<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 June 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
------- -------
At July 31, 1995, there were 27,854,550 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 June 30, 1995 (unaudited) and December
31, 1994, and the Consolidated Statements of Income and Consolidated Statements
of Cash Flows for the three and six months ended June 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 $.135 per common share in the second
quarter of 1995 and 1994. Cash dividends on preferred shares were paid at the
rate of $0.81 per preferred share in the second quarter of 1995 and 1994.
Net sales and net income for the three months ended June 30, 1995 were $334.0
million and $14.7 million ($0.49 primary earnings per common share) as compared
with net sales and net income of $300.2 million and $12.0 million ($0.38
primary 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.
Net Sales. Second quarter 1995 net sales of $334.0 million were 11% greater
than the $300.2 million of the comparable 1994 period.
Sales increased for all business segments and all geographic regions, except
for Latin America which declined . Sales for Coatings, Colors and Ceramics;
Plastics; and Chemicals increased 13.4%, 6.8% and 9.8%, respectively.
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 11.2% increase in sales is comprised of: volume,
1.0%; exchange, 2.6% ; price/mix, 6.9%; acquisitions, 1.9%; and divestitures,
(1.2)%.
Cost of Sales. Gross profit as a percent of sales was 24.9% as compared with
25.4% for the comparable 1994 period.
<PAGE> 3
Selling, administrative and general expenses. Such expenses as a percent of
sales declined from 17.7% in 1994 to 16.7% in 1995. However, in dollar terms,
such expenses increased 5% because of incremental expenses associated with
second-half 1994 acquisitions and the higher level of sales in general.
Interest expense. The increase in interest expense is primarily attributable
to interest expense of several of the international subsidiaries and interest
on the $50.0 million, 8% debentures discussed below in LIQUIDITY AND CAPITAL
RESOURCES.
Net foreign currency gain or loss. Net foreign currency loss for the 1995
quarter was somewhat less than the loss for the 1994 quarter due to numerous,
largely insignificant, currency differences.
Other income/expense. Net other income was $0.5 million, compared with the
comparable 1994 period expense of $0.3 million and is comprised of numerous
income and expense items, none of which is individually significant.
Income taxes. Income taxes increased $2.0 million, reflecting higher income
level.
Geographic discussion. European sales increased in double digits for each of
the core businesses and European operating profits improved with stabilization
of prices and the continued recovery in the economy. Sales and operating
income also improved in the United States and Canada and Asia-Pacific. Latin
American sales declined and operating profit in the region was approximately
half of what it was in the comparable 1994 quarter; this decrease was due to
economic conditions in the region.
Comparison Between Six Months Ended June 30, 1995 and 1994
----------------------------------------------------------
Net sales. Consolidated sales for the six months ended June 30, 1995 were
$677.0 million or 16.0% greater than those for the comparable 1994 period.
Management's best estimate is that the increase in sales is comprised of:
volume, 6.7%; exchange, 2.5%; price/mix, 6.5%; acquisitions, 2.0%; and
divestitures, (1.7)%.
Cost of Sales. Gross profit as a percent of sales declined slightly, from
25.2% to 25.0%.
Selling, administrative and general expenses. These expenses increased 12.5%
in dollar terms, primarily due to the $5.6 million severance charge taken in
the first quarter 1995, but also because of the higher level of sales and the
incremental expenses associated with the 1994 acquisitions.
Interest expense. The $0.8 million increase over the 1994 period is
essentially due to interest on short-term borrowing by the international
operations and interest on the $50.0 million 8% debentures discussed below in
LIQUIDITY AND CAPITAL RESOURCES.
Net foreign currency gain or loss. Net loss for the 1995 period was $0.4
million as
<PAGE> 4
compared with 1994 period loss of $0.7 million.
Other income/expense. Net other income decreased by $0.6 million and is
comprised of numerous income and expense items, none of which is individually
significant.
Income taxes. Income taxes increased $3.4 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 powder coatings and
the chemicals business. Latin American sales and operating profit were
slightly improved, though significant declines in the second quarter due to
economic conditions in the region offset the gains made in the first quarter
1995.
Liquidity and Capital Resources
-------------------------------
Working capital. Working capital was $67.8 million greater at June 30, 1995
than at year-end 1994, primarily due to the increase in marketable securities
resulting from the issuance of $50.0 million in 8% debentures further discussed
in Financing requirements and resources below.
Cash flow. Net cash provided from operating activities for the six months
ended June 30, 1995 was $38.4 million. The increase in marketable securities
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
32.9% at June 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 increase is due to the issuance of 8% debentures in the amount of
$50.0 million due 2025. These 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 % debentures, which
become redeemable at par, at the option of the Company, 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 have been no borrowings under this
facility. The Company may also issue $25.0 million of additional debt under
the Shelf Registration. Additionally, the foreign subsidiaries have credit
facilities available.
<PAGE> 5
Other Significant Developments
------------------------------
Subsequent to completion of the quarter, the Company announced that Mark A.
Cusick, a partner with the Cleveland, Ohio law firm of Squire, Sanders &
Dempsey, had been named Secretary of the Corporation, succeeding Paul B.
Campbell.
PART II OTHER INFORMATION
Item 1 Legal Proceedings. No change.
Item 2 Changes in Securities. No change.
Item 3 Defaults 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.
The Company has not filed any reports on Form 8-K for the
quarter ended June 30, 1995.
Exhibit 4(b)(4) - Amendment Number 6, dated June 22, 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 11 - Statement regarding computation of earnings per share.
Exhibit 12 - Ratio of Earnings to Fixed Charges.
Exhibit 20- The Consolidated Balance Sheets as of June 30,
1995 (Unaudited) and December 31, 1994, and the Consolidated
Statements of Income and Consolidated Statements of Cash Flows
for the three and six months ended June 30, 1995 and 1994
(Unaudited) of Ferro Corporation and subsidiaries.
Exhibit 27 - Financial Data Schedule.
<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)
H. R. Ortino
________________________________________
Date: August 14, 1995 H. R. Ortino
Executive Vice President and
Chief Financial-Administrative Officer
G. H. Ritondaro
________________________________________
Date: August 14, 1995 G. H. Ritondaro
Vice President, Finance
<PAGE> 1
EXHIBIT 4(b)(4)
FERRO CORPORATION
Sixth Amendment to Credit Agreement
<PAGE> 2
SIXTH AMENDMENT TO CREDIT AGREEMENT
This Sixth Amendment to Credit Agreement (this "AMENDMENT") is made as of June
22, 1995, by and between Ferro Corporation (the "BORROWER") the four banks
(collectively the "BANKS" and each a "BANK") executing and delivering this
Amendment and National City Bank as the agent (in that capacity the "AGENT") of
the Banks for purposes of the Credit Agreement referred to below, as that
Credit Agreement may be amended from time to time:
WHEREAS:
I. The Borrower, the Banks and the Agent are parties to a
Credit Agreement dated as of August 22, 1990, as amended by an Amendment
Agreement made as of May 31, 1991, as further amended by a Second Amendment to
Credit Agreement made as of July 30, 1991, as further amended by a Third
Amendment to Credit Agreement made as of December 31, 1991, as further amended
by a Fourth Amendment to Credit Agreement made as of July 21, 1992 and as
further amended by a Fifth Amendment to Credit Agreement made as of August 20,
1993 (that Credit Agreement as so amended the "EXISTING CREDIT AGREEMENT")
providing for, among other things, Commitments pursuant to which Advances in
the aggregate unpaid principal sum of not more that one hundred fifty million
dollars ($150,000,000) are available to the Borrower upon certain terms and
conditions until the Termination Date;
II. The Borrower has requested the Banks and the Agent to
agree to amend clause (xi) of Section 5.02(a) (captioned "Liens") of the
Existing Credit Agreement in order to give the Borrower the right to secure its
obligation to reimburse any bank issuing or confirming a letter of credit
securing Borrower's obligations to former, present or future directors or
employees of Borrower or any of its subsidiaries; and
III. The Banks and the Agent are willing to so agree, subject
to the terms and conditions of this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and (in the case of the Banks and the Agent), in reliance
upon the representations and warranties of the Borrower herein contained, the
Borrower, the Banks and the Agent hereby agree to the provisions of this
Amendment.
A. Each term used in this Amendment that is defined in the Existing Credit
Agreement shall have the meaning in this Amendment that is ascribed to that
term in the Existing Credit Agreement.
-1-
<PAGE> 3
B. Effective on the date of this Amendment, Section 5.02(a) (captioned
"Liens") of the Existing Credit Agreement is hereby amended by deleting clause
(xi) therefrom and inserting in lieu of the clause so deleted the following
clause (xi):
"(xi) any lien, security interest or other charge,
encumbrance, or other type of preferential arrangement that (A)
secures obligations of the Borrower or any of its subsidiaries
organized in the United States to their respective former, present or
future directors or employees in their capacities as such or (B)
secures obligations of the Borrower or any of its subsidiaries to pay
any bank fees, commissions or other charges in respect of, or
reimburse any bank for any draft or other item paid or accepted by
that bank pursuant to or otherwise in respect of, any letter of credit
issued or confirmed by that bank to secure all or any part of the
obligations described in the next preceding clause (A); or".
C. The Borrower hereby represents and warrants to each Bank and the Agent that
no event, condition or other thing has occurred and is continuing, or will
occur after giving effect to this Amendment, which constitutes, or which with
the giving of notice or the lapse of any grace period or both would constitute,
an Event of Default. The representation and warranty made pursuant to this
paragraph C shall survive the execution and delivery of this Amendment.
D. The Borrower, the Banks and the Agent do hereby ratify and confirm all of
the terms and conditions of the Existing Credit Agreement not specifically
amended by this Amendment and all such terms and conditions remain in full
force and effect.
E. This Amendment may be executed in one or more counterparts, each
counterpart to be executed by the Borrower, by the Agent and by one or more or
all of the Banks. Any party to the Existing Credit Agreement may deliver an
executed counterpart of this Amendment by telecopy to the Agent at the
telecopier number set forth below the Agent's signature and that party shall be
deemed to have executed and delivered that counterpart with the intent to be
bound by this Amendment PROVIDED that each party to this Amendment shall, on
the Agent's request, deliver to the Agent such number of counterparts bearing
the original signature of that party as the Agent may request in order that
each party may ultimately have a counterpart bearing the original signature of
each party to this Amendment. Each party to this Amendment hereby assents to
the foregoing procedure for executing and delivering this Amendment and agrees
that all such counterparts taken together shall constitute but one agreement,
which agreement constitutes the entire agreement between the parties to this
Amendment in respect of its subject matter.
Ferro Corporation National City Bank
By: __________________________ By: __________________________
-2-
<PAGE> 4
Citibank, N.A. Society National Bank
By: __________________________ By: __________________________
National City Bank, Agent The First National Bank of Boston
By: __________________________ By: __________________________
Telecopier: (216) 575-9396
-3-
<PAGE> 1
<TABLE>
EXHIBIT 11
FERRO CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
6 Months 6 Months
(Dollars in Thousands) June June
1995 1994
<S> <C> <C>
Primary:
Weighted average shares and common stock equivalents 28,035,596 29,290,182
Net Income $27,754 $23,290
Less Preferred Stock Dividend, Net of Tax (1,824) (1,780)
Income Available to Common Shareholders $25,930 $21,510
Primary Earnings Per Common Share $0.92 $0.73
Fully Diluted:
Weighted average shares and common stock equivalents 28,035,596 29,290,182
Adjustments (primarily assumed conversion of
convertible preferred stock) 2,425,252 2,467,337
30,460,848 31,757,519
Net Income $27,754 $23,290
Additional ESOP Contribution, Net of Tax (1,015) (1,037)
Adjusted Net Income $26,739 $22,253
Fully Diluted Earnings Per Share $0.88 $0.70
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT 12
FERRO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
JUNE JUNE
(Dollars in Thousands) 1995 1994
<S> <C> <C>
Earnings:
Pre-Tax Income 45,503 37,609
Add: Fixed Charges 7,570 6,715
Less: Interest Capitalization (503) (462)
Total Earnings 52,570 43,862
Fixed Charges:
Interest Expense 6,667 5,853
Interest Capitalization 503 462
Interest Portion of Rental Expense 400 400
Total Fixed Charges 7,570 6,715
Total Earnings 52,570 43,862
Divided By:
Total Fixed Charges 7,570 6,715
Ratio 6.94 6.53
<FN>
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 June 30, 1995 (Unaudited) and December 31, 1994
Consolidated Statements of Income
For the Three and Six Months Ended
June 30, 1995 and 1994 (Unaudited)
Consolidated Statements of Cash Flows
For the Three and Six Months Ended
June 30, 1995 and 1994 (Unaudited)
<PAGE> 2
<TABLE>
CONSOLIDATED BALANCE SHEET
FERRO CORPORATION AND SUBSIDIARIES
JUNE 30, 1995 AND DECEMBER 31, 1994
<CAPTION>
(Dollars in Thousands)
(Unaudited) (Audited)
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $31,277 $19,822
Marketable Securities 49,984 -
Net Receivables 234,153 217,889
Inventories 168,230 142,133
Other Current Assets 33,313 35,571
-------- --------
Total Current Assets $516,957 $415,415
Investments in Affiliated Companies 8,976 8,923
Unamortized Excess of Cost Over Net Assets Acquired 50,508 50,629
Other Assets 36,793 37,820
Net Plant & Equipment 305,074 288,589
-------- --------
$918,308 $801,376
======== ========
LIABILITIES
Current Liabilities:
Notes and Loans Payable $ 27,622 $ 18,752
Accounts Payable, Trade 126,866 120,308
Income Taxes 15,442 8,553
Accrued Payrolls 19,462 15,553
Accrued Expenses and Other Current Liabilities 72,714 65,170
-------- --------
Total Current Liabilities $262,106 $228,336
Long-Term Debt 130,638 77,611
ESOP Loan Guarantee 33,970 37,503
Deferred Income Taxes 17,712 17,309
Postretirement Liabilities 43,482 42,076
Other Liabilities 33,255 31,797
Shareholders' Equity 397,145 366,744
-------- --------
$918,308 $801,376
======== ========
</TABLE>
<PAGE> 3
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands) 1995 1994 1995 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Segment Sales
Coatings, Colors, and Ceramics $201,311 $177,539 $404,130 $343,340
Plastics 71,344 66,787 146,822 132,470
Chemicals 61,356 55,899 126,006 107,739
--------- --------- --------- ---------
Total Net Sales $334,011 $300,225 $676,958 $583,549
Cost of Sales 250,711 224,030 507,926 436,412
Selling, Administrative and General Expenses 55,883 53,157 116,618 103,661
--------- --------- --------- ---------
Operating Income 27,417 23,038 52,414 43,476
Interest Expense 3,591 2,986 6,667 5,853
Net Foreign Currency (Gain) Loss 268 391 411 735
Other (Income) Expense - Net (542) 272 (167) (721)
----------- ---------- ------------ ------------
Income Before Taxes 24,100 19,389 45,503 37,609
Taxes on Income 9,442 7,423 17,749 14,319
--------- --------- ---------- ----------
Net Income 14,658 11,966 27,754 23,290
Dividend on Preferred Stock, Net of Tax 913 894 1,824 1,780
--------- --------- --------- ---------
Net Income Available to Common Shareholders $ 13,745 $ 11,072 $ 25,930 $ 21,510
======== ======== ======== ========
Per Common Share Data:
Primary Earnings $0.49 $0.38 $0.92 $0.73
Fully Diluted Earnings $0.46 $0.36 $0.88 $0.70
Shares Outstanding:
Average Outstanding 28,085,214 28,969,544 28,035,596 29,290,182
Average Fully Diluted 30,503,142 31,430,797 30,460,848 31,757,519
Actual End of Period 27,852,171 28,472,205 27,852,171 28,472,205
</TABLE>
<PAGE> 4
<TABLE>
Consolidated Statements of Cash Flows
Ferro Corporation and Subsidiaries
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Cash Provided from Operating Activities $18,306 $16,373 $38,356 $35,155
Cash Flow from Investing Activities:
Investment in Marketable Securities (49,984) 22,139 (49,984) 17,715
Capital Expenditures for Plant and Equipment (12,302) (17,564) (25,842) (28,763)
Acquisition of Companies, net of cash acquired 0 (8,796) 0 (8,796)
Proceeds From Divestitures 0 0 928 3,156
Other Investing Activities 455 1,832 1,105 2,305
Net Cash (Used for) Provided by Investing Activities (61,831) (2,389) (73,793) (14,383)
Cash Flow from Financing Activities:
Net Borrowings (Payments) Under Short-Term Lines 2,278 3,249 8,526 693
Proceeds from Long-Term Debt 49,322 0 49,322 0
Purchase of Treasury Stock (248) (19,975) (836) (20,237)
Cash Dividend Paid (4,889) (5,028) (9,785) (10,130)
Other Financing Activities (268) (57) (122) 1,184
Net Cash (Used for) Provided by Financing Activities 46,195 (21,811) 47,105 (28,490)
Effect of Exchange Rate Changes on Cash (123) 770 (213) 923
Increase (Decrease) in Cash and Cash Equivalents 2,547 (7,057) 11,455 (6,795)
Cash and Cash Equivalents at Beginning of Period 28,730 25,378 19,822 25,116
Cash and Cash Equivalents at End of Period $31,277 $18,321 $31,277 $18,321
Cash Paid During the Period for:
Interest $5,340 $4,986 $6,194 $5,702
Income Taxes $10,528 $7,756 $14,322 $11,132
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 31,277
<SECURITIES> 49,984
<RECEIVABLES> 234,153
<ALLOWANCES> 0
<INVENTORY> 168,230
<CURRENT-ASSETS> 516,957
<PP&E> 647,089
<DEPRECIATION> 342,015
<TOTAL-ASSETS> 918,308
<CURRENT-LIABILITIES> 262,106
<BONDS> 130,638
<COMMON> 31,549
0
0
<OTHER-SE> 365,596
<TOTAL-LIABILITY-AND-EQUITY> 918,308
<SALES> 676,958
<TOTAL-REVENUES> 676,958
<CGS> 507,926
<TOTAL-COSTS> 624,544
<OTHER-EXPENSES> 244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,667
<INCOME-PRETAX> 45,503
<INCOME-TAX> 17,749
<INCOME-CONTINUING> 27,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,754
<EPS-PRIMARY> .92
<EPS-DILUTED> .88
</TABLE>
