Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from _________ to __________.
Commission File Number 1-584
FERRO CORPORATION
(Exact name of registrant as specified in its charter)
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Ohio
(State of Corporation)
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34-0217820
(IRS Employer Identification No.) |
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1000 Lakeside Avenue
Cleveland, OH
(Address of Principal executive offices)
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44114
(Zip Code) |
216-641-8580
(Telephone Number)
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES
o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). YES o NO þ
At July 31, 2009,
there were 44,950,184 shares of Ferro Common Stock, par value $1.00, outstanding.
PART I FINANCIAL INFORMATION
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Item 1. |
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Financial Statements (Unaudited) |
Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Operations
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(Dollars in thousands, |
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except per share amounts) |
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Net sales |
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$ |
399,277 |
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$ |
631,976 |
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$ |
757,086 |
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$ |
1,222,814 |
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Cost of sales |
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334,048 |
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513,002 |
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636,611 |
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994,575 |
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Gross profit |
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65,229 |
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118,974 |
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120,475 |
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228,239 |
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Selling, general and administrative expenses |
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62,480 |
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79,724 |
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130,608 |
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157,300 |
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Restructuring charges |
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(309 |
) |
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9,031 |
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1,089 |
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13,238 |
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Other expense (income): |
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Interest expense |
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17,190 |
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12,768 |
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28,364 |
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26,323 |
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Interest earned |
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(205 |
) |
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(142 |
) |
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(473 |
) |
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(271 |
) |
Foreign currency losses (gains), net |
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1,100 |
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650 |
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2,929 |
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(891 |
) |
Miscellaneous expense, net |
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321 |
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1,554 |
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854 |
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2,994 |
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(Loss)
income before income taxes |
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(15,348 |
) |
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15,389 |
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(42,896 |
) |
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29,546 |
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Income tax (benefit) expense |
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(4,276 |
) |
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7,188 |
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(12,095 |
) |
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13,414 |
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(Loss) income from continuing operations |
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(11,072 |
) |
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8,201 |
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(30,801 |
) |
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16,132 |
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Income from discontinued operations, net of income taxes |
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1,683 |
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3,327 |
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(Loss) gain
on disposal of discontinued operations, net of income taxes |
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(116 |
) |
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9 |
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(358 |
) |
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(16 |
) |
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Net (loss) income |
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(11,188 |
) |
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9,893 |
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(31,159 |
) |
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19,443 |
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Less: Net
income attributable to noncontrolling interests |
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620 |
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528 |
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984 |
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938 |
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Net (loss) income attributable to Ferro Corporation |
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(11,808 |
) |
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9,365 |
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(32,143 |
) |
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18,505 |
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Dividends on preferred stock |
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(199 |
) |
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(223 |
) |
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(370 |
) |
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(450 |
) |
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Net
(loss) income attributable to Ferro Corporation
common shareholders |
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$ |
(12,007 |
) |
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$ |
9,142 |
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$ |
(32,513 |
) |
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$ |
18,055 |
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Amounts attributable to Ferro Corporation: |
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(Loss) income from continuing operations, net of tax |
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$ |
(11,692 |
) |
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$ |
7,673 |
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$ |
(31,785 |
) |
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$ |
15,194 |
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(Loss) income from discontinued operations, net of tax |
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(116 |
) |
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1,692 |
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(358 |
) |
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3,311 |
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$ |
(11,808 |
) |
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$ |
9,365 |
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$ |
(32,143 |
) |
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$ |
18,505 |
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Per common share data |
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Basic and diluted (loss) earnings attributable to
Ferro Corporation common shareholders: |
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From continuing operations |
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$ |
(0.27 |
) |
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$ |
0.17 |
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$ |
(0.72 |
) |
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$ |
0.34 |
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From discontinued operations |
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0.00 |
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0.04 |
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(0.01 |
) |
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0.08 |
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$ |
(0.27 |
) |
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$ |
0.21 |
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$ |
(0.73 |
) |
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$ |
0.42 |
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Cash dividends declared |
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$ |
0.00 |
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$ |
0.145 |
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$ |
0.01 |
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$ |
0.29 |
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See accompanying notes to condensed consolidated financial statements.
3
Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
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June 30, |
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December 31, |
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2009 |
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2008 |
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(Dollars in thousands) |
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ASSETS |
Current assets |
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Cash and cash equivalents |
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$ |
17,492 |
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$ |
10,191 |
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Accounts and trade notes receivable, net |
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292,617 |
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296,423 |
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Inventories |
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179,541 |
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256,411 |
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Deposits for precious metals |
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80,426 |
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Deferred income taxes |
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18,492 |
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|
19,167 |
|
Other receivables |
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47,509 |
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|
58,391 |
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Other current assets |
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9,780 |
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8,306 |
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Total current assets |
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645,857 |
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648,889 |
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Other assets |
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Property, plant and equipment, net |
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444,084 |
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456,549 |
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Goodwill |
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230,628 |
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229,665 |
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Amortizable intangible assets, net |
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11,265 |
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11,753 |
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Deferred income taxes |
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|
132,241 |
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|
134,361 |
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Other non-current assets |
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67,442 |
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62,900 |
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Total assets |
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$ |
1,531,517 |
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$ |
1,544,117 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities |
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Loans payable and current portion of long-term debt |
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$ |
37,979 |
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$ |
8,883 |
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Accounts payable |
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188,172 |
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232,113 |
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Income taxes |
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|
9,310 |
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14,361 |
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Accrued payrolls |
|
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17,448 |
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|
18,695 |
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Accrued expenses and other current liabilities |
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|
65,813 |
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83,012 |
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Total current liabilities |
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318,722 |
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|
357,064 |
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Other liabilities |
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Long-term debt, less current portion |
|
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612,768 |
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561,613 |
|
Postretirement and pension liabilities |
|
|
226,431 |
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|
221,110 |
|
Deferred income taxes |
|
|
7,524 |
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|
13,011 |
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Other non-current liabilities |
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|
32,148 |
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34,047 |
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Total liabilities |
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1,197,593 |
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1,186,845 |
|
Series A convertible preferred stock (approximates redemption value) |
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|
9,660 |
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|
11,548 |
|
Shareholders equity |
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Ferro Corporation shareholders equity: |
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Common stock |
|
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52,323 |
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52,323 |
|
Paid-in capital |
|
|
156,126 |
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|
178,420 |
|
Retained earnings |
|
|
368,407 |
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|
401,186 |
|
Accumulated other comprehensive loss |
|
|
(90,114 |
) |
|
|
(98,436 |
) |
Common shares in treasury, at cost |
|
|
(171,938 |
) |
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|
(197,524 |
) |
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Total Ferro Corporation shareholders equity |
|
|
314,804 |
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|
335,969 |
|
Noncontrolling interests |
|
|
9,460 |
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|
9,755 |
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Total equity |
|
|
324,264 |
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|
345,724 |
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Total liabilities and shareholders equity |
|
$ |
1,531,517 |
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|
$ |
1,544,117 |
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|
See accompanying notes to condensed consolidated financial statements.
4
Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Statement of Shareholders Equity and Comprehensive Income (Loss)
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Ferro Corporation Shareholders |
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Accumulated |
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Other |
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Common Shares |
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Comprehensive |
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Non- |
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in Treasury |
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Common |
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Paid-in |
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Retained |
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Income |
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controlling |
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Total |
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Shares |
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Amount |
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Stock |
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Capital |
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Earnings |
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(Loss) (a) |
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Interests |
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Equity |
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(In thousands, except per share data) |
|
Balances at December 31, 2007 |
|
|
8,753 |
|
|
$ |
(202,855 |
) |
|
$ |
52,323 |
|
|
$ |
166,391 |
|
|
$ |
468,190 |
|
|
$ |
(7,765 |
) |
|
$ |
9,896 |
|
|
$ |
486,180 |
|
Net income |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,505 |
|
|
|
|
|
|
|
938 |
|
|
|
19,443 |
|
Other comprehensive income (loss),
net of tax: |
|
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|
|
|
|
|
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Foreign currency translation
adjustment |
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
21,247 |
|
|
|
284 |
|
|
|
21,531 |
|
Postretirement benefit
liability adjustments |
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
(414 |
) |
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|
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|
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|
(414 |
) |
Raw material commodity swap
adjustments |
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|
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|
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|
455 |
|
|
|
|
|
|
|
455 |
|
Interest rate swap adjustments |
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|
|
|
|
|
|
|
|
|
606 |
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|
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|
606 |
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|
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|
Total comprehensive income |
|
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|
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|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
41,621 |
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Common |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
(12,586 |
) |
|
|
|
|
|
|
|
|
|
|
(12,586 |
) |
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450 |
) |
|
|
|
|
|
|
|
|
|
|
(450 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
Stock-based compensation
transactions |
|
|
(149 |
) |
|
|
2,331 |
|
|
|
|
|
|
|
(444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,887 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,130 |
) |
|
|
(1,130 |
) |
Adjustment to initially apply FAS No. 158
as of January 1, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(505 |
) |
|
|
366 |
|
|
|
|
|
|
|
(139 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2008 |
|
|
8,604 |
|
|
$ |
(200,524 |
) |
|
$ |
52,323 |
|
|
$ |
165,968 |
|
|
$ |
473,154 |
|
|
$ |
14,495 |
|
|
$ |
9,988 |
|
|
$ |
515,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008 |
|
|
8,432 |
|
|
$ |
(197,524 |
) |
|
$ |
52,323 |
|
|
$ |
178,420 |
|
|
$ |
401,186 |
|
|
$ |
(98,436 |
) |
|
$ |
9,755 |
|
|
$ |
345,724 |
|
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,143 |
) |
|
|
|
|
|
|
984 |
|
|
|
(31,159 |
) |
Other comprehensive income (loss),
net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,977 |
|
|
|
(4 |
) |
|
|
4,973 |
|
Postretirement benefit
liability adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
661 |
|
|
|
|
|
|
|
661 |
|
Raw material commodity swap
adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559 |
|
|
|
|
|
|
|
559 |
|
Interest rate swap adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,125 |
|
|
|
|
|
|
|
2,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,841 |
) |
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(437 |
) |
|
|
|
|
|
|
|
|
|
|
(437 |
) |
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199 |
) |
|
|
|
|
|
|
|
|
|
|
(199 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Stock-based compensation
transactions |
|
|
(1,059 |
) |
|
|
25,586 |
|
|
|
|
|
|
|
(22,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,291 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,275 |
) |
|
|
(1,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2009 |
|
|
7,373 |
|
|
$ |
(171,938 |
) |
|
$ |
52,323 |
|
|
$ |
156,126 |
|
|
$ |
368,407 |
|
|
$ |
(90,114 |
) |
|
$ |
9,460 |
|
|
$ |
324,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(31,159 |
) |
|
$ |
19,443 |
|
Depreciation and amortization |
|
|
41,353 |
|
|
|
36,575 |
|
Precious metals deposits |
|
|
(80,426 |
) |
|
|
|
|
Accounts and trade notes receivable |
|
|
3,743 |
|
|
|
(19,184 |
) |
Inventories |
|
|
75,512 |
|
|
|
(41,832 |
) |
Accounts payable |
|
|
(37,894 |
) |
|
|
9,735 |
|
Other changes in current assets and liabilities, net |
|
|
(15,781 |
) |
|
|
15,672 |
|
Other adjustments, net |
|
|
4,527 |
|
|
|
(14,057 |
) |
|
|
|
|
|
|
|
Net cash (used for) provided by continuing operations |
|
|
(40,125 |
) |
|
|
6,352 |
|
Net cash (used for) provided by discontinued operations |
|
|
(361 |
) |
|
|
341 |
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities |
|
|
(40,486 |
) |
|
|
6,693 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Capital expenditures for property, plant and equipment of continuing operations |
|
|
(22,969 |
) |
|
|
(32,997 |
) |
Capital expenditures for property, plant and equipment of discontinued
operations |
|
|
|
|
|
|
(1,575 |
) |
Proceeds from sale of assets and businesses |
|
|
72 |
|
|
|
646 |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(22,897 |
) |
|
|
(33,926 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net borrowings under short-term facilities |
|
|
28,945 |
|
|
|
3,478 |
|
Proceeds from revolving credit facility |
|
|
434,624 |
|
|
|
430,347 |
|
Principal payments on revolving credit facility |
|
|
(384,727 |
) |
|
|
(380,074 |
) |
Principal payments on term loan facility |
|
|
(1,525 |
) |
|
|
(7,927 |
) |
Debt issue costs |
|
|
(9,367 |
) |
|
|
|
|
Cash dividends paid |
|
|
(636 |
) |
|
|
(13,036 |
) |
Other financing activities |
|
|
2,135 |
|
|
|
(4,238 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
69,449 |
|
|
|
28,550 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,235 |
|
|
|
48 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
7,301 |
|
|
|
1,365 |
|
Cash and cash equivalents at beginning of period |
|
|
10,191 |
|
|
|
12,025 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
17,492 |
|
|
$ |
13,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
25,792 |
|
|
$ |
26,493 |
|
Income taxes |
|
$ |
5,635 |
|
|
$ |
5,243 |
|
See accompanying notes to condensed consolidated financial statements.
6
Ferro Corporation and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
Ferro Corporation (Ferro, we, us or the Company) prepared these unaudited condensed
consolidated financial statements of Ferro Corporation and its consolidated subsidiaries in
accordance with accounting principles generally accepted in the United States of America
(U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statements and, therefore, should be read in
conjunction with the consolidated financial statements and related notes included in our Annual
Report on Form 10-K for the year ended December 31, 2008. The preparation of financial statements
in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the timing
and amount of assets, liabilities, equity, revenues and expenses reported and disclosed. Actual
amounts could differ from our estimates, resulting in changes in revenues or costs that could have
a material impact on the Companys results of operations, financial position, or cash flows. In
our opinion, we made all adjustments that are necessary for a fair presentation, and those
adjustments are of a normal recurring nature unless otherwise noted. Due to differing business
conditions, our various initiatives, and some seasonality, the results for the three and six months
ended June 30, 2009, are not necessarily indicative of the results expected in subsequent quarters
or for the full year. We evaluated subsequent events through August 4, 2009, when the financial
statements were issued.
2. Accounting Standards Adopted in the Six Months Ended June 30, 2009
On January 1, 2009, we adopted Financial Accounting Standards Board (FASB) Statement
No. 141(R), Business Combinations, (FAS No. 141(R)) and FASB Staff Position (FSP)
No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise From Contingencies. These statements require more acquired assets and assumed
liabilities to be measured at fair value as of the acquisition date, liabilities related to
contingent consideration to be remeasured at fair value in each subsequent reporting period, and
all acquisition-related costs in preacquisition periods to be expensed. We will apply these
standards to any business combination beginning in 2009 and therefore, adoption of these standards
did not have an effect on our consolidated financial statements.
On January 1, 2009, we adopted Emerging Issues Task Force (EITF) Issue No. 08-7, Accounting
for Defensive Intangible Assets, (EITF No. 08-7). This pronouncement requires us to
prospectively account for an acquired defensive asset as a separate unit of accounting and assign
it a useful life based on the period during which the asset would diminish in value. With our
adoption of FAS No. 141(R) also on January 1, 2009, we will assign an acquired defensive asset a
fair value based on what a willing market participant would pay for such an asset and amortize it
over the time period that a market participant would derive cash flows from the asset. Impairment
testing will be performed on defensive assets with finite lives under FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, and those with infinite lives under
FASB Statement No. 142, Goodwill and Other Intangible Assets (FAS No. 142). We will apply this
standard to any business combination or any acquisition of a defensive asset beginning in 2009 and
therefore, the adoption of EITF No. 08-7 did not have an effect on our consolidated financial
statements.
On January 1, 2009, we adopted FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets, (FSP No. FAS 142-3). This pronouncement prospectively amends the factors that
should be considered in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FAS No. 142. We amended our policies to establish the
useful life of intangible assets considering the period of expected cash flows to be received from
the intangible asset based on the expected use of the asset and our historical experience in
renewing or extending similar arrangements. In the absence of that experience, we consider the
assumptions that market participants would use about renewal or extension consistent with the
highest and best use of the asset by market participants. Annually, we will disclose our
accounting policy for costs incurred to extend or renew recognized intangible assets and the
weighted-average period prior to the next renewal or extension by major intangible class. Adoption
of FSP No. FAS 142-3 did not have a material effect on our consolidated financial statements.
On January 1, 2009, we adopted FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51, (FAS No. 160). Under this
statement, noncontrolling interests (e.g., minority interests) in subsidiaries are measured
initially at fair value and classified as a separate component of equity and the amount of net
income attributable to noncontrolling interests is included in consolidated net income.
FAS No. 160 requires entities to apply the measurement requirements prospectively and to apply the
presentation and disclosure requirements retrospectively to comparative financial statements. As a
result, we classified minority interests in consolidated subsidiaries of $9.5 million at June 30,
2009, and $9.8 million at December 31, 2008, in equity, and included net income attributable to
minority interests of $0.6 million and $0.5 million for the three months ended June 30, 2009 and
2008, respectively, and $1.0 million and $0.9 million for the six months ended June 30, 2009 and
2008, respectively, in consolidated net income.
7
On January 1, 2009, we adopted FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No. 133. This Statement
requires enhanced disclosures about an entitys derivative and hedging activities and encourages,
but does not require, comparative disclosures for earlier periods at initial adoption. The
additional disclosures about our derivative and hedging activities did not have a material impact
on our consolidated financial statements.
On January 1, 2009, we adopted FSP No. APB 14-1, Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), (FSP
No. APB 14-1). This pronouncement specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that will reflect the entitys
nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP
No. APB 14-1 is to be applied retrospectively. As a result, the carrying value of the liability
component of the 6.50% Convertible Senior Notes was reduced by $17.4 million and $19.0 million at
June 30, 2009, and December 31, 2008, respectively. Related deferred tax liabilities were
increased by $7.0 million and $7.0 million, paid-in capital was increased by $12.4 million and
$12.4 million and retained earnings was decreased by $1.7 million and $0.7 million at June 30,
2009, and December 31, 2008, respectively. Loss from continuing operations was increased by
$0.5 million and 1.0 million, net loss was increased by $0.5 million and $1.0 million, and basic
and diluted loss per share was increased by $0.01 and $0.02 for the three and six months ended
June 30, 2009, respectively.
On January 1, 2009, we adopted EITF Issue No. 07-5, Determining Whether an Instrument (or an
Embedded Feature) Is Indexed to an Entitys Own Stock, (EITF No. 07-5), which supersedes EITF
No. 01-6, The Meaning of Indexed to a Companys Own Stock. FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities, (FAS No. 133) specifies that a contract issued
or held by a company that is both indexed to its own stock and classified in stockholders equity
is not considered a derivative instrument for purposes of applying FAS No. 133. EITF No. 07-5
provides further guidance in requiring that both an instruments contingency exercise provisions
and its settlement provisions be evaluated for determining whether the instrument (or embedded
feature) is indexed solely to an entitys own stock. Adoption of EITF No. 07-5 did not change the
conclusions we reached in the adoption of FSP No. APB 14-1and, therefore, did not have an effect on
our consolidated financial statements.
On January 1, 2009, we adopted EITF Issue No. 08-6, Equity Method Investment Accounting
Considerations, (EITF No. 08-6). This pronouncement changes the way we account for equity method
investments. Among other things, it requires us to determine the initial carrying value of an
equity method investment by applying the cost accumulation model and to account for share issuances
by the investee as a proportionate sale of its investment. EITF No. 08-6 is to be applied
prospectively, and its adoption did not have an effect on our consolidated financial statements.
On January 1, 2009, we adopted FSP No. FAS 132(R)-1, Employers Disclosures About
Postretirement Benefit Plan Assets. This pronouncement requires for annual periods more detailed
disclosures about employers plan assets, including employers investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and valuation techniques used
to measure the fair value of plan assets. Other than for some additional disclosures in our Annual
Report on Form 10-K, adoption of this FASB Staff Position will not have an effect on our
consolidated financial statements.
On January 1, 2009, we adopted the provisions of FASB Statement No. 157, Fair Value
Measurements, for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial
liabilities, which had been delayed by FSP No. FAS 157-2, Effective Date of FASB Statement No. 157.
Adoption of these provisions had no effect on our consolidated financial statements.
On January 1, 2009, we adopted FSP No. EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities. This pronouncement establishes that
unvested share-based payment awards that contain nonforfeitable rights to dividends are
participating securities and shall be included in the computation of earnings per share under the
two-class method. Adoption of this FASB Staff Position did not have a material effect on our
consolidated financial statements.
8
On January 1, 2009, we early adopted FSP No. FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, (FSP No. FAS 157-4). This pronouncement provides guidance on
(1) estimating the fair value of an asset or liability when the volume and level of activity for
the asset or liability have significantly decreased and (2) identifying transactions that are not
orderly. FSP No. FAS 157-4 requires entities to disclose in interim and annual periods the inputs
and valuation techniques used to measure fair value. Adoption of this FASB Staff Position did not
have a material effect on our consolidated financial statements.
On January 1, 2009, we early adopted FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments. This pronouncement expands the fair value disclosures for
financial instruments to interim periods for publicly traded entities. It also requires disclosure
of the methods and significant assumptions used to estimate the fair value of financial instruments
and any changes of the methods and significant assumptions from prior periods. Adoption of this
FASB Staff Position did not have a material effect on our consolidated financial statements.
On January 1, 2009, we early adopted FSP No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments. This pronouncement modifies the existing
other-than-temporary impairment model for investments in debt securities and amends disclosure
provisions for investments in debt and equity securities. Adoption of this FASB Staff Position did
not have an effect on our consolidated financial statements.
On April 1, 2009, we adopted FASB Statement No. 165, Subsequent Events, (FAS No. 165). This
statement establishes principles and requirements for managements evaluation of events or
transactions occurring after the balance sheet date for potential recognition or disclosure, the
circumstances under which those events or transactions are recognized, and the related disclosures.
The adoption of FAS No. 165 did not have a material effect on our consolidated financial
statements.
3. Newly Issued Accounting Pronouncements
In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets
an amendment of FASB Statement No. 140, (FAS No. 166). This pronouncement amends the guidance
in Statement No. 140 for derecognition of transferred financial assets. FAS No. 166 is effective
for financial asset transfers occurring after the beginning of our fiscal year that begins
January 1, 2010. Early adoption of FAS No. 166 is prohibited. We are in the process of evaluating
the impact that the adoption of FAS No. 166 may have on our consolidated financial statements.
In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R),
(FAS No. 167). This pronouncement amends the consolidation guidance that applies to variable
interest entities (VIEs). FAS No. 167 is effective for our fiscal year that begins January 1,
2010, and early adoption is prohibited. We are in the process of evaluating the impact that the
adoption of FAS No. 167 may have on our consolidated financial statements.
In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162, (FAS No. 168). This pronouncement identifies the sources
of accounting principles and the framework for selecting the principles used in the preparation of
financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. FAS No. 168 is effective for financial
statements issued for interim and annual periods beginning with our third quarter in 2009. We do
not expect the adoption of FAS No. 168 to have a material impact on our consolidated financial
statements.
9
4. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Raw materials |
|
$ |
53,241 |
|
|
$ |
82,837 |
|
Work in process |
|
|
36,692 |
|
|
|
43,224 |
|
Finished goods |
|
|
89,608 |
|
|
|
130,350 |
|
|
|
|
|
|
|
|
Total |
|
$ |
179,541 |
|
|
$ |
256,411 |
|
|
|
|
|
|
|
|
In the production of some of our products, we use precious metals, some of which we obtain
from financial institutions under consignment agreements with terms of one year or less. The
financial institutions retain ownership of the precious metals and charge us fees based on the
amounts we consign. These fees were $1.2 million and $1.3 million for the three months ended
June 30, 2009 and 2008, respectively, and $2.5 million and $2.3 million for the six months ended
June 30, 2009 and 2008, respectively, and were charged to cost of sales. We had on hand
$88.1 million at June 30, 2009, and $104.2 million at December 31, 2008, of precious metals,
measured at fair value based on market prices for identical assets, owned by participants in our
precious metals program.
5. Property, Plant and Equipment
Property, plant and equipment is reported net of accumulated depreciation of $622.1 million at
June 30, 2009, and $579.8 million at December 31,
2008. Unpaid capital expenditure liabilities, representing noncash
investing activities, were $9.3 million at June 30, 2009,
and $12.5 million at June 30, 2008.
6. Goodwill and Other Intangible Assets
A summary of goodwill activity follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Balance at December 31, 2008 |
|
$ |
229,665 |
|
Currency translation adjustments |
|
|
963 |
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
230,628 |
|
|
|
|
|
Details of amortizable intangible assets follow:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Patents |
|
$ |
5,775 |
|
|
$ |
5,775 |
|
Other |
|
|
14,489 |
|
|
|
14,451 |
|
|
|
|
|
|
|
|
Total gross amortizable intangible assets |
|
|
20,264 |
|
|
|
20,226 |
|
Accumulated amortization |
|
|
(8,999 |
) |
|
|
(8,473 |
) |
|
|
|
|
|
|
|
Amortizable intangible assets, net |
|
$ |
11,265 |
|
|
$ |
11,753 |
|
|
|
|
|
|
|
|
Amortization expense for amortizable intangible assets was $0.3 million and $0.2 million for
the three months ended June 30, 2009 and 2008, respectively, and $0.5 million and $0.5 million for
the six months ended June 30, 2009 and 2008, respectively. Aggregate amortization expense for
intangible assets is expected to be $0.9 million annually in the years 2009 through 2013.
10
We test goodwill for impairment annually using October 31st as our annual assessment date,
primarily due to the timing of our annual budgeting process, or more frequently if we believe
indicators of impairment exist. FASB Statement No. 142, Goodwill and Other Intangible Assets,
requires an assessment consisting of two steps. In the first step, we test goodwill for impairment
by comparing the fair value of each reporting unit that has goodwill against its carrying value,
including the allocation of certain corporate assets and liabilities. If the carrying value of the
reporting unit exceeds its fair value, we perform a second step to measure impairment. The step
two analyses were not completed prior to the issuance of our December 31, 2008 financial
statements. We recorded estimates in 2008, and no adjustment to these estimates was necessary upon
completion of the step two analyses in 2009.
We estimate the fair values of all reporting units using the weighted average of both the
income approach and the market approach, which we believe provides a reasonable estimate of a
reporting units fair value. The income approach uses projected cash flows attributable to the
reporting unit over the useful life and discounted to its present value. The market approach
estimates a price reasonably expected to be realized from the sale of similar businesses. Factors
considered in both of these approaches included projections of our future operating results,
anticipated future cash flows, comparable marketplace data adjusted for our industry grouping, and
the cost of capital.
The significant decrease in the market price of the Companys common stock at the end of
February 2009 signaled that there was an indicator of impairment. We compared the carrying value
of all reporting units that have goodwill against their fair values and determined that all fair
values exceeded the respective carrying values. We believe that the factors leading to the overall
decline in market capitalization were primarily attributable to Ferro Corporation and unrelated to
our reporting units.
7. Financing and Long-term Debt
Loans payable and current portion of long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Loans payable to banks |
|
$ |
8,122 |
|
|
$ |
4,754 |
|
Accounts receivable asset securitization program |
|
|
25,420 |
|
|
|
|
|
Current portion of long-term debt |
|
|
4,437 |
|
|
|
4,129 |
|
|
|
|
|
|
|
|
Total |
|
$ |
37,979 |
|
|
$ |
8,883 |
|
|
|
|
|
|
|
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
$172.5 million 6.50% Convertible Senior Notes, net of unamortized discounts |
|
$ |
155,133 |
|
|
$ |
153,451 |
|
Revolving credit facility |
|
|
161,700 |
|
|
|
111,803 |
|
Term loan facility |
|
|
290,973 |
|
|
|
292,498 |
|
Capitalized lease obligations |
|
|
6,697 |
|
|
|
6,447 |
|
Other notes |
|
|
2,702 |
|
|
|
1,543 |
|
|
|
|
|
|
|
|
|
|
|
617,205 |
|
|
|
565,742 |
|
Less current portion |
|
|
(4,437 |
) |
|
|
(4,129 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
612,768 |
|
|
$ |
561,613 |
|
|
|
|
|
|
|
|
11
6.50% Convertible Senior Notes
In 2008, Ferro issued $172.5 million of 6.50% Convertible Senior Notes due 2013 (the
Convertible Notes). The proceeds from the offering, along with available cash, including
borrowings under Ferros revolving credit facility, were used to purchase all of Ferros
outstanding 9 1/8% Senior Notes due 2009. The Convertible Notes bear interest at a rate of 6.5%
per year, payable semi-annually in arrears on February 15th and August 15th of each year, beginning
on February 15, 2009. The Convertible Notes mature on August 15, 2013. Under certain
circumstances, holders of the Convertible Notes may convert their notes prior to maturity.
The initial base conversion rate is 30.9253, equivalent to an initial base conversion price of
$32.34 per share of our common stock. If the price of our common stock at conversion exceeds the
base conversion price, the base conversion rate is increased by an additional number of shares.
The base conversion rate and the additional number of shares are adjusted in certain events. Upon
conversion of Convertible Notes, we will pay the conversion value in cash up to the aggregate
principal amount of the Convertible Notes being converted and in shares of our common stock, for
the remainder, if any. Upon a fundamental change, holders may require us to repurchase Convertible
Notes for cash equal to the principal amount plus accrued and unpaid interest. The Convertible
Notes are unsecured obligations and rank equally in right of payment with any other unsecured,
unsubordinated obligations.
We separately account for the liability and equity components of the Convertible Notes in a
manner that will reflect our nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. The effective interest rate on the liability component is 9.5%. For the three
months ended June 30, 2009, contractual interest was $2.8 million and amortization of the liability
discount was $0.9 million. For the six months ended June 30, 2009, contractual interest was
$5.6 million and amortization of the liability discount was $1.7 million. At June 30, 2009, the
remaining period over which the liability discount will be amortized was 4.1 years. The
unamortized liability discount was $17.4 million at June 30, 2009, and $19.0 million at
December 31, 2008. The carrying amount of the equity component was $12.4 million at June 30, 2009,
and $12.4 million at December 31, 2008.
Revolving Credit and Term Loan Facilities
In 2006, we entered into an agreement with a group of lenders for a $700 million credit
facility, consisting of a multi-currency senior revolving credit facility and a senior term loan
facility, which replaced a former revolving credit facility that would have expired later that
year. In 2007, we cancelled the unused portion of the term loan facility and amended the credit
facility (the 2007 Amended Credit Facility) primarily to increase the size of the revolving
credit facility, reduce interest rates, and increase operating flexibility. On March 11, 2009, we
amended the 2007 Amended Credit Facility (the 2009 Amended Credit Facility) primarily to provide
additional operating flexibility and to change pricing to more accurately reflect current market
interest rates. The amendment was filed as Exhibit 10.1 to our Annual Report on Form 10-K for the
year ended December 31, 2008. The primary effects of the 2009 Amended Credit Facility were to:
|
|
|
Increase the interest rates and commitment fees payable thereunder pursuant to a grid
structure based on our leverage ratio, |
|
|
|
Increase the maximum permitted quarterly leverage ratio and decrease the minimum
permitted quarterly fixed charge coverage ratio, |
|
|
|
Add a minimum cumulative EBITDA requirement for each quarter in 2009, |
|
|
|
Restrict the Companys ability to engage in acquisitions and make investments, |
|
|
|
Limit the amount of cash and cash equivalent collateral the Company is permitted to
deliver to participants in our precious metals program to secure our obligations arising
under the precious metals consignment agreements, |
|
|
|
Require additional financial reporting by the Company to the lenders, |
|
|
|
Increase the amount of the annual excess cash flow required to be used to repay term
loans, |
|
|
|
Require application of the net proceeds of certain dispositions, but excluding the first
$20 million of such net proceeds, to be applied to repay debt outstanding under the
revolving credit facility and term loans and to permanently reduce availability under the
revolving loan facility on a dollar for dollar basis, provided that we are not required to
reduce the commitments under the revolving credit facility to below $150 million, |
12
|
|
|
Eliminate our ability to request an increase of $50 million in the revolving credit
facility, |
|
|
|
Add provisions governing the obligations of the Company and the lenders if one or more
lenders under the revolving credit facility fails to satisfy its funding obligations or
otherwise becomes a defaulting lender, and |
|
|
|
Restrict our ability to make payments with respect to our capital securities. The 2009
Amended Credit Facility effectively prohibits us from paying dividends on our preferred and
common stock beginning in the second quarter of 2009. |
The 2009 Amended Credit Facility currently includes a $300.0 million revolving credit
facility, which matures in 2011. We had $131.4 million at June 30, 2009, and $180.0 million at
December 31, 2008, available under the revolving credit facility, after reductions for standby
letters of credit secured by this facility. At June 30, 2009, the 2009 Amended Credit Facility
also included a term loan facility with an outstanding principal balance of $291.0 million, which
matures in 2012. We make periodic principal payments on the term loans. We are required to make
minimum quarterly principal payments of $0.8 million from July 2009 to July 2011. During the last
year of the loans life, we are required to repay the remaining balance of the term loans in four
quarterly installments. Currently, those last four payments will be $71.0 million each. In
addition to the minimum quarterly payments, each April we may be required to make an additional
principal payment. The amount of this additional payment is dependent on the Companys leverage
and certain cash flow metrics. Any additional payment that is required reduces, on a
dollar-for-dollar basis, the amount due in the last four quarterly payments. We were not required
to make an additional principal payment in April 2009.
The interest rates under the 2009 Amended Credit Facility are the sum of (A) either (1) LIBOR
or (2) the higher of the Federal Funds Rate plus 0.5%, the Prime Rate, or LIBOR plus 1.0% and
(B) for the revolving credit facility, a variable margin based on the Companys leverage, or for
the term loan facility, a fixed margin. As part of the 2007 amendments, $175 million of borrowings
under the term loan facility were restricted to using three-month LIBOR in determining their
interest rates. This change was made in connection with interest rate swap agreements executed in
2007. These swap agreements effectively fixed the interest rate through June 2011 on $150 million
of borrowings under the term loan facility. At June 30, 2009, the average interest rate for
revolving credit borrowings was 5.8%, and the effective interest rate for term loan borrowings
after adjusting for the interest rate swaps was 9.2%. At December 31, 2008, the average interest
rate was 2.6% for revolving credit borrowings and 6.5% for term loan borrowings.
We
are subject to a number of restrictive covenants under our credit
facilities, which could affect our flexibility to fund ongoing
operations and strategic initiatives, and, if we are unable to
maintain compliance with such covenants, could lead to significant
challenges in meeting our liquidity requirements. Continued weak
economic conditions could impact our financial performance, making it
more challenging to comply with the financial covenants. At
June 30, 2009, we were in compliance with the covenants of the 2009
Amended Credit Facility.
Receivable Sales Programs
We have several programs to sell, on an ongoing basis, pools of our trade accounts receivable.
These programs accelerate cash collections at favorable financing costs and help us manage the
Companys liquidity requirements. The costs associated with these programs were $0.5 million and
$1.9 million for the three months ended June 30, 2009 and 2008, respectively, and $0.8 million and
$3.7 million for the six months ended June 30, 2009 and 2008, respectively, and are reported as
interest expense.
We have an asset securitization program for substantially all of Ferros U.S. trade accounts
receivable. This program accelerates cash collections at favorable financing costs and helps us
manage the Companys liquidity requirements. In June 2009, we replaced the prior program with a
new program that expires in June 2010 and reduced the programs size from $75 million to
$50 million.
We legally sell these trade accounts receivable to Ferro Finance Corporation (FFC), which
finances its acquisition of trade receivable assets by selling undivided variable percentage
interests in the receivables to certain purchasers under the program. Advances by the purchasers
are secured by, and repaid through collections on, the receivables owned by FFC. FFC and the
purchasers have no recourse to Ferros other assets for failure of payment of the receivables as a
result of the lack of creditworthiness or financial inability to pay of the related obligor. FFC
is a wholly-owned subsidiary, which until December 2008 was a qualified special purpose entity
(QSPE) and, therefore, was not consolidated. In December 2008, FFC ceased to meet the
requirements of a QSPE and is included in our consolidated financial statements. As a result, this
program is now accounted for as an on balance sheet arrangement.
13
Ferros consolidated balance sheet includes outstanding trade accounts receivable legally
transferred to FFC of $87.6 million at June 30, 2009, and $90.3 million at December 31, 2008, and
short-term debt from advances by the purchasers for their interests in those receivables of
$25.4 million at June 30, 2009, and $-0- at December 31, 2008. After reductions for non-qualifying
receivables, availability under the program was $-0- at June 30, 2009, and $56.8 million at
December 31, 2008.
Activity from this program for the six months ended June 30, 2008, when this program was
accounted for as an off balance sheet arrangement, is detailed below:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Trade accounts receivable sold to FFC |
|
$ |
549,362 |
|
Cash proceeds from FFC |
|
|
550,369 |
|
Trade accounts receivable collected and remitted to FFC and the conduits |
|
|
529,991 |
|
Servicing fees from FFC |
|
|
262 |
|
In addition, we maintain several international programs to sell trade accounts receivable to
financial institutions. The commitments supporting these programs can be withdrawn at any time and
totaled $69.5 million at June 30, 2009, and $81.7 million at December 31, 2008. The amount of
outstanding receivables sold under the international programs was $19.7 million at June 30, 2009,
and $30.5 million at December 31, 2008. Ferro had received net proceeds under the international
programs of $16.3 million at June 30, 2009, and $16.7 million at December 31, 2008, for outstanding
receivables. Based on available and qualifying receivables, availability under these programs was
$-0- at June 30, 2009, and $26.4 million at December 31, 2008. Ferro provides normal collection
and administration services for the trade accounts receivable sold to certain financial
institutions. Servicing fees are not material.
Activity from these programs for the six months ended June 30 is detailed below:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Trade accounts receivable sold to financial institutions |
|
$ |
55,714 |
|
|
$ |
134,069 |
|
Cash proceeds from financial institutions |
|
|
65,855 |
|
|
|
128,921 |
|
Trade accounts receivable collected and remitted to financial institutions
for programs where we provide collection and administrative services |
|
|
19,267 |
|
|
|
42,431 |
|
8. Financial Instruments
The carrying amounts of the following assets and liabilities meeting the definition of a
financial instrument approximate their fair values due to the short period to maturity of the
instruments:
|
|
|
Cash and cash equivalents; |
|
|
|
Miscellaneous receivables; and |
|
|
|
Short-term loans payable to banks. |
14
Long-term Debt
The following financial instruments are measured at fair value for disclosure purposes. The
carrying values of these instruments may or may not be their fair values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
(Dollars in thousands) |
|
$172.5 million 6.50% Convertible Senior Notes |
|
$ |
155,133 |
|
|
$ |
85,574 |
|
|
$ |
153,451 |
|
|
$ |
84,725 |
|
Revolving credit facility |
|
|
161,700 |
|
|
|
119,249 |
|
|
|
111,803 |
|
|
|
88,757 |
|
Term loan facility |
|
|
290,973 |
|
|
|
195,791 |
|
|
|
292,498 |
|
|
|
225,731 |
|
Other notes |
|
|
2,702 |
|
|
|
1,707 |
|
|
|
1,543 |
|
|
|
975 |
|
The fair values of the Convertible Notes are based on a third partys estimated bid price.
The fair values of the revolving credit facility, the term loan facility, and the other long-term
notes are based on the present value of expected future cash flows and assumptions about current
interest rates and the creditworthiness of the Company that market participants would use in
pricing the debt.
Derivative Instruments
All derivative instruments are recognized as either assets or liabilities at fair value. For
derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the
derivative is reported as a component of other comprehensive income (OCI) and reclassified from
accumulated other comprehensive income (AOCI) into earnings when the hedged transaction affects
earnings. For derivatives that are not designated as hedges, the gain or loss on the derivative is
recognized in current earnings.
Interest rate swaps. To reduce our exposure to interest rate changes on variable-rate debt,
we entered into interest rate swap agreements in 2007. These swaps effectively converted $150
million of our variable-rate term loan facility to a fixed rate. These swaps are designated and
qualify as cash flow hedges. The fair value of these swaps is based on the present value of
expected future cash flows, which reflects assumptions about current interest rates and the
creditworthiness of the Company that market participants would use in pricing the swaps. The
interest rate swaps were moved to Level 3 within the fair value hierarchy as of the beginning of
the second quarter of 2009 because the assumption about the creditworthiness of the Company was not
an observable market-based input nor an unobservable input that could be corroborated by market
data for sufficiently similar financial instruments. We based our assumption about the
creditworthiness of the Company on the assumption implicit in the bid price of our Convertible
Notes, adjusted by us for differences between these financial instruments in their conversion,
security and liquidity features. The estimated net amount of existing losses at June 30, 2009,
that is expected to be recognized in earnings within the next twelve months is $4.2 million
Foreign currency forward contracts. We manage foreign currency risks principally by entering
into forward contracts to mitigate the impact of currency fluctuations on transactions. These
forward contracts are not formally designated as hedges. The fair value of these contracts is
based on market prices for comparable contracts. We had foreign currency forward contracts with a
notional amount of $186.2 million at June 30, 2009, and $156.8 million at December 31, 2008.
Raw material commodity swaps. We reduce our exposure to changes in the pricing of certain raw
material commodities principally using swap arrangements that allow us to fix the price of a
portion of these commodities that will be purchased during the next twelve months. These swaps are
designated and qualify as cash flow hedges. The fair value of these swaps is based on market
prices for comparable contracts. We had raw material commodity swap arrangements for 150 metric
tons of base metals at June 30, 2009, and 330 metric tons at December 31, 2008. The estimated net
amount of existing gains at June 30, 2009, that is expected to be recognized in earnings within the
next twelve months is not material.
Precious metals forward contracts. We enter into forward purchase arrangements with precious
metals suppliers to completely cover the value of fixed price sales contracts for products with
precious metal content. Some of these agreements, with purchase commitments totaling $14.9 million
at June 30, 2009, and $5.5 million at December 31, 2008, are designated as normal purchase
contracts and are not considered to be derivatives. The remaining precious metal contracts are
considered to be derivatives, but are not formally designated as hedges. The fair value of these
precious metal derivatives is based on market prices for comparable contracts. We had forward
contract derivatives for 32 troy ounces of precious metals at June 30, 2009, and 129 troy ounces at
December 31, 2008.
15
The following table presents the fair value of derivative instruments on our consolidated
balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Balance Sheet Location |
|
|
|
(Dollars in thousands) |
|
|
|
|
Derivatives designated as
hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Raw material commodity swaps |
|
$ |
24 |
|
|
$ |
|
|
|
Other receivables |
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
(9,425 |
) |
|
$ |
(12,724 |
) |
|
Other non-current liabilities |
Raw material commodity swaps |
|
|
|
|
|
|
(576 |
) |
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
|
|
|
|
Total fair value |
|
$ |
(9,425 |
) |
|
$ |
(13,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward contracts |
|
$ |
74 |
|
|
$ |
1,621 |
|
|
Other receivables |
Foreign currency forward
contracts |
|
|
473 |
|
|
|
230 |
|
|
Accrued expenses and other current liabilities |
Precious metals forward contracts |
|
|
4 |
|
|
|
8 |
|
|
Other receivables |
|
|
|
|
|
|
|
|
|
|
|
Total fair value |
|
$ |
551 |
|
|
$ |
1,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency forward contracts |
|
$ |
|
|
|
$ |
(1,140 |
) |
|
Other receivables |
Foreign currency forward
contracts |
|
|
(1,963 |
) |
|
|
(807 |
) |
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
|
|
|
|
Total fair value |
|
$ |
(1,963 |
) |
|
$ |
(1,947 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The inputs to the valuation techniques used to measure fair value are classified into the
following categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by
market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The carrying amount, fair value, and classification within the fair value hierarchy of these
financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward
contracts |
|
$ |
|
|
|
$ |
74 |
|
|
$ |
|
|
|
$ |
74 |
|
|
|
480 |
|
Raw material commodity
swaps |
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
Precious metals forward
contracts |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value |
|
$ |
|
|
|
$ |
102 |
|
|
$ |
|
|
|
$ |
102 |
|
|
$ |
488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
|
|
|
|
(9,425 |
) |
|
$ |
(9,425 |
) |
|
$ |
(12,724 |
) |
Foreign currency forward
contracts |
|
|
|
|
|
|
(1,490 |
) |
|
|
|
|
|
|
(1,490 |
) |
|
|
(576 |
) |
Raw material commodity
swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value |
|
$ |
|
|
|
$ |
(1,490 |
) |
|
$ |
(9,425 |
) |
|
$ |
(10,915 |
) |
|
$ |
(13,876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the beginning and ending balances of the financial instruments in Level 3 is as
follows:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Balance at March 31, 2009 |
|
$ |
|
|
Total gains included in other comprehensive income |
|
|
1,025 |
|
Settlements |
|
|
1,644 |
|
Transfers in and/or out of Level 3 |
|
|
(12,094 |
) |
|
|
|
|
Balance at June 30, 2009 |
|
$ |
(9,425 |
) |
|
|
|
|
17
The following table presents the effect of derivative instruments on our consolidated
financial performance for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Reclassified from AOCI |
|
|
Location of Gain (Loss) |
|
|
|
Recognized in OCI |
|
|
into Income |
|
|
Reclassified from |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
AOCI into Income |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Derivatives in Cash Flow
Hedging Relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
119 |
|
|
$ |
(418 |
) |
|
$ |
(3,180 |
) |
|
$ |
(1,359 |
) |
|
Interest expense |
Raw material commodity swaps |
|
|
10 |
|
|
|
(954 |
) |
|
|
(1,114 |
) |
|
|
(1,729 |
) |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
129 |
|
|
$ |
(1,372 |
) |
|
$ |
(4,294 |
) |
|
$ |
(3,088 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
Recognized in Income |
|
|
Location of Gain (Loss) |
|
|
|
2009 |
|
|
2008 |
|
|
in Income |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Derivatives Not Designated as
Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
(4,089 |
) |
|
$ |
(2,414 |
) |
|
Foreign currency gains (losses) |
Precious metals forward contracts |
|
|
13 |
|
|
|
1,592 |
|
|
Cost of sales |
Precious metals forward contracts |
|
|
(4 |
) |
|
|
(743 |
) |
|
Miscellaneous income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(4,080 |
) |
|
$ |
(1,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Income Taxes
Income tax benefit for the six months ended June 30, 2009 was $12.1 million or 28.2% of
pre-tax loss compared with $13.4 million or 45.4% of pre-tax income in the prior-year six months
ended June 2008. The primary reason for the decrease in the effective tax rate was a reduction to
the benefit realized in certain foreign jurisdictions for current net operating losses that have
been offset by a full valuation allowance.
The Company has recorded deferred tax assets of $21.1 million for foreign net operating loss
carryforwards and $40.4 million in credit carryforwards. While some of these assets have an
indefinite expiration date, others will expire in varying amounts between 2011 and 2028.
Realization of these assets is dependent on generating sufficient future taxable income and tax
liabilities to offset the loss and credit carryforwards. Although realization is not assured,
management believes it is more likely than not that all of these deferred tax assets will be
utilized. The amount of these deferred tax assets considered realizable, however, could be
reduced in the near term if estimates of future taxable income are reduced.
The Company conducts business globally, and, as a result, the U.S. parent company and its
subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign
jurisdictions. In the normal course of business, the U.S. parent company and its subsidiaries are
subject to examination by taxing authorities throughout the world. With few exceptions, we are not
subject to federal, state, local or non-U.S. income tax examinations for years before 2000.
10. Contingent Liabilities
As previously disclosed, in February 2003, we produced documents in connection with an
investigation by the United States Department of Justice into possible antitrust violations in the
heat stabilizer industry. In April 2006, we were notified by the Department of Justice that the
Government had closed its investigation. Before closing its investigation, the Department of
Justice took no action against the Company or any of its current or former employees. In 2003, the
Company was named as a defendant in several lawsuits alleging civil damages and requesting
injunctive relief relating to the conduct the Government was investigating, and, in June 2008, the
Company was named in four more indirect purchaser lawsuits related to an existing lawsuit in the
Eastern District of Pennsylvania. In July 2007, we entered into a definitive written settlement
agreement in the class action lawsuit involving direct purchasers. The settlement agreement was
approved by the United States District Court for the Eastern District of Pennsylvania in December
2007. Although the Company decided to bring this matter to a close through settlement, the Company
did not admit to any of the alleged violations and continues to deny any wrongdoing. The Company
is vigorously defending the remaining six civil actions alleging antitrust violations in the heat
stabilizer industry. These actions are in their early stages; therefore, we cannot determine the
outcomes of these lawsuits at this time. In December 2006, we filed a lawsuit against the former
owner of our heat stabilizer business seeking indemnification for the defense of these lawsuits and
any resulting payments by the Company. In April 2008, the United States District Court for the
Northern District of Ohio dismissed our lawsuit, and we have appealed the courts decision to the
United States Court of Appeals for the Sixth Circuit.
18
There are various other lawsuits and claims pending against the Company and its consolidated
subsidiaries. In our opinion, 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 cash flows of the Company.
The Company had bank guarantees and standby letters of credit issued by financial
institutions, which totaled $13.4 million at June 30, 2009, and $13.9 million at December 31, 2008.
These agreements primarily relate to Ferros insurance programs and foreign tax payments. If the
Company fails to perform its obligations, the guarantees and letters of credit may be drawn down by
their holders, and we would be liable to the financial institutions for the amounts drawn.
11. Retirement Benefits
Information concerning net periodic benefit costs of our U.S. pension plans (including our
unfunded nonqualified plans), non-U.S. pension plans, and postretirement health care and life
insurance benefit plans for the three months ended June 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans |
|
|
Non-U.S. Pension Plans |
|
|
Other Benefit Plans |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Components of net periodic cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
8 |
|
|
$ |
50 |
|
|
$ |
1,045 |
|
|
$ |
1,557 |
|
|
$ |
3 |
|
|
$ |
16 |
|
Interest cost |
|
|
5,236 |
|
|
|
5,177 |
|
|
|
2,612 |
|
|
|
3,040 |
|
|
|
720 |
|
|
|
731 |
|
Expected return on plan assets |
|
|
(3,864 |
) |
|
|
(5,663 |
) |
|
|
(1,751 |
) |
|
|
(2,203 |
) |
|
|
|
|
|
|
|
|
Amortization
of prior service cost |
|
|
25 |
|
|
|
25 |
|
|
|
(101 |
) |
|
|
25 |
|
|
|
(437 |
) |
|
|
(411 |
) |
Net amortization and deferral |
|
|
3,845 |
|
|
|
624 |
|
|
|
260 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
5,250 |
|
|
$ |
213 |
|
|
$ |
2,065 |
|
|
$ |
2,474 |
|
|
$ |
286 |
|
|
$ |
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information concerning net periodic benefit costs of our U.S. pension plans (including our
unfunded nonqualified plans), non-U.S. pension plans, and postretirement health care and life
insurance benefit plans for the six months ended June 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans |
|
|
Non-U.S. Pension Plans |
|
|
Other Benefit Plans |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Components of net periodic cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
15 |
|
|
$ |
100 |
|
|
$ |
2,048 |
|
|
$ |
3,058 |
|
|
$ |
7 |
|
|
$ |
32 |
|
Interest cost |
|
|
10,472 |
|
|
|
10,354 |
|
|
|
5,096 |
|
|
|
5,979 |
|
|
|
1,439 |
|
|
|
1,462 |
|
Expected return on plan assets |
|
|
(7,727 |
) |
|
|
(11,326 |
) |
|
|
(3,413 |
) |
|
|
(4,336 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service
cost |
|
|
49 |
|
|
|
50 |
|
|
|
(198 |
) |
|
|
49 |
|
|
|
(874 |
) |
|
|
(822 |
) |
Net amortization and deferral |
|
|
7,690 |
|
|
|
1,248 |
|
|
|
506 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
10,499 |
|
|
$ |
426 |
|
|
$ |
4,039 |
|
|
$ |
4,862 |
|
|
$ |
572 |
|
|
$ |
672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
The change in net periodic cost is due primarily to higher amortization of actuarial losses,
which increased substantially last year from the decline in the valuation of plan investments in
the global capital markets. In addition, our expected return on plan assets in 2009 is based on
their lower valuation at December 31, 2008.
12. Stock-Based Compensation
The following table contains the total stock-based compensation expense recorded in selling,
general and administrative expense for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Stock options |
|
$ |
1,023 |
|
|
$ |
1,087 |
|
Performance shares |
|
|
35 |
|
|
|
(178 |
) |
Deferred stock units |
|
|
247 |
|
|
|
267 |
|
Restricted shares |
|
|
288 |
|
|
|
172 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,593 |
|
|
$ |
1,348 |
|
|
|
|
|
|
|
|
The following table contains information regarding the stock-based compensation as of and for
the six-month period ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Grant Date |
|
|
Remaining |
|
|
|
Number of |
|
|
Average Fair |
|
|
Fair Value of |
|
|
Service or |
|
|
|
Shares or |
|
|
Value per |
|
|
Shares or |
|
|
Performance |
|
|
|
Units Granted |
|
|
Share or Unit |
|
|
Units Granted |
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
thousands) |
|
|
(In years) |
|
Stock options |
|
|
676,700 |
|
|
$ |
0.49 |
|
|
$ |
335 |
|
|
|
3.7 |
|
Deferred stock units |
|
|
34,200 |
|
|
|
1.33 |
|
|
|
45 |
|
|
|
0.6 |
|
Restricted shares |
|
|
142,100 |
|
|
|
1.37 |
|
|
|
194 |
|
|
|
2.7 |
|
The stock-based compensation transaction in shareholders equity consisted of the
following for the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
|
|
|
|
|
in Treasury |
|
|
Paid-in |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
|
(In thousands) |
|
Stock options |
|
|
|
|
|
$ |
|
|
|
$ |
1,023 |
|
Performance shares, net |
|
|
167 |
|
|
|
(499 |
) |
|
|
344 |
|
Deferred stock units |
|
|
(34 |
) |
|
|
835 |
|
|
|
(588 |
) |
Directors deferred compensation |
|
|
|
|
|
|
(684 |
) |
|
|
684 |
|
Preferred stock conversions |
|
|
(1,057 |
) |
|
|
23,063 |
|
|
|
(21,175 |
) |
Restricted shares |
|
|
(135 |
) |
|
|
2,871 |
|
|
|
(2,583 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(1,059 |
) |
|
$ |
25,586 |
|
|
$ |
(22,295 |
) |
|
|
|
|
|
|
|
|
|
|
20
13. Restructuring and Cost Reduction Programs
During 2009, we continued several restructuring programs across a number of our business
segments with the objectives of leveraging our global scale, realigning and lowering our cost
structure and optimizing capacity utilization. The programs are primarily associated with North
America and Europe. Management continues to evaluate our business, and therefore, there may be
supplemental provisions for new plan initiatives as well as changes in estimates to amounts
previously recorded, as payments are made or actions are completed.
To date, we have made substantial progress on the restructuring activities, including exiting
manufacturing facilities and eliminating positions, which resulted in total restructuring charges
of $4.8 million and $13.7 million incurred in the first half of 2009 and 2008, respectively, of
which $3.7 million and $0.5 million, respectively, were recorded in cost of sales as it relates to
accelerated depreciation of assets to be disposed of and the remaining $1.1 million and
$13.2 million, respectively, are included in restructuring charges on the Condensed Consolidated
Statements of Operations.
The following restructuring programs had significant activities in the first half of 2009:
Restructuring Program in Rotterdam, Netherlands
In 2008, we discontinued porcelain enamel manufacturing and closed the manufacturing facility
in Rotterdam, Netherlands, and consolidated production at other European facilities. This
consolidation resulted in the reduction of 84 employees. Charges incurred through 2008 amounted to
$26.5 million. In the second quarter of 2009, a full environmental investigation of the facility
was conducted, and the result of the investigation significantly reduced our assessment of
potential environmental liability by $3.7 million from the amount previously recorded in
restructuring charges in 2007. This reduction in environmental reserve contributed to a
$3.3 million net credit to restructuring charges at this facility in the first half of 2009.
Included in property, plant and equipment is $0.8 million of assets classified as held for sale
representing the building located on this Rotterdam site.
Restructuring Program in Limoges, France
In January 2009, we initiated additional restructuring activities within our Inorganic
Specialties operations in Europe. We plan to discontinue smelting, milling and other manufacturing
operations in Limoges, France. These activities will be consolidated at other Company facilities in
St. Dizier, France; Frankfurt, Germany; and Almazora, Spain. In addition, all sales, technical
service and research and development activities currently being done in Limoges will be transferred
to St. Dizier and Frankfurt. The restructuring action is expected to be substantially completed at
the end of 2010. When the restructuring is completed, the Limoges site will be closed.
As a result of these restructuring actions, we expect to eliminate approximately 125 employee
positions. We expect to record pre-tax charges of approximately $29 million related to the actions
over the next seven quarters, although the exact timing of the charges cannot be determined at this
time. The expected charges include approximately $18 million in cash costs for employee
termination, approximately $7 million in site cleanup and other costs, and approximately $4 million
of non-cash asset write-offs.
As of June 30, 2009, the Limoges restructuring resulted in a workforce reduction of 25
employees, and we incurred costs of $3.4 million, primarily for employee severance costs.
Restructuring Program in Nules, Spain
In June 2009, as part of our frits and glazes restructuring program, we initiated additional
restructuring activities at our Inorganic Specialty operation in Nules, Spain. We have
discontinued the production of frits and glazes at this site. The production has been consolidated
at our facility in Almazora, Spain. As a result of the restructuring actions, we expect to
eliminate 35 positions. We expect to record pre-tax charges of approximately $5.7 million. As of
June 30, 2009, the restructuring activity resulted in a workforce reduction of seven employees, and
the associated severance costs incurred were not material. In addition, we incurred approximately
$3.3 million in accelerated depreciation included in cost of sales.
21
Restructuring Program in Penn Yan, New York
In April 2009, we initiated additional restructuring activities within our Electronic
Materials operation in Penn Yan, New York. The program is associated with planned elimination of
some Multi-Layer Ceramic Capacitor (MLCC) research and test capability in Penn Yan. As of
June 30, 2009, the Penn Yan restructuring resulted in a workforce reduction of 13 employees, and we
incurred costs of $0.4 million, primarily for employee severance costs.
Other Restructuring Programs
There had been no significant change in several other restructuring programs initiated in the
prior years. In the first half of 2009, the charges from these programs totaled $0.6 million,
primarily for additional severance costs and other costs.
We have summarized the activities and accruals related to our restructuring and cost reduction
programs below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
|
|
|
|
|
|
|
Termination |
|
|
Other |
|
|
|
|
|
|
Benefits |
|
|
Costs |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Balance at December 31, 2008 |
|
$ |
1,206 |
|
|
$ |
5,102 |
|
|
$ |
6,308 |
|
Restructuring charges |
|
|
3,657 |
|
|
|
(2,568 |
) |
|
|
1,089 |
|
Cash payments |
|
|
(4,473 |
) |
|
|
(1,172 |
) |
|
|
(5,645 |
) |
Currency translation adjustment |
|
|
(73 |
) |
|
|
163 |
|
|
|
90 |
|
Non-cash items |
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
322 |
|
|
$ |
1,525 |
|
|
$ |
1,847 |
|
|
|
|
|
|
|
|
|
|
|
We expect to make cash payments to settle the remaining liability for employee termination
benefits and other costs primarily over the next twelve months, except where legal or contractual
restrictions prevent us from doing so.
14. Discontinued Operations
In the fourth quarter of 2008, we sold our Fine Chemicals business. The following operations
of the Fine Chemicals business for the three and six months ended June 30, 2008, were removed from
continuing operations and included in discontinued operations in the Companys condensed
consolidated statement of operations.
|
|
|
|
|
|
|
|
|
|
|
Three |
|
|
Six |
|
|
|
months ended |
|
|
|
June 30, 2008 |
|
|
|
(Dollars in thousands) |
|
Net sales |
|
$ |
18,420 |
|
|
$ |
34,838 |
|
Cost of sales |
|
|
14,010 |
|
|
|
26,374 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
4,410 |
|
|
|
8,464 |
|
Selling, general and administrative expenses |
|
|
1,467 |
|
|
|
2,548 |
|
Other expense: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
446 |
|
|
|
920 |
|
|
|
|
|
|
|
|
Income from discontinued operations before income taxes |
|
|
2,497 |
|
|
|
4,996 |
|
Income tax expense |
|
|
814 |
|
|
|
1,669 |
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes |
|
$ |
1,683 |
|
|
$ |
3,327 |
|
|
|
|
|
|
|
|
22
Loss on disposal of discontinued operations consists of adjustments to the gross proceeds, net
assets sold or transaction costs related to the sale of the Fine Chemicals business and residual
legal and environmental costs directly related to the Powder Coatings, Petroleum Additives and
Specialty Ceramics businesses, which were sold in 2002 and 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Loss (income) on disposal of discontinued operations
before income tax benefit (expense) |
|
$ |
189 |
|
|
$ |
(15 |
) |
|
$ |
582 |
|
|
$ |
26 |
|
Income tax benefit (expense) |
|
|
73 |
|
|
|
(6 |
) |
|
|
224 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (income) on disposal of discontinued operations,
net of income tax benefit (expense) |
|
$ |
116 |
|
|
$ |
(9 |
) |
|
$ |
358 |
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have continuing environmental remediation obligations that are related to these
divestitures, and we had accrued $3.0 million at June 30, 2009, and $3.0 million at December 31,
2008, for these matters.
15. Per Share Amounts from Continuing Operations
Details of the calculation of basic and diluted earnings (loss) per share are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands,
except per
share amounts) |
|
Basic
(loss) earnings per share computation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to Ferro Corporation
common shareholders |
|
$ |
(12,007 |
) |
|
$ |
9,142 |
|
|
$ |
(32,513 |
) |
|
$ |
18,055 |
|
Adjustment for loss (income) from discontinued
operations |
|
|
116 |
|
|
|
(1,692 |
) |
|
|
358 |
|
|
|
(3,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(11,891 |
) |
|
$ |
7,450 |
|
|
$ |
(32,155 |
) |
|
$ |
14,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
44,701 |
|
|
|
43,622 |
|
|
|
44,533 |
|
|
|
43,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss)
earnings per share from continuing operations attributable to Ferro
Corporation common shareholders |
|
$ |
(0.27 |
) |
|
$ |
0.17 |
|
|
$ |
(0.72 |
) |
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share computation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Ferro Corporation
common shareholders |
|
$ |
(12,007 |
) |
|
$ |
9,142 |
|
|
$ |
(32,513 |
) |
|
$ |
18,055 |
|
Adjustment for loss (income) from discontinued
operations |
|
|
116 |
|
|
|
(1,692 |
) |
|
|
358 |
|
|
|
(3,311 |
) |
Plus: Convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(11,891 |
) |
|
$ |
7,450 |
|
|
$ |
(32,155 |
) |
|
$ |
14,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
44,701 |
|
|
|
43,622 |
|
|
|
44,533 |
|
|
|
43,639 |
|
Assumed exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed satisfaction of deferred stock unit conditions |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
7 |
|
Assumed conversion of convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed conversion of convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares outstanding |
|
|
44,701 |
|
|
|
43,633 |
|
|
|
44,533 |
|
|
|
43,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share from continuing operations attributable to Ferro
Corporation common shareholders |
|
$ |
(0.27 |
) |
|
$ |
0.17 |
|
|
$ |
(0.72 |
) |
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
16. Comprehensive Income (Loss)
The components of comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Net (loss) income |
|
$ |
(11,188 |
) |
|
$ |
9,893 |
|
|
$ |
(31,159 |
) |
|
$ |
19,443 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
22,637 |
|
|
|
25 |
|
|
|
4,973 |
|
|
|
21,531 |
|
Postretirement benefit liability adjustments |
|
|
(1,156 |
) |
|
|
(38 |
) |
|
|
661 |
|
|
|
(414 |
) |
Raw material commodity swap adjustments |
|
|
135 |
|
|
|
(393 |
) |
|
|
559 |
|
|
|
455 |
|
Interest rate swap adjustments |
|
|
1,719 |
|
|
|
3,209 |
|
|
|
2,125 |
|
|
|
606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
12,147 |
|
|
|
12,696 |
|
|
|
(22,841 |
) |
|
|
41,621 |
|
Less: Comprehensive income attributable to
noncontrolling interests |
|
|
592 |
|
|
|
836 |
|
|
|
980 |
|
|
|
1,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to
Ferro Corporation |
|
$ |
11,555 |
|
|
$ |
11,860 |
|
|
$ |
(23,821 |
) |
|
$ |
40,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. Reporting for Segments
The Company has six reportable segments: Performance Coatings, Electronic Materials, Color and
Glass Performance Materials, Polymer Additives, Specialty Plastics and Pharmaceuticals. We have
combined our Tile Coating Systems and Porcelain Enamel business units into one reportable segment,
Performance Coatings, because of their similar economic and operating characteristics.
The accounting policies of our segments are consistent with those described for our
consolidated financial statements in the summary of significant accounting policies contained in
our Annual Report on Form 10-K for the year ended December 31, 2008. We measure segment income for
internal reporting purposes as income from continuing operations before unallocated corporate
expenses, impairment charges, restructuring charges, other expense (income) items, such as interest
expense, and income tax expense. Unallocated corporate expenses primarily consist of corporate
employment costs and professional services.
Net sales to external customers by segment are presented in the table below. Sales between
segments were not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Performance Coatings |
|
$ |
117,333 |
|
|
$ |
178,504 |
|
|
$ |
225,921 |
|
|
$ |
339,296 |
|
Electronic Materials |
|
|
100,570 |
|
|
|
156,202 |
|
|
|
183,059 |
|
|
|
297,195 |
|
Color and Glass Performance Materials |
|
|
76,350 |
|
|
|
130,230 |
|
|
|
143,766 |
|
|
|
259,070 |
|
Polymer Additives |
|
|
62,998 |
|
|
|
98,715 |
|
|
|
122,445 |
|
|
|
191,026 |
|
Specialty Plastics |
|
|
36,934 |
|
|
|
63,609 |
|
|
|
71,793 |
|
|
|
125,402 |
|
Pharmaceuticals |
|
|
5,092 |
|
|
|
4,716 |
|
|
|
10,102 |
|
|
|
10,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
399,277 |
|
|
$ |
631,976 |
|
|
$ |
757,086 |
|
|
$ |
1,222,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Below are each segments income (loss) and reconciliations to income before taxes from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Performance Coatings |
|
$ |
6,225 |
|
|
$ |
12,785 |
|
|
$ |
5,626 |
|
|
$ |
22,265 |
|
Electronic Materials |
|
|
6,387 |
|
|
|
17,683 |
|
|
|
8,804 |
|
|
|
26,432 |
|
Color and Glass Performance Materials |
|
|
2,223 |
|
|
|
15,547 |
|
|
|
(232 |
) |
|
|
30,983 |
|
Polymer Additives |
|
|
1,588 |
|
|
|
4,599 |
|
|
|
3,477 |
|
|
|
7,318 |
|
Specialty Plastics |
|
|
2,709 |
|
|
|
3,237 |
|
|
|
4,171 |
|
|
|
4,724 |
|
Pharmaceuticals |
|
|
214 |
|
|
|
(1,679 |
) |
|
|
327 |
|
|
|
(457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment income |
|
|
19,346 |
|
|
|
52,172 |
|
|
|
22,173 |
|
|
|
91,265 |
|
Unallocated corporate expenses |
|
|
16,597 |
|
|
|
12,922 |
|
|
|
32,306 |
|
|
|
20,326 |
|
Restructuring charges |
|
|
(309 |
) |
|
|
9,031 |
|
|
|
1,089 |
|
|
|
13,238 |
|
Interest expense |
|
|
17,190 |
|
|
|
12,768 |
|
|
|
28,364 |
|
|
|
26,323 |
|
Other expense, net |
|
|
1,216 |
|
|
|
2,062 |
|
|
|
3,310 |
|
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes from
continuing operations |
|
$ |
(15,348 |
) |
|
$ |
15,389 |
|
|
$ |
(42,896 |
) |
|
$ |
29,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We sell our products throughout the world, and we attribute sales to countries based on the
country where we generate the customer invoice. We have detailed net sales by geographic region in
the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
United States |
|
$ |
180,963 |
|
|
$ |
265,362 |
|
|
$ |
351,017 |
|
|
$ |
506,495 |
|
Spain |
|
|
62,905 |
|
|
|
108,295 |
|
|
|
122,216 |
|
|
|
199,894 |
|
Other international |
|
|
155,409 |
|
|
|
258,319 |
|
|
|
283,853 |
|
|
|
516,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
399,277 |
|
|
$ |
631,976 |
|
|
$ |
757,086 |
|
|
$ |
1,222,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Weak customer demand continued in the 2009 second quarter as a result of the decline in
worldwide economic activity that intensified in the final months of 2008. Weak end-market demand
contributed to our customers decisions to reduce inventory, which contributed to the decline in
our sales compared with the second quarter of 2008.
Net sales declined by 37 percent in the three months ended June 30, 2009, compared with the
prior-year period. Sales declined in all segments except Pharmaceuticals and all regions
reflecting the global economic downturn. The primary driver of the sales decline was lower sales
volume, including reduced sales of precious metals. Lower sales of precious metals contributed
approximately 6 percentage points to the overall net sales decline. Changes in foreign currency
exchange rates were responsible for an additional approximately 3 percentage points of the sales
decline. Product mix and product prices had a slightly negative net effect on sales compared with
the second quarter of 2008.
The cost of raw materials declined in the quarter, in aggregate, compared with raw material
costs in the prior-year period. Changes in product prices offset much of the benefit of lower raw
material costs.
Selling, general and administrative (SG&A) expense declined as a result of actions to reduce
staffing and lower discretionary spending that were taken in response to lower customer demand for
our products. An increase in pension expense partially offset the overall reduction in SG&A
expense.
Restructuring provided a net benefit during the quarter as a result of a reduction in an
environmental reserve related to a closed manufacturing site in Europe. Partially offsetting this
benefit were charges for a number of ongoing restructuring initiatives, including the
rationalization of our European manufacturing operations. These initiatives are being undertaken
in order to lower manufacturing costs and adjust our manufacturing resources to the decline in
customer demand.
Interest expense increased in the second quarter of 2009 compared with the second quarter of
2008 as a result of higher average borrowing. As a result of an amendment to our credit facilities
that was signed in March 2009, the interest rates on our term loans and borrowings under our
revolving credit facility have increased, contributing to the increase in interest expense.
We recorded a loss from continuing operations in the 2009 second quarter as a result of lower
net sales and the corresponding decline in gross profit. Offsetting a portion of the decline in
gross profit were lower SG&A expense and reduced restructuring charges. Also contributing to the
loss was an increase in interest expense during the 2009 second quarter.
During 2008, we sold our Fine Chemicals business, which was previously part of our Other
Businesses segment. The results from Fine Chemicals are now included in discontinued operations
for all periods.
Outlook
Economic activity around the world continued to be weak through the first half of 2009 as
reflected in sharply lower customer demand for our products. Demand remains significantly less
than prior-year periods, particularly from customers serving markets related to construction,
automobiles and appliances. Reductions in inventory, made by companies throughout the supply
chain, have contributed to the decline in demand for our products, although this inventory
destocking appears to be abating.
We expect the weak worldwide economic conditions to continue for the next several quarters.
Our ability to forecast future financial results is limited due to the volatility of worldwide
economic drivers, the effects of difficult credit markets on our customers and the uncertain timing
of a recovery in end-market demand.
Factors that could adversely affect our future financial performance are described under the
heading Risk Factors in Item 1A of Part I of our Annual Report on Form 10-K for the year ended
December 31, 2008.
26
Results of Operations
Comparison of the three months ended June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands, |
|
|
|
|
|
|
except per share amounts) |
|
|
|
|
Net sales |
|
$ |
399,277 |
|
|
$ |
631,976 |
|
|
$ |
(232,699 |
) |
|
|
(36.8 |
%) |
Cost of sales |
|
|
334,048 |
|
|
|
513,002 |
|
|
|
(178,954 |
) |
|
|
(34.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
65,229 |
|
|
|
118,974 |
|
|
|
(53,745 |
) |
|
|
(45.2 |
%) |
Gross profit percentage |
|
|
16.3 |
% |
|
|
18.8 |
% |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
62,480 |
|
|
|
79,724 |
|
|
|
(17,244 |
) |
|
|
(21.6 |
%) |
Restructuring charges |
|
|
(309 |
) |
|
|
9,031 |
|
|
|
(9,340 |
) |
|
|
(103.4 |
%) |
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
17,190 |
|
|
|
12,768 |
|
|
|
4,422 |
|
|
|
34.6 |
% |
Interest earned |
|
|
(205 |
) |
|
|
(142 |
) |
|
|
(63 |
) |
|
|
44.4 |
% |
Foreign currency losses, net |
|
|
1,100 |
|
|
|
650 |
|
|
|
450 |
|
|
|
69.2 |
% |
Miscellaneous expense, net |
|
|
321 |
|
|
|
1,554 |
|
|
|
(1,233 |
) |
|
|
(79.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes |
|
|
(15,348 |
) |
|
|
15,389 |
|
|
|
(30,737 |
) |
|
|
(199.7 |
%) |
Income tax (benefit) expense |
|
|
(4,276 |
) |
|
|
7,188 |
|
|
|
(11,464 |
) |
|
|
(159.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(11,072 |
) |
|
|
8,201 |
|
|
|
(19,273 |
) |
|
|
(235.0 |
%) |
(Loss) income from discontinued operations,
net of income tax |
|
|
(116 |
) |
|
|
1,692 |
|
|
|
(1,808 |
) |
|
|
(106.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(11,188 |
) |
|
$ |
9,893 |
|
|
$ |
(21,081 |
) |
|
|
(213.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share |
|
$ |
(0.27 |
) |
|
$ |
0.21 |
|
|
$ |
(0.48 |
) |
|
|
(228.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales in the three months ended June 30, 2009, declined primarily as a result of lower
sales volume due to the current global economic downturn. The volume decline included reduced
sales of precious metals. Lower precious metals sales contributed approximately 6 percentage
points to the overall sales decline. In addition, changes in foreign currency exchange rates were
responsible for approximately 3 percentage points of the sales decline. Sales declined in all
segments, except Pharmaceuticals, and in all regions.
Gross profit was lower in the 2009 second quarter as a result of the decline in net sales.
Reduced cost of sales resulting from cost reduction initiatives, including staffing reductions,
plant closures and restructuring initiatives, partially offset the decline in gross profit. Raw
material costs declined compared with the 2008 second quarter. The benefit from lower raw material
costs was largely offset by lower product prices. Charges primarily related to manufacturing
rationalization activities reduced the 2009 second quarter gross profit by approximately
$3.7 million. Gross profit was reduced by $1.4 million in the second quarter of 2008 as a result
of asset write-offs and costs related to manufacturing rationalization activities.
Selling, general and administrative (SG&A) expense declined by $17.2 million compared with
the second quarter of 2008. SG&A as a percent of sales increased to 15.6% from 12.6% in the
prior-year period due to the decline in net sales in the 2009 second quarter. SG&A expense
declined as a result of expense reduction efforts taken in response to weak customer demand. The
expense reductions included reduced staffing, lower incentive compensation expense, reduced discretionary spending and a furlough program for salaried employees. Partially offsetting
these declines was an approximate $5.0 million increase in pension expense. SG&A expense in the
2009 second quarter included charges of $3.0 million primarily related to expense reduction
initiatives and manufacturing rationalization related charges. The 2008 second-quarter SG&A
expense included charges of $2.4 million primarily related to corporate development activities,
asset write-offs and employee severance expenses.
27
Restructuring activities resulted in a net benefit of $0.3 million in the 2009 second quarter.
The benefit was the result of a $3.7 million reduction in an environmental reserve related to a
closed manufacturing site in Europe. This benefit was largely offset by restructuring charges
primarily related to manufacturing rationalization activities in Europe. Restructuring charges
were $9.0 million in the second quarter of 2008.
Interest expense increased because of higher average borrowings and increased interest rates
resulting from an amendment to our credit facilities that was signed in March 2009.
Net foreign currency transaction losses were $1.1 million in the 2009 second quarter compared
with losses of $0.6 million in the prior-year period. We manage currency translation risks in a
wide variety of foreign currencies principally by entering into forward contracts to mitigate the
impact of currency fluctuations on transactions arising from international trade. The carrying
values of these contracts are adjusted to market value and the resulting gains and losses are
charged to income or expense in the period.
The income tax benefit for the 2009 second quarter was $4.3 million or 27.9% of the loss
before income taxes, compared with income tax expense of $7.2 million or 46.7% of pre-tax income in
the prior-year period. The primary reason for the decrease in the effective tax rate was a
reduction to the benefit realized for current net operating losses that have been offset by a full
valuation allowance.
The 2009 second quarter loss from operations was the result of lower net sales and the
consequent reduction in gross profit, as well as higher interest expense. Reduced SG&A expense and
reduced restructuring charges helped to reduce the loss from operations.
During 2008, we sold the Fine Chemicals business, which was previously part of our Other
Businesses segment. As a consequence of the sale, the results from Fine Chemicals are now included
in discontinued operations for all periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Segment Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Coatings |
|
$ |
117,333 |
|
|
$ |
178,504 |
|
|
$ |
(61,171 |
) |
|
|
(34.3 |
%) |
Electronic Materials |
|
|
100,570 |
|
|
|
156,202 |
|
|
|
(55,632 |
) |
|
|
(35.6 |
%) |
Color & Glass Performance Materials |
|
|
76,350 |
|
|
|
130,230 |
|
|
|
(53,880 |
) |
|
|
(41.4 |
%) |
Polymer Additives |
|
|
62,998 |
|
|
|
98,715 |
|
|
|
(35,717 |
) |
|
|
(36.2 |
%) |
Specialty Plastics |
|
|
36,934 |
|
|
|
63,609 |
|
|
|
(26,675 |
) |
|
|
(41.9 |
%) |
Pharmaceuticals |
|
|
5,092 |
|
|
|
4,716 |
|
|
|
376 |
|
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment sales |
|
$ |
399,277 |
|
|
$ |
631,976 |
|
|
$ |
(232,699 |
) |
|
|
(36.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Coatings |
|
$ |
6,225 |
|
|
$ |
12,785 |
|
|
$ |
(6,560 |
) |
|
|
(51.3 |
%) |
Electronic Materials |
|
|
6,387 |
|
|
|
17,683 |
|
|
|
(11,296 |
) |
|
|
(63.9 |
%) |
Color & Glass Performance Materials |
|
|
2,223 |
|
|
|
15,547 |
|
|
|
(13,324 |
) |
|
|
(85.7 |
%) |
Polymer Additives |
|
|
1,588 |
|
|
|
4,599 |
|
|
|
(3,011 |
) |
|
|
(65.5 |
%) |
Specialty Plastics |
|
|
2,709 |
|
|
|
3,237 |
|
|
|
(528 |
) |
|
|
(16.3 |
%) |
Pharmaceuticals |
|
|
214 |
|
|
|
(1,679 |
) |
|
|
1,893 |
|
|
|
(112.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
$ |
19,346 |
|
|
$ |
52,172 |
|
|
$ |
(32,826 |
) |
|
|
(62.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Coatings Segment Results. Sales declined in Performance Coatings as a result of
lower volumes of tile coating and porcelain enamel products. Unfavorable changes in foreign
currency exchange rates also contributed to the sales decline. Sales were lower in all regions,
but declined most sharply in Europe. Operating income declined primarily as a result of the
negative effects of lower sales volume, partially offset by reductions in selling general and
administrative expense.
28
Electronic Materials Segment Results. Sales declined in Electronic Materials as a result of
lower sales volume, particularly related to reduced demand for dielectric materials sold to Asian
customers. Excess channel inventory related to capacitor products that customers manufacture using
our dielectric products continued into the second quarter and resulted in extended customer plant
shutdowns and reduced demand for our products. The decline in Electronic Materials sales also was
the result of reduced sales of precious metals. Costs of precious metals are generally passed
through to customers with minimal gross profit contribution. Operating income declined primarily
due to the negative effects of lower manufacturing volumes, partially offset by reduced selling,
general and administrative expense.
Color and Glass Performance Materials Segment Results. Sales in Color and Glass Performance
Materials declined as a result of lower sales volume, unfavorable product prices and mix, and
unfavorable changes in foreign currency exchange rates. All regions contributed to the sales
decline. Operating income declined primarily due to the lower sales volumes, partially offset by
lower selling, general and administrative expenses and lower raw material costs.
Polymer Additives Segment Results. Sales declined in Polymer Additives primarily as a result
of lower sales volume, and to a lesser extent, reduced product prices. Sales declined in Europe
and the United States, the primary markets for these products. Operating profit declined from the
prior-year period as a result of the negative effects of lower sales volume, partially offset by
reduced selling, general and administrative expense and lower raw material costs.
Specialty Plastics Segment Results. Sales declined in Specialty Plastics as a result of lower
sales volume in the United States and Europe. Operating income declined as a result of the effects
of lower sales volumes, partially offset by lower manufacturing spending and reduced selling,
general and administrative expense.
Pharmaceuticals Segment Results. Sales increased primarily as a result of improved product
mix. The improved product mix was also reflected in the operating income for the quarter, compared
with a loss in the prior-year period. Results related to our Fine Chemicals business, which had
previously been combined with the results from our Pharmaceutical business and reported as Other
Businesses, are now reported as discontinued operations following the sale of the Fine Chemicals
business in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Geographic Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
180,963 |
|
|
$ |
265,362 |
|
|
$ |
(84,399 |
) |
|
|
(31.8 |
%) |
International |
|
|
218,314 |
|
|
|
366,614 |
|
|
|
(148,300 |
) |
|
|
(40.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
399,277 |
|
|
$ |
631,976 |
|
|
$ |
(232,699 |
) |
|
|
(36.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales declined in all regions due to lower sales volumes resulting from the worldwide economic
downturn and the resulting reduction in customer demand. Also contributing to the sales decline
were reduced sales of precious metals and unfavorable changes in foreign currency exchange rates.
29
Comparison of the six months ended June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands, |
|
|
|
|
|
|
except per share amounts) |
|
|
|
|
Net sales |
|
$ |
757,086 |
|
|
$ |
1,222,814 |
|
|
$ |
(465,728 |
) |
|
|
(38.1 |
%) |
Cost of sales |
|
|
636,611 |
|
|
|
994,575 |
|
|
|
(357,964 |
) |
|
|
(36.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
120,475 |
|
|
|
228,239 |
|
|
|
(107,764 |
) |
|
|
(47.2 |
%) |
Gross profit percentage |
|
|
15.9 |
% |
|
|
18.7 |
% |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
130,608 |
|
|
|
157,300 |
|
|
|
(26,692 |
) |
|
|
(17.0 |
%) |
Restructuring charges |
|
|
1,089 |
|
|
|
13,238 |
|
|
|
(12,149 |
) |
|
|
(91.8 |
%) |
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
28,364 |
|
|
|
26,323 |
|
|
|
2,041 |
|
|
|
7.8 |
% |
Interest earned |
|
|
(473 |
) |
|
|
(271 |
) |
|
|
(202 |
) |
|
|
74.5 |
% |
Foreign currency losses (gains), net |
|
|
2,929 |
|
|
|
(891 |
) |
|
|
3,820 |
|
|
|
(428.7 |
%) |
Miscellaneous expense, net |
|
|
854 |
|
|
|
2,994 |
|
|
|
(2,140 |
) |
|
|
(71.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes |
|
|
(42,896 |
) |
|
|
29,546 |
|
|
|
(72,442 |
) |
|
|
(245.2 |
%) |
Income tax (benefit) expense |
|
|
(12,095 |
) |
|
|
13,414 |
|
|
|
(25,509 |
) |
|
|
(190.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(30,801 |
) |
|
|
16,132 |
|
|
|
(46,933 |
) |
|
|
(290.9 |
%) |
(Loss) income from discontinued operations,
net of income tax |
|
|
(358 |
) |
|
|
3,311 |
|
|
|
(3,669 |
) |
|
|
(110.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(31,159 |
) |
|
$ |
19,443 |
|
|
$ |
(50,602 |
) |
|
|
(260.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share |
|
$ |
(0.73 |
) |
|
$ |
0.42 |
|
|
$ |
(1.15 |
) |
|
|
(273.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the six months ended June 30, 2009, declined by 38 percent compared with the
first half of 2008 primarily as a result of reduced sales volume as our customers responded to the
worldwide economic downturn. Reduced sales of precious metals contributed approximately 7
percentage points to the overall sales decline. In addition, changes in foreign currency exchange
rates were responsible for approximately 4 percentage points of the sales decline. Sales declined
in all segments and in all regions.
Gross profit declined in the first half of 2009 compared with the prior-year period, primarily
as a result of lower sales volume. Reduced cost of sales resulting from cost reduction initiatives
including staffing reductions, plant closures and restructuring actions, partially offset the
decline in gross profit. Raw material costs also declined compared with the first half of 2008;
however, the benefit from lower raw material costs was partially offset by lower product prices.
Gross profit for the 2009 first half was reduced by charges of $3.7 million primarily related to
accelerated depreciation and other costs of manufacturing rationalization activities. Gross profit
in the first half of 2008 was reduced by charges of $1.6 million primarily related to asset
write-offs and manufacturing rationalization activities. Also, first-half 2008 gross profit was
reduced by costs of approximately $3.3 million to clean up an accidental discharge of product into
the wastewater treatment facility at our Bridgeport, New Jersey, manufacturing location.
Selling, general and administrative (SG&A) expense declined by $26.7 million in the first
six months of 2009, compared with the prior-year period. The decline in SG&A expense was driven by
expense reduction efforts including reduced staffing, lower incentive compensation expense and
containment of discretionary spending. Partially offsetting these reductions was an increase of
approximately $9.8 million in pension expense that resulted from a reduction in the value of
pension assets in 2008 and higher health care expenses. SG&A expense for the first half of 2009
included charges of $4.3 million primarily related to expense reduction initiatives and
manufacturing rationalization related charges. The 2008 first-half SG&A expense included net
charges of $1.9 million primarily related to charges for corporate development activities, asset
write-offs and employee severance expenses, partially offset by benefits from litigation
settlements and insurance proceeds.
30
Restructuring charges of $1.1 million were recorded in the first half of 2009, a decline from
restructuring charges of $13.2 million in the first half of 2008. During the first six months of
2009, we recorded a benefit of approximately $3.7 million resulting from a reduction of an
environmental reserve related to a closed manufacturing site in Europe. Offsetting this benefit
were charges primarily related to manufacturing rationalization activities in our Performance
Coatings and Color and Glass Performance Materials segments.
Interest expense increased in the first six months of 2009 compared with the prior-year period
due to higher average borrowings and increased interest rates resulting from an amendment to our
credit facilities that was signed in March 2009.
Net foreign currency transaction losses were $2.9 million in the 2009 first half compared with
gains of $0.9 million in the prior-year period. We manage currency translation risks in a wide
variety of foreign currencies principally by entering into forward contracts to mitigate the impact
of currency fluctuations on transactions arising from international trade. The carrying values of
these contracts are adjusted to market value and the resulting gains and losses are charged to
income or expense in the period.
The income tax benefit for the 2009 first half was $12.1 million or 28.2% of the loss before
income taxes, compared with income tax expense of $13.4 million or 45.4% of pre-tax income in the
prior-year period. The primary reason for the decrease in the effective tax rate was a reduction
to the benefit realized for current net operating losses that have been offset by a full valuation
allowance.
The loss from operation in the first six months of 2009 was the result of reduced sales volume
and the related reduction in gross profit, partially offset by reduced SG&A expense and lower
restructuring charges.
During 2008, we sold the Fine Chemicals business, which was previously part of our Other
Businesses segment. The results from Fine Chemicals are now included in discontinued operations
for all periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Segment Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Coatings |
|
$ |
225,921 |
|
|
$ |
339,296 |
|
|
$ |
(113,375 |
) |
|
|
(33.4 |
%) |
Electronic Materials |
|
|
183,059 |
|
|
|
297,195 |
|
|
|
(114,136 |
) |
|
|
(38.4 |
%) |
Color & Glass Performance Materials |
|
|
143,766 |
|
|
|
259,070 |
|
|
|
(115,304 |
) |
|
|
(44.5 |
%) |
Polymer Additives |
|
|
122,445 |
|
|
|
191,026 |
|
|
|
(68,581 |
) |
|
|
(35.9 |
%) |
Specialty Plastics |
|
|
71,793 |
|
|
|
125,402 |
|
|
|
(53,609 |
) |
|
|
(42.7 |
%) |
Pharmaceuticals |
|
|
10,102 |
|
|
|
10,825 |
|
|
|
(723 |
) |
|
|
(6.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment sales |
|
$ |
757,086 |
|
|
$ |
1,222,814 |
|
|
$ |
(465,728 |
) |
|
|
(38.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Coatings |
|
$ |
5,626 |
|
|
$ |
22,265 |
|
|
$ |
(16,639 |
) |
|
|
(74.7 |
%) |
Electronic Materials |
|
|
8,804 |
|
|
|
26,432 |
|
|
|
(17,628 |
) |
|
|
(66.7 |
%) |
Color & Glass Performance Materials |
|
|
(232 |
) |
|
|
30,983 |
|
|
|
(31,215 |
) |
|
|
(100.7 |
%) |
Polymer Additives |
|
|
3,477 |
|
|
|
7,318 |
|
|
|
(3,841 |
) |
|
|
(52.5 |
%) |
Specialty Plastics |
|
|
4,171 |
|
|
|
4,724 |
|
|
|
(553 |
) |
|
|
(11.7 |
%) |
Pharmaceuticals |
|
|
327 |
|
|
|
(457 |
) |
|
|
784 |
|
|
|
(171.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
$ |
22,173 |
|
|
$ |
91,265 |
|
|
$ |
(69,092 |
) |
|
|
(75.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Coatings Segment Results. Sales declined in Performance Coatings as a result of
lower volumes of tile coating and porcelain enamel products. Unfavorable changes in foreign
currency exchange rates also contributed to the sales decline. Sales were lower in all regions,
with the sharpest decline in Europe. Operating income declined primarily as a result of the
negative effects of lower sales volume, partially offset by reductions in selling general and
administrative expense and lower manufacturing costs.
31
Electronic Materials Segment Results. Sales declined in Electronic Materials as a result of
lower sales volume, particularly related to reduced demand for dielectric materials sold to Asian
customers. Excess channel inventory related to capacitor products that customers manufacture using
our dielectric products during the first six months of 2009 resulted in extended customer plant
shutdowns and reduced demand for our products. The decline in Electronic Materials sales also was
the result of reduced sales of precious metals. Sales of precious metals fluctuate with our
product sales volume and the price of the precious metals, as costs of precious metals are
generally passed through to customers with minimal gross profit contribution. Operating income
declined primarily due to the negative effects of lower manufacturing volumes, partially offset by
reduced selling, general and administrative expense.
Color and Glass Performance Materials Segment Results. Sales in Color and Glass Performance
Materials declined as a result of lower sales volume, unfavorable product prices and mix, and
unfavorable changes in foreign currency exchange rates. All regions contributed to the sales
decline. Operating income declined primarily due to the lower sales volumes, partially offset by
lower selling, general and administrative expenses and lower manufacturing costs.
Polymer Additives Segment Results. Sales declined in Polymer Additives primarily as a result
of lower sales volume, and to a lesser extent, reduced product prices. Sales declined in Europe
and the United States, the primary markets for these products. Operating profit declined from the
prior-year period as a result of the negative effects of lower sales volume, partially offset by
lower manufacturing spending and reduced selling, general and administrative expense.
Specialty Plastics Segment Results. Sales declined in Specialty Plastics as a result of lower
sales volume in the United States and Europe. Operating income declined as a result of the effects
of lower sales volumes, partially offset by lower manufacturing spending and reduced selling,
general and administrative expense.
Pharmaceuticals Segment Results. Sales declined slightly in the six-month period primarily as
a result of a less favorable product mix. An operating profit was recorded during the first half
of 2009, compared with a loss in the prior-year period, primarily due to the benefits of an
improved product mix in the second quarter. Results related to our Fine Chemicals business, which
had previously been combined with the results from our Pharmaceutical business and reported as
Other Businesses, are now reported as discontinued operations following the sale of the Fine
Chemicals business in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Geographic Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
351,017 |
|
|
$ |
506,495 |
|
|
$ |
(155,478 |
) |
|
|
(30.7 |
%) |
International |
|
|
406,069 |
|
|
|
716,319 |
|
|
|
(310,250 |
) |
|
|
(43.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
757,086 |
|
|
$ |
1,222,814 |
|
|
$ |
(465,728 |
) |
|
|
(38.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales declined in all regions due to lower sales volumes resulting from the worldwide economic
downturn and the resulting reduction in customer demand. Also contributing to the sales decline
were reduced sales of precious metals and unfavorable changes in foreign currency exchange rates.
32
Summary of Cash Flows for the six months ended June 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Net cash (used for) provided by
operating activities |
|
$ |
(40,486 |
) |
|
$ |
6,693 |
|
|
$ |
(47,179 |
) |
|
|
(704.9 |
%) |
Net cash used for investing activities |
|
|
(22,897 |
) |
|
|
(33,926 |
) |
|
|
11,029 |
|
|
|
(32.5 |
%) |
Net cash provided by (used for)
financing activities |
|
|
69,449 |
|
|
|
28,550 |
|
|
|
40,899 |
|
|
|
143.3 |
% |
Effect of exchange rate changes on cash
and cash equivalents |
|
|
1,235 |
|
|
|
48 |
|
|
|
1,187 |
|
|
|
2,472.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
7,301 |
|
|
$ |
1,365 |
|
|
$ |
5,936 |
|
|
|
434.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities decreased by $47.2 million in the first half of 2009
compared with the prior-year period. In the first half of 2009, we funded $80.4 million of
deposits required by financial institutions under our precious metals program. Cash flows from
operating activities were also affected by the $50.6 million decrease in net income. Partially
offsetting these effects was an increase of $117.3 million in cash provided by changes in inventory
levels.
Within investing activities, we reduced capital expenditures to $23.0 million in the first
half of 2009 from $33.0 million in the first half of 2008.
Cash flows from financing activities increased by $40.9 million, of which $31.5 million
related to borrowing activity. The first half of 2009 also included $9.4 million of debt issuance
costs related to an amendment of our revolving credit and term loan facility and a new domestic
accounts receivable asset securitization program, while the first half of 2008 included higher
dividend payments of $12.4 million
Capital Resources and Liquidity
6.50% Convertible Senior Notes
In 2008, Ferro issued $172.5 million of 6.50% Convertible Senior Notes due 2013 (the
Convertible Notes). The proceeds from the offering, along with available cash, including
borrowings under Ferros revolving credit facility, were used to purchase all of Ferros
outstanding 9 1/8% Senior Notes due 2009. The Convertible Notes bear interest at a rate of 6.5%
per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on
February 15, 2009. The Convertible Notes mature on August 15, 2013. We separately account for the
liability and equity components of the Convertible Notes in a manner that will reflect our
nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The
effective interest rate on the liability component is 9.5%. At June 30, 2009, we were in
compliance with the covenants under the Convertible Notes indenture.
Revolving Credit and Term Loan Facility
In 2006, we entered into an agreement with a group of lenders for a $700 million credit
facility, consisting of a multi-currency senior revolving credit facility and a senior term loan
facility, which replaced a former revolving credit facility that would have expired later that
year. In 2007, we cancelled the unused portion of the term loan facility and amended the credit
facility (the 2007 Amended Credit Facility) primarily to increase the size of the revolving
credit facility, reduce interest rates, and increase operating flexibility. On March 11, 2009, we
amended the 2007 Amended Credit Facility (the 2009 Amended Credit Facility) primarily to provide
additional operating flexibility and to change pricing to more accurately reflect current market
interest rates. The amendment was filed as Exhibit 10.1 to our Annual Report on Form 10-K for the
year ended December 31, 2008. The primary effects of the 2009 Amended Credit Facility were to:
|
|
Increase the interest rates and commitment fees payable thereunder pursuant to a grid
structure based on our leverage ratio, |
|
|
Increase the maximum permitted quarterly leverage ratio and decrease the minimum
permitted quarterly fixed charge coverage ratio, |
33
|
|
Add a minimum cumulative EBITDA requirement for each quarter in 2009, |
|
|
Restrict the Companys ability to engage in acquisitions and make investments, |
|
|
Limit the amount of cash and cash equivalent collateral the Company is permitted to
deliver to participants in our precious metals program to secure our obligations arising
under the precious metals consignment agreements, |
|
|
Require additional financial reporting by the Company to the lenders, |
|
|
Increase the amount of the annual excess cash flow required to be used to repay term
loans, |
|
|
Require application of the net proceeds of certain dispositions, but excluding the first
$20 million of such net proceeds, to be applied to repay debt outstanding under the
revolving credit facility and term loans and to permanently reduce availability under the
revolving loan facility on a dollar for dollar basis, provided that we are not required to
reduce the commitments under the revolving credit facility to below $150 million, |
|
|
Eliminate our ability to request an increase of $50 million in the revolving credit
facility, |
|
|
Add provisions governing the obligations of the Company and the lenders if one or more
lenders under the revolving credit facility fails to satisfy its funding obligations or
otherwise becomes a defaulting lender, and |
|
|
Restrict our ability to make payments with respect to our capital securities. The 2009
Amended Credit Facility effectively prohibits us from paying dividends on our preferred and
common stock beginning in the second quarter of 2009. |
The 2009 Amended Credit Facility currently includes a $300.0 million revolving credit
facility, which matures in 2011. At June 30, 2009, we had borrowed $161.7 million of the revolver
and had $131.4 million available, after reductions for standby letters of credit secured by this
facility. At December 31, 2008, we had borrowed $111.8 million of the revolver and had
$180.0 million available. The increase in borrowings under our revolver was driven by our
decision, as discussed below, to cash collateralize certain precious metals consignment agreements.
At June 30, 2009, the 2009 Amended Credit Facility also included a term loan facility with an
outstanding principal balance of $291.0 million, which matures in 2012. We make periodic principal
payments on the term loans. We are required to make minimum quarterly principal payments of
$0.8 million from July 2009 to July 2011. During the last year of the loans life, we are required
to repay the remaining balance of the term loans in four quarterly installments. Currently, those
last four payments will be $71.0 million each. In addition to the minimum quarterly payments, each
April we may be required to make an additional principal payment. The amount of this additional payment is
dependent on the Companys leverage and certain cash flow metrics. Any additional payment that is
required reduces, on a dollar-for-dollar basis, the amount due in the last four quarterly payments.
We were not required to make an additional principal payment in April 2009.
We are subject to a number of restrictive covenants under our credit facilities, which could
affect our flexibility to fund ongoing operations and strategic initiatives, and, if we are unable
to maintain compliance with such covenants, could lead to significant challenges in meeting our
liquidity requirements. This risk factor is described in more detail in Risk Factors under Item
1A of our Annual Report on Form 10-K for the year ended December 31, 2008. Continued weak economic
conditions could impact our financial performance, making it more challenging to comply with the
financial covenants. At June 30, 2009, we were in compliance with the covenants of the 2009
Amended Credit Facility.
34
Domestic Receivable Sales Program
We have an asset securitization program for substantially all of Ferros U.S. trade accounts
receivable. This program accelerates cash collections at favorable financing costs and helps us
manage the Companys liquidity requirements. In June 2009, we replaced the prior program with a
new program that expires in June 2010 and reduced the programs size from $75 million to
$50 million.
We legally sell these trade accounts receivable to Ferro Finance Corporation (FFC), which
finances its acquisition of trade receivable assets by selling undivided variable percentage
interests in the receivables to certain purchasers under the program. Advances by the purchasers
are secured by, and repaid through collections on, the receivables owned by FFC. FFC and the
purchasers have no recourse to Ferros other assets for failure of payment of the receivables as a
result of the lack of creditworthiness or financial inability to pay of the related obligor. FFC
is a wholly-owned subsidiary, which until December 2008 was a qualified special purpose entity
(QSPE) and, therefore, was not consolidated. In December 2008, FFC ceased to meet the
requirements of a QSPE and is included in our consolidated financial statements. As a result, this
program is now accounted for as an on balance sheet arrangement.
At June 30, 2009, Ferros consolidated balance sheet includes outstanding trade accounts
receivable legally transferred to FFC of $87.6 million and short-term debt from advances by the
purchasers for their interests in those receivables of $25.4 million. After reductions for
non-qualifying receivables, there was no additional availability under the program at June 30,
2009.
Off Balance Sheet Arrangements
International Receivable Sales Programs. We maintain several international programs to sell
trade accounts receivable. At June 30, 2009, the commitments supporting these programs, which can
be withdrawn at any time, totaled $69.5 million, the amount of outstanding receivables sold under
these programs was $19.7 million, and Ferro had received net proceeds under these programs of
$16.3 million for outstanding receivables. Based on available and qualifying receivables, there
was no additional availability under these programs at June 30, 2009.
Consignment and Customer Arrangements for Precious Metals. In the production of some of our
products, we use precious metals, primarily silver for Electronic Materials products and gold for
Color and Glass Performance Materials products. We obtain most precious metals from financial
institutions under consignment agreements (generally referred to as our precious metals program).
The financial institutions retain ownership of the precious metals and charge us fees based on the
amounts we consign. These fees were $1.2 million and $2.5 million for the three and six months
ended June 30, 2009, respectively. At June 30, 2009, we had on hand $88.1 million of precious
metals, measured at fair value, owned by participants in our precious metals program. We also
process precious metals owned by our customers.
The consignment agreements involve short-term commitments that typically mature within 30 to
180 days of each transaction and are typically renewed on an ongoing basis. As a result, the
Company relies on the continued willingness of financial institutions to participate in these
arrangements to maintain this source of liquidity. During the first half of 2009,
participants in our precious metals program required Ferro to deliver cash collateral to secure
Ferros obligations arising under the consignment agreements. At June 30, 2009, Ferro had
delivered $80.4 million in cash collateral, representing 91% of the value of precious metals under
consignment, to induce those financial institutions to continue participating in Ferros precious metals program.
If participants in our precious metals program require cash collateral to secure our
obligations, Ferro may choose to provide such collateral or purchase the precious metal outright as
an alternative to continuing the consignment arrangements. This would require us to borrow under
our revolving credit facility or raise funds from other financing sources. Such borrowings would
reduce our liquidity and increase our borrowing costs. The 2009 Amended Credit Facility prohibits
Ferro from delivering cash and cash equivalent collateral in excess of $120 million to participants
in our precious metals program. Accordingly, Ferro would be required to purchase precious metals
outright if these participants were unwilling to deliver metals in quantities sufficient to meet
the Companys operating requirements without exceeding the cash collateral limits set forth in the
credit facility. Ferro is pursuing a variety of initiatives intended to reduce the amount of
precious metals required to support our manufacturing operations and reduce our dependence on
consignment agreements.
35
Bank Guarantees and Standby Letters of Credit. At June 30, 2009, the Company and its
subsidiaries had bank guarantees and standby letters of credit issued by financial institutions,
which totaled $13.4 million. These agreements primarily relate to Ferros insurance programs and
foreign tax payments.
Other Financing Arrangements
We maintain other lines of credit to provide global flexibility for Ferros short-term
liquidity requirements. These facilities are uncommitted lines for our international operations and
totaled $24.6 million at June 30, 2009. The unused portions of these lines provided $15.9 million
of additional liquidity at June 30, 2009.
Liquidity Requirement
Our liquidity requirements primarily include debt service, purchase commitments, working
capital requirements, capital investments, and postretirement obligations. We expect to meet these
requirements through cash provided by operating activities and availability under existing or
replacement credit facilities or other financing arrangements. Ferros access to liquidity, level
of debt and debt service requirements could have important consequences to its business operations
and uses of cash flows.
Recent difficulties experienced in global capital markets could affect the ability or
willingness of counterparties to perform under our various lines of credit, receivable sales
programs, forward contracts, and precious metal lease programs. These counterparties are major,
reputable, multinational institutions, all having investment-grade credit ratings except for one,
which is not rated. Accordingly, we do not anticipate counterparty default. However, an
interruption in access to external financing could adversely affect our business prospects and
financial condition.
We assess on an ongoing basis our portfolio of businesses, as well as our financial and
capital structure, to ensure that we have sufficient capital and liquidity to meet our strategic
objectives. As part of this process, from time to time we evaluate the possible divestiture of
businesses that are not critical to our core strategic objectives and, where appropriate, pursue
the sale of such businesses. We also evaluate and pursue acquisition opportunities that we believe
will enhance our strategic position. We generally announce publicly divestiture and acquisition
transactions only when we have entered into definitive agreements relating to those transactions.
Critical Accounting Policies and Their Application
There are no material changes to our critical accounting policies described in Critical
Accounting Policies within Item 7 of the Companys Annual Report on Form 10-K for the year ended
December 31, 2008.
Newly Issued Accounting Pronouncements
In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets
an amendment of FASB Statement No. 140, (FAS No. 166). This pronouncement amends the guidance
in Statement No. 140 for derecognition of transferred financial assets. FAS No. 166 is effective
for financial asset transfers occurring after the beginning of our fiscal year that begins January 1, 2010. Early adoption of FAS No. 166 is
prohibited. We are in the process of evaluating the impact that the adoption of FAS No. 166 may
have on our consolidated financial statements.
In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R),
(FAS No. 167). This pronouncement amends the consolidation guidance that applies to variable
interest entities (VIEs). FAS No. 167 is effective for our fiscal year that begins January 1,
2010, and early adoption is prohibited. We are in the process of evaluating the impact that the
adoption of FAS No. 167 may have on our consolidated financial statements.
36
In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162, (FAS No. 168). This pronouncement identifies the sources
of accounting principles and the framework for selecting the principles used in the preparation of
financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. FAS No. 168 is effective for financial
statements issued for interim and annual periods beginning with our third quarter in 2009. We do
not expect the adoption of FAS No. 168 to have a material impact on our consolidated financial
statements.
Risk Factors
Certain statements contained here and in future filings with the SEC reflect the Companys
expectations with respect to future performance and constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements are subject to a variety of
uncertainties, unknown risks and other factors concerning the Companys operations and business
environment, which are difficult to predict and are beyond the control of the Company. Factors
that could adversely affect our future financial performance are described under the heading Risk
Factors in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31,
2008.
37
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
The primary objective of the following information is to provide forward-looking quantitative
and qualitative information about our exposure to instruments that are sensitive to fluctuations in
interest rates, foreign currency exchange rates, and costs of raw materials and energy.
Our exposure to interest rate risk arises from our debt portfolio. We manage this risk by
controlling the mix of fixed versus variable-rate debt after considering the interest rate
environment and expected future cash flows. To reduce our exposure to interest rate changes on
variable-rate debt, we entered into interest rate swap agreements. These swaps effectively convert
a portion of our variable-rate debt to a fixed rate. Our objective is to limit variability in
earnings, cash flows and overall borrowing costs caused by changes in interest rates, while
preserving operating flexibility.
We operate internationally and enter into transactions denominated in foreign currencies.
These transactions expose us to gains and losses arising from exchange rate movements between the
dates foreign currencies are recorded and the dates they are settled. We manage this risk by
entering into forward currency contracts that offset these gains and losses.
We are also subject to cost changes with respect to our raw materials and energy purchases. We
attempt to mitigate raw materials cost increases through product development, price increases, and
other productivity improvements. We hedge a portion of our exposure to changes in the pricing of
certain raw material commodities through swap arrangements that allow us to fix the pricing of the
commodities for future purchases. We also enter into forward purchase arrangements with precious
metals suppliers to completely cover the value of the precious metals content of fixed price sales
contracts. Most of these precious metals agreements, with purchase commitments totaling
$14.9 million at June 30, 2009, are designated as normal purchase contracts and are not marked to
market. In addition, we purchase portions of our natural gas and electricity requirements under
fixed price contracts to reduce the volatility of these costs. These energy contracts are
designated as normal purchase contracts, are not marked to market, and had purchase commitments
totaling $14.7 million at June 30, 2009.
38
The notional amounts, net carrying amounts of assets (liabilities), and fair values associated with
our exposure to these market risks and sensitivity analyses about potential gains (losses)
resulting from hypothetical changes in market rates are presented below:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands, |
|
|
|
except as noted) |
|
Variable-rate debt and utilization of accounts receivable sales programs: |
|
|
|
|
|
|
|
|
Change in annual interest expense from 1% change in interest rates |
|
$ |
3,525 |
|
|
$ |
2,742 |
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
Carrying amount |
|
$ |
157,836 |
|
|
$ |
154,995 |
|
Fair value |
|
$ |
87,281 |
|
|
$ |
85,700 |
|
Change in fair value from 1% increase in interest rate |
|
$ |
(2,582 |
) |
|
$ |
(2,877 |
) |
Change in fair value from 1% decrease in interest rate |
|
$ |
2,683 |
|
|
$ |
3,003 |
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
150,000 |
|
|
$ |
150,000 |
|
Carrying amount and fair value |
|
$ |
(9,425 |
) |
|
$ |
(12,724 |
) |
Change in fair value from 1% increase in interest rate |
|
$ |
2,379 |
|
|
$ |
3,322 |
|
Change in fair value from 1% decrease in interest rate |
|
$ |
(2,419 |
) |
|
$ |
(3,401 |
) |
Foreign currency forward contracts: |
|
|
|
|
|
|
|
|
Notional amount |
|
$ |
186,183 |
|
|
$ |
156,840 |
|
Carrying amount and fair value |
|
$ |
(1,416 |
) |
|
$ |
(96 |
) |
Change in fair value from 10% appreciation of U.S. dollar |
|
$ |
4,115 |
|
|
$ |
2,523 |
|
Change in fair value from 10% depreciation of U.S. dollar |
|
$ |
(5,029 |
) |
|
$ |
(3,084 |
) |
Raw material commodity swaps: |
|
|
|
|
|
|
|
|
Notional amount (in metric tons of base metals) |
|
|
150 |
|
|
|
330 |
|
Carrying amount and fair value |
|
$ |
24 |
|
|
$ |
(576 |
) |
Change in fair value from 10% change in forward prices |
|
$ |
23 |
|
|
$ |
71 |
|
Precious metals forward contracts: |
|
|
|
|
|
|
|
|
Notional amount (in troy ounces) |
|
|
32 |
|
|
|
129 |
|
Carrying amount and fair value |
|
$ |
4 |
|
|
$ |
8 |
|
Change in fair value from 10% change in forward prices |
|
$ |
3 |
|
|
$ |
11 |
|
39
|
|
|
Item 4. |
|
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Ferro is committed to maintaining disclosure controls and procedures that are designed to
ensure that information required to be disclosed in its Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the U.S. Securities and
Exchange Commissions rules and forms, and that such information is accumulated and communicated to
its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate
to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) of the Exchange Act, Ferro has carried out an evaluation, under
the supervision and with the participation of its management, including its Chief Executive Officer
and the Chief Financial Officer, of the effectiveness of the design and operation of its disclosure
controls and procedures. The evaluation examined those disclosure controls and procedures as of
June 30, 2009, the end of the period covered by this report. Based on that evaluation, management
concluded that the disclosure controls and procedures were effective as of June 30, 2009.
Changes in Internal Control over Financial Reporting
During the second quarter of 2009, there were no changes in our internal controls or in other
factors that materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
40
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
As previously disclosed, in February 2003, we produced documents in connection with an
investigation by the United States Department of Justice into possible antitrust violations in the
heat stabilizer industry. In April 2006, we were notified by the Department of Justice that the
Government had closed its investigation. Before closing its investigation, the Department of
Justice took no action against the Company or any of its current or former employees. In 2003, the
Company was named as a defendant in several lawsuits alleging civil damages and requesting
injunctive relief relating to the conduct the Government was investigating, and, in June 2008, the
Company was named in four more indirect purchaser lawsuits related to an existing lawsuit in the
Eastern District of Pennsylvania. In July 2007, we entered into a definitive written settlement
agreement in the class action lawsuit involving direct purchasers. The settlement agreement was
approved by the United States District Court for the Eastern District of Pennsylvania in December
2007. Although the Company decided to bring this matter to a close through settlement, the Company
did not admit to any of the alleged violations and continues to deny any wrongdoing. The Company
is vigorously defending the remaining six civil actions alleging antitrust violations in the heat
stabilizer industry. These actions are in their early stages; therefore, we cannot determine the
outcomes of these lawsuits at this time. In December 2006, we filed a lawsuit against the former
owner of our heat stabilizer business seeking indemnification for the defense of these lawsuits and
any resulting payments by the Company. In April 2008, the United States District Court for the
Northern District of Ohio dismissed our lawsuit, and we have appealed the courts decision to the
United States Court of Appeals for the Sixth Circuit.
As previously disclosed, for the year ended December 31, 2007, we submitted deviation reports
required by the Title V air emission permit issued under the New Jersey Air Pollution Control Act
(the Title V Air Permit), which contained numerous deviations from the standards required by the
Title V Air Permit at our South Plainfield, New Jersey, facility. While no penalty has been
assessed at this time, we are in the process of negotiating an administrative consent order and a
compliance schedule to settle these issues with the New Jersey Department of Environmental
Protection (NJDEP). We cannot determine the outcome of these settlement negotiations at this
time.
There are various other lawsuits and claims pending against the Company and its consolidated
subsidiaries. In our opinion, the ultimate liabilities, if any, will not materially affect the
consolidated financial position, results of operations, or cash flows of the Company.
There were no material changes to the risk factors disclosed in the Companys Annual Report on
Form 10-K for the year ended December 31, 2008.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
As previously disclosed, our 2009 Amended Credit Facility effectively prohibits us from paying
dividends on our preferred and common stock beginning in the second quarter of 2009.
|
|
|
Item 3. |
|
Defaults Upon Senior Securities |
As previously disclosed, our 2009 Amended Credit Facility effectively prohibits us from paying
dividends on our preferred and common stock beginning in the second quarter of 2009. Consequently,
we are currently in arrears in the payment of dividends on our Series A ESOP Convertible Preferred
Stock. As of the date of filing of this Form 10-Q, the total arrearage in payment of dividends on
the convertible preferred stock was $171,000.
41
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
At the Annual Meeting of Shareholders held on April 24, 2009, there were a total of 38,786,625
shares of common stock represented either in person or by proxy. The shareholders elected three
Directors to the Ferro Corporation Board of Directors, Jennie S. Hwang, Ph.D., James F. Kirsch and
William J. Sharp, to serve on the Board until the annual meeting in the year 2012. The results of
the voting for Directors were as follows:
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Withheld Authority |
|
Jennie S. Hwang, Ph.D. |
|
|
35,058,752 |
|
|
|
3,727,872 |
|
James F. Kirsch |
|
|
34,773,576 |
|
|
|
4,013,048 |
|
William J. Sharp |
|
|
26,222,578 |
|
|
|
12,564,046 |
|
The terms of office for Michael H. Bulkin, Sandra Austin Crayton, Richard J. Hipple, William
B. Lawrence, Michael F. Mee, Perry W. Premdas, and Dennis W. Sullivan continued after the meeting.
In addition, the shareholders also approved the ratification of the appointment of Deloitte
&Touche LLP as the Companys independent registered public accounting firm for the year ending
December 31, 2009. The results of the voting for this proposal were as follows: For 36,324,218,
Against 2,396,896, and Abstain 65,511.
|
|
|
Item 5. |
|
Other Information |
Not applicable.
The exhibits listed in the attached Exhibit Index are the exhibits required by Item 601 of
Regulation S-K.
42
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 4, 2009 |
|
|
|
|
|
|
/s/ James F. Kirsch
|
|
|
James F. Kirsch |
|
|
Chairman, President and Chief Executive Officer
(Principal Executive Officer) |
|
|
Date: August 4, 2009 |
|
|
|
|
|
|
/s/ Sallie B. Bailey
|
|
|
Sallie B. Bailey |
|
|
Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
43
EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated here by reference to a
prior filing in accordance with Rule 12b-32 under the Securities and Exchange Act of 1934.
Exhibit:
3 |
|
Articles of incorporation and by-laws |
3.1 |
|
Eleventh Amended Articles of Incorporation. (Reference is made to Exhibit 4.1 to Ferro
Corporations Registration Statement on Form S-3, filed March 5, 2008, which Exhibit is
incorporated here by reference.) |
3.2 |
|
Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro
Corporation filed with the Ohio Secretary of State on December 29, 1994. (Reference is made to
Exhibit 4.2 to Ferro Corporations Registration Statement on Form S-3, filed March 5, 2008,
which Exhibit is incorporated here by reference.) |
3.3 |
|
Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro
Corporation filed with the Ohio Secretary of State on June 23, 1998. (Reference is made to
Exhibit 4.3 to Ferro Corporations Registration Statement on Form S-3, filed March 5, 2008,
which Exhibit is incorporated here by reference.) |
3.4 |
|
Ferro Corporation Code of Regulations. (Reference is made to Exhibit 4.4 to Ferro
Corporations Registration Statement on Form S-3, filed March 5, 2008, which Exhibit is
incorporated here by reference.) |
4 |
|
Instruments defining rights of security holders, including indentures |
4.1 |
|
Senior Indenture, dated as of March 5, 2008, by and between Ferro Corporation and U.S. Bank
National Association. (Reference is made to Exhibit 4.5 to Ferro Corporations Registration
Statement on Form S-3, filed March 5, 2008, which Exhibit is incorporated here by reference.) |
4.2 |
|
First Supplemental Indenture, dated August 19, 2008, by and between Ferro Corporation and
U.S. Bank National Association (with Form of 6.50% Convertible Senior Note due 2013).
(Reference is made to Exhibit 4.2 to Ferro Corporations Current Report on Form 8-K, filed
August 19, 2008, which Exhibit is incorporated here by reference.) |
|
|
|
The Company agrees, upon request, to furnish to the U.S. 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. |
10.1 |
|
Purchase Agreement, dated as of June 2, 2009, among Ferro Corporation, Ferro Color & Glass
Corporation and Ferro Pfanstiehl Laboratories, Inc. (Reference is made to Exhibit 10.1 to
Ferro Corporations Current Report on Form 8-K, filed June 3, 2009, which Exhibit is
incorporated here by reference.) |
10.2 |
|
Purchase and Contribution Agreement, dated as of June 2, 2009, between Ferro Corporation and
Ferro Finance Corporation. (Reference is made to Exhibit 10.2 to Ferro Corporations Current
Report on Form 8-K, filed June 3, 2009, which Exhibit is incorporated here by reference.) |
10.3 |
|
Receivables Purchase Agreement, dated as of June 2, 2009, among Ferro Finance Corporation,
Ferro Corporation, as collection agent, certain purchasers from time to time party thereto and
Wachovia Bank, National Association, as agent. (Reference is made to Exhibit 10.3 to Ferro
Corporations Current Report on Form 8-K, filed June 3, 2009, which Exhibit is incorporated
here by reference.) |
31.1 |
|
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a). |
31.2 |
|
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a). |
32.1 |
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350. |
32.2 |
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350. |
44