<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 March 31, 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 April 30, 1994, there were 28,893,761 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 March 31, 1994 (unaudited) and December
31, 1993, and the Consolidated Statements of Income and Consolidated Statements
of Cash Flows for the three months ended March 31, 1994 and 1993 (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,
1993.
Cash dividends were paid at the rate of $0.135 per common share in the first
quarter of 1994 and $0.12 per common share in the first quarter of 1993. Cash
dividends on preferred shares were paid at the rate of $0.81 per preferred
share in the first quarter of 1994 and 1993.
Net sales and net income for the three months ended March 31, 1994 were
$283,324,000 and $11,324,000 ($0.35 primary earnings per common share) as
compared with net sales and net income before the impact of required changes in
accounting of $257,036,000 and $13,122,000 ($0.42 primary earnings per common
share) for the corresponding period in 1993. Including the impact of the
required changes in accounting, the net loss for the quarter ended March 31,
1993 was ($7,428,000) or $(0.28) 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.
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
NET SALES. First quarter 1994 sales of $283.3 million were 10.2 percent
greater than the $257.0 million of the first quarter 1993.
Sales, including revenues associated with the major 1993 acquisitions of the
North American and European powder coatings business from ICI (Imperial
Chemical Industries) and the Italian ceramic glaze and color business from
Bayer, S.p.A., increased in all businesses and all geographic areas except
Latin America. Sales for Coatings, Colors and Ceramics, the beneficiary of the
1993 acquisitions, increased 15.7 percent, while Plastics sales increased 2.2
percent and Chemicals sales increased 4.6 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 10.2 percent increase in sales is comprised of:
volume and acquisitions, 14.2 percent; exchange, (2.7) percent; price/mix,
(1.2) percent; and divestitures, (0.1) percent.
<PAGE> 3
COST OF SALES. Gross profit as a percent of sales decreased from 26.7 percent
to 25.0 percent, primarily due to product mix changes, equipment cleanup and
process start-up costs in a domestic chemical facility and slower than
anticipated consolidation of the acquired domestic powder coatings business.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES. Such expenses increased 12.0
percent in dollar terms, largely due to costs associated with the 1993
acquisitions (including amortization of goodwill) and increases of research
and development expenditures.
INTEREST EXPENSE. Interest expense increased from $2.3 million to $2.9
million, primarily because of the additional interest expense on the $25
million, 7 5/8 debentures issued in May, 1993.
NET FOREIGN CURRENCY GAIN OR LOSS. Net foreign currency was a $0.3 loss for
the quarter, compared with a $0.7 gain during the corresponding 1993 quarter,
reflecting the relative weakness of the U.S. dollar over the prior year period.
This situation is largely the result of compliance with established accounting
rules for marking to market certain forward exchange contracts and currency
options utilized to hedge the Company's exposure to foreign currency
fluctuations.
OTHER INCOME/EXPENSE. Net other expense increased by $1.5 million and is
comprised of numerous income and expense items.
INCOME TAXES. Income taxes declined $1.5 million, reflecting the lower level
of income and reduction of the effective rate from 39.1 percent to 37.8 percent
due to continuing effective worldwide tax planning.
GEOGRAPHIC DISCUSSION. European sales increased for each of the core
businesses except plastics, which continued to be hardest hit by the European
economic conditions. European earnings however, were relatively flat, as price
pressures continued to impact margins. In the United States and Canada, sales
increased, largely because of the incremental powder coatings sales acquired in
1993 and despite a volume decline in chemicals. Earnings in the United States
and Canada declined, the most significant items in this decline being the loss
of volume in chemicals and the items discussed in COST OF SALES above. Latin
American sales and earnings declined from a very strong first quarter 1993
primarily because of volume declines and product mix changes in the traditional
businesses.
Liquidity and Capital Resources
- - -------------------------------
WORKING CAPITAL. Working capital was $9.2 million greater at March 31, 1994
than at year-end 1993, largely due to the increase in receivables associated
with higher level of sales, much of which is related to the 1993 acquisitions.
CASH FLOW. Net cash provided from operating activities for the three month
period ended March 31, 1994 was $18.8 million.
<PAGE> 4
FINANCING REQUIREMENTS AND RESOURCES. The long-term debt to equity ratio was
21.4 percent at March 31, 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 may issue $75.0
million of additional debt under the Shelf Registration filed with the
Securities and Exchange Commission in August 1992. Additionally, the foreign
subsidiaries have credit facilities available.
Other Significant Developments
- - ------------------------------
Subsequent to completion of the quarter, the Company announced that it had
signed agreements with Guangdong Foshan Ceramic Group Co. Ltd. to establish a
joint venture company in Guangdong Province, People's Republic of China for the
manufacture and marketing of ceramic frits, glazes, colors and grinding media.
Ferro will hold a 60% ownership of the venture and it is expected that the new
company, Foshan-Ferro Ceramic Materials Company, Ltd. will be on-stream in
January, 1996.
During the month of April, the Company, in accordance with the authorized stock
repurchase plan, acquired approximately 370,000 shares of Ferro common stock.
In March 1994, James B. Friederichsen joined the Company as Vice President,
Chemicals, replacing Frank A. Carragher, who retired from the position of
Senior Vice President, Chemicals and Polymers.
PART II OTHER INFORMATION
Item 1 Legal Proceedings. No change.
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.
At the Annual Meeting of Shareholders held on April 22, 1994, the
shareholders:
a. Re-elected five current Ferro directors -- Glenn R. Brown,
William E. Butler, Paul B. Campbell, John C. Morley and Hector R.
Ortino -- to the Board to serve until the 1997 annual meeting.
<PAGE> 5
<TABLE>
The results of the voting for directors are as follows:
<CAPTION>
For Did Not Vote
--- ------------
<S> <C> <C>
Brown 27,665,405 166,826
Butler 27,672,546 159,685
Campbell 27,662,938 169,293
Morley 27,673,985 158,246
Ortino 27,642,103 190,128
</TABLE>
The terms of office for Albert C. Bersticker, Paul S.
Brentlinger, Werner F. Bush, A. James Freeman, Kevin
O'Donnell, Adolf Posnick, Rex A. Sebastian and Dennis
W. Sullivan continued after the meeting.
b. Adopted a resolution to ratify the designation of
KPMG Peat Marwick as independent auditors of Ferro's
books and accounts.
Shareholders approved the designation of KPMG Peat
Marwick by a vote of 26,510,994 shares for, 1,181,949
shares against and 139,287 shares that were present
but did not vote on this issue.
c. Approved a proposal to adopt an amendment of Article
Fourth of the Company's Articles of Incorporation,
along with any necessary conforming amendments, to
increase the number of authorized shares of common
stock to 150,000,000.
Shareholders approved the proposal to increase the
number of authorized shares of common stock from
75,000,000 to 150,000,000 by a vote of 25,767,877
shares for, 1,887,174 shares against and 177,179
shares that were present but did not vote on this
proposal.
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, 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 March 31,
1994 (unaudited) and December 31, 1993, and the Consolidated
Statements of Income and Consolidated Statements of Cash Flows
for the three months ended March 31, 1994 and 1993
(unaudited) of Ferro Corporation and subsidiaries.
<PAGE> 6
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: May 11, 1994
----------------------------------------------
H. R. Ortino
Executive Vice President and
Chief Financial-Administrative Officer
Date: May 11, 1994
----------------------------------------------
G. H. Ritondaro
Vice President, Finance
<PAGE> 1
<TABLE>
EXHIBIT 11
FERRO CORPORATION
Statement Regarding Computation of Earnings Per Share
<CAPTION>
Three Months Ended March 31
---------------------------
(Dollars in Thousands) 1994 1993
----------- ----------
<S> <C> <C>
Primary:
Weighted average shares and common
stock equivalents 29,610,820 29,414,263
Net Income $ 11,324 $ 13,122
Less Preferred Stock Dividend
Net of Tax (886) (876)
----------- -----------
Income Available to Common
Shareholders $ 10,438 $ 12,246
=========== ==========
Primary Earnings Per Common Share $ 0.35 $ 0.42(A)
=========== ==========
Fully Diluted:
Weighted average shares and common
stock equivalents from above 29,610,820 29,414,263
Adjustments (primarily assumed con-
version of convertible preferred
stock) 2,473,420 2,521,775
----------- -----------
32,084,240 31,936,038
=========== ==========
Net Income $ 11,324 $ 13,122
Additional ESOP Contribution,
Net of Tax (520) (563)
----------- -----------
Adjusted Net Income $ 10,804 $ 12,559
=========== ==========
Fully Diluted Earnings Per Common Share $ 0.34 $ 0.39(A)
=========== ==========
<FN>
(A) Before cumulative effect of accounting changes. Both Primary Earnings
and Fully Diluted Earnings are $(0.28) after the cumulative effect of
accounting changes.
</TABLE>
<PAGE> 1
EXHIBIT 12
FERRO CORPORATION
Ratio of Earnings to Fixed Charges
<PAGE> 2
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
PER REGULATION S-K 229.503 (ITEM 503)
<CAPTION>
BEFORE
ACCT CHG
MARCH MARCH MARCH
1994 1993 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Earnings:
Pre-Tax Income 18,220 21,534 21,534
Accounting Change 1. - (37,764) -
Add: Fixed Charges 3,878 3,331 3,331
Less: Interest Capitalization (211) (228) (228)
--------------- --------------- ---------------
Total Earnings (Loss) 21,887 (13,127) 24,637
=============== =============== ===============
Fixed Charges:
Interest Expense 2,867 2,303 2,303
Interest Capitalization 211 228 228
Interest Portion of
Rental Expense 800 800 800
--------------- --------------- ---------------
Total Fixed Charges 3,878 3,331 3,331
=============== =============== ===============
Total Earnings (Loss) 21,887 (13,127) 24,637
Divided By:
Total Fixed Charges 3,878 3,331 3,331
--------------- --------------- ---------------
Ratio 5.64 (3.94) 7.40
<FN>
1. Pre-tax effect of FASB 106, accounting for retiree benefits.
Note: Preferred dividends are excluded. Amortization of debt expense and discounts and premiums were deemed
immaterial to the above calculation. Interest portion of rental expense are conservative estimates based on
actual amounts from prior years.
</TABLE>
<PAGE> 1
EXHIBIT 20
FERRO CORPORATION
Consolidated Balance Sheets
As of March 31, 1994 (Unaudited) and December 31, 1993
Consolidated Statements of Income
For the Three Months Ended
March 31, 1994 and 1993 (Unaudited)
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31, 1994 and 1993 (Unaudited)
<PAGE> 2
CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Unaudited) (Unaudited)
(Dollars in Thousands) 1994 1993
- - ---------------------- ---- ----
<S> <C> <C>
Segment Sales
Coatings, Colors, and Ceramics $165,801 $143,243
Plastics 65,683 64,235
Chemicals 51,840 49,558
-------- --------
Total Net Sales $283,324 $257,036
Cost of Sales 212,382 188,314
Selling, Administration and General Expenses 50,504 45,084
-------- --------
Operating Income 20,438 23,638
Interest Expense 2,867 2,303
Net Foreign Currency (Gain) Loss 344 (722)
Other (Income) Expense - Net (993) 523
-------- --------
Income Before Taxes and Cumulative Effect
of Change in Accounting Principles 18,220 21,534
Taxes on Income 6,896 8,412
-------- --------
Income Before Cumulative Effect of Change
in Accounting Principles 11,324 13,122
Cumulative Effect of Changes in Accounting
Principles for:
Postretirement Benefits, Net of Tax - (23,603)
Income Taxes - 3,053
-------- --------
Net Income 11,324 (7,428)
Dividend on Preferred Stock, Net of Tax 886 876
-------- --------
Net Income Available to Common Shareholders $ 10,438 $ (8,304)
Per Common Share Data:
Before Cumulative Effect of Accounting Changes
Primary Earnings $ 0.35 $ 0.42
Fully Diluted Earnings $ 0.34 $ 0.39
After Cumulative Effect of Accounting Changes
Primary Earnings $ 0.35 $ (0.28)
Fully Diluted Earnings $ 0.34 $ (0.28)
Average Shares Outstanding 29,610,820 29,414,263
========== ==========
</TABLE>
<PAGE> 3
CONSOLIDATED BALANCE SHEET
FERRO CORPORATION AND SUBSIDIARIES
MARCH 31, 1994 AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
(Dollars in Thousands)
(Unaudited) (Audited)
ASSETS 1994 1993
- - ------ --------- ----------
<S> <C> <C>
Current Assets:
Cash $ 25,378 $ 25,116
Marketable Securities 42,759 38,335
Net Receivables 200,923 175,826
Inventories 127,289 128,736
Other Current Assets 39,740 43,240
--------- ---------
Total Current Assets $ 436,089 $ 411,253
Investments in Affiliated Companies 9,830 10,096
Unamortized Excess of Cost Over Net Assets Acquired 52,956 53,988
Other Assets 36,358 34,736
Net Plant & Equipment 261,417 257,821
--------- ---------
$ 796,650 $ 767,894
========= =========
LIABILITIES
- - -----------
Current Liabilities:
Notes and Loans Payable $ 16,745 $ 19,301
Accounts Payable, Trade 110,300 97,247
Income Taxes 6,832 5,957
Accrued Payrolls 15,516 15,917
Accrued Expenses and Other Current Liabilities 65,195 60,536
--------- ---------
Total Current Liabilities $ 214,588 $ 198,958
Long-Term Debt 79,387 79,349
ESOP Loan Guarantee 42,027 44,076
Deferred Income Taxes 15,205 14,884
Postretirement Liabilities 40,671 40,096
Other Liabilities 33,105 31,734
Shareholders' Equity 371,667 358,797
--------- ---------
$ 796,650 $ 767,894
========= =========
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENT OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Unaudited) (Unaudited)
1994 1993
------- --------
<S> <C> <C>
(Dollars in Thousands)
- - ----------------------
Net Cash Provided from Operating Activities $18,782 $14,703
Cash Flow from Investing Activities:
Investment in Marketable Securities (4,424) (30,734)
Capital Expenditures for Plant and Equipment (11,199) (9,620)
Acquisition of Companies, net of cash acquired 0 (4,246)
Proceeds From Divestitures 3,156 496
Other Investing Activities 473 2,391
------- --------
Net Cash Used for Investing Activities (11,994) (41,713)
Cash Flow from Financing Activities:
Net Borrowings Under Short-Term Lines (2,556) 1,895
Cash Dividend Paid (5,102) (4,659)
Other Financing Activities 979 487
------ ------
Net Cash (Used for) Provided by Financing Activities (6,679) (2,277)
Effect of Exchange Rate Changes on Cash 153 (65)
------ -------
Increase (Decrease) in Cash and Cash Equivalents 262 (29,352)
Cash and Cash Equivalents at Beginning of Period 25,116 60,812
------ ------
Cash and Cash Equivalents at End of Period $25,378 $31,460
======= =======
Cash Paid During the Period for:
Interest $716 $831
Income Taxes $3,376 $3,475
====== ======
</TABLE>
