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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995 Commission File Number 1-584
FERRO CORPORATION
An Ohio Corporation IRS Number 34-0217820
1000 LAKESIDE AVENUE
CLEVELAND, OHIO 44114-1183
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
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At October 31, 1995, there were 27,302,366 shares of Ferro common stock, par
value $1.00, outstanding.
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
The consolidated Balance Sheets as of September 30, 1995 (unaudited) and
December 31, 1994, and the Consolidated Statements of Income and Consolidated
Statements of Cash Flows for the three and nine months ended September 30, 1995
and 1994 (unaudited) of Ferro Corporation and Subsidiaries are set forth in
Exhibit 20 hereof which is incorporated by reference herein.
Those financial statements, which are subject to year-end audit adjustments,
should be read in conjunction with financial statements and notes thereto
included in the Company's annual report for the fiscal year ended December 31,
1994.
Cash dividends were paid at the rate of $0.135 per common share in the third
quarter of 1995 and 1994. Cash dividends on preferred shares were paid at the
rate of $0.81 per preferred share in the third quarter of 1995 and 1994.
Net sales and net income for the three months ended September 30, 1995 were
$310.8 million and $9.8 million ($0.31 fully diluted earnings per common share)
as compared with net sales and net income of $296.8 million and $11.6 million
($0.36 fully diluted earnings per common share) for the corresponding 1994
period. The foregoing figures are unaudited, but in the opinion of the
Management of the Company, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation thereof have been made.
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Comparison Between Three Months Ended September 30, 1995 and 1994
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Net Sales. Third quarter 1995 sales of $310.8 million were 4.7% greater than
the $296.8 million of the comparable 1994 period.
Sales increased for all business segments, except for plastics, and all
geographic regions, except for Latin America. Sales for Coatings, Colors and
Ceramics and for Chemicals increased 4.5% and 18.8% respectively, while
Plastics sales decreased by 6.1%.
The variety of products sold by the Company makes it difficult to determine
with certainty the increases or decreases in sales resulting from changes in
physical volume of products sold and selling prices. However, Management's
best estimate is that the 4.7% increase
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in sales comprises: volume, 1.0%; exchange, 1.9%; price/mix, 3.1%; and
divestitures, (1.3)%.
Cost of Sales. Gross profit as a percent of sales was 22.5% as compared with
24.8% for the comparable 1994 period. Much of this is due to a large volume
drop in Latin America, as well as volume decline in domestic automotive and
major appliance segments.
Selling, administrative and general expenses. Such expenses as a percent of
sales declined from 17.8% in 1994 to 16.5% in 1995. They also declined in
dollar terms in response to continued cost control efforts.
Interest expense. The increase in interest expense is primarily attributable
to interest on the $50.0 million, 8% debentures discussed further in LIQUIDITY
AND CAPITAL RESOURCES.
Net foreign currency gain or loss. The change is primarily attributable to
transaction gains in European operations.
Other income/expense. Net other income was $1.3 million, compared with the
comparable 1994 period expense of $0.6 million, comprised of numerous income
and expense items.
Income taxes. Income taxes decreased slightly, primarily due to a lower level
of income.
Geographic discussion. European sales increased by double digits for each of
the core businesses and European operating profits improved as the recovery in
Europe continued. Sales were up marginally in the United States and Canada,
while operating income declined slightly due largely to weakness in durables,
mainly automotive and major appliances. Sales and operating profit in Latin
America declined for the second consecutive quarter due to overall
macroeconomic conditions in the region. Asia-Pacific sales were nominally
improved, but operating income declined somewhat due to margin pressures in
several of the markets served in the region.
Comparison Between Nine Months Ended September 30, 1995 and 1994
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Net sales. Consolidated sales for the nine months ended September 30, 1995
were $988.0 million or 12.2% greater than those for the comparable 1994 period.
Management's best estimate is that the increase in sales comprises: volume,
5.6%; exchange, 3.2%; price/mix, 3.7%; acquisitions, 1.2%; and divestitures,
(1.5)%.
Cost of Sales. Gross profit as a percent of sales declined, from 25.1% to
24.2%, primarily due to the volume declines previously discussed for the 1995
third quarter.
Selling, administrative and general expenses. These expenses increased 7.4% in
dollar terms, due to the $5.6 million severance charge taken in the first
quarter 1995 and the higher level of sales and the incremental expenses
associated with the 1994 acquisitions.
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Interest expense. The increase in interest expense is primarily attributable
to interest on the $50.0 million, 8% debentures discussed further in LIQUIDITY
AND CAPITAL RESOURCES.
Net foreign currency gain or loss. Net loss for the 1995 period was $0.1
million as compared with the 1994 period loss of $0.8 million.
Other income/expense. Net other income increased by $1.3 million, comprised of
numerous income and expense items.
Income taxes. Income taxes increased $3.1 million, primarily reflecting the
higher level of income.
Geographic discussion. To date, European sales increased in all core
businesses, as did operating profit. Sales in the United States and Canada
also increased in all businesses. Operating profit in the United States and
Canada increased, largely due to continued improvements in the chemicals
business. Latin American sales and operating profit were down, as significant
declines in the second and third quarters due to economic conditions in the
region offset the gains made in the first quarter 1995.
Liquidity and Capital Resources
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Working capital. Working capital was $64.7 million greater at September 30,
1995 than at year-end 1994, primarily due to the increase in cash and
marketable securities resulting from the issuance of 8% debentures in the
amount of $50.0 million which are further discussed in Financing requirements
and resources below.
Cash flow. Net cash provided from operating activities for the nine months
ended September 30, 1995 was $73.0 million. The increase in Net Cash Provided
by Financing Activities is due to the issuance of the 8% debentures discussed
above and further in Financing requirements and resources below.
Financing requirements and resources. The long-term debt to equity ratio was
33.6% at September 30, 1995, excluding the loan guarantee of the Employee Stock
Ownership Plan adopted in April 1989. This compares with 21.2% at December 31,
1994. The ratio increase is due to the issuance of 8% debentures in the amount
of $50.0 million due 2025. The debentures were issued on June 20, 1995 under
the Company's Shelf Registration previously filed with the Securities and
Exchange Commission. The proceeds of the 8% debentures will be used for
general purposes, including redemption of the $50.0 million 11 3/4% debentures,
redeemable at par, in October, 1995. The Company expects to be able to meet the
financial requirements of its existing businesses from existing cash and cash
equivalents and future cash flow. The Company has available to it a $150.0
million five-year revolving credit facility with four domestic banks. There
were no borrowings under this facility as of the end of the quarter. The
Company also had up to $25.0 million of
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additional debt or equity available under its Shelf Registration. (See Other
Significant Developments for related subsequent developments.) Additionally,
the international subsidiaries have credit facilities available.
Other Significant Developments
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Subsequent to the end of the quarter, the Company:
Completed the acquisition of certain businesses of Synthetic Products
Company (Synpro) from Cookson Group plc., of London, England.
Completion of this acquisition establishes Ferro as one of the largest
producers of polymer additives in the world;
Redeemed at par the $50.0 million, 11 3/4% debentures;
Issued, on November 7, 1995 7 3/8% debentures in the amount of $25.0
million. This issuance exhausts the Company's Shelf Registration
filed in 1992 in the original amount of $100.0 million.
Filed a $300.0 million Universal Shelf Registration with the
Securities and Exchange Commission. Securities issued under this
shelf registration will be used for general corporate purposes,
including capital expenditures, acquisitions and repayment of
indebtedness.
PART II OTHER INFORMATION
Item 1 Legal Proceedings.
An agreement in principle has been reached to settle the suit filed in August
1993 by the United States Environmental Protection Agency alleging violation of
the Clean Water Act and the River and Harbors Act by the Company and several
other defendants. Subject to the negotiation of an acceptable consent decree,
the Company will agree to pay a civil penalty of $0.4 million and to pay $1.4
million into a fund to be established to help clean up sediment in the West
Branch of the Grand Calumet River. Terms of the consent decree are still
being negotiated.
Item 2 Change in Securities. No change.
Item 3 Default Upon Senior Securities. No change.
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.
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The Company has not filed any reports on Form 8-K for the
quarter ended September 30, 1995.
Exhibit 10 - Material Contracts
(a) Various agreements relating to an Asset
Defeasance Financing including a Participation
Agreement dated as of October 31, 1995 among Ferro
Corporation, State Street Bank and Trust Company
(not in its individual capacity but solely as Trustee),
the financial institutions named as Purchasers, and
Citibank N.A, as Agent, and a Lease dated October 31,
1995 between State Street Bank and Trust Company (not
in its individual capacity but solely as Trustee),
as Lessor and Ferro Corporation as Lessee. The
additional agreements are available upon request.
(b) Amended and restated Executive Employment Agreement dated
July 28, 1995.
Exhibit 11 - Statement Regarding Computation of Earnings Per Share.
Exhibit 12 - Ratio of Earnings to Fixed Charges.
Exhibit 20- The Consolidated Balance Sheets as of September
30, 1995 (Unaudited) and December 31, 1994, and the
Consolidated Statements of Income and Consolidated Statements
of Cash Flows for the three months and nine months ended
September 30, 1995 and 1994 (Unaudited) of Ferro Corporation
and Subsidiaries.
Exhibit 4(b)(4) - Amendment Number 7, dated October 25, 1995
to the Revolving Credit Agreement by and between Ferro
Corporation and four commercial banks dated August 22, 1990.
A copy of such amendment is attached hereto as Exhibit 4(b)(4).
Exhibit 27 - Financial Data Schedule
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S I G N A T U R E S
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 14, 1995
/s/Hector R. Ortino
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Hector R. Ortino
Executive Vice President and
Chief Financial-Administrative Officer
Date: November 14, 1995
/s/ Gary H. Ritondaro
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Gary H. Ritondaro
Vice President, Finance