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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000
[ ] 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)
An Ohio Corporation 1000 LAKESIDE AVENUE CLEVELAND, OH 44114 IRS No. 34-0217820
(Address of principal executive offices)
Registrant's telephone number including area code: 216/641-8580
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
--- ---
At July 31, 2000, there were 34,659,945 shares of Ferro common stock, par value
$1.00, outstanding.
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PART 1- FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands, except per share amounts) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------- ---------------------------
Segment Sales
Coatings $225,902 $195,987 $445,237 $395,181
Chemicals 72,646 74,742 143,859 146,215
Plastics 67,278 66,306 137,342 127,120
-------- -------- -------- --------
Total Net Sales $365,826 $337,035 $726,438 $668,516
Cost of Sales 264,416 240,576 524,959 479,841
Selling, Administrative and General Expenses 64,017 61,020 127,965 120,764
Other Charges (Credits):
Interest Expense 5,709 4,037 11,334 7,955
Net Foreign Currency Gain (464) (241) (832) (410)
Other (Income) Expense - Net (1,006) 1,214 389 2,572
-------- -------- -------- --------
Income Before Taxes 33,154 30,429 62,623 57,794
Income Tax Expense 13,002 11,255 24,071 21,519
-------- -------- -------- --------
Net Income 20,152 19,174 38,552 36,275
Dividend on Preferred Stock, Net of Tax 875 939 1,781 1,891
-------- -------- -------- --------
Net Income Available to Common Shareholders $ 19,277 $ 18,235 $ 36,771 $ 34,384
======== ======== ======== ========
Per Common Share Data:
Basic Earnings $ 0.56 $ 0.52 $ 1.06 $ 0.98
Diluted Earnings $ 0.53 $ 0.48 $ 1.01 $ 0.91
Shares Outstanding:
Average Outstanding 34,634,937 35,232,350 34,774,715 35,121,772
Average Diluted 37,928,410 39,205,285 37,975,491 38,912,375
Actual End of Period 34,632,263 35,387,053 34,632,263 35,387,053
See accompanying notes to consolidated financial statements
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CONDENSED CONSOLIDATED BALANCE SHEET
FERRO CORPORATION AND SUBSIDIARIES
JUNE 30, 2000 AND DECEMBER 31, 1999
(Dollars in Thousands)
(Unaudited) (Audited)
ASSETS 2000 1999
-------- --------
Current Assets:
Cash and Cash Equivalents $ 21,653 $ 7,114
Net Receivables 272,700 261,501
Inventories 171,780 170,663
Other Current Assets 50,074 51,251
-------- --------
Total Current Assets $516,207 $490,529
Net Plant & Equipment 320,125 330,393
Unamortized Intangibles 93,954 93,412
Other Assets 52,664 57,416
-------- --------
$982,950 $971,750
======== ========
LIABILITIES
Current Liabilities:
Notes and Loans Payable $ 28,980 $ 45,939
Accounts Payable, Trade 139,906 131,923
Income Taxes 13,986 6,777
Accrued Compensation 18,379 19,246
Other Current Liabilities 123,176 133,748
-------- --------
Total Current Liabilities $324,427 $337,633
Long - Term Debt 256,306 236,794
Postretirement Liabilities 50,324 49,712
Other Liabilities 45,609 50,616
Shareholders' Equity 306,284 296,995
-------- --------
$982,950 $971,750
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
Six Months Ended
June 30
(Unaudited) (Unaudited)
(Dollars in Thousands) 2000 1999
======================================================================================
Net Cash Provided by Operating Activities $47,966 $73,187
Cash Flow from Investing Activities:
Capital Expenditures for Plant and Equipment (23,241) (48,233)
Acquisitions and Divestitures, net 15,370 (37,443)
Other Investing Activities (1,000) (62)
- --------------------------------------------------------------------------------------
Net Cash (Used for) Provided by Investing Activities (8,871) (85,738)
Cash Flow from Financing Activities:
Net Borrowings (Payments) Under Short-Term Lines (16,959) 24,239
Proceeds from long-term debt 19,963 1,944
Purchase of Treasury Stock (17,582) (9,850)
Cash Dividend Paid (11,878) (11,394)
Other Financing Activities 1,956 4,612
- --------------------------------------------------------------------------------------
Net Cash (Used for) Provided by Financing Activities (24,500) 9,551
Effect of Exchange Rate Changes on Cash (55) (181)
- --------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 14,539 (3,180)
Cash and Cash Equivalents at Beginning of Period 7,114 12,185
- --------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $21,653 $9,005
======================================================================================
Cash Paid During the Period for:
Interest, net of amounts capitalized $10,249 $6,670
Income Taxes $10,162 $11,212
======================================================================================
See accompanying notes to consolidated financial statements
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FERRO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated interim financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1999. The information furnished herein reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for fair presentation of the results for
the interim periods. The results of the three months ended June 30, 2000
are not necessarily indicative of the results expected in subsequent
quarters or for the full year.
2. Comprehensive Income
Comprehensive income represents net income adjusted for foreign currency
translation adjustments and pension liability adjustments. Comprehensive
income was $21.5 million and $12.1 million for the three months ended June
30, 2000 and 1999, respectively and $35.6 million and $10.1 million for the
six months ended June 30, 2000 and 1999, respectively. Accumulated other
comprehensive income (loss) at June 30, 2000 and December 31, 1999 was
($77.4) million and ($71.1) million, respectively.
3. Earnings Per Share Computation
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------------------------------------------------------------
Average Basic Shares Outstanding 34,634,937 35,232,350 34,774,715 35,121,772
Adjustments for Assumed Conversion
of Convertible Preferred Stock
and Common Stock Options 3,293,473 3,972,935 3,200,776 3,790,603
----------------------------------------------------------------------
AVERAGE DILUTED SHARES 37,928,410 39,205,285 37,975,491 38,912,375
Basic earnings per share is computed as net income available to common
shareholders divided by average basic shares outstanding.
Diluted earnings per share is computed as net income adjusted for the tax
effect associated with assumed conversion of preferred stock to common
stock divided by average diluted shares outstanding.
4. Contingent Liabilities
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The Company is party to administrative proceedings relating to emissions
from its plant in Hammond, Indiana. In these proceedings, the United States
Environmental Protection Agency (U.S. EPA) is seeking to impose fines
relating to the former production of PyroChek(R) at the Hammond plant
(see the description in Part II Item 1). The Company is vigorously
contesting these claims for if the matter cannot be resolved through
negotiation, and the United States pursues and recovers the maximum
potential penalties on all of its claims, it could have a material adverse
effect on the Company. However, the Company believes that it will resolve
this matter in a manner that will not have a material adverse effect on the
consolidated financial statements.
At the prompting of several residents near Hammond, Indiana, U.S.
Congressional Representative Viclosky has requested the U.S. Department of
Health's Agency for Toxic Substances and Disease Registry (ATSDR) to
investigate a possible "cluster" of pediatric cancers of the central
nervous system found in the Hammond area and to assess whether operations
of the Company's Hammond facility pose an unreasonable risk to health or
the environment. The Company responded to several requests for information
from the ATSDR. In June 2000 the ATSDR released the results of their
Exposure Investigation which was designed to determine if residents who
live in the community near the Keil Chemical facility are being exposed to
certain airborne contaminants, ethylene dichloride and vinyl chloride, at
levels of health concern. The ATSDR Exposure Investigation did not detect
these contaminants at levels of health concern. The Indiana State
Department of Health is reviewing health statistics data to determine
whether the Hammond area has experienced a higher than expected incidence
of childhood cancers. The ATSDR will be reviewing other environmental data
to be released in a future report. The Company intends to cooperate with
all reasonable requests in connection with the evaluations.
On June 22, 2000, a wrongful death lawsuit captioned Gwen Pearson and
Steven Pearson v. Kiel Chemical, a Division of Ferro Corporation, Cause No.
45D05005CT0238, was filed in Lake Superior Court, Lake County, Indiana. The
complaint alleges that Ferro was negligent and or reckless in failing to
control emissions at its Hammond plant, misrepresenting emissions
levels to regulatory agencies, failing to warn nearby residents of the
hazards posed by its emissions, and in emitting carcinogenic chemicals
without a permit. Ferro believes it has valid defenses to the allegations
made in the claims and is preparing to vigorously defend its position.
There are also pending against the Company and its consolidated
subsidiaries various other lawsuits and claims. In the opinion of
management, the ultimate liabilities resulting from such other lawsuits and
claims will not materially affect the consolidated financial position or
results of operations or liquidity of the Company.
5. Reporting for Segments
The Company's reportable segments are Coatings, Chemicals and Plastics.
Coatings products include ceramic glaze coatings, inorganic color, powder
and porcelain enamel coatings and electronic materials. Chemicals' consists
of polymer additives, petroleum additives and performance and fine
chemicals. The Plastics segment derives its revenues mostly from plastic
colorants and filled and reinforced plastics. The Company measures segment
profit for internal reporting purposes as net operating profit before
interest and tax. Excluded from net operating profit are certain
unallocated corporate expenses. A complete reconciliation of segment income
to consolidated income before tax is presented below.
Sales to external customers are presented in the following chart.
Intersegment sales are not material.
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FERRO CORPORATION AND SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Dollars in Thousands)
SEGMENT SALES 2000 1999 2000 1999
- -------------------------------------------------------------- ---------------------------
Coatings $225,902 $195,987 $445,237 $395,181
Chemicals 72,646 74,742 143,859 146,215
Plastics 67,278 66,306 137,342 127,120
- -------------------------------------------------------------- ---------------------------
Total $365,826 $337,035 $726,438 $668,516
SEGMENT INCOME
- -------------------------------------------------------------- ---------------------------
Coatings $ 25,039 $ 22,764 $ 50,753 $ 46,310
Chemicals 11,352 8,628 20,635 17,066
Plastics 4,018 7,846 9,708 13,873
- -------------------------------------------------------------- ---------------------------
Total $ 40,409 $ 39,238 $ 81,096 $ 77,249
Unallocated Expenses 3,016 3,799 7,582 9,338
Interest Expense 5,709 4,037 11,334 7,955
Foreign Currency Gain (464) (241) (832) (410)
Other Expense-Net (1,006) 1,214 389 2,572
- -------------------------------------------------------------- ---------------------------
Income Before Taxes $ 33,154 $ 30,429 $ 62,623 $ 57,794
Unallocated expenses consist primarily of corporate costs.
6. Acquisitions and Divestitures
On June 30, 2000 the Company completed the previously announced sale of its
Pyro Chek flame retardant business to Albemarle Corporation. This
divestiture was not material to Ferro.
On June 22, 2000 the Company announced that it had signed a definitive
agreement to acquire the polymer modifiers business and related
manufacturing facilities of Solutia Inc., St. Louis, Missouri. Solutia's
polymer modifier business is a key global producer of specialty
plasticizers (chemical additives) and other modifiers used in the
production of a variety of plastics. The transaction is expected to close
during the third quarter of 2000.
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Under the terms of the agreement, Ferro would acquire the business, as well
as portions of Solutia's Delaware River plant in Bridgeport, New Jersey.
Ferro would also acquire manufacturing units in Newport, Wales and in
Antwerp, Belgium.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Comparison of the Three Months Ended June 30, 2000 and 1999.
Second quarter 2000 net sales of $365.8 million were 8.5% more than the $337.0
million of the comparable 1999 period. Sales increased 15.3% in the Coatings
segment and 1.5% in the Plastics segment. Chemicals' sales decreased 2.8%.
Overall volume growth was approximately 11% in the quarter, with just over half
coming from internal volume growth and just under half from acquisitions. Volume
growth was most evident in the Company's rapidly growing electronic materials
business. Volume growth also was positive in all regions and was particularly
strong in the Asia-Pacific and European regions. The performance of the
electronic materials business was a major factor in strong U.S. sales growth.
Foreign currency translation had a negative impact of $11.7 million on sales.
Gross margin declined to 27.7% of sales as compared to 28.6% for the comparable
1999 period. Lower overall gross margin was driven by a significant decline in
the Plastics segment. Currently, the Plastics segment is experiencing a
significant increase in the cost of major raw materials, which has put pressure
on margins in the group.
Selling, administrative and general expenses increased by 4.9% compared to the
same quarter in 1999, primarily as a result of acquisitions made within the past
year. As a percentage of sales, selling, administrative and general expenses
were lower at 17.5% versus 18.1% in the 1999 second quarter.
Based on the portion of the proceeds collected from the sale of its Pyro-Chek
flame retardants business, the Company recognized a small pre-tax gain in the
other income line of the income statement. This gain accounts for a portion of
the change in other income/expense from a $1.2 million expense in the 1999
second quarter to $1.0 million in income in the second quarter of 2000.
Certain elements of the gain on the sale were treated differently for tax
purposes, as a result, the tax charge associated with the transaction was just
over 100% of the gain recognized for financial reporting purposes. Therefore,
there was virtually no effect on net income or earnings per share from this
transaction. For the same reason, the Company's effective tax rate was higher
than usual during the quarter.
Net income for the quarter climbed to $20.2 million, compared to $19.2 million
for the second quarter of 1999. Earnings of $0.53 (diluted) per share, increased
10.4% compared to the $0.48 earned in the 1999 second quarter.
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QUARTERLY SEGMENT RESULTS
Second quarter sales in the Coatings segment increased 15.3 % to $225.9 million
compared to $196.0 in the 1999 second quarter. The electronic materials business
was the main growth driver, capitalizing on fast growing markets and boosted by
the TAM acquisition. In addition, the Coatings segment - Ferro's most global
segment - experienced strong volume growth in both Europe and Asia-Pacific.
These sales drivers were enough to offset a significant reduction in sales due
to negative foreign currency exchange. Segment income improved 10.0 % to $25.0
million compared to $22.8 million in the second quarter of 1999. Margins for the
Coatings segment were impacted negatively by higher raw materials costs,
particularly in Europe.
Chemicals' segment sales were $72.6 million compared to second quarter 1999
sales of $74.7 million. Improved volume in certain core product lines within the
polymer additives and performance and fine chemicals businesses were not enough
to offset a plan to walk away from certain low margin, commodity business in
these areas. Additionally volumes were weaker in other product lines. Segment
income improved 31.6 % to $11.4 million compared to $8.6 million in the same
quarter in 1999. The segment's margins have improved significantly as a result
of a strategic effort to focus on value-added, higher margin product lines and
some benefit from lower raw material costs.
Sales for the Plastics group improved slightly to $67.3 million compared to
$66.3 million in the same quarter in 1999. Some softness in demand for durable
goods, particularly in the automotive market, negatively impacted sales. Segment
income for the group was $4.0 million compared to $7.8 million in the second
quarter of 1999, which was a record quarter. The Plastics segment is
experiencing significant margin pressure as raw material costs for certain key
resins have increased significantly. The Company is attempting to recoup those
costs through price increases.
GEOGRAPHIC SALES
Sales in the United States were $214.2 million for the three months ended June
30, 2000 compared to $187.2 million for the three months ended June 30, 1999.
International sales were $151.6 million for the three months ended June 30,
2000, compared to $149.8 million in the three months ended June 30, 1999.
International sales were higher primarily due to strong volume growth
particularly in the Europe and Asia-pacific regions. Foreign currency
translation had a significant negative impact on sales reported for
international operations. In particular, the Euro currency is valued
significantly lower versus the U.S. dollar compared to the second quarter of
1999. Foreign currency translation reduced sales by $11.7 million in the
quarter.
Comparison of the Six Months Ended June 30, 2000 and 1999
Net sales for the six months ended June 30, 1999 of $726.4 million were 8.7%
higher than the $668.5 million of the comparable 1999 period. Sales increased
12.7% in the Coatings segment and 8.0% in the Plastics segment. Chemicals'
sales decreased 1.6%.
The increase in sales was attributable to higher overall volume growth and
acquisitions made within the past year. The coatings segment recorded
double-digit growth, driven particularly by
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the strength of the electronic materials business. Volume growth and slightly
better price/mix, were enough to offset negative foreign currency translation.
The strengthening of the United States dollar against foreign currencies lowered
sales by $24.4 million compared to the 1999 period. In particular, currencies in
Europe were substantially weaker than during the 1999 period.
Gross margin as a percent of sales was 27.7% compared to 28.2% for the
comparable 1999 period. Lower gross margins were the result of a significant
decline in margins in the Plastics segment. Currently, the Plastics segment is
experiencing a significant increase in the cost of major raw materials, which
has put short-term pressure on margins in the group.
Selling, administrative and general expenses increased by 6.0% versus the first
half of 1999 due to acquisitions made within the past year. As a percentage of
sales SG&A costs were lower at 17.6% compared to 18.1% for the first six months
of 1999.
Net income for the six months ended June 30, 2000 reached $38.6 million, up 6.3%
from the $36.3 million recorded in the first half of 1999. Earnings rose to
$1.01 (diluted) per share, up 11.0% from the $0.91 for the 1999 first half.
SIX MONTHS SEGMENT RESULTS
For the first six months of 1999, sales in the Coatings segment increased 12.7%
to $445.2 million compared to sales of $395.2 million in the 1999 period. Sales
increased on the strength of higher volume and an acquisition made within the
past year. Foreign currency translation reduced sales by $19.2 million compared
to the 1999 period. Segment income increased 9.6% to $50.8 million from $46.3
million recorded in the first six months of 1999. Margins decreased slightly in
this segment due to higher costs of raw materials, particularly in European
operations.
Chemicals' sales were $143.9 million down 1.6% from sales of $146.2 million for
the six months ended June 30, 1999. The primary driver of lower sales was a
strategic initiative in this segment to re-focus on higher margin applications
and reduce sales of lower margin product lines. This strategy has the combined
impact of lowering volumes but increasing profit margins. Segment income for the
chemicals segment increased 20.9% to $20.6 million compared to $17.1 million in
the first half of 1999.
The Plastics segment recorded sales of $137.3 million, an increase of 8.0%
compared to sales of $127.1 million for the six months ended June 30, 1999.
Sales improvement was most notable in the first quarter and included a strong
contribution from the APC acquisition, which was completed in March 1999. In the
second quarter the group saw volume growth slow due to some softness in consumer
durable goods, particularly the automotive market. Volume growth overall was
strong and the segment recorded slightly better price/mix. Segment income was
$9.7 million compared to segment income of $13.9 million for the same period in
1999. The Plastics segment is experiencing significant margin pressure as raw
material costs for certain key resins have increased significantly. The Company
is attempting to recoup those costs through price increases.
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GEOGRAPHIC SALES
Sales in the United States were $423.4 million for the six months ended June 30,
2000 compared to $369.5 million for the six months ended June 30, 1998. The
increase in sales in the United States reflects acquisitions completed in 1999,
volume growth and slightly better price/mix. International sales edged higher to
$303.0 million for the six months ended June 30, 2000, compared to $299.0
million in the six months ended June 30, 1999. Although volume growth was
significantly better than in the 1999 period, negative foreign currency
translation had a $24.4 million negative impact on sales.
Liquidity and Capital Resources
The Company's liquidity requirements include capital investments, working
capital requirements, acquisitions, and to a lesser extent, interest expense.
The Company expects to be able to meet its working capital requirements and
capital investment needs from cash and cash equivalents, cash flow from
operations and, if necessary, use of its revolving credit facility or long-term
borrowings. The Company has available a $300 million five-year revolving credit
facility with seven domestic banks. The Company had borrowed $100 million under
this facility as of June 30, 2000. The Company is actively pursuing its
acquisition strategy and may, from time to time, use its existing revolving
credit facility or alternate financing arrangements, including divestitures, to
fund acquisitions. The Company also has $245.0 million of availability under a
universal shelf registration pursuant to which various types of public
securities may be issued.
Net cash provided by operating activities for the six months ended June 30,
2000, was $48.0 million compared to the $73.2 million recorded in the first half
of 1999. Sales increased by 8.7% in the first six months of 2000 resulting in
higher levels of working capital compared to the 1999 period. Cash used for
investing activities was $8.9 million in the 2000 period compared to $85.7
million in 1999. The decrease in investing activities is due to a lower level of
capital expenditures, including systems investments, the sale of the Pyro-Chek
flame retardant business in the second quarter of 2000 and the acquisition of
the Advanced Polymer Compounding (APC) business in the first quarter of 1999.
Net cash used for financing activities was $24.5 million in the 2000 period
compared to cash provided of $9.6 million in 1999. The change in net cash from
financing activities was due to the acquisition of APC made in 1999 and the
divestiture of Pyro-Chek completed this year. In addition, the Company increased
the amount of common shares repurchased.
ENVIRONMENTAL
The Company received "Notices of Violation" from the United States Environmental
Protection Agency in 1999 alleging that the Company violated various
requirements of the Clean Air Act and related State laws in modifying and
operating the Pyro-Chek process at its facility in Hammond, Indiana. See the
description in Part II, Item 1 to this Form 10-Q. The Company completed the sale
of assets relating to the Pyro-Chek process and ceased production of Pyro-Chek
at Hammond. The Company will continue to be responsible for any claims relating
to all past operations at Hammond, including those related to Pyro-Chek
production. The Company is vigorously contesting these claims. If the matter
cannot be resolved through negotiation, and the United States pursues and
recovers the maximum potential penalties on all of its claims, it could
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have a material adverse affect on the Company. However, the Company believes
that it will resolve this matter in a manner that will not have a material
adverse affect.
Additionally, governmental agencies have identified several disposal sites for
clean-up under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA," or the Superfund) and similar laws to which the Company
has been named a "potentially responsible party." The Company is participating
in the cost of certain clean-up efforts. However, the Company's share of such
costs has not been material and is not expected to have a material adverse
impact on the Company's financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report on Form 10Q reflect the
Company's current expectations with respect to the future performance of the
Company and may constitute "forward-looking statements" within the meaning of
the federal securities laws. These statements are subject to a variety of
uncertainties, unknown risks and other factors concerning the Company's
operations and business environment, and actual events or results may differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to: the success of the Company's acquisition program; market acceptance of new
product introductions; changes in customer requirements, markets or industries
served; changing economic conditions; changes in foreign exchange rates,
especially in Europe; changes in the prices of major raw materials; significant
technological or competitive developments; and the impact of environmental
proceedings discussed herein under the heading "Environmental" in Management's
Discussion and Analysis.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS.
There have been no material changes in market risk exposures during the first
six months of 2000 that effect the disclosures presented in the Company's Annual
Report to Shareholders on Form 10-K for the year ended December 31, 1999, which
disclosure is incorporated here by reference.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On May 4, 1999, and December 16, 1999, the United States Environmental
Protection Agency (U.S.EPA) issued "Notices of Violation" (NOVs) alleging that
the Company violated various requirements of the Clean Air Act and related State
laws in modifying and operating the Pyro-Chek7 process. The U.S.EPA has also
submitted requests seeking information from the Company related to the alleged
violations. The Company has met with U.S.EPA and entered into negotiations
intended to resolve the issues raised in the NOVs. If these issues are not
resolved in negotiations, the United States may bring an enforcement action
against the Company based on the violations alleged in the NOVs. If the United
States were to initiate such an action and prevail on all claims, it could have
a material adverse effect on the financial statements of the Company. However,
the Company believes that it will resolve this matter in a manner that will not
have a material adverse effect.
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On June 22, 2000, a wrongful death suit lawsuit captioned Gwen Pearson and
Steven Pearson v. Kiel Chemical, a Division of Ferro Corporation, Cause No.
45D05005CT0238, was filed in Lake Superior Court, Lake County, Indiana. The
complaint alleges that Ferro was negligent and or reckless in failing to control
emissions at the Hammond facility, misrepresenting emissions levels to
regulatory agencies, failing to warn nearby residents of the hazards posed by
its emissions, and in emitting carcinogenic chemicals without a permit. Ferro
believes it has valid defenses to the allegations made in the claims and
preparing to vigorously defend its position.
There are also pending against the Company and its consolidated subsidiaries
various other lawsuits and claims. In the opinion of management, the ultimate
liabilities resulting from such other lawsuits and claims will not materially
affect the consolidated financial position or results of operations or liquidity
of the Company.
ITEM 2 - CHANGE IN SECURITIES.
No change.
ITEM 3 - DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5 - OTHER INFORMATION.
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed in the attached Exhibit Index are filed
pursuant to Item 6(a) of the Form 10-Q.
(b) The Company has not filed any reports on Form 8-K for the quarter
June 30, 2000.
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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: August 11, 2000
/s/ Hector R. Ortino
Hector R. Ortino
----------------------------------
Chairman and Chief Executive Officer
Date: August 11, 2000
/s/ Bret W. Wise
----------------------------------
Bret W. Wise
Senior Vice President and Chief Financial Officer
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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. (Asterisk denotes exhibits filed with this report).
Exhibit:
(3) Articles of Incorporation and by-laws
(a) Eleventh Amended Articles of Incorporation. (Reference is made to
Exhibit (3)(a) to Ferro Corporation's Quarterly Report on Form 10-Q for
the three months ended June 30, 1998 which Exhibit is incorporated here
by reference.)
(b) Certificate of Amendment to the Eleventh Amended Articles of
Incorporation of Ferro Corporation filed December 28, 1994. (Reference
is made to Exhibit (3)(b) to Ferro Corporation's Quarterly Report on
Form 10-Q for the three months ended June 30, 1998 which Exhibit is
incorporated here by reference.)
(c) Certificate of Amendment to the Eleventh Amended Articles of
Incorporation of Ferro Corporation filed January 19, 1998. (Reference is
made to Exhibit (3)(c) to Ferro Corporation's Quarterly Report on Form
10-Q for the three months ended June 30, 1998, which Exhibit is
incorporated here by reference.)
(d) Amended Code of Regulations. (Reference is made to Exhibit (3)(d) to
Ferro Corporation's Quarterly Report on Form 10-Q for the three months
ended June 30, 1998, which Exhibit is incorporated here by reference.)
(4) Instruments defining rights of security holders, including indentures
(a) Revolving Credit Agreement by and between Ferro and seven commercial
banks dated May 9, 2000. (Reference is made to Exhibit 4(a) to Ferro
Corporation's quarterly report on Form 10-Q for the three months ended
March 31, 2000, which Exhibit is incorporated here by reference.)
(b) Amended and Restated Shareholder Rights Agreement between Ferro
Corporation and National City Bank, Cleveland, Ohio, as Rights Agent,
dated as of December 10, 1999. (Reference is made to Exhibit 4(k) to
Ferro Corporation's Form10-K for the year ended December 31, 1999, which
Exhibit is incorporated here by reference.)
(c) The rights of the holders of Ferro's Debt Securities issued and to
be issued pursuant to an Indenture between Ferro and Society National
Bank, as Trustee, are described in the form of Indenture dated May 1,
1993 filed as exhibit 4(j) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1993. Said Exhibit is incorporated here by
reference.
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(d) The rights of the holders of Ferro's Debt Securities issued and to
be issued pursuant to a Senior Indenture between Ferro and Chase
Manhattan Trust Company, National Association, as Trustee, are described
in the Senior Indenture, dated March 25, 1998. (Reference is made to
Exhibit 4 (c) to Ferro Corporation's Quarterly Report on Form 10-Q for
the three months ended March 31,1998.)
(e) Form of Security (7 1/8% Debentures due 2028). (Reference is made
to Exhibit 4(a-1) to Ferro Corporation's Form 8-K filed March 31, 1998,
which Exhibit is incorporated here by reference.)
*(12) Ratio of Earnings to Fixed Charges.
*(27) Financial Data Schedule for the Quarter Ended June 30, 2000
(Electronic Filing Only)
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