<PAGE> 1
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, 1994 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 _______
At October 31, 1994, there were 27,938,268 shares of Ferro common stock, par
value $1.00, outstanding.
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
The Consolidated Balance Sheets as of September 30, 1994 (unaudited) and
December 31, 1993, and the Consolidated Statements of Income and Consolidated
Statements of Cash Flows for the three months and nine months ended September
30,1994 and 1993 (unaudited) of Ferro Corporation and Subsidiaries are set
forth in Exhibit 20 hereof which is incorporated by reference herein.
These 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,
1993.
Cash dividends were paid at the rate of $0.135 per common share in the third
quarter of 1994 and 1993. Cash dividends on preferred shares were paid at the
rate of $0.81 per preferred share in the third quarter of 1994 and 1993.
Net sales and net income for the three months ended September 30, 1994 were
$296,803,000 and $11,632,000 ($0.38 primary earnings per common share) as
compared with net sales and net income of $263,697,000 and $14,988,000 ($0.48
primary earnings per common share) for the corresponding period in 1993.
Net sales and net income for the nine months ended September 30, 1994 were
$880,352,000 and $34,922,000 ($1.11 primary earnings per common share) as
compared with $800,450,000 and $21,157,000 ($0.63 primary earnings per common
share) for the corresponding 1993 period. Net income for the 1993 nine-month
period includes a $3,000,000 pretax charge ($1,818,000 after tax) associated
with the acquisition of Imperial Chemical Industries' (ICI) North American and
European powder coatings business and also includes the impact of required
changes in accounting principles for taxes and postretirement benefits.
Excluding the accounting charges, net income for the 1993 nine-month period was
$41,707,000 ($1.33 primary earnings per common share).
The foregoing figures are unaudited, but in the opinion of management of the
company, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation thereof have been made.
1
<PAGE> 3
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Comparison Between Three Months Ended September 30, 1994 and 1993
- - -----------------------------------------------------------------
Net Sales. Third quarter 1994 sales of $296.8 million were 12.5 percent
greater than the $263.7 million of the third quarter 1993.
Sales increased in all businesses and all geographic areas . Sales for
Coatings, Colors and Ceramics increased 15.7 percent, while Plastics sales
increased 10.9 percent and Chemicals sales increased 4.9 percent.
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 12.5 percent increase in sales is comprised of:
volume, 9.4 percent; acquisitions, 2.8 percent; exchange, 1.9 percent;
price/mix, 0.0 percent; and divestitures, (1.6) percent.
Cost of sales. Gross profit as a percent of sales decreased from 25.6 percent
to 24.8 percent, primarily due to aggressive price competition in international
ceramic glaze markets, product mix changes and raw material price increases
which in some cases outpaced the Company's ability to effect price increases to
customers.
Selling, administrative and general expenses. Such expenses increased 16.5
percent in dollar terms due to: higher level of sales; exchange impact of
weaker U.S. dollar; and costs associated with the businesses acquired in 1994
(including amortization of goodwill).
Net foreign currency. Net foreign currency loss was negligible for the
quarter, compared with a $0.5 million gain during the corresponding 1993
quarter, reflecting a somewhat weaker U.S. dollar compared with the prior year
period.
Other income/expense. Net other expense increased by $2.2 million and is
comprised of numerous income and expense items.
Income taxes. Income taxes declined $0.8 million, reflecting the lower level
of income in the current period. The effective tax rate for the third quarter
was 34.4 percent compared with 31.6 percent for the 1993 period. The third
quarter 1993 effective tax rate was much lower than normal, largely due to the
impact of various tax law changes during the period.
Geographic discussion. In the United States and Canada, sales increased in
each core business except for Chemicals, where volume declined somewhat because
the continued loss of fuel additive volume and because of production
interruptions experienced by
2
<PAGE> 4
several oil refiner customers. Operating profit in the United States and
Canada declined, largely due to the reduced Chemical volume and items discussed
in Cost of Sales and Selling, administrative and general expenses above.
European sales and operating profit improved over the prior year period .
Latin American sales and operating profit were up nominally. Asia-Pacific
sales increased, while operating profit was relatively flat.
Comparison Between Nine Months Ended September 30, 1994 and 1993
- - ----------------------------------------------------------------
Net sales. Consolidated sales for the nine months ended September 30, 1994
were $880,352,000 or 10.0 percent greater than those for the comparable 1993
period. Management's best estimate is that the 10.0 percent increase in sales
is comprised of: volume and acquisitions, 12.6 percent; exchange, (0.8)
percent; price/mix, (0.7) percent; and divestitures, (1.1) percent.
Cost of sales. Gross profit as a percent of sales declined from 26.2 percent
to 25.1 percent, primarily due to the one-time costs in the first quarter
within the domestic chemical business, aggressive price competition in
international ceramic glaze markets, product mix changes, raw material price
increases and the slower than anticipated consolidation of the acquired
domestic powder coatings business.
Selling, administrative and general expenses. These expenses increased 13.6
percent in dollar terms due to: higher level of sales; costs associated with
the businesses acquired in 1993 and 1994 (including amortization of goodwill)
and planned increases in research and development expenses.
Interest expense. The $1.2 million increase over the 1993 period is
essentially due to the incremental interest associated with the issuance of the
$25 million, 7 5/8 debentures in May, 1993.
Net foreign currency gain or loss. Net loss for the 1994 period was $0.8
million as compared with net gain for the 1993 period of $2.1 million. The
1994 situation reflects the results of compliance with established rules for
marking to market forward exchange contracts and options utilized to hedge the
Company's exposure to foreign currency fluctuations, while the 1993 gain is
largely attributable to hedging gains.
Other income/expense. Net other income decreased by $1.3 million and is
comprised of numerous income and expense items.
Income taxes. Income taxes declined $3.4 million, reflecting the lower level
of income.
Geographic discussion. To date, European sales increased in all core
businesses, while operating profit was up nominally in response to economic
recovery in the region. Sales in the United States and Canada increased
because of the incremental powder coatings sales acquired in 1993 and volume
increases in the domestic plastics business. Operating
3
<PAGE> 5
profit in the United States and Canada declined in response to the factors
discussed above in Cost of Sales and Selling, administrative and general
expenses. Latin American sales and operating profit declined, largely due to
product mix changes. Asia-Pacific sales increased and operating profit was up
nominally despite the sale of an Australian plastics business in the second
quarter of 1994.
Liquidity and Capital Resources
- - -------------------------------
Working capital. Working capital was $20.4 million less at September 30, 1994
than at year-end 1993, largely due to the liquidation of marketable securities
to repurchase Ferro common stock.
Cash flow. For the nine months ended September 30, 1994, net cash provided
from operating activities was $66.2 million. During the period, cash and
marketable securities declined $28.2 million, the single largest reason other
than normal capital expenditures being the repurchase of Ferro common stock
under the authorized stock repurchase program.
Financing requirements and resources. The long-term debt to equity ratio was
21.6 percent at September 30, 1994, excluding the loan guarantee of the
Employee Stock Ownership Plan adopted in April 1989. 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 million five-year revolving credit facility with four
banks. There have been no borrowings drawn under this facility. The Company
also has available $75.0 million of the original $100.0 million under the Shelf
Registration filed with the Securities and Exchange Commission in August 1992.
Additionally, the foreign subsidiaries have various credit facilities
available.
Other Significant Developments
- - ------------------------------
During the third quarter 1994, the Company, in accordance with the authorized
stock repurchase plan, acquired approximately 450,000 shares of Ferro common
stock at an average price under $25.00 per share. The impact on earnings per
share in the third quarter resulting from the stock repurchase activity was
less than $0.01 per share.
In July, 1994 the Company acquired Diamonite Products from W.R. Grace & Co.
Diamonite manufactures custom ceramic products for the automotive, aerospace,
electronics, metalworking, textile and power generation industries.
PART II OTHER INFORMATION
Item 1 Legal Proceedings. No change. See Form 10-Q dated August 11, 1994.
4
<PAGE> 6
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.
The Company has not filed any reports on Form 8-K for the quarter ended
September 30, 1994.
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, 1994
(unaudited) and December 31, 1993, and the Consolidated Statements of
Income and Consolidated Statements of Cash Flows for the three months and
nine months ended September 30, 1994 and 1993 (unaudited) of Ferro
Corporation and subsidiaries.
Exhibit 27 - Financial Data Schedule.
5
<PAGE> 7
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, 1994 H. R. ORTINO
----------------------------------------
H. R. Ortino
Executive Vice President
Chief Financial Administrative Officer
Date: November 14, 1994 G. H. RITONDARO
----------------------------------------
G. H. Ritondaro
Vice President, Finance
<PAGE> 1
EXHIBIT 11
<TABLE>
FERRO CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
<CAPTION>
Nine Months Ended September 30,
---------------------------------
(Dollars in Thousands) 1994 1993
----------- -----------
<S> <C> <C>
Primary:
Weighted average shares and common
stock equivalents 28,976,931 29,458,729
Net Income $ 34,922 $ 41,707
Less Preferred Stock Dividend,
Net of Tax (2,678) (2,636)
------- -------
Income Available to Common
Shareholders $ 32,244 $ 39,071
======== ========
Primary Earnings Per Common Share $1.11 $1.33 (A)
Fully Diluted:
Weighted average shares and common
stock equivalents from above 28,976,931 29,458,729
Adjustments (primarily assumed con-
version of convertible preferred stock) 2,463,903 2,516,409
--------- ---------
31,440,834 31,975,138
========== ==========
Net Income $ 34,922 $ 41,707
Additional ESOP Contribution,
Net of Tax (1,552) (1,866)
------- -------
Adjusted Net Income $ 33,370 $ 39,841
======== ========
Fully Diluted Earnings Per Common Share $1.06 $1.25 (A)
<FN>
(A) Before cumulative effect of accounting changes. Both Primary Earnings and
Fully Diluted Earnings are $0.63 and $0.61, respectively, after the
cumulative effect of accounting changes.
</TABLE>
<PAGE> 1
EXHIBIT 12
<TABLE>
FERRO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
BEFORE
ACCT CHG
SEPTEMBER SEPTEMBER SEPTEMBER
1994 1993 1993
----------- ----------- -----------
<S> <C> <C> <C>
Earnings:
Pre-Tax Income 55,339 65,530 65,530
Accounting Change 1. - (37,764) -
Add: Fixed Charges 9,837 8,752 8,752
Less: Interest Capitalization (691) (809) (809)
----------- ----------- -----------
Total Earnings (Loss) 64,485 35,709 73,473
=========== =========== ===========
Fixed Charges:
Interest Expense 8,546 7,343 7,343
Interest Capitalization 691 809 809
Interest Portion of
Rental Expense 600 600 600
----------- ----------- -----------
Total Fixed Charges 9,837 8,752 8,752
=========== =========== ===========
Total Earnings (Loss) 64,485 35,709 73,473
Divided By:
Total Fixed Charges 9,837 8,752 8,752
----------- ----------- -----------
Ratio 6.56 4.08 8.39
<FN>
1. Accounting for Postretirement Benefits, other than Pensions
</TABLE>
Note: Preferred dividends are excluded. Amortization of debt
expense and discounts and prem immaterial to the above
calculation. Interest portion of rental expense are conser
actual amounts from prior years.
<PAGE> 1
EXHIBIT 20
FERRO CORPORATION
Consolidated Balance Sheets
As of September 30, 1994 (Unaudited)
Consolidated Statements of Income
For the Three Months Ended
September 30, 1994 (Unaudited)
Consolidated Statements of Cash Flows
For the Three Months Ended
September 30, 1994 (Unaudited)
<PAGE> 2
<TABLE>
Consolidated Balance Sheets
Ferro Corporation and Subsidiaries
September 30, 1994 and December 31, 1993
<CAPTION>
(Dollars in Thousands)
(Unaudited) (Audited)
ASSETS 1994 1993
- - ------ ---------- ---------
<S> <C> <C>
Current Assets:
Cash $ 35,241 $ 25,116
Marketable Securities - 38,335
Net Receivables 209,479 175,826
Inventories 136,868 128,736
Other Current Assets 34,132 43,240
--------- ---------
Total Current Assets $ 415,720 $ 411,253
Investments in Affiliated Companies 9,371 10,096
Unamortized Excess of Cost Over Net Assets Acquired 52,131 53,988
Other Assets 36,453 34,736
Net Plant and Equipment 285,099 257,821
--------- ---------
$ 798,774 $ 767,894
========= =========
LIABILITIES
- - -----------
Current Liabilities:
Notes and Loans Payable $ 20,754 $ 19,301
Accounts Payable, Trade 109,915 97,247
Income Taxes 7,992 5,957
Accrued Payrolls 19,631 15,917
Accrued Expenses and Other Current Liabilities 65,547 60,536
--------- ---------
Total Current Liabilities $ 223,839 $ 198,958
Long-Term Debt 79,236 79,349
ESOP Loan Guarantee 39,116 44,076
Deferred Income Taxes 13,990 14,884
Postretirement Liabilities 41,743 40,096
Other Liabilities 34,764 31,734
Shareholders' Equity 366,086 358,797
--------- ---------
$ 798,774 $ 767,894
========= =========
</TABLE>
<PAGE> 3
<TABLE>
Consolidated Statements of Income
Ferro Corporation and Subsidiaries
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands) 1994 1993 1994 1993
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment Sales
Coatings, Colors, and Ceramics $ 177,506 $ 153,341 $ 520,846 $ 458,116
Plastics 65,423 59,011 197,893 186,877
Chemicals 53,874 51,345 161,613 155,457
--------- --------- --------- ---------
Total Net Sales $ 296,803 $ 263,697 $ 880,352 $ 800,450
Cost of Sales 223,110 196,112 659,522 590,584
Selling, Administrative and
General Expenses 52,686 45,222 156,347 137,570
Restructuring Cost - - - 3,000
----------- ------------ ------------ ---------
Operating Income 21,007 22,363 64,483 69,296
Interest Expense 2,693 2,598 8,546 7,343
Net Foreign Currency (Gain) Loss 20 (467) 755 (2,073)
Other (Income) Expense - Net 564 (1,677) (157) (1,504)
--------- --------- --------- -------------
Income Before Taxes and Cumulative
Effect of Change in Accounting
Principles 17,730 21,909 55,339 65,530
Income Taxes 6,098 6,921 20,417 23,823
--------- --------- --------- ---------
Income Before Cumulative Effect of
Change in Accounting Principles 11,632 14,988 34,922 41,707
Cumulative Effect of Changes in
Accounting Principles for:
Postretirement Benefits, Net of Tax - - - (23,603)
Income Taxes - - - 3,053
--------- --------- --------- -----
Net Income $ 11,632 $ 14,988 $ 34,922 $ 21,157
Dividend on Preferred Stock, Net of Tax 898 883 2,678 2,636
--------- --------- --------- ---------
Net Income Available to Common
Shareholders $ 10,734 $ 14,105 $ 32,244 $ 18,521
Per Common Share Data:
Before Cumulative Effect of Accounting
Changes
Primary Earnings $ 0.38 $ 0.48 $ 1.11 $ 1.33
Fully Diluted Earnings $ 0.36 $ 0.45 $ 1.06 $ 1.25
After Cumulative Effect of Accounting
Changes
Primary Earnings $ 0.38 $ 0.48 $ 1.11 $ 0.63
Fully Diluted Earnings $ 0.36 $ 0.45 $ 1.06 $ 0.61
Average Shares Outstanding 28,350,428 29,504,603 28,976,931 29,458,729
========== ========== ========== ==========
</TABLE>
<PAGE> 4
<TABLE>
Consolidated Statements of Cash Flows
Ferro Corporation and Subsidiaries
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands) 1994 1993 1994 1993
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Cash Provided from Operating Activities $31,039 $18,912 $66,194 $48,278
Cash Flow from Investing Activities:
Investment in Marketable Securities 20,620 5,865 38,335 16,262
Capital Expenditures for Plant and Equipment (15,150) (11,112) (43,913) (29,701)
Acquisition of Companies, Net of Cash Acquired (718) (1,860) (9,514) (70,536)
Proceeds From Divestitures - 4,327 3,156 5,048
Other Investing Activities (2,895) 935 (590) 1,638
-------- ------- -------- -------
Net Cash (Used for) Provided by Investing
Activities 1,857 (1,845) (12,526) (77,289)
Cash Flow from Financing Activities:
Net Borrowings Under Short-Term Lines 761 3,054 1,454 1,315
Purchase of Treasury Stock (11,923) (191) (32,160) (991)
Proceeds from Long-Term Debt - - - 25,690
Cash Dividends Paid (4,969) (5,122) (15,099) (14,407)
Other Financing Activities (71) 470 1,113 1,562
------- ------- ------- -------
Net Cash (Used for) Provided by Financing
Activities (16,202) (1,789) (44,692) 13,169
Effect of Exchange Rate Changes on Cash 226 (4,317) 1,149 (5,255)
------- -------- ------- --------
Increase (Decrease) in Cash and Cash Equivalents 16,920 10,961 10,125 (21,097)
Cash and Cash Equivalents at Beginning of Period 18,321 28,754 25,116 60,812
------- ------- ------- -------
Cash and Cash Equivalents at End of Period $35,241 $39,715 $35,241 $39,715
======= ======= ======= =======
Cash Paid During the Period:
Interest $ 1,040 $ 878 $ 6,742 $ 6,005
Income Taxes $ 9,281 $ 7,163 $20,413 $24,851
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 35,241
<SECURITIES> 0
<RECEIVABLES> 209,479
<ALLOWANCES> 0
<INVENTORY> 136,868
<CURRENT-ASSETS> 415,720
<PP&E> 604,215
<DEPRECIATION> 319,116
<TOTAL-ASSETS> 798,774
<CURRENT-LIABILITIES> 223,839
<BONDS> 79,236
<COMMON> 31,549
0
0
<OTHER-SE> 334,537
<TOTAL-LIABILITY-AND-EQUITY> 798,774
<SALES> 880,352
<TOTAL-REVENUES> 880,352
<CGS> 659,522
<TOTAL-COSTS> 815,869
<OTHER-EXPENSES> 598
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,546
<INCOME-PRETAX> 55,339
<INCOME-TAX> 20,417
<INCOME-CONTINUING> 64,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,922
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.06
</TABLE>
