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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
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[x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
[ ]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 July 31, 1997, there were 25,491,119 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, 1997 (unaudited) and December 31,
1996, and the Consolidated Statements of Income and Consolidated Statements of
Cash Flows for the three and six months ended June 30, 1997 and 1996
(unaudited) of Ferro Corporation and Subsidiaries are set forth in Exhibit 20
hereof which is incorporated by reference herein.
Those consolidated interim financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's annual report for the fiscal year ended December 31, 1996. The
foregoing figures are unaudited, but in the option of the Management of the
Company, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation thereof have been made.
The results of operations for the three months ended June 30, 1997 are not
necessarily indicative of the results expected in subsequent quarters.
Cash dividends were paid at the rate of $0.155 per common share in the second
quarter of 1997 and $0.135 in the second quarter of 1996. Cash dividends on
preferred shares were paid at the rate of $0.81 per preferred share in the
second quarter of 1997 and 1996.
Net sales and net loss for the three months ended June 30, 1997 were $363.0
million and ($83.9) million (fully diluted loss of $3.26 per common share) as
compared with net sales and net income of $344.7 million and $14.3 million
(fully diluted earnings of $0.47 per common share) for the corresponding 1996
period. Included in the 1997 quarter was a $152.8 million charge associated
with the realignment program for consolidation of manufacturing facilities
announced in May 1997. Excluding the realignment charge, earnings for the
second quarter would have been approximately $16.1 million ($0.54 fully diluted
earnings per common share). For the six month period ending June 30, 1997,
excluding the realignment charge, earnings would have been approximately
$31.2 million ($1.06 fully diluted earnings per common share).
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Comparison Between Three Months Ended June 30, 1997 and 1996.
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Net Sales. Second quarter 1997 sales of $363.0 million were 5.3% greater than
the $344.7 million of the comparable 1996 period.
Sales increased 8% in Coatings, Colors and Ceramics segment and 4% in
Chemicals, but decreased 1% in Plastics. The increases in Coatings, Colors and
Ceramics and in Chemicals were primarily attributable to volume increases in
both domestic and international markets. Plastics also had both domestic and
international volume improvements, but these were more than offset by the
combination of negative currency translation impact and the divestiture of
certain businesses in 1996. Geographically, sales were up in all regions largely
due to volume improvements.
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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. Management's best estimate is that
the 5.3% increase in sales comprises: currency, -3.1% volume, 10.3%; price/mix,
- -1.2%; acquisitions 1.2% and divestitures -1.9%.
Cost of Sales. Gross profit as a percent of sales was 25.6% as compared with
24.5% for the comparable 1996 period. This was due to a combination of strong
volume gains, lower raw material prices and improved manufacturing efficiencies.
Each of the core businesses had improved gross margins.
Selling, administrative and general expenses. Such expenses as a percent of
sales were 16.6% in 1997 and 16.8% in 1996.
Realignment Expense. During the second quarter 1997, the Company announced a
three-year realignment program (see Other Significant Developments in this
document) which resulted in a charge of approximately $153 million to income.
Interest expense. Second quarter 1997 interest expense was comparable to the
1996 quarter.
Net foreign currency gain or loss. The net foreign currency gain is primarily
attributable to gains on foreign currency option contracts purchased by the
parent company to hedge the earnings of various foreign subsidiaries.
Other income/expense - net. Net other expense was $0.4 million as compared with
net other expense of $0.6 million in the prior year quarter, comprised of
numerous income and expense items.
Income taxes. Excluding the impact of the realignment charge, the 37.8%
effective tax rate was comparable to that of the 1996 quarter.
Geographic discussion. Sales increased in each region and operating profit
improved in each region except for Latin America which was flat. The United
States and Canada benefitted from profit improvements in each of the core
businesses, while the improvement in Europe was primarily attributable to the
performance of Coatings, Colors and Ceramics. The overvalued Brazilian currency
was the major reason for Latin America being essentially flat to last year's
quarter.
Comparison Between Six Months Ended June 30, 1997 and 1996.
- -----------------------------------------------------------
Net Sales. Consolidated sales for the six months ended June 30, 1997 were $705.2
million, 1.8% greater than those of the comparable 1996 period.
The 6% increase in Coatings, Colors and Ceramics sales for the period was
associated primarily with worldwide increases in powder coatings, as well as
increases in domestic sales for several other businesses. The slight declines in
sales in Plastics and Chemicals were largely attributable to divestiture of
certain businesses in 1996.
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
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prices. Management's best estimate is that the 1.8% increase in sales comprises:
currency, -3.0%; volume, 6.8%; price/mix, -1.2%; acquisitions 1.3% and
divestitures -2.1%.
Cost of Sales. Gross profit as a percent of sales was 25.4% as compared with
24.5% for the comparable 1996 period.
Selling, administrative and general expenses. Such expenses as a percent of
sales declined to 16.7% in 1997 from 16.8% in 1996.
Interest expense. Interest expense for the six-months periods was comparable.
Net foreign currency gain or loss. The net foreign currency gain is primarily
attributable to gains on foreign currency option contracts purchased by the
parent company to hedge the earnings of various foreign subsidiaries.
Other income/expense - net. Other expense - net was $2.9 million as compared
with net other expense of $2.7 million in the prior year six month period,
comprised of numerous income and expense items.
Income taxes. Excluding the impact of the realignment charge, the effective
income tax rate was comparable to that of the 1996 six month period.
Geographic discussion. Sales and operating profit improved for every region
except Europe, which was essentially flat due to the continued relative strength
of the dollar. The United States and Canada were the major contributors to both
sales and operating profit due to improved performance of the Coatings, Colors
and Ceramics business and the Chemical business.
Liquidity and Capital Resources
- -------------------------------
Working capital. The increase in net working capital is primarily attributable
to a rise in accounts receivable required to support the higher level of
revenues.
Cash flow. Net cash provided from operating activities for the six months ended
June 30, 1997 was $62.5 million as compared with the $43.3 million of the 1996
period primarily due to the decline in inventory balances. The decrease in Net
Cash Used for Investing Activities is due to the lower level of capital
expenditures in 1997 and the absence of any acquisitions in 1997. The increase
in Net Cash Used for Financing Activities is primarily due to repayments by
international operations of short term credit facilities.
Financing requirements and resources. The long-term debt to equity ratio was
36.0% at June 30, 1997, excluding the loan guarantee of the Employee Stock
Ownership Plan adopted in April 1989. This compares to the 27.4% ratio at
December 31, 1996. The primary reason for the increase in the long-term
debt-to-equity ratio was the impact on equity of the $153.0 million realignment
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charge and the impact of the stock repurchase program. 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 May 12, the Company announced a major three-year realignment plan designed
to reduce the cost base and reallocate resources to strategies to foster
profitable growth. The plan calls for consolidation of worldwide manufacturing
operations from approximately 80 to 50 facilities. Full implementation of the
plan is intended to enable the company to achieve its goal of 28 percent gross
margins by the end of 1999, an increase of three percentage points over the 25
percent achieved during 1996. The company plans to maintain all major existing
business lines from the smaller base of manufacturing facilities.
The plan is an integral part of the Company's overall strategy which addresses
strengthening the organization, improving marketing capabilities, capitalizing
on technology and achieving substantial productivity improvements. With less
attention devoted to managing multiple facilities, the plan calls for refocusing
corporate resources on the company's marketing and technology strategies, which
specifically address profitable growth. Most of the specifics called for in the
plan will occur in the first two years of the three-year plan. Declining trade
barriers worldwide and an increased capacity due to productivity improvement
projects present the Company with the opportunity to operate from fewer
facilities. Through normal attrition and consolidation and sale of facilities,
employment levels are expected to decline by approximately 1,200 people over the
next three years from the current level of 6,900.
As a result of the plan, the Company took a charge to earnings of approximately
$153 million. The amount includes the write-off and write-down of assets,
severance charges and other costs related to the realignment plan. Balance
sheet accounts impacted by the realignment charge include Unamortized Excess of
Cost Over Net Assets Acquired, Net Plant & Equipment, Other Liabilities and
Shareholders' Equity. The net cash cost of the plan is approximately $38.0
million over the three year period. The Company estimates that upon completion,
the plan should improve operating profit in excess of $30.0 million
annually.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report 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 risk and other factors concerning the Company's operations and business
environment, including, but not limited to: changes in customer requirements,
markets of industries served; changing economic conditions, particularly in
Europe or Latin America; foreign exchange rates, especially in Latin America;
changes in the prices of raw materials, in particular polypropylene and
titanium dioxide; and significant technological or competitive developments.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS. NO CHANGE
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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, 1997.
Exhibits 3 (a) (b) and (c) referenced in Ferro Corporation's
Form 10-K for year ended December 31, 1996 are incorporated
herein by reference.
Exhibits 4(a) through 4(j) referenced in Ferro Corporation's
Form 10-K for the year ended December 31, 1996 are
incorporated herein by reference.
Exhibit 4 (k) - Amendment number 8, dated July 24, 1997, 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.
Exhibit 10 - Second amendment, dated July 24, 1997, to
various agreements related to Asset Defeasance Financing
including a Participation Agreement dated as of October 31,
1995 among Ferro Corporation, State Street Bank and Trust
Company (not in its individual capacity but solely as
Trustee), the financial institutions named as Purchasers, and
Citibank N.A, as Agent, and a Lease dated October 31, 1995
between State Street Bank and Trust Company (not in its
individual capacity but solely as Trustee) as Lessor and Ferro
Corporation as Lessee. The additional agreements are available
upon request. A copy of such amendment is attached hereto.
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,
1997 (Unaudited) and December 31, 1996, and the Consolidated
Statements of Income and Consolidated Statements of Cash Flows
for the three and six months June 30, 1997 and 1996
(Unaudited) of Ferro Corporation and Subsidiaries.
Exhibit 27 - Financial Data Schedule (Electronic Filing Only)
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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, 1997
/s/Hector R. Ortino
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Hector R. Ortino
President and Chief
Operating Officer
Date: August 13, 1997
/s/ Gary H. Ritondaro
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Gary H. Ritondaro
Vice President and
Chief Financial Officer
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EXHIBIT 4(K)
EIGHTH AMENDMENT TO CREDIT AGREEMENT
This Eighth Amendment to Credit Agreement (this "AMENDMENT") is made as of July
24, 1997 by and among 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, as further amended by a Fifth
Amendment to Credit Agreement made as of August 20, 1993, as further amended by
a Sixth Amendment to Credit Agreement made as of June 22, 1995, and as further
amended by a Seventh Amendment to Credit Agreement made as of October 25, 1995
(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 Section 1.01 (captioned "Certain Defined Terms") of the Existing Credit
Agreement, Section 5.01(c) (captioned "Tangible Net Worth") of the Existing
Credit Agreement, Section 5.01(d) (captioned "Tangible Net Worth Ratio") of the
Existing Credit Agreement, and Section 5.01(e) of the Existing Credit Agreement
(captioned "Interest Coverage Ratio"); 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 as follows:
A. Except as otherwise provided in paragraph B, 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.
B. Section 1.01 (captioned "Certain Defined Terms") of the Existing Credit
Agreement is amended, effective as of April 30, 1997, by inserting the following
definitions in alphabetical order:
"AFTER-TAX REALIGNMENT EXPENSE" means a non-recurring charge, in
an amount not greater than one hundred million twenty thousand dollars
($100,020,000), against the consolidated income of the Borrower and its
subsidiaries for the quarter-annual fiscal period ending June 30,
1997."
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"REALIGNMENT EXPENSE" means a non-recurring charge, in an amount
not greater than one hundred fifty-two million seven hundred ninety
thousand dollars ($152,790,000), against the consolidated income of the
Borrower and its subsidiaries for the quarter-annual fiscal period
ending June 30, 1997."
C. Section 5.01(c) (captioned "Tangible Net Worth") of the Existing Credit
Agreement is amended and restated, effective as of April 30, 1997, as follows:
"(c) TANGIBLE NET WORTH. Maintain an excess of (i) the sum of
consolidated total tangible assets plus an amount equal to the
After-Tax Realignment Expense over (ii) consolidated total liabilities
(including Guaranties) of the Borrower and its subsidiaries of not less
than the Required Net Worth. The "Required Net Worth" shall initially
be two hundred thirty-five million dollars ($235,000,000) and shall
increase as of December 31 of each year, commencing December 31, 1997,
by an amount equal to twenty-five percent (25%) of the consolidated net
income (if any) of the Borrower and its subsidiaries for the fiscal
year ending on such December 31."
D. Section 5.01(d) (captioned "Tangible Net Worth Ratio") of the Existing Credit
Agreement is amended and restated, effective as of April 30, 1997, as follows:
"(d) TANGIBLE NET WORTH RATIO." Maintain a ratio (expressed as a
decimal fraction) of
(i) consolidated total liabilities (including
Guaranties but excluding the Transition Obligation) to
(ii) the aggregate of consolidated tangible net
worth, plus an amount (in no case greater than fifty-five
million dollars ($55,000,000)) equal to the goodwill acquired
by Borrower from Synthetic Products Company ("SYNPRO"), a
Delaware corporation, as a part of Borrower's acquisition of
all or substantially all of the assets of Synpro, plus an
amount equal to the After-Tax Realignment Expense,
of not more than 1.85."
E. Section 5.01(e) (captioned "Interest Coverage Ratio") of the Existing Credit
Agreement is amended and restated, effective as of April 30, 1997, as follows:
"(e) INTEREST COVERAGE RATIO. Maintain for each period of four
consecutive fiscal quarters beginning with the period of four fiscal quarters
ending June 30, 1997, a ratio of (i) consolidated net income (before interest
income, interest expense, income taxes, and the Realignment Expense) of the
Borrower and its subsidiaries for such period to (ii) consolidated interest
expense (net of interest income) for such period of not less than 2.5 to 1.0."
F. 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,
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an Event of Default. The representation and warranty made pursuant to this
paragraph F shall survive the execution and delivery of this Amendment.
G. 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.
H. 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
signature page to 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 signature page 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 Citibank, N.A.
By: /s/ D. Thomas George By: /s/ Stuart G. Miller
-------------------------- ---------------------------
D.Thomas George Stuart G. Miller
Treasurer V.P./S.C.O.
National City Bank, Agent Bank Boston, NT
The First National Bank of Boston (a.k.a. The First national Bank of Boston)
By: /s/ Jeffrey C. Douglas By: /s/ Cornelia Newell
-------------------------- ---------------------------
Jeffrey C. Douglas Cornelia Newell
Vice President Director
Telecopier: (216) 575-9396
National City Bank KeyBank National Association (formerly
known as Society National Bank)
/s/ Jeffrey C. Douglas
--------------------------
Jeffrey C. Douglas By: /s/ Richard C. Pohle
Vice President --------------------------
Richard C. Pohle
Vice President
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EXHIBIT 10
SECOND AMENDMENT TO FERRO CORPORATION
PARTICIPATION AGREEMENT
-----------------------
This Second Amendment (this "AMENDMENT") to the Participation
Agreement (as defined below) dated as of July 24, 1997 is entered into among the
parties to that certain Participation Agreement dated as of October 31, 1995
among Ferro Corporation (the "COMPANY"), State Street Bank and Trust Company,
not in its individual capacity except as expressly provided therein, but solely
as Trustee, the financial institutions named as Purchasers on Schedule I thereto
and their respective successors and assigns and Citibank, N.A. as Agent, as
amended by Amendment and Waiver to Ferro Corporation Asset Defeasance Product
Financing dated as of March 31, 1997 (as the same may be further amended from
time to time, the "PARTICIPATION AGREEMENT"). Capitalized terms used but not
defined herein shall have the respective meanings set forth in the Participation
Agreement.
PRELIMINARY STATEMENTS
----------------------
(1) The Company, the banks and National City Bank, as agent,
parties to that certain Credit Agreement dated as of August 22, 1990, and the
amendments thereto dated as of May 31, 1991, July 30, 1991, December 31, 1991,
July 21, 1992, August 20, 1993, June 22, 1995 and October 25, 1995, respectively
(such Credit Agreement as so amended, the "CREDIT AGREEMENT"), have agreed to
enter into an eighth amendment of the Credit Agreement dated as of the date
hereof (the "CREDIT AGREEMENT AMENDMENT").
(2) In connection with the Credit Agreement Amendment, the
Company, the Trustee, the Purchasers and the Agent have agreed to amend the
Participation Agreement as set forth below.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. AMENDMENT TO PARTICIPATION AGREEMENT. (a) Section
5.01(i) of the Participation Agreement is hereby amended by deleting such
section in its entirety and inserting in lieu thereof the following:
"(I) FINANCIAL COVENANTS.
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(i) WORKING CAPITAL. Maintain an excess of consolidated current assets over
consolidated current liabilities of the Company and its Subsidiaries of
not less than $125,000,000. Consolidated current liabilities shall not
include the current portion of the indebtedness evidenced by the Notes
issued under the Revolving Credit Agreement.
(ii) TANGIBLE NET WORTH. Maintain an excess of (A) the sum of
consolidated total tangible assets plus an amount equal to the
After-Tax Realignment Expense over (B) consolidated total liabilities
(including Guaranties) of the Company and its Subsidiaries of not
less than the Required Net Worth. The "Required Net Worth" shall
initially be $235,000,000 and shall increase as of December 31 of each
year, commencing December 31, 1997, by an amount equal to 25% of the
consolidated net income (if any) of the Company and its Subsidiaries
for the fiscal year ending on such December 31.
(iii) TANGIBLE NET WORTH RATIO. Maintain a ratio of consolidated total
liabilities (including Guaranties but excluding the Transition
Obligation) to the aggregate of (i) consolidated tangible net worth of
the Company and its Subsidiaries, plus (ii) an amount (in no case
greater than fifty-five million dollars ($55,000,000)) equal to the
goodwill acquired by the Company from Synpro, as part of the Company's
acquisition of all or substantially all of the assets of Synpro, plus
(iii) an amount equal to the After-Tax Realignment Expense, of not more
than 1.85 to 1.00.
(iv) INTEREST COVERAGE RATIO. Maintain, for each period of four consecutive
fiscal quarters, beginning with the four fiscal quarters ending June
30, 1997, a ratio of consolidated net income (before interest income,
interest expense, income taxes and the Realignment Expense) of the
Company and its Subsidiaries for such period to consolidated interest
expense (net of interest income) for such period of not less than 2.5
to 1.0."
(b) Appendix A to the Participation Agreement is hereby
amended by inserting the following definitions in alphabetical order:
"AFTER-TAX REALIGNMENT EXPENSE" means a
non-recurring charge, in an amount not greater than
$100,020,000, against the consolidated income of the Company
and its Subsidiaries for the quarter-annual fiscal period
ending June 30, 1997.
"REALIGNMENT EXPENSE" means a non-recurring charge,
in an amount not greater than $152,790,000, against the
consolidated income of the Company and its Subsidiaries for
the quarter-annual fiscal period ending June 30, 1997."
SECTION 2. EFFECTIVENESS. This Amendment shall be effective as
of April 30, 1997, provided that the Credit Agreement Amendment is executed and
becomes effective in accordance with the terms thereof.
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SECTION 3. RATIFICATION AND CONFIRMATION. Except as expressly
herein amended, the Participation Agreement and each of the other Operative
Documents are ratified and confirmed in all respects and shall remain in full
force and effect in accordance with their terms. Each reference in the Operative
Documents or in any other documents delivered in connection therewith to the
Participation Agreement shall (unless otherwise specifically provided) mean the
Participation Agreement, as amended by this Amendment, and as hereafter amended
or restated.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio.
(b) The execution, delivery and performance by the Company of
this Amendment are within its corporate powers, have been duly authorized by all
necessary corporate action, and do not contravene the Company's charter or
by-laws.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Company of this
Amendment.
(d) The representations and warranties contained in Section
4.01 of the Participation Agreement are correct in all material respects on and
as of the date hereof, as though made on and as of the date hereof.
(e) No event has occurred and no condition exists which
constitutes a Default or an Event of Default.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW (OR ANY SIMILAR SUCCESSOR
PROVISION THERETO) BUT EXCLUDING ALL OTHER CONFLICT-OF-LAW RULES.
SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by any combination of the parties
herein in separate counterparts, each of which shall be an original and all of
which when taken together shall constitute one and the same agreement. Delivery
of an executed counterpart of a signature page to this Amendment by telecopier
shall be effective as delivery of a manually executed counterpart of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective Officers thereunto duly
authorized as of the date hereof.
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SIGNATURE PAGE FOR SECOND AMENDMENT TO
FERRO CORPORATION PARTICIPATION AGREEMENT
FERRO CORPORATION
By: /s/ D. Thomas George
---------------------------
Name: D. Thomas George
Title: Treasurer
STATE STREET BANK AND TRUST COMPANY,
not in its individual capacity, except as expressly stated
in the Participation Agreement, but solely as Trustee
By: /s/ Ruth A. Smith
---------------------------
Name: Ruth A. Smith
Title: Vice President
CITIBANK, N.A., as Agent
By: /s/ Stuart G. Miller
---------------------------
Name: Stuart G. Miller
Title: Vice President/ S.C.O.
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SIGNATURE PAGE FOR SECOND AMENDMENT TO
FERRO CORPORATION PARTICIPATION AGREEMENT
CITICORP USA, INC.,
as Note Purchaser and
as Certificate Purchaser
By: /s/ Stuart G. Miller
---------------------------
Name: Stuart G. Miller
Title: Attorney-in-fact
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SIGNATURE PAGE FOR SECOND AMENDMENT TO
FERRO CORPORATION PARTICIPATION AGREEMENT
BANK HAPOALIM B.M.,
as Note Purchaser and
as Certificate Purchaser
By: /s/ Laura Raffa
---------------------------
Name: Laura Raffa
Title: Vice President
<PAGE> 7
SIGNATURE PAGE FOR SECOND AMENDMENT TO
FERRO CORPORATION PARTICIPATION AGREEMENT
FIRST NATIONAL BANK OF CHICAGO,
as Note Purchaser
By: Russell H. Liebetrau
---------------------------
Name: Russell H. Liebetrau
Title:Vice President
<PAGE> 8
SIGNATURE PAGE FOR SECOND AMENDMENT TO
FERRO CORPORATION PARTICIPATION AGREEMENT
NATIONAL CITY BANK,
as Note Purchaser
By: Timothy J. Lathe
---------------------------
Name: Timothy J. Lathe
Title: Senior Vice President
<PAGE> 9
SIGNATURE PAGE FOR SECOND AMENDMENT TO
FERRO CORPORATION PARTICIPATION AGREEMENT
KEYBANK NATIONAL ASSOCIATION, successor by
merger to SOCIETY NATIONAL BANK,
as Note Purchaser
By: /s/ Richard A. Pohle
---------------------------
Name: Richard A. Pohle
Title: Vice President
<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
1997 1996
---- ----
<S> <C> <C>
PRIMARY:
Weighted average shares and common stock equivalents 25,993,310 26,846,526
Net Income (Loss) ($68,752) $27,466
Less Preferred Stock Dividend, Net of Tax (1,881) (1,862)
------------ ------------
Income (Loss) Available to Common Shareholders ($70,633) $25,604
PRIMARY EARNINGS (LOSS) PER COMMON SHARE ($2.72) $0.95
FULLY DILUTED:
Weighted average shares and common stock equivalents 25,993,310 26,846,526
Adjustments (primarily assumed conversion of
convertible preferred stock) 2,359,138 2,437,618
------------ ------------
28,352,448 29,284,144
Net Income (Loss) ($68,752) $27,466
Additional ESOP Contribution, Net of Tax (932) (982)
------------ ------------
Adjusted Net Income (Loss) ($69,684) $26,484
FULLY DILUTED EARNINGS (LOSS) PER SHARE ($2.46) $0.90
<FN>
NOTE: DUE TO THE ANTI-DILUTIVE EFFECT OF THE NET LOSS IN 1997, PRIMARY EARNINGS PER SHARE IS REPORTED
FOR BOTH PRIMARY AND FULLY DILUTED EARNINGS PER SHARE.
</TABLE>
<PAGE> 1
EXHIBIT 12
FERRO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
JUNE JUNE
(Dollars in Thousands) 1997 1996
------- -------
<S> <C> <C>
Earnings:
Pre-Tax Income (Loss) (98,180) 44,495
Add: Fixed Charges 7,552 7,607
Less: Interest Capitalization (230) (80)
------- -------
Total Earnings (Loss) (90,858) 52,022
======= =======
Fixed Charges:
Interest Expense 6,070 6,414
Interest Capitalization 230 80
Interest Portion of Rental Expense 1,252 1,113
------- -------
Total Fixed Charges 7,552 7,607
======= =======
Total Earnings (Loss) (90,858) 52,022
Divided By:
Total Fixed Charges 7,552 7,607
------- -------
Ratio (12.03) 6.84
<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 includes conservative estimates based
on calculations from prior years.
</TABLE>
<PAGE> 1
EXHIBIT 20
FERRO CORPORATION
Consolidated Balance Sheets
As of June 30, 1997 (Unaudited) and December 31, 1996
Consolidated Statements of Income
For the Three and Six Months Ended
June 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows
For the Three and Six Months Ended
June 30, 1997 and 1996 (Unaudited)
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
FERRO CORPORATION AND SUBSIDIARIES
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
(Dollars in Thousands)
(Unaudited) (Audited)
ASSETS 1997 1996
- ------ -------- --------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 22,202 $ 14,026
Net Receivables 257,522 214,131
Inventories 130,665 149,343
Other Current Assets 41,392 39,022
-------- --------
Total Current Assets $451,781 $416,522
Unamortized Excess of Cost Over Net Assets Acquired 56,733 93,302
Other Assets 67,832 53,261
Net Plant & Equipment 244,134 307,383
-------- --------
$820,480 $870,468
======== ========
LIABILITIES
- -----------
Current Liabilities:
Notes and Loans Payable $ 32,563 $ 30,200
Accounts Payable, Trade 120,583 113,156
Income Taxes 11,768 10,597
Accrued Payrolls 16,789 16,559
Accrued Expenses and Other Current Liabilities 90,747 81,821
-------- --------
Total Current Liabilities $272,450 $252,333
Long-Term Debt 103,386 105,308
ESOP Loan Guarantee 18,192 22,592
Postretirement Liabilities 45,906 44,846
Other Liabilities 93,156 61,185
Shareholders' Equity 287,390 384,204
-------- --------
$820,480 $870,468
======== ========
</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) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Segment Sales
Coatings, Colors, and Ceramics $211,848 $196,736 $414,393 $392,224
Plastics 61,251 61,851 120,492 125,487
Chemicals 89,946 86,128 170,357 175,188
------------ ------------ ------------ ------------
Total Net Sales $363,045 $344,715 $705,242 $692,899
Cost of Sales 270,164 260,208 525,934 523,133
Selling, Administrative and General Expenses 60,225 57,779 118,070 116,547
Realignment Expense 152,790 152,790
Interest Expense 3,040 3,092 6,070 6,414
Net Foreign Currency (Gain) Loss (903) (80) (2,300) (347)
Other (Income) Expense - Net 395 605 2,858 2,657
------------ ------------ ------------ ------------
Income (Loss) Before Taxes (122,666) 23,111 (98,180) 44,495
Taxes on Income (38,720) 8,796 (29,428) 17,029
------------ ------------ ------------ ------------
Net Income (Loss) (83,946) 14,315 (68,752) 27,466
Dividend on Preferred Stock, Net of Tax 940 931 1,881 1,862
------------ ------------ ------------ ------------
Net Income (Loss) Available to Common Shareholders ($84,886) $13,384 ($70,633) $25,604
============ ============ ============ ============
Per Common Share Data:
Primary Earnings ($3.26) $0.50 ($2.72) $0.95
Fully Diluted Earnings ($3.26) $0.47 ($2.72) $0.90
Shares Outstanding:
Average Outstanding 26,055,164 26,758,263 25,993,310 26,846,526
Average Fully Diluted 28,461,761 29,118,294 28,352,448 29,284,144
Actual End of Period 25,656,096 26,504,617 25,656,096 26,504,617
</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) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Cash Provided from Operating Activities $34,074 $16,238 $62,508 $43,346
Cash Flow from Investing Activities:
Capital Expenditures for Plant and Equipment (11,648) (12,278) (20,696) (24,326)
Acquisition of Companies, net of cash acquired 0 (1,300) 0 (6,800)
Other Investing Activities 2,759 3,370 3,275 3,800
- -------------------------------------------------------------------------------------------------- ---------------------------
Net Cash (Used for) Provided by Investing Activities (8,889) (10,208) (17,421) (27,326)
Cash Flow from Financing Activities:
Net Borrowings (Payments) Under Short-Term Lines (11,665) 7,831 (17,899) 124
Purchase of Treasury Stock (3,963) (5,339) (9,714) (14,134)
Cash Dividend Paid (5,039) (4,691) (10,092) (9,442)
Other Financing Activities 1,272 (230) 2,079 1,889
- -------------------------------------------------------------------------------------------------- ---------------------------
Net Cash (Used for) Provided by Financing Activities (19,395) (2,429) (35,626) (21,563)
Effect of Exchange Rate Changes on Cash (479) (26) (1,285) (19)
- -------------------------------------------------------------------------------------------------- ---------------------------
Increase (Decrease) in Cash and Cash Equivalents 5,311 3,575 8,176 (5,562)
Cash and Cash Equivalents at Beginning of Period 16,891 7,558 14,026 16,695
- -------------------------------------------------------------------------------------------------- ---------------------------
Cash and Cash Equivalents at End of Period $22,202 $11,133 $22,202 $11,133
================================================================================================== ===========================
Cash Paid During the Period for:
Interest, net of amounts capitalized $5,042 $5,116 $6,546 $6,361
Income Taxes $12,011 $12,310 $14,488 $16,879
- -------------------------------------------------------------------------------------------------- ---------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 22,202
<SECURITIES> 0
<RECEIVABLES> 257,522
<ALLOWANCES> 0
<INVENTORY> 130,665
<CURRENT-ASSETS> 451,781
<PP&E> 607,759
<DEPRECIATION> 363,625
<TOTAL-ASSETS> 820,480
<CURRENT-LIABILITIES> 272,450
<BONDS> 103,386
<COMMON> 31,549
0
0
<OTHER-SE> 255,841
<TOTAL-LIABILITY-AND-EQUITY> 820,480
<SALES> 705,242
<TOTAL-REVENUES> 705,242
<CGS> 525,934
<TOTAL-COSTS> 644,004
<OTHER-EXPENSES> 159,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,070
<INCOME-PRETAX> (98,180)
<INCOME-TAX> (29,428)
<INCOME-CONTINUING> (68,752)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,752)
<EPS-PRIMARY> (2.72)
<EPS-DILUTED> (2.72)
</TABLE>
