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 September 30, 2010
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
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34-0217820 |
(State of Corporation)
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(IRS Employer Identification No.) |
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1000 Lakeside Avenue |
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Cleveland, OH
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44114 |
(Address of Principal executive offices)
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(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 o
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Accelerated filer þ
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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 September 30, 2010, there were 86,182,577 shares of Ferro Common Stock, par value $1.00,
outstanding.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Operations
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(Dollars in thousands, except per share amounts) |
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Net sales |
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$ |
528,564 |
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$ |
442,089 |
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$ |
1,564,914 |
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$ |
1,199,175 |
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Cost of sales |
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408,268 |
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348,920 |
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1,215,354 |
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985,531 |
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Gross profit |
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120,296 |
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93,169 |
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349,560 |
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213,644 |
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Selling, general and administrative expenses |
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74,835 |
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65,918 |
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215,635 |
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196,526 |
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Restructuring and impairment charges |
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9,570 |
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11,067 |
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44,107 |
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12,156 |
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Other expense (income): |
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Interest expense |
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10,519 |
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17,891 |
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37,196 |
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46,255 |
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Interest earned |
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(78 |
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(216 |
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(542 |
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(689 |
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Losses on extinguishment of debt |
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19,331 |
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19,331 |
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Foreign currency losses, net |
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398 |
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104 |
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3,644 |
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3,033 |
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Miscellaneous expense (income), net |
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7,345 |
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(655 |
) |
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2,523 |
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199 |
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(Loss) income before income taxes |
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(1,624 |
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(940 |
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27,666 |
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(43,836 |
) |
Income tax expense (benefit) |
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738 |
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(3,749 |
) |
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23,246 |
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(15,844 |
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(Loss) income from continuing operations |
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(2,362 |
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2,809 |
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4,420 |
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(27,992 |
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Income (loss) on disposal of discontinued operations, net of income taxes |
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36 |
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(322 |
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Net (loss) income |
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(2,362 |
) |
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2,845 |
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4,420 |
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(28,314 |
) |
Less: Net income attributable to noncontrolling interests |
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983 |
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728 |
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733 |
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1,712 |
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Net (loss) income attributable to Ferro Corporation |
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(3,345 |
) |
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2,117 |
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3,687 |
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(30,026 |
) |
Dividends on preferred stock |
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(165 |
) |
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(168 |
) |
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(495 |
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(538 |
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Net (loss) income attributable to Ferro Corporation common shareholders |
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$ |
(3,510 |
) |
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$ |
1,949 |
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$ |
3,192 |
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$ |
(30,564 |
) |
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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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$ |
(3,345 |
) |
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$ |
2,081 |
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$ |
3,687 |
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$ |
(29,704 |
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Income (loss) from discontinued operations, net of tax |
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36 |
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(322 |
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$ |
(3,345 |
) |
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$ |
2,117 |
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$ |
3,687 |
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$ |
(30,026 |
) |
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Per common share data |
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Basic and diluted income (loss) attributable to Ferro Corporation common shareholders: |
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From continuing operations |
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$ |
(0.04 |
) |
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$ |
0.04 |
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$ |
0.04 |
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$ |
(0.68 |
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From discontinued operations |
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(0.01 |
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$ |
(0.04 |
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$ |
0.04 |
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$ |
0.04 |
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$ |
(0.69 |
) |
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Cash dividends declared |
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$ |
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$ |
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$ |
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$ |
0.01 |
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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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September 30, |
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December 31, |
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2010 |
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2009 |
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(Dollars in thousands) |
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ASSETS
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Current assets |
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Cash and cash equivalents |
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$ |
65,356 |
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$ |
18,507 |
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Accounts and trade notes receivable, net |
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334,298 |
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285,638 |
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Inventories |
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211,892 |
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180,700 |
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Deposits for precious metals |
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112,434 |
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Deferred income taxes |
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20,888 |
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19,618 |
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Other receivables |
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29,583 |
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27,795 |
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Other current assets |
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9,431 |
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7,180 |
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Total current assets |
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671,448 |
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651,872 |
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Other assets |
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Property, plant and equipment, net |
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384,471 |
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432,405 |
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Goodwill |
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216,701 |
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221,044 |
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Amortizable intangible assets, net |
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12,883 |
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10,610 |
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Deferred income taxes |
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135,749 |
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133,705 |
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Other non-current assets |
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73,922 |
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76,719 |
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Total assets |
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$ |
1,495,174 |
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$ |
1,526,355 |
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LIABILITIES AND EQUITY
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Current liabilities |
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Loans payable and current portion of long-term debt |
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$ |
1,646 |
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$ |
24,737 |
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Accounts payable |
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225,774 |
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196,038 |
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Income taxes |
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16,916 |
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7,241 |
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Accrued payrolls |
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35,766 |
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20,894 |
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Accrued expenses and other current liabilities |
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93,127 |
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72,039 |
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Total current liabilities |
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373,229 |
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320,949 |
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Other liabilities |
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Long-term debt, less current portion |
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323,924 |
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398,720 |
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Postretirement and pension liabilities |
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198,632 |
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203,743 |
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Deferred income taxes |
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3,550 |
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|
1,124 |
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Other non-current liabilities |
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22,028 |
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31,897 |
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Total liabilities |
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921,363 |
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956,433 |
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Series A convertible preferred stock (approximates redemption value) |
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9,427 |
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9,427 |
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Equity |
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Ferro Corporation shareholders equity: |
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Common stock |
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93,436 |
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93,436 |
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Paid-in capital |
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326,333 |
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331,376 |
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Retained earnings |
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360,320 |
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357,128 |
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Accumulated other comprehensive loss |
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(59,619 |
) |
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(60,147 |
) |
Common shares in treasury, at cost |
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(166,662 |
) |
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(171,567 |
) |
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Total Ferro Corporation shareholders equity |
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553,808 |
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550,226 |
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Noncontrolling interests |
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10,576 |
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|
10,269 |
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Total equity |
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564,384 |
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560,495 |
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Total liabilities and equity |
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$ |
1,495,174 |
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$ |
1,526,355 |
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See accompanying notes to condensed consolidated financial statements.
4
Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of 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) |
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Interests |
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Equity |
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(In thousands) |
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Balances at December 31, 2008 |
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|
8,432 |
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|
$ |
(197,524 |
) |
|
$ |
52,323 |
|
|
$ |
178,420 |
|
|
$ |
401,186 |
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|
$ |
(98,436 |
) |
|
$ |
9,755 |
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|
$ |
345,724 |
|
Net (loss) income |
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|
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|
|
|
|
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|
(30,026 |
) |
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|
1,712 |
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|
|
(28,314 |
) |
Other comprehensive income (loss), net of tax: |
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Foreign currency translation |
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|
17,541 |
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|
(1 |
) |
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|
17,540 |
|
Postretirement benefit liabilities |
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163 |
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|
163 |
|
Raw material commodity swaps |
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|
577 |
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|
577 |
|
Interest rate swaps |
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1,527 |
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1,527 |
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Total comprehensive loss |
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|
(8,507 |
) |
Cash dividends: |
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Common |
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(437 |
) |
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|
(437 |
) |
Preferred |
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|
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|
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|
(199 |
) |
|
|
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|
|
|
|
|
|
|
(199 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
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|
|
|
1 |
|
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|
1 |
|
Stock-based compensation transactions |
|
|
(1,038 |
) |
|
|
25,610 |
|
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|
(21,916 |
) |
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|
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|
3,694 |
|
Distributions to noncontrolling interests |
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|
|
|
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|
(2,036 |
) |
|
|
(2,036 |
) |
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|
Balances at September 30, 2009 |
|
|
7,394 |
|
|
$ |
(171,914 |
) |
|
$ |
52,323 |
|
|
$ |
156,505 |
|
|
$ |
370,524 |
|
|
$ |
(78,628 |
) |
|
$ |
9,430 |
|
|
$ |
338,240 |
|
|
|
|
|
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|
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|
|
Balances at December 31, 2009 |
|
|
7,375 |
|
|
$ |
(171,567 |
) |
|
$ |
93,436 |
|
|
$ |
331,376 |
|
|
$ |
357,128 |
|
|
$ |
(60,147 |
) |
|
$ |
10,269 |
|
|
$ |
560,495 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,687 |
|
|
|
|
|
|
|
733 |
|
|
|
4,420 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,319 |
) |
|
|
101 |
|
|
|
(1,218 |
) |
Postretirement benefit liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,167 |
) |
|
|
|
|
|
|
(4,167 |
) |
Raw material commodity swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107 |
) |
|
|
|
|
|
|
(107 |
) |
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,121 |
|
|
|
|
|
|
|
6,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,049 |
|
Cash dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495 |
) |
|
|
|
|
|
|
|
|
|
|
(495 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Redemption of Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,025 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,025 |
) |
Stock-based compensation transactions |
|
|
(122 |
) |
|
|
4,905 |
|
|
|
|
|
|
|
(2,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,876 |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(527 |
) |
|
|
(527 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010 |
|
|
7,253 |
|
|
$ |
(166,662 |
) |
|
$ |
93,436 |
|
|
$ |
326,333 |
|
|
$ |
360,320 |
|
|
$ |
(59,619 |
) |
|
$ |
10,576 |
|
|
$ |
564,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
$ |
180,455 |
|
|
$ |
(5,769 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Capital expenditures for property, plant and equipment |
|
|
(27,733 |
) |
|
|
(30,704 |
) |
Proceeds from business combination |
|
|
5,887 |
|
|
|
|
|
Proceeds from sale of assets |
|
|
7,425 |
|
|
|
104 |
|
Dividends received from affiliates |
|
|
139 |
|
|
|
169 |
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(14,282 |
) |
|
|
(30,431 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net (repayments) borrowings under loans payable |
|
|
(22,500 |
) |
|
|
29,128 |
|
Proceeds from Senior Notes |
|
|
250,000 |
|
|
|
|
|
Proceeds from revolving credit facility |
|
|
23,350 |
|
|
|
|
|
Proceeds from former revolving credit facility |
|
|
303,390 |
|
|
|
561,624 |
|
Principal payments on revolving credit facility |
|
|
(23,350 |
) |
|
|
|
|
Principal payments on former revolving credit facility |
|
|
(229,590 |
) |
|
|
(542,027 |
) |
Principal payments on term loan facility |
|
|
(83,562 |
) |
|
|
(2,287 |
) |
Extinguishment of debt |
|
|
(326,687 |
) |
|
|
|
|
Debt issue costs |
|
|
(10,460 |
) |
|
|
(9,367 |
) |
Cash dividends paid |
|
|
(495 |
) |
|
|
(636 |
) |
Other financing activities |
|
|
(788 |
) |
|
|
748 |
|
|
|
|
|
|
|
|
Net cash (used for) provided by financing activities |
|
|
(120,692 |
) |
|
|
37,183 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,368 |
|
|
|
3,097 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
46,849 |
|
|
|
4,080 |
|
Cash and cash equivalents at beginning of period |
|
|
18,507 |
|
|
|
10,191 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
65,356 |
|
|
$ |
14,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
30,291 |
|
|
$ |
37,985 |
|
Income taxes |
|
|
15,723 |
|
|
|
8,221 |
|
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, 2009. 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. 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
nine months ended September 30, 2010, are not necessarily indicative of the results expected in
subsequent quarters or for the full year. We combined the captions for impairment charges and
restructuring charges in the prior-period statements of operations to conform the presentation to
the current period.
2. Accounting Standards Adopted in the Nine Months Ended September 30, 2010
On January 1, 2010, we adopted Financial Accounting Standards Board (FASB) Accounting
Standards Update (ASU) 2009-16, Accounting for Transfers of Financial Assets, (ASU 2009-16),
which is codified in FASB Accounting Standards CodificationTM (ASC) Topic 860,
Transfers and Servicing. This pronouncement provides guidance for derecognition of transferred
financial assets. Adoption of ASU 2009-16 had no effect on our consolidated financial statements.
On January 1, 2010, we adopted ASU 2009-17, Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities, (ASU 2009-17), which is codified in ASC Topic 810,
Consolidations. This pronouncement amends the consolidation guidance that applies to variable
interest entities. Adoption of ASU 2009-17 did not have a material effect on our consolidated
financial statements.
On January 1, 2010, we adopted most of the provisions of ASU 2010-06, Improving Disclosures
About Fair Value Measurements, (ASU 2010-06), which is codified in ASC Topic 820, Fair Value
Measurements, and Topic 715, Compensation Retirement Benefits. The remaining provisions will be
effective for our fiscal year that begins January 1, 2011. This pronouncement expands disclosures
about fair value measurements. Adoption of ASU 2010-06 did not and will not have a material effect
on our consolidated financial statements.
3. Newly Issued Accounting Pronouncements
In October 2009, the FASB issued ASU 2009-13, Multiple Deliverable Revenue Arrangements, (ASU
2009-13), which applies to all deliverables in contractual arrangements in which a vendor will
perform multiple revenue-generating activities. In April 2010, the FASB issued ASU 2010-17, Revenue
RecognitionMilestone Method, (ASU 2010-17), which defines a milestone and determines when it may
be appropriate to apply the milestone method of revenue recognition for research or development
transactions. These pronouncements are codified in ASC Topic 605, Revenue Recognition, and will be
effective for our fiscal year that begins January 1, 2011. These pronouncements may be applied
prospectively or retrospectively, and early adoption is permitted. We are evaluating the impact
that adoption of ASU 2009-13 and ASU 2010-17 may have on our consolidated financial statements.
7
4. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Raw materials |
|
$ |
66,875 |
|
|
$ |
54,481 |
|
Work in process |
|
|
43,362 |
|
|
|
37,449 |
|
Finished goods |
|
|
101,655 |
|
|
|
88,770 |
|
|
|
|
|
|
|
|
Total |
|
$ |
211,892 |
|
|
$ |
180,700 |
|
|
|
|
|
|
|
|
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 $1.3 million and $0.9 million for the three months ended
September 30, 2010 and 2009, respectively, and $3.7 million and $3.4 million for the nine months
ended September 30, 2010 and 2009, respectively, and were charged to cost of sales. We had on hand
precious metals owned by participants in our precious metals program of $136.9 million at
September 30, 2010, and $101.4 million at December 31, 2009, measured at fair value based on market
prices for identical assets. In 2009, several participants in our precious metals program renewed
their requirement for us to deliver cash collateral to secure our obligations arising under the
consignment agreements. At December 31, 2009, we had delivered $112.4 million in cash collateral to
those financial institutions. At September 30, 2010, cash collateral required under the
consignment agreements was $-0-.
5. Property, Plant and Equipment
Property, plant and equipment is reported net of accumulated depreciation of $610.3 million at
September 30, 2010, and $643.9 million at December 31, 2009. Unpaid capital expenditure
liabilities, which are noncash investing activities, were $7.1 million at September 30, 2010, and
$8.8 million at September 30, 2009.
In the first quarter of 2010, we discontinued manufacturing activities at our Limoges, France,
plant, which indicated a possible impairment of the plants real estate assets. We estimated the
fair value of these assets at $4.0 million based upon a third-party purchase offer (a Level 3
measurement within the fair value hierarchy) and recorded $2.2 million of restructuring and
impairment charges.
In the second quarter of 2010, we initiated restructuring activities at our Uden, Netherlands,
facility. The restructuring action and planned closure of this
facility indicated a possible impairment of
the facilitys property, plant and equipment. We estimated the fair value of
these assets primarily based on third-party appraisals (a Level 3 measurement within the fair value
hierarchy) and recorded $2.3 million of restructuring and impairment charges.
In the third quarter of 2010, we commenced a plan to sell the property, plant and equipment at
our Toccoa, Georgia, facility. The plan to sell this facility
indicated a possible impairment of these assets. We estimated the fair value of these assets primarily based on
third-party appraisals (a Level 3 measurement within the fair value hierarchy) and recorded $2.2
million of restructuring and impairment charges. We classified these assets as held for sale and
measured them at fair value less costs to sell.
In the third quarter of 2010, as part of the restructuring programs initiated in the
Netherlands, we sold the property, plant and equipment at our Specialty Plastics facility in
Rotterdam, Netherlands. As a result, we recorded a gain of $2.4 million in restructuring and
impairment charges. We also sold a portion of the property, plant and equipment at our Uden,
Netherlands, facility. As a result, we recorded a loss of $1.7 million in restructuring and
impairment charges, classified the remaining assets as held for sale, and measured them at fair
value less costs to sell. We estimated the fair value of these assets primarily based on
third-party appraisals (a Level 3 measurement within the fair value hierarchy).
At September 30, 2010, we had assets held for sale totaling $9.5 million and classified as
other non-current assets. These assets are primarily land and building at our Toccoa, Georgia,
facility; the Porcelain Enamel facility in Rotterdam, Netherlands; and the remaining portion of our
Uden, Netherlands, facility.
8
6. Financing and Long-term Debt
Loans payable and current portion of long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Loans payable to banks |
|
$ |
693 |
|
|
$ |
5,891 |
|
Accounts receivable asset securitization program |
|
|
|
|
|
|
17,762 |
|
Current portion of long-term debt |
|
|
953 |
|
|
|
1,084 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,646 |
|
|
$ |
24,737 |
|
|
|
|
|
|
|
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
7.875% Senior Notes |
|
$ |
250,000 |
|
|
$ |
|
|
6.50% Convertible Senior Notes, net of unamortized discounts |
|
|
66,426 |
|
|
|
156,896 |
|
Former revolving credit facility |
|
|
|
|
|
|
1,700 |
|
Former term loan facility |
|
|
|
|
|
|
231,385 |
|
Capitalized lease obligations |
|
|
4,902 |
|
|
|
5,669 |
|
Other notes |
|
|
3,549 |
|
|
|
4,154 |
|
|
|
|
|
|
|
|
|
|
|
324,877 |
|
|
|
399,804 |
|
Less current portion |
|
|
(953 |
) |
|
|
(1,084 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
323,924 |
|
|
$ |
398,720 |
|
|
|
|
|
|
|
|
7.875% Senior Notes
In August 2010, we issued $250 million of 7.875% Senior Notes due 2018 (the Senior Notes).
We used portions of the proceeds from the offering to repay all of the remaining term loans and
revolving borrowings outstanding under a credit facility originally entered into in 2006 and as
amended and restated through November 2009 (the 2009 Amended and Restated Credit Facility). We
also used portions of the proceeds from the offering to repurchase the 6.50% Convertible Senior
Notes (the Convertible Notes) that were tendered pursuant to a related tender offer. The Senior
Notes were issued at par and bear interest at a rate of 7.875% per year, payable semi-annually in
arrears on February 15 and August 15 of each year, beginning February 15, 2011.
The Senior Notes mature on August 15, 2018. We may redeem some or all of the Senior Notes
beginning August 15, 2014, at prices ranging from 100% to 103.938% of the principal amount. In
addition, through August 15, 2013, we may redeem up to 35% of the Senior Notes at a price equal to
107.875% of the principal amount using proceeds of certain equity offerings. We may also redeem
some or all of the Senior Notes prior to August 15, 2014, at a price equal to the principal amount
plus a defined Applicable Premium. The definition can be found in the indenture governing the
Senior Notes, which was filed as Exhibit 4.1 to our Current Report on Form 8-K dated August 24,
2010.
The Senior Notes do not contain any financial covenants. However, the Senior Notes do contain
certain affirmative and negative covenants customary for high-yield debt securities, including,
without limitation, restrictions on our ability to incur debt, create liens, pay dividends or make
other distributions or repurchase our common stock and sell assets outside the ordinary course of
business.
9
6.50% Convertible Senior Notes
In July 2010, we commenced a cash tender offer to purchase all of our Convertible Notes. In
August 2010, we purchased $100.5 million of the Convertible Notes, which were tendered pursuant to
the offer. In September 2010, we purchased $0.3 million of the Convertible Notes on the open
market. In connection with these transactions, we recognized a loss on extinguishment of debt of
$9.4 million consisting of unamortized fees and the difference between the carrying value and the
fair value of these notes. At par value, Convertible Notes outstanding totaled $71.7 million at September 30,
2010, and $172.5 million at December 31, 2009.
2009 Amended and Restated Credit Facility
Our 2009 Amended and Restated Credit Facility included a senior term loan facility and a
senior revolving credit facility. In June 2010, we made an early principal payment of $50 million
on our outstanding term loans and wrote off $1.5 million of related unamortized fees to interest
expense. In August 2010, we made another early principal payment of $33.6 million on our
outstanding term loans and wrote off $0.8 million of related unamortized fees to interest expense.
Also in August 2010, we amended the 2009 Amended and Restated Credit Facility and paid the
remaining $147.8 million on our outstanding term loans and the remaining $75.5 million on our
outstanding revolving borrowings. We treated the amendment as an extinguishment of the 2009 Amended
and Restated Credit Facility and recognized losses on extinguishment of debt of $9.9 million,
consisting of unamortized fees related to this facility.
2010 Credit Facility
In August 2010, we entered into the Third Amended and Restated Credit Agreement with a group
of lenders for a five-year, $350 million multi-currency senior revolving credit facility (the 2010
Credit Facility). At September 30, 2010, there were no borrowings under this facility. The 2010
Credit Facility matures on August 24, 2015, and is secured by substantially all of Ferros assets.
We are subject to a number of restrictive covenants under this facility. These covenants include
requirements for a minimum fixed charge coverage ratio and a maximum leverage ratio. Definitions of
the covenants and our required performance can be found in our 2010 Credit Facility, which was
filed as Exhibit 10.1 to our Current Report on Form 8-K dated August 24, 2010.
Receivable Sales Programs
We have an asset securitization program for Ferros U.S. trade accounts receivable. In June
2010, we extended the maturity of that facility through May 2011. We maintain several off balance
sheet international programs to sell trade accounts receivable to financial institutions. Ferro had
received net proceeds under the international programs of $2.8 million at September 30, 2010, and
$10.3 million at December 31, 2009, for outstanding receivables.
7. 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. |
10
Long-term Debt
The following financial instruments are measured at fair value for disclosure purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
(Dollars in thousands) |
|
7.875% Senior Notes |
|
$ |
250,000 |
|
|
$ |
260,000 |
|
|
$ |
|
|
|
$ |
|
|
6.50% Convertible Senior Notes,
net of unamortized discounts |
|
|
66,426 |
|
|
|
71,387 |
|
|
|
156,896 |
|
|
|
157,191 |
|
Former revolving credit facility |
|
|
|
|
|
|
|
|
|
|
1,700 |
|
|
|
1,747 |
|
Former term loan facility |
|
|
|
|
|
|
|
|
|
|
231,385 |
|
|
|
237,047 |
|
Other notes |
|
|
3,549 |
|
|
|
2,626 |
|
|
|
4,154 |
|
|
|
3,084 |
|
The
fair values of the Senior Notes and the Convertible Notes are based on the price of the latest trade prior to
the end of the period. The fair values of the former revolving credit facility, the former 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 former variable-rate term loan facility to a fixed rate through June 2011. These swaps were
designated and qualified as cash flow hedges. The fair value of these swaps was based on the
present value of expected future cash flows, which reflected assumptions about current interest
rates and the creditworthiness of the Company that market participants would use in pricing the
swaps. In the third quarter of 2010, in conjunction with repayment of our remaining outstanding
term loans, we settled these swaps and reclassified $6.8 million from accumulated other
comprehensive income to miscellaneous expense.
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 $192.3 million at September 30, 2010, and $178.9 million at December 31, 2009.
11
The following table presents the fair value of derivative instruments on our consolidated
balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Balance Sheet Location |
|
|
(Dollars in thousands) |
|
|
|
Derivatives designated as hedging
instruments: |
|
|
|
|
|
|
|
|
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
(9,516 |
) |
|
Other non-current liabilities |
|
|
|
|
|
|
|
|
|
Derivatives not designated as
hedging instruments: |
|
|
|
|
|
|
|
|
|
|
Asset derivatives: |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
45 |
|
|
$ |
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
899 |
|
|
Other receivables |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
45 |
|
|
$ |
899 |
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
(4,800 |
) |
|
$ |
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
(176 |
) |
|
Other receivables |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(4,800 |
) |
|
$ |
(176 |
) |
|
|
|
|
|
|
|
|
|
|
|
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 classifications within the fair value hierarchy of these financial instruments were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
(4,755 |
) |
|
$ |
|
|
|
$ |
(4,755 |
) |
|
$ |
723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(9,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the effect of derivative instruments on our consolidated
financial performance for the nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss |
|
|
|
|
|
|
Amount of Loss |
|
|
Reclassified from AOCI |
|
|
Location of Gain (Loss) |
|
|
|
Recognized in OCI |
|
|
into Income |
|
|
Reclassified from |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
AOCI into Income |
|
|
|
(Dollars in thousands) |
|
|
|
|
Derivatives in Cash Flow Hedging Relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
$ |
(4,885 |
) |
|
$ |
(5,080 |
) |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
(6,849 |
) |
|
|
|
| |
Miscellaneous expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(2,218 |
) |
|
$ |
(2,708 |
) |
|
$ |
(11,734 |
) |
|
$ |
(5,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
Recognized in Income |
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Location of Gain (Loss) in Income |
|
|
(Dollars in thousands) |
|
|
|
Derivatives Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
3,020 |
|
|
$ |
(12,970 |
) |
|
Foreign currency losses, net |
|
|
|
|
|
|
|
|
|
12
8. Income Taxes
Income tax expense for the nine months ended September 30, 2010, was $23.2 million, or 84.0% of
pre-tax income. In the prior-year period, we recorded an income tax benefit of $15.8 million, or
36.1% of pre-tax loss. The increase in the effective tax rate resulted primarily from a $1.5
million tax charge for the elimination of future tax deductions related to Medicare Part D
subsidies as a result of The Patient Protection and Affordable Care Act signed into law in the U.S.
during 2010, a charge of $1.8 million for valuation allowances on deferred assets in Italy, a $0.6
million charge to adjust tax expense to reflect actual taxes on 2009 tax returns filed in
jurisdictions worldwide, and not recognizing a $10.3 million tax benefit on current losses incurred
in jurisdictions with full valuation allowances. Going forward we will continue to monitor both
positive and negative evidence in determining whether valuation allowances need to be established
or released.
9. Contingent Liabilities
In May 2004, the Company was named in an indirect purchaser class action lawsuit seeking
monetary damages and injunctive relief relating to alleged violations of the antitrust laws by the
Company and others participating in the plastics additives industry. In August 2005, the Company
was named in another indirect purchaser class action. In June 2008, the Company was named in four
more indirect purchaser class action lawsuits. All of these cases contain similar allegations. The
Company intends to vigorously defend these six civil actions, which are all in their early stages.
As a result, the Company cannot determine the outcome of these lawsuits at this time.
There are various other lawsuits and claims pending against the Company and its consolidated
subsidiaries. We do not currently expect the ultimate liabilities, if any, and expenses related to
such lawsuits and claims to materially affect the consolidated financial position, results of
operations, or cash flows of the Company.
10. 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 September 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans |
|
|
Non-U.S. Pension Plans |
|
|
Other Benefit Plans |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Components of net periodic cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
3 |
|
|
$ |
7 |
|
|
$ |
833 |
|
|
$ |
1,095 |
|
|
$ |
|
|
|
$ |
4 |
|
Interest cost |
|
|
5,098 |
|
|
|
5,235 |
|
|
|
2,387 |
|
|
|
2,743 |
|
|
|
607 |
|
|
|
719 |
|
Expected return on plan assets |
|
|
(4,622 |
) |
|
|
(3,863 |
) |
|
|
(1,587 |
) |
|
|
(1,841 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
24 |
|
|
|
24 |
|
|
|
(35 |
) |
|
|
(107 |
) |
|
|
251 |
|
|
|
(437 |
) |
Net amortization and deferral |
|
|
2,561 |
|
|
|
3,845 |
|
|
|
189 |
|
|
|
274 |
|
|
|
(43 |
) |
|
|
|
|
Curtailment and settlement effects |
|
|
|
|
|
|
|
|
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3,064 |
|
|
$ |
5,248 |
|
|
$ |
1,607 |
|
|
$ |
2,164 |
|
|
$ |
815 |
|
|
$ |
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
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 nine months ended September 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans |
|
|
Non-U.S. Pension Plans |
|
|
Other Benefit Plans |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Components of net periodic cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
17 |
|
|
$ |
22 |
|
|
$ |
2,549 |
|
|
$ |
3,143 |
|
|
$ |
|
|
|
$ |
11 |
|
Interest cost |
|
|
15,410 |
|
|
|
15,707 |
|
|
|
7,639 |
|
|
|
7,839 |
|
|
|
1,821 |
|
|
|
2,158 |
|
Expected return on plan assets |
|
|
(13,604 |
) |
|
|
(11,590 |
) |
|
|
(5,245 |
) |
|
|
(5,254 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
72 |
|
|
|
73 |
|
|
|
(288 |
) |
|
|
(305 |
) |
|
|
(547 |
) |
|
|
(1,311 |
) |
Net amortization and deferral |
|
|
9,473 |
|
|
|
11,535 |
|
|
|
529 |
|
|
|
780 |
|
|
|
(129 |
) |
|
|
|
|
Curtailment and settlement effects |
|
|
|
|
|
|
|
|
|
|
(4,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
11,368 |
|
|
$ |
15,747 |
|
|
$ |
439 |
|
|
$ |
6,203 |
|
|
$ |
1,145 |
|
|
$ |
858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2010, we recognized $0.7 million of prior service cost amortization
related to a temporary change in our postretirement health care benefit plan and a $0.2 million
curtailment gain related to our restructuring activities in the Netherlands. In the second quarter
of 2010, we recognized a $2.5 million curtailment gain related to our restructuring activities in
the Netherlands, a $1.5 million settlement gain related to our restructuring activities in France,
and a $0.2 million settlement loss related to the transfer of some pension obligations to another
company in Germany. In the first quarter of 2010, we recognized a $0.7 million settlement gain due
to the transfer of some pension obligations and related assets to a defined contribution plan in
Japan. In addition, the improvement through December 2009 in the valuation of pension investments
increased the amount of our expected return on plan assets and lowered the amount of amortization
of our unrecognized net actuarial losses.
11. Stock-Based Compensation
On April 30, 2010, our shareholders approved the 2010 Long-Term Incentive Plan (the Plan),
which was adopted by the Board of Directors on February 26, 2010, subject to such approval. The
Plans purpose is to promote the Companys long-term financial interests and growth by attracting,
retaining and motivating high-quality, key employees and directors and aligning their interests
with those of its shareholders. The Plan reserves 5,000,000 shares of common stock to be issued for
grants of several different types of long-term incentives including stock options, stock
appreciation rights, restricted shares, performance shares, other common-stock-based awards, and
dividend equivalent rights.
The 2006 Long-Term Incentive Plan (the Previous Plan) was replaced by the Plan, and no
future grants may be made under the Previous Plan. However, any outstanding awards or grants made
under the Previous Plan will continue until the end of their specified terms.
14
The stock-based compensation transactions in equity consisted of the following for the nine
months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
|
|
|
|
|
in Treasury |
|
|
Paid-in |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
|
(In thousands) |
|
Stock options |
|
|
(99 |
) |
|
$ |
2,438 |
|
|
$ |
(932 |
) |
Deferred stock units |
|
|
(34 |
) |
|
|
832 |
|
|
|
(355 |
) |
Restricted shares |
|
|
(107 |
) |
|
|
3,284 |
|
|
|
(2,579 |
) |
Performance shares, net |
|
|
118 |
|
|
|
(1,045 |
) |
|
|
1,233 |
|
Directors deferred compensation |
|
|
|
|
|
|
(604 |
) |
|
|
604 |
|
Preferred stock conversions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(122 |
) |
|
$ |
4,905 |
|
|
$ |
(2,029 |
) |
|
|
|
|
|
|
|
|
|
|
12. Restructuring and Cost Reduction Programs
During the first nine months of 2010, we continued several restructuring programs and
initiated new 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.
To date, we have made substantial progress on these programs, including exiting manufacturing
facilities and eliminating positions.
For the nine months ended September 30, 2010 and 2009, total charges resulting from these
activities were $47.4 million and $7.8 million,
respectively, of which $3.3 million and $3.9
million, respectively, were recorded in cost of sales as they relate to accelerated depreciation on
assets to be disposed, and the remaining $44.1 million and $3.9 million, respectively, were
reported as restructuring and impairment charges. 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.
The following restructuring programs had significant activities in the nine months ended
September 30, 2010:
Restructuring Program in Limoges, France
In the first quarter of 2009, we initiated restructuring activities at our Color and Glass
Performance Materials facility in Limoges, France. We discontinued manufacturing in the first
quarter of 2010 and expect to have substantially completed the restructuring activities in 2011, at
which time the Limoges site will be closed.
We expect to record pre-tax charges of approximately $33 million related to these actions,
including approximately $22 million for employee severance, $6 million in site cleanup and other
costs, and $5 million in asset write-offs.
As
of December 31, 2009, we had incurred $9.3 million in total
charges, of which $0.6 million
was recorded in cost of sales as accelerated depreciation on assets to be disposed and the
remaining $8.7 million, including $6.9 million for employee severance and $1.8 million in other
related costs, was recorded in restructuring and impairment charges.
During the nine months ended September 30, 2010, we incurred $14.8 million in total charges,
of which $1.7 million was recorded in cost of sales as accelerated depreciation on assets to be
disposed and the remaining $13.1 million, including $10.9 million for employee severance, $2.2
million for asset impairment, and $1.4 million in other exit costs, partially offset by a $1.4
million pension settlement credit, was recorded in restructuring and impairment charges.
15
Restructuring Program in Castanheira do Ribatejo, Portugal
In March 2010, we initiated restructuring activities at our Castanheira do Ribatejo facility
in Portugal. We plan to discontinue by the end of 2010 manufacturing for our Specialty Plastics
and portions of our Color and Glass Performance Materials businesses located at this facility.
Certain production capacity will be transferred to other European locations.
In
September 2010, we initiated additional restructuring activities at our Castanheira do
Ribatejo facility in Portugal to discontinue the remaining Color and
Glass Performance Materials
manufacturing located at this facility. We plan to close the facility by the end of 2010. As of
September 30, 2010, we had ceased all manufacturing at this location.
We expect to record pre-tax charges of approximately $22 million related to these actions,
including approximately $11 million for employee severance, $6 million in asset write-offs, and $5
million in site cleanup and other costs.
During the nine months ended September 30, 2010, we incurred $12.8 million in total charges,
of which $0.2 million was recorded in cost of sales as accelerated depreciation on assets to be
disposed and the remaining $12.6 million, including $9.4 million for employee severance, $1.7
million for asset impairment, and $1.5 million in other costs, was recorded in restructuring and
impairment charges.
Restructuring Program in Rotterdam, Netherlands
In April 2010, we initiated additional restructuring actions to reduce costs related to our
European Specialty Plastics manufacturing facility in Rotterdam, Netherlands. As of September 30,
2010, this restructuring program was substantially completed, since the manufacturing operation was
consolidated into our existing operations in Almazora, Spain, and the property, plant, and
equipment was sold.
In the nine months ended September 30, 2010, we incurred $1.2 million in total charges, of
which $0.2 million was recorded in cost of sales as accelerated depreciation on assets to be
disposed and the remaining $1.0 million, including $4.9 million for employee severance and $0.9
million for other costs, partially offset by a $2.4 million pension curtailment credit and a $2.4
million gain on sale of the assets, was recorded in restructuring and impairment charges.
Restructuring Program in Uden, Netherlands
In May 2010, after finalizing the consultation process with workers representatives, we
initiated restructuring actions to reduce costs related to our European dielectrics manufacturing,
which is part of our Electronic Materials business. As a result of this action, dialectics products
that were manufactured in Uden, Netherlands, were transferred to other locations and the Uden plant
was closed.
We expect to record pre-tax charges of approximately $14 million related to the actions,
including approximately $7 million in employee severance, $2 million in site cleanup and other
costs, and $5 million in asset write-offs. The restructuring actions are expected to be completed
by the end of 2010.
In the nine months ended September 30, 2010, we incurred $12.7 million in total charges, of
which $0.2 million was recorded in cost of sales as accelerated depreciation on assets to be
disposed and the remaining $12.5 million, including $7.5 million for employee severance, $4.6
million for asset impairment, and $0.6 million for other costs, partially offset by a $0.2 million
pension curtailment credit, was recorded in restructuring and impairment charges.
Restructuring Program in Toccoa, Georgia
In the third quarter of 2010, as a continuation of our restructuring activities previous
announced in 2008, we commenced a plan to sell the property, plant and equipment at our Color and
Glass Performance Materials facility in Toccoa, Georgia. The plan to sell this facility triggered
an impairment of the carrying values of these assets. As a result, we recorded a $2.2 million
asset impairment in restructuring and impairment charges.
16
We have summarized the activities and accruals related to our restructuring and cost reduction
programs below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
Other |
|
|
Asset |
|
|
|
|
|
|
Severance |
|
|
Costs |
|
|
Impairment |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Balance at December 31, 2009 |
|
$ |
3,081 |
|
|
$ |
1,518 |
|
|
$ |
|
|
|
$ |
4,599 |
|
Restructuring charges |
|
|
34,273 |
|
|
|
(824 |
) |
|
|
10,658 |
|
|
|
44,107 |
|
Cash payments |
|
|
(28,840 |
) |
|
|
(4,293 |
) |
|
|
|
|
|
|
(33,133 |
) |
Currency translation adjustment |
|
|
529 |
|
|
|
49 |
|
|
|
|
|
|
|
578 |
|
Non-cash items |
|
|
|
|
|
|
7,127 |
|
|
|
(10,658 |
) |
|
|
(3,531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
9,043 |
|
|
$ |
3,577 |
|
|
$ |
|
|
|
$ |
12,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to make cash payments to settle the remaining liability for employee termination
benefits and other costs over the next twelve months, except where legal or contractual
restrictions prevent us from doing so.
13. Per Share Amounts from Continuing Operations
Details
of the calculation of basic and diluted income (loss) per share are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands, except per share amounts) |
|
Basic income (loss) per share computation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Ferro Corporation common shareholders |
|
$ |
(3,510 |
) |
|
$ |
1,949 |
|
|
$ |
3,192 |
|
|
$ |
(30,564 |
) |
Adjustment
for (income) loss from discontinued operations |
|
|
|
|
|
|
(36 |
) |
|
|
|
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,510 |
) |
|
$ |
1,913 |
|
|
$ |
3,192 |
|
|
$ |
(30,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
85,805 |
|
|
|
44,711 |
|
|
|
85,808 |
|
|
|
44,593 |
|
Basic (loss) income per share from continuing operations attributable to Ferro Corporation common shareholders |
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
|
$ |
0.04 |
|
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share computation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Ferro Corporation common shareholders |
|
$ |
(3,510 |
) |
|
$ |
1,949 |
|
|
$ |
3,192 |
|
|
$ |
(30,564 |
) |
Adjustment
for (income) loss from discontinued operations |
|
|
|
|
|
|
(36 |
) |
|
|
|
|
|
|
322 |
|
Plus: Convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,510 |
) |
|
$ |
1,913 |
|
|
$ |
3,192 |
|
|
$ |
(30,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
85,805 |
|
|
|
44,711 |
|
|
|
85,808 |
|
|
|
44,593 |
|
Assumed exercise of stock options |
|
|
|
|
|
|
265 |
|
|
|
330 |
|
|
|
|
|
Assumed satisfaction of deferred stock unit conditions |
|
|
|
|
|
|
20 |
|
|
|
77 |
|
|
|
|
|
Assumed satisfaction of restricted share conditions |
|
|
|
|
|
|
|
|
|
|
324 |
|
|
|
|
|
Assumed conversion of convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed conversion of convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares outstanding |
|
|
85,805 |
|
|
|
44,996 |
|
|
|
86,539 |
|
|
|
44,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
(loss) income per share from continuing operations attributable to Ferro Corporation common shareholders |
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
|
$ |
0.04 |
|
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
17
14. Comprehensive Income (Loss)
The components of comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Net (loss) income |
|
$ |
(2,362 |
) |
|
$ |
2,845 |
|
|
$ |
4,420 |
|
|
$ |
(28,314 |
) |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
24,477 |
|
|
|
12,567 |
|
|
|
(1,218 |
) |
|
|
17,540 |
|
Postretirement benefit liabilities |
|
|
(1,132 |
) |
|
|
(498 |
) |
|
|
(4,167 |
) |
|
|
163 |
|
Raw material commodity swaps |
|
|
|
|
|
|
18 |
|
|
|
(107 |
) |
|
|
577 |
|
Interest rate swaps |
|
|
4,191 |
|
|
|
(598 |
) |
|
|
6,121 |
|
|
|
1,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
|
25,174 |
|
|
|
14,334 |
|
|
|
5,049 |
|
|
|
(8,507 |
) |
Less: Comprehensive income attributable to
noncontrolling interests |
|
|
1,053 |
|
|
|
731 |
|
|
|
834 |
|
|
|
1,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to
Ferro Corporation |
|
$ |
24,121 |
|
|
$ |
13,603 |
|
|
$ |
4,215 |
|
|
$ |
(10,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Reporting for Segments
The Company has six reportable segments: Electronic Materials, Performance Coatings, 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, 2009. We measure segment income for
internal reporting purposes as income from continuing operations before unallocated corporate
expenses, restructuring and impairment 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 |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Electronic Materials |
|
$ |
166,953 |
|
|
$ |
113,210 |
|
|
$ |
488,714 |
|
|
$ |
296,269 |
|
Performance Coatings |
|
|
144,218 |
|
|
|
129,499 |
|
|
|
414,546 |
|
|
|
355,420 |
|
Color and Glass Performance Materials |
|
|
91,167 |
|
|
|
88,498 |
|
|
|
288,196 |
|
|
|
232,264 |
|
Polymer Additives |
|
|
77,291 |
|
|
|
67,660 |
|
|
|
231,431 |
|
|
|
190,105 |
|
Specialty Plastics |
|
|
42,633 |
|
|
|
39,040 |
|
|
|
124,365 |
|
|
|
110,833 |
|
Pharmaceuticals |
|
|
6,302 |
|
|
|
4,182 |
|
|
|
17,662 |
|
|
|
14,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
528,564 |
|
|
$ |
442,089 |
|
|
$ |
1,564,914 |
|
|
$ |
1,199,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Each segments income (loss) and reconciliations to income (loss) before taxes from continuing
operations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Electronic Materials |
|
$ |
31,394 |
|
|
$ |
13,129 |
|
|
$ |
97,273 |
|
|
$ |
21,933 |
|
Performance Coatings |
|
|
11,322 |
|
|
|
14,518 |
|
|
|
35,226 |
|
|
|
20,144 |
|
Color and Glass Performance Materials |
|
|
9,192 |
|
|
|
7,815 |
|
|
|
26,457 |
|
|
|
7,583 |
|
Polymer Additives |
|
|
6,970 |
|
|
|
4,386 |
|
|
|
13,797 |
|
|
|
7,863 |
|
Specialty Plastics |
|
|
4,253 |
|
|
|
2,977 |
|
|
|
9,575 |
|
|
|
7,148 |
|
Pharmaceuticals |
|
|
534 |
|
|
|
(1,316 |
) |
|
|
388 |
|
|
|
(989 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment income |
|
|
63,665 |
|
|
|
41,509 |
|
|
|
182,716 |
|
|
|
63,682 |
|
Unallocated corporate expenses |
|
|
18,204 |
|
|
|
14,258 |
|
|
|
48,791 |
|
|
|
46,564 |
|
Restructuring and impairment charges |
|
|
9,570 |
|
|
|
11,067 |
|
|
|
44,107 |
|
|
|
12,156 |
|
Interest expense |
|
|
10,519 |
|
|
|
17,891 |
|
|
|
37,196 |
|
|
|
46,255 |
|
Losses on extinguishment of debt |
|
|
19,331 |
|
|
|
|
|
|
|
19,331 |
|
|
|
|
|
Other expense (income), net |
|
|
7,665 |
|
|
|
(767 |
) |
|
|
5,625 |
|
|
|
2,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
from continuing operations |
|
$ |
(1,624 |
) |
|
$ |
(940 |
) |
|
$ |
27,666 |
|
|
$ |
(43,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
16. Business Combination
On April 30, 2010, Ferro Corporation and W.C. Heraeus GmbH (Heraeus) acquired from each
other certain business lines related to decoration materials for ceramic and glass products. We
acquired Heraeus ceramic color business, which advances our position in the ceramic colors
industry, while Heraeus acquired assets related to our business operations in precious metal
preparations and lustres for the decoration of glass, ceramics, porcelain, and tiles. Ferro
recognized a pre-tax gain of $7.8 million consisting of a $5.6 million gain from remeasuring to
fair value the assets transferred to Heraeus and a $5.6 million bargain purchase gain from the fair
value of the net assets acquired exceeding the fair value of the consideration transferred, less a
$3.4 million write-off of related goodwill. The gain is included
in miscellaneous expense (income), net, for
the three months ended June 30, 2010.
19
The following table summarizes the consideration transferred to Heraeus and the amounts of the
assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Fair value of consideration transferred |
|
|
|
|
Inventories |
|
$ |
1,089 |
|
Property, plant and equipment |
|
|
164 |
|
Amortizable intangible assets |
|
|
5,417 |
|
|
|
|
|
|
|
$ |
6,670 |
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liabilities assumed |
|
|
|
|
Cash |
|
$ |
5,887 |
|
Accounts receivable |
|
|
1,399 |
|
Inventories |
|
|
3,676 |
|
Property, plant and equipment |
|
|
700 |
|
Amortizable intangible assets |
|
|
2,544 |
|
Current liabilities |
|
|
(1,895 |
) |
|
|
|
|
|
|
$ |
12,311 |
|
|
|
|
|
Subsequent adjustments to fair values, working capital and net assets
were not material.
Changes in the Companys revenues and earnings from this business combination for the three
and nine months ended September 30, 2010, and changes in the Companys revenues and earnings as if
this business combination had occurred on January 1, 2009, were immaterial.
17. Miscellaneous Expense (Income), Net
For the three months ended June 30, 2010, miscellaneous expense (income), net includes a gain
of $7.8 million as a result of a business combination, in which Ferro Corporation and Heraeus
acquired from each other certain business lines related to decoration materials for ceramic and
glass products, and a charge of $3.5 million for an increased reserve for environmental remediation
costs related to a non-operating facility in Brazil. For the three months ended September 30,
2010, miscellaneous expense (income), net includes a charge of $6.8 million related to settlement
of interest rate swaps.
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
Customer demand increased compared with the prior-year quarter reflecting a continuing,
gradual recovery from the economic downturn in 2009. Demand has followed a normal seasonal pattern
in 2010 and was lower in the quarter ended September 30 compared with the three months ended June
30, largely as the result of lower demand in Europe during the month of August.
Net sales increased by 20% in the three months ended September 30, 2010, compared with the
prior-year period. The primary driver of the increased sales was higher sales volume, including
increased sales of precious metals. Increased sales volume accounted for approximately 20
percentage points of the increased sales compared with the third quarter of 2009. Changes in
product mix and prices contributed an additional 3 percentage points to the sales increase, while
changes in foreign currency exchange rates reduced sales by approximately 3 percentage points.
Sales increased in all regions during the third quarter.
Raw material costs, in aggregate, increased by approximately $14 million in the third quarter
compared with costs in the third quarter of 2009. Changes in product pricing more than offset the
increased raw material costs.
Selling, general and administrative (SG&A) expenses declined as a percentage of sales from
the prior-year quarter and increased in total dollars. One driver of the increase in SG&A expenses
were higher incentive compensation accruals. In addition, higher special charges, primarily
related to manufacturing rationalization projects, contributed to the higher SG&A expense during
the quarter.
Restructuring and impairment charges were $9.6 million for the quarter, compared with $11.1
million in the third quarter of 2009. The charges were primarily the result of restructuring
initiatives in Europe, including projects that will result in closing of certain manufacturing
operations in Portugal and the Netherlands. In addition, we recorded a $2.2 million charge related
to a reduction in the value of property at a manufacturing site that was closed in 2008. Our major
restructuring projects are expected to be substantially completed by the end of 2010, although some
charges may be recorded in 2011 depending on the provisions of social plans at affected sites and
the termination dates for certain employee benefit plans.
Interest expense declined during the third quarter compared with the third quarter of 2009.
Lower average borrowing levels were the primary driver of the lower interest expense. During the
quarter, we purchased a portion of our outstanding 6.5% Convertible Notes pursuant to a tender
offer, issued new Senior Notes and entered into a five-year revolving credit agreement that
replaced an existing revolving credit and term loan facility. Interest expense is expected to be lower in future
periods as a result of these refinancing actions.
During
the 2010 third quarter we recorded losses on extinguishment of debt of $19.3 million.
The charge included a write-off of unamortized fees and the difference between the carrying value
and the fair value of the portion of our 6.5% Convertible Notes purchased pursuant to our tender
offer and a write-off of unamortized fees associated with our previous credit facility.
As a part of our miscellaneous expense for the third quarter, we recorded a charge of $6.8
million to settle our interest rate swaps in connection with the extinguishment of term loans which
were part of our previous credit facility.
Income from continuing operations declined in the third quarter compared with the prior-year
quarter, primarily as a result of losses on extinguishment of debt, increased SG&A expenses and
increased miscellaneous expense. The increased expenses were partially offset by increased gross
profit resulting from higher sales, lower interest expense and reduced restructuring and impairment
charges.
Outlook
We expect demand for our products to continue to improve during 2010 compared with 2009,
leading to an increase in net sales for the year. In addition, we expect sales in the final three
months of 2010 to reflect a pattern consistent with our historical seasonality. As a result of
these factors, we expect net sales in the final quarter of 2010 to decline from the third quarter
of 2010, while showing growth from the fourth quarter of 2009. The anticipated reduction in sales
in the final three months of the year is a normal result of seasonally reduced sales of
building-related materials as construction activity declines during the winter months in the
northern hemisphere. The seasonal slowdown of building-related demand for our products is expected
to extend
to our electronic materials products that are used in solar cell manufacturing, as
installations of solar panels is normally lower in the winter months.
21
We expect to record restructuring charges associated with our current restructuring programs
during the remaining months of 2010. Some charges from these restructuring programs may be
incurred in 2011, depending on the specific social plans at affected sites, the timing of
terminations of certain employee benefit plans, and the accounting rules that govern the
recognition of the associated charges. The restructuring programs are intended to further
rationalize our manufacturing operations in Europe, align our worldwide operations to the current
customer demand, and reduce certain SG&A expenses. We expect the resulting lower cost of goods sold
and SG&A expense will further reduce our fixed costs and improve profitability, assuming a fixed
sales level and a constant product mix.
In July 2010, we signed an agreement to purchase a newly constructed manufacturing plant for
frits and glazes in Fayoum, Egypt. The acquisition will allow us to cost-effectively serve the
growing tile manufacturing market in Egypt, the Middle East and North Africa. The closing of the
transaction is subject to governmental approvals and the satisfaction or waiver of other customary
closing conditions. Closing is expected in the fourth quarter of 2010.
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, 2009, and in Item 1A of Part II of this Quarterly
Report on Form 10-Q.
Results of Operations
Comparison of the three months ended September 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands, except per share |
|
|
|
|
|
|
amounts) |
|
|
|
|
Net sales |
|
$ |
528,564 |
|
|
$ |
442,089 |
|
|
$ |
86,475 |
|
|
|
19.6 |
% |
Cost of sales |
|
|
408,268 |
|
|
|
348,920 |
|
|
|
59,348 |
|
|
|
17.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
120,296 |
|
|
|
93,169 |
|
|
|
27,127 |
|
|
|
29.1 |
% |
Gross profit percentage |
|
|
22.8 |
% |
|
|
21.1 |
% |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
74,835 |
|
|
|
65,918 |
|
|
|
8,917 |
|
|
|
13.5 |
% |
Restructuring and impairment charges |
|
|
9,570 |
|
|
|
11,067 |
|
|
|
(1,497 |
) |
|
|
|
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
10,519 |
|
|
|
17,891 |
|
|
|
(7,372 |
) |
|
|
|
|
Interest earned |
|
|
(78 |
) |
|
|
(216 |
) |
|
|
138 |
|
|
|
|
|
Losses on extinguishment of debt |
|
|
19,331 |
|
|
|
|
|
|
|
19,331 |
|
|
|
|
|
Foreign currency losses, net |
|
|
398 |
|
|
|
104 |
|
|
|
294 |
|
|
|
|
|
Miscellaneous expense (income), net |
|
|
7,345 |
|
|
|
(655 |
) |
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(1,624 |
) |
|
|
(940 |
) |
|
|
(684 |
) |
|
|
|
|
Income tax expense (benefit) |
|
|
738 |
|
|
|
(3,749 |
) |
|
|
4,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(2,362 |
) |
|
|
2,809 |
|
|
|
(5,171 |
) |
|
|
|
|
Income on disposal of discontinued
operations, net of income taxes |
|
|
|
|
|
|
36 |
|
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,362 |
) |
|
$ |
2,845 |
|
|
$ |
(5,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share |
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales increased by 20% in the three months ended September 30, 2010, as customer demand
continued a gradual recovery from the economic downturn in 2009. Increased sales volume compared
with the third quarter of 2009 was the primary driver for the increased sales, accounting for 20
percentage points of the overall sales increase. Changes in product prices and mix contributed
approximately 3 percentage points of the overall sales increase. In addition, changes in foreign
currency exchange rates reduced sales growth by approximately 3 percentage points. The
changes in sales volume, product mix and prices included the effects of increased sales of precious
metals. Higher precious metal sales contributed approximately 6 percentage points to the overall
sales increase in the 2010 third quarter.
22
Gross profit increased as a result of the higher net sales and due to cost reduction actions
taken during prior periods, including plant closures and other restructuring actions. As a result,
gross profit percentage increased to 22.8% from 21.1% in the third quarter of 2009. Charges that
were recorded in cost of sales, including accelerated depreciation, severance costs and other costs
associated with manufacturing rationalization activities, reduced gross profit by approximately
$0.7 million during the 2010 third quarter. Charges primarily related to manufacturing
rationalization activities reduced gross profit by $0.3 million during the 2009 third quarter.
Selling, general and administrative (SG&A) expenses increased by $8.9 million in the 2010
third quarter compared with the third quarter of 2009. SG&A expenses declined to 14.2% of net
sales in the 2010 third quarter, compared with 14.9% of net sales in the third quarter of 2009. An
increase in special charges and higher incentive compensation accruals were the primary drivers of
the increased SG&A expenses. Third quarter 2010 SG&A expenses included $5.5 million in special
charges, primarily driven by expenses related to manufacturing rationalization activities and
employee severance expenses. In the 2009 third quarter, SG&A expenses included special charges of
$2.7 million primarily related to expense reduction initiatives.
Restructuring and impairment charges were $9.6 million in the 2010 third quarter compared with
$11.1 million in the prior-year period. The primary drivers of the charges in the three months
ended September 30, 2010, were previously announced restructuring projects related to our European
manufacturing rationalization, including projects that will result in closing certain manufacturing
operations related to our Color and Glass Performance Materials business in Portugal and our
Electronic Materials and Specialty Plastics businesses in the Netherlands. In addition, we
recorded a $2.2 million charge related to a decline in the value of property at a manufacturing
site in the United States that was closed in 2008. Approximately $3.3 million of the restructuring
charges during the 2010 third quarter were related to employee severance costs.
Interest expense declined by $7.4 million during the third quarter compared with the 2009
third quarter, largely as a result of lower average borrowing levels. Interest expense was also
lower as a result of refinancing actions taken during the 2010 third quarter. During the quarter,
we entered into a new credit agreement that provided for a five-year, $350 million revolving credit
facility, and we issued $250 million in new Senior Notes due 2018. The proceeds from this
financing were used to repay our previous revolving credit borrowing and term loans and to repay a
portion of our 6.5% Convertible Notes that we purchased through a tender offer. The combined
effects of this refinancing activity, including the write-off of unamortized fees related to the
previous credit facility, reduced interest expense beginning in August 2010. Interest expense for
the 2010 third quarter included a $0.8 million noncash write-off of unamortized fees related to a
repayment of term loans.
We
recorded a $19.3 million charge for losses on extinguishment of debt during the 2010 third
quarter related to our refinancing activities. The charge included a write-off of unamortized fees
and the difference between the carrying value and the fair market value of the portion of our 6.5%
Convertible Notes purchased pursuant to our tender offer and a write-off of unamortized fees
associated with our previous credit facility.
As part of our miscellaneous expense in the third quarter, we recorded charges of $6.8 million
to settle our interest rate swaps in connection with the extinguishment of term loans that were
part of our previous credit facility.
We manage currency 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 or losses are charged to income or expense in the period.
During the third quarter of 2010, income tax expense was $0.7 million, or (45.4)% of the
pre-tax loss. In the prior-year period we recorded an income tax benefit of $3.7 million, or 399%
of pre-tax loss. The change in the effective tax rate primarily was the result of a $0.6 million
tax charge to adjust tax expense to reflect actual taxes on 2009 tax returns filed in jurisdictions
worldwide and not recognizing a $1.3 million benefit on current losses incurred in jurisdictions
with full valuation allowances.
23
We recorded a loss from continuing operations of $2.4 million in the 2010 third quarter,
compared with income of $2.8 million in the prior-year period. The reduction was primarily the
result of losses on extinguishment of debt and other charges related to our refinancing activities
that were recorded in miscellaneous expense (income), net, as well as higher SG&A expenses, partly
offset by higher gross profit, lower interest expense and reduced restructuring and impairment
charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Segment Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Materials |
|
$ |
166,953 |
|
|
$ |
113,210 |
|
|
$ |
53,743 |
|
|
|
47.5 |
% |
Performance Coatings |
|
|
144,218 |
|
|
|
129,499 |
|
|
|
14,719 |
|
|
|
11.4 |
% |
Color and Glass Performance Materials |
|
|
91,167 |
|
|
|
88,498 |
|
|
|
2,669 |
|
|
|
3.0 |
% |
Polymer Additives |
|
|
77,291 |
|
|
|
67,660 |
|
|
|
9,631 |
|
|
|
14.2 |
% |
Specialty Plastics |
|
|
42,633 |
|
|
|
39,040 |
|
|
|
3,593 |
|
|
|
9.2 |
% |
Pharmaceuticals |
|
|
6,302 |
|
|
|
4,182 |
|
|
|
2,120 |
|
|
|
50.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment sales |
|
$ |
528,564 |
|
|
$ |
442,089 |
|
|
$ |
86,475 |
|
|
|
19.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Materials |
|
$ |
31,394 |
|
|
$ |
13,129 |
|
|
$ |
18,265 |
|
|
|
139.1 |
% |
Performance Coatings |
|
|
11,322 |
|
|
|
14,518 |
|
|
|
(3,196 |
) |
|
|
(22.0 |
)% |
Color and Glass Performance Materials |
|
|
9,192 |
|
|
|
7,815 |
|
|
|
1,377 |
|
|
|
17.6 |
% |
Polymer Additives |
|
|
6,970 |
|
|
|
4,386 |
|
|
|
2,584 |
|
|
|
58.9 |
% |
Specialty Plastics |
|
|
4,253 |
|
|
|
2,977 |
|
|
|
1,276 |
|
|
|
42.9 |
% |
Pharmaceuticals |
|
|
534 |
|
|
|
(1,316 |
) |
|
|
1,850 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
$ |
63,665 |
|
|
$ |
41,509 |
|
|
$ |
22,156 |
|
|
|
53.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Materials Segment Results. Sales increased in Electronic Materials in all product
areas, led by higher sales of conductive pastes and powders. Higher sales volume accounted for
approximately $43 million of the sales growth, and changes in product mix and prices contributed an
additional $10 million in increased sales. Changes in foreign currency exchange rates contributed
$1 million to the overall sales growth. An increase of $27 million in precious metal sales,
reflecting both increased volume and pricing, contributed to the overall sales increase. The costs
of precious metals included in our electronic materials products are generally passed through to
customers with minimal gross profit contribution. Sales increased in all regions compared with the
prior-year period. Operating income increased due to a $19 million rise in gross profit that was
partially offset by a $1 million increase in SG&A expenses. The higher gross profit was largely as
a result of higher sales volume with additional contribution from changes in product pricing and
mix.
Performance Coatings Segment Results. Sales increased in Performance Coatings primarily as a
result of increased sales volume. Higher sales volume contributed approximately $27 million to
sales growth in the quarter. This increase was partially offset by a $5 million decline in sales
due to changes in product pricing and mix. Changes in foreign currency exchange rates reduced
sales growth by an additional $7 million. The sales increase was led by higher sales in
Europe-Middle East-Africa and the United States. Operating income declined as a result of a $1
million reduction in gross profit and a $2 million increase in SG&A expense. The decline in gross
profit was the result of increased manufacturing costs due to higher repair and maintenance costs
and production disruptions due to severe weather conditions in Latin America and changes in foreign
currency exchange rates. These cost increases more than offset higher gross profit that resulted
from higher sales.
Color and Glass Performance Materials Segment Results. Sales increased in Color and Glass
Performance Materials primarily due to increased sales volume, partially offset by reduced precious
metal sales resulting from our April 2010 business combination. Higher sales volume accounted for
approximately $10 million of sales growth. Changes in product pricing and mix reduced sales growth
by $4 million, and sales growth was reduced by an additional $3 million due to changes in foreign
currency exchange rates. Sales growth was primarily due to higher sales in the United States,
partially offset by modest declines in Asia-Pacific and Latin America. Operating income increased
as a result of a $2 million increase in gross profit due to higher sales volume. The increase in
gross profit was partially offset by a $1 million increase in
SG&A expenses.
24
Polymer Additives Segment Results. Sales increased in Polymer Additives as a result of
improvements in product pricing and mix, with additional contributions from higher sales volume.
Changes in pricing and mix contributed approximately $8 million to the increased sales, and higher
sales volume contributed an additional $4 million to sales growth. Changes in foreign currency
exchange rates reduced sales by approximately $2 million. Sales growth was generated primarily
from the United States and Europe-Middle East-Africa, the principal markets for our polymer
additives products. Operating income increased primarily as a result of a $3 million increase in
gross profit driven by higher sales.
Specialty Plastics Segment Results. Sales increased in Specialty Plastics due to changes in
product price and mix as well as increased sales volume. Changes in product pricing and mix
increased sales by approximately $3 million, and increased sales volume contributed an additional
$2 million to the overall sales growth. Changes in foreign currency exchange rates reduced sales
by approximately $1 million. Sales growth was primarily from the United States. Operating income
increased as a result of a $0.9 million increase in gross profit and a $0.4 million reduction in
SG&A expenses.
Pharmaceuticals Segment Results. Sales increased in the Pharmaceuticals business primarily as
a result of product mix changes. The sales increase was due to higher sales in the United States.
Operating income was recorded in the segment during the quarter, compared with an operating loss in
the prior-year period, as a result of an increase in gross profit of $3 million, partially offset
by a $1 million increase in SG&A expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Geographic Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
260,650 |
|
|
$ |
198,521 |
|
|
$ |
62,129 |
|
|
|
31.3 |
% |
International |
|
|
267,914 |
|
|
|
243,568 |
|
|
|
24,346 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
528,564 |
|
|
$ |
442,089 |
|
|
$ |
86,475 |
|
|
|
19.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales growth was recorded in the United States, Europe-Middle East-Africa, Asia-Pacific and
Latin America. In the 2010 third quarter, sales of products in the United States were 49% of total
sales, compared with 45% in the third quarter of 2009. The increase in international sales was
driven by higher sales in the Europe-Middle East-Africa region. Sales recorded in each region
include products exported to customers that are located in other regions.
25
Comparison of the nine months ended September 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands, except per share |
|
|
|
|
|
|
amounts) |
|
|
|
|
Net sales |
|
$ |
1,564,914 |
|
|
$ |
1,199,175 |
|
|
$ |
365,739 |
|
|
|
30.5 |
% |
Cost of sales |
|
|
1,215,354 |
|
|
|
985,531 |
|
|
|
229,823 |
|
|
|
23.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
349,560 |
|
|
|
213,644 |
|
|
|
135,916 |
|
|
|
63.6 |
% |
Gross profit percentage |
|
|
22.3 |
% |
|
|
17.8 |
% |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
215,635 |
|
|
|
196,526 |
|
|
|
19,109 |
|
|
|
9.7 |
% |
Restructuring and impairment charges |
|
|
44,107 |
|
|
|
12,156 |
|
|
|
31,951 |
|
|
|
|
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
37,196 |
|
|
|
46,255 |
|
|
|
(9,059 |
) |
|
|
|
|
Interest earned |
|
|
(542 |
) |
|
|
(689 |
) |
|
|
147 |
|
|
|
|
|
Losses on extinguishment of debt |
|
|
19,331 |
|
|
|
|
|
|
|
19,331 |
|
|
|
|
|
Foreign currency losses, net |
|
|
3,644 |
|
|
|
3,033 |
|
|
|
611 |
|
|
|
|
|
Miscellaneous expense, net |
|
|
2,523 |
|
|
|
199 |
|
|
|
2,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
27,666 |
|
|
|
(43,836 |
) |
|
|
71,502 |
|
|
|
|
|
Income tax expense (benefit) |
|
|
23,246 |
|
|
|
(15,844 |
) |
|
|
39,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
4,420 |
|
|
|
(27,992 |
) |
|
|
32,412 |
|
|
|
|
|
Loss on disposal of discontinued operations, net of income taxes |
|
|
|
|
|
|
(322 |
) |
|
|
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,420 |
|
|
$ |
(28,314 |
) |
|
$ |
32,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share |
|
$ |
0.04 |
|
|
$ |
(0.69 |
) |
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the nine months ended September 30, 2010, increased by 30% compared with the
first nine months of 2009. The primary driver of the sales growth was increased sales volume,
which accounted for approximately 23 percentage points of the overall sales growth. Changes in
product prices and mix accounted for approximately 9 percentage points of the sale increase for the
nine-month period. Changes in foreign currency exchange rates reduced sales growth by
approximately 2 percentage points in the first nine months of 2010. Higher precious metal sales
contributed approximately 9 percentage points to the overall sales increase during the period. The
higher precious metal sales include the effects of both increased volume and higher prices for
precious metals.
Gross profit increased as a consequence of higher net sales and due to cost reduction actions
taken during prior periods, including staffing reductions, plant closures and restructuring
actions. As a result, gross profit percentage increased to 22.3% in the first nine months of 2010
compared with 17.8% in the prior-year period. Charges included in cost of sales, including
accelerated depreciation and severance costs associated with manufacturing rationalization
activities, reduced gross profit by approximately $4.9 million during the first three quarters of
2010. Gross profit was reduced by charges of $3.9 million during the first three quarters of 2009,
as a result of accelerated depreciation and other costs of our manufacturing rationalization
activities.
Selling, general and administrative (SG&A) expenses increased by $19.1 million in the first
nine months of 2010 compared with the prior-year period. SG&A expenses declined to 13.8% of net
sales in the first nine months of 2010 compared with 16.4% of net sales in the first nine months of
2009. The primary drivers of the increased SG&A expenses during the first nine months of the year
were increased incentive compensation accruals and higher special charges. During the first nine
months of 2010, special charges of $13.5 million were included in SG&A expenses, primarily related
to manufacturing rationalization projects, employee severance and corporate development activities.
In the first nine months of 2009, SG&A expenses included $7.0 million in special charges,
primarily related to expense reduction initiatives and manufacturing rationalization activities.
26
Restructuring and impairment charges increased to $44.1 million during the first three
quarters of 2010, driven by the costs of our worldwide manufacturing rationalization. The largest
contributors to the charges in the first nine months of 2010 were restructuring initiatives
involving the closure of a plant in France, two manufacturing sites in the Netherlands, and certain
manufacturing operations in Portugal. Also included in restructuring and impairment charges in the
first nine months of 2010 was a charge of $2.2 million related to a reduction in the value of
property at a manufacturing site in France, and an additional charge of $2.2 million related to a
reduction in the value of property at a manufacturing site in the United States. Approximately
$34.2 million of the restructuring and impairment charges in the first three quarters of 2010 were
related to employee severance costs.
Interest expense declined by $9.1 million in the first nine months of 2010 compared with the
prior-year period. The reduction was driven primarily by a decline in our average borrowing
levels. Interest expense was also lower as a result of refinancing actions taken during the 2010
third quarter. The effects of this refinancing activity, including the write-off of unamortized
fees related to our previous credit facility, reduced interest expense beginning in August 2010.
Interest expense in the first three quarters of 2010 included a $2.3 million noncash write-off of
fees related to repayments of our term loans prior to their final extinguishment.
We recorded a $19.3 million charge for loss on extinguishment of debt during the first nine
months of 2010 related to our debt refinancing activities. The charge included a write-off of
unamortized fees and the difference between the carrying value and the fair value of the portion of
our 6.5% convertible notes purchased pursuant to our tender offer and a write-off of unamortized
fees associated with our previous credit facility.
We manage currency 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 or losses are charged to income or expense in the period. Foreign currency
translation losses in the first nine months of 2010 included a write-down of approximately
$2.6 million related to receivables affected by a devaluation of the Venezuelan currency.
As part of our miscellaneous expense in the first nine months of 2010, we recorded a net
pre-tax gain of $7.8 million as a result of a business combination in which Ferro Corporation and
Heraeus of Hanau, Germany acquired from each other certain business lines related to decoration
materials for ceramic and glass products. In addition, we recorded charges of $6.8 million to
settle our interest rate swaps in connection with the extinguishment of term loans that were part
of our previous credit facility and a charge of $3.5 million for an increased reserve for
environmental remediation costs related to a non-operating facility in Brazil.
During the first nine months of 2010, income tax expense was $23.2 million, or 84.0% of
pre-tax income. In the prior-year period, we recorded an income tax benefit of $15.8 million, or
36.1% of pre-tax loss. The increase in the effective tax rate primarily resulted from a
$1.5 million tax charge for the elimination of future tax deductions related to Medicare Part D
subsidies as a result of The Patient Protection and Affordable Care Act signed into law in the U.S.
during 2010, a charge of $1.8 million for valuation allowances recorded on deferred assets in
Italy, a $0.6 million charge to adjust tax expense to reflect actual taxes on 2009 tax returns
filed in jurisdictions worldwide, and not recognizing a $10.3 million benefit on current losses
incurred in jurisdictions with full valuation allowances.
27
Income from continuing operations was $4.4 million in the first nine months of 2010, compared
with a loss of $28.0 million in the first nine months of 2009. The improved income was primarily
the result of higher gross profit, lower interest expense and the gain on a business combination
related to ceramic colors, partially offset by higher restructuring and impairment charges,
increased income tax expense, higher SG&A expense, and a loss on extinguishment of debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Segment Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Materials |
|
$ |
488,714 |
|
|
$ |
296,269 |
|
|
$ |
192,445 |
|
|
|
65.0 |
% |
Performance Coatings |
|
|
414,546 |
|
|
|
355,420 |
|
|
|
59,126 |
|
|
|
16.6 |
% |
Color and Glass Performance Materials |
|
|
288,196 |
|
|
|
232,264 |
|
|
|
55,932 |
|
|
|
24.1 |
% |
Polymer Additives |
|
|
231,431 |
|
|
|
190,105 |
|
|
|
41,326 |
|
|
|
21.7 |
% |
Specialty Plastics |
|
|
124,365 |
|
|
|
110,833 |
|
|
|
13,532 |
|
|
|
12.2 |
% |
Pharmaceuticals |
|
|
17,662 |
|
|
|
14,284 |
|
|
|
3,378 |
|
|
|
23.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment sales |
|
$ |
1,564,914 |
|
|
$ |
1,199,175 |
|
|
$ |
365,739 |
|
|
|
30.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Materials |
|
$ |
97,273 |
|
|
$ |
21,933 |
|
|
$ |
75,340 |
|
|
|
343.5 |
% |
Performance Coatings |
|
|
35,226 |
|
|
|
20,144 |
|
|
|
15,082 |
|
|
|
74.9 |
% |
Color and Glass Performance Materials |
|
|
26,457 |
|
|
|
7,583 |
|
|
|
18,874 |
|
|
|
248.9 |
% |
Polymer Additives |
|
|
13,797 |
|
|
|
7,863 |
|
|
|
5,934 |
|
|
|
75.5 |
% |
Specialty Plastics |
|
|
9,575 |
|
|
|
7,148 |
|
|
|
2,427 |
|
|
|
34.0 |
% |
Pharmaceuticals |
|
|
388 |
|
|
|
(989 |
) |
|
|
1,377 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
$ |
182,716 |
|
|
$ |
63,682 |
|
|
$ |
119,034 |
|
|
|
186.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Materials Segment Results. Sales increased in Electronic Materials in all product
areas, led by higher sales of conductive pastes and powders. Increased sales volume accounted for
approximately $120 million of the sales increase for the first nine months of 2010. Changes in
product pricing and mix contributed an additional $70 million to sales growth, and changes in
foreign currency exchange rates accounted for approximately $2 million in additional sales. An
increase in precious metal sales of $102 million, reflecting changes in both volume and pricing,
contributed to the overall sales increase. The costs of precious metals are generally passed
through to our customers with minimal gross profit contribution. Sales growth in the first half of
2010 was the result of increased sales of products shipped from the United States, Europe-Middle
East-Africa and Asia-Pacific. Operating income increased due to a $77 million increase in gross
profit. The increase in gross profit was primarily the result of higher sales volume. Partially
offsetting the improved gross profit was an increase of $2 million in SG&A expense.
Performance Coatings Segment Results. Sales increased in Performance Coatings primarily as a
result of higher sales volume. Increased sales volume contributed approximately $65 million to
growth in sales during the first nine months of 2010 compared with the prior-year period. Changes
in product price and mix accounted for an additional $2 million in sales growth. Changes in
foreign currency exchange rates reduced sales growth by approximately $8 million. Sales growth
occurred in all regions with the largest dollar increases in Europe-Middle East-Africa. Operating
income increased due to a $23 million increase in gross profit, primarily driven by increased sales
volume. Partially offsetting the improved gross profit was an increase of $8 million in SG&A
expense compared with the prior-year period.
Color and Glass Performance Materials Segment Results. Sales increased in Color and Glass
Performance Materials largely due to increased sales volume. Increased sales volume contributed
approximately $50 million to sales growth in the first nine months of 2010. Changes in product
pricing and mix accounted for an additional $10 million in sales growth, while
changes in foreign currency exchange rates reduced growth by $4 million. Sales growth was
recorded in the Europe-Middle East-Africa, the United States and Asia-Pacific regions. Operating
income increased due to a $24 million increase in gross profit that was partially offset by a $5
million increase in SG&A expense. The increase in gross profit was primarily due to higher sales
volume.
28
Polymer Additives Segment Results. Sales increased in Polymer Additives primarily due to
higher sales volume and changes in product pricing and mix. Increased sales volume contributed
approximately $30 million to sales growth in the first nine months of 2010. In addition, changes
in product pricing and mix contributed another $13 million to sales growth. Changes in foreign
currency exchange rates reduced sales growth by approximately $2 million. Sales growth was
generated mainly from the United States, with a smaller contribution from Europe-Middle
East-Africa. Operating profit increased as a result of a $7 million increase in gross profit
partially offset by a $1 million increase in SG&A expense. The increase in gross profit was driven
by higher sales volume.
Specialty Plastics Segment Results. Sales increased in Specialty Plastics as a result of
changes in product pricing and mix, as well as increased sales volume. Changes in product pricing
and mix contributed $8 million to the sales growth, and increased sales volume accounted for an
additional $7 million in sales growth in the first nine months of 2010. Changes in foreign
currency exchange rates reduced sales by approximately $1 million. Sales growth was generated
primarily in the United States. Operating income increased as a result of a $1 million increase in
gross margin and a $1 million decline in SG&A expense.
Pharmaceuticals Segment Results. Sales increased in Pharmaceuticals as a result of changes in
product mix. Operating income was generated as a result of a $3 million increase in gross profit
that was partially offset by a $2 million increase in SG&A expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(Dollars in thousands) |
|
|
|
|
Geographic Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
778,140 |
|
|
$ |
549,538 |
|
|
$ |
228,602 |
|
|
|
41.6 |
% |
International |
|
|
786,774 |
|
|
|
649,637 |
|
|
|
137,137 |
|
|
|
21.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,564,914 |
|
|
$ |
1,199,175 |
|
|
$ |
365,739 |
|
|
|
30.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales increased in all regions during the first nine months of 2010 compared with the
prior-year period. Sales in the United States were 50% of total net sales in the first nine months
of 2010, compared with 46% of total net sales in the prior-year period. The increase in
international sales was driven by higher sales in Europe-Middle East-Africa and Asia-Pacific.
Sales recorded in each region include products that are exported to customers located in other
regions.
29
Summary of Cash Flows for the nine months ended September 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
|
(Dollars in thousands) |
|
Net cash provided by (used for) operating activities |
|
$ |
180,455 |
|
|
$ |
(5,769 |
) |
|
$ |
186,224 |
|
Net cash used for investing activities |
|
|
(14,282 |
) |
|
|
(30,431 |
) |
|
|
16,149 |
|
Net cash (used for) provided by financing activities |
|
|
(120,692 |
) |
|
|
37,183 |
|
|
|
(157,875 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,368 |
|
|
|
3,097 |
|
|
|
(1,729 |
) |
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
$ |
46,849 |
|
|
$ |
4,080 |
|
|
$ |
42,769 |
|
|
|
|
|
|
|
|
|
|
|
Details of net cash provided by (used for) operating activities for the nine months
ended September 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
|
(Dollars in thousands) |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,420 |
|
|
$ |
(28,314 |
) |
|
$ |
32,734 |
|
Depreciation and amortization |
|
|
59,510 |
|
|
|
63,501 |
|
|
|
(3,991 |
) |
Precious metals deposits |
|
|
112,434 |
|
|
|
(92,330 |
) |
|
|
204,764 |
|
Accounts and trade notes receivable |
|
|
(51,864 |
) |
|
|
(5,531 |
) |
|
|
(46,333 |
) |
Inventories |
|
|
(30,552 |
) |
|
|
77,477 |
|
|
|
(108,029 |
) |
Accounts payable |
|
|
32,586 |
|
|
|
(10,758 |
) |
|
|
43,344 |
|
Other changes in current assets and liabilities, net |
|
|
30,664 |
|
|
|
8,774 |
|
|
|
21,890 |
|
Other adjustments, net |
|
|
23,257 |
|
|
|
(18,263 |
) |
|
|
41,520 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) continuing operations |
|
|
180,455 |
|
|
|
(5,444 |
) |
|
|
185,899 |
|
Net cash used for discontinued operations |
|
|
|
|
|
|
(325 |
) |
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
$ |
180,455 |
|
|
$ |
(5,769 |
) |
|
$ |
186,224 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities increased by $186.2 million in the first nine months of
2010 compared with the prior-year period. Year-over-year cash flows from operating activities
increased $204.8 million due to changes in precious metal deposits, $43.3 million due to changes in
accounts payable, $32.7 million due to higher net income, $21.9 million due to other changes in
current assets and liabilities, and $19.3 million due to a noncash loss on extinguishment of debt
recognized in 2010. Partially offsetting these effects, year-over-year cash flows from operating
activities decreased $108.0 million due to changes in inventories and $46.3 million due to changes
in accounts and trade notes receivable. Accounts payable, inventories, and accounts and trade notes
receivable increased in the first nine months of 2010 in response to improved customer demand as
worldwide markets continued to recover from the economic downturn in 2009.
Cash flows from investing activities increased $16.1 million in the first nine months of 2010
compared with the prior-year period. Capital expenditures decreased to $27.7 million in the first
nine months of 2010 from $30.7 million in the first nine months of 2009. In the first nine months
of 2010, we had net proceeds of $7.4 million from the sale of assets, primarily property, plant and
equipment from sites in Uden and Rotterdam, Netherlands, and $5.9 million in connection with our
business combination with Heraeus.
Cash flows from financing activities decreased $157.9 million in the first nine months of 2010
compared with the prior-year period. In the first nine months of 2010, we issued $250.0 million of
Senior Notes, repaid $231.4 million of term loans, redeemed $100.8 million of Convertible Notes,
and repaid $17.8 million on our asset securitization program, while in the first nine months of
2009, we borrowed $28.6 million on our asset securitization program and $19.6 million on our former
revolving credit facility.
30
Capital Resources and Liquidity
7.875% Senior Notes
In August 2010, we issued $250 million of 7.875% Senior Notes due 2018 (the Senior Notes).
We used portions of the proceeds from the offering to repay all of the remaining term loans and
revolving borrowings outstanding under a credit facility originally entered into in 2006 and as
amended and restated through November 2009 (the 2009 Amended and Restated Credit Facility). We
also used portions of the proceeds from the offering to repurchase the 6.50% Convertible Senior
Notes (the Convertible Notes) that were tendered pursuant to a related tender offer. The Senior
Notes were issued at par and bear interest at a rate of 7.875% per year, payable semi-annually in
arrears on February 15 and August 15 of each year, beginning February 15, 2011.
The Senior Notes mature on August 15, 2018. We may redeem some or all of the Senior Notes
beginning August 15, 2014, at prices ranging from 100% to 103.938% of the principal amount. In
addition, through August 15, 2013, we may redeem up to 35% of the Senior Notes at a price equal to
107.875% of the principal amount using proceeds of certain equity offerings. We may also redeem
some or all of the Senior Notes prior to August 15, 2014, at a price equal to the principal amount
plus a defined Applicable Premium. The definition can be found in the indenture governing the
Senior Notes, which was filed as Exhibit 4.1 to our Current Report on Form 8-K dated August 24,
2010.
The Senior Notes do not contain any financial covenants. However, the Senior Notes do contain
certain affirmative and negative covenants customary for high-yield debt securities, including,
without limitation, restrictions on our ability to incur debt, create liens, pay dividends or make
other distributions or repurchase our common stock and sell assets outside the ordinary course of
business.
6.50% Convertible Senior Notes
In July 2010, we commenced a cash tender offer to purchase all of our Convertible Notes. In
August 2010, we purchased $100.5 million of the Convertible Notes, which were tendered pursuant to
the offer. In September 2010, we purchased $0.3 million of the Convertible Notes on the open
market. Convertible Notes outstanding totaled $71.7 million at September 30, 2010, and $172.5
million at December 31, 2009.
2009 Amended and Restated Credit Facility
Our 2009 Amended and Restated Credit Facility included a senior term loan facility and a
senior revolving credit facility. In June 2010, we made an early principal payment of $50 million
on our outstanding term loans. In August 2010, we made another early principal repayment of $33.6
million. Also in August 2010, we amended the 2009 Amended and Restated Credit Facility and paid the
remaining $147.8 million on our outstanding term loans and the remaining $75.5 million on our
outstanding revolving borrowings. We treated the amendment as an extinguishment of the 2009 Amended
and Restated Credit Facility.
2010 Amended and Restated Credit Facility
In August 2010, we entered into the Third Amended and Restated Credit Agreement with a group
of lenders for a five-year, $350 million multi-currency senior revolving credit facility (the 2010
Credit Facility). At September 30, 2010, there were no borrowings under this facility. The 2010
Credit Facility matures on August 24, 2015, and is secured by substantially all of Ferros assets.
We are subject to a number of restrictive covenants under this facility. These covenants include
requirements for a minimum fixed charge coverage ratio and a maximum leverage ratio. Definitions of
the covenants and our required performance can be found in our 2010 Credit Facility, which was
filed as Exhibit 10.1 to our Current Report on Form 8-K dated August 24, 2010.
Off Balance Sheet Arrangements
International Receivable Sales Programs. We maintain several international programs to sell
trade accounts receivable to financial institutions. Ferro had received net proceeds under the
international programs of $2.8 million at September 30, 2010, and $10.3 million at
December 31, 2009, for outstanding receivables.
Consignment Arrangements for Precious Metals. 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. We had on hand precious metals
owned by participants in our precious metals program of $136.9 million at September 30, 2010, and
$101.4 million at December 31, 2009, measured at fair value based on market prices for identical
assets. In 2009, several participants in
our precious metals program renewed their requirement for us to deliver cash collateral to
secure our obligations arising under the consignment agreements. At December 31, 2009, we had
delivered $112.4 million in cash collateral to those financial institutions. At
September 30, 2010, cash collateral required under the consignment agreements was $-0-. We may be
required to furnish cash collateral in the future based on our level of consigned precious metals.
31
Liquidity Requirements
Our liquidity requirements primarily include debt service, purchase commitments, labor costs,
working capital requirements, restructuring expenditures, capital investments, precious metals cash
collateral requirements, and postretirement obligations. We expect to meet these requirements in
the long term through cash provided by operating activities and availability under replacement
credit facilities or other financing arrangements. Cash flows from operating activities are
primarily driven by earnings before noncash charges and changes in working capital needs. In the
first three quarters of 2010, cash flows from operating activities were sufficient to fund our
investing activities, primarily capital expenditures for property plant and equipment. We had
borrowing capacity of $408.7 million at September 30, 2010, and $202.4 million at
December 31, 2009, available under various credit facilities, primarily our revolving credit
facility. To enhance liquidity, we have taken actions that include a variety of restructuring
activities and suspension of dividend payments on our common stock.
Our level of debt, debt service requirements, and ability to access credit markets could have
important consequences to our business operations and uses of cash flows. Uncertainties in the
global capital markets have not prohibited us from accessing the capital markets. In addition,
financial market conditions and access to credit have improved over the last several quarters,
evidenced by the number of financing transactions consummated in the credit markets and the pricing
of these offerings.
We may from time to time seek to retire or repurchase our outstanding debt through open market
purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on
prevailing market conditions, our liquidity requirements, contractual restrictions and other
factors. The amounts involved may be material.
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. Generally, we publicly announce divestiture and acquisition
transactions only when we have entered into definitive agreements relating to those transactions.
32
Critical Accounting Policies and Their Application
There
were 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, 2009.
Newly Issued Accounting Pronouncements
In October 2009, the FASB issued ASU 2009-13, Multiple Deliverable Revenue Arrangements, (ASU
2009-13), which applies to all deliverables in contractual arrangements in which a vendor will
perform multiple revenue-generating activities. In April 2010, the FASB issued ASU 2010-17, Revenue
RecognitionMilestone Method, (ASU 2010-17), which defines a milestone and determines when it may
be appropriate to apply the milestone method of revenue recognition for research or development
transactions. These pronouncements are codified in ASC Topic 605, Revenue Recognition, and are
effective for our fiscal year that begins January 1, 2011. These pronouncements may be applied
prospectively or retrospectively, and early adoption is permitted. We are evaluating the impact
that adoption of ASU 2009-13 and ASU 2010-17 may have 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, 2009, and in Item 1A of Part II of this Quarterly Report on Form 10-Q.
33
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 and foreign currency exchange rates.
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 had entered into interest rate swap agreements. These swaps effectively
converted a portion of our variable-rate debt to a fixed rate. In the third quarter of 2010, in
conjunction with repayment of our remaining outstanding term loans, we settled these swaps. 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.
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:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Variable-rate debt and utilization of accounts receivable sales programs: |
|
|
|
|
|
|
|
|
Change in annual interest expense from 1% change in interest rates |
|
$ |
35 |
|
|
$ |
1,170 |
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
Carrying amount |
|
|
319,975 |
|
|
|
161,050 |
|
Fair value |
|
|
334,013 |
|
|
|
160,275 |
|
Change in fair value from 1% increase in interest rate |
|
|
(16,477 |
) |
|
|
(4,814 |
) |
Change in fair value from 1% decrease in interest rate |
|
|
17,653 |
|
|
|
5,000 |
|
Foreign currency forward contracts: |
|
|
|
|
|
|
|
|
Notional amount |
|
|
192,254 |
|
|
|
178,922 |
|
Carrying amount and fair value |
|
|
(4,755 |
) |
|
|
723 |
|
Change in fair value from 10% appreciation of U.S. dollar |
|
|
7,257 |
|
|
|
5,571 |
|
Change in fair value from 10% depreciation of U.S. dollar |
|
|
(8,870 |
) |
|
|
(6,809 |
) |
Interest rate swaps: |
|
|
|
|
|
|
|
|
Notional amount |
|
|
|
|
|
|
150,000 |
|
Carrying amount and fair value |
|
|
|
|
|
|
(9,516 |
) |
Change in fair value from 1% increase in interest rate |
|
|
|
|
|
|
2,226 |
|
Change in fair value from 1% decrease in interest rate |
|
|
|
|
|
|
(2,263 |
) |
34
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 its 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
September 30, 2010, the end of the period covered by this report. Based on that evaluation, our
Chief Executive Officer and our Chief Financial Officer concluded that the disclosure controls and
procedures were effective as of September 30, 2010.
Changes in Internal Control over Financial Reporting
During the third quarter of 2010, there were no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
35
PART II OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed, on May 6, 2004, the Company was named in an indirect purchaser class
action in California seeking monetary damages and injunctive relief relating to alleged violations
of the antitrust laws by the Company and others participating in the plastics additives industry
(Competition Collision Center, LLC v. Crompton Corporation, et al., Superior Court of the State of
California for the City and County of San Francisco, Case No. CGC-040431278); on August 4, 2005,
the Company was named in another indirect purchaser class action lawsuit (In Re Indirect Purchaser,
Plastic Additives Litigation, D.R. Ward Construction, et al., v. Rohm & Haas Company, et al., Case
No. 2:05-CV-04157-LDD, MDL No. 1684, U.S. District Court, Eastern District of Pennsylvania); and in
June 2008, the Company was named in four more indirect purchaser class action lawsuits. All of
these cases contain similar allegations. The four indirect purchaser cases filed in 2008 have been
transferred to the Eastern District of Pennsylvania (Defren v. Rohm & Haas Company, et al., Case
No. 2:08-CV-03702-LDD (filed June 12, 2008); Zebrowski v. Rohm & Haas Company, et al., Case
No. 2:08-CV-04161-LDD (filed June 23, 2008); Burg v. Rohm & Haas Company, et al., Case
No. 2:08-CV-04162-LDD (filed June 30, 2008); Miller v. Rohm & Haas Company, et al., Case
No. 2:08-CV-03701-LDD (filed June 18, 2008)). The Company intends to vigorously defend these six
civil actions, which are all in their early stages. As a result, the Company cannot determine the
outcome of these lawsuits at this time.
As previously disclosed, for the year ended December 31, 2007, the Company 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. In November 2009,
the Company entered a settlement agreement with the New Jersey Department of Environmental
Protection, pursuant to which the Company performed $100,000 worth of supplemental environmental
projects in the community during 2009 and will make quarterly cash payments totaling $300,000 in
2010.
There are various other lawsuits and claims pending against the Company and its consolidated
subsidiaries. We do not currently expect the ultimate liabilities, if any, and expenses related to
such lawsuits and claims to materially affect the consolidated financial position, results of
operations, or cash flows of the Company.
Item 1A. Risk Factors
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, 2009, other than as follows:
We may not pay dividends on our common stock at any time in the foreseeable future.
Holders of our common stock are entitled to receive such dividends as our board of directors
from time to time may declare out of funds legally available therefor. Our board of directors has
no obligation to declare dividends under Ohio law or our amended articles of incorporation. The
restrictive covenants contained in our credit facility limit the amount of dividends we can pay on
our common stock. We may not pay dividends on our common stock in the foreseeable future. Any
determination by our board of directors to pay dividends in the future will be based on various
factors, including our financial condition, results of operations, current and anticipated cash
needs, and any limits that our then-existing credit facility places on our ability to pay
dividends.
36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. (Removed and Reserved)
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The exhibits listed in the attached Exhibit Index are the exhibits required by Item 601 of
Regulation S-K.
37
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.
|
|
|
|
|
Date: October 25, 2010 |
FERRO CORPORATION
(Registrant)
|
|
|
/s/ James F. Kirsch
|
|
|
James F. Kirsch |
|
|
Chairman, President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
Date: October 25, 2010 |
|
|
|
/s/ Thomas R. Miklich
|
|
|
Thomas R. Miklich |
|
|
Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
38
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, as amended and restated on April 30, 2010. |
|
|
|
|
|
|
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.) |
|
|
|
|
|
|
4.3 |
|
|
Form of First Supplemental Indenture, by and between the Company and Wilmington
Trust FSB, governing the Companys 7.875% Senior Notes due 2018 (including form
of Note). (Reference is made to Exhibit 4.1 to Ferro Corporations Current
Report on Form 8-K, filed August 24, 2010, 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. |
|
|
|
|
|
39
|
|
|
|
|
Exhibit: |
|
|
|
|
|
|
10.1 |
|
|
Separation Agreement and Release, dated July 14, 2010, between Ferro Corporation
and Sallie B. Bailey. (Reference is made to Exhibit 10.1 to Ferro Corporations
Current Report on Form 8-K, filed July 20, 2010, which Exhibit is incorporated
here by reference.) |
|
|
|
|
|
|
10.2 |
|
|
First Amendment to Second Amended and Restated Credit Agreement. (Reference is
made to Exhibit 10.1 to Ferro Corporations Current Report on Form 8-K, filed
July 27, 2010, which Exhibit is incorporated here by reference.) |
|
|
|
|
|
|
10.3 |
|
|
Third Amended and Restated Credit Agreement, dated August 24, 2010, by and among
Ferro Corporation, the various financial institutions from time to time party
thereto and PNC Bank, National Association, JPMorgan Chase Bank, N.A. and Bank
of America, N.A. as agents. (Reference is made to Exhibit 10.1 to Ferro
Corporations Current Report on Form 8-K, filed August 24, 2010, 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. |
40