<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
------------------------------------
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from____To___
Commission File Number 1-584
------------------------------------
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
------------------------------------
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 1996, there were 26,361,457 shares of Ferro common stock, par value
$1.00, outstanding.
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PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
The consolidated Balance Sheets as of June 30, 1996 (unaudited) and December 31,
1995, and the Consolidated Statements of Income and Consolidated Statements of
Cash Flows for the three months ended June 30, 1996 and 1995 (unaudited) of
Ferro Corporation and Subsidiaries are set forth in Exhibit 20 hereof which is
incorporated by reference herein.
Those financial statements, which are subject to year-end audit adjustments,
should be read in conjunction with financial statements and notes thereto
included in the Company's annual report for the fiscal year ended December 31,
1995.
Cash dividends were paid at the rate of $0.135 per common share in the second
quarter of 1996 and 1995. Cash dividends on preferred shares were paid at the
rate of $0.81 per preferred share in the second quarter of 1996 and 1995.
Net sales and net income for the three months ended June 30, 1996 were $344.7
million and $14.3 million ($0.47 fully diluted earnings per common share) as
compared with net sales and net income of $334.0 million and $14.7 million
($0.46 fully diluted earnings per common share) for the corresponding 1995
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.
COMPARISON BETWEEN THREE MONTHS ENDED JUNE 30, 1996 AND 1995.
Net Sales. Second quarter 1996 sales of $344.7 million were 3.2% greater than
the $334.0 million of the comparable 1995 period.
Sales increased 40% for the Chemicals segment, but decreased 2% in the Coatings,
Colors and Ceramics segment and 13% in the Plastics segment. The increase in
Chemicals is largely due to sales associated with the acquisition of the polymer
additives business (Synpro) from Cookson Group plc, during the fourth quarter of
1995. Coatings, Colors and Ceramics sales declined primarily because of market
conditions in Latin America and the divestiture of a powder coatings joint
venture in Italy. Plastics sales declined largely because of the divestiture of
an operation in France. Geographically, consolidated sales were up in the United
States and Canada and nominally in Latin America, but down in the Europe and
Asia-Pacific regions.
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
2
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prices. Management's best estimate is that the 3.2% increase in sales comprises:
currency, -1.9% volume, 1.7%; price/mix, -0.4%; acquisitions 7.6% and
divestitures -3.8%.
Cost of Sales. Gross profit as a percent of sales was 24.5% as compared with
24.9% for the comparable 1995 period. This was due to a combination of
conditions in Latin America and softness in certain European markets.
Selling, administrative and general expenses. Such expenses as a percent of
sales were 16.8% in 1996 and 16.7% in 1995.
Interest expense. The decrease in interest expense from $3.6 million to $3.1
million is primarily attributable to replacement of $50 million of 11 3/4% debt
with $50 million of 8% debt.
Net foreign currency gain or loss. The net foreign currency gain is primarily
attributable to transaction gains in European operations.
Other income/expense. Net other expense was $0.6 million as compared with net
other income of $0.5 million in the prior year quarter, comprised of numerous
income and expense items.
Income taxes. The effective tax rate declined in the quarter from 39.2% in the
second quarter of 1995 to 38.1% reflecting worldwide tax planning and
utilization of tax loss carryforwards.
Geographic discussion. European sales and operating profit declined slightly due
primarily to weakness in general market conditions. Sales and operating profit
in the United States and Canada again improved largely due to improvements in
the Chemicals business, including the impact of the acquisition of Synthetic
Products, as well as improvements in the Plastics business. Latin American sales
and operating profit improved marginally though market conditions continued
weak. Asia-Pacific sales were down, as was operating income due to margin
pressures in several of the markets served in the region.
COMPARISON BETWEEN SIX MONTHS ENDED JUNE 30, 1996 AND 1995.
Net Sales. Consolidated sales for the six months ended June 30, 1996 were $692.9
million, 2.4% greater than those of the comparable 1995 period.
Chemical sales increased 39.0%, largely due to the Synthetic Products (Synpro)
acquisition in the fourth quarter of 1995. Coatings, colors and ceramics sales
declined 2.9% because of the divestiture of a joint venture in Italy, weak
conditions in some European markets and economic conditions in Latin America.
The decline in Plastics sales is associated with the divestiture of an operation
in France.
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
3
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prices. Management's best estimate is that the 2.4% increase in sales comprises:
currency, 0.9%; volume, 1.2%; price/mix, 0.5%; acquisitions 7.6% and
divestitures -3.6%.
Cost of Sales. Gross profit as a percent of sales was 24.5% as compared with
25.0% for the comparable 1995 period. This was due to a combination of
macroeconomic conditions in Latin America and softness in certain European
markets.
Selling, administrative and general expenses. Such expenses as a percent of
sales declined from 17.2% in 1995 to 16.8% in 1996.
Interest expense. The decrease in interest expense from $6.7 million to $6.4
million is primarily attributable to replacement of $50 million of 11 3/4% debt
with $50 million of 8% debt and a lower level of capitalized interest.
Net foreign currency gain or loss. The net foreign currency gain is primarily
attributable to transaction gains in European operations.
Other income/expense. Net other expense was $2.7 million as compared with net
other income of $0.2 million in the prior year quarter, comprised of numerous
income and expense items.
Income taxes. The effective tax rate declined from 39.0% to 38.1% reflecting
worldwide tax planning and utilization of tax loss carryforwards.
Geographic discussion. Improved sales and operating profit in the United States
and Canada were largely attributable to increases in the Chemicals business and
its Synpro acquisition, as well as improvements in the segments of the domestic
Plastics business. European sales were down slightly, while operating profit was
marginally better. While sales increased slightly in Latin America, economic
conditions in the region kept operating income in the region under that of the
comparable 1995 period. Asia-Pacific sales were down, as was operating income
due to continuing margin pressures in several of the markets served in the
region.
LIQUIDITY AND CAPITAL RESOURCES
Working capital. Net working capital was comparable to year-end 1995.
Cash flow. Net cash provided from operating activities for the six months ended
June 30, 1996 was $43.3 million which compares favorably with the $38.4 million
of the 1995 period. The increase in Net Cash used for Financing Activities is
due to the issuance of long-term debt in the six month period ending June 30,
1995 and the repurchase of outstanding shares by the Company.
4
<PAGE> 5
Financing requirements and resources. The long-term debt to equity ratio was
27.1% at June 30, 1996, excluding the loan guarantee of the Employee Stock
Ownership Plan adopted in April 1989. This compares to the 27.5% ratio at
December 31, 1995. The Company expects to be able to meet the financial
requirements of its existing businesses from existing cash and cash equivalents
and future cash flow. The Company has available to it a $150.0 million five-year
revolving credit facility with four domestic banks. There were no borrowings
under this facility as of the end of the quarter. The Company also has available
a $300 million Universal Shelf Registration that was filed with the Securities
and Exchange Commission on October 31, 1995, under which various types of
securities may be issued.
OTHER SIGNIFICANT DEVELOPMENTS
On July 26, 1995, the Board of Directors voted to increase the regular
quarterly cash dividend on common stock from 13.5 cents per share to 15.5 cents
per share.
PART II - OTHER INFORMATION
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ITEM 1 LEGAL PROCEEDINGS. NO CHANGE.
ITEM 2 CHANGE IN SECURITIES. NO CHANGE.
ITEM 3 DEFAULT UPON SENIOR SECURITIES. NO CHANGE.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 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, 1996.
Exhibits 4(a) through 4(k) referenced in Ferro Corporation's
Form 10-K for the year ended December 31, 1995 are
incorporated herein by reference.
Exhibit 4(l) - referenced in Ferro Corporation's Form 10-Q for
the period ended March 31, 1996 is incorporated herein by
reference.
Exhibit 11 - Statement Regarding Computation of Earnings Per
Share.
Exhibit 12 - Ratio of Earnings to Fixed Charges.
5
<PAGE> 6
Exhibit 20 - The Consolidated Balance Sheets as of June 30,
1996 (Unaudited) and December 31, 1995, and the Consolidated
Statements of Income and Consolidated Statements of Cash Flows
for the three months June 30, 1996 and 1995 (Unaudited) of
Ferro Corporation and Subsidiaries.
Exhibit 27 - Financial Data Schedule (Electronic Filing Only)
6
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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: August 13, 1996
/s/Hector R. Ortino
-------------------------
Hector R. Ortino
President
Date: August 13, 1996
/s/Gary H. Ritondaro
-------------------------
Gary H. Ritondaro
Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 11
FERRO CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
6 Months 6 Months
(Dollars in Thousands) June June
1996 1995
PRIMARY:
<S> <C> <C>
Weighted average shares and common stock equivalents 26,846,526 28,035,596
Net Income $27,466 $27,754
Less Preferred Stock Dividend, Net of Tax (1,862) (1,824)
------------ ------------
Income Available to Common Shareholders $25,604 $25,930
PRIMARY EARNINGS PER COMMON SHARE $0.95 $0.92
FULLY DILUTED:
Weighted average shares and common stock equivalents 26,846,526 28,035,596
Adjustments (primarily assumed conversion of
convertible preferred stock) 2,437,618 2,445,023
------------ ------------
29,284,144 30,480,619
Net Income $27,466 $27,754
Additional ESOP Contribution, Net of Tax (982) (1,015)
------------ ------------
Adjusted Net Income $26,484 $26,739
FULLY DILUTED EARNINGS PER SHARE $0.90 $0.88
</TABLE>
<PAGE> 1
EXHIBIT 12
FERRO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
JUNE JUNE
(DOLLARS IN THOUSANDS) 1996 1995
------- -------
EARNINGS:
<S> <C> <C>
PRE-TAX INCOME 44,495 45,503
ADD: FIXED CHARGES 7,607 7,570
LESS: INTEREST CAPITALIZATION (80) (503)
------- -------
TOTAL EARNINGS 52,022 52,570
======= =======
FIXED CHARGES:
INTEREST EXPENSE 6,414 6,667
INTEREST CAPITALIZATION 80 503
INTEREST PORTION OF RENTAL EXPENSE 1,113 400
------- -------
TOTAL FIXED CHARGES 7,607 7,570
======= =======
TOTAL EARNINGS 52,022 52,570
DIVIDED BY:
TOTAL FIXED CHARGES 7,607 7,570
------- -------
RATIO 6.84 6.94
</TABLE>
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.
<PAGE> 1
EXHIBIT 20
FERRO CORPORATION
Consolidated Balance Sheets
As of June 30, 1996 (Unaudited) and December 31, 1995
Consolidated Statements of Income
For the Three Months Ended
June 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows
For the Three Months Ended
June 30, 1996 and 1995 (Unaudited)
<PAGE> 2
CONSOLIDATED BALANCE SHEET
FERRO CORPORATION AND SUBSIDIARIES
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(Dollars in Thousands)
(Unaudited) (Audited)
ASSETS 1996 1995
- ------ ================ ================
Current Assets:
<S> <C> <C>
Cash and Cash Equivalents $11,133 $16,695
Net Receivables 243,152 230,742
Inventories 154,279 155,253
Other Current Assets 33,444 29,676
---------------- ----------------
Total Current Assets $442,008 $432,366
Investments in Affiliated Companies 7,016 7,622
Unamortized Excess of Cost Over Net Assets Acquired 94,092 95,553
Other Assets 35,871 33,119
Net Plant & Equipment 300,955 307,288
---------------- ----------------
$879,942 $875,948
================ ================
LIABILITIES
- -----------
Current Liabilities:
Notes and Loans Payable $33,764 $35,587
Accounts Payable, Trade 124,798 115,889
Income Taxes 11,026 10,870
Accrued Payrolls 17,617 16,718
Accrued Expenses and Other Current Liabilities 76,580 78,244
---------------- ----------------
Total Current Liabilities $263,785 $257,308
Long - Term Debt 105,084 104,910
ESOP Loan Guarantee 26,518 30,470
Deferred Income Taxes 21,733 21,380
Postretirement Liabilities 44,502 43,570
Other Liabilities 30,852 36,160
Shareholders' Equity 387,468 382,150
---------------- ----------------
$879,942 $875,948
================ ================
</TABLE>
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands) 1996 1995 1996 1995
======================================================================================= =======================================
Segment Sales
<S> <C> <C> <C> <C>
Coatings, Colors, and Ceramics $196,736 $201,311 $392,224 $404,130
Plastics 61,851 71,344 125,487 146,822
Chemicals 86,128 61,356 175,188 126,006
----------------- ----------------- ----------------- ------------------
Total Net Sales $344,715 $334,011 $692,899 $676,958
Cost of Sales 260,208 250,711 523,133 507,926
Selling, Administrative and General Expenses 57,779 55,883 116,547 116,618
----------------- ----------------- ----------------- ------------------
Operating Income 26,728 27,417 53,219 52,414
Interest Expense 3,092 3,591 6,414 6,667
Net Foreign Currency (Gain) Loss (80) 268 (347) 411
Other (Income) Expense - Net 605 (542) 2,657 (167)
----------------- ----------------- ----------------- ------------------
Income Before Taxes 23,111 24,100 44,495 45,503
Taxes on Income 8,796 9,442 17,029 17,749
----------------- ----------------- ----------------- ------------------
Net Income 14,315 14,658 27,466 27,754
Dividend on Preferred Stock, Net of Tax 931 913 1,862 1,824
----------------- ----------------- ----------------- ------------------
Net Income Available to Common Shareholders $13,384 $13,745 $25,604 $25,930
================= ================= ================= ==================
Per Common Share Data:
Primary Earnings $0.50 $0.49 $0.95 $0.92
Fully Diluted Earnings $0.47 $0.46 $0.90 $0.88
Shares Outstanding:
Average Outstanding 26,758,263 28,085,214 26,846,526 28,035,596
Average Fully Diluted 29,118,294 30,503,142 29,284,144 30,480,619
Actual End of Period 26,504,617 27,852,171 26,504,617 27,852,171
======================================================================================= =======================================
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands) 1996 1995 1996 1995
======================================================================================= =======================================
<S> <C> <C> <C> <C>
Net Cash Provided from Operating Activities $16,238 $18,306 $43,346 $38,356
Cash Flow from Investing Activities:
Investment in Marketable Securities 0 (49,984) 0 (49,984)
Capital Expenditures for Plant and Equipment (12,278) (12,302) (24,326) (25,842)
Acquisition of Companies, net of cash acquired (1,300) 0 (6,800) 0
Proceeds From Divestitures 2,663 0 2,656 928
Change in Restricted Deposits 0 (803) 0 (435)
Other Investing Activities 707 1,258 1,144 1,540
- --------------------------------------------------------------------------------------- ---------------------------------------
Net Cash (Used for) Provided by Investing Activities (10,208) (61,831) (27,326) (73,793)
Cash Flow from Financing Activities:
Net Borrowings (Payments) Under Short-Term Lines 7,831 2,278 124 8,526
Proceeds from Long-Term Debt 0 49,322 1,615 49,322
Purchase of Treasury Stock (5,339) (248) (14,134) (836)
Cash Dividend Paid (4,691) (4,889) (9,442) (9,785)
Other Financing Activities (230) (268) 274 (122)
- --------------------------------------------------------------------------------------- ---------------------------------------
Net Cash (Used for) Provided by Financing Activities (2,429) 46,195 (21,563) 47,105
Effect of Exchange Rate Changes on Cash (26) (123) (19) (213)
- --------------------------------------------------------------------------------------- ---------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 3,575 2,547 (5,562) 11,455
Cash and Cash Equivalents at Beginning of Period 7,558 28,730 16,695 19,822
- --------------------------------------------------------------------------------------- ---------------------------------------
Cash and Cash Equivalents at End of Period $11,133 $31,277 $11,133 $31,277
======================================================================================= =======================================
Cash Paid During the Period for:
Interest $5,116 $5,340 $6,361 $6,194
Income Taxes $12,310 $10,528 $16,879 $14,322
======================================================================================= =======================================
</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-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,133
<SECURITIES> 0
<RECEIVABLES> 243,152
<ALLOWANCES> 0
<INVENTORY> 154,279
<CURRENT-ASSETS> 442,008
<PP&E> 661,019
<DEPRECIATION> 360,064
<TOTAL-ASSETS> 879,942
<CURRENT-LIABILITIES> 263,785
<BONDS> 105,084
<COMMON> 31,549
0
0
<OTHER-SE> 355,919
<TOTAL-LIABILITY-AND-EQUITY> 879,942
<SALES> 692,899
<TOTAL-REVENUES> 692,899
<CGS> 523,133
<TOTAL-COSTS> 639,680
<OTHER-EXPENSES> 8,724
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,414
<INCOME-PRETAX> 44,495
<INCOME-TAX> 17,029
<INCOME-CONTINUING> 27,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,466
<EPS-PRIMARY> .95
<EPS-DILUTED> .90
</TABLE>
