Server: Netscape-Communications/1.1 Date: Thursday, 20-Nov-97 21:27:32 GMT Last-modified: Tuesday, 11-Nov-97 16:33:34 GMT Content-length: 30783 Content-type: text/html TO OUR SHAREHOLDERS:

TO OUR SHAREHOLDERS:

We are very pleased to share with you the performance of yet one more very fine quarter, a quarter which established new highs for third quarter sales, net income and earnings per share. The excellent results of the third quarter represent the seventh consecutive up quarter. Such performance clearly demonstrates that the strategies and initiatives under way to ensure profitable growth and achieve our target of 28 percent gross margins are producing expected results. We are already seeing some of the early benefits of our realignment plan and expect further benefit as the plan progresses through its three-year project life and beyond.

 Consolidated gross margins improved 10 percent, from 23.9 percent to 25.6 percent, with improvement in each core business. Margin expansion was aided by significant volume increases worldwide and the resulting improved capacity utilization. Volume improved 9 percent in the recent quarter, combining with the 10 percent volume increase of the prior quarter to very significantly add to year-to-date revenue growth by greatly exceeding the unfavorable impact of currency on sales.

Driven primarily by increases in Coatings, Colors and Ceramics, sales for ongoing operations were 4 percent greater than the prior year, while consolidated sales of $339.0 million were 3 percent greater than comparable 1996 sales of $329.2 million. Strong volume increases of 9 percent were nearly twice the 5 percent adverse currency impact due to the relative strength of the U.S. dollar. For the quarter, currency fluctuations reduced sales by $15.2 million. Sales for ongoing operations excluding the currency effect were up 9 percent.

Our marketing initiatives have been especially successful in increasing volumes. We are addressing rising demand with capacity increases throughout the Company, both from improved efficiencies and capital expenditures. We are running at or near capacity in a number of our manufacturing locations. In line with plans to expand our presence in Asia-Pacific, we are increasing installed capacity in Indonesia. Additionally, we are investing in our color business in Spain and our plastics business in both Europe and the United States. Volumes and margins in Europe have been enhanced by the efforts of our ceramic tile design centers in Spain and Italy.

Operating profit improved in all core businesses and in all regions. Coatings, Colors and Ceramics performance was led largely by improvements in Europe in general and continued improvement in powder coatings both domestically and in Europe. Chemicals again delivered record performance, with improvements largely in the United States and Canada. Plastics performance also improved, led by progress in the domestic business.

Excluding the effects of the second quarter pre-tax realignment charge of $152.8 million, net income for the nine months ending September 30 reached $46.6 million, 15 percent greater than 1996 nine months net income. Earnings per share of $1.60 excluding the effects of the realignment charge exceeded the comparable 1996 earnings by 19 percent. Including the realignment charge, the Company reported a net loss of $53.4 million, or a loss of $2.16 per share.

Nine-month sales from ongoing operations rose 4 percent over the comparable 1996 period, while consolidated sales of $1,044.2 million for the period were up 2 percent. Coatings, Colors and Ceramics was the major contributor to the sales increase. Volume for the nine months was up 8 percent, with the added volume coming primarily from the United States and Canada, and Europe. Currency shifts negatively impacted sales for the period by $36.7 million, or about 4 percent. Sales for ongoing operations excluding the currency effect were up 8 percent.

As a reflection of our commitment to enhancing shareholder value and our confidence in the continued growth and profitability of the Company, a 3-for-2 stock split and a 16.1 percent increase in the quarterly dividend were approved by the Board of Directors on October 24, 1997. Certificates for the additional shares are expected to be mailed December 1, 1997 to shareholders of record November 14, 1997. Ferro will make cash payments for fractional shares resulting from the split. The dividend action increases the quarterly cash dividend to $0.12 per share on an after-split basis. The dividend will be payable December 10, 1997 to shareholders of record November 14, 1997. The pre-split equivalent would have been an increase in the quarterly dividend from $0.155 to $0.18 per share.

Quarter after quarter, we have continued to make progress in achieving our objectives. Excluding realignment charges, earnings have grown several times faster than sales. Continuing improvement in virtually all parts of the business is expected as we continue to implement our plans. We anticipate further revenue growth and performance improvements in 1998 and beyond as we work to implement our growth strategies.

 

Sincerely,

Albert C. Bersticker

Chairman and Chief Executive Office

October 31, 1997

 

Certain statements contained in this letter reflect the Company's current expectations with respect to the future performance of the Company and may constitute "forward-looking statements" within the meaning of the federal securities laws. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning the Company's operations and business environment, including, but not limited to: changes in customer requirements, markets or industries served; changing economic conditions, particularly in Europe or Latin America; foreign exchange rates; changes in the prices of major raw materials, in particular polypropylene and titanium dioxide; and significant technological or competitive developments.

 

STOCK DATA

(Symbol : FOE)

New York Stock Exchange - Composite

  High Low Close Average Daily Volume
Full Year 1996 301/8 227/8 283/8 47,500
First Quarter 1997 323/8 28 30 49,000
Second Quarter 1997 387/8 293/4 371/16 67,283
Third Quarter 1997 391/16 353/8 383/16 53,958

 

CONSOLIDATED STATEMENTS OF INCOME

FERRO CORPORATION AND SUBSIDIARIES

                                                                        (Unaudited) (Unaudited)
                                                                        Three Months Ended September 30 Nine Months Ended September 30
(Dollars in Thousands)   1997 1996         1997 1996
Segment Sales                  
Coatings, Colors, and Ceramics   $198,775 $188,921         $ 613,168 $ 581,145
Plastics   59,650 57,044         180,142 182,531
Chemicals   80,532 83,247         250,889 258,435
Total Net Sales   $338,957 $329,212         $1,044,199 $1,022,111
                   
Cost of Sales   252,179 250,497         778,113 773,630
Selling, Administrative                  
and General Expenses   58,323 54,170         176,393 170,717
Realignment Expense   0 0         152,790 0
Interest Expense   2,951 3,447         9,021 9,861
Net Foreign Currency (Gain) Loss   161 (208)         (2,139) (555)
Other Expense - Net   989 218         3,847 2,875
Income Before Taxes   24,354 21,088         (73,826) 65,583
Income Tax Expense (Benefit)   8,990 7,861         (20,438) 24,890
Net Income (Loss)   15,364 13,227         (53,388) 40,693
                   
Dividend on Preferred Stock, Net of Tax   936 937         2,817 2,799
                   
Net Income (Loss) Available                  
to Common Shareholders   $ 14,428 $ 12,290         ($56,205) $ 37,894
                   
Per Common Share Data:                  
Primary Earnings (Loss)   $0.55 $0.46         ($2.16) $1.42
Fully Diluted Earnings (Loss)   $0.53 $0.44         ($2.16) $1.35
Average Shares Outstanding   25,998,451 26,442,282         25,995,024 26,711,778

 

CONSOLIDATED BALANCE SHEET

FERRO CORPORATION AND SUBSIDIARIES

SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

(Dollars in Thousands)

    (Unaudited) (Audited)
ASSETS   1997 1996
Current Assets:      
Cash and Cash Equivalents   $ 41,705 $ 14,026
Net Receivables   246,709 214,131
Inventories   120,961 149,343
Other Current Assets   45,448 39,022
Total Current Assets   $454,823 $416,522
       
Unamortized Excess of Cost Over      
Net Assets Acquired   55,369 93,302
Other Assets   58,330 53,261
Net Plant & Equipment   240,602 307,383
    $809,124 $870,468

(Dollars in Thousands)

  (Unaudited) (Audited)
LIABILITIES 1997 1996
Current Liabilities:    
Notes and Loans Payable $ 30,154 $ 30,200
Accounts Payable, Trade 112,075 113,156
Income Taxes 8,074 10,597
Accrued Payrolls 18,758 16,559
Accrued Expenses and Other Current Liabilities 116,165 81,821
Total Current Liabilities $285,226 $252,333
     
Long-Term Debt 103,417 105,308
ESOP Loan Guarantee 16,075 22,592
Postretirement Liabilities 46,520 44,846
Other Liabilities 72,127 61,185
Shareholders' Equity 285,759 384,204
  $809,124 $870,468