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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 JUNE 30, 2002
[ ] 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, IRS NO. 34-0217820
1000 LAKESIDE AVENUE CLEVELAND, OH 44114
(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 August 5, 2002 there were 40,311,035 shares of Ferro common stock,
par value $1.00, outstanding.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
2002 2001 2002 2001
---- ---- ---- ----
(dollars in thousands-except per share amounts)
Net Sales......................................... $ 475,786 $ 355,189 $ 902,586 $ 725,882
Cost of Sales..................................... 354,776 269,914 674,509 543,106
Selling, Administrative and General Expenses...... 83,979 66,715 162,433 133,168
Other Charges (Credits):
Interest Expense............................... 12,770 7,431 25,968 15,279
Net Foreign Currency (Gain) Loss............... 889 (166) 1,648 (349)
Other Expense - Net............................ 2,096 301 5,484 1,806
------------ ----------- ------------ -----------
Income Before Taxes......................... 21,276 10,994 32,544 32,872
Income Tax Expense................................ 7,271 3,981 11,317 11,894
------------ ----------- ------------ -----------
Net Income........................................ 14,005 7,013 21,227 20,978
Dividend on Preferred Stock....................... 611 775 1,281 1,570
------------ ----------- ------------ -----------
Net Income Available to Common Shareholders....... $ 13,394 $ 6,238 $ 19,946 $ 19,408
============ =========== ============ ===========
Per Common Share Data:
Basic Earnings................................. $ 0.36 $ 0.18 $ 0.55 $ 0.57
Diluted Earnings............................... 0.34 0.18 0.54 0.56
Shares Outstanding:
Average Outstanding............................ 37,662,108 34,221,922 36,151,656 34,200,352
Average Diluted................................ 40,687,074 34,475,450 39,160,598 37,086,023
Actual End of Period........................... 40,254,273 34,225,699 40,254,273 34,225,699
See Accompanying Notes to Condensed Consolidated Financial Statements
1
CONDENSED CONSOLIDATED BALANCE SHEET
FERRO CORPORATION AND SUBSIDIARIES
JUNE 30, 2002 AND DECEMBER 31, 2001
JUNE 30 DECEMBER 31
2002 2001
---- ----
(UNAUDITED) (AUDITED)
(dollars in thousands)
ASSETS
Current Assets:
Cash and Cash Equivalents........................................... $ 24,745 $ 15,317
Net Receivables..................................................... 182,888 176,637
Inventories......................................................... 225,317 237,153
Other Current Assets................................................ 186,905 171,473
------------- -------------
Total Current Assets............................................. $ 619,855 $ 600,580
Net Property, Plant & Equipment........................................ 631,037 624,463
Unamortized Intangible Assets.......................................... 421,974 405,340
Other Assets........................................................... 106,525 102,176
------------- -------------
$ 1,779,391 $ 1,732,559
============= =============
LIABILITIES
Current Liabilities:
Notes and Loans Payable............................................. $ 16,274 $ 19,506
Accounts Payable, Trade............................................. 255,762 214,408
Other Current Liabilities........................................... 203,798 171,312
------------- -------------
Total Current Liabilities........................................ $ 475,834 $ 405,226
Long - Term Debt....................................................... 626,601 829,740
Other Liabilities...................................................... 214,269 197,207
Shareholders' Equity................................................... 462,687 300,386
------------- -------------
$ 1,779,391 $ 1,732,559
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
SIX MONTHS ENDED
JUNE 30
2002 2001
---- ----
(UNAUDITED) (UNAUDITED)
(dollars in thousands)
Net Cash Provided by Operating Activities.............................. $ 86,974 $ 44,840
Cash Flow from Investing Activities:
Capital Expenditures for Plant and Equipment........................ (16,261) (23,906)
Other Investing Activities.......................................... (2,428) (751)
------------- --------------
Net Cash Used for Investing Activities................................. (18,689) (24,657)
Cash Flow from Financing Activities:
Issuance of Common Stock............................................ 131,571 --
Net Borrowings (Payments) Under Short-Term Facilities............... (3,232) (31,244)
Net Proceeds from Asset Securitization.............................. 26,108 30,274
Proceeds (repayment) from Long-Term Debt............................ (207,434) 10,228
Purchase of Treasury Stock.......................................... (424) (5,753)
Cash Dividend Paid.................................................. (11,350) (11,490)
Other Financing Activities.......................................... 2,390 1,455
------------- -------------
Net Cash Used by Financing Activities.................................. (62,371) (6,530)
Effect of Exchange Rate Changes on Cash................................ 3,514 (709)
------------- --------------
Increase in Cash and Cash Equivalents.................................. 9,428 12,944
Cash and Cash Equivalents at Beginning of Period....................... 15,317 777
------------- -------------
Cash and Cash Equivalents at End of Period............................. $ 24,745 $ 13,721
============= =============
Cash Paid During the Period for:
Interest, Net of Amounts Capitalized................................ $ 12,919 $ 13,819
Income Taxes........................................................ $ 2,750 $ 5,925
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See Accompanying Notes to Condensed Consolidated Financial Statements
3
FERRO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These 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, 2001. 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 of operations for the interim period.
The results for the three and six months ended June 30, 2002 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 $36.7 million and $2.5 million for the three
months ended June 30, 2002 and 2001, respectively, and $38.2 million
and $9.1 million for the six months ended June 30, 2002 and 2001,
respectively. Accumulated other comprehensive loss at June 30, 2002 and
December 31, 2001 was $90.7 million and $107.7 million, respectively.
3. INVENTORIES
Inventories consisted of the following:
(dollars in thousands)
JUNE 30, DECEMBER 31,
2002 2001
---- ----
Raw Materials................................................. $ 53,280 $ 71,374
Work in Process............................................... 19,348 18,218
Finished Goods................................................ 163,301 157,850
------------- -------------
235,929 247,442
LIFO Reserve.................................................. 10,612 10,289
------------- -------------
Net Inventories............................................... $ 225,317 $ 237,153
============= =============
4. FINANCING AND LONG-TERM DEBT
Long-term debt as of June 30, 2002 and December 31, 2001 was as
follows:
(dollars in thousands)
2002 2001
---- ----
Senior Notes, 9.125%, due 2009................................ $ 196,018 $ 195,712
Debentures, 7.125%, due 2028.................................. 54,459 54,448
Debentures, 7.625%, due 2013.................................. 24,838 24,833
Debentures, 8.0%, due 2025.................................... 49,469 49,457
Debentures, 7.375%, due 2015.................................. 24,952 24,950
Revolving credit agreements................................... 274,544 372,000
Capital markets term facility................................. -- 103,555
Other......................................................... 6,349 6,422
------------- -------------
630,629 831,377
Less current portion (a)...................................... 4,028 1,637
------------- -------------
Total......................................................... $ 626,601 $ 829,740
============= =============
(a) Included in notes and loans payable.
4
In September 2001, the Company entered into new unsecured senior credit
facilities. The senior credit facilities included a $373.0 million
five-year revolving credit facility, and a $187.0 million 364-day
revolving credit facility. The Company has an option to convert the
364-day revolving credit facility to a one-year term loan at the
expiration date of the facility on September 6, 2002. On May 15, 2002,
the Company repaid $131.6 million of the 364-day facility from the
proceeds of a common stock issuance, which effectively reduced the
facility to $55.4 million. At June 30, 2002, the Company had $274.5
million outstanding under the five-year revolving credit facility and
no outstanding borrowings under the 364-day revolving credit facility.
At the Company's option, the borrowings under the five-year and 364-day
revolving credit facilities bear interest at a rate equal to (1) LIBOR,
or (2) the greater of the prime rate established by National City Bank,
Cleveland, Ohio, and the Federal Funds effective rate plus 0.5% (Prime
Rate); plus, in each case, applicable margins based upon a combination
of the Company's index debt rating and the ratio of the Company's total
debt to EBITDA (earnings before interest, taxes, depreciation and
amortization). Interest rates in effect at June 30, 2002, for the
five-year and 364-day revolving credit facilities, were 3.52%.
The Company's credit facilities contain customary operating covenants
that limit its ability to engage in certain activities, including
acquisitions. Several of the covenants contain additional restrictions
based upon the ratio of total debt to EBITDA (as defined in the credit
facilities) or in the event the Company's senior debt ceases to be
rated investment grade by either Moody's Investor Service (Moody's) or
Standard & Poor's Rating Group (S&P). The credit facilities also
contain financial covenants relating to minimum fixed charge coverage
ratios over certain periods of time. The Company's ability to meet
these covenants in the future may be affected by events beyond its
control, including prevailing economic, financial and market conditions
and their effect on the Company's financial position and results of
operations. The Company does have several options available to mitigate
these circumstances, including selected asset sales and the issuance of
additional capital.
Obligations under the revolving credit facilities are unsecured;
however, if the Company's senior debt ceases to be rated as investment
grade by either Moody's or S&P, the Company and its material
subsidiaries must grant security interests in its principal
manufacturing properties, pledge 100% of the stock of domestic material
subsidiaries and pledge 65% of the stock of foreign material
subsidiaries, in each case, in favor of the Company's lenders under
such facilities. In that event, liens on principal domestic
manufacturing properties and the stock of domestic subsidiaries will be
shared with the holders of the Company's senior notes and debentures
and trust notes and trust certificates issued under the leveraged lease
program.
The Company's level of debt and debt service requirements could have
important consequences to the Company's business operations and uses of
cash flow. In addition, a reduction in overall demand for the Company's
products could adversely affect the Company's cash flows from
operations. However, the Company does have a $428.4 million revolving
credit facility of which approximately $153.9 million was available as
of June 30, 2002. This liquidity, along with the liquidity from the
Company's asset securitization program and the available cash flows
from operations, should allow the Company to meet its funding
requirements and other commitments.
In 2000, the Company initiated a $150.0 million five-year program to
sell (securitize), on an ongoing basis, a pool of its trade accounts
receivable. Under this program, certain of the receivables of the
Company are sold to a wholly owned unconsolidated special purpose
entity, Ferro Finance Corporation (FFC). FFC can sell, under certain
conditions, an undivided fractional ownership interest in the pool of
receivables to a multi-seller receivables securitization company
(Conduit). Additionally, under this program, receivables of certain
European subsidiaries are sold directly to other Conduits. At December
31, 2001, $65.3 million had been advanced to the Company, net of
repayments, under this program. In 2002, an additional $26.1 million,
net, has been advanced to the Company, resulting in total advances
outstanding of $91.4 million at June 30, 2002. During 2002, $543.2
million of accounts receivable have been sold under the program and
$517.1 million of receivables have been collected and remitted to the
Conduits, or a net amount of $26.1 million. The Company and certain
European subsidiaries on behalf of FFC and the Conduits provide
service, administration and collection of the receivables. FFC and the
Conduits have no recourse to the Company's other assets for failure of
debtors to pay when due. The accounts receivable securitization
facility contains a provision under which
5
the agent can terminate the facility if the Company's senior credit
rating is downgraded below BB by S&P or Ba2 by Moody's.
The Company retains interest in the receivables transferred to FFC and
Conduits in the form of a note receivable to the extent that
receivables transferred exceed advances. The note receivable balance
was $84.0 million as of June 30, 2002, and $69.0 million as of December
31, 2001 and is included in other current assets in the condensed
consolidated balance sheet. The Company and certain European
subsidiaries on a monthly basis measure the fair value of the retained
interests at management's best estimate of the undiscounted expected
future cash collections on the transferred receivables. Actual cash
collections may differ from these estimates and would directly affect
the fair value of the retained interests.
5. EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------
2002 2001 2002 2001
---- ---- ---- ----
Average Basic Shares
Outstanding........................ 37,662,108 34,221,922 36,151,656 34,200,352
Adjustments for Assumed
Conversion of Convertible
Preferred Stock and
Common Stock Options............... 3,024,966 253,528 3,008,942 2,885,671
Average Diluted Shares.................. 40,687,074 34,475,450 39,160,598 37,086,023
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 and common
stock options to common stock divided by average diluted shares
outstanding. For the three months ended June 30, 2001 the assumed
conversion of convertible preferred stock was anti-dilutive, and
accordingly, those shares were excluded from the diluted earnings per
share computation.
6. ACQUISITIONS
On September 7, 2001, the Company acquired from OM Group, Inc. (OMG)
certain businesses previously owned by dmc2 Degussa Metals Catalysts
Cerdec AG (dmc2) pursuant to an agreement to purchase certain assets of
dmc2, including shares of certain of its subsidiaries. The businesses
acquired included the electronic materials, performance pigments, glass
systems and Cerdec ceramics businesses of dmc2. The Company paid to OMG
in cash a purchase price for these businesses of approximately $525
million.
A summary of the preliminary allocation of the purchase price follows:
(dollars in thousands)
Current assets................................................................. $ 270,871
Property, plant and equipment.................................................. 218,372
Estimated excess of purchase price over net assets acquired.................... 213,085
Other assets................................................................... 36,141
---------------
Total assets.............................................................. 738,469
Current liabilities............................................................ 146,598
Long-term liabilities.......................................................... 66,397
---------------
Total liabilities......................................................... 212,995
Cash purchase price............................................................ $ 525,474
===============
6
The preliminary purchase price allocation is subject to revisions when
additional information becomes available to the Company, including the
final plans to integrate the operations of the acquired dmc2
operations. Any changes in initial estimates, once determined, will be
recorded as part of the purchase price allocation and will result in
adjustments to the excess of purchase price over net assets acquired.
Additionally, the purchase price is subject to certain post-closing
adjustments with respect to assets acquired and liabilities assumed.
Any such adjustments will result in changes to the preliminary
allocation shown above.
The Company financed this transaction with proceeds from credit
facilities, which are described in Note 4 herein.
7. REALIGNMENT AND COST REDUCTION PROGRAMS
The following table summarizes the activities relating to the Company's
realignment and cost reduction programs:
(dollars in thousands)
OTHER
SEVERANCE COSTS TOTAL
--------- ----- -----
Balance as of December 31, 2001............. $ 5,339 $ 202 $ 5,541
Charges..................................... 2,934 357 3,291
Business Combinations....................... 8,753 -- 8,753
Cash payments............................... (4,911) (427) (5,338)
----------- ---------- -----------
Balance as of June 30, 2002................. $ 12,115 $ 132 $ 12,247
=========== ========== ===========
Charges in the six months ended June 30, 2002, relate to the Company's
ongoing cost reduction and integration programs. Initiated in 2001,
these programs include employment cost reductions in response to a
slowdown in general economic conditions and integration synergy plans
relating to the acquisition of certain businesses of dmc2. Total
charges of $211 and $3,080 ($2,124 in the second quarter) are included
in cost of sales and selling, administrative and general expenses in
2002, respectively.
Through June 30, 2002 the amount of severance costs paid under the
programs was $13.2 million and approximately 835 employees have
actually been terminated.
8. CONTINGENT LIABILITIES
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(R) process. The Company sold assets relating to the
Pyro-Chek(R) process and ceased production of Pyro-Chek(R) in June
2000. A Consent Decree finally resolving this matter has been entered
by the United States District Court for the Northern District of
Indiana. Under the terms of the decree, the Company paid an aggregate
cash amount of $3 million to the U.S. government, the State of Indiana
and the City of Hammond and have provided $844,000 to fund an
environmental project in Hammond unrelated to the Company's operations.
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 Company's consolidated
financial position or results of operations or liquidity.
7
9. REPORTING FOR SEGMENTS
The Company's reportable segments are Coatings and Performance
Chemicals. Coatings products include tile coating systems, color and
glass performance materials, industrial coatings and electronic
materials. Performance Chemicals consist of polymer additives,
pharmaceutical and fine chemicals, and specialty plastics. The Company
measures segment profit for internal reporting purposes as net
operating profit before interest and taxes. Excluded from net operating
profit are certain unallocated corporate 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.
Inter-segment sales are not material.
FERRO CORPORATION AND SUBSIDIARIES
SEGMENT DATA
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
2002 2001 2002 2001
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(dollars in thousands)
SEGMENT SALES
Coatings........................... $ 321,942 $ 205,480 $ 608,290 $ 421,670
Performance Chemicals.............. 153,844 149,709 294,296 304,212
---------- --------- ---------- ----------
Total..................................... $ 475,786 $ 355,189 $ 902,586 $ 725,882
========== ========= ========== ==========
SEGMENT INCOME
Coatings........................... $ 29,531 $ 17,650 $ 53,492 $ 39,575
Performance Chemicals.............. 13,595 9,986 23,494 23,243
---------- --------- ---------- ----------
Total..................................... $ 43,126 $ 27,636 $ 76,986 $ 62,818
Unallocated expenses (1).................. 6,095 9,076 11,342 13,210
Interest expense.......................... 12,770 7,431 25,968 15,279
Foreign currency (gain) loss.............. 889 (166) 1,648 (349)
Other expense............................. 2,096 301 5,484 1,806
---------- --------- ---------- ----------
Income before taxes................ $ 21,276 $ 10,994 $ 32,544 $ 32,872
========== ========= ========== ==========
GEOGRAPHIC SALES
United States...................... $ 235,097 $ 202,996 $ 452,209 $ 417,653
International...................... 240,689 152,193 450,377 308,229
---------- --------- ---------- ----------
Total ................................... $ 475,786 $ 355,189 $ 902,586 $ 725,882
========== ========= ========== ==========
(1) Unallocated expenses consist primarily of corporate costs, charges
associated with employment cost reduction programs in 2002 and certain
integration costs related to the acquisition of certain businesses of
dmc2.
10. ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized,
but instead, tested for impairment at least annually. The amortization
provisions of Statement No. 142, including nonamortization of goodwill,
apply to goodwill and intangible assets acquired after June 30, 2001.
With adoption of Statement No. 142 in its entirety on January 1, 2002,
all of the Company's goodwill and intangible assets with indefinite
lives are no longer being amortized, but are subject to periodic
impairment reviews. The Company completed its review of intangible
assets with indefinite lives under the provisions of Statement No. 142
and determined that as of June 30, 2002, no impairment charges were
necessary.
8
Had the Company been accounting for goodwill and certain other
intangible assets under the provisions of Statement No. 142 for all
prior periods presented, the Company's net income and earnings per
common share would have been as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
2002 2001 2002 2001
---- ---- ---- ----
(dollars in thousands)
Net income:
As reported................................. $ 14,005 $ 7,013 $ 21,227 $ 20,978
Add back amortization expense, net of tax... -- 1,077 -- 2,159
---------- ---------- --------- ----------
Adjusted net income......................... $ 14,005 $ 8,090 $ 21,227 $ 23,137
========== ========== ========= ==========
Basic earnings per share:
As reported................................. $ .36 $ .18 $ .55 $ .57
Add back amortization expense, net of tax... -- .03 -- .06
---------- ---------- --------- ----------
Adjusted basic earnings per share........... $ .36 $ .21 $ .55 $ .63
========== ========== ========= ==========
Diluted earnings per share:
As reported................................. $ .34 $ .18 $ .54 $ .56
Add back amortization expense, net of tax... -- .03 -- .06
---------- ---------- --------- ----------
Adjusted diluted earnings per share......... $ .34 $ .21 $ .54 $ .62
========== ========== ========= ==========
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." Statement No. 146 applies
to costs from activities such as eliminating or reducing product lines,
terminating employees and contracts, and relocating plant facilities or
personnel. For restructurings initiated after 2002, a commitment to a
plan to exit an activity or dispose of long-lived assets will no longer
be enough to record a one-time charge for most of the anticipated
costs. Instead, the Company will record exit or disposal costs when
they are "incurred" and can be measured at fair value, and they will
subsequently adjust the recorded liability for changes in estimated
cash flows.
9
11. SUBSEQUENT EVENTS
On August 5, 2002 the Company announced that it had signed a definitive
agreement to sell its Powder Coatings business unit, which is a part of
its Coatings segment, in separate transactions with Rohm and Haas
Company and Akzo Nobel Coatings. The transactions will close after
normal regulatory approvals have been received and other customary
closing conditions have been satisfied or waived. Proceeds from this
transaction will be used to repay long-term debt.
The Company will classify the business as an asset held for sale and
will report the business results as discontinued operations beginning
in the third quarter 2002. Had all the conditions for sale been met at
June 30, 2002 the Company would have reported the operation as held for
sale and the corresponding results of operations of the business unit
would have been treated as a discontinued operation.
The business unit had sales of $93.4 million and $90.5 million and
operating profit of $6.6 million and $5.7 million for the six months
ended June 30, 2002 and 2001, respectively. These results do not
include corporate charges and allocations, interest, foreign currency
gains or losses and other income and expense that have not previously
been allocated or reported as a component of segment results. The
above results also do not reflect the use of proceeds from the sale of
the business and the corresponding reduction in interest expense.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
Second quarter 2002 net sales of $475.8 million were 34.0% higher than
the $355.2 million of sales for the comparable 2002 period. Sales
increased 56.7% in the Coatings segment and 2.8% in the Performance
Chemicals segment.
Overall volume increased 34.2% for the quarter, including the effect of
acquisitions. The increased volume was primarily due to the acquisition
of certain businesses of dmc2, which was completed in September, 2001,
and higher demand levels in certain markets, in particular the
Asia-Pacific region.
Gross margins were 25.4% of sales compared to 24.0% for the comparable
2001 period. The higher gross margins compared to the prior year
primarily stemmed from successful efforts to lower costs through
integration and consolidation, increased capacity utilization and lower
charges from cost reduction programs. The charges for cost reduction
programs reduced gross profit by $2.0 million in the second quarter of
2001.
Selling, administrative and general expenses were $84.0 million in the
second quarter of 2002 compared with $66.7 million in the second
quarter of 2001. The increase was due primarily to the addition of dmc2
operating expenses offset partially by cost reductions achieved related
to the integration of the dmc2 businesses and lower charges from cost
reduction and integration programs. The charges for cost reduction and
integration programs increased SG&A expense by $2.1 million in the
second quarter of 2002 and $4.2 million in the second quarter of 2001.
Interest expense was $12.8 million for the second quarter of 2002,
compared with $7.4 million for the second quarter of 2001. The higher
interest expenses reflect the financing of the acquisition of the dmc2
businesses.
Net income for the quarter ended June 30, 2002, was $14.0 million or
$0.34 per diluted share versus $7.0 million or $0.18 per diluted share
for the quarter ended June 30, 2001. Excluding certain charges related
to cost reduction and integration programs of $2.1 million in the
second quarter of 2002 and $6.9 million in the second quarter of 2001,
the net income for the second quarter of 2002 would have been $15.4
million or $0.38 per diluted share versus $11.4 million or $0.31 per
diluted share in the second quarter of 2001 ($0.34 per share if FASB
Statement No. 142 had been effective for that period).
QUARTERLY SEGMENT RESULTS
Sales for the Coatings segment were $321.9 million in the second
quarter, up 56.7% from the $205.5 million of sales in the second
quarter of 2001. Segment income was $29.5 million, compared with $17.7
million in the year-ago quarter. The increase in revenue mainly
reflects higher volumes related to the dmc2 acquisition and stronger
demand in several key-end markets, including significant growth in the
Asia-Pacific region. The markets providing the strongest year-over-year
increases include the building and renovation, appliance, automotive
and consumer container glass and color markets. The 67.3% increase in
segment income was largely the result of increased volumes, internal
cost reductions and the benefits of the dmc2 acquisition. Sales in the
Coatings segment increased more than 12 percent compared sequentially
with the first quarter of 2002 as demand continued to improve in most
market segments, especially in the United States and the Asia-Pacific
region. The electronics market, along with the markets mentioned above,
contributed to the sequential increase in sales.
Sales for the Performance Chemicals segment for the second quarter of
2002 were $153.8 million, up 2.8% from the sales of $149.7 million in
the second quarter of 2001. Segment income was $13.6 million in the
second quarter of 2002, compared with $10.0 million a year ago. Higher
sales volumes were driven by increased demand from several key-end
markets. Leading the increase were the building and renovation, durable
goods, automotive and consumer packaging markets. Higher segment income
was the result of higher volumes and successful efforts to reduce the
fixed cost structure over the past year. The Performance
11
Chemicals segment sales increased more than 9 percent compared
sequentially with first quarter 2002, as demand increased across most
markets.
GEOGRAPHIC SALES
Sales in the United States were $235.1 million for the three months
ended June 30, 2002, compared with $203.0 million for the three months
ended June 30, 2001. International sales were $240.7 million for the
three months ended June 30, 2002, compared with $152.2 million for the
three months ended June 30, 2001. The sales growth in both of these
geographical areas was driven primarily by the dmc2 acquisition.
International sales were also higher due to continued growth in the
Asia-Pacific region.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Sales for the first six months of 2002 of $902.6 million were 24.3%
higher than sales of $725.9 million for the comparable 2001 period.
Sales for the Coatings segment increased 44.3% and sales for the
Performance Chemicals segment declined 3.3%.
Overall volume increased 27.9% during the six months ended June 30,
2002, including the effect of acquisitions. The increased volume was
primarily due to the acquisition of certain businesses of dmc2, which
was completed in September 2001 and higher demand levels in the
Asia-Pacific region.
Gross margins were 25.3% of sales for the first six months of 2002
compared with 25.2% for the same period in 2001. The gross margin for
2001 was adversely impacted by a $2.0 million charge for cost reduction
programs in the second quarter of 2001.
Selling, administrative and general expenses were $162.4 million,
compared to $133.2 million for the first half of 2001. The increase was
due primarily to the addition of dmc2 operating expenses offset
partially by cost reductions achieved related to the integration of the
dmc2 businesses and lower charges from cost reduction and integration
programs. The charges for cost reduction and integration programs
increased SG&A by $3.1 million in the first six months of 2002 and $4.2
million in the first six months of 2001.
Interest expense was $26.0 million for the first half of 2002, compared
with $15.3 million for the first half of 2001. The higher interest
expenses reflect the financing of the acquisition of the dmc2
businesses.
Net income for the six months ended June 30, 2002 was $21.2 million or
$0.54 per diluted share versus $21.0 million or $0.56 per diluted share
for the six months ended June 30, 2001. Excluding certain charges
related to the cost reduction and integration programs of $3.3 million
for the first six months of 2002 and $6.9 million for the first six
months of 2001, the net income for the first half of 2002 would have
been $23.4 million or $0.59 per diluted share, versus $25.4 million or
$0.68 per diluted share for the comparable 2001 period ($0.74 if FASB
Statement No. 142 had been effective for that period).
SIX-MONTH SEGMENT RESULTS
For the first six months of 2002, sales in the Coatings segment
increased 44.3% to $608.3 million from $421.7 million in the comparable
2001 period. The increase in revenue primarily reflects higher volumes
related to the dmc2 acquisition and stronger growth in several key
markets, including significant growth in the Asia-Pacific region.
Segment income increased 35.2% to $53.5 million during the first half
of 2002 compared to $39.6 million last year. The improvement in income
was largely the result of higher volumes, internal cost reductions and
the benefits of the dmc2 acquisition.
12
Sales in the Performance Chemicals segment decreased 3.3% to $294.3
million during the first half of 2002 from $304.2 million in the
year-earlier period. The sales decline was caused primarily by changes
in product mix and lower prices in certain businesses compared to last
year, offset partially by recent increases in the building and
renovation, durable goods, automotive and consumer packaging markets.
Income from the segment increased 1.1% to $23.5 million in the first
six months of 2002 from $23.2 million last year. The higher income is
primarily the result of the successful efforts to reduce the fixed cost
structure over the past year.
GEOGRAPHIC SALES
Sales in the United States were $452.2 million for the six months ended
June 30, 2002, compared with $417.7 million during the same 2001
period. International sales were $450.4 million for the six months
ended June 30, 2002, compared with $308.2 million in the first half of
2001. The sales growth in both areas was driven primarily by the dmc2
acquisition. International sales were also higher due to higher demand
levels in the Asia-Pacific region.
CASH FLOWS
Net cash provided by operating activities was $87.0 million for the six
months ended June 30, 2002, compared with $44.8 million for the same
period in 2001. The increase in cash flows reflects a substantial
reduction in working capital during 2002, as management emphasized cash
flow generation to be used for debt reduction. Cash used for investing
activities was $18.7 million for the six months ended June 30, 2002 and
$24.7 million for the six months ended June 30, 2001. Investing
activities in 2002 reflect lower capital expenditures. Net cash used
for financing activities was $62.4 million for the first six months of
2002, compared with $6.5 million for the first six months of 2001. The
increase reflects the repayment of long-term debt in excess of the
proceeds from the issuance of common stock.
OUTLOOK
Market conditions improved compared with the first quarter of 2002, but
the Company believes the economy is still in the early stages of
recovery, particularly in the electronics materials market. Some
uncertainty remains about the rate and consistency of the recovery.
Consequently, the Company expects to continue to focus on cost control,
cash flow and maximizing the synergies from integrating the acquired
dmc2 businesses. The Company expects that ongoing efforts to integrate
the acquired dmc2 businesses and reduce costs will likely result in
integration charges, including severance costs, in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements include primarily capital
investments, working capital requirements and debt service. The Company
expects to be able to meet its liquidity requirements from a variety of
sources. The Company has a $428.8 million revolving credit facility, of
which $154.3 million was available as of June 30, 2002. The Company
also has an accounts receivable securitization facility under which the
Company may receive advances of up to $150.0 million, subject to the
level of qualifying accounts receivable. At June 30, 2002 and at
December 31, 2001, $91.4 million and $65.3 million, respectively, was
advanced under this facility and under Generally Accepted Accounting
Principles, neither the amounts advanced nor the corresponding
receivables sold are reflected in the Company's consolidated balance
sheet. Additionally, the Company maintains a leveraged lease program,
accounted for as an operating lease, pursuant to which the Company
leases certain land, buildings, machinery and equipment for a five-year
period through 2005.
Obligations under the revolving credit facilities are unsecured;
however, if the Company's senior debt ceases to be rated as investment
grade by either Moody's Investors Service, Inc. (Moody's) or Standard &
Poor's Rating Group (S&P), the Company and its material subsidiaries
must grant security interests in the Company's respective principal
manufacturing properties, pledge 100% of the stock of material domestic
subsidiaries and pledge 65% of the stock of material foreign
subsidiaries, in each case, in favor of the Company's lenders under
such facilities. In that event, liens on the Company's principal
domestic manufacturing properties and the
13
stock of domestic subsidiaries would be shared with the holders of the
Company's senior notes and debentures and trust notes and trust
certificates issued under a leveraged lease program. Such liens could
reasonably be expected to impair the Company's ability to obtain
financing on commercially reasonable terms. Although, as of June 30,
2002, the Company had $153.9 million available under the Company's
revolving credit facilities, any such future liens may have a material
adverse effect on the Company's ability to satisfy the Company's
ongoing capital resource and liquidity requirements. The accounts
receivable securitization facility contains a provision under which the
agent can terminate the facility if the Company's senior credit rating
is downgraded below BB by S&P or Ba2 by Moody's. We do not believe that
a termination of this facility would be reasonably expected to have a
material adverse effect on the Company's liquidity or the Company's
capital resource requirements.
The rating agencies may, at any time, based on changing market,
political or socio-economic conditions reconsider the current rating of
the Company's outstanding debt. Based on rating agency disclosures, we
understand that ratings changes within the general industrial sector
are evaluated based on quantitative, qualitative and legal analyses.
Factors considered by the rating agencies include: industry
characteristics, competitive position, management, financial policy,
profitability, capital structure, cash flow production and financial
flexibility. S&P and Moody's have disclosed that the Company's ability
to improve earnings, reduce the Company's level of indebtedness and
strengthen cash flow protection measures, through asset sales,
increased free cash flows from acquisitions or otherwise, will be
factors in their ratings determinations going forward.
On May 15, the Company completed the sale of 5 million common shares
through a public offering. The net proceeds from the offering of $131.6
million, net of expenses incurred through the end of the second
quarter, were used to reduce borrowings under the revolving credit
facility. Based upon the terms of the facility, the amount available
for borrowing was reduced by the corresponding amount of the repayment.
On August 5, 2002, the Company announced that it had signed a
definitive agreement to sell its Powder Coatings business unit in
separate transactions with Rohm and Haas Company and Akzo Nobel
Coatings. The cash proceeds of approximately $133.0 million, excluding
certain liabilities assumed by the acquiring companies of approximately
$30.0 million, are expected to be used to further reduce borrowings
outstanding under the revolving credit facilities.
The Company's credit facilities contain customary operating covenants
that limit its ability to engage in certain activities, including
acquisitions. Several of the covenants contain additional restrictions
based upon the ratio of total debt to EBITDA (earnings before interest,
taxes, depreciation and amortization, as defined in the credit
facilities) or in the event the Company's senior debt ceases to be
rated investment grade by either Moody's or S&P. The credit facilities
also contain financial convenants relating to minimum fixed charge
coverage ratios over certain periods of time. The Company's ability to
meet these covenants in the future may be affected by events beyond its
control, including prevailing economic, financial and market conditions
and their effect on the Company's financial position and results of
operations. The Company does have several options available to mitigate
these circumstances, including selected asset sales and the issuance of
additional capital.
The Company's level of debt and debt service requirements could have
important consequences to our business operations and uses of cash
flow. In addition, a reduction in overall demand for our products could
adversely affect our cash flows from operations. However, the Company
does have a $428.4 million revolving credit facility of which
approximately $153.9 million was available as of June 30, 2002. The
revolving credit facility and the amount available will be reduced by
$55.8 million if the 364-day portion of the facility is not renewed on
September 6, 2002. This liquidity, along with the liquidity from the
Company's asset securitization program and available cash flows from
operations, should allow the Company to meet its funding requirements
and other commitments. The Company also has potential liquidity
requirements related to payments under our leveraged lease program.
14
ENVIRONMENTAL
Refer to Note 8 of the Condensed Consolidated Financial Statements
included herein for a description of the status of environmental
matters.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS AND CRITICAL
ACCOUNTING POLICIES
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized,
but instead, tested for impairment at least annually. The amortization
provisions of Statement No. 142, including nonamortization of goodwill,
apply to goodwill and intangible assets acquired after June 30, 2001.
With adoption of Statement No. 142 in its entirety on January 1, 2002,
all of the Company's goodwill and intangible assets with indefinite
lives are no longer being amortized, but are subject to periodic
impairment reviews. Amortization expense related to finite-lived
intangibles was approximately $0.2 million and $0.5 million for the
three and six months ended June 30, 2002, respectively, and was $2.1
million and $4.1 million for all intangible assets for the three and
six months ended June 30, 2001. Amortization expense for the three and
six months of 2001 would have been $0.4 million and $0.8 million had
the provisions of Statement No. 142 been in effect. The Company
completed a review of intangible assets with indefinite lives under the
provisions of Statement No. 142 as of June 30, 2002 and determined that
no impairment charges were necessary on that date.
CRITICAL ACCOUNTING POLICIES
In response to the Securities and Exchange Commission's (SEC) Release
No 33-8040, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies," the Company has identified the critical
accounting policies that are most important to the portrayal of the
Company's financial condition and results of operations. The policies
set forth below require management's most subjective or complex
judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.
LITIGATION AND ENVIRONMENTAL RESERVES
The Company is involved in litigation in the ordinary course of
business, including personal injury, property damage and environmental
matters. The Company also expends funds for environmental remediation
of both Company-owned and third-party locations. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting
for Contingencies" and Statement of Position 96-1, "Environmental
Remediation Liabilities," the Company records a loss and establishes a
reserve for litigation or remediation when it is probable that an asset
has been impaired or a liability exists and the amount of the liability
can be reasonably estimated. Reasonable estimates involve judgments
made by management after considering a broad range of information
including: notifications, demands or settlements which have been
received from a regulatory authority or private party, estimates
performed by independent engineering companies and outside counsel,
available facts, existing and proposed technology, the identification
of other potentially responsible parties and their ability to
contribute and prior experience. These judgments are reviewed quarterly
as more information is received and the amounts reserved are updated as
necessary. However, the reserves may materially differ from ultimate
actual liabilities if the loss contingency is difficult to estimate or
if management's judgments turn out to be inaccurate.
INCOME TAXES
Deferred income taxes are provided to recognize the effect of temporary
differences between financial and tax reporting. Deferred income taxes
are not provided for undistributed earnings of foreign consolidated
subsidiaries, to the extent such earnings are reinvested for an
indefinite period of time. The Company has significant operations
outside the United States, where substantial pre-tax earnings are
derived, and in
15
jurisdictions where the statutory tax rate is lower than in the United
States. The Company also has significant cash requirements in the
United States to pay interest and principal on borrowings. As a result,
significant tax and treasury planning and analysis of future operations
are necessary to determine the proper amounts of tax assets,
liabilities and tax expense. The Company's tax assets, liabilities and
tax expense are supported by its best estimates and assumptions of its
global cash requirements, planned dividend repatriations and
expectations of future earnings.
PENSION AND OTHER EMPLOYEE BENEFITS
Certain assumptions are used in the calculation of the actuarial
valuation of the Company-sponsored defined benefit pension plans and
post-retirement benefits. These assumptions include the weighted
average discount rate, rates of increase in compensation levels,
expected long-term rates of return on assets and increases or trends in
health care costs. If actual results are less favorable than those
projected by management, lower levels of pension credit or other
additional expense may be required.
INVENTORY ALLOWANCES
The Company provides for valuation allowances of inventory based upon
assumptions of future demand and market conditions. If actual market
conditions are less favorable than those projected by management,
additional inventory valuation allowances could be required.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides for uncollectible accounts receivable based upon
estimates of unrealizable amounts due from specific customers.
REALIGNMENT AND COST REDUCTION PROGRAMS
The Company recorded $3.3 million during the six months ended June 30,
2002 for charges in connection with its cost reduction and integration
programs. The programs affect all business groups across the Company,
and will take approximately twelve months to complete from date of
commencement. The $3.3 million of charges included $2.9 million of
severance termination benefits for employees affected by plant closings
or capacity reductions, as well as various personnel in corporate,
administrative and shared service functions. Severance termination
benefits were based on various factors including length of service,
contract provisions, local legal requirements and salary levels.
Management estimated the charges based on these factors as well as
projected final service dates. If actual results are different from
original estimates, the Company will adjust the amounts reflected in
the consolidated financial statements.
OFF BALANCE SHEET INDEBTEDNESS
In 2000, the Company initiated a $150.0 million five-year program to
sell (securitize), on an ongoing basis, a pool of its trade accounts
receivable. Under this program, certain of the receivables of the
Company are sold to a wholly-owned unconsolidated special purpose
entity, Ferro Finance Corporation (FFC). FFC can sell, under certain
conditions, an undivided fractional ownership interest in the pool of
receivables to a multi-seller receivables securitization company
(Conduit). Additionally, under this program, receivables of certain
European subsidiaries are sold directly to other Conduits. The Company
and certain European subsidiaries on behalf of FFC and the Conduits
provide service, administration and collection of the receivables. FFC
and the Conduits have no recourse to the Company's other assets for
failure of debtors to pay when due, and in accordance with SFAS No.
140, no liability is reflected on the Company's balance sheet.
The Company retains interest in the receivables transferred to FFC and
Conduits in the form of a note receivable to the extent that
receivables transferred exceed advances. The note receivable balance is
included in other current assets in the balance sheet. The Company and
certain European subsidiaries on a monthly basis measure the fair value
of the retained interests at management's best estimate of the
undiscounted
16
expected future cash collections on the transferred receivables. Actual
cash collections may differ from these estimates and would directly
affect the fair value of the retained interests.
VALUATION OF LONG-LIVED ASSETS
The Company's long-lived assets include property, plant, equipment,
goodwill and other intangible assets. Property, plant and equipment are
depreciated over their estimated useful lives, and all long-lived
assets are reviewed for impairment whenever changes in circumstances
indicate the carrying value may not be recoverable. Impairment tests
are performed using fair values based upon earnings multiples or
forecasted cash flows discounted to present value. If the earnings
multiples, actual cash flows or discount rate estimates change, the
Company may have to record additional impairment charges not previously
recognized.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Management's Discussion and
Analysis and elsewhere 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 risks and other factors concerning the Company's
operations and business environment, and actual events or results may
differ materially from the events or results discussed in the
forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to: the success and costs
of the Company's integration of certain businesses of dmc2; changes in
customer requirements, markets or industries served; changes in
interest rates; changing economic or political conditions; changes in
foreign exchange rates; changes in the prices of major raw materials or
sources of energy; significant technological or competitive
developments; the completion or failure to complete the announced
common stock offering; and the impact of environmental proceedings and
regulation.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS
The Company's exposure to market risks is primarily limited to interest
rate and foreign currency fluctuation risks. The Company's exposure to
interest rate risk is related primarily to its debt portfolio including
off balance sheet obligations under its accounts receivable
securitization program. The Company's interest rate risk management
objectives are to limit the effect of interest rate changes on
earnings, cash flows and overall borrowing costs. To limit interest
rate risk on borrowings, the Company maintains a percentage of fixed
and variable rate debt within defined parameters. In managing the
percentage of fixed versus variable rate debt, consideration is given
to the interest rate environment and forecasted cash flows. This policy
limits exposure from rising interest rates and allows the Company to
benefit during periods of falling rates. The Company's interest rate
exposure is generally limited to the amounts outstanding under the
revolving credit facilities and amounts outstanding under its
receivables securitization program. Based on the total amount of
variable rate indebtedness outstanding at December 31, 2001, a 1%
change in short-term interest rates would have resulted in a $6.0
million change in expense for the year 2001. A 1% change in short-term
interest rates would have resulted in a $1.0 million change in expense
for the second quarter of 2002 and $2.4 million for the first six
months of 2002.
At June 30, 2002, the Company had $349.7 million of fixed rate debt
outstanding with an average interest rate of 8.4%, all maturing after
2006. The fair market value of these debt securities was approximately
$329.1 million at June 30, 2002.
The Company manages exposures to changing foreign currency exchange
rates principally through the purchase of put options on currencies and
forward foreign exchange contracts. Put options are purchased to offset
the exposure of foreign currency-denominated earnings to a depreciation
in the value of the local currency to the U.S. dollar. The Company's
primary foreign currency put option market exposure is the euro.
Foreign subsidiaries also mitigate the risk of currency fluctuations on
the cost of raw materials denominated in U.S. dollars through the
purchase of U.S. dollars to cover the future payable. A 10%
appreciation of the U.S. dollar versus the corresponding currencies
would have resulted in a $1.9 million and a $2.2 million increase in
the fair value of these contracts in the aggregate at June 30, 2002 and
December 31, 2001, respectively. A 10% depreciation of the U.S. dollar
would have resulted in a $1.6 million and $1.7 million decrease in the
fair value of the contracts in the aggregate at June 30, 2002 and
December 31, 2001, respectively.
In September 2001, the Company completed the acquisition of the dmc2
businesses. This acquisition increases the Company's exposure to
fluctuations in foreign currencies versus the U.S. dollar, particularly
in Europe and Asia. At June 30, 2002, the Company had outstanding put
options to sell euros for U. S. dollars having a notional amount of
$14.9 million and an average strike price of $.8781/euro. These forward
and future contracts have a net fair value of approximately $(0.5)
million. The Company also had forward contracts to sell other
currencies with an aggregate notional amount of $25.5 million and a net
fair value of $(0.6) million.
18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Legal proceedings were reported in the Company's Form 10-K for the year
ended December 31, 2001 and are also covered in Footnote 8 to the
Condensed Consolidated Financial Statements contained herein.
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.
At the Annual Meeting of Shareholders held on April 26, 2002, there were a total
of 31,756,774.338 shareholders voting either in person or by proxy. The
shareholders:
A. Elected four directors to the Ferro Corporation Board of Directors,
Sandra Austin Crayton, William B. Lawrence and Dennis W. Sullivan to
serve on the Board until the meeting in the year 2005.
The results of the voting for directors were as follows:
NUMBER OF VOTES FOR
-------------------
Sandra Austin Crayton 30,799,559.982
William B. Lawrence 30,945,187.565
Dennis W. Sullivan 30,886,468.799
The terms of office for Michael H. Bulkin, Dr. Jennie S.
Hwang, Michael F. Mee, John C. Morley, Hector R. Ortino,
William J. Sharp, Padmasree Warrior and Alberto Weisser
continued after the meeting. Subsequent to the meeting, John
C. Morley has retired from the Board of Directors.
B. 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, 2002. The holders of 29,444,014.14
shares of Ferro Common and Preferred Stock voting together as a class
voted in favor of the proposal. The holders of 2,201,823.941 shares of
Ferro Common and Preferred Stock voted against the proposal. The
holders of 110,936.257 shares of Ferro Common and Preferred Stock
abstained from voting on the issue.
ITEM 5. OTHER INFORMATION.
None.
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 did not file any reports on Form 8-K during the
three-month period ended June 30, 2002.
19
SIGNATURES
Pursuant to the requirements of the Securities 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 14, 2002
/s/ HECTOR R. ORTINO
--------------------------------------------------
Hector R. Ortino
Chairman and Chief Executive Officer
Date: August 14, 2002
/s/ BRET W. WISE
--------------------------------------------------
Bret W. Wise
Senior Vice President and Chief Financial Officer
20
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
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) 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 Form 10-K for the
year ended December 31, 1999, which Exhibit is incorporated
here by reference.)
(b) The rights of the holders of Ferro's Debt Securities issued
and to be issued pursuant to a Senior Indenture between Ferro
and J. P. Morgan Trust Company, National Association
(successor-in-interest to 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 Quarterly Report on Form 10-Q for
the three months ended March 31, 1998, which Exhibit is
incorporated here by reference.)
(c) 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.)
(d) Officer's Certificate dated December 20, 2001, pursuant to
Section 301 of the Indenture dated as of March 25, 1998,
between the Company and J. P. Morgan Trust Company, National
Association (the successor-in-interest to Chase Manhattan
Trust Company, National Association), as Trustee (excluding
exhibits thereto). (Reference is made to Exhibit 4.1 to Ferro
Corporation's Form 8-K filed December 21, 2001, which Exhibit
is incorporated here by reference.)
(e) Form of Global Note (9-1/8% Senior Notes due 2009). (Reference
is made to Exhibit 4.2 to Ferro Corporation's Form 8-K filed
December 21, 2001, which Exhibit is incorporated here by
reference.)
21
The Company agrees, upon request, to furnish to the Securities
and Exchange Commission a copy of any instrument authorizing
long-term debt that does not authorize debt in excess of 10%
of the total assets of the Company and its subsidiaries on a
consolidated basis.
*(11) Computation of Earnings Per Share.
(99) Certifications of Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. 1350.
22