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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
At April 30, 2003 there were 40,704,920 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
MARCH 31,
--------------------------------
(UNAUDITED) (UNAUDITED)
2003 2002
-------------- --------------
(dollars in thousands-except per share amounts)
Net Sales ................................................................................ $ 401,770 $ 365,023
Cost of Sales ............................................................................ 300,669 271,713
Selling, Administrative and General Expenses ............................................. 75,452 69,119
Other Charges:
Interest Expense ...................................................................... 8,784 12,015
Foreign Currency Transactions, Net .................................................... 1,189 776
Miscellaneous Expense - Net ........................................................... 1,524 3,450
-------------- --------------
Income Before Taxes ................................................................ 14,152 7,950
Income Tax Expense ....................................................................... 4,699 3,038
-------------- --------------
Income from Continuing Operations ........................................................ 9,453 4,912
Discontinued Operations
Income/(Loss) from Discontinued Operations, Net of Tax ................................ (69) 2,309
-------------- --------------
Net Income ............................................................................... 9,384 7,221
Dividend on Preferred Stock .............................................................. 547 670
-------------- --------------
Net Income Available to Common Shareholders .............................................. $ 8,837 $ 6,551
============== ==============
Per Common Share Data:
Basic Earnings
From Continuing Operations ......................................................... $ 0.22 $ 0.12
From Discontinued Operations ....................................................... 0.00 0.07
-------------- --------------
$ 0.22 $ 0.19
Diluted Earnings
From Continuing Operations ......................................................... $ 0.22 $ 0.12
From Discontinued Operations ....................................................... 0.00 0.07
-------------- --------------
$ 0.22 $ 0.19
Shares Outstanding:
Average Outstanding ................................................................... 40,592,865 34,641,204
Average Diluted ....................................................................... 42,533,915 37,634,121
Actual End of Period .................................................................. 40,622,963 34,840,055
See Accompanying Notes to Condensed Consolidated Financial Statements
2
CONDENSED CONSOLIDATED BALANCE SHEETS
FERRO CORPORATION AND SUBSIDIARIES
(UNAUDITED) (UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
(dollars in thousands)
ASSETS
Current Assets:
Cash and Cash Equivalents ........................... $ 10,932 $ 14,942
Accounts and Trade Notes Receivable ................. 163,221 154,533
Inventories ......................................... 197,653 183,055
Assets of Businesses Held for Sale .................. 28,950 27,046
Other Current Assets ................................ 120,699 106,009
------------ ------------
Total Current Assets ............................. $ 521,455 $ 485,585
Net Property, Plant & Equipment ........................ 577,579 577,754
Unamortized Intangible Assets .......................... 421,232 421,274
Other Assets ........................................... 119,325 119,860
------------ ------------
$ 1,639,591 $ 1,604,473
============ ============
LIABILITIES
Current Liabilities:
Notes and Loans Payable ............................. $ 15,619 $ 7,835
Accounts Payable .................................... 221,529 207,873
Liabilities of Businesses Held for Sale ............. 12,245 12,518
Other Accrued Expenses/Other Current Liabilities .... 181,185 175,941
------------ ------------
Total Current Liabilities ........................ $ 430,578 $ 404,167
Long-Term Liabilities, less current portion ............ 442,802 443,552
Other Non-Current Liabilities .......................... 278,495 284,258
Shareholders' Equity ................................... 487,716 472,496
------------ ------------
$ 1,639,591 $ 1,604,473
============ ============
See Accompanying Notes to Condensed Consolidated Financial Statements
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) (UNAUDITED)
(dollars in thousands) 2003 2002
-------------- --------------
Cash Flow from Operating Activities
Net Cash Provided by (Used for) Continuing Operations $ (1,480) $ 28,804
Net Cash Provided by (Used for) Discontinued Operations (1,923) 7,558
-------------- --------------
Net Cash Provided by (Used for) Operating Activities (3,403) 36,362
Cash Flow from Investing Activities
Capital Expenditures for Plant and Equipment
of Continuing Operations (7,165) (6,998)
Capital Expenditures for Plant and Equipment
of Discontinued Operations (274) (282)
Acquisition, Net (8,478) --
Other Investing Activities (501) (2,719)
-------------- --------------
Net Cash Used for Investing Activities (16,418) (9,999)
Cash Flow from Financing Activities
Net Borrowings under Short-Term Facilities 7,784 3,139
Principal Payments on Long-Term Debt (933) (51,978)
Net Proceeds from Asset Securitization 13,919 21,527
Purchase of Treasury Stock -- (424)
Cash Dividends Paid (6,295) (5,657)
Other Financing Activities 309 3,251
-------------- --------------
Net Cash Provided by (Used for) Financing Activities 14,784 (30,142)
Effect of Exchange Rate Changes on Cash 1,027 535
-------------- --------------
Decrease in Cash and Cash Equivalents (4,010)
(3,244)
Cash and Cash Equivalents at Beginning of Period 14,942 15,317
-------------- --------------
Cash and Cash Equivalents at End of Period $ 10,932
$ 12,073
Cash Paid During the Period for
Interest $ 10,752 $ 3,390
Income Taxes $ 1,599 $ 592
See Accompanying Notes to Condensed Consolidated Financial Statements
4
FERRO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These condensed consolidated 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, 2002. 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. Certain amounts in the 2002 financial
statements and accompanying notes have been reclassified to conform to the
2003 presentation. The results for the three months ended March 31, 2003
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 minimum pension liability adjustments.
Comprehensive income was $20.8 million and $1.5 million for the three
months ended March 31, 2003 and 2002, respectively, other comprehensive
income for the current period consisted of the translation adjustments for
foreign subsidiaries, $11.4 million. The increase in comprehensive income
versus net income is entirely related to Financial Accounting Standards
Board (FASB) 52. Accumulated other comprehensive loss at March 31, 2003 and
December 31, 2002 was $119.5 million and $130.9 million, respectively.
3. INVENTORIES
Inventories consisted of the following:
MARCH 31, DECEMBER 31,
(dollars in thousands) 2003 2002
-------------- --------------
Raw Materials .......................... $ 44,011 $ 42,177
Work in Process ........................ 23,133 17,755
Finished Goods ......................... 141,005 133,328
-------------- --------------
208,149 193,260
LIFO Reserve ........................... (10,496) (10,205)
-------------- --------------
Inventories ............................ $ 197,653 $ 183,055
============== ==============
4. FINANCING AND LONG-TERM DEBT
Long-term debt as of March 31, 2003 and December 31, 2002 was as follows:
MARCH 31, DECEMBER 31,
(dollars in thousands) 2003 2002
-------------- --------------
Senior Notes, 9.125%, due 2009 ......... $ 196,477 $ 196,324
Debentures, 7.625%, due 2013 ........... 24,845 24,843
Debentures, 7.375%, due 2015 ........... 24,955 24,954
Debentures, 8.0%, due 2025 ............. 49,486 49,480
Debentures, 7.125%, due 2028 ........... 54,474 54,469
Revolving credit agreements ............ 91,500 91,900
Other .................................. 2,383 2,464
-------------- --------------
444,120 444,434
Less current portion (A) ............... 1,318 882
-------------- --------------
Total .................................. $ 442,802 $ 443,552
============== ==============
(A) Included in notes and loans payable.
5
At March 31, 2003, the Company had $355.0 million principal amount
outstanding under debentures and senior notes, which had an estimated fair
market value of $355.7 million.
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. Using the net proceeds from the sale
of the Powder Coatings business in September 2002, the Company repaid
$132.0 million of the five-year facility and effectively reduced the
maximum borrowings thereunder to $300.0 million. The Company had $91.5
million outstanding under the five-year revolving credit facility as of
March 31, 2003.
At the Company's option, borrowings under the five-year credit facility
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). The weighted average interest rate
in effect at March 31, 2003 for the revolving credit facility was 2.45%,
and that in effect at December 31, 2002 was 2.54 %.
The Company's credit facility contains customary operating covenants that
limit its ability to engage in certain activities, including significant
acquisitions. Several of the covenants contain additional restrictions
based upon the ratio of total debt to EBITDA 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. In December 2002, the
Company renegotiated these financial covenants to provide greater
flexibility and strengthen the Company's liquidity profile. 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 share capital.
Obligations under the revolving credit facility are unsecured; however, if
the Company's debt ceases to be rated as investment grade by either Moody's
or S&P, the Company and its material subsidiaries would be required to
grant, within 30 days from such a rating downgrade, security interests in
their principal manufacturing facilities, 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 lenders under the
senior credit facility. In that event, liens on principal domestic
manufacturing properties and the 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 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 flows. 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 has available a $300.0 million revolving credit
facility, under which approximately $208.5 million was available as of
March 31, 2003. This liquidity, along with 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, 2002, $85.7 million had been advanced to
the Company, net of repayments, under this program. In the first quarter of
2003, an additional $13.9 million, net of repayments, had been advanced to
the Company, resulting in total advances outstanding of $99.6 million at
March 31, 2003. During the first quarter of 2003, $319.9 million of
accounts receivable were sold under this
6
program and $306.0 million of receivables were collected and remitted to
the Conduits, or a net amount of $13.9 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 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 $33.2 million
as of March 31, 2003 and $23.8 million as of December 31, 2002 and is
included in other current assets in the condensed consolidated balance
sheets. 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.
The maintenance of minimum cash balances is informally agreed to with
certain banks as a result of loans, commitments and services rendered. Cash
balances maintained to meet operating needs on a daily basis are sufficient
to satisfy these informal agreements. These balances are available for use
by the Company and its subsidiaries at all times and do not contain legal
restrictions. Cash in excess of such operating requirements may be invested
in short-term securities or applied against short-term debt.
5. EARNINGS PER SHARE COMPUTATION
Information concerning the calculation of basic and diluted earnings per
share is shown below:
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2003 2002
--------------- ---------------
Average Basic Shares
Outstanding 40,592,865 34,641,204
Adjustments for Assumed
Conversion of Convertible
Preferred Stock and
Common Stock Options 1,941,050 2,992,917
--------------- ---------------
Average Diluted Shares 42,533,915 37,634,121
=============== ===============
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.
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 $534.0 million. The
Company continues to negotiate certain other purchase price related issues
with dmc2.
7
A summary of the allocation of the purchase price follows:
(dollars in thousands)
Current assets ............................................. $ 258,899
Property, plant and equipment .............................. 220,258
Patented Technology ........................................ 3,410
Excess of purchase price over net assets acquired .......... 214,222
Other assets ............................................... 36,118
------------
Total assets .......................................... 732,907
Current liabilities ........................................ 135,630
Long-term liabilities ...................................... 63,325
------------
Total liabilities ..................................... 198,955
Cash purchase price ........................................ $ 533,952
============
7. REALIGNMENT AND COST REDUCTION PROGRAMS
The following table summarizes the activities relating to the Company's
reserves for realignment and cost reduction programs:
(dollars in thousands)
Other
Severance Costs Total
------------ ------------ ------------
Balance, December 31, 2002 $ 13,867 $ 132 $ 13,999
Gross charges 781 28 809
Cash Payments (1,961) (131) (2,092)
------------ ------------ ------------
Balance, March 31, 2003 $ 12,687 $ 29 $ 12,716
Charges during the first quarter of 2003 related to the Company's ongoing
cost reduction and integration programs. 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 gross charges of $0.5 million and $0.3 million
were included in cost of sales and selling, administrative and general
expenses in the first quarter of 2003, respectively. No charges for
discontinued operations were incurred in the first quarter of 2003.
Through March 31, 2003, the amount of severance costs paid under these
realignment and cost reduction programs was $20.1 million and 1,008
employees had actually been terminated.
The Company anticipates incurring additional charges of approximately $9.2
million during the remainder of 2003 to complete the integration of dmc2
and its other consolidation programs.
8. DISCONTINUED OPERATIONS
On September 30, 2002, the Company completed the sale of its Powder
Coatings business unit, previously part of its Coatings segment, in
separate transactions with Rohm and Haas Company and certain of its wholly-
owned subsidiaries and certain wholly-owned subsidiaries of Akzo Nobel NV,
for an aggregate selling price of $132.0 million. The selling price is
subject to certain post-closing adjustments with respect to assets sold and
liabilities assumed by the buyers. Powder Coatings, which was divested in
September 2002, and several other small businesses that the Company intends
to divest have been reported as discontinued operations since the third
quarter of 2002. Previously reported results in the Condensed Income
Statement for the three months ended March 31, 2002, have been reclassified
to conform with the presentation for the three months ended March 31, 2003.
Sales from discontinued operations were $15.8 million and $61.8 million for
the quarters ended March 31, 2003 and 2002, respectively. Earnings/(loss)
before tax from discontinued operations were $(0.1) million and $2.3
million for the quarters ended March 31, 2003 and 2002, respectively.
Assets of businesses held for sale consist
8
primarily of property, plant and equipment, accounts receivable,
inventories and intangible assets. Liabilities of businesses held for sale
consist primarily of trade accounts payable. The results of discontinued
operations include the operating earnings of the discontinued units as well
as interest expense, foreign currency gains and losses, other income or
expenses and income taxes directly related to, or allocated to, the
discontinued operations. Interest was allocated to discontinued operations
assuming debt levels approximating the estimated or actual debt reductions
upon disposal of the operations, and the Company's actual weighted average
interest rates for the first quarters of 2003 and 2002, respectively. The
financial statements for all periods presented have been revised to reflect
the discontinued operations. Consequently, much of the information provided
in the prior year will not be directly comparable to the revised numbers.
9. CONTINGENT LIABILITIES
There are various lawsuits and claims pending against the Company and its
consolidated subsidiaries. In the opinion of management, the ultimate
liabilities (if any) and expenses resulting from such lawsuits and claims
will not materially affect the consolidated financial position, results of
operations or liquidity of the Company.
In February 2003, the Company was requested to produce documents in
connection with an investigation by the United States Department of Justice
into possible antitrust violations in the heat stabilizer industry.
Subsequently, the Company received several class action lawsuits alleging
civil damages and requesting injunctive relief as a result of this
investigation. The Company has no reason to believe that it or any of its
employees engaged in any conduct that violated the antitrust laws. The
Company is cooperating with the Department of Justice in its investigation
and is vigorously defending itself in the class action lawsuits. Management
does not expect this investigation to have a material effect on the
consolidated financial position or results of operations or liquidity of
the Company.
10. STOCK PLANS
The stock option plan provides for the issuance of stock options at no less
than the then current market price. Stock options have a maximum term of 10
years and vest evenly over four years on the anniversary of the grant date.
The Company continues to account for stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees," and related interpretations as permitted under FASB
statement No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure." Accordingly, no stock-based employee compensation cost is
reflected in net income as all options granted until March 31, 2003 under
the Company's plans had an exercise price equal to the market value of the
underlying stock on the date of grant. On a pro forma basis, had
compensation cost for the Company's stock option plan been determined based
on the fair value at the grant date under the fair value recognition
provisions of FASB Statement No. 123 "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have
been reduced to the pro forma amounts shown below:
THREE MONTHS ENDED
MARCH 31
---------------------------
(dollars in thousands, except per share data) 2003 2002
------------ ------------
Income from continuing operations--as reported ............................ 9,453 4,912
Deduct: Total stock-based employee compensation expense
determined under fair value methods for all awards, net
of tax ............................................................. 636 790
------------ ------------
Income from continuing operations--pro forma .............................. $ 8,817 4,122
Basic earnings per share from continuing operations--as reported .......... $ 0.22 0.12
Basic earnings per share from continuing operations--pro forma ............ 0.20 0.10
Diluted earnings per share from continuing operations--as reported ........ $ 0.22 0.12
Diluted earnings per share from continuing operations--pro forma .......... 0.20 0.10
9
There was no impact from discontinued operations on the pro forma expense
for the first quarters of 2003 and 2002.
11. REPORTING FOR SEGMENTS
In determining reportable segments, the Company considers its operating and
management structure and the types of information subject to regular review
by its chief operating decision-maker. The Company has two reportable
segments consisting of coatings and performance chemicals. Coatings
products include tile coating systems, porcelain enamel, color and glass
performance materials and electronic materials systems. Performance
chemicals consist of polymer additives, pharmaceuticals, fine chemicals and
plastics.
The accounting policies of the segments are consistent with those described
for the consolidated financial statements in the summary of critical
accounting policies. The Company measures segment profit for reporting
purposes as net operating profit before interest and taxes. Net operating
profit excludes 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 table.
Inter-segment sales are not material.
FERRO CORPORATION AND SUBSIDIARIES
SEGMENT DATA
THREE MONTHS ENDED
MARCH 31
Net sales
(dollars in millions) 2003 2002
------------ ------------
Coatings $ 259,976 $ 232,840
Performance Chemicals 141,794 132,183
------------ ------------
Total $ 401,770 $ 365,023
Income and reconciliation to income (loss) before taxes follows:
(dollars in millions) 2003 2002
------------ ------------
Coatings $ 24,201 $ 20,369
Performance Chemicals 8,988 9,409
------------ ------------
Segment income $ 33,189 $ 29,778
Unallocated expenses 7,540 5,587
Interest expense 8,784 12,015
Foreign currency loss 1,189 776
Miscellaneous - net 1,524 3,450
------------ ------------
Income before taxes from
continuing operations $ 14,152 $ 7,950
Geographic information follows: THREE MONTHS ENDED
MARCH 31
---------------------------
Net sales
(dollars in millions) 2003 2002
------------ ------------
United States and Canada $ 197,223 $ 185,170
International 204,547 179,853
------------ ------------
Total $ 401,770 $ 365,023
Geographic revenues are based on the region in which the customer invoice
originates. The United States of America is the single largest country for
the origination of customer sales. No other single country originates more
than 10% of consolidated sales.
10
12. NEW ACCOUNTING PRONOUNCEMENTS
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. The Company adopted FASB Statement No. 146 as of January 1, 2003,
and accordingly, records exit or disposal costs when they are "incurred"
and can be measured at fair value. The adoption of Statement No. 146 did
not have a material impact on the Company's results of operations or
financial position for the three month period March 31, 2003.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of the Indebtedness of Others." Interpretation 45 expands on the
accounting guidance of Statements No. 5 "Accounting for Contingencies," No.
57 "Related Party Disclosures," and No. 107 "Disclosures about Fair Value
of Financial Instruments" and incorporates without change the provisions of
Interpretation No. 34 "Disclosure in Indirect Guarantees of Indebtedness of
Others, an Interpretation of FASB Statement No. 5" which is being
superceded. Interpretation 45 elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also clarifies that at the time an entity issues a
guarantee, the entity must recognize an initial liability for the fair
value, or market value, of the obligations it assumes under that guarantee
and must disclose that information in its interim and annual financial
statements. The initial recognition and measurement provisions of
Interpretation 45 apply on a prospective basis to guarantees issued or
modified after December 31, 2002, regardless of an entity's year-end. The
disclosure requirements of Interpretation 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002.
Accordingly, the Company adopted the disclosure requirements of
Interpretation 45 for the year ended December 31, 2002 and the
interpretation in its entirety as of January 1, 2003. The adoption of
Interpretation 45 did not have a material impact on the Company's results
of operations or financial position.
In December 2002, the FASB Issued Statement No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure," which amends
Statement No. 123 "Accounting for Stock-Based Compensation." Statement No.
148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock based employee
compensation. In addition, Statement No. 148 amends the disclosure
requirements of Statement No. 123 to require more prominent and more
frequent disclosures in financial statements about the effects of
stock-based compensation. The transition guidance and annual disclosure
provisions of Statement No. 148 were effective for fiscal years ending
after December 15, 2002, with earlier application permitted in certain
circumstances. The Company continues to account for stock-based
compensation expense in accordance with Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees," and related
interpretations, as permitted under Statement No. 148. The Company adopted
the annual disclosure provisions of Statement No. 148 as of December 31,
2002, and accordingly, has included the required disclosure for the interim
periods ending on March 31, 2003 and 2002 in note 10 to the condensed
financial statements.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities." Interpretation 46 addresses consolidation by
business enterprises of variable interest entities and requires existing
unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse risk
among parties involved. It is based on the concept that companies that
control another entity through interests other than voting interests should
consolidate the controlled entity. Management is evaluating the impact of
FIN 46, and believes, as its asset defeasance program is currently
structured, the adoption of Interpretation 46 will require the Company to
consolidate certain property, plant and equipment with a fair value of
approximately $23.7 million currently accounted for as an operating lease
under that program, beginning July 1, 2003.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In September 2002, the Company completed the sale of its Powder Coatings
business unit, and accordingly as of March 31, 2003, and for all periods
presented, the Powder Coatings business has been reported as a discontinued
operation. Additionally, the Company has classified several other small
businesses as discontinued based on the Company's intent to divest such
businesses over the next year. The discussions presented below under
"Results of Operations" focus on the Company's results from continuing
operations.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
First quarter 2003 net sales from continuing operations of $401.8 million
were 10.1% higher than the $365.0 million of sales for the comparable 2002
period. Sales increased 11.7% in the Coatings segment and 7.3% in the
Performance Chemicals segment.
Of the $36.7 million increase in revenue, $26.6 million or 7.3 percentage
points of the total was related primarily to the strengthening of the
European currency. Overall volume favorably impacted sales by 0.5% for the
quarter as compared to the prior year period. Several key end markets
contributed to higher volumes including electronics, automotive, consumer
packaging, container glass and pharmaceuticals. This was offset in the
building and renovation market, which experienced soft demand for flat
glass, PVC additives and tile coatings. Higher selling prices in the
polymer additives business to offset raw material increases accounted for
the remainder of the increase in revenue.
Gross margins from continuing operations were 25.2% of sales compared with
25.6% for the comparable 2002 period. The lower gross margins compared to
the prior year primarily stemmed from raw material cost increases in the
Performance Chemicals segment.
Selling, administrative and general expenses from continuing operations
were $75.5 million in the first quarter of 2003 compared with $69.1 million
in the first quarter of 2002. Of the $6.4 million increase in selling,
administrative and general expenses, $5.5 million was caused by the
strengthening of the Euro against the dollar. An additional $2.1 million
was related to higher pension expense and increased research & development
spending.
The first quarter 2003 earnings included pretax charges of $0.8 million
related primarily to severance and integration costs and the first quarter
of 2002 included approximately $1.2 million of similar charges.
Interest expense from continuing operations was $8.8 million for the first
quarter of 2003, compared to $12.0 million for the first quarter of 2002.
This is the result of a debt reduction program that included sale of five
million common shares through a public offering on May 15, 2002, and the
divestment of the Powder Coatings business in September 2002.
A foreign currency loss of approximately $1.2 million for the first quarter
of 2003 was incurred compared to $0.8 million for the first quarter of
2002. The first quarter 2003 loss was due primarily to the strengthening of
local currencies against the dollar in Argentina and Mexico and forward
contract costs in Brazil.
Miscellaneous Expense from continuing operations for the first quarter of
2003 declined to $1.5 million compared to $3.5 million in the first quarter
of 2002. The major contributors to this decline were certain legal
settlements and claims, which resulted in a net gain of approximately $1.3
million.
Income from continuing operations for the first quarter of 2003 was $9.5
million or 92.4% above the prior year period. Diluted earnings per share
for continuing operations totaled $0.22 as compared to $0.12 in 2002.
Discontinued operations incurred a loss of $0.1 million for the first
quarter of 2003 as compared to income of $2.3 million in the prior year
period. Prior year results included the Company's Powder Coatings business,
which was divested in September 2002. Diluted earnings per share for
discontinued operations totaled $0.00 as compared to $0.07 in 2002.
12
Net Income for the first quarter 2003 totaled $9.4 million or an increase
of 30.0% over the prior year period. Earnings per diluted share was $0.22
in the first quarter of 2003 versus $0.19 in 2002.
QUARTERLY SEGMENT RESULTS
Sales in the Coatings segment were $260.0 million in the first quarter,
compared with first quarter 2002 sales of $232.8 million. The increase in
sales is primarily due to the effect of currency exchange rates along with
stronger global demand for electronics, a slightly higher automotive build
rate, and improved glass container markets. This was partially offset by
sluggish building and renovation activity in Europe and Latin America.
Operating income was $24.2 million in the quarter, compared with $20.4
million in the prior year quarter. Improved earnings are due primarily to
higher volume, the capture of cost synergies and improved manufacturing
efficiencies.
Sales in the Performance Chemicals segment were $141.8 million in the first
quarter, compared with first quarter 2002 sales of $132.2 million. The
largest contributors to the increase in sales were the effect of currency
exchange rates, higher prices, a slightly higher automotive build rate, and
higher pharmaceutical and consumer packaging demand. Operating income was
$9.0 million in the quarter, compared with $9.4 million in the prior year
quarter. The decline in earnings is due primarily to sharp increases in raw
material costs stemming from higher prices of oil and natural gas affecting
the plastics and polymer additives business units.
GEOGRAPHIC SALES
Sales in the United States were $197.2 million for the three months ended
March 31, 2003 compared with $185.2 million for the three months ended
March 31, 2002. International sales were $204.5 million for the three
months ended March 31, 2003, compared with $179.9 million for the three
months ended March 31, 2002. The majority of the international sales
increase occurred in Europe and the Asia Pacific region.
CASH FLOWS
Net cash used by operating activities of continuing operations was $1.5
million for the quarter ended March 31, 2003, compared with cash provided
of $28.8 million for the quarter ended March 31, 2002. The change was
principally driven by increases in working capital for the first quarter of
2003 versus decreases in working capital for 2002. Cash used for investing
activities of continuing operations was $16.1 million for the first quarter
of 2003 compared with $9.7 million for 2002. The higher level of cash used
for the first quarter of 2003 for investing activities was due primarily to
the final purchase price settlement for the acquisition of certain assets
of dmc(2). Net cash provided by financing activities for the quarter ended
March 31, 2003 was $14.8 million compared with cash used by financing
activities for the quarter ended March 31, 2002 of $30.1 million. The
year-over-year change was primarily due to increases in short-term
borrowing during the first quarter of 2003 compared with repayment of the
remaining portion of the capital markets term facility during the first
quarter of 2002.
Net cash used for operating activities of discontinued operations was $1.9
million for the quarter ended March 31, 2003, compared with cash provided
of $7.6 million for the same period of 2002. The difference is due
primarily to the inclusion of the results of the Powder Coatings business,
which was sold in September 2002, in the cash flow for the first quarter of
2002. Net cash used for investing activities of discontinued operations was
$0.3 million in each of the quarters ended March 31, 2003 and March 31,
2002.
OUTLOOK
First quarter demand levels were improved when compared sequentially with
the fourth quarter of 2002. Automotive production, the glass container and
consumer packaging markets, pharmaceuticals and domestic construction
continue at healthy demand levels. The Company is also experiencing
encouraging market trends in the global electronics industry following a
very soft fourth quarter 2002. The trends in the electronics industry may
be impacted somewhat by the effects of Severe Acute Respiratory Syndrome
(SARS) on consumer markets in the
13
Asia-Pacific regions. While end market demand in North America and Asia
Pacific is expected to remain stable to growing, a recovery in Europe
appears to be lagging as the building and renovation market conditions
continue to be sluggish. Overall, market conditions are expected to be
affected in the near-term by the somewhat weak macroeconomic conditions and
the uncertainty of global political events. The Company will continue to
focus on what it can control, which includes management of working capital,
discretionary spending and debt reductions until a sustainable recovery
appears certain. In addition, we expect certain costs including health
care, insurance and pension expenses to increase in 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements include primarily debt service,
working capital requirements, capital investments, post-retirement benefits
and dividends. The Company expects to be able to meet its liquidity
requirements from a variety of sources, including cash flow from operations
and use of its credit facilities or long-term borrowings. The Company has a
$300.0 million revolving credit facility, of which $208.5 million was
available as of March 31, 2003. See further information regarding the
Company's credit facilities included in Note 4 to the Company's condensed
consolidated financial statements.
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 December 31, 2002, $85.7
million had been advanced to the Company, net of repayments, under this
program. In the first quarter of 2003, an additional $13.9 million, net of
repayments, was advanced to the Company, resulting in total advances
outstanding of $99.6 million at March 31, 2003. Under FASB Statement No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a replacement of FASB Statement No. 125"
neither the amounts advanced nor the corresponding receivables sold are
reflected in the Company's consolidated balance sheet. See further
information regarding the securitization facility included in Note 4 to the
Company's condensed consolidated financial statements. Additionally, the
Company maintains a $25.0 million 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 debt ceases to be rated as investment grade by either
Moody's or S&P, the Company and its material subsidiaries would be required
to grant security interests in its 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
principal domestic manufacturing properties and the 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. 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. Ferro does not believe that the termination of this facility would
reasonably be 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 various factors including
changing market, political or socio-economic conditions, reconsider the
current rating of the Company's outstanding debt. Based on rating agency
disclosures, Ferro understands 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, whether through asset sales, increased free
cash flows from acquisitions or otherwise, will be factors in their ratings
determinations going forward.
The Company's credit facility contains customary operating covenants that
limit its ability to engage in certain activities, including significant
acquisitions. See further information regarding these covenants in Note 4
to the Company's condensed consolidated financial statements. 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
14
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. In December 2002, the Company renegotiated these
financial covenants to provide greater flexibility and strengthen the
Company's liquidity profile.
The Company enters into precious metal leases (primarily gold, silver,
platinum and palladium), which are consignment inventory arrangements under
which banks provide the Company with precious metals for a specified period
for which the Company pays a lease fee. The lease terms are generally less
than one year, and the Company maintains sufficient quantities of precious
metals to cover the lease obligations at all times. The leases are treated
as operating leases, and expenses were approximately $0.3 million for the
quarter ended March 31, 2003 compared with $0.5 million for the three
months ended March 31, 2002. As of March 31, 2003, the fair value of
precious metals under leasing arrangements was $49.5 million. Management
believes it will continue to have sufficient availability under these
leasing arrangements so that it will not be required to purchase or find
alternative financing or sourcing arrangements for its precious metal
inventory requirements. However, factors beyond the control of the Company,
or those that management currently believes are unlikely, could result in
non-renewal of the leases, which could impact the liquidity of the Company
to the extent of the fair value of the precious metals leased.
Ferro's level of debt and debt service requirements could have important
consequences to its business operations and uses of cash flow. In addition,
a reduction in overall demand for the Company's products could adversely
affect cash flows from operations. However, the Company has a $300.0
million revolving credit facility of which approximately $208.5 million was
available as of March 31, 2003. 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 its leveraged lease program.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities." Interpretation 46 addresses consolidation by
business enterprises of variable interest entities and requires existing
unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse risk
among parties involved. It is based on the concept that companies that
control another entity through interests other than voting interests should
consolidate the controlled entity. Management has evaluated the impact of
FIN 46, and believes that the adoption of Interpretation 46 will require
the Company to consolidate certain property, plant and equipment with an
estimated fair value of approximately $23.7 million currently accounted for
as an operating lease under that program, beginning July 1, 2003. The
Company will have an independent appraisal of these assets performed during
the second quarter of 2003.
CRITICAL ACCOUNTING POLICIES
There were no significant changes to critical accounting policies since
December 31, 2002 other than the adoption of FASB No. 146 as disclosed in
footnote 12 of Item 1. Please refer to the 2002 10-K filing for a detailed
description of Critical Accounting Policies.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risks is primarily limited to interest
rate and foreign currency fluctuation risks. Ferro's exposure to interest
rate risk relates primarily to its debt portfolio including off balance
sheet obligations under the accounts receivable securitization program. The
Company's interest rate risk management objective is 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
portfolio of fixed and variable 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
15
outstanding under the revolving credit facility and amounts outstanding
under its asset securitization program. Based on the amount of
variable-rate indebtedness outstanding at March 31, 2003 and 2002, a 1%
change in interest rates would have resulted in a $0.6 million and a $1.4
million increase in expense, respectively.
At March 31, 2003, the Company had $350.2 million of fixed rate debt
outstanding with an average interest rate of 8.4%, all maturing after 2007.
The fair market value of these debt securities was approximately $355.7
million at March 31, 2003.
Ferro manages its currency risks principally through the purchase of put
options and by entering into forward contracts. Put options are purchased
to protect the value of euro-denominated earnings against a depreciation of
the euro versus the U.S. dollar. Forward contracts are entered into to
mitigate the impact of currency fluctuations on transaction and other
exposures.
At March 31, 2003, the Company held forward contracts to manage its foreign
currency transaction exposures, which had a notional amount of $40.0
million, and held other contracts of a non-transactional nature, which had
a notional amount of $6.5 million. The Company also held put options to
sell euros for U.S. dollars with a notional amount of $16.2 million and an
average strike price of $0.9913/euro. At March 31, 2003, these forward
contracts and options had an aggregate fair value of $(0.5) million.
A 10% appreciation of the U.S. dollar would have resulted in a $2.4 million
and $1.6 million increase in the fair value of these contracts in the
aggregate at March 31, 2003 and December 31, 2002, respectively. A 10%
depreciation of the U.S. dollar would have resulted in a $1.9 million and
$1.5 million decrease in the fair value of these contracts in the aggregate
at March 31, 2003 and December 31, 2002, respectively.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Chairman and Chief Executive Officer of
the Company and the Chief Financial Officer of the Company, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon
that evaluation, the Chairman and Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required
to be included in the Company's periodic SEC filings.
Subsequent to the evaluation, there were no significant changes in internal
controls or other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
16
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, 2002 and are also covered in Footnote 9 to the Condensed
Consolidated Financial Statements contained herein.
ITEM 2. CHANGE IN SECURITIES AND OF USE OF PROCEEDS.
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.
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) No reports on Form 8-K have been filed during the first quarter.
17
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: May 14, 2003
/s/ Hector R. Ortino
------------------------------------
Hector R. Ortino
Chairman and Chief Executive Officer
Date: May 14, 2003
/s/ J. William Heitman
-----------------------------------
J. William Heitman
Vice President, Finance and Acting Chief
Financial Officer
18
CERTIFICATIONS
I, Hector R. Ortino, Chairman and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferro
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
---------------------------
/s/ Hector R. Ortino
-----------------------------------
Signature
Hector R. Ortino
Chairman and Chief Executive Officer
Title
19
CERTIFICATIONS
I, J. William Heitman, Acting Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ferro
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
-----------------
/s/ J. William Heitman
-----------------------------------------
Signature
J. William Heitman
Vice President, Finance and Acting Chief
Financial Officer
Title
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.)
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.
21
*(11) Computation of Earnings Per Share.
(99) Certifications of Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. 1350.
22