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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
[ ] 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 October 31, 1999, there were 35,227,624 shares of Ferro common stock, par
value $1.00, outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FERRO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in Thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Segment Sales
Coatings $ 201,680 $ 201,633 $ 596,861 $ 609,454
Chemicals 72,422 73,569 218,637 230,752
Plastics 63,933 59,187 191,053 181,949
----------- ----------- ----------- -----------
Total Net Sales $ 338,035 $ 334,389 $ 1,006,551 $ 1,022,155
Cost of Sales 244,706 244,423 724,547 749,498
Selling, General and Administrative Expenses 59,800 57,700 180,564 176,161
Other Charges (Credits):
Interest Expense 4,563 4,094 12,518 11,033
Net Foreign Currency (Gain)/Loss 334 205 (76) (914)
Other Expense - Net 114 1,158 2,686 3,127
----------- ----------- ----------- -----------
Income Before Taxes 28,518 26,809 86,312 83,249
Income Tax Expense 10,452 10,046 31,971 31,030
----------- ----------- ----------- -----------
Net Income 18,066 16,763 54,341 52,219
Dividend on Preferred Stock, Net of Tax 950 948 2,841 2,840
----------- ----------- ----------- -----------
Net Income Available to Common Shareholders $ 17,116 $ 15,815 $ 51,500 $ 49,379
=========== =========== =========== ===========
Per Common Share Data:
Basic Earnings $ 0.48 $ 0.44 $ 1.46 $ 1.34
Diluted Earnings $ 0.45 $ 0.41 $ 1.37 $ 1.25
Shares Outstanding:
Average Outstanding 35,367,865 35,921,884 35,203,803 36,755,125
Average Diluted 39,010,532 39,579,497 38,945,094 40,852,272
Actual End of Period 35,352,524 35,587,549 35,352,524 35,587,549
- --------------------------------------------------------------------------------------------------------------
See Accompanying Notes to Condensed Consolidated Financial Statements
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FERRO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, December 31,
ASSETS 1999 1998
- ------ ------------- ------------
(Unaudited) (Audited)
Current Assets:
Cash and Cash Equivalents $ 11,957 $ 12,185
Net Receivables 266,109 249,771
Inventories 153,020 140,970
Other Current Assets 51,881 53,967
-------- --------
Total Current Assets $482,967 $456,893
Net Plant & Equipment 329,997 274,052
Excess of Cost Over Net Assets Acquired 93,922 50,617
Other Assets 67,108 67,603
-------- --------
$973,994 $849,165
======== ========
LIABILITIES
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Current Liabilities:
Notes and Loans Payable $ 27,964 $ 30,987
Accounts Payable, Trade 120,647 105,932
Income Taxes 16,334 4,006
Accrued Payrolls 23,239 19,762
Accrued Expenses and Other Current Liabilities 109,120 121,869
-------- --------
Total Current Liabilities $297,304 $282,556
Long - Term Debt 257,353 156,283
Postretirement Liabilities 45,894 45,426
Other Liabilities 77,922 81,639
Shareholders' Equity 295,521 283,261
-------- --------
$973,994 $849,165
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
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FERRO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
(Dollars in Thousands) 1999 1998
- -------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Net Cash Provided from Operating Activities $ 107,382 $ 49,386
Cash Flow from Investing Activities:
Capital Expenditures for Plant and Equipment (62,290) (42,047)
Acquisitions, net of cash acquired (117,544) --
Other Investing Activities, Net (2,100) (1,942)
- -------------------------------------------------------------------------------
Net Cash Used for Investing Activities (181,934) (43,989)
Cash Flow from Financing Activities:
Net short-term Borrowings (Payments) (3,022) 10,322
Net Proceeds from long-term borrowings 117,193 54,283
Purchase of Treasury Stock (13,611) (54,783)
Cash Dividend Paid (17,120) (16,334)
Other Financing Activities (8,995) 2,619
- -------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 74,445 (3,893)
Effect of Exchange Rate Changes on Cash (121) 4,550
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Increase (Decrease) in Cash and Cash Equivalents (228) 6,054
Cash and Cash Equivalents at Beginning of Period 12,185 16,337
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 11,957 $ 22,391
===============================================================================
Cash Paid During the Period for:
Interest, net of amounts capitalized $ 4,593 $ 8,993
Income Taxes $ 16,952 $ 27,364
===============================================================================
See Accompanying Notes to Condensed Consolidated Financial Statements
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FERRO CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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, 1998. The information furnished herein reflects all
adjustments that are, in the opinion of management, necessary for fair
presentation of the results for the interim periods. The results of the
three and nine months ended September 30, 1999 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 $21.2 million and $25.5 million for the three months ended
September 30, 1999 and 1998, respectively, and $31.3 million and
$59.3 million for the nine months ended September 30, 1999 and 1998,
respectively.
3. Contingent Liabilities
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 and
possibly to alter or terminate the Company's right to produce Pyro-Chek(r)
at the Hammond plant (see the description in Part II Item 1). The Company
is vigorously contesting these claims and evaluating alternatives for
mitigating the impact should the Company not prevail. If the U.S. EPA were
to prevail on its claims, it could have a material adverse effect on the
Company.
At the prompting of several residents near Hammond, Indiana, U.S.
Congressional Representative Visclosky 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 has had an initial meeting with
representatives of the ATSDR, and intends to cooperate with all reasonable
requests in connection with the evaluations.
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.
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4. Segment Reporting
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, flame retardants, 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 below. Intersegment sales are not
material.
Three Months Ended Nine Months Ended
September 30 September 30
(Dollars in Thousands) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET SALES 1999 1998 1999 1998
- --------- ---- ---- ---- ----
Coatings $201,680 $201,633 $ 596,861 $ 609,454
Chemicals 72,422 73,569 218,637 230,752
Plastics 63,933 59,187 191,053 181,949
-------- -------- ---------- ----------
Total $338,035 $334,389 $1,006,551 $1,022,155
-------- -------- ---------- ----------
Income and reconciliation to income before taxes follows:
Three Months Ended Nine Months Ended
September 30 September 30
(Dollars in Thousands) (Unaudited) Unaudited) (Unaudited) (Unaudited)
SEGMENT INCOME 1999 1998 1999 1998
- -------------- ---- ---- ---- ----
Coatings $22,643 $20,756 $ 68,953 $ 63,797
Chemicals 7,951 9,943 25,017 28,155
Plastics 6,411 6,024 20,284 17,298
------- ------- -------- --------
Total $37,005 $36,723 $114,254 $109,250
------- ------- -------- --------
Unallocated Expenses $ 3,476 $ 4,457 $ 12,814 $ 12,755
Interest Expense 4,563 4,094 12,518 11,033
Foreign Currency (Gain)/Loss 334 205 (76) (914)
Other Expense - Net 114 1,158 2,686 3,127
------- ------- -------- --------
Income Before Taxes $28,518 $26,809 $ 86,312 $ 83,249
======= ======= ======== ========
Unallocated expenses consist primarily of corporate costs.
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5. Acquisitions and Divestitures
On July 30, 1999, Ferro Corporation purchased TAM Ceramics Incorporated
from Cookson Group, plc of London, England. TAM, now Ferro Electronic
Materials, Inc., is a supplier of dielectric powders for the electronics
industry and zircon-based ceramic powders for a variety of uses. The
acquisition has been accounted for under the purchase method, and
accordingly, the assets and liabilities have been recorded at their
estimated fair values at the date of acquisition. The excess of purchase
price over the estimated fair value of the net assets acquired has been
recorded as goodwill which is being amortized on a straight line basis over
20 years.
During the third quarter of 1999, the Company incurred charges of
approximately $2.9 million related to the acquisition of TAM, primarily for
costs related to the step-up valuation of inventory acquired.
Also in the third quarter of 1999, the Company recognized net gains on the
sale of former manufacturing facilities of $3.3 million, including the
release of $2.8 million of reserves previously established on such assets
held for sale or closure.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Three Months Ended September 30, 1999 and 1998.
- -----------------------------------------------
Third quarter 1999 net sales of $338.0 million were 1.1% higher than the $334.4
million of the comparable 1998 period. Sales increased fractionally in the
Coatings segment and declined 1.6% in the Chemicals segment. Plastics sales
increased 8.0%.
Strong volume growth and the contribution of acquisitions made this year added
$28.8 million to sales. These improvements were largely offset by lower prices
tied to decreases in raw material costs, changes in product mix and the negative
effects of foreign currency translation. Third quarter sales also reflected the
continued strength of the U.S. market and substantial volume growth in Asia.
Gross margin grew to 27.6% of sales as compared to 26.9% for the comparable 1998
period reflecting improved productivity, better manufacturing facility
utilization and lower raw material costs in certain business segments.
Selling, general and administrative expenses increased by 3.6% compared to the
same quarter in 1998, primarily as a result of acquisitions made within the past
year.
Net income for the quarter climbed 7.8% to $18.1 million, a third quarter
record, compared to $16.8 million for the third quarter of 1998. Earnings of
$0.45 (diluted) per share, increased 9.8% compared to the $0.41 earned in the
1998 third quarter.
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COATINGS
Third quarter sales for the Coatings segment increased slightly to $201.7
million compared to the 1998 third quarter sales of $201.6 million. Strong
volume improvement, particularly in Asia, and the TAM acquisition, led to an
increase in sales that was largely offset by pricing weakness, due to lower raw
material costs, and foreign currency translation. Segment income increased 9.1%
to $22.6 million from $20.8 million recorded in the 1998 third quarter, driven
by substantial gross margin improvement. Increased sales of higher margin
products and lower costs helped profits grow at a faster rate than sales.
CHEMICALS
Chemical segment sales were $72.4 million, down 1.6% from sales of $73.6 million
in the third quarter of 1998. The primary reason for the decline was continued
weakness in the petroleum additives business and lower selling prices that
corresponded to declines in raw material costs. Segment income declined
approximately $2.0 million to $8.0 million compared to the third quarter of 1998
as a result of the decline in the petroleum additives business, changes in the
mix of products sold and a plan to reduce inventories.
PLASTICS
The Plastics segment recorded sales of $63.9 million, an increase of 8.0% over
third quarter 1998 sales of $59.2 million. Increased sales resulted from volume
improvement in all businesses and contribution from the March 1999 Advanced
Polymer Compounding (APC) acquisition. Segment income rose 6.4% to $6.4 million
compared to $6.0 million in the third quarter of 1998. The increase in segment
income was attributable to profit contribution from APC and continued
productivity improvements on higher production volumes.
GEOGRAPHIC SALES
Sales in the United States were $191.5 million for the three months ended
September 30, 1999 compared to $182.1 million for the three months ended
September 30, 1998. Higher sales in this region were driven largely by
contributions from the APC acquisition (completed March 1999) and the TAM
Ceramics acquisition (completed July 30, 1999). International sales were $146.5
million for the three months ended September 30, 1999, compared to $152.3
million in the three months ended September 30, 1998. The decline in
international sales is primarily due to negative foreign currency translation,
and lower prices influenced by declining raw material costs.
Nine Months Ended September 30, 1999 and 1998.
- ----------------------------------------------
For the nine months ended September 30, 1999, net sales of $1,006.6 million were
1.5% less than the $1,022.2 million of the comparable 1998 period. Sales
declined 2.1% in the Coatings segment and 5.3% in the Chemicals segment.
Plastics sales increased 5.0%.
The decline in sales was attributable to lower selling prices in many of the
Company's businesses, in correlation with lower costs for raw materials. The
strengthening of the United States dollar against foreign currencies also
contributed to lower sales; in particular, currencies
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in Europe and Latin America were substantially weaker than in the 1998 period.
Divestitures also had a modest impact in reducing sales. Partially offsetting
those factors were a 2.0% increase in sales volumes and the contribution of
acquisitions made in the 1999 period.
Gross margin as a percent of sales was 28.0% as compared to 26.7% for the
comparable 1998 period. This improvement was driven by lower raw material costs,
a shift in the mix of products sold toward higher margin products, improved
manufacturing efficiencies and better facility utilization.
Selling, general and administrative expenses increased by 2.5% versus the first
nine months of 1998 due primarily to acquisitions made within the past year.
Interest expense increased to $12.5 million compared to $11.0 million in the
first nine months of 1998. The increase in interest expense is primarily
attributable to funding of the APC and TAM Ceramics acquisitions.
Net income for the nine months ended September 30, 1999 reached $54.3 million,
up 4.1% from the $52.2 million recorded in the first nine months of 1998.
Earnings rose to $1.37 (diluted) per share, up 9.6% from the $1.25 for the first
nine months of 1998.
COATINGS
For the first nine months of 1999, sales in the Coatings segment fell 2.1% to
$596.9 million compared to sales of $609.5 million in the 1998 period. Lower
selling prices, negative foreign currency translation and divestitures all had a
negative impact on sales. Selling prices declined in correlation with a drop in
prices for key raw materials in certain businesses. Partially offsetting the
decline were volume improvement and the two-month contribution in the third
quarter from the TAM Ceramics acquisition. Segment income increased 8.1% to
$69.0 million from $63.8 million recorded in the first nine months of 1998. The
TAM acquisition, increased sales of higher margin products, continuing
manufacturing efficiencies, better capacity utilization and lower raw material
costs all played a role in increasing segment income.
CHEMICALS
Chemical sales were $218.6 million, down 5.3% from sales of $230.8 million for
the nine months ended September 30, 1998. The primary reasons for the decline
include continued weakness in the petroleum additives market that has impacted
results throughout the year and reduced selling prices in correlation with
declines in key raw material costs. Segment income declined 11.1% to $25.0
million compared to $28.2 million in the first nine months of 1998. The decline
in segment income was driven by reduced sales, changes in the mix of products
sold and a management plan to reduce inventories in the third quarter.
PLASTICS
The Plastics segment recorded sales of $191.1 million, an increase of 5.0%
compared to sales of $181.9 million for the nine months ended September 30,
1998. Sales improvement was most notable in the third quarter and included a
strong contribution from the APC acquisition, which was completed in March 1999
and volume growth. These improvements were partially offset by price declines in
correlation with lower raw material costs. Segment income increased by
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17.3% to $20.3 million compared to segment income of $17.3 million for the same
period in 1998. The segment income improvement was attributable to the profit
contribution from APC, a higher volume of value-added products, continued
productivity improvements and lower raw material costs.
GEOGRAPHIC SALES
Sales in the United States were $561.0 million for the nine months ended
September 30, 1999, roughly equal to sales in the 1998 period. United States
sales were primarily influenced by volume growth and the benefit of acquisitions
offset by lower selling prices, which correlated with declines in raw material
prices. International sales were $445.6 million for the nine months ended
September 30, 1999, compared to $460.4 million in the nine months ended
September 30, 1998. Lower selling prices, driven by lower raw material costs and
negative foreign currency translation were the primary reasons for the decline.
Liquidity and Capital Resources
- -------------------------------
Net cash provided from operating activities for the nine months ended September
30, 1999, was $107.4 million compared to the $49.4 million recorded in the first
nine months of 1998. The improvement in operating cash flows in 1999 is
primarily due to a net working capital reduction of $21.2 million (excluding
acquisitions) in the first nine months of 1999 compared to a net working capital
increase in the 1998 period. The increase in net cash used for investing
activities, for the first nine months of 1999, is associated with a higher level
of capital expenditures and acquisitions. The change in net cash from financing
activities is driven by long-term borrowings to fund acquisitions and a lower
level of share repurchases in 1999.
The Company's liquidity requirements include working capital requirements,
capital investments, acquisitions, and 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 to it a $150.0 million five-year revolving credit facility with four
domestic banks. The Company had borrowed $100.0 million under this facility as
of September 30, 1999. 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.
Environmental
- -------------
See the discussion of environmental proceedings under Note 3 to the Company's
unaudited condensed consolidated financial statements for the nine months ended
September 30, 1999, which discussion is incorporated here by reference.
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Year 2000 Readiness Disclosure
- ------------------------------
Historically, many computer software programs were written to refer to years
only in terms of their final two digits. Such programs may mis-interpret the
year 2000 data to mean the year 1900. The Company is aware of the implications
and issues associated with this issue and could be faced with disruption of
operations and a corresponding impact on the Company's results of operations if
the Year 2000 issues are not resolved in a timely manner.
The Company currently operates multiple computer systems, including hardware and
software, in its global business operations. The Company believes it has
identified the issues that affect its global computer operations and continues
the process of implementing appropriate plans to address this problem. Local
area networks, telephone systems, business systems, financial systems, shop
floor devices, facility operations and end-user computing systems have been
assessed and remedied where appropriate, globally. In order to determine fully
the readiness of its production and other equipment with the Year 2000 issues,
the Company has substantially completed a comprehensive inventory of operations
systems and remedied those systems that it believes may be impacted.
The Company is using multiple strategies to address the Year 2000 issues. New
software has been purchased and installed, current software and other legacy
systems have been rewritten, and hardware that is non-Year 2000 compliant has
been replaced. The Company contracted with a third-party consultant with special
expertise in this area to assist the Company in its Year 2000 compliance program
The Company has completed the conversion or replacement of its major business,
financial, and operating systems that were not Year 2000 compliant. Preliminary
testing has been accomplished but on-going evaluation and testing of critical
systems will be performed throughout 1999. In addition, the Company has
developed contingency plans in the event that these corrective actions are not
implemented in a timely manner as expected. As with testing, the Company will
continue to refine its plans as it gets closer to the transition date. The
Company has established watch teams to develop and coordinate contingency plans
to be implemented at Company sites. Readiness plans have been established to
ensure internal resources are in place from the second half of December 1999
through the end of January 2000.
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Based upon findings to date, the Company's total external costs (historical plus
estimated future costs) are currently estimated to be in the range of $10.0
million to $11.0 million, of which approximately $9.9 million has been incurred
and the majority of which has been capitalized in accordance with Statement of
Position No. 98-1 "Accounting for Costs of Computer Software Developed or
Obtained for Internal Use." The Company does not separately track internal costs
for Year 2000 compliance, which are primarily for payroll and related costs of
information systems personnel.
The Company continues to assess the plans and progress of key suppliers and
customers in addressing the Year 2000 issue. To the extent that these key
suppliers and customers are impacted by their failure to address the Year 2000
issue, such disruption could have a direct impact on the Company. The Company
continues to explore and implement a variety of contingency plans to minimize
the impact to the Company of third-party failures. These plans are focused on
the availability of raw materials, energy and other resources critical to
maintaining operations.
The Company's expectations outlined above with respect to the Year 2000 are
subject to uncertainties and are forward-looking statements that express the
Company's current expectations or forecasts of future events. The Company
believes that it has identified the Year 2000 issues that affect its global
computer operations. However, if the Company is unsuccessful in identifying or
solving all Year 2000 issues in its critical operations, or if the Company is
materially and adversely affected by the inability of its key suppliers and
customers to identify and solve their Year 2000 issues, the Company's results of
operations or financial condition could be materially impacted.
Furthermore, the total costs that the Company will incur with respect to Year
2000 issues will be influenced by the Company's ability to successfully identify
and solve Year 2000 issues, the extent and complexity of programming required to
fix affected programs, the related labor and consulting costs the Company will
incur and the ability of third parties with whom the Company has business
relationships to successfully identify and solve their own Year 2000 issues.
These and other unforeseen factors could have a material adverse effect on the
Company's results of operations or financial condition.
Forward-Looking Statements
- --------------------------
Certain statements contained in this quarterly report on Form 10-Q 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: changes in customer requirements, markets or industries served; changing
economic conditions, particularly in Europe, Asia-Pacific, Latin America and the
United States; foreign exchange rates, especially in Europe, Latin America and
Asia-Pacific; changes in the prices of major raw materials; significant
technological or competitive developments; disruption of operations associated
with
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certain computer-based systems that rely on date routines in connection with the
year 2000; and the impact of environmental proceedings discussed herein under
the heading "Environmental" in Management's Discussion and Analysis.
OTHER DEVELOPMENTS
William B. Lawrence Named Director
- ----------------------------------
On August 27th the Company announced that the Board of Directors had been
increased to 11 members and that William B. Lawrence had been elected a
director. Mr. Lawrence is executive vice president, general counsel and
secretary of Cleveland-based TRW Inc., supervising and coordinating TRW's
worldwide legal activities, government affairs and corporate development.
Dividend Increase
- -----------------
On October 22, 1999, the Board of Director's of the Company announced a 7.4%
increase in the quarterly common stock cash dividend. The action increases the
quarterly dividend to $0.145 per share from the previous rate of $0.135,
effective with the next quarterly dividend payment on December 10, 1999, to
shareholders of record on November 15, 1999. This is the 11th time in 13 years
Ferro has increased the dividend. The Company's last dividend increase was in
October 1998.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS.
There have been no material changes in market risk exposures during the first
nine months of 1999 that effect the disclosures presented in the Company's
Annual Report to Shareholders on Form 10-K for the year ended December 31, 1998,
which disclosure is incorporated here by reference.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In 1994, the Company's Keil Chemical Division (Keil) settled an enforcement
proceeding brought by the Indiana Department of Environmental Management (IDEM)
concerning air emissions from Keil's Pyro-Chek(r) process. The settlement was in
the form of an Agreed Order with IDEM. The Agreed Order confirmed the Company's
plans to install additional controls and imposed certain aggregate limitations
on air emissions from the Pyro-Chek(r) production process while the Company
applied for and obtained a construction and operating permit for the existing
air source. The control equipment was installed, but the Company has had a
continuing disagreement with the agency over whether it has been in compliance
with the Agreed Order, including which methods should be used to demonstrate
compliance.
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In November 1998, IDEM filed suit in Indiana state court seeking to shut down
operation of the Pyro-Chek(r) process. At a hearing held on December 4, 1998,
the court denied IDEM's request for a preliminary injunction, and later
dismissed the claim for a permanent injunction on grounds that the dispute
arising out of the Agreed Order should be addressed before the Indiana Office of
Environmental Adjudication. The day before this hearing, IDEM denied Keil's
application for a permit for air emissions for the Pyro-Chek(R) process. The
Company appealed IDEM's denial of Keil's permit application to the Indiana
Office of Environmental Adjudication. On October 25, 1999 the Company agreed to
dismiss the appeal following IDEM's agreement to withdraw its denial of the
Company's permit application and to consider the Company's revised permit
application.
Until recently, the United States Environmental Protection Agency (U.S. EPA) had
given the enforcement lead to IDEM. Following requests for information from the
Company, some of which are ongoing, the U.S. EPA served the Company with a
Notice of Violation (NOV) on May 5, 1999, alleging that the Company violated
various pre-construction review requirements in building and modifying the
Pyro-Chek(R) process between 1980 and 1991, and has been operating without
necessary permits. The allegations in the NOV are essentially the same as those
made by U.S. EPA in 1993 when U.S. EPA, IDEM and HDEM pursued enforcement
against the Company, resulting in settlements with IDEM and HDEM in the Agreed
Order. The Company is continuing discussions with U.S. EPA regarding the NOV.
The Company intends to vigorously contest the allegations in the NOV.
If the U.S. EPA were to prevail on its claims, it could have a material adverse
effect on the operating results and financial condition of the Company.
ITEM 2 - CHANGE IN SECURITIES.
None.
ITEM 3 - DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
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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
ended September 30, 1999
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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: November 15, 1999 /s/ Hector R. Ortino
---------------------------------------
Hector R. Ortino
Chairman and Chief Executive Officer
Date: November 15, 1999 /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 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 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 June 23, 1998 (Reference is
made to Exhibit 3 (c) to Ferro Corporation's 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 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 four commercial
banks dated August 22, 1990. (Reference is made to Exhibit 10 to Ferro
Corporation's Form 10-Q for the three months ended September 30, 1990,
which Exhibit is incorporated here by reference.)
(b) Amendment Number 1 dated May 31, 1991, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(1) to Ferro Corporation's Quarterly Report on
Form 10-Q for the three months ended June 30, 1991, which Exhibit is
incorporated here by reference.)
(c) Amendment Number 2 dated July 30, 1991, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(2) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1991, which Exhibit is incorporated here
by reference.)
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(d) Amendment Number 3 dated December 31, 1991, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4 to Ferro Corporation's Form 10-K for the year
ended December 31, 1991, which Exhibit is incorporated here by
reference.)
(e) Amendment Number 4 dated July 21, 1992, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4 to Ferro Corporation's Form 10-Q for the three
months ended June 30, 1992, which Exhibit is incorporated here by
reference.)
(f) Amendment Number 5 dated April 20, 1993, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(4) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1993, which Exhibit is incorporated here
by reference.)
(g) Amendment Number 6 dated June 22, 1995, to the Revolving Credit
Agreement by and between Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(4) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1995, which Exhibit is incorporated here
by reference.)
(h) Amendment Number 7 dated October 25, 1995 to the Revolving Credit
Agreement by and between Ferro Corporation and four commercial
banks.(Reference is made to Exhibit 4(b)(4) to Ferro Corporation's
Form 10-Q for the three months ended September 30, 1995, which Exhibit
is incorporated here by reference.)
(i) Amendment Number 8 dated July 24, 1997 to the Revolving Credit
Agreement by and between Ferro Corporation and four commercial
banks.(Reference is made to Exhibit 4(k) to Ferro Corporation's Form
10-Q for the three months ended June 30, 1997, which Exhibit is
incorporated here by reference.)
(j) Shareholder Rights Agreement between Ferro Corporation and National
City Bank, Cleveland, Ohio, as Rights Agent, dated as of March 22,
1996 . (Reference is made to the Exhibit to the Registration Statement
on Form 8-A dated May 15, 1996 which Exhibit is incorporated here by
reference.)
(k) 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.
(l) 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,
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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.)
(m) 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.)
*(11) Statement Regarding Computation of Earnings per Share.
*(12) Ratio of Earnings to Fixed Charges.
*(27) Financial Data Schedule for the Quarter Ended September 30, 1999
(Electronic Filing Only)
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