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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
[ ] 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
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At April 30, 1999, there were 35,105,224 shares of Ferro common stock, par value
$1.00, outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
The Condensed Consolidated Balance Sheets as of March 31, 1999 (unaudited) and
December 31, 1998, and the Condensed Consolidated Statements of Income and
Condensed Consolidated Statements of Cash Flows for the three months ended March
31, 1999 and 1998 (unaudited) of Ferro Corporation and Subsidiaries are set
forth in Exhibit 99, which is incorporated by reference herein.
The 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, 1998. In the
opinion of the management of the Company, the information furnished here
includes all the adjustments necessary for fair presentation of the results for
the interim periods, and all such adjustments of a normal recurring nature have
been made.
The results of the three months ended March 31, 1999 are not necessarily
indicative of the results expected in subsequent quarters.
Cash dividends of $0.135 per common share were paid in the first quarter of 1999
and cash dividends of $0.12 per common share were paid in the first quarter of
1998. Cash dividends of $0.81 per preferred share were paid in the first quarter
of 1999 and 1998.
Net sales and net income for the three months ended March 31, 1999 were $331.5
million and $17.1 million ($0.46 basic and $0.43 diluted earnings per common
share) as compared with net sales of $339.8 million and $17.1 million ($0.43
basic and $0.40 diluted per common share) for the corresponding 1998 period.
Comprehensive income represents net income adjusted for foreign currency
translation adjustments and pension liability adjustments. Comprehensive income
(loss) was ($2.0) million and $12.7 million for the three months ended March 31,
1999 and 1998, respectively. Accumulated other comprehensive income (loss) at
March 31, 1999 and December 31, 1998 was ($64.0) million and ($44.9) million,
respectively.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
COMPARISON BETWEEN THREE MONTHS ENDED MARCH 31, 1999 AND 1998.
Net Sales. First quarter 1999 net sales of $331.5 million were 2.4% less than
the $339.8 million of the comparable 1998 period.
Sales declined 0.1% in both the Coatings and Plastics segments and 10.2% in the
Chemicals segment. The decrease in Chemicals was mainly due to the negative
impact of reduced volumes in the domestic petroleum additives business, which
has impacted results since the second quarter of
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1998. These reduced volumes are not expected to recover in 1999, although it is
expected that year-to-year comparisons should normalize in subsequent quarters.
Plastics sales were impacted by lower raw materials costs, which put downward
pressure on selling prices. The Coatings segment was impacted by the continuing
economic downturn in Latin America.
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 2.4% decrease in sales is comprised of: volume, -1.8%; price/mix, -2.0%;
currency, 0.6%; acquisitions, 1.2%; and divestitures -0.4%.
Cost of Sales. Gross profit as a percent of sales was 27.8% as compared to 26.5%
for the comparable 1998 period. This improvement was driven by a shift in the
mix of products sold toward higher margins and by improved manufacturing
efficiencies. In addition, the Company was also able to retain some of the
benefits of lower raw material costs.
Selling, administrative and general expenses. Such expenses were comparable to
the amount of expenses in the same quarter in 1998. As a percent of sales, SG&A
was 18.0% in the first quarter of 1999 compared to 17.5% in the first quarter of
1998.
Interest expense. Interest expense of $3.9 million increased from $3.1 million
for the first quarter of last year and is primarily attributable to a higher
level of debt associated with the issuance of $55 million in 71/8% debentures
during the first quarter of 1998.
Net foreign currency gain. 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 expense-net. Other expense-net increased to $1.4 million compared to the
1998 first quarter expense of $1.0 million.
Income tax expense. The effective tax rate was 37.5% for the first quarter of
1999 versus the 37.6% recorded for the first quarter of 1998.
Segment Discussion:
(See exhibit 99 for additional information)
Sales from continuing operations for the Coatings segment were at the same level
as the first quarter of 1998. Sales for the segment were impacted by the
continuing economic downturn in Latin America. Segment income was up 14% from
the first quarter of 1998, reflecting exceptionally strong performance in the
ceramic tile business, as Europe remained strong and Asia continued to show
quarter-to-quarter improvement. Significant profit improvements were also
recorded in the electronics, specialty colors and specialty glaze businesses.
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Chemicals sales were down 10%, reflecting lower volumes in the petroleum
additives business and lower selling prices as a result of declining raw
material costs. Segment income was down 7%, reflecting lower sales, although
the operating margin increased. Solid performances turned in by the businesses
targeted for future growth, which include polymer additives and fine chemicals,
were not enough to offset weakness in petroleum additives.
The Plastics segment posted another record quarter in profits despite flat
sales, which were affected mainly by lower selling prices due to decreases in
raw material costs. Segment income was up 17% compared to the first quarter of
1998. Continued higher sales of value added product offerings, combined with
strong performance in Europe and continued manufacturing efficiencies, were the
main factors leading to the profit record. The Plastics segment continues to
benefit from strong demand in glass-filled polypropylene products at the expense
of alternative materials in a variety of applications. The acquisition of
Advanced Polymer Compounding, announced March 10, 1999 and discussed under the
heading "Other Developments" in this Management Discussion and Analysis,
increased the assets of the Plastics segment. Segment Assets were $113.8 million
at March 31, 1999 compared to $83.1 million at December 31, 1998.
Geographic Sales:
United States sales were $182.3 million for the three months ended March 31,
1999, compared to $190.5 million in the first quarter of 1998. United States
sales were impacted by the decline in sales for the Chemicals segment which is
primarily a domestic business. International sales were $149.2 million for the
three months ended March 31, 1999, compared to $149.2 million in the first
quarter of 1998.
FORWARD LOOKING STATEMENTS
Certain statements contained in this quarterly report on Form 10-Q 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 risks and other factors concerning the Company's
operations and business environment, and actual events or results may differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to: changes in customer requirements, markets or industries served; changing
economic conditions, particularly in Europe, Asia-Pacific, Latin America and the
United States; foreign exchange rates, especially in Europe or Asia-Pacific;
changes in the prices of major raw materials; significant technological or
competitive developments; the Company's conversion to a single European
currency, the euro; and disruption of operations associated with certain
computer-based systems that rely on date routines in connection with the year
2000.
LIQUIDITY AND CAPITAL RESOURCES
Working capital. Working capital was $128.1 million at March 31, 1999 compared
to $210.0
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million at the end of the first quarter of 1998. The change in working capital
is primarily attributable to a lower amount of cash and an increase in the
amount of notes and loans payable.
Cash flow. Net cash provided from operating activities for the three months
ended March 31, 1999, was $53.1 million compared to the $24.9 million recorded
in the first quarter of 1998. The change in net cash provided from operations is
primarily due to increases in receivables and inventories occurring in the first
quarter of 1998. The increase in net cash used for investing activities, for the
first quarter of 1999, is associated with a higher level of capital expenditures
for plant and equipment and an increase in net cash used for acquisitions. The
change in net cash from financing activities is driven by changes in both short
and long-term debt, an increase in cash used to repurchase stock and an increase
in the dividend to common shareholders.
Financing requirements and resources. The long-term debt to equity ratio was
58.2% at March 31, 1999, excluding the loan guarantee of the Employee Stock
Ownership Plan adopted in April 1989, as compared to the 55.2% ratio at December
31, 1998. The Company expects to be able to meet the financial requirements of
its businesses from existing cash and cash equivalents and future cash flow from
operations. The Company has available to it a $150.0 million five-year revolving
credit facility with four domestic banks. The Company had borrowed $35.0 million
under this facility as of March 31, 1999. The Company also has $245.0 million of
availability under a universal shelf registration that was filed with the
Securities and Exchange Commission on October 31, 1995 and declared effective
January 4, 1996, pursuant to which various types of securities may be issued.
ENVIRONMENTAL
The Company is party to judicial and administrative proceedings relating to
emissions from its plant in Hammond, Indiana. In these proceedings, the State of
Indiana and the United States Environmental Protection Agency (USEPA) are
seeking to impose fines and possibly to alter or terminate the Company's right
to produce Pyro-Chek(R) at the Hammond plant. See the description in Part II
Item 1. The Company is vigorously contesting these claims and evaluating
alternatives for mitigating the impact should the Company not prevail. If the
State of Indiana or USEPA were to prevail on all of their claims, it could have
a material adverse effect on the Company.
YEAR 2000 READINESS DISCLOSURE
Historically, many computer software programs were written to refer to years in
terms of their final two digits only. Such programs may interpret the year 2000
to mean the year 1900 instead. The Company is aware of the implications and
issues associated with this problem and could be faced with disruption of
operations and a corresponding impact on the Company's results of operations if
the Year 2000 issues are not resolved in a timely manner.
The Company currently operates multiple computer systems, including hardware and
software, in its global business operations. The Company believes it has
identified the issues that affect its global computer operations and is in the
process of implementing appropriate plans to address this problem. Local area
networks, telephone systems, business systems, financial systems, shop floor
devices,
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facility operations and end-user computing systems are being assessed globally.
In order to determine fully the readiness of its production and other equipment
with the Year 2000 issues, the Company has substantially completed a
comprehensive inventory of operations systems that it believes may be impacted.
The Company is using multiple strategies to address the Year 2000 issues. New
software is being purchased and installed, current software is being rewritten,
and hardware that is non-Year 2000 compliant is being replaced. The Company has
contracted with a third-party consultant with special expertise in this area.
The Company expects that all correction and testing will be completed by the end
of the second quarter of 1999. In addition, the Company is in the process of
developing contingency plans in the event that these corrective actions are not
implemented in a timely manner as expected. The Company has established
millennium watch teams to develop and coordinate a contingency plan to be
implemented at all of the Company's sites. Readiness plans are being established
to ensure internal resources are in place from the second half of December 1999
through the end of January 2000.
Based upon findings to date, the Company's total external costs (historical plus
estimated future costs) are currently estimated to be in the range of $11.0
million to $12.0 million, of which approximately $9 million has been incurred
and the majority of which has been capitalized appropriately under Statement of
Position No. 98-1 "Accounting for Costs of Computer Software Developed or
Obtained for Internal Use". The Company does not separately track internal costs
for Year 2000 compliance, which are primarily for payroll and related costs of
information systems personnel. The Company does not now anticipate that the
total estimated cost of being in compliance with Year 2000 will materially
exceed the estimate.
The Company is assessing the plans and progress of key suppliers and customers
in addressing the Year 2000 problem. To the extent that these key suppliers and
customers are impacted by their failure to address the Year 2000 problem, such
disruption could have a direct impact on the Company. The Company is exploring a
variety of contingency plans to minimize the impact of third-party failures on
the Company. This plan will focus on availability of raw materials, energy and
other resources critical to maintaining operations.
The Company's expectations outlined above with respect to the Year 2000 are
subject to uncertainties and are forward-looking statements that express the
Company's current expectations or forecasts of future events. The Company
believes that it has identified the Year 2000 issues that affect its global
computer operations. However, if the Company is unsuccessful in identifying or
solving all Year 2000 issues in its critical operations, or if the Company is
materially and adversely affected by the inability of its key suppliers and
customers to identify and solve their Year 2000 issues, the Company's results of
operations or financial condition could be materially impacted.
Furthermore, the total costs that the Company will incur with respect to Year
2000 issues will be
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influenced by the Company's ability to successfully identify and solve Year 2000
issues, the extent and complexity of programming required to fix affected
programs, the related labor and consulting costs the Company will incur and the
ability of third parties with whom the Company has business relationships to
successfully identify and solve their own Year 2000 issues. These and other
unforeseen factors could have a material adverse effect on the Company's results
of operations or financial condition.
IMPACT OF THE EURO CONVERSION
On January 1, 1999, 11 of 15 member countries of the European Economic and
Monetary Union (the "EMU") established fixed conversion rates between their
existing sovereign currencies ("legacy currencies") and the European Union's
common currency, the euro. As of that date, the euro traded on currency
exchanges and may be used in business transactions. The legacy currencies remain
legal tender in the participating countries for a transition period between
January 1, 1999 and at least January 1, 2002 (but not later than July 1, 2002).
Beginning in January 2002, new euro-denominated bills and coins will be issued,
and legacy currencies will be withdrawn from circulation by July 2002.
The Company has implemented a plan that enables each of its businesses to
effectively process the necessary transactions in both euro and local currencies
during this transition period. The plan includes, among other things, the need
to adapt computer and financial systems to accommodate euro-denominated
transactions and the impact of one common currency on pricing. Since financial
systems and processes currently accommodate multiple currencies, the Company
does not anticipate system conversion costs to be material. Since the euro
conversion may affect cross-border competition by creating cross-border price
transparency, the Company will be assessing its pricing strategies to ensure it
remains competitive in a broader European market.
Continuing analysis and development efforts by project teams among the Company's
business units will help ensure that the implementation of the Company's plans
meets the timetable and regulations established by the EMU.
The Company's exposure to changes in foreign exchange rates may be reduced as a
result of the euro conversion. Conversely, changes in the value of the euro/U.S.
dollar exchange rate may have a greater impact because there will be less
diversity in the Company's exposure to foreign currencies. Based on information
currently available and our current assessment, the Company does not anticipate
that the conversion to the euro will have a material effect on its results of
operations or financial condition.
OTHER DEVELOPMENTS
ORGANIZATIONAL ANNOUNCEMENTS
On April 27, 1999, the Company announced a series of promotions among its senior
management
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team, including adding the position of Chairman to the responsibilities of
Hector R. Ortino, President and Chief Executive Officer. In addition, the
executives in charge of three of Ferro's operating groups have been promoted to
Senior Vice President. They are R. Jay Finch, Specialty Plastics; J. Larry
Jameson, Industrial Coatings; and Kent H. Lee, Jr., Specialty Chemicals. James
F. Fisher, who heads the Ceramics and Colorants Group, is already a Senior Vice
President.
On April 29, 1999, the Company announced that Robert A. Rieger was appointed
Vice President of Ceramics, Colorants and Electronic Materials. In this
position, he will be responsible for their global businesses, which include
tile and ceramics, color and glass specialties and electronic materials. Mr.
Rieger will report to James F. Fisher, Senior Vice President, Ceramics and
Colorants for Ferro.
APC ACQUISITION
On March 10, 1999, the Company announced the acquisition of Advanced Polymer
Compounding Co. (APC), a supplier of high performance thermoplastic elastomers
(TPEs) and engineering plastic compounds.
APC, headquartered in Carpentersville, Illinois, had sales of more than $20
million in 1998. APC's TPE products are sold under the trade name "Alcryn," a
patent-protected line of high performance TPEs developed by Dupont and purchased
by APC in 1997. Alcryn serves market segments such as automotive, architectural,
appliances, tools, lawn and garden and electrical. The smaller part of APC's
business, engineered compounds, focuses on providing resin suppliers and
converters with process development and production of specialty compounds for a
service fee.
The acquisition was accounted for using the purchase method of accounting and
results of APC were incorporated as part of Ferro Corporation's consolidated
financial statements from the date of closing which was March 9, 1999. The
results of this operation are not material to Ferro.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS.
There have been no material changes in market risk exposures during the first
three months of 1999 that effect the disclosures presented in the Company's
Annual Report to Shareholders for the year ended December 31, 1998, which
disclosure is incorporated here by reference.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.
In 1994, the Company's Keil Chemical Division (Keil) settled an
enforcement proceeding brought by the Indiana Department of Environmental
Management (IDEM) concerning air emissions from Keil's Pyro-Chek(R) process. The
settlement was in the form of an Agreed Order with IDEM. The Agreed Order
confirmed the Company's plans to install additional controls and imposed certain
aggregate limitations on air emissions from the Pyro-Chek(R) production process
while the Company
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applied for and obtained a construction and operating permit for the existing
air source. The control equipment was installed, but the Company has had a
continuing disagreement with the agency over whether it has been in compliance
with the Agreed Order, including which methods should be used to demonstrate
compliance. In November 1998, IDEM filed suit in Indiana state court seeking to
shut down operation of the Pyro-Chek(R) process. At a hearing held on December
4, 1998, the court denied IDEM's request for a preliminary injunction, and later
dismissed the claim for a permanent injunction on grounds that the dispute
arising out of the Agreed Order should be addressed before the Indiana Office of
Environmental Adjudication. The day before this hearing, IDEM denied Keil's
application for a permit for air emissions for the Pyro-Chek(R) process. The
Company appealed IDEM's denial of Keil's permit application to the Indiana
Office of Environmental Adjudication.
A hearing date has been scheduled before the Indiana Office of Environmental
Adjudication in September 1999. The Company is actively pursuing settlement
negotiations with IDEM and the local environmental agency, the Hammond
Department of Environmental Protection (HDEM), to resolve disagreements over
methods of demonstrating compliance with the Agreed Order, and to complete
issuance of the requested construction and operating permits.
Until recently, the United States Environmental Protection Agency (USEPA) had
given the enforcement lead to IDEM. Following requests for information from the
Company, some of which are ongoing, USEPA served the Company with a notice of
violation (NOV) on May 5, 1999 alleging that the Company violated various
pre-construction review requirements in building and modifying the Pyro-Chek(R)
process between 1980 and 1991, and has been operating without necessary permits.
The allegations in the NOV are essentially the same as those made by USEPA in
1993 when USEPA, IDEM and HDEM pursued enforcement against the Company,
resulting in settlements with IDEM and HDEM in the Agreed Order. The Company has
accepted USEPA's invitation to discuss the NOV, although a date has not yet been
set for that meeting. The Company intends to vigorously contest the allegations
in the NOV.
With respect to the claims of IDEM, HDEM and USEPA, the Company cannot determine
at this time whether any potential liability exists, and if it does, what that
liability might be. If either the USEPA or the State of Indiana were to prevail
on all of their claims, it could have a material adverse effect on the operating
results and financial condition of the Company.
At the prompting of several residents near Hammond, Indiana, U.S. Congressional
Representative Visclosky, has requested the U.S. Department of Health's Agency
for Toxic Substances and Disease Registry ("ATSDR") conduct a health assessment
of the Hammond area. ATSDR has asked the Indiana Department of Health to
investigate whether there is a possible "cluster" of pediatric cancers of the
central nervous system found in the Hammond area. ATSDR will also assess whether
operations of the Company's Hammond facility pose an unreasonable risk to
health or the environment. The Company has had an initial meeting with
representatives of ATSDR, and intends to cooperate with all reasonable requests
in connection with the evaluation.
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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.
At the Annual Meeting of Shareholders held on April 23, 1999, there
were a total of 30,767,917.674 shareholders voting either in person or
by proxy. The shareholders:
A) Elected three directors to the Ferro Corporation Board of
Directors, Sandra Harden Austin, Rex A. Sebastian and Dennis W.
Sullivan to serve on the Board until the meeting in the year
2002.
The results of the voting for directors were as follows:
Number Of Votes
---------------
Sandra Harden Austin 30,515,145.515
Rex A. Sebastian 30,493,870.137
Dennis W. Sullivan 30,524,823.137
The terms of office for Glenn R. Brown, Michael H. Bulkin,
William E. Butler, John C. Morley, Hector R. Ortino and
William J. Sharp continued after the meeting.
Director Albert C. Bersticker retired as Chairman of the Board of
the Company on this date but will continue to serve as a director
until the expiration of his term.
B) Approved a proposal to adopt an amendment to the 1997 Ferro
Performance Share Plan. The holders of 28,834,507.601 shares
voted in favor of the proposal. The holders of 1,649,660.245
shares voted against the proposal. The holders of 282,748.828
shares abstained from voting on the issue.
C) Approved a proposal to ratify the designation of KPMG LLP as
independent auditors of the books and accounts of the Company for
the current year ending December 31, 1999. The holders of
30,525,082.848 shares voted in favor of the proposal. The holders
of 156,544.407 shares voted against the proposal. The holders of
86,290.419 shares abstained from voting on the issue.
ITEM 5 - OTHER INFORMATION.
None.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed in the attached Exhibit Index are filed
pursuant to Item 6(a) of the Form 10-Q.
(b) The Company has not filed any reports on Form 8-K for the
quarter ended March 31, 1999
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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: May 14, 1999
/s/ Hector R. Ortino
----------------------
Hector R. Ortino
Chairman, President and
Chief Executive Officer
Date: May 14, 1999
/s/ Gary H. Ritondaro
----------------------
Gary H. Ritondaro
Vice President and Chief Financial Officer
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EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated here by
reference to a prior filing in accordance with Rule 12b-32 under the Securities
and Exchange Act of 1934. (Asterisk denotes exhibits filed with this report).
Exhibit:
(3) Articles of Incorporation and by-laws
(a) Eleventh Amended Articles of Incorporation (Reference is made
to Exhibit 3 (a) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1998, which Exhibit is
incorporated here by reference.)
(b) Certificate of Amendment to the Eleventh Amended Articles of
Incorporation of Ferro Corporation filed December 28, 1994
(Reference is made to Exhibit 3 (b) to Ferro Corporation's
Form 10-Q for the three months ended June 30, 1998, which
Exhibit is incorporated here by reference.)
(c) Certificate of Amendment to the Eleventh Amended Articles of
incorporation of Ferro Corporation filed June 23, 1998
(Reference is made to Exhibit 3 (c) to Ferro Corporation's
Form 10-Q for the three months ended June 30, 1998, which
Exhibit is incorporated here by reference.)
(d) Amended Code of Regulations (Reference is made to Exhibit 3
(d) to Ferro Corporation's Form 10-Q for the three months
ended June 30, 1998, which Exhibit is incorporated here by
reference.)
(4) Instruments defining rights of security holders, including indentures
(a) Revolving Credit Agreement by and between Ferro and four
commercial banks dated August 22, 1990. (Reference is made to
Exhibit 10 to Ferro Corporation's Form 10-Q for the three
months ended September 30, 1990, which Exhibit is incorporated
here by reference.)
(b) Amendment Number 1 dated May 31, 1991, to the Revolving Credit
Agreement by and between Ferro and four commercial banks.
(Reference is made to Exhibit 4(b)(1) to Ferro Corporation's
Quarterly Report on Form 10-Q for the three months ended June
30, 1991, which Exhibit is incorporated here by reference.)
(c) Amendment Number 2 dated July 30, 1991, to the Revolving
Credit Agreement by and between Ferro and four commercial
banks. (Reference is made to Exhibit 4(b)(2) to Ferro
Corporation's Form 10-Q for the three months ended June 30,
1991, which Exhibit is incorporated here by reference.)
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(d) Amendment Number 3 dated December 31, 1991, to the Revolving
Credit Agreement by and between Ferro and four commercial
banks. (Reference is made to Exhibit 4 to Ferro Corporation's
Form 10-K for the year ended December 31, 1991, which Exhibit
is incorporated here by reference.)
(e) Amendment Number 4 dated July 21, 1992, to the Revolving
Credit Agreement by and between Ferro and four commercial
banks. (Reference is made to Exhibit 4 to Ferro Corporation's
Form 10-Q for the three months ended June 30, 1992, which
Exhibit is incorporated here by reference.)
(f) Amendment Number 5 dated April 20, 1993, to the Revolving
Credit Agreement by and between Ferro and four commercial
banks. (Reference is made to Exhibit 4(b)(4) to Ferro
Corporation's Form 10-Q for the three months ended June 30,
1993, which Exhibit is incorporated here by reference.)
(g) Amendment Number 6 dated June 22, 1995, to the Revolving
Credit Agreement by and between Ferro and four commercial
banks. (Reference is made to Exhibit 4(b)(4) to Ferro
Corporation's Form 10-Q for the three months ended June 30,
1995, which Exhibit is incorporated here by reference.)
(h) Amendment Number 7 dated October 25, 1995 to the Revolving
Credit Agreement by and between Ferro Corporation and four
commercial banks.(Reference is made to Exhibit 4(b)(4) to
Ferro Corporation's Form 10-Q for the three months ended
September 30, 1995, which Exhibit is incorporated here by
reference.)
(i) Amendment Number 8 dated July 24, 1997 to the Revolving Credit
Agreement by and between Ferro Corporation and four commercial
banks.(Reference is made to Exhibit 4(k) to Ferro
Corporation's Form 10-Q for the three months ended June 30,
1997, which Exhibit is incorporated here by reference.)
(j) Shareholder Rights Agreement between Ferro Corporation and
National City Bank, Cleveland, Ohio, as Rights Agent, dated as
of March 22, 1996 . (Reference is made to the Exhibit to the
Registration Statement on Form 8-A dated May 15, 1996 which
Exhibit is incorporated here by reference.)
(k) The rights of the holders of Ferro's Debt Securities issued
and to be issued pursuant to an Indenture between Ferro and
Society National Bank, as Trustee, are described in the form
of Indenture dated May 1, 1993 filed as Exhibit 4(j) to Ferro
Corporation's Form 10-Q for the three months ended June 30,
1993. Said Exhibit is incorporated here by reference.
(l) The rights of the holders of Ferro's Debt Securities issued
and to be issued pursuant to a Senior Indenture between Ferro
and Chase Manhattan Trust Company, National Association, as
Trustee, are described in the Senior Indenture, dated March
25, 1998. (Reference is made to Exhibit 4 (c) to Ferro
Corporation's Quarterly Report on
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Form 10-Q for the three months ended March 31, 1998.)
(m) Form of Security (7 1/8% Debentures due 2028). (Reference is
made to Exhibit 4(a-1) to Ferro Corporation's Form 8-K filed
March 31, 1998, which Exhibit is incorporated here by
reference.)
*(11) Statement Regarding Computation of Earnings per Share.
*(12) Ratio of Earnings to Fixed Charges.
*(27) Financial Data Schedule for the Quarter Ended March 31, 1999
*(99) The Condensed Consolidated Balance Sheets as of March 31,
1999 (Unaudited) and December 31, 1998 and the Condensed
Consolidated Statements of Income and Condensed Consolidated
Statements of Cash Flows for the three months ended March 31 1999
and 1998 (Unaudited) of Ferro Corporation and Subsidiaries and
Quarterly Segment Data for the quarter ended March 31, 1999 and
the year ended December 31, 1998.
<PAGE> 1
EXHIBIT 11
FERRO CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
3 Months 3 Months
(Dollars in thousands, except per share data) MARCH MARCH
1999 1998
---- ----
BASIC:
<S> <C> <C>
Weighted Average Common Shares Outstanding 35,011,194 37,388,190
Net Income 17,101 17,055
Less Preferred Stock Dividend, Net of Tax (952) (944)
----------- -----------
Net Income Available to Common Shareholders $16,149 $16,111
BASIC EARNINGS PER COMMON SHARE $0.46 $0.43
DILUTED:
Weighted Average Common Shares Outstanding 35,011,194 37,388,190
Adjustments for assumed conversion of convertible
preferred stock and common stock options 3,608,272 4,403,857
----------- -----------
38,619,466 41,792,047
Net Income $17,101 $17,055
Additional ESOP Contribution, Net of Tax (361) (412)
----------- -----------
Adjusted Net Income $16,740 $16,643
DILUTED EARNINGS PER SHARE $0.43 $0.40
</TABLE>
<PAGE> 1
EXHIBIT 12
FERRO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
MARCH MARCH
(DOLLARS IN THOUSANDS) 1999 1998
----------- -----------
EARNINGS:
PRE-TAX INCOME 27,365 27,317
ADD: FIXED CHARGES 4,889 3,932
LESS: INTEREST CAPITALIZATION (333) (116)
----------- -----------
TOTAL EARNINGS 31,921 31,133
=========== ===========
FIXED CHARGES:
INTEREST EXPENSE 3,918 3,106
INTEREST CAPITALIZATION 333 116
INTEREST PORTION OF RENTAL EXPENSE 638 710
----------- -----------
TOTAL FIXED CHARGES 4,889 3,932
=========== ===========
TOTAL EARNINGS 31,921 31,133
DIVIDED BY:
TOTAL FIXED CHARGES 4,889 3,932
----------- -----------
RATIO 6.53 7.92
NOTE: PREFERRED DIVIDENDS ARE EXCLUDED. AMORTIZATION OF DEBT EXPENSE
DISCOUNTS AND PREMIUMS WERE DEEMED IMMATERIAL TO THE ABOVE
CALCULATION.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 22,715
<SECURITIES> 0
<RECEIVABLES> 254,635
<ALLOWANCES> 0
<INVENTORY> 136,925
<CURRENT-ASSETS> 466,265
<PP&E> 639,772
<DEPRECIATION> 352,620
<TOTAL-ASSETS> 886,231
<CURRENT-LIABILITIES> 338,169
<BONDS> 157,572
0
0
<COMMON> 47,323
<OTHER-SE> 223,493
<TOTAL-LIABILITY-AND-EQUITY> 886,231
<SALES> 331,481
<TOTAL-REVENUES> 331,481
<CGS> 239,265
<TOTAL-COSTS> 299,009
<OTHER-EXPENSES> 5,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,918
<INCOME-PRETAX> 27,365
<INCOME-TAX> 10,264
<INCOME-CONTINUING> 17,101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,101
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.43
</TABLE>
<PAGE> 1
EXHIBIT 99
The Condensed Consolidated Balance Sheets as of March 31, 1999 (Unaudited) and
December 31, 1998 and the Condensed Consolidated Statements of Income and
Condensed Consolidated Statements of Cash Flows for the three months ended March
31 1999 and 1998 (Unaudited) of Ferro Corporation and Subsidiaries and Quarterly
Segment Data for the quarter ended March 31, 1999 and the year ended December
31, 1998.
<PAGE> 2
CONDENSED CONSOLIDATED BALANCE SHEET
FERRO CORPORATION AND SUBSIDIARIES
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
(Dollars in Thousands)
(Unaudited) (Audited)
ASSETS 1999 1998
- ------ -------- --------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $22,715 $12,185
Net Receivables 254,635 249,771
Inventories 136,925 140,970
Other Current Assets 51,990 53,967
-------- --------
Total Current Assets $466,265 $456,893
Excess of Cost Over Net Assets Acquired, Net 67,697 50,617
Other Assets 65,117 67,603
Plant & Equipment, Net 287,152 274,052
-------- --------
$886,231 $849,165
======== ========
LIABILITIES
- -----------
Current Liabilities:
Notes and Loans Payable $56,787 $30,987
Accounts Payable, Trade 130,526 105,932
Income Taxes 11,684 4,006
Accrued Payrolls 17,341 19,762
Accrued Expenses and Other Current Liabilities 121,831 121,869
-------- --------
Total Current Liabilities $338,169 $282,556
Long - Term Debt 157,572 156,283
ESOP Loan Guarantee 1,185 4,067
Postretirement Liabilities 45,611 45,426
Other Liabilities 72,878 77,572
Shareholders' Equity 270,816 283,261
-------- --------
$886,231 $849,165
======== ========
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Unaudited) (Unaudited)
(Dollars in Thousands) 1999 1998
==============================================================================
<S> <C> <C>
Segment Sales
Coatings $199,194 $199,331
Plastics 60,814 60,849
Chemicals 71,473 79,583
------------ ------------
Total Net Sales $331,481 $339,763
Cost of Sales 239,265 249,622
Selling, Administrative and General Expenses 59,744 59,375
Other Charges (Credits):
Interest Expense 3,918 3,106
Net Foreign Currency Gain (169) (680)
Other Expense - Net 1,358 1,023
------------ ------------
Income Before Taxes 27,365 27,317
Income Tax Expense 10,264 10,262
------------ ------------
Net Income 17,101 17,055
Dividend on Preferred Stock, Net of Tax 952 944
------------ ------------
Net Income Available to $16,149 $16,111
============ ============
Per Common Share Data:
Basic Earnings $0.46 $0.43
Diluted Earnings $0.43 $0.40
Shares Outstanding:
Average Outstanding 35,011,194 37,388,190
Average Diluted 38,619,466 41,792,047
Actual End of Period 34,965,029 37,432,486
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Unaudited) (Unaudited)
(Dollars in Thousands) 1999 1998
================================================================================
<S> <C> <C>
Net Cash Provided from Operating Activities $53,083 $24,855
Cash Flow from Investing Activities:
Capital Expenditures for Plant and Equipment (28,628) (13,544)
Acquisition of Companies, net of cash acquired (29,905) --
Other Investing Activities 2,850 (380)
- --------------------------------------------------------------------------------
Net Cash (Used for) Provided by Investing Activities (55,683) (13,924)
Cash Flow from Financing Activities:
Net Borrowings (Payments) Under Short-Term Lines 25,801 (1,883)
Proceeds from long-term debt 1,572 53,888
Purchase of Treasury Stock (8,640) (4,032)
Cash Dividend Paid (5,667) (4,494)
Other Financing Activities 340 1,678
- --------------------------------------------------------------------------------
Net Cash (Used for) Provided by Financing Activities 13,406 45,157
Effect of Exchange Rate Changes on Cash (276) (1,484)
- --------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 10,530 54,604
Cash and Cash Equivalents at Beginning of Period 12,185 16,337
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $22,715 $70,941
================================================================================
Cash Paid During the Period for:
Interest, net of amounts capitalized $627 $1,199
Income Taxes $2,088 $3,277
================================================================================
</TABLE>
<PAGE> 5
QUARTERLY SEGMENT DATA
FERRO CORPORATION AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 1999 AND YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
(Dollars in Thouands) Q1 Q1 Q2 Q3 Q4 Full Year
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1998 1998 1998 1998
<S> <C> <C> <C> <C> <C> <C>
Segment Sales
Coatings 199,194 199,331 208,490 201,633 208,396 817,850
Chemicals 71,473 79,583 77,600 73,569 74,510 305,262
Plastics 60,814 60,849 61,914 59,187 56,783 238,733
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SEGMENT SALES $ 331,481 $ 339,763 $ 348,004 $ 334,389 $ 339,689 $ 1,361,845
Segment Income
Coatings 23,546 20,616 22,425 20,756 25,581 89,378
Chemicals 8,438 9,046 9,166 9,943 8,291 36,446
Plastics 6,027 5,156 6,118 6,024 4,866 22,164
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SEGMENT INCOME $ 38,011 $ 34,818 $ 37,709 $ 36,723 $ 38,738 $ 147,988
Unallocated Expenses 5,539 4,052 4,244 4,458 6,128 18,882
Interest Expense 3,918 3,106 3,833 4,094 4,251 15,284
Foreign Currency (Gain) Loss (169) (680) (439) 205 (30) (944)
Other (Income) Expense 1,358 1,023 947 1,158 1,157 4,285
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES $ 27,365 $ 27,317 $ 29,124 $ 26,808 $ 27,232 $ 110,481
</TABLE>
