2. Recent Accounting Pronouncements and Change in Accounting Principle

Accounting Standards Adopted in the Six Months Ended June 30, 2013

On January 1, 2013, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-11, Disclosures about Offsetting Assets and Liabilities, (“ASU 2011-11”) and ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, (“ASU 2013-01”). These pronouncements are codified in Accounting Standards Codification (“ASC”) Topic 210, Balance Sheet, and contain new disclosure requirements about a company’s right of setoff and related arrangements associated with its financial and derivative instruments. Adoption of this pronouncement did not have a material effect on our consolidated financial statements.

On January 1, 2013, we adopted FASB ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, (“ASU 2013-02”), which is codified in ASC Topic 220, Comprehensive Income. This pronouncement adds new disclosure requirements for items reclassified out of accumulated other comprehensive income. Adoption of this pronouncement did not have a material effect on our consolidated financial statements.

Change in Accounting Principle

During the third quarter of 2012, we elected to change our method of recognizing defined benefit pension and other postretirement benefit expense. Historically, we recognized actuarial gains and losses in accumulated other comprehensive income within equity on our consolidated balance sheets annually, and these gains and losses were amortized into our operating results over the average remaining service period of plan participants, to the extent such gains and losses were in excess of a corridor.

Under our new method, we recognize actuarial gains and losses in our operating results in the year in which the gains or losses occur. These gains and losses are generally measured annually as of December 31 and recorded during the fourth quarter, unless an interim remeasurement is required. The remaining components of benefit expense, primarily service and interest costs and the expected return on plan assets, will be recorded quarterly as ongoing expense or benefit. While the historical method of recognizing expense was acceptable, we believe the new method is preferable because it results in recognition in our operating results of actuarial gains and losses as they arise. In accordance with ASC Topic 250, Accounting Changes and Error Corrections, all prior periods have been adjusted to apply the new method retrospectively. The effect of the change on retained earnings as of January 1, 2012, was a reduction of $106.0 million with a corresponding offset to accumulated other comprehensive loss.

We have presented the effects of the change in accounting principle on our condensed consolidated financial statements for the three and six months ended June 30, 2012 below. The following tables present the significant effects of the change on our historical condensed consolidated statements of operations and statements of comprehensive income. There was no effect on our historical condensed consolidated statements of cash flows.

Condensed Consolidated Statements of Operations Information


	Three months ended June 30, 2012
	As reported⁽¹⁾			Effect of accounting change			As adjusted
	(Dollars in thousands, except per share amounts)
Net sales	$	475,546		$	—		$	475,546
Cost of sales		389,728			—			389,728

Gross profit		85,818			—			85,818
Selling, general and administrative expenses		73,458			(7,154	)		66,304
Restructuring and impairment charges		4,728			—			4,728
Other expense (income):
Interest expense		6,476			—			6,476
Interest earned		(51	)		—			(51	)
Foreign currency gains, net		(221	)		—			(221	)
Miscellaneous expense, net		1,845			—			1,845

(Loss) income before income taxes		(417	)		7,154			6,737
Income tax expense		2,429			2,430			4,859

(Loss) income from continuing operations		(2,846	)		4,724			1,878
Income from discontinued operations, net of income taxes		328			—			328

Net (loss) income		(2,518	)		4,724			2,206
Less: Net income attributable to noncontrolling interests		330			—			330

Net (loss) income attributable to Ferro Corporation common shareholders	$	(2,848	)	$	4,724		$	1,876

(Loss) earnings per share attributable to Ferro Corporation common shareholders:
Basic (loss) earnings:
From continuing operations	$	(0.03	)	$	0.05		$	0.02
From discontinued operations		—			—			—

	$	(0.03	)	$	0.05		$	0.02

Diluted (loss) earnings:
From continuing operations	$	(0.03	)	$	0.05		$	0.02
From discontinued operations		—			—			—

	$	(0.03	)	$	0.05		$	0.02

⁽¹⁾	Adjusted to reflect the impact of discontinued operations (see Note 12).


	Six months ended June 30, 2012
	As reported⁽¹⁾			Effect of accounting change			As adjusted
	(Dollars in thousands, except per share amounts)
Net sales	$	935,971		$	—		$	935,971
Cost of sales		764,432			—			764,432

Gross profit		171,539			—			171,539
Selling, general and administrative expenses		149,945			(11,133	)		138,812
Restructuring and impairment charges		5,039			—			5,039
Other expense (income):
Interest expense		12,850			—			12,850
Interest earned		(135	)		—			(135	)
Foreign currency gains, net		(77	)		—			(77	)
Miscellaneous expense, net		2,241			—			2,241

Income before income taxes		1,676			11,133			12,809
Income tax expense		3,815			3,853			7,668

(Loss) income from continuing operations		(2,139	)		7,280			5,141
Income from discontinued operations, net of income taxes		1,035			—			1,035

Net (loss) income		(1,104	)		7,280			6,176
Less: Net income attributable to noncontrolling interests		454			—			454

Net (loss) income attributable to Ferro Corporation common shareholders	$	(1,558	)	$	7,280		$	5,722

(Loss) earnings per share attributable to Ferro Corporation common shareholders:
Basic (loss) earnings:
From continuing operations	$	(0.03	)	$	0.08		$	0.05
From discontinued operations		0.01			—			0.01

	$	(0.02	)	$	0.08		$	0.06

Diluted (loss) earnings:
From continuing operations	$	(0.03	)	$	0.08		$	0.05
From discontinued operations		0.01			—			0.01

	$	(0.02	)	$	0.08		$	0.06

⁽¹⁾	Adjusted to reflect the impact of discontinued operations (see Note 12).

Condensed Consolidated Statements of Comprehensive Loss Information


	Three months ended June 30, 2012
	As reported			Effect of accounting change			As adjusted
	(Dollars in thousands)
Net (loss) income	$	(2,518	)	$	4,724		$	2,206
Other comprehensive (loss) income, net of tax:
Foreign currency translation		(6,285	)		—			(6,285	)
Postretirement benefit liabilities		4,033			(4,724	)		(691	)

Total comprehensive loss		(4,770	)		—			(4,770	)
Less: Comprehensive income attributable to noncontrolling interests		281			—			281

Comprehensive loss attributable to Ferro Corporation	$	(5,051	)	$	—		$	(5,051	)


	Six months ended June 30, 2012
	As reported			Effect of accounting change			As adjusted
	(Dollars in thousands)
Net (loss) income	$	(1,104	)	$	7,280		$	6,176
Other comprehensive (loss) income, net of tax:
Foreign currency translation		(6,261	)		—			(6,261	)
Postretirement benefit liabilities		5,925			(7,280	)		(1,355	)

Total comprehensive loss		(1,440	)		—			(1,440	)
Less: Comprehensive income attributable to noncontrolling interests		403			—			403

Comprehensive loss attributable to Ferro Corporation	$	(1,843	)	$	—		$	(1,843	)