated by geography and reportable segment for the nine months ended September 30, 2020, follow:
(Dollars in thousands) EMEA Americas Asia Pacific Total
Functional Coatings $ 192,009 $ 179,048 $ 70,268 $ 441,325
Color Solutions 96,235 132,272 29,172 257,679
Total net sales $ 288,244 $ 311,320 $ 99,440 $ 699,004
4.    Discontinued Operations
During the fourth quarter of 2019, substantially all of the assets and liabilities of our Tile Coatings business were classified as held-for-sale in the accompanying consolidated balance sheets. We entered into a definitive agreement to sell our Tile Coatings business, which has historically been a part of our Performance Coatings reportable segment. Therefore, the associated operating results, net of income tax, have been classified as discontinued operations in the accompanying consolidated statements of operations for all periods presented.
On February 25, 2021, we completed the sale of our Tile Coatings business to Pigments Spain, S.L., a company of the Esmalglass-Itaca-Fritta group (the “Buyer”), which is a portfolio company of certain Lone Star Funds, for $460.0 million in cash, subject to post-closing adjustments. The transaction resulted in net proceeds of approximately $415.2 million after expenses and a gain of $100.1 million, which is recorded within Income (loss) from discontinued operations, net of income taxes in our consolidated statement of operations for the quarter ended March 31, 2021. We entered into a Transition Services Agreement (“TSA”) with the Buyer, which is designed to facilitate an orderly transfer of business operations. The services provided under the TSA will terminate at various points in times between six to twelve months from the completion of the sale. Except for customary post-closing adjustments and transition services, we have no continuing involvement with the Buyer subsequent to the completion of the sale.

10
The table below summarizes results for the Tile Coatings business for the three and nine months ended September 30, 2021 and 2020, which are reflected in our consolidated statements of operations as Income (loss) from discontinued operations, net of income taxes. Interest expense has been allocated to the discontinued operations based on the ratio of net assets of the Tile Coatings business to consolidated net assets excluding debt.
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 2021 2020
Net sales $ — $ 120,163 $ 83,579 $ 310,167
Cost of sales — 89,120 60,634 235,095
Gross profit — 31,043 22,945 75,072
Selling, general and administrative expenses — 18,549 20,327 52,899
Restructuring and impairment charges — 269 303 2,306
Interest expense — 2,950 1,682 7,698
Interest earned — (21) (189) (174)
Foreign currency losses, net — 113  363 5,074
Gain on sale of business, net — — (100,057) —
Miscellaneous expense, net — 173 251 1,420
Income from discontinued operations before income taxes — 9,010  100,265 5,849 
Income tax expense 822 3,643  12,781 3,499 
Income (loss) from discontinued operations, net of
   income taxes
(822) 5,367  87,484 2,350 
Less: Net (loss) income attributable to
   noncontrolling interests 		— (11) 64 33
Net income attributable to Tile Coatings business $ (822) $ 5,378  $ 87,420 $ 2,317 
11
The following table summarizes the assets and liabilities which are classified as held-for-sale at December 31, 2020:
(Dollars in thousands) December 31, 2020
Cash and cash equivalents $ 8,200
Accounts receivable, net 211,548
Inventories 84,239
Other receivables 1,630
Other current assets 2,237
Current assets held-for-sale 307,854
Property, plant and equipment, net 93,430
Intangible assets, net 42,126
Deferred income taxes 12,267
Other non-current assets 6,384
Non-current assets held-for-sale 154,207
Total assets held-for-sale $ 462,061
Loans payable and current portion of long-term debt $ 3,927
Accounts payable 85,308
Accrued payrolls 5,946
Accrued expenses and other current liabilities 12,364
Current liabilities held-for-sale 107,545
Long-term debt, less current portion 56,359
Postretirement and pension liabilities 8,119
Other non-current liabilities 6,671
Non-current liabilities held-for-sale 71,149
Total liabilities held-for-sale $ 178,694
The following table summarizes cash flow data relating to discontinued operations for the nine months ended September 30, 2021 and 2020:
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020
Capital expenditures $ (1,074) $ (3,048)
Gain on sale of discontinued operations (100,057) —
Non-cash operating activities - restructuring and impairment charges — 1,091
Non-cash investing activities - capital expenditures, consisting of unpaid capital expenditure liabilities at period end — 683
5.    Inventories
(Dollars in thousands) September 30,
2021 		December 31,
2020
Raw materials $ 80,430 $ 81,344
Work in process 47,064 48,770
Finished goods 140,500 130,218
Total inventories $ 267,994 $ 260,332

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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 $0.7 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, and $2.1 million and $2.3 million for the nine months ended September 30, 2021 and 2020, respectively. We had on-hand precious metals owned by participants in our precious metals consignment program of $80.7 million at September 30, 2021, and $87.2 million at December 31, 2020, measured at fair value based on market prices for identical assets.
6.    Property, Plant and Equipment
Property, plant and equipment is reported net of accumulated depreciation of $453.1 million at September 30, 2021 and $456.3 million at December 31, 2020. As discussed in Note 4, the assets of our Tile Coatings business were classified as held-for-sale under ASC Topic 360; Property, Plant, and Equipment. As such, additional accumulated depreciation of $135.3 million at December 31, 2020 was classified as Non-current assets held for sale.
Unpaid capital expenditure liabilities, which are non-cash investing activities, were $2.5 million at September 30, 2021 and $2.9 million at September 30, 2020.
7.    Goodwill and Other Intangible Assets
Details and activity in the Company’s goodwill by segment follow:
(Dollars in thousands) Functional
Coatings 		Color
Solutions 		Total
Goodwill, net at December 31, 2020
$ 123,570 $ 51,781 $ 175,351
Foreign currency adjustments (1,816) (567) (2,383)
Goodwill, net at September 30, 2021
$ 121,754 $ 51,214 $ 172,968
(Dollars in thousands) September 30,
2021 		December 31,
2020
Goodwill, gross $ 231,435 $ 233,818
Accumulated impairment (58,467) (58,467)
Goodwill, net $ 172,968 $ 175,351
Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. As of September 30, 2021, 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:
(Dollars in thousands) September 30,
2021 		December 31,
2020
Gross amortizable intangible assets:
Patents $ 5,494 $ 5,589
Land rights 3,215 3,173
Technology/know-how and other 116,121 116,015
Customer relationships 66,276 68,142
Total gross amortizable intangible assets 191,106 192,919
Accumulated amortization:
Patents (5,472) (5,566)
Land rights (1,718) (1,630)
Technology/know-how and other (67,541) (61,104)
Customer relationships (19,197) (18,317)
Total accumulated amortization (93,928) (86,617)
Amortizable intangible assets, net $ 97,178 $ 106,302
Indefinite-lived intangible assets consisted of the following:
(Dollars in thousands) September 30,
2021 		December 31,
2020
Indefinite-lived intangibles assets:
Trade names and trademarks $ 12,871 $ 13,198
8.    Debt
Loans payable and current portion of long-term debt consisted of the following:
(Dollars in thousands) September 30,
2021 		December 31,
2020
Current portion of long-term debt $ 8,888 $ 8,839
Loans payable and current portion of long-term debt $ 8,888 $ 8,839
Long-term debt consisted of the following:
(Dollars in thousands) September 30,
2021 		December 31,
2020
Term loan facility, net of unamortized issuance costs, maturing 2024(1)
$ 355,058 $ 793,731
Finance lease obligations 2,663 2,911
Other notes 3,862 3,706
Total long-term debt 361,583 800,348
Current portion of long-term debt (8,888) (8,839)
Long-term debt, less current portion $ 352,695 $ 791,509
(1)The carrying value of the term loan facility, maturing 2024, is net of unamortized debt issuance costs of $1.2 million at September 30, 2021 and $3.7 million at December 31, 2020.


14
Amended Credit Facility
On April 25, 2018, the Company entered into an amendment (the “Amended Credit Facility”) to its existing credit facility (the “Credit Facility”), which Amended Credit Facility (a) provided a new revolving facility (the “2018 Revolving Facility”), which replaced the Company’s existing revolving facility, (b) repriced the (“Tranche B-1 Loans”), and (c) provided new tranches of term loans (“Tranche B-2 Loans” and “Tranche B-3 Loans”) denominated in U.S. dollars. On May 4, 2020, the Company entered into an amendment (Third Amendment to Credit Agreement) to the Amended Credit Facility, which added an approval to Section 7.2.8 Permitted Dispositions for the Tile Coatings Business Disposition. The Amended Credit Facility will be used for ongoing working capital requirements and general corporate purposes. The Tranche B-2 Loans are borrowed by the Company and the Tranche B-3 Loans are borrowed on a joint and several basis by Ferro GmbH and Ferro Europe Holdings LLC.
The Amended Credit Facility consists of a $500 million secured revolving line of credit with a maturity of February 14, 2023, a $355 million secured term loan facility with a maturity of February 14, 2024, a $235 million secured term loan facility with a maturity of February 14, 2024 and a $230 million secured term loan facility with a maturity of February 14, 2024. The term loans are payable in equal quarterly installments in an amount equal to 0.25% of the original principal amount of the term loans, with the remaining balance due on the maturity date thereof. In addition, the Company is required, on an annual basis, to make a prepayment in an amount equal to a portion of the Company’s excess cash flow, as calculated pursuant to the Amended Credit Facility, which prepayment will be applied first to the term loans until they are paid in full, and then to the revolving loans.
Subject to the satisfaction of certain conditions, the Company can request additional commitments under the revolving line of credit or term loans in the aggregate principal amount of up to $250 million to the extent that existing or new lenders agree to provide such additional commitments and/or term loans. The Company can also raise certain additional debt or credit facilities subject to satisfaction of certain covenant levels.
Certain of the Company’s U.S. subsidiaries have guaranteed the Company’s obligations under the Amended Credit Facility and such obligations are secured by (a) substantially all of the personal property of the Company and the U.S. subsidiary guarantors and (b) a pledge of 100% of the stock of certain of the Company’s U.S. subsidiaries and 65% of the stock of certain of the Company’s direct foreign subsidiaries. The Tranche B-3 Loans are guaranteed by the Company, the U.S. subsidiary guarantors and a cross-guaranty by the borrowers of the Tranche B-3 Loans and are secured by the collateral securing the revolving loans and the other term loans, in addition to a pledge of the equity interests of Ferro GmbH.
Interest Rate – Term Loans: The interest rates applicable to the term loans will be, at the Company’s option, equal to either a base rate or a LIBOR rate plus, in both cases, an applicable margin.
•The base rate for term loans will be the highest of (i) the federal funds rate plus 0.50% (ii) the syndication agent’s prime rate, (iii) the daily LIBOR rate plus 1.00% or (iv) 0.00%. The applicable margin for base rate loans is 1.25%.
•The LIBOR rate for term loans shall not be less than 0.0% and the applicable margin for LIBOR rate term loans is 2.25%.
•For LIBOR rate term loans, the Company may choose to set the duration on individual borrowings for periods of one, two, three or six months, with the interest rate based on the applicable LIBOR rate for the corresponding duration.
At September 30, 2021, the Company had borrowed $154.3 million under the Tranche B-1 Loans at an interest rate of 2.38%, $102.1 million under the Tranche B-2 Loans at an interest rate of 2.38% and $99.9 million under the Tranche B-3 Loans at an interest rate of 2.38%. At September 30, 2021, there were no additional borrowings available under the Tranche B-1 Loans, Tranche B-2 Loans, or Tranche B-3 Loans. In connection with these borrowings, we entered into swap agreements in the second quarter of 2018. At September 30, 2021, the effective interest rate for all tranches of the term loan facility, inclusive of hedging activities, was 4.84%.


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Interest Rate – Revolving Credit Line: The interest rates applicable to loans under the 2018 Revolving Credit Facility will be, at the Company’s option, equal to either a base rate or a LIBOR rate plus, in both cases, an applicable variable margin. The variable margin will be based on the ratio of (a) the Company’s total consolidated net debt outstanding (as defined in the Amended Credit Agreement) at such time to (b) the Company’s consolidated EBITDA (as defined in the Amended Credit Agreement) computed for the period of four consecutive fiscal quarters most recently ended.
•The base rate for revolving loans will be the highest of (i) the federal funds rate plus 0.50%, (ii) the syndication agent’s prime rate, (iii) the daily LIBOR rate plus 1.00% or (iv) 0.00%. The applicable margin for base rate loans will vary between 0.50% to 1.50%.
•The LIBOR rate for revolving loans shall not be less than 0% and the applicable margin for LIBOR rate revolving loans will vary between 1.50% and 2.50%.
•For LIBOR rate revolving loans, the Company may choose to set the duration on individual borrowings for periods of one, two, three or six months, with the interest rate based on the applicable LIBOR rate for the corresponding duration.
At September 30, 2021, there were no borrowings under the 2018 Revolving Credit Facility. After reductions for outstanding letters of credit secured by these facilities, we had $496.1 million of additional borrowings available under the revolving credit facilities at September 30, 2021.
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 Credit 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, 2021, we were in compliance with the covenants of the Amended Credit Facility.
As noted in Note 4, on February 25, 2021, we completed the sale of our Tile Coatings business. Proceeds from the close of the transaction, in addition to current cash balances, were used to pay down our term loan facility in the amount of $435.0 million on February 25, 2021. The debt pay-down reduced outstanding amounts of the Tranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans, by $188.3 million, $124.7 million and $122.0 million, respectively. In conjunction with the prepayment of debt, we recorded a charge of $2.0 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss on extinguishment of debt in our consolidated statement of operations for the nine months ended September 30, 2021.
Receivable Sales Programs
We have several international programs to sell without recourse trade accounts receivable to financial institutions. During the third quarter of 2020, these programs were amended to include a domestic program. These transactions are treated as a sale and are accounted for as a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers. The Company continues to service the receivables sold in exchange for a fee. The servicing fee for the three and nine months ended September 30, 2021, were immaterial. The program, whose maximum capacity is €85 million, is scheduled to expire on December 31, 2023. Generally, at the transfer date, the Company receives cash equal to approximately 80% of the value of the sold receivable. Cash proceeds at the transfer date from these arrangements are reflected in operating activities in our consolidated statement of cash flows. The proceeds from the deferred purchase price are reflected in investing activities.
The outstanding principal amount of receivables sold under this program, which has not yet been collected from the customer, was $38.5 million at September 30, 2021 and $24.5 million at December 31, 2020. The carrying amount of deferred purchase price was $7.7 million at September 30, 2021 and $9.8 million at December 31, 2020 and is recorded in Other receivables. Trade accounts receivable collected from customers to be remitted to financial institutions were $39.3 million at September 30, 2021 and $36.0 million at December 31, 2020 recorded in Accrued expenses and other current liabilities.
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Activity from these programs for the nine months ended September 30, 2021 and 2020 is detailed below:
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020
Trade accounts receivable sold to financial institutions $ 467,245 $ 206,104
Cash proceeds from financial institutions (1)
375,196 139,549
(1)Excluded from the table above, in the nine months ended September 30, 2020, our Tile Coatings business received cash proceeds from financial institutions of $47.3 million. Refer to Note 4 for additional discussion of the Tile Coatings business and its classification as discontinued operations.
Other Financing Arrangements
We maintain other lines of credit to provide global flexibility for our short-term liquidity requirements. These facilities are uncommitted lines for our international operations and totaled $25.0 million and $28.1 million at September 30, 2021 and December 31, 2020, respectively. The unused portions of these lines provided additional liquidity of $25.0 million at September 30, 2021 and December 31, 2020.
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:
September 30, 2021
Carrying
Amount 		Fair Value
(Dollars in thousands) Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 148,754 $ 148,754 $ 148,754 $ — $ —
Term loan facility - Amended Credit Facility (1)
(355,058) (354,382) — (354,382) —
Other long-term notes payable (3,862) (2,324) — (2,324) —
Cross currency swaps 1,456 1,456 — 1,456 —
Interest rate swaps (17,595) (17,595) — (17,595) —
Foreign currency forward contracts, net (3,255) (3,255) — (3,255) —
December 31, 2020
Carrying
Amount 		Fair Value
(Dollars in thousands) Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 174,077 $ 174,077 $ 174,077 $ — $ —
Term loan facility - Amended Credit Facility (1)
(793,731) (783,143) — (783,143) —
Other long-term notes payable (3,706) (1,887) — (1,887) —
Cross currency swaps (5,162) (5,162) — (5,162) —
Interest rate swaps (24,694) (24,694) — (24,694) —
Foreign currency forward contracts, net 2,019 2,019 — 2,019 —
(1)The carrying value of the term loan facility is net of unamortized debt issuance costs of $1.2 million and $3.7 million for the period ended September 30, 2021, and December 31, 2020, respectively.

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The fair value of cash and cash equivalents are based on the fair values of identical assets. The fair value of loans payable is based on the present value of expected future cash flows and approximate their carrying amounts due to the short periods to maturity. The fair value of the term loan facility is based on market price information and is measured using the last available bid price of the instrument on a secondary market. The fair value of the revolving credit facility and other long-term notes payable are based on the present value of expected future cash flows and interest rates that would be currently available to the Company for issuance of similar types of debt instruments with similar terms and remaining maturities adjusted for the Company's performance risk. The fair values of our interest rate swaps and cross currency swaps are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of the foreign currency forward contracts are based on market prices for comparable contracts.
Derivative Instruments
The Company may use derivative instruments to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, on net investments in certain foreign subsidiaries and on certain existing assets and liabilities. However, the Company may choose not to hedge in countries where it is not economically feasible to enter into hedging arrangements or where hedging inefficiencies exist, such as timing of transactions.
Derivatives Designated as Hedging Instruments
Cash Flow Hedges. For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is recorded as a component of Accumulated other comprehensive loss (“AOCL”) and reclassified into earnings in the same period during which the hedged transaction affects earnings.
The Company utilizes interest rate swaps to limit exposure to market fluctuations on floating-rate debt.
During the second quarter of 2018, the Company entered into variable to fixed interest rate swaps with a maturity date of February 14, 2024. The notional amount is $308.8 million at September 30, 2021. These swaps are hedging risk associated with the Tranche B-1, B-2 and B-3 Loans. These interest rate swaps are designated as cash flow hedges. As of September 30, 2021, the Company expects it will reclassify net losses of approximately $8.5 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.
The Company has converted a U.S. dollar denominated, variable rate debt obligation into a Euro fixed rate obligation using receive-float, pay-fixed cross currency swaps in the second quarter of 2018. These swaps are hedging currency and interest rate risk associated with the Tranche B-3 Loan. These cross-currency swaps are designated as cash flow hedges. In conjunction with the pay-down of debt discussed in Note 8, we terminated all cross-currency swaps, except for one, which we de-designated and re-designated to hedge the remaining Tranche B-3 Loan after the interest rate swaps. Due to the original designation layering, the other comprehensive loss from the cross-currency swap at re-designation and the other comprehensive loss from the terminated cross-currency swaps were written-off as the interest payments were deemed remote. The Company paid counterparties $3.5 million to settle the terminated derivatives, resulting in a net $4.5 million being reclassified from AOCL to Interest expense as a result of this remote transaction. The remaining notional amount is $38.6 million at September 30, 2021, with a maturity date of February 14, 2024. As of September 30, 2021, the Company expects it will reclassify net losses of approximately $0.1 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of this derivative.
The amount of gain (loss) recognized in AOCL and the amount of loss (gain) reclassified into earnings for the three months ended September 30, 2021 and 2020, follow:
Amount of Gain (Loss)
Recognized in AOCL 		Amount of Loss (Gain)
Reclassified from
AOCL into Income 		Location of Gain (Loss)
Reclassified from
AOCL into Income
(Dollars in thousands) 2021 2020 2021 2020
Interest rate swaps $ (428) $ (975) $ (2,422) $ (1,648) Interest expense
Cross currency swaps 907  (10,286) (111) 116 Interest expense
$ (2,533) $ (1,532) Total Interest expense
Cross currency swaps 916  (9,825) Foreign currency losses (gains), net
$ 916  $ (9,825) Total Foreign currency losses (gains), net
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The amount of gain (loss) recognized in AOCL and the amount of loss (gain) reclassified into earnings for the nine months ended September 30, 2021 and 2020, follow:
Amount of Gain (Loss)
Recognized in AOCL 		Amount of Loss (Gain)
Reclassified from
AOCL into Income 		Location of Gain (Loss)
Reclassified from
AOCL into Income
(Dollars in thousands) 2021 2020 2021 2020
Interest rate swaps $ 625  $ (15,783) $ (6,035) $ (2,970) Interest expense
Cross currency swaps 3,215 (8,930) (234) 2,135 Interest expense
$ (6,269) $ (835) Total Interest expense
Cross currency swaps 3,410 (10,407) Foreign currency losses (gains), net
$ 3,410 $ (10,407) Total Foreign currency losses (gains), net
The total amounts of expense and the respective line items in which the effect of cash flow hedges is presented in the condensed consolidated statement of operations for the three and nine months ended September 30, 2021 and 2020, are as follows:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 2021 2020
Interest expense $ 5,436 $ 4,767 $ 19,879 $ 16,474
Foreign currency losses, net 426 1,450 4,793 1,278 
Net Investment Hedges. For derivatives that are designated and qualify as net investment hedges, the gain or loss on the derivative is reported as a component of the currency translation adjustment in AOCL. These cross-currency swaps are designated as hedges of our net investment in European operations. Time value is excluded from the assessment of effectiveness and the amount of interest paid or received on the swaps will be recognized as an adjustment to interest expense in earnings over the life of the swaps.
In the second quarter of 2018, the Company entered into cross currency swap agreements under which we pay variable rate interest in Euros and receive variable rate interest in U.S. dollars. The net investment hedge was terminated in the fourth quarter of 2020. These swaps were hedging risk associated with the net investment in Euro denominated operations due to fluctuating exchange rates and were designated as net investment hedges. The changes in the fair value of these designated cross-currency swaps were recognized in AOCL.
The amount of gain (loss) on net investment hedges recognized in AOCL and the amount of gain recognized in income on derivative (amount excluded from effectiveness testing) for the three months ended September 30, 2021 and 2020, follow:
Amount of Gain (Loss)
 Recognized in AOCL 		Amount of Gain
Recognized in Income on
Derivative (Amount Excluded
from Effectiveness Testing) 		Location of Gain
in Earnings
(Dollars in thousands) 2021 2020 2021 2020
Cross currency swaps $ — $ (4,285) $ — $ 259 Interest expense
The amount of gain (loss) on net investment hedges recognized in AOCL and the amount of gain recognized in income on derivative (amount excluded from effectiveness testing) for the nine months ended September 30, 2021 and 2020, follow:
Amount of Gain (Loss)
 Recognized in AOCL 		Amount of Gain
Recognized in Income on
Derivative (Amount Excluded
from Effectiveness Testing) 		Location of Gain
in Earnings
(Dollars in thousands) 2021 2020 2021 2020  
Cross currency swaps $ — $ (3,195) $ — $ 1,651 Interest expense
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Derivatives Not Designated as Hedging Instruments
Foreign Currency Forward Contracts. We manage foreign currency risks principally by entering into forward contracts to mitigate the impact of currency fluctuations on transactions. These forward contracts are not formally designated as hedges. Gains and losses on these foreign currency forward contracts are netted with gains and losses from currency fluctuations on transactions arising from international trade and reported as Foreign currency losses (gains), net in the condensed consolidated statements of operations. We recognized net losses of $2.6 million and $10.1 million in the three and nine months ended September 30, 2021, respectively, and net gains of $3.6 million and $4.0 million in the three and nine months ended September 30, 2020, respectively, arising from the change in fair value of our financial instruments, which partially offset the related net gains and losses on international trade transactions. The notional amount of foreign currency forward contracts was $705.7 million at September 30, 2021 and $494.2 million at December 31, 2020.
The following table presents the effect on our condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020, respectively, of our foreign currency forward contracts:
Amount of Gain (Loss)
Recognized in Earnings 		Amount of Gain (Loss) Recognized in Earnings Location of Gain (Loss) in Earnings
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 2021 2020
Foreign currency forward contracts $ (2,555) $ 3,586 $ (10,101) $ 3,996 Foreign currency losses (gains), net
Location and Fair Value Amount of Derivative Instruments
The following table presents the fair values of our derivative instruments on our condensed consolidated balance sheets. All derivatives are reported on a gross basis.
(Dollars in thousands) September 30,
2021 		December 31,
2020 		Balance Sheet Location
Asset derivatives:
Cross currency swaps $ 32 $ 9 Other current assets
Cross currency swaps 1,424 — Other non-current assets
Foreign currency forward contracts 1,133 2,649 Other current assets
Liability derivatives:
Interest rate swaps $ (8,450) $ (8,436) Accrued expenses and other current liabilities
Interest rate swaps (9,145) (16,258) Other non-current liabilities
Cross currency swaps — (67) Accrued expenses and other current liabilities
Cross currency swaps — (5,104) Other non-current liabilities
Foreign currency forward contracts (4,388) (630) Accrued expenses and other current liabilities
10.    Income Taxes
Income tax expense for the nine months ended September 30, 2021 was $29.9 million, or 38.6% of pre-tax income. Income tax expense for the nine months ended September 30, 2020 was $10.4 million, or 30.6% of pre-tax income. The tax expense during the nine months ended September 30, 2021, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21.0% primarily as a result of foreign statutory rate differences and an extraordinary distribution from a foreign affiliate subject to local country withholding taxes that were not fully creditable by the U.S. shareholder. The tax expense during the nine months ended September 30, 2020, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21.0% primarily as a result of foreign statutory rate differences and U.S. taxation of foreign earnings.

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11.    Contingent Liabilities
We have recorded environmental liabilities of $5.3 million and $5.7 million at September 30, 2021 and December 31, 2020, respectively, for costs associated with the remediation of certain of our current or former properties that have been contaminated. The balance at September 30, 2021 and December 31, 2020, were primarily comprised of liabilities related to a non-operating facility in Brazil, and for retained environmental obligations related to a site in the United States that was part of the sale of our North American and Asian metal powders product line in 2013. These costs include, but are not limited to, legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring, and related activities. The ultimate liability could be affected by numerous uncertainties, including the extent of contamination found, the required period of monitoring, the ultimate cost of required remediation, and other circumstances.
In November 2017, Suffolk County Water Authority filed a complaint, Suffolk County Water Authority v. The Dow Chemical Company et al., against the Company and a number of other companies in the U.S. Federal Court for the Eastern District of New York with regard to the product 1,4 dioxane. The plaintiff alleges, among other things, that the Suffolk County water supply is contaminated with 1,4 dioxane and that the defendants are liable for unspecified costs of cleanup and remediation of the water supply, among other damages. The Company has not manufactured 1,4 dioxane since 2008, denies the allegations related to liability for the plaintiff’s claims, and is vigorously defending this proceeding. Since December 2018, additional complaints were filed in the same court by 25 other New York municipal water suppliers and in New York State Supreme Court by one water supplier against the Company and others making substantially similar allegations regarding the contamination of their respective water supplies with 1,4 dioxane. The Company is likewise vigorously defending these additional actions. The Company currently does not expect the outcome of these proceedings to have a material adverse impact on its consolidated financial condition, results of operations, or cash flows, net of any insurance coverage. However, it is not possible to predict the ultimate outcome of these proceedings due to the unpredictable nature of litigation.
In addition to the proceedings described above, the Company and its consolidated subsidiaries are subject from time to time to various claims, lawsuits, investigations, and proceedings related to products, services, contracts, environmental, health and safety, employment, intellectual property, and other matters, including with respect to divested businesses. The outcome of such matters is unpredictable, our assessment of them may change, and resolution of them could have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. We do not currently expect the resolution of such matters to materially affect the consolidated financial position, results of operations, or cash flows of the Company.
12.    Retirement Benefits
Net periodic benefit cost (credit) of our U.S. pension plans (including our unfunded nonqualified plans), non-U.S. pension plans, and postretirement health care and life insurance benefit plans for the three months ended September 30, 2021 and 2020, respectively, follow:
U.S. Pension Plans Non-U.S. Pension Plans Other Benefit Plans
Three Months Ended September 30,
(Dollars in thousands) 2021 2020 2021 2020 2021 2020
Service cost $ — $ 3 $ 315 $ 325 $ — $ 1
Interest cost 1,880 2,387 316 379 68 132
Expected return on plan assets (3,824) (3,708) (107) (128) — —
Amortization of prior service cost — — (19) (5) — —
Net periodic benefit (credit) cost $ (1,944) $ (1,318) $ 505 $ 571 $ 68 $ 133

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Net periodic benefit cost (credit) of our U.S. pension plans (including our unfunded nonqualified plans), non-U.S. pension plans, and postretirement health care and life insurance benefit plans for the nine months ended September 30, 2021 and 2020, respectively, follow:
U.S. Pension Plans Non-U.S. Pension Plans Other Benefit Plans
Nine Months Ended September 30,
(Dollars in thousands) 2021 2020 2021 2020 2021 2020
Service cost $ —  $ 9  $ 987  $ 904  $ —  $ 2 
Interest cost 5,641  7,162  994  1,052  204  397 
Expected return on plan assets (11,472) (11,124) (337) (356) —  — 
Amortization of prior service cost —  —  (60) (14) —  — 
Net periodic benefit (credit) cost $ (5,831) $ (3,953) $ 1,584  $ 1,586  $ 204  $ 399 
Interest cost, expected return on plan assets and amortization of prior service cost are recorded in Miscellaneous income, net on the condensed consolidated statement of operations.
13.    Stock-Based Compensation
On May 3, 2018, our shareholders approved the 2018 Omnibus Incentive Plan (the “Plan”), which was adopted by the Board of Directors on February 22, 2018. The Plan’s purpose is to promote the Company’s long-term financial interests and growth by attracting, retaining and motivating high-quality key employees and directors, motivating such employees and directors to achieve the Company’s short- and long-range performance goals and objectives, and thereby align their interests with those of the Company’s shareholders. The Plan reserves 4,500,000 shares of common stock to be issued for grants of several different types of long-term incentives including stock options, stock appreciation rights, restricted awards, performance awards, other common stock-based awards, and dividend equivalent rights.
The Plan replaced the 2013 Omnibus Incentive Plan (the “Previous Plan”), and no future grants may be made under the Previous Plan. However, any outstanding awards or grants made under the Previous Plan will continue until the end of their specified terms.
Through the nine months ended September 30, 2021, our Board of Directors granted 0.3 million stock options, 0.2 million performance share units, and 0.2 million restricted share units under the Plan.
We estimate the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The following table details the weighted-average grant-date fair values and the assumptions used for estimating the fair values of stock option grants made during the nine months ended September 30, 2021:
Stock Options
Weighted-average grant-date fair value $ 5.94
Expected life, in years 6
Risk-free interest rate 0.76%
Expected volatility 40.39%
The weighted-average grant date fair value of our performance share units granted in the nine months ended September 30, 2021, was $16.00. We measure the fair value of performance share units based on the closing market price of our common stock on the date of the grant. These shares are evaluated each reporting period for respective attainment rates against the performance criteria.
The weighted-average grant date fair value of our restricted share units granted in the nine months ended September 30, 2021, was $15.07. We measure the fair value of restricted share units based on the closing market price of our common stock on the date of the grant. The restricted share units vest over three years.
We recognized stock-based compensation expense of $1.4 million and $6.5 million for the three and nine months ended September 30, 2021, respectively, and $1.6 million and $7.1 million for the three and nine months ended September 30, 2020, respectively. At September 30, 2021, unearned compensation cost related to the unvested portion of all stock-based compensation awards was approximately $9.8 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of 2024.
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14.    Restructuring and Optimization Programs
Total restructuring charges were $0.6 million and $7.8 million for the three and nine months ended September 30, 2021, respectively, and $2.4 million and $12.2 million for the three and nine months ended September 30, 2020, respectively. As discussed in Note 4, our Tile Coatings business was classified as held-for-sale during the fourth quarter of 2019. As such, there were additional restructuring charges of $0.3 million for the nine months ended September 30, 2021 and $0.3 million and $2.3 million for the three and nine months ended September 30, 2020, respectively, classified as Net income from discontinued operations, net of income taxes.
Organizational Optimization Plan
In conjunction with the sale of the Tile Coatings business, discussed in Note 4, we developed our Organizational Optimization Plan and initiated a program across the organization with the objective of realigning the business and lowering our cost structure. As a result of these actions, the Company expects to incur total charges of approximately $5.7 million, substantially all of which will be for anticipated severance costs. The remaining activities of the program are expected to be recognized throughout the remainder of 2021. Charges associated with the program were $0.2 million and $3.2 million for the three and nine months ended September 30, 2021, respectively, and $1.2 million for the three and nine months ended September 30, 2020.
Americas Manufacturing Optimization Plan
In the second quarter of 2019, we developed our Americas Manufacturing Optimization Plan and initiated a program across the organization with the objective of realigning the business and lowering our cost structure. The Americas Manufacturing Optimization Plan is focused on the construction of a new manufacturing center of excellence located in Villagran, Mexico. We are in the process of consolidating two plants located in the United States and two sites in Latin America into the expanded Villagran location. As a result of these actions, the Company expects to incur total charges of approximately $9.5 million, substantially all of which will be for anticipated severance costs. The remaining activities of the program are expected to be recognized within the next 12 months. Charges associated with the program were $0.1 million and $2.5 million for the three and nine months ended September 30, 2021, respectively, and $1.1 million for the nine months ended September 30, 2020.
Global Optimization Plan
The program involves our global operations and certain functions and initiatives to increase operational efficiencies, some of which is associated with integration of our acquisitions. Actions associated with the Global Optimization Plan are substantially completed, and as such, we do not anticipate material charges related to this plan for the remainder of 2021. Charges associated with the program were $0.3 million and $2.1 million for the three and nine months ended September 30, 2021, respectively, and $1.2 million and $9.9 million for the three and nine months ended September 30, 2020, respectively.
The charges associated with these programs are further summarized below.
(Dollars in thousands) Employee
Severance 		Other
Costs 		Total
Balances at December 31, 2020
$ 5,510  $ 4,460  $ 9,970 
Restructuring charges 5,697  2,059  7,756 
Cash payments (6,178) (1,454) (7,632)
Balances at September 30, 2021
$ 5,029  $ 5,065  $ 10,094 
We expect to make cash payments to settle the remaining liability for employee severance benefits and other costs over the next twelve months, except where legal or contractual obligations would require it to extend beyond that period.
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15.    Earnings Per Share
Details of the calculation of basic and diluted earnings per share are shown below:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in thousands, except per share amounts) 2021 2020 2021 2020
Basic earnings per share computation:
Income from continuing operations $ 11,679  $ 9,547  $ 47,664  $ 23,533 
Less: Net income attributable to noncontrolling interests from continuing operations 482  451  1,237  793 
Net income attributable to Ferro Corporation from continuing operations 11,197  9,096  46,427  22,740 
Income (loss) from discontinued operations, net of income taxes (822) 5,367  87,484  2,350 
Less: Net income (loss) attributable to noncontrolling interests from discontinued operations —  (11) 64  33 
Net income (loss) attributable to Ferro Corporation from discontinued operations (822) 5,378  87,420  2,317 
Total $ 10,375  $ 14,474  $ 133,847  $ 25,057 
Weighted-average common shares outstanding 82,719  82,261  82,627  82,201 
Basic earnings per share from continuing operations attributable to Ferro Corporation common shareholders $ 0.14  $ 0.11  $ 0.56  $ 0.28 
Diluted earnings per share computation:
Net income attributable to Ferro Corporation from continuing operations $ 11,197  9,096  46,427  22,740 
Net income (loss) attributable to Ferro Corporation from discontinued operations (822) 5,378  87,420  2,317 
Total $ 10,375  $ 14,474  $ 133,847  $ 25,057 
Weighted-average common shares outstanding 82,719  82,261  82,627  82,201 
Assumed exercise of stock options 629  272  531  260 
Assumed satisfaction of restricted stock unit conditions 155  157  200  300 
Assumed satisfaction of performance share unit conditions 184  81  162  130 
Weighted-average diluted shares outstanding 83,687  82,771  83,520  82,891 
Diluted earnings per share from continuing operations attributable to Ferro Corporation common shareholders $ 0.13  $ 0.11  $ 0.56  $ 0.27 
The number of anti-dilutive shares were 2.0 million for the three and nine months ended September 30, 2021, respectively, and 2.8 million and 2.7 million for the three and nine months ended September 30, 2020, respectively. These shares are excluded from the calculation of diluted earnings per share due to their anti-dilutive impact.
16.    Share Repurchase Programs
The Company’s Board of Directors has approved share repurchase programs under which the Company is authorized to repurchase up to $150 million of the Company’s outstanding shares of common stock on the open market, including through a Rule 10b5-1 plan, or in privately negotiated transactions.
The timing and amount of shares to be repurchased will be determined by the Company, based on evaluation of market and business conditions, share price, and other factors, including limitations contained in the Merger Agreement with Prince. The share repurchase programs do not obligate the Company to repurchase any dollar amount or number of common shares, and may be suspended or discontinued at any time.
As of September 30, 2021, $46.2 million remains authorized under the programs for the repurchase of common stock.
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17.    Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component, net of tax, were as follows:
Three Months Ended September 30,
(Dollars in thousands) Postretirement
Benefit Liability
Adjustments 		Foreign
Currency
Items 		Net Gain (Loss)
on Cash Flow
Hedges 		Total
Balances at June 30, 2020 $ 1,206  $ (111,954) $ (23,607) $ (134,355)
Other comprehensive income (loss) before reclassifications, before tax —  13,022  (11,261) 1,761 
Reclassification to earnings:
Cash flow hedge income (loss), before tax —  —  11,357  11,357 
Current period other comprehensive income (loss), before tax —  13,022  96  13,118 
Tax effect —  (1,052) (173) (1,225)
Current period other comprehensive income (loss), net of tax —  14,074  269  14,343 
Balances at September 30, 2020
$ 1,206  $ (97,880) $ (23,338) $ (120,012)
Balances at June 30, 2021 $ 3,328  $ (130,283) $ (14,358) $ (141,313)
Other comprehensive income (loss) before reclassifications, before tax —  (5,391) 479  (4,912)
Reclassification to earnings:
Postretirement benefit liabilities income (loss), before tax 2  —  —  2 
Cash flow hedge income (loss), before tax —  —  1,617  1,617 
Current period other comprehensive income (loss), before tax 2  (5,391) 2,096  (3,293)
Tax effect —  (941) 543  (398)
Current period other comprehensive income (loss), net of tax 2  (4,450) 1,553  (2,895)
Balances at September 30, 2021
$ 3,330  $ (134,733) $ (12,805) $ (144,208)
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Nine Months Ended September 30,
(Dollars in thousands) Postretirement
Benefit Liability
Adjustments 		Foreign
Currency
Items 		Net Gain (Loss)
on Cash Flow
Hedges 		Total
Balances at December 31, 2019
$ 1,206  $ (97,575) $ (13,007) $ (109,376)
Other comprehensive income (loss) before reclassifications, before tax —  (1,427) (24,713) (26,140)
Reclassification to earnings:
Cash flow hedge income (loss), before tax —  —  11,242  11,242 
Current period other comprehensive income (loss), before tax —  (1,427) (13,471) (14,898)
Tax effect —  (1,122) (3,140) (4,262)
Current period other comprehensive income (loss), net of tax —  (305) (10,331) (10,636)
Balances at September 30, 2020
$ 1,206  $ (97,880) $ (23,338) $ (120,012)
Balances at December 31, 2020
$ 3,199  $ (70,482) $ (22,427) $ (89,710)
Other comprehensive income (loss) before reclassifications, before tax —  (81,857) 3,840  (78,017)
Reclassification to earnings:
Postretirement benefit liabilities income (loss), before tax 131  —  —  131 
Currency translation reclassification to income on divestiture —  17,305  —  17,305 
Amount reclassification to income (remote transaction) —  —  4,509  4,509 
Cash flow hedge income (loss), before tax —  —  2,859  2,859 
Current period other comprehensive income (loss), before tax 131  (64,552) 11,208  (53,213)
Tax effect —  (301) 1,586  1,285 
Current period other comprehensive income (loss), net of tax 131  (64,251) 9,622  (54,498)
Balances at September 30, 2021
$ 3,330  $ (134,733) $ (12,805) $ (144,208)


18. Reporting for Segments
Net sales to external customers by segment are presented in the table below. Sales between segments were not material.
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 2021 2020
Functional Coatings $ 179,568  $ 154,218  $ 559,299  $ 441,325 
Color Solutions 97,660  87,659  300,618  257,679 
Total net sales $ 277,228  $ 241,877  $ 859,917  $ 699,004 
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Each segment’s gross profit and reconciliation to income before income taxes are presented in the table below:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 2021 2020
Functional Coatings $ 51,094  $ 41,906  $ 172,491  $ 125,842 
Color Solutions 32,790  28,450  103,150  89,222 
Other cost of sales (506) (190) (2,325) (416)
Total gross profit 83,378  70,166  273,316  214,648 
Selling, general and administrative expenses 54,520  47,820  167,384  154,407 
Restructuring and impairment charges 602  2,447  7,756  12,231 
Other expense, net 2,777  5,305  20,566  14,113 
Income (loss) before income taxes $ 25,479  $ 14,594  $ 77,610  $ 33,897 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Net sales for the three months ended September 30, 2021, increased by $35.4 million, or 14.6%, compared with the prior-year same period. Net sales increased by $25.4 million in Functional Coatings and $10.0 million in Color Solutions. During the three months ended September 30, 2021, gross profit increased $13.2 million, or 18.8%, compared with the prior-year same period; as a percentage of net sales, it increased approximately 110 basis points to 30.1%. Our total gross profit for the third quarter of 2021 was $83.4 million, compared with $70.2 million for the three months ended September 30, 2020. The increase in gross profit was attributable to higher gross profit in Functional Coatings of $9.2 million and in Color Solutions of $4.3 million.
For the three months ended September 30, 2021, selling, general and administrative (“SG&A”) expenses increased $6.7 million, or 14.0%, compared with the prior-year same period. As a percentage of net sales, it decreased approximately 10 basis points to 19.7%.
For the three months ended September 30, 2021, net income was $10.9 million, compared with $14.9 million for the prior-year same period, and net income attributable to common shareholders was $10.4 million, compared with $14.5 million for the prior-year same period. Income from continuing operations was $11.7 million for the three months ended September 30, 2021, compared with $9.5 million for the prior-year same period.
Outlook
Ferro experienced higher demand across all business segments in the third quarter, continuing the trend established throughout 2021 as customer markets have improved from 2020. The impact of the COVID pandemic through the remainder of 2021 is unknown, even with the global availability of vaccines. Ferro expects to continue to benefit from strategic actions taken prior to and during the pandemic to optimize our business, invest in technology platforms, align with macrotrends, and focus on higher-margin, higher-growth markets.
Ferro provides products and services that are essential to our customers as they innovate to address trends in their markets and develop next generation products. We sell our products and services in multiple markets and geographies around the world, which limits exposure to any one industry or region. In addition, we serve a diverse set of industries, including automotive, construction, appliances, healthcare, food and beverage, information technology, energy and defense. COVID-related behavior changes have accelerated demand for certain products, especially those in industries supporting mobility, entertainment and personal technology, smart appliances, construction, and sustainable product packaging.
Ferro continues to maintain protocols for the safety and well-being of our personnel. We monitor the impact of COVID-19 on our business, including how it may impact our customers, employees, supply chain and distribution network and take action, as appropriate, to address these circumstances. In some areas around the world, government mandates have been changed and economic conditions have improved in certain sectors of the economy relative to 2020. Recently, some regions have experienced increasing numbers of COVID-19 cases, and if this continues and if public authorities intensify efforts to contain the spread of COVID-19, normal business activity may be further disrupted, and economic conditions could weaken.
In 2021, following the completion of the sale of our Tile Coatings Business, we are transitioning to a smaller, more agile and more streamlined global business with a more coherent and focused portfolio aligned with evolving megatrends. On May 11, 2021, Ferro announced that it has entered into a definitive agreement to be acquired by an affiliate of Prince International Corporation, a portfolio company of American Securities LLC. The transaction is anticipated to close in the first quarter of 2022.
The outlook for the remainder of 2021 and into 2022 may be affected by the rise of inflation, which could impact raw material and supply chain logistics. Foreign currency rates may continue to be volatile through 2021 and changes in interest rates could adversely impact reported results. We continue to expect cash flow from operating activities to be positive for 2021.
Factors that could adversely affect our future performance include those described under the heading “Risk Factors” in Item 1A of Part I of the Annual Report on Form 10-K for the year ended December 31, 2020.
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Results of Operations - Consolidated
Comparison of the three months ended September 30, 2021 and 2020
For the three months ended September 30, 2021, net income from continuing operations was $11.7 million, compared with $9.5 million for the three months ended September 30, 2020. For the three months ended September 30, 2021, net income attributable to common shareholders was $10.4 million, or earnings per share of $0.13, compared with of $14.5 million, or earnings per share of $0.18, for the three months ended September 30, 2020.
Net Sales
Three Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Net sales $ 277,228  $ 241,877  $ 35,351  14.6  %
Cost of sales 193,850  171,711  22,139  12.9  %
Gross profit $ 83,378  $ 70,166  $ 13,212  18.8  %
Gross profit as a % of net sales 30.1  % 29.0  %
Net sales increased by $35.4 million, or 14.6%, for the three months ended September 30, 2021, compared with the prior-year same period, driven by higher sales in Functional Coatings and Color Solutions of $25.4 million and $10.0 million, respectively. The increase in net sales was driven by favorable volume and mix of $28.5 million, higher product pricing of $4.1 million and favorable foreign currency impacts of $2.7 million.
Gross Profit
Gross profit increased $13.2 million, or 18.8%, for the three months ended September 30, 2021, compared with the prior-year same period. As a percentage of net sales, gross profit increased approximately 110 basis points to 30.1%. The increase was attributable to an increase in gross profit in Functional Coatings and Color Solutions of $9.2 million and $4.3 million, respectively. The increase in gross profit was primarily driven by favorable sales volume and mix of $14.0 million, higher product pricing of $4.1 million, favorable foreign currency impacts of $0.6 million, and favorable manufacturing costs of $0.1 million, partially offset by higher raw material costs of $5.6 million.
Geographic Revenues
The following table presents our sales on the basis of where sales originated.
Three Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Geographic Revenues on a sales origination basis
EMEA $ 115,694  $ 95,553  $ 20,141  21.1  %
Americas 118,697  108,779  9,918  9.1  %
Asia Pacific 42,837  37,545  5,292  14.1  %
Net sales $ 277,228  $ 241,877  $ 35,351  14.6  %
The increase in net sales of $35.4 million, compared with the prior-year same period, was driven by increases in sales from all regions. The increase in sales from EMEA was attributable to higher sales in Functional Coatings and Color Solutions of $16.4 million and $3.7 million, respectively. The increase in sales from the Americas was attributable to higher sales in Color Solutions and Functional Coatings of $6.3 million and $3.6 million, respectively. The increase in sales from Asia Pacific was attributable to higher sales in Functional Coatings of $5.3 million.
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Selling, General and Administrative (“SG&A”) Expenses
The following table includes SG&A component changes between 2021 and 2020.
Three Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Personnel expenses (excluding R&D personnel expenses) $ 20,263  $ 19,827  436  2.2  %
Research and development expenses 7,892  8,488  (596) (7.0) %
Business development 5,235  3,113  2,122  68.2  %
Incentive compensation 8,404  2,018  6,386  316.5  %
Stock-based compensation 1,419  1,608  (189) (11.8) %
Intangible asset amortization 1,521  1,504  17  1.1  %
Pension and other postretirement benefits 315  213  102  47.9  %
Bad debt 59  62  (3) (4.8) %
All other expenses 9,412  10,987  (1,575) (14.3) %
Selling, general and administrative expenses $ 54,520  $ 47,820  $ 6,700  14.0  %
SG&A expenses were $6.7 million higher in the three months ended September 30, 2021, compared with the prior-year same period. The higher SG&A expenses compared to the prior-year same period are primarily driven by higher incentive compensation and business development costs, partially offset by other expenses, primarily associated with consulting and professional fees.
The following table presents SG&A expenses attributable to sales, research and development and operations costs as strategic services and other SG&A costs as functional services.
Three Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Strategic services $ 23,488  $ 22,363 $ 1,125  5.0  %
Functional services 21,209  21,831 (622) (2.8) %
Incentive compensation 8,404  2,018 6,386  316.5  %
Stock-based compensation 1,419  1,608 (189) (11.8) %
Selling, general and administrative expenses $ 54,520  $ 47,820 $ 6,700  14.0  %
Restructuring and Impairment Charges
Three Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Employee severance $ 258  $ 1,960  $ (1,702) (86.8) %
Other restructuring costs 344  487  (143) (29.4) %
Restructuring and impairment charges $ 602  $ 2,447  $ (1,845) (75.4) %
Restructuring and impairment charges decreased in the three months ended September 30, 2021, compared with the prior-year same period. The decrease primarily relates to previously disclosed plans being substantially completed with any remaining costs expected to be recognized within the next 12 months. Refer to Note 14 to the consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of our optimization plans and related costs.
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Interest Expense
Three Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Interest expense $ 5,452  $ 4,810  $ 642  13.3  %
Amortization of bank fees 499  1,071  (572) (53.4) %
Interest swap amortization (315) (315) —  —  %
Interest capitalization (200) (799) 599  (75.0) %
Interest expense $ 5,436  $ 4,767  $ 669  14.0  %
Interest expense increased in the three months ended September 30, 2021, compared with the prior-year same period. The increase in interest expense was primarily due to higher interest expense allocated to our Tile Coatings business in the three months ended September 30, 2020, and lower capitalized interest associated with our North American Manufacturing Optimization project, partially offset by lower amortization of bank fees due to a decrease in the average long-term debt and average deferred fee balances during the three months ended September 30, 2021, compared with the prior-year same period.
Income Tax Expense
Income tax expense for the three months ended September 30, 2021, was $13.8 million, or 54.2% of pre-tax income. Income tax expense for the three months ended September 30, 2020 was $5.0 million, or 34.6% of pre-tax income. The tax expense for the three months ended September 30, 2021, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21.0% primarily as a result of foreign statutory rate differences, an extraordinary distribution from a foreign affiliate subject to local country withholding taxes that were not fully creditable by the U.S. shareholder and the impact from an enactment of a tax rate change in a foreign jurisdiction. The tax expense during the three months ended September 30, 2020, as a percentage of pre-tax loss, is higher than the U.S. federal statutory income tax rate of 21.0% primarily as a result of foreign statutory rate differences and U.S. taxation of foreign earnings.
Results of Operations - Segment Information
Comparison of the three months ended September 30, 2021 and 2020
Functional Coatings
Three Months Ended
September 30, 		Change due to
(Dollars in thousands) 2021 2020 $ Change % Change Price Volume /
Mix 		Currency Other
Segment net sales $ 179,568 $ 154,218 $ 25,350  16.4  % $ 1,642  $ 21,820  $ 1,888  $ — 
Segment gross profit 51,094  41,906 9,188  21.9  % 1,642  11,010  122  (3,586)
Gross profit as a % of segment net sales 28.5  % 27.2  %
Net sales increased compared with the prior-year same period, primarily driven by higher sales in decoration, electronics, porcelain enamel, automotive and industrial products of $8.6 million, $7.0 million, $5.4 million, $2.5 million and $1.9 million, respectively. The increase in net sales was driven by favorable volume and mix of $21.8 million, foreign currency impacts of $1.9 million and increased product pricing of $1.6 million. Gross profit increased from the prior-year same period primarily due to favorable volume and mix of $11.0 million, increased product pricing of $1.6 million and favorable foreign currency impacts of $0.1 million, partially offset by unfavorable raw material costs of $2.8 million and unfavorable manufacturing costs of $0.8 million.
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Three Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Segment net sales by Region
EMEA $ 81,508  $ 65,081  $ 16,427  25.2  %
Americas 66,005  62,358  3,647  5.8  %
Asia Pacific 32,055  26,779  5,276  19.7  %
Total $ 179,568  $ 154,218  $ 25,350  16.4  %
The net sales increase of $25.4 million was primarily driven by higher sales from all regions. The increase in sales from EMEA was primarily attributable to higher sales of decoration, electronics, porcelain enamel and industrial products of $5.6 million, $4.7 million, $4.1 million and $2.5 million, respectively, partially offset by lower sales in automotive products by $0.3 million. The increase in sales from the Americas was primarily attributable to higher sales of electronics, automotive, porcelain enamel and decoration products of $1.8 million, $1.6 million, $1.1 million and 0.5 million, respectively, partially offset by lower sales of industrial products of $1.4 million. The increase in sales from Asia Pacific was primarily attributable to higher sales of decoration, automotive, industrial, electronics and porcelain enamel of $2.5 million, $1.2 million, $0.8 million, $0.5 million and $0.1 million, respectively.
Color Solutions
Three Months Ended
September 30, 		Change due to
(Dollars in thousands) 2021 2020 $ Change % Change Price Volume /
Mix 		Currency Other
Segment net sales $ 97,660 $ 87,659 $ 10,001  11.4  % $ 2,449  $ 6,714  $ 838  $ — 
Segment gross profit 32,790 28,450 4,340  15.3  % 2,449  3,013  476  (1,598)
Gross profit as a % of segment net sales 33.6  % 32.5  %
Net sales increased compared with the prior-year same period, primarily driven by higher sales of pigment and dispersions and colorants products of $9.7 million and $0.8 million, respectively, partially offset by lower sales of surface technology products of $0.5 million. The increase in net sales was driven by favorable volume and mix of $6.7 million, increased product pricing of $2.4 million and favorable foreign currency impacts of $0.8 million. Gross profit increased from the prior-year same period, primarily due to favorable sales volume and mix of $3.0 million, increased product pricing of $2.4 million, favorable manufacturing costs of $1.3 million and favorable foreign currency impacts of $0.5 million, partially offset by unfavorable raw material costs of $2.9 million.
Three Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Segment net sales by Region
EMEA $ 34,186  $ 30,472  $ 3,714  12.2  %
Americas 52,692  46,421  6,271  13.5  %
Asia Pacific 10,782  10,766  16  0.1  %
Total $ 97,660  $ 87,659  $ 10,001  11.4  %
The net sales increase of $10.0 million was driven by higher sales from all regions. The increase in sales from the Americas was primarily driven by higher sales of pigment, dispersions and colorants and surface technology products of $5.4 million, $0.7 million and $0.2 million, respectively. The increase in sales from EMEA was primarily attributable to higher sales of pigment and dispersions and colorants products of $3.6 million and $0.1 million, respectively. The increase in sales from Asia Pacific was attributable to higher sales of pigment products of $0.7 million, partially offset by lower sales of surface technology of $0.7 million.
Comparison of the nine months ended September 30, 2021 and 2020
For the nine months ended September 30, 2021, net income from continuing operations was $47.7 million, compared with $23.5 million for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, net
32
income attributable to common shareholders was $133.8 million, or earnings per share of $1.62, compared with $25.1 million, or earnings per share of $0.31, for the nine months ended September 30, 2020.
Net Sales
  Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Net sales $ 859,917  $ 699,004  $ 160,913  23.0  %
Cost of sales 586,601  484,356  102,245  21.1  %
Gross profit $ 273,316  $ 214,648  $ 58,668  27.3  %
Gross profit as a % of net sales 31.8  % 30.7  %
Net sales increased by $160.9 million, or 23.0% for the nine months ended September 30, 2021, compared with the prior-year same period, driven by higher sales in Functional Coatings and Color Solutions of $118.0 million and $42.9 million, respectively. The increase in net sales was driven by favorable volume and mix of $131.1 million, favorable foreign currency impacts of $21.5 million and higher product pricing of $8.3 million.
Gross Profit
Gross profit increased $58.7 million, or 27.3% for the nine months ended September 30, 2021, compared with the prior-year same period. As a percentage of net sales, gross profit increased approximately 110 basis points to 31.8%. The increase was attributable to an increase in gross profit in Functional Coatings of $46.6 million and in Color Solutions of $13.9 million. The increase in gross profit was primarily driven by favorable sales volume and mix of $43.7 million, higher product pricing of $8.3 million, favorable foreign currency impacts of $7.1 million and favorable manufacturing costs of $1.8 million, partially offset by higher raw material costs of $2.3 million.
Geographic Revenues
The following table presents our sales on the basis of where sales originated.
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Geographic Revenues on a sales origination basis
EMEA $ 372,635  $ 288,244  $ 84,391  29.3  %
Americas 362,529  311,320  51,209  16.4  %
Asia Pacific 124,753  99,440  25,313  25.5  %
Net sales $ 859,917  $ 699,004  $ 160,913  23.0  %
The increase in net sales of $160.9 million, compared with the prior-year same period, was driven by increases in sales from all regions. The increase in sales from EMEA was attributable to higher sales in Functional Coatings and Color Solutions of $69.4 million and $15.0 million, respectively. The increase in sales from the Americas was attributable to higher sales in Functional Coatings and Color Solutions of $26.9 million and $24.3 million, respectively. The increase in sales from Asia Pacific was attributable to higher sales in Functional Coatings and Color Solutions of $21.6 million and $3.7 million, respectively.
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Selling, General and Administrative (“SG&A”) Expenses
The following table includes SG&A component changes between 2021 and 2020.
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Personnel expenses (excluding R&D personnel expenses) $ 64,875  $ 62,355  $ 2,520  4.0  %
Research and development expenses 25,007  26,906  (1,899) (7.1) %
Business development 16,482  8,951  7,531  84.1  %
Incentive compensation 12,404  6,109  6,295  103.0  %
Stock-based compensation 6,134  6,550  (416) (6.4) %
Intangible asset amortization 4,583  4,593  (10) (0.2) %
Pension and other postretirement benefits 987  554  433  78.2  %
Bad debt 101  158  (57) (36.1) %
All other expenses 36,811  38,231  (1,420) (3.7) %
Selling, general and administrative expenses $ 167,384  $ 154,407  12,977  8.4  %
SG&A expenses were $13.0 million higher in the nine months ended September 30, 2021, compared with the prior-year same period. The higher SG&A expenses compared to the prior-year same period are primarily driven by higher business development costs, incentive compensation and personnel expenses, partially offset by lower research and development expenses and other expenses.
The following table presents SG&A expenses attributable to sales, research and development and operations costs as strategic services and other SG&A costs as functional services.
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Strategic services $ 71,616  $ 69,474 $ 2,142  3.1  %
Functional services 77,230  72,274 4,956  6.9  %
Incentive compensation 12,404  6,109 6,295  103.0  %
Stock-based compensation 6,134  6,550 (416) (6.4) %
Selling, general and administrative expenses $ 167,384  $ 154,407 $ 12,977  8.4  %
Restructuring and Impairment Charges
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Employee severance $ 5,697  $ 9,792  $ (4,095) (41.8) %
Other restructuring costs 2,059  2,439  (380) (15.6) %
Restructuring and impairment charges $ 7,756  $ 12,231  $ (4,475) (36.6) %
Restructuring and impairment charges decreased in the nine months ended September 30, 2021, compared with the prior-year same period. The decrease primarily relates to previously disclosed plans being substantially completed with any remaining costs expected to be recognized within the next 12 months. Refer to Note 14 to the consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of our optimization plans and related costs.
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Interest Expense
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Interest expense $ 20,574  $ 17,039  $ 3,535  20.7  %
Amortization of bank fees 1,601  2,866  (1,265) (44.1) %
Interest swap amortization (947) (947) —  —  %
Interest capitalization (1,349) (2,484) 1,135  (45.7) %
Interest expense $ 19,879  $ 16,474  $ 3,405  20.7  %
Interest expense increased in the nine months ended September 30, 2021, compared with the prior-year same period. The increase in interest expense was primarily due to higher interest expense allocated to our Tile Coatings business in the nine months ended September 30, 2020 and lower capitalized interest associated with our North American Manufacturing Optimization project, partially offset by lower amortization of bank fees due to a decrease in the average long-term debt and average deferred fee balances during the nine months ended September 30, 2021, compared with the prior-year same period.
Income Tax Expense
Income tax expense for the nine months ended September 30, 2021 was $29.9 million, or 38.6% of pre-tax income. Income tax expense for the nine months ended September 30, 2020 was $10.4 million, or 30.6% of pre-tax income. The tax expense for the nine months ended September 30, 2021, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21.0% primarily as a result of foreign statutory rate differences and an extraordinary distribution from a foreign affiliate subject to local country withholding taxes that were not fully creditable by the U.S. shareholder. The tax expense during the nine months ended September 30, 2020, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21.0% primarily as a result of foreign statutory rate differences and U.S. taxation of foreign earnings.
Results of Operations - Segment Information
Comparison of the nine months ended September 30, 2021 and 2020
Functional Coatings
Nine Months Ended
September 30,
 Change due to
(Dollars in thousands) 2021 2020 $ Change % Change Price Volume /
Mix 		Currency Other
Segment net sales $ 559,299 $ 441,325 $ 117,974  26.7  % $ 5,622  $ 98,576  $ 13,776  $ — 
Segment gross profit 172,491 125,842 46,649  37.1  % 5,622  33,734  4,073  3,220 
Gross profit as a % of segment net sales 30.8  % 28.5  %
Net sales increased compared with the prior-year same period, primarily driven by higher sales in porcelain enamel, decoration, automotive, electronics and industrial products of $32.3 million, $25.1 million, $22.3 million, $21.8 million and $16.4 million, respectively. The increase in net sales was driven by favorable volume and mix of $98.6 million, foreign currency impacts of $13.8 million and increased product pricing of $5.6 million. Gross profit increased from the prior-year same period primarily due to favorable volume and mix of $33.7 million, increased product pricing of $5.6 million, favorable foreign currency impacts of $4.1 million and favorable manufacturing costs of $3.5 million, partially offset by unfavorable raw material costs of $0.3 million.
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Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Segment net sales by Region
EMEA $ 261,449  $ 192,009  $ 69,440  36.2  %
Americas 205,969  179,048  26,921  15.0  %
Asia Pacific 91,881  70,268  21,613  30.8  %
Total $ 559,299  $ 441,325  $ 117,974  26.7  %
The net sales increase of $118.0 million was primarily driven by higher sales from all regions. The increase in sales from EMEA was primarily attributable to higher sales of decoration, porcelain enamel, industrial, electronics and automotive products of $16.7 million, $16.4 million, $14.4 million, $12.8 million and $9.2 million, respectively. The increase in sales from the Americas was primarily attributable to higher sales of porcelain enamel, electronics, automotive and decoration products of $11.9 million, $7.5 million, $7.1 million and $2.1 million, respectively, partially offset by lower sales of industrial products of $1.6 million. The increase in sales from Asia Pacific was primarily attributable to increased sales of decoration, automotive, porcelain enamel, industrial and electronics products of $6.4 million, $6.1 million, $4.0 million, $3.6 million and $1.6 million, respectively.
Color Solutions
Nine Months Ended
September 30,
 Change due to
(Dollars in thousands) 2021 2020 $ Change % Change Price Volume /
Mix 		Currency Other
Segment net sales $ 300,618 $ 257,679 $ 42,939  16.7  % $ 2,641  $ 32,553  $ 7,745  $ — 
Segment gross profit 103,150 89,222 13,928  15.6  % 2,641  9,995  3,067  (1,775)
Gross profit as a % of segment net sales 34.3  % 34.6  %
Net sales increased compared with the prior-year same period, primarily driven by higher sales of pigment, surface technology and dispersions and colorants products of $33.2 million, $5.8 million and $3.9 million, respectively. The increase in net sales was driven by favorable volume and mix of $32.6 million, favorable foreign currency impacts of $7.7 million and increased product pricing of $2.6 million. Gross profit increased from the prior-year same period, primarily due to favorable sales volume and mix of $10.0 million, favorable foreign currency impacts of $3.1 million, increased product pricing of $2.6 million and favorable manufacturing costs of $0.2 million, partially offset by unfavorable raw material costs of $2.0 million.
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Segment net sales by Region
EMEA $ 111,186  $ 96,235  $ 14,951  15.5  %
Americas 156,560  132,272  24,288  18.4  %
Asia Pacific 32,872  29,172  3,700  12.7  %
Total $ 300,618  $ 257,679  $ 42,939  16.7  %
The net sales increase of $42.9 million was driven by higher sales from all regions. The increase in sales from the Americas was primarily driven by increased sales of pigment, surface technology and dispersions and colorants products of $13.8 million, $8.2 million and $2.4 million, respectively. The increase in sales from EMEA was primarily attributable to higher sales of pigment and dispersions and colorants products of $13.4 million and $1.6 million, respectively. The increase in sales from Asia Pacific was attributable to increased sales of pigment products of $6.1 million, partially offset by lower sales of surface technology of $2.4 million.
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Summary of Cash Flows for the nine months ended September 30, 2021 and 2020
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change
Net cash used in operating activities $ (64,949) $ (106,481) $ 41,532 
Net cash provided by investing activities 478,444  76,421  402,023 
Net cash used in financing activities (445,203) (1,821) (443,382)
Effect of exchange rate changes on cash and cash equivalents (1,815) 174  (1,989)
Decrease in cash and cash equivalents $ (33,523) $ (31,707) $ (1,816)
The following table includes details of net cash provided by operating activities.
Nine Months Ended
September 30,
(Dollars in thousands) 2021 2020 $ Change
Cash flows from operating activities:
Net income $ 135,148  $ 25,883  $ 109,265 
Loss (gain) on sale of assets (98,746) 78  (98,824)
Depreciation and amortization 30,098  30,653  (555)
Interest amortization 1,601  2,866  (1,265)
Restructuring and impairment 124  6,944  (6,820)
Loss on extinguishment of debt 1,981  —  1,981 
Accounts receivable (122,547) (107,551) (14,996)
Inventories (21,057) 10,022  (31,079)
Accounts payable 775  (78,576) 79,351 
Other current asset, liabilities and adjustments, net 7,674  3,200  4,474 
Net cash used in operating activities $ (64,949) $ (106,481) $ 41,532 
Cash flows from operating activities. Cash flows from operating activities increased $41.5 million during the nine months ended September 30, 2021 compared with the prior-year same period. The increase in cash from operating activities was primarily due to lower cash outflows for net working capital of $33.3 million and an increase in net income, net of the gain on the sale of the Tile Coatings business.
Cash flows used in investing activities. Cash flows from investing activities increased $402.0 million during the nine months ended September 30, 2021 compared with the prior-year same period. The increase in cash from investing activities was primarily due to the proceeds from the sale of the Tile Coatings business of $415.2 million, partially offset by lower collection of financing receivables of $6.6 million and higher cash outflows for capital expenditures of $4.0 million in the nine months ended September 30, 2021, compared to the prior-year same period.
Cash flows from financing activities. Cash flows from financing activities decreased $443.4 million during the nine months ended September 30, 2021 compared with the prior-year same period. The decrease in cash from financing activities was primarily due to increased principal payments on the Amended Credit Facility of $435.0 million, decreased net proceeds from the revolving credit facilities of $5.8 million, increased other financing activities of $3.3 million and decreased net proceeds from loans payable of $0.7 million compared to the prior-year same period.
Capital Resources and Liquidity
Refer to Note 8 to the consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of major debt instruments that were outstanding during 2021.

37
Off Balance Sheet Arrangements
Consignment and Customer Arrangements for Precious Metals. We use precious metals, primarily silver, in the production of some of our products. We obtain precious metals from financial institutions under consignment agreements. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign and the period of consignment. These fees were $0.7 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, and $2.1 million and $2.3 million for the nine months ended September 30, 2021 and 2020, respectively. We had on hand precious metals owned by participants in our precious metals program of $80.7 million at September 30, 2021, and $87.2 million at December 31, 2020, measured at fair value based on market prices for identical assets.
The consignment agreements under our precious metals program involve short-term commitments that typically mature within 30 to 90 days of each transaction and are typically renewed on an ongoing basis. As a result, the Company relies on the continued willingness of financial institutions to participate in these arrangements to maintain this source of liquidity. On occasion, we have been required to deliver cash collateral. While no deposits were outstanding at September 30, 2021, or December 31, 2020, we may be required to furnish cash collateral in the future based on the quantity and market value of the precious metals under consignment and the amount of collateral-free lines provided by the financial institutions. The amount of cash collateral required is subject to review by the financial institutions and can be changed at any time at their discretion, based in part on their assessment of our creditworthiness.
Bank Guarantees and Standby Letters of Credit
At September 30, 2021, the Company and its subsidiaries had bank guarantees and standby letters of credit issued by financial institutions that totaled $4.3 million. These agreements primarily relate to Ferro’s insurance programs, foreign energy purchase contracts and foreign tax payments.
Liquidity Requirements
Our primary sources of liquidity are available cash and cash equivalents, available lines of credit under the revolving credit facility, and cash flows from operating activities. As of September 30, 2021, we had $148.8 million of cash and cash equivalents. Cash generated in the U.S. is generally used to pay down amounts outstanding under our revolving credit facility and for general corporate purposes, including acquisitions. If needed, we could repatriate the majority of cash held by foreign subsidiaries without the need to accrue and pay U.S. income taxes. We do not anticipate a liquidity need requiring such repatriation of these funds to the U.S.
On February 25, 2021, we completed the sale of our Tile Coatings business to Pigments Spain, S.L., a company of the Esmalglass-Itaca-Fritta group (the “Buyer”), which is a portfolio company of certain Lone Star Funds, for $460.0 million in cash, subject to post-closing adjustments. The transaction resulted in net proceeds of approximately $415.2 million after expenses. Proceeds from the close of the transaction, in addition to current cash balances, were used to pay down our term loan facility in the amount of $435.0 million on February 25, 2021. The debt pay-down reduced outstanding amounts of the Tranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans, by $188.3 million, $124.7 million and $122.0 million, respectively. In conjunction with the prepayment of debt, we recorded a charge of $2.0 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss on extinguishment of debt in our consolidated statement of operations for the nine months ended September 30, 2021.
Our liquidity requirements and uses primarily include debt service, purchase commitments, labor costs, working capital requirements, restructuring expenditures, acquisition costs, capital investments, strategic optimization plans, precious metals cash collateral requirements, and postretirement obligations. We expect to meet these requirements in the long term through cash provided by operating activities and availability under existing credit facilities or other financing arrangements. Cash flows provided by operating activities are primarily driven by earnings before non-cash charges and changes in working capital needs. As of September 30, 2021, we had liquidity of approximately $669.8 million, consisting of cash and availability under our various credit facilities, primarily our revolving credit facility.
The 2018 Revolving Facility subjects us to a customary financial covenant regarding the Company’s maximum leverage ratio. This covenant under our Amended Credit Facility restricts the amount of our borrowings, reducing our flexibility to fund ongoing operations and strategic initiatives.

38
As of September 30, 2021, we were in compliance with our maximum leverage ratio covenant of 4.00x as our actual ratio was 1.29, providing $159.1 million of EBITDA cushion on the leverage ratio, as defined within the Amended Credit Facility. To the extent that economic conditions in key markets deteriorate or we are unable to meet our business projections and EBITDA, as defined within the Amended Credit Facility, falls below approximately $636.4 million for the most recently ended trailing four quarters, based on reasonably consistent net debt levels with those as of September 30, 2021, we could become unable to maintain compliance with our leverage ratio covenant. In such case, our lenders could demand immediate payment of outstanding amounts and we would need to seek alternate financing sources to pay off such debts and to fund our ongoing operations. Such financing may not be available on favorable terms, if at all.
Difficulties experienced in global capital markets could affect the ability or willingness of counterparties to perform under our various lines of credit, forward contracts, and precious metals program. These counterparties are major, reputable, multinational institutions, all having investment-grade credit ratings. Accordingly, we do not anticipate counterparty default. However, an interruption in access to external financing could adversely affect our business prospects and financial condition.
We assess on an ongoing basis our portfolio of businesses, as well as our financial and capital structure, to ensure that we have sufficient capital and liquidity to meet our strategic objectives. As part of this process, from time to time we evaluate the possible divestiture of businesses that are not critical to our core strategic objectives and, where appropriate, pursue the sale of such businesses and assets. We also evaluate and pursue acquisition opportunities that we believe will enhance our strategic position. Generally, we publicly announce divestiture and acquisition transactions only when we have entered into a material definitive agreement or closed on those transactions.
Critical Accounting Policies and Their Application
There were no material changes to our critical accounting policies described in “Critical Accounting Policies” within Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.
Impact of Newly Issued Accounting Pronouncements
Refer to Note 2 to the condensed consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of accounting standards we recently adopted or will be required to adopt.
Risk Factors
Certain statements contained here and in future filings with the SEC reflect the Company’s expectations with respect to future performance and constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning the Company’s operations and business environment, which are difficult to predict and are beyond the control of the Company. Factors that could adversely affect our future financial performance include those described under the heading “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our exposure to instruments that are sensitive to fluctuations in interest rates and foreign currency exchange rates.
Our exposure to interest rate risk arises from our debt portfolio. We manage this risk by controlling the mix of fixed-rate versus variable-rate debt after considering the interest rate environment and expected future cash flows. To reduce our exposure to interest rate changes on variable-rate debt, we have entered into interest rate swap agreements. These swaps effectively convert a portion of our variable-rate debt to a fixed rate. Our objective is to limit variability in earnings, cash flows and overall borrowing costs caused by changes in interest rates, while preserving operating flexibility.
We operate internationally and enter into transactions denominated in foreign currencies. These transactions expose us to gains and losses arising from exchange rate movements between the dates foreign currencies are recorded and the dates they are settled. We manage this risk by entering into forward currency contracts in an effort to substantially offset these gains and losses.
39
The notional amounts, carrying amounts of assets (liabilities), and fair values associated with our exposure to these market risks and sensitivity analysis about potential gains (losses) resulting from hypothetical changes in market rates are presented in the table below.
(Dollars in thousands) September 30,
2021 		December 31,
2020
Variable-rate debt:
Carrying amount(1)
$ 355,058  $ 793,731 
Fair value 354,382  783,143 
Increase in annual interest expense from 1% increase in interest rates 89  2,626 
Decrease in annual interest expense from 1% decrease in interest rates (89) (2,626)
Fixed-rate debt:
Carrying amount 3,862  3,706 
Fair value 2,324  1,887 
Change in fair value from 1% increase in interest rates NM NM
Change in fair value from 1% decrease in interest rates NM NM
Interest rate swaps:
Notional amount 308,826  311,220 
Carrying amount and fair value (17,595) (24,694)
Change in fair value from 1% increase in interest rates 6,424  8,407 
Change in fair value from 1% decrease in interest rates (3,604) (3,131)
Cross currency swaps:
Notional amount 38,600  223,675 
Carrying amount and fair value 1,456  (5,162)
Change in fair value from 10% appreciation of U.S. dollar (3,920) (24,475)
Change in fair value from 10% depreciation of U.S. dollar 3,920  24,475 
Foreign currency forward contracts:
Notional amount 705,719  494,187 
Carrying amount and fair value (3,255) 2,019 
Change in fair value from 10% appreciation of U.S. dollar (5,897) (2,810)
Change in fair value from 10% depreciation of U.S. dollar 7,208  3,435 
(1)The carrying value of the term loan facility is net of unamortized debt issuance costs of $1.2 million and $3.7 million for the period ended September 30, 2021 and December 31, 2020, respectively.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Ferro is committed to maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) of the Exchange Act, Ferro has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. The evaluation examined those disclosure controls and procedures as of September 30, 2021, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, 2021.
40
Changes in Internal Control over Financial Reporting
During the third quarter of 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not observed any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
In November 2017, Suffolk County Water Authority filed a complaint, Suffolk County Water Authority v. The Dow Chemical Company et al., against the Company and a number of other companies in the U.S. Federal Court for the Eastern District of New York with regard to the product 1,4 dioxane. The plaintiff alleges, among other things, that the Suffolk County water supply is contaminated with 1,4 dioxane and that the defendants are liable for unspecified costs of cleanup and remediation of the water supply, among other damages. The Company has not manufactured 1,4 dioxane since 2008, denies the allegations related to liability for the plaintiff’s claims, and is vigorously defending this proceeding. Since December 2018, additional complaints were filed in the same court by 25 other New York water suppliers against the Company and others making substantially similar allegations regarding the contamination of their respective water supplies with 1,4 dioxane. An additional complaint also was filed by the Hicksville Water District against the Company and others in New York State Supreme Court making substantially similar allegations and seeking damages of $900 million. The Company is likewise vigorously defending these additional actions. The Company currently does not expect the outcome of these proceedings to have a material adverse impact on its consolidated financial condition, results of operations, or cash flows, net of any insurance coverage. However, it is not possible to predict the ultimate outcome of these proceedings due to the unpredictable nature of litigation.
In addition to the proceedings described above, the Company and its consolidated subsidiaries are subject from time to time to various claims, lawsuits, investigations, and proceedings related to products, services, contracts, environmental, health and safety, employment, intellectual property, and other matters, including with respect to divested businesses. The outcome of such matters is unpredictable, our assessment of them may change, and resolution of them could have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. We do not currently expect the resolution of such matters to materially affect the consolidated financial position, results of operations, or cash flows of the Company.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Board of Directors have not declared any dividends on common stock during 2021 or 2020. The Company’s Amended Credit Facility restricts the amount of dividends we can pay on our common stock. Any future dividends declared would be at the discretion of our Board of Directors and would depend on our financial condition, results of operations, cash flows, contractual obligations, the terms our financing agreements at the time a dividend is considered, and other relevant factors.
The following table summarizes purchases of our common stock by the Company and affiliated purchasers during the three months ended September 30, 2021:
(Dollars in thousands, except for per share amounts) Total Number
of Shares
Purchased 		Average Price
Paid per Share 		Total Amount of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs 		Maximum Dollar
Amount that May
Yet Be Purchased
Under the Plans
or Programs
July 1, 2021 to July 31, 2021 —  $ —  $ —  $ 46,192,535 
August 1, 2021 to August 31, 2021 —  $ —  $ —  $ 46,192,535 
September 1, 2021 to September 30, 2021 —  $ —  $ —  $ 46,192,535 
Total —  $ — 
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
42
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The exhibits listed in the attached Exhibit Index are the exhibits required by Item 601 of Regulation S-K.
43
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
FERRO CORPORATION
(Registrant)
Date: November 3, 2021
/s/ Peter T. Thomas
Peter T. Thomas
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: November 3, 2021
/s/ Benjamin J. Schlater
Benjamin J. Schlater
Group Vice President and Chief Financial Officer
(Principal Financial Officer)
44
EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated here by reference to a prior filing in accordance with Rule 12b-32 under the Securities and Exchange Act of 1934.
Exhibit:
2 Plan of acquisition, reorganization, arrangement or successor:
2.1
3 Articles of incorporation and by-laws:
3.1
3.2
3.3
3.4
3.5
3.6
31 Certifications:
31.1
31.2
32.1
32.2
101 Inline XBRL Documents:
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Schema Document
101.CAL Inline XBRL Calculation Linkbase Document
101.LAB Inline XBRL Labels Linkbase Document
101.PRE Inline XBRL Presentation Linkbase Document
101.DEF Inline XBRL Definition Linkbase Document
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL and contained in Exhibit 101.
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