<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ x ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
[ ]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 October 31, 2000, there were 34,217,923 shares of Ferro common stock, par
value $1.00, outstanding.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Dollars in Thousands, except per share amounts) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 359,686 $ 338,035 $ 1,086,125 $ 1,006,551
Cost of Sales 263,164 244,706 788,122 724,547
Selling, Administrative and General Expenses 62,039 59,800 190,004 180,564
Other Charges (Credits):
Interest Expense 6,551 4,563 17,885 12,518
Net Foreign Currency (Gain) Loss (1,292) 334 (2,124) (76)
Other Expense - Net 643 114 1,034 2,686
------------ ------------ ------------ ------------
Income Before Taxes 28,581 28,518 91,204 86,312
Income Tax Expense 10,391 10,452 34,462 31,971
------------ ------------ ------------ ------------
Net Income 18,190 18,066 56,742 54,341
Dividend on Preferred Stock, Net of Tax 846 950 2,626 2,841
------------ ------------ ------------ ------------
Net Income Available to Common Shareholders $ 17,344 $ 17,116 $ 54,116 $ 51,500
============ ============ ============ ============
Per Common Share Data:
Basic Earnings $ 0.50 $ 0.48 $ 1.56 $ 1.46
Diluted Earnings $ 0.48 $ 0.45 $ 1.49 $ 1.37
Shares Outstanding:
Average Outstanding 34,495,234 35,367,865 34,681,555 35,203,803
Average Diluted 37,593,916 39,010,532 37,848,300 38,945,094
Actual End of Period 34,328,186 35,352,524 34,328,186 35,352,524
</TABLE>
--------------------------------------------------------------------------------
See Accompanying Notes to Condensed Consolidated Financial Statements
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CONDENSED CONSOLIDATED BALANCE SHEET
FERRO CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(Dollars in Thousands)
(Unaudited) (Audited)
ASSETS 2000 1999
---------- ----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 28,179 $ 7,114
Net Receivables 195,096 261,501
Inventories 172,863 170,663
Other Current Assets 62,985 51,251
---------- ----------
Total Current Assets $ 459,123 $ 490,529
Net Property, Plant, & Equipment 383,551 330,393
Unamortized Intangible Assets 139,633 93,412
Other Assets 51,886 57,416
---------- ----------
$1,034,193 $ 971,750
========== ==========
LIABILITIES
Current Liabilities:
Notes and Loans Payable $ 63,351 $ 45,939
Accounts Payable, Trade 142,776 131,923
Other Current Liabilities 152,300 159,771
---------- ----------
Total Current Liabilities $ 358,427 $ 337,633
Long - Term Debt 280,866 236,794
Other Liabilities 95,770 100,328
Shareholders' Equity 299,130 296,995
---------- ----------
$1,034,193 $ 971,750
========== ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months Ended
September 30
(Unaudited) (Unaudited)
(Dollars in Thousands) 2000 1999
=========================================================================================================
<S> <C> <C>
Net Cash Provided from Operating Activities $ 73,915 $ 107,382
Cash Flow from Investing Activities:
Capital Expenditures for Plant and Equipment (37,398) (62,290)
Acquisitions and Divestitures, net (114,483) (117,544)
Other Investing Activities 573 (2,100)
---------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (151,308) (181,934)
Cash Flow from Financing Activities:
Asset Securitization 79,100 -
Net Borrowings (Payments) Under Short-Term Financing Arrangements 17,412 (3,022)
Proceeds from long-term debt 44,831 117,193
Purchase of Treasury Stock (26,161) (13,611)
Cash Dividend Paid (17,748) (17,120)
Other Financing Activities 2,055 (8,995)
---------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 99,489 74,445
Effect of Exchange Rate Changes on Cash (1,031) (121)
---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 21,065 (228)
Cash and Cash Equivalents at Beginning of Period 7,114 12,185
---------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 28,179 $ 11,957
=========================================================================================================
Cash Paid During the Period for:
Interest, net of amounts capitalized $ 13,710 $ 7,806
Income Taxes $ 21,475 $ 16,952
---------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
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FERRO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated interim financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1999. The information furnished herein reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for fair presentation of the results for the
interim periods. The results of the three months ended September 30, 2000 are
not necessarily indicative of the results expected in subsequent quarters or
for the full year.
2. Comprehensive Income
Comprehensive income represents net income adjusted for foreign currency
translation adjustments and pension liability adjustments. Comprehensive
income was $6.6 million and $21.2 million for the three months ended
September 30, 2000 and 1999, respectively and $42.2 million and $31.3 million
for the nine months ended September 30, 2000 and 1999, respectively.
Accumulated other comprehensive income (loss) at September 30, 2000 and
December 31, 1999 was ($88.9) million and ($74.4) million, respectively.
3. Earnings Per Share Computation
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Basic Shares Outstanding 34,495,234 35,367,865 34,681,555 35,203,803
Adjustments for Assumed Conversion
of Convertible Preferred Stock
and Common Stock Options 3,098,682 3,642,667 3,166,745 3,741,291
----------------------------------------------------------------
AVERAGE DILUTED SHARES 37,593,916 39,010,532 37,848,300 38,945,094
</TABLE>
Basic earnings per share is computed as net income available to common
shareholders divided by average basic shares outstanding.
Diluted earnings per share is computed as net income adjusted for the tax
effect associated with assumed conversion of preferred stock to common stock
divided by average diluted shares outstanding.
4. Contingent Liabilities
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The Company received "Notices of Violation" from the United States
Environmental Protection Agency in 1999 alleging that the Company violated
various requirements of the Clean Air Act and related State laws in modifying
and operating the Pyro-Chek process at its facility in Hammond, Indiana. See
the description in Part II, Item 1 to this Form 10-Q. The Company completed
the sale of assets relating to the Pyro-Chek process and ceased production of
Pyro-Chek at Hammond in June 2000. The Company will continue to be
responsible for any claims relating to all past operations at Hammond,
including those related to Pyro-Chek production. The Company is vigorously
contesting these claims. If the matter cannot be resolved through
negotiation, and the United States pursues and recovers the maximum potential
penalties on all of its claims, it could have a material adverse effect on
the Company. However, the Company believes that it will resolve this matter
in a manner that will not have a material adverse effect.
At the prompting of several residents of Lake County, Indiana, U.S.
Congressional Representative Visclosky requested the U. S. Department of
Health's Agency for Toxic Substances and Disease Registry (ATSDR) to
investigate a possible "cluster" of pediatric cancers of the central nervous
system found in the Hammond area and to assess whether operations of the
Company's Hammond facility pose an unreasonable risk to human health. The
ATSDR issued a report in June 2000, stating that current emissions from the
Company's Hammond Facility were below levels of health concern. The portion
of the ATSDR investigation regarding cancer incidence is still pending.
On May 25, 2000, a wrongful death suit lawsuit captioned Gwen Pearson and
Steven Pearson v. Kiel Chemical, a Division of Ferro Corporation,
was filed in Lake Superior Court, Lake County, Indiana. The complaint alleges
that Ferro was negligent and or reckless in failing to control emissions,
misrepresenting emissions levels to regulatory agencies, failing to warn
nearby residents of the hazards posed by its emissions, and in emitting
carcinogenic chemicals without a permit. Ferro believes it has valid defenses
to the allegations made in this suit and is preparing to vigorously defend
its position. If the matter goes to a trial and the Plaintiffs prevail all of
their claims, it could have a material adverse affect on the Company.
There are also pending against the Company and its consolidated subsidiaries
various other lawsuits and claims. In the opinion of management, the ultimate
liabilities resulting from such other lawsuits and claims will not materially
affect the consolidated financial position or results of operations or
liquidity of the Company.
5. Reporting for Segments
The Company's reportable segments are Coatings, Chemicals and Plastics.
Coatings products include ceramics and color, industrial coatings and
electronic materials. Chemicals' consists primarily of polymer additives and
performance and fine chemicals. The Plastics segment derives its revenues
mostly from plastic colorants and plastic compounds. The Company measures
segment profit for internal reporting purposes as net operating profit before
interest and tax. Excluded from net operating profit are certain unallocated
corporate
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expenses. A complete reconciliation of segment income to consolidated
income before tax is presented below.
Sales to external customers are presented in the following chart.
Intersegment sales are not material.
FERRO CORPORATION AND SUBSIDIARIES
SEGMENT DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(Dollars in Thousands) SEPTEMBER 30 SEPTEMBER 30
SEGMENT SALES 2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Coatings 218,927 201,680 664,164 596,861
Chemicals 77,691 72,422 221,550 218,637
Plastics 63,068 63,933 200,411 191,053
------------------------- -------------------------
359,686 338,035 1,086,125 1,006,551
SEGMENT INCOME
Coatings 25,833 22,643 76,576 68,954
Chemicals 9,777 7,951 30,409 25,017
Plastics 2,715 6,411 12,423 20,284
------------------------- -------------------------
Total 38,325 37,005 119,408 114,255
Unallocated Expenses 3,842 3,476 11,409 12,815
Interest Expense 6,551 4,563 17,885 12,518
Net Foreign Currency (Gain) Loss (1,292) 334 (2,124) (76)
Other Expense-Net 643 113 1,034 2,686
------------------------- -------------------------
Income Before Taxes 28,581 28,519 91,204 86,312
</TABLE>
Unallocated expenses consist primarily of corporate costs.
6. Acquisitions and Divestitures
On August 18, 2000, the Company completed the previously announced
acquisition of the polymer modifiers business and related manufacturing
facilities of Solutia Inc., St. Louis, Missouri. The polymer modifiers
business is a key global producer of specialty plasticizers (chemical
additives) and other modifiers used in the production of a variety of
plastics.
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On October 31, 2000, the Company announced that it had signed a definitive
agreement to acquire Pfanstiehl Laboratories, Inc., located in Waukegan,
Illinois.
Pfanstiehl Laboratories produces a broad range of fine chemicals, including
advanced pharmaceutical intermediates and active pharmaceutical ingredients
as well as dietary supplements and food and cosmetic additives. The
transaction is expected to be completed in Ferro's fourth quarter ending
December 31, 2000.
7. Asset Securitization
In September 2000, the Company entered into an agreement to sell, on an
ongoing basis, a pool of trade receivables to a wholly owned special purpose
subsidiary of the Company. The subsidiary in turn sold the pool of
receivables to a multi-seller securitization company. The Company services,
administers and collects the receivables on behalf of the purchaser. Proceeds
from the sale of receivables were $79.1 million and were used to reduce
existing borrowings.
8. Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and as amended by Statements 137 and
138. The Company expects to adopt the new Standards on January 1, 2001. The
Standards require that derivatives be measured at fair value and be recorded
as assets or liabilities on the balance sheet. Gains or losses resulting from
changes in fair values would be accounted for dependent upon the use of the
derivative and whether it qualifies for hedge accounting. The Company
believes that implementation of these standards will not have a material
impact on its financial statements.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Comparison of the Three Months Ended September 30, 2000 and 1999.
-----------------------------------------------------------------
Third quarter 2000 total net sales of $359.7 million were 6.4% more than the
$338.0 million of the comparable 1999 period. Sales increased 8.6% in the
Coatings segment and 7.3% in the Chemicals segment. Plastics sales decreased
1.4%.
Overall volume growth was approximately 12% in the quarter, with just under half
coming from internal volume growth and just over half from acquisitions. Volume
growth was most evident in the Company's Coatings segment and was driven by the
rapidly growing electronic materials business. Volume growth also was strong in
the Asia-Pacific and European regions. U.S. sales
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growth was driven by a combination of stronger electronic sales and
acquisitions. Foreign currency translation had a negative impact on sales of
4.7%.
Gross margin declined to 26.8% of sales as compared to 27.6% for the comparable
1999 period. The lower margins were driven by a significant decline in the
Plastics segment. The Plastics segment continued to experience a significant
increase in the cost of major raw materials, which has put pressure on margins
in the group.
Selling, administrative and general expenses increased by 3.7% compared to the
same quarter in 1999, primarily as a result of acquisitions made within the past
year. As a percentage of sales, selling, administrative and general expenses
were lower at 17.2% versus 17.8% in the 1999 third quarter.
Net income for the quarter was $18.2 million, compared to $18.1 million for the
third quarter of 1999. Earnings of $0.48 (diluted) per share, increased 6.7%
compared to the $0.45 earned in the 1999 third quarter.
QUARTERLY SEGMENT RESULTS
The Coatings segment continued to demonstrate strong growth in both sales and
earnings despite the significant negative impact of foreign currency
translation. The Coatings segment is Ferro's most international segment with
more than 50% of sales derived outside the United States. Sales grew by 8.6% to
reach $218.9 million compared with $201.7 million in the 1999 third quarter.
Higher sales were driven primarily from continued strong demand for the
Company's electronic materials. The Coatings segment also generated very strong
volume improvement internationally in Europe and Asia. The Company has focused
on investing in high-growth, core businesses, including electronic materials,
and in the global growth of select businesses, including the tile business in
Asia. Segment income increased 14.1% to $25.8 million compared with $22.6
million in the third quarter of 1999. Increased margins in the electronic
materials business was the most significant driver of improved performance.
The acquisition of the Polymer Modifiers business, completed August 18, 2000,
helped drive the Chemicals segment sales 7.3% higher. This was the first full
quarter of operations without the PyroChek flame retardants business, which was
sold at the end of June 2000. Segment income increased to $9.8 million compared
with $8.0 million in the third quarter of 1999. This represented a record for
the Chemicals segment. Acquisitions, ongoing productivity improvements and lower
raw material costs all contributed to record segment income.
Increasing resin costs have plagued plastics' producers throughout much of 2000
and had a significant impact on margins in Ferro's Plastics segment. These
higher costs were the main factor driving segment income lower to $2.7 million,
compared with $6.4 million in the third quarter of 1999. The Plastics segment
also experienced some slowdown in certain end markets. This impacted the
Company's ability to raise prices to offset the impact of higher raw material
costs.
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GEOGRAPHIC SALES
Sales in the United States were $220.4 million for the three months ended
September 30, 2000 compared to $188.4 million for the three months ended
September 30, 1999. Sales in the United States increased on the strength of the
electronic materials business and acquisitions. International sales were $139.3
million for the three months ended September 30, 2000, compared to $149.6
million in the three months ended September 30, 1999. International sales were
lower primarily due to foreign currency translation, which had a significant
negative impact on sales reported for international operations. In particular,
the Euro has declined significantly versus the U.S. dollar in 2000. Foreign
currency translation reduced sales by $16.0 million in the 2000 quarter.
Comparison of the Nine Months Ended September 30, 2000 and 1999
---------------------------------------------------------------
Total net sales for the nine months ended September 30, 2000 were $1,086.1
million an increase of 7.9% compared to the $1,006.6 million of the comparable
1999 period. Sales increased 11.3% in the Coatings segment, 1.3% in the
Chemicals segment and 4.9% in the Plastics segment.
An even combination of higher volume growth and acquisitions were the main
drivers of improved sales. These factors were enough to offset a 4.0% negative
impact from foreign currency translation, or $40.5 million. In particular,
currencies in Europe were substantially weaker than during the 1999 period. The
Coatings segment recorded particularly strong volume growth, driven by the
strength of the electronic materials business and growth in Europe and Asia.
Plastics also recorded solid volume growth, particularly in the first half of
2000.
Gross margin as a percent of sales was 27.4% compared to 28.0% for the
comparable 1999 period. Lower gross margins were the result of a significant
decline in gross margins in the Plastics segment, which was caused by a
significant increase in the cost of major raw materials.
Selling, administrative and general expenses increased by 5.2% versus the first
nine months of 1999 due to acquisitions made within the past year. As a
percentage of sales SG&A costs were lower at 17.5% compared to 17.9% for the
first nine months of 1999.
Net income for the nine months ended September 30, 2000, reached $56.7 million,
compared to $54.3 million recorded in the first nine months of 1999. Earnings
rose to $1.49 (diluted) per share, up 8.8% from the $1.37 for the 1999 period.
NINE MONTHS SEGMENT RESULTS
For the first nine months of 1999, in the Coatings segment increased 11.3% to
$664.2 million compared to sales of $596.9 million in the 1999 period. Sales
increased on the strength of higher volumes and an acquisition made within the
past year. Foreign currency translation reduced sales by $31.8 million compared
to the 1999 period. Segment income increased 11.1% to $76.6 million from $69.0
million recorded in the first nine months of 1999.
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Chemicals' sales were $221.6 million, an increase of 1.3% from sales of $218.6
million for the nine months ended September 30, 1999. The primary driver of
increased sales was an acquisition completed in the third quarter of 2000.
Segment income for the chemicals segment increased 21.6% to $30.4 million
compared to $25.0 million in the first nine months of 1999, with acquisitions
playing a role in increased profitability.
The Plastics segment recorded sales of $200.4 million, an increase of 4.9%
compared to sales of $191.1 million for the nine months ended September 30,
1999. Sales improvement was most notable in the first half of 2000 and included
solid volume growth. Segment income was $12.4 million compared to segment income
of $20.3 million for the comparable period in 1999. The Plastics segment is
experiencing significant margin pressure as costs for certain key resins have
increased significantly.
GEOGRAPHIC SALES
Sales in the United States were $637.1 million for the nine months ended
September 30, 2000 compared to $549.5 million for the nine months ended
September 30, 1999. The increase in sales in the United States relates primarily
to acquisitions completed in 1999 and 2000, volume growth and better price/mix.
International sales declined slightly to $449.0 million for the nine months
ended September 30, 2000, compared to $457.0 million in the nine months ended
September 30, 1999. Although volume growth was significantly better than in the
1999 period, negative foreign currency translation had a $40.4 million negative
impact on sales.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirements include capital investments, working
capital requirements, acquisitions, and to a lesser extent, interest expense.
The Company expects to be able to meet its working capital requirements and
capital investment needs from cash and cash equivalents, cash flow from
operations and, if necessary, use of its revolving credit facility or long-term
borrowings. The Company has available a $300.0 million five-year revolving
credit facility with seven domestic banks. The Company had borrowed $125.0
million under this facility as of September 30, 2000. The Company is actively
pursuing its acquisition strategy and may, from time to time, use its existing
revolving credit facility or alternate financing arrangements, including
divestitures, to fund acquisitions. The Company also has $245.0 million
available under a universal shelf registration pursuant to which various types
of public securities may be issued.
Net cash provided by operating activities for the nine months ended September
30, 2000 was $73.9 million, compared to the $107.4 million recorded in the first
nine months of 1999. The decrease in cash provided by operating activities is
due primarily to changes in other current assets and liabilities. Cash used for
investing activities was $151.3 million in the 2000 period compared to $181.9
million in 1999. The decrease in investing activities is primarily due to a
lower level of capital expenditures, including systems investments. Net cash
provided by financing activities was $99.5 million in the 2000 period compared
to cash provided of $74.4 million in 1999. The change in net cash from financing
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activities was due to an asset securitization agreement completed during the
third quarter (see note 7 to the condensed consolidated financial statements,
and a reduction in the amount of long-term borrowing requirements in 2000. In
addition, the Company increased the amount of common share repurchases in 2000.
Environmental
The Company received "Notices of Violation" from the United States Environmental
Protection Agency in 1999 alleging that the Company violated various
requirements of the Clean Air Act and related State laws in modifying and
operating the Pyro-Chek process at its facility in Hammond, Indiana. See the
description in Part II, Item 1 to this Form 10-Q. The Company completed the sale
of assets relating to the Pyro-Chek process and ceased production of Pyro- Chek
at Hammond in June 2000. The Company will continue to be responsible for any
claims relating to all past operations at Hammond, including those related to
Pyro-Chek production. The Company is vigorously contesting these claims. If the
matter cannot be resolved through negotiation, and the United States pursues and
recovers the maximum potential penalties on all of its claims, it could have a
material adverse affect on the Company. However, the Company believes that it
will resolve this matter in a manner that will not have a material adverse
affect.
Additionally, governmental agencies have identified several disposal sites for
clean-up under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA," or the Superfund) and similar laws to which the Company
has been named a "potentially responsible party." The Company is participating
in the cost of certain clean-up efforts. However, the Company's share of such
costs has not been material and is not expected to have a material adverse
impact on the Company's financial condition or results of operations.
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: the successful completion of the Company's acquisition of Pfanstiehl
Laboratories; the success of the Company's acquisition program; market
acceptance of new product introductions; changes in customer requirements,
markets or industries served; changing economic conditions; changes in foreign
exchange rates, especially in Europe; changes in the prices of major raw
materials; significant technological or competitive developments; and the impact
of environmental proceedings discussed herein under the heading "Environmental"
in Management's Discussion and Analysis.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS.
There have been no material changes in market risk exposures during the first
nine months of 2000 that affect the disclosures presented in the Company's
Annual Report to Shareholders on Form 10-K for the year ended December 31, 1999,
which disclosure is incorporated here by reference.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.
On May 4, 1999, and December 16, 1999, the United States Environmental
Protection Agency (U.S.EPA) issued Notices of Violation (NOVs) alleging that the
Company violated various requirements of the Clean Air Act and related State
laws in modifying and operating the Pyro- Chek process. The U.S.EPA has also
submitted requests seeking information from the Company related to the alleged
violations. The Company has met with U.S.EPA and entered into negotiations
intended to resolve the issues raised in the NOVs. If these issues are not
resolved in negotiations, the United States may bring an enforcement action
against the Company based on the violations alleged in the NOVs. If the United
States were to initiate such an action and prevail on all claims, it could have
a material adverse effect on the Company. However, the Company believes that it
will resolve this matter in a manner that will not have a material adverse
effect.
On May 25, 2000, a wrongful death suit lawsuit captioned Gwen Pearson and Steven
Pearson v. Kiel Chemical, a Division of Ferro Corporation, Cause No.
45D05005CT0238, was filed in Lake Superior Court, Lake County, Indiana. The
complaint alleges that Ferro was negligent and or reckless in failing to control
emissions, misrepresenting emissions levels to regulatory agencies, failing to
warn nearby residents of the hazards posed by its emissions, and in emitting
carcinogenic chemicals without a permit. Ferro believes it has valid defenses to
the allegations made in this suit and is preparing to vigorously defend its
position.
There are also pending against the Company and its consolidated subsidiaries
various other lawsuits and claims. In the opinion of management, the ultimate
liabilities resulting from such other lawsuits and claims will not materially
affect the consolidated financial position or results of operations or liquidity
of the Company.
ITEM 2 - CHANGE IN SECURITIES.
No change.
ITEM 3 - DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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 September 30, 2000.
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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: November 14, 2000
/s/ Hector R. Ortino
Hector R. Ortino
------------------------------------
Chairman and Chief Executive Officer
Date: November 14, 2000
/s/ Bret W. Wise
Bret W. Wise
------------------------------------
Senior 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 Quarterly Report on 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 Quarterly Report on
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 January 19, 1998. (Reference is
made to Exhibit (3)(c) to Ferro Corporation's Quarterly Report on 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 Quarterly Report on 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 seven commercial
banks dated May 9, 2000. (Reference is made to Exhibit 4(a) to Ferro
Corporation's quarterly report on Form 10-Q for the three months ended
March 31, 2000, which Exhibit is incorporated here by reference.)
(b) Amended and Restated Shareholder Rights Agreement between Ferro
Corporation and National City Bank, Cleveland, Ohio, as Rights Agent,
dated as of December 10, 1999. (Reference is made to Exhibit 4(k) to
Ferro Corporation's Form10-K for the year ended December 31, 1999, which
Exhibit is incorporated here by reference.)
(c) 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.
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(d) 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 Form 10-Q for
the three months ended March 31,1998.)
(e) 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.)
*(12) Ratio of Earnings to Fixed Charges.
*(27) Financial Data Schedule for the Quarter Ended September 30, 2000
(Electronic Filing Only)
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