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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
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[ x ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996
[ ]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
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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
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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 April 30 1996, there were 26,562,634 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 March 31, 1996 (unaudited) and December
31, 1995, and the Consolidated Statements of Income and Consolidated Statements
of Cash Flows for the three months ended March 31, 1996 and 1995 (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,
1995.
Cash dividends were paid at the rate of $0.135 per common share in the first
quarter of 1996 and 1995. Cash dividends on preferred shares were paid at the
rate of $0.81 per preferred share in the first quarter of 1996 and 1995.
Net sales and net income for the three months ended March 31, 1996 were $348.2
million and $13.2 million ($0.43 fully diluted earnings per common share) as
compared with net sales and net income of $342.9 million and $13.1 million
($0.41 fully diluted earnings per common share) for the corresponding 1995
period . Included in the 1995 quarter were severance charges of $5.6 million.
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 March 31, 1996 and 1995.
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Net Sales. First quarter 1996 sales of $348.2 million were 1.5% greater than the
$342.9 million of the comparable 1995 period.
Sales increased 38% for the Chemicals segment, but decreased 4% in the Coatings,
Colors and Ceramics segment and 16% in the Plastics segment. The increase in
Chemicals is largely due to sales associated with the acquisition of the polymer
additives business (Synpro) from Cookson Group plc, during the fourth quarter of
1995. Coatings, Colors and Ceramics sales declined primarily because of
macroeconomic conditions in Latin America and the divestiture of a powder
coatings joint venture in Italy. Plastics sales declined largely because of the
divestiture of an operation in France. Geographically, consolidated sales were
up in the United States and Canada and Europe but down in the Latin America and
Asia-Pacific regions.
The variety of products sold by the Company makes it difficult to determine with
certainty the
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increases or decreases in sales resulting from changes in physical volume of
products sold and selling prices. Management's best estimate is that the 1.5%
increase in sales comprises: volume, -3.8%; price/mix, 1.2%; acquisitions 7.5%
and divestitures -3.4%.
Cost of Sales. Gross profit as a percent of sales was 24.5% as compared with
25.0% for the comparable 1995 period. This was due to a combination of
macroeconomic conditions in Latin America, softness in the domestic automotive
and appliance markets and product/mix changes.
Selling, administrative and general expenses. Such expenses as a percent of
sales declined from 17.7% in 1995 to 16.9% in 1996. First quarter 1995 included
a severance charge of $5.6 million.
Interest expense. The increase in interest expense from $3.1 million to $3.3
million is primarily attributable to lower level of capitalized interest.
Net foreign currency gain or loss. The net foreign currency gain is primarily
attributable to transaction gains in European operations.
Other income/expense. Net other expense was $2.1 million, up from the comparable
1995 period expense of $0.4 million, comprised of numerous income and expense
items.
Income taxes. Income taxes were comparable with the corresponding 1995 quarter.
Geographic discussion. European sales improved for each of the core businesses
and European operating profits improved despite signs of weakness in some
markets. Sales and operating income each improved in the United States and
Canada, mostly due to the strong performance of the profitable Synpro
acquisition. Domestic operating profit was also helped by margin improvement in
the Plastics business. Sales and operating profit in Latin America declined due
to overall macroeconomic conditions in the region. Asia-Pacific sales were down,
as was operating income due to margin pressures in several of the markets served
in the region.
Liquidity and Capital Resources
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Working capital. Working capital was comparable to year-end 1995.
Cash flow. Net cash provided from operating activities for the three months
ended March 31, 1996 was $27.1 million. The increase in Net Cash used for
Financing Activities is due to the repayment of debt and the repurchase of some
of the Company's outstanding shares.
Financing requirements and resources. The long-term debt to equity ratio was
27.5% at March 31, 1996, excluding the loan guarantee of the Employee Stock
Ownership Plan adopted in April 1989. This equals the 27.5% ratio at December
31, 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
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has available a $300 million Universal Shelf Registration that was filed with
the Securities and Exchange Commission on October 31, 1995, under which various
types of securities may be issued.
OTHER SIGNIFICANT DEVELOPMENTS
In February 1996, J. Larry Jameson joined the Company as Vice President,
Powder Coatings.
Subsequent to the end of the quarter:
Adolph Posnick retired from the Board of Directors as of April 26, 1996,
pursuant to Ferro Corporation's mandatory retirement age policy for
directors.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS. NO CHANGE
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.
At the Annual Meeting of Shareholders held on April 26, 1996, the
Shareholders:
a) Re-elected four current Ferro Corporation directors - Sandra Harden
Austin, Werner F. Bush, Rex A. Sebastian and Dennis W. Sullivan to
serve the Board until the 1999 meeting.
The results of the voting for directors were as follows:
For Against Abstain
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Harden Austin 21,628,045 0 4,436,758
Bush 21,650,232 0 4,414,571
Sebastian 21,704,000 0 4,360,803
Sullivan 21,728,627 0 4,336,176
The terms of office for Albert C. Bersticker, Paul S. Brentlinger,
Glenn R. Brown, William E. Butler, A. James Freeman, John C. Morley
and Hector R. Ortino continued after the meeting.
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b) Approved a proposal to set the number of Board of Director members at
11.
Shareholders approved the proposal to set the number of Board of
Director members at 11 by a vote of 24,567,986 shares for, 156,497
against and 106,149 shares that were present but did not vote on this
issue.
c) Approved a proposal to adopt two amendments to the Employee Stock
Option Plan.
Shareholders approved the proposal to amend the Employee Stock Option
Plan by a vote of 24,469,358 shares for, 1,067,368 shares against and
214,872 shares that were present but did not vote on this proposal.
d) Adopted a resolution to ratify the designation of KPMG Peat Marwick
LLP as independent auditors of Ferro's books and accounts.
Shareholders approved the designation of KPMG Peat Marwick LLP as
independent auditors by a vote of 25,815,033 shares for, 172,298
shares against and 77,472 shares who were present but did not vote on
this issue.
ITEM 5 OTHER INFORMATION. NONE.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
The Company has not filed any reports on Form 8-K for the quarter
ended March 31, 1996.
Exhibits 4(a) through 4(k) referenced in Ferro Corporation's Form 10-K
for the year ended December 31, 1995 are incorporated herein by
reference.
Exhibit 4(l) - Shareholder Rights Plan
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 March 31, 1996
(Unaudited) and December 31, 1995, and the Consolidated Statements of
Income and Consolidated Statements of Cash Flows for the three months
March 31, 1996 and 1995 (Unaudited) of Ferro Corporation and
Subsidiaries.
Exhibit 27 - Financial Data Schedule (Electronic Filing Only)
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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: May 13, 1996
/s/Hector R. Ortino
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President
Date: May 13, 1996
/s/ Gary H. Ritondaro
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Vice President and
Chief Financial Officer