1
Building
on Core Technologies
Ferro's core businesses and range of products and services derive from the
application of eight core technologies. Descriptions of these core technologies
are provided to the right. The matrix illustrates that each of the core
technologies relates to almost every major Ferro product line.
[FIGURE]
To stimulate growth and develop competitive advantages, management has been
systematic in capitalizing on Ferro's core technologies. A major focus is to
encourage communication between business units to share best practices in both
manufacturing concepts and technology. This has been accomplished through the
formation of core technology teams in each of the eight areas. These teams
provide a forum for technology transfer and skill building. By establishing
parameters, the teams have made it easier to identify best practices and to
train other employees. The result has been improvements in efficiency and
productivity throughout Ferro's operations.
[FIGURE]
The core technologies also provide building blocks for the development of
new products. Ferro is emphasizing internal growth, and new products will be an
even more important part of that strategy. Development of new products at Ferro
is a business process that begins by identifying a customer need and then
initiating a coordinated effort by a multifunctional project team to create a
solution. The contribution of research and development to this process, based on
in-depth knowledge of the eight core technologies that have fueled Ferro's past
growth, offers exciting possibilities for the future.
Looking ahead, Ferro's expertise in managing businesses around the globe
based on its eight core technologies provides a solid foundation for making
synergistic acquisitions. Ferro will now consider acquisitions that rely on core
technologies, rather than just core businesses.
[FIGURE]
In making acquisitions and in managing existing businesses, Ferro will
continue to focus on businesses with potential for strong global growth. Open
the next page for an overview of the market drivers propelling the growth of
Ferro's major product lines throughout the world.
6
2
Market Drivers
- --------------------------------------------------------------------------------
of Core Businesses
Specialty Coatings, Colors and Ceramics
Ceramic Coatings: Expanding economies in many areas of the world are resulting
in rapid economic development and upgrading of their housing, fueling demand for
glazed ceramic floor and wall tile, dinnerware, artware, sanitaryware and roof
tiles. In developed countries, fashion trends are resulting in more versatile
designs which are boosting the popularity of ceramic floor and wall tile for
home decoration.
Porcelain Enamel Coatings: The Middle East and China are growing markets for
porcelain enamel cookware and sanitaryware. The appliance market is also
beginning to expand due to the improved standards of living throughout these
regions.
Powder Coatings: Efforts to reduce the environmental impact of coatings
materials continue to drive the conversion to powder coatings from solvent-based
liquid coatings. A major redesign of appliance products and manufacturing
processes is introducing advanced materials and techniques such as powder coated
blanks. As manufacturing develops in the Far East, manufacturers require
state-of-the-art materials.
Pigments and Colorants: Colors, free of lead and other heavy metals, continue to
gain market share for a wide variety of plastic, paint and ceramic applications.
The continued growth and popularity of intensely colored non-glazed floor tile
has produced a dramatic increase in pigment consumption which is now spreading
worldwide. Use of decorative glass enamel on automotive glass is growing. Glass
enamels enhance the appearance of windshields and provide protection from
ultraviolet light to the adhesives used to install them.
Electronic Materials: The trend to incorporate electronics in automobiles and
appliances and the tremendous growth in wireless communications are fueling
double-digit growth in demand for Ferro's electronic materials.
Specialty Ceramics: Growing demand for ceramic tile translates into increased
demand for media to grind ceramic glaze and its raw materials. Growth of the
electronics industry is boosting sales of high-performance kiln furniture
systems to support ceramic electronics during the firing process.
Specialty Plastics
Plastic Colorants: The increasing popularity of eye-catching colorful plastics
for packaging and many other applications offers continued growth to this
already strong and successful business. Coloring recycled materials is a growth
area.
Filled and Reinforced Plastics: The trend to replace materials such as wood,
metal and alternative plastic resins is expected to support growth at double the
rate of economic expansion. The ever-improving versatility and performance
characteristics of Ferro's plastic compounds are proving attractive to a growing
range of customers.
Liquid Coatings and Dispersions: As the number of affluent consumers grows,
sales of boats, swimming pools and recreational vehicles are increasing, fueling
demand for liquid coatings and dispersions.
Specialty Chemicals
Polymer Additives: While global demand for plastics remains vibrant for a broad
spectrum of end uses, the rate of growth for plastics additives is even larger
in new, as well as established applications. This growth is fueled by a demand
for improved physical characteristics that can be created only by performance
additives.
Fuel Additives and Friction Modifiers: Global demands for improved air quality
and high-performance passenger cars are driving strong growth in chemical
components which allow clean-burning engines and long-lived lubricity.
Industrial Specialties: New, high-valued industrial specialties such as
catalysts, environmentally acceptable solvents and specialty monomers continue
to generate increasing demand. Custom synthesis, which is a Ferro skill, is also
a rapidly expanding field as end-product companies are outsourcing more of the
production of complex, high-valued chemicals.
Flame Retardants: The need for this dynamic category of products to enhance
human safety is especially strong in the burgeoning electronics field, including
computers, where Ferro has a substantial proprietary position.
[FIGURE]
Specialty Coatings,
Colors and Ceramics
[FIGURE]
Specialty Plastics
[FIGURE]
Specialty Chemicals
6a
3
Utilization of Ferro's Core Technologies
Mixing/ Deposition/ Material Particle
Formulation Synthesis Processing Rheology Color Characterization Science Environment
- ------------------------------------------------------------------------------------------------------------------------------------
Coatings, Colors and Ceramics
Ceramic Coatings n n n n n l n n
Porcelain Enamel Coatings n n n n n l n n
Powder Coatings n l n n n l n n
Pigments and Colorants n n n n n n n n
Electronic Materials n n n n l n n l
Specialty Ceramics n n n n n n l
- ------------------------------------------------------------------------------------------------------------------------------------
Plastics
Plastic Colorants n l n n n n n l
Filled and Reinforced Plastics n n n n n n l l
Liquid Coatings and Dispersions n l n n n n n n
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals
Polymer Additives n n n n n n n n
Fuel Additives and Friction Modifiers n n n n n
Industrial Specialties n n n n n n
Metalworking Lubricants n n n l l n n n
Flame Retardants n n n n n n n n
n = Major l = Minor
Core Technologies
Formulation: Ferro uses computer technology to speed formulation development for
a variety of chemistries. All experimental results or theoretical computations
are compiled in a central database which can be accessed to expedite future
formulations.
Synthesis: Synthesis at Ferro involves in-depth work in specific relevant areas
of inorganic, polymer, analytical and organic chemistry, matched by quick
recognition of opportunities between existing businesses.
Mixing and Processing: Ferro possesses leading-edge understanding of mixing
liquids, gases and solids and is also expert in material processing to meet
production requirements for its products.
Deposition and Rheology: Both Ferro and its customers rely on deposition -- the
application of powders and liquids to surfaces -- and rheology -- the science of
flow -in their products. Ferro's expertise in these areas facilitates its
development of easy-to-use products.
Color Science: Color permeates almost every Ferro product. The exact matching,
duplication and control of colors in a variety of processes is extremely
critical for the Company's success.
Material Characterization: All materials companies must understand the
characterization of materials for their chemical composition, molecular and
atomic structures and other scientific fundamentals, and how these affect the
materials properties and characteristics for customers' purposes.
Particle Science and Technology: Ferro uses many powders to manufacture products
and markets many products in the form of small particles. Control of both
average particle size and size distribution are key to product properties, along
with uniform composition of the product.
Environmental Science: Involvement in the Chemical Manufacturers Association's
Responsible Care(R) program underscores Ferro's commitment to create
environmentally responsible products and services for its customers.
7
4
At Ferro, a key to creating shareholder value is successfully managing
corporate abilities to develop concepts, build competence and form connections.
Ferro constantly refines these capabilities to expand customer loyalty and
remain a world-class company.
Historically, Ferro's ability to create leading-edge products and services
that provide value for customers has been a major factor in corporate growth.
This tradition continues, as nearly half of 1995 sales are attributable to
products less than five years old.
Ferro conducts research and development through a system that is highly
responsive to customer needs. Almost every manufacturing facility has a
laboratory strategically located to serve a specific customer base and dedicated
to adapting products to these customers' specific requirements.
Ferro's expertise in color technology, enhancing performance
characteristics or improving handling properties of a variety of materials
provides the Company with important competitive advantages.
However, substantial product breakthroughs also contribute sig nificantly
to Ferro's sales growth. For example, the decoration techniques Ferro developed
for the design and production of ceramic tiles utilizing innovative glazes and
colorants have enjoyed dramatic growth in Europe in recent years, with demand
now increasing worldwide.
Because the development of new ideas will be of even greater importance in
the future, Ferro has established a systematic and disciplined approach to
accelerate the development of successful new products. Central to this system is
product definition resulting from early involvement of business managers and the
formation of project teams, composed of members from various business functions
and committed to the project through its completion.
Each project is supported by the Corporate Research Center, located near
Ferro's corporate headquarters. The Corporate Research Center primarily conducts
fundamental research and is also the ultimate source for analytical evaluation
in technical troubleshooting.
In all, Ferro's ability to satisfy a broad range of customer needs with
leading-edge products and services fosters growth that increases shareholder
value.
9
5
In the forefront of efforts to operate at world-class standards are Ferro's
technical service representatives who work closely with customers to ensure that
Ferro's products perform to exacting specifications and requirements. To support
their efforts, scientists and engineers conduct process development projects,
and production specialists continually improve manufacturing techniques.
Located strategically to provide high-quality service to specific industries
and geographic regions worldwide, Ferro's manufacturing facilities strive for
continuous improvement in producing high-quality specialty materials, as well as
in reducing costs. Operations benefit from economies of scale since Ferro has a
leading position in many of the markets it serves.
A major focus of research and development efforts in recent years has been
to create more efficient and productive processes. Consequently, the chemical
operations have employed a variety of new processes to reduce costs and lessen
environmental impact. The powder coatings operation in Nashville, Tennessee,
made significant productivity gains by reconfiguring production lines and
improving processes.
To boost Ferro's competence companywide, each major product line
maintains programs to identify and spread best practices to plants around the
globe. These programs can dramatically enhance productivity. For example, a
plastics operation produced 20 percent more material than it had the previous
year with the same number of employees and equipment.
In 1995, Ferro invested in manufacturing expansions to meet demand for a
variety of products. The color pigment business, for example, expanded capacity
in Europe. The chemicals business expanded capacity to produce flame retardants
in both the United States and Europe, developed electrolytic solutions used in
rechargeable batteries and acquired polymer additives technology which expands
Ferro's processing skills. The electronic ceramics business completed the first
phase of a three-stage expansion to manufacture formulated dielectric materials
for multilayer ceramic capacitors used in the growing wireless communications
market.
Each year, Ferro invests substantial energy and capital to ensure that the
highest standards possible are achieved in worker safety and environmental
protection in all Ferro operations.
Shareholders benefit as Ferro's competence to work with customers
effectively, while manufacturing high-quality products efficiently, translates
into corporate growth.
11
6
Collaboration has long been a corporate strategy at Ferro. This strategy is
reflected most in the close relationships established with customers to satisfy
their requirements for a high degree of technical service. Formulating specialty
materials that meet customers' exact specifications and qualifying these
products in a customer's facility can be lengthy processes. A commitment to the
use of Ferro's specialty materials is facilitated through the establishment of
long-term relationships, fostered through Ferro's technical service and sales
representatives. Ferro's strategically located laboratories and production
facilities support these close customer relationships.
Ferro's emphasis on collaboration is also evident in its global operations.
When initiating operations in overseas markets, Ferro typically seeks a partner
who knows how to succeed in local markets. Ferro now has joint ownerships in
nine countries throughout Europe, Asia and South America. Licensing agreements
are also used to expand the worldwide market penetration of Ferro materials. As
an example, the Powder Coatings Division recently licensed technology to a
powder coatings producer in Egypt.
Ferro, as the technological and market leader in many of its product lines,
uses its knowledge and stature in domestic markets to help overseas partners.
For instance, Ferro's color business agreed to distribute a distinctive,
high-quality line of specialty colors in the United States for a Spanish color
manufacturer.
Ferro also has a number of high-potential partnerships under way with
leading manufacturers. One such partnership, with especially exciting market
possibilities, is Ferro's long-term technical alliance with DuPont to develop
powder clear coats for automotive finishes.
Ferro also creates connections through acquisitions, another important
strategy for growth. In 1995, Ferro completed its largest acquisition ever with
the purchase of Synthetic Products Company, a polymer additives producer. The
acquisition strengthened Ferro's position in a number of important niche markets
in the high-growth polymer additives industry and doubled the size of Ferro's
polymer additives business.
All of these strategic connections benefit shareholders by enhancing
corporate strengths and enabling Ferro to augment corporate growth. Overall,
success in enhancing capabilities to develop concepts, build competence and form
connections permits Ferro to meet and even set global standards, exploit
international markets and remain a leader. As a consequence, customers and
shareholders both realize value as Ferro grows.
13
7
MANAGEMENT'S DISCUSSION & ANALYSIS
Ferro Corporation and Subsidiaries
Ferro Corporation is a major international producer of industrial specialty
materials. The Company's business segments consist of Coatings, Colors and
Ceramics; Plastics; and Chemicals. Geographically, the Company operates in the
United States and Canada; Europe; Latin America; and Asia-Pacific. See Note 11
to the Consolidated Financial Statements for segment operating data.
1995 RESULTS OF OPERATIONS
================================================================================
Record net sales of $1.3 billion were 11% greater than 1994 sales. Revenues
increased in each of the business segments, as well as geographically in the
United States and Canada and Europe. The variety of products sold by the Company
makes it difficult to determine with certainty the increases or decreases in
sales resulting from changes in the volume of products sold and selling prices.
However, management's best estimate of volume and selling price changes, as well
as changes in other factors affecting total changes in net sales, is that the
impact of a weaker U.S. dollar increased sales by 3% when foreign currency sales
were translated into U.S. dollars, and that other positive factors of volume
increased sales by 3%; price/mix by 4%; and acquisitions by 2% while
divestitures reduced sales by 1%.
Net earnings of $49.3 million were 4% greater than1994 net earnings of $47.4
million. Earnings per common share of $1.56 (fully diluted) were 8% greater than
the $1.45 per common share earned in 1994.
Macroeconomic conditions in Latin America and the resultant decline in
business in the region, coupled with lower demand for domestic durable goods in
the second half of the year, were major contributors to the decline in gross
margin percentage during the year.
Operating income of $96.2 million, which included a $5.6 million
severance-related charge in the first quarter, was 12% greater than that of
1994.
The increase in interest earned is associated with income on $50.0 million,
8% debentures issued in June 1995 for the purpose of redeeming $50.0 million,
11 3/4% debentures in October 1995. Similarly, the increase in interest expense
is also largely associated with the issuance of the 8% debentures in advance of
and in anticipation of redeeming the 11 3/4% debentures, as well as the issuance
of $25.0 million, 7 3/8% debentures associated with an acquisition later in the
year.
The inclusion of Thailand as a consolidated subsidiary in 1995 is primarily
responsible for the improvement in equity in net earnings of affiliates.
Differences in foreign tax rates relative to the United States statutory
rate are primary reasons for the increase in the effective tax rate.
COATINGS, COLORS AND CERAMICS
Sales increased 10% to $782.6 million. Increased demand and improved product
mix in Europe, coupled with the favorable impact of the relatively weak U.S.
dollar, more than offset reduced business activity in Latin America and the
reduced demand in domestic durable goods.
Operating profit declined slightly, largely because of the sizable exposure
of this business to economic conditions in Latin America and the impact of the
first quarter severance charge. Double-digit increases in operating profit in
the United States and Canada and Europe were not sufficient to offset these
factors.
PLASTICS
Worldwide sales increased marginally to $270.7 million as overall favorable
price/mix and currency impacts exceeded the combination of the volume decline in
the domestic business and the absence in 1995 of revenues associated with
operations sold in 1994.
The improvement in operating profit is largely attributable to European
performance. Additionally, 1995 earnings included no contribution from the
businesses divested in 1994. Margin pressures eased as prices for major raw
materials stabilized or declined relative to the second half of 1994.
14
8
CHEMICALS
Chemicals sales were up a strong 24% to $269.7 million, with double-digit
volume increases in both the United States and Europe. Industrial specialties
sales in the United States and in Europe were especially strong, as were those
of flame retardants and other polymer additives. Sales also benefited from the
acquisition of Synthetic Products Company from Cookson Group plc in late
October.
Operating profits were essentially triple those of the prior year owing to
the strong volume increase, a margin improvement initiative and the effective
replacement of large fuel additive component volumes lost in the previous year.
1994 RESULTS OF OPERATIONS
================================================================================
The Company posted record sales of $1.194 billion, with increases in all
segments and all geographic regions. The variety of products sold by the Company
makes it difficult to determine with certainty the increases or decreases in
sales resulting from changes in the volume of products sold and selling prices.
Management's best estimate of volume and selling price changes, as well as
changes in other factors affecting total changes in net sales are: volume and
acquisitions, 13%; currency, 0%; price/mix, 1%; and divestitures, (2%).
Net earnings were $47.4 million or $1.45 per common share (fully diluted),
compared with the $57.5 million or $1.73 per common share (before the cumulative
effect of changes in accounting principles) earned in 1993.
The primary reasons for the decline in net earnings were slower than
anticipated assimilation of the domestic powder coatings business acquired from
ICI in 1993; loss of volume of fuel additive business in the chemicals segment;
increases in raw material costs, largely in the second half of the year, the
size and frequency of which at times outpaced the Company's ability to pass on
price increases to customers; and continued pricing pressures in Europe,
primarily in the ceramic glaze business.
Pricing pressures and increased raw material costs were primarily
responsible for the decline in gross margin from 26.4% of sales to 24.9%.
Worldwide operating income of $85.7 million declined from the $94.5 million
earned in 1993 because of the gross margin items mentioned above, as well as
increases in selling, general and administrative expenses, most of which are
associated with the full-year impact of acquisitions and increases in research
and development expenditures. Operating income improved in Europe and
Asia-Pacific. Segment operating income improved slightly for Coatings, Colors
and Ceramics, but declined in the other segments.
Interest earned decreased, primarily because of the reduction in cash and
marketable securities used to finance the repurchase of the Company's common
stock.
Equity in net earnings of affiliates decreased due to continued unfavorable
business conditions in markets served by the Turkish affiliate and continued
slow development of market penetration in Thailand.
Foreign currency loss of $0.5 million declined from a $2.7 million gain in
1993 because of the effects of a weaker U.S. dollar and lower translation gains
in Brazil.
The effective tax rate increased slightly from the 1993 rate of 35.6% to
36.2%.
COATINGS, COLORS AND CERAMICS
Led by volume increases in powder coatings and colorants and pigments, and
double-digit increases in all geographic regions except Latin America, sales
increased 15% to $710.3 million.
Operating profit increased slightly, despite the price pressures experienced
in international ceramic glaze markets. Additionally, the 1993 operating profit
included a $3.0 million one-time charge associated with an acquisition in powder
coatings.
PLASTICS
Plastics sales of $267.1 million were 8% greater than those of 1993, largely
due to volume increases in the United States, though each geographic region did
post higher revenues.
Operating profit declined 32%, because in some instances raw material cost
increases outpaced the Company's ability to increase selling prices to
customers, and because of the sale during the year of its plastics business in
Australia and New Zealand, which had contributed to profit in 1993.
15
9
CHEMICALS
Chemicals had sales of $216.8 million, despite having experienced a
significant decline in the domestic fuel additive component business from a
major customer whose business had decreased. Sales increases in Europe and
Asia-Pacific more than offset the decline.
The loss of the domestic fuel additive component volume and tankage facility
clean-up costs incurred during the year were the major reasons for the 44%
decline in operating profit from 1993.
OTHER ITEMS
================================================================================
ENVIRONMENTAL
During 1995, the Company reached an agreement in principle to settle the
suit filed in 1993 by the United States Environmental Protection Agency alleging
violation of the Clean Water Act and the River and Harbors Act by Keil Chemical,
a production facility owned and operated by Ferro in Hammond, Indiana. The
Company had been named as one of several defendants, including three local
municipalities, one local government agency (a sewer district) and four other
area industrial concerns. Subject to the negotiation of an acceptable consent
decree, the Company will agree to pay a civil penalty of $0.4 million and to pay
$1.4 million into a fund to be established to help clean up sediment in the West
Branch of the Grand Calumet River. Terms of the consent decree are still being
negotiated.
During 1994, the Company signed an Agreed Order with the Indiana Department
of Environmental Management and the Hammond Department of Environmental
Management, settling the agencies' claims that the Keil Chemical facility had
violated various air emission regulations. Subject to satisfactory compliance
with the terms of the Agreed Order, the United States Environmental Protection
Agency has concluded its Notice of Violations against the Keil Chemical
facility. Under the Agreed Order, the Company paid a civil cash penalty of $1.5
million, constructed a supplemental environmental project and commenced
reduction of air emissions to reach compliance with federal and state air
emission regulations, according to compliance schedules contained in the Agreed
Order.
Additionally, governmental agencies have identified several disposal sites
for clean-up under Superfund and similar laws to which the Company has been
named a Potential Responsible Party (PRP). The Company is participating in the
cost of certain clean-up efforts. However, the Company's share of such costs has
not been material and is not expected to have a material adverse impact on the
Company's financial condition or results of operations.
INTERNATIONAL
European operations during 1995 continued the improvement in both revenues
and operating income commenced in the second half of 1994.
Latin American operations in 1995 were negatively impacted by macroeconomic
conditions in the region. As of this writing, there is no noticeable improvement
in the region, though it is anticipated that conditions may improve in the
second half of 1996.
ACCOUNTING CHANGES
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which provides
guidance for recognition of impairment losses to long-lived assets. The
Statement is effective for fiscal years beginning after December 15, 1995. The
Company does not anticipate the adoption of this Statement to have a material
effect on the Company's financial position or results of operations.
16
10
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which provides a basis for measurement and recognition of all
stock-based employee compensation plans. The disclosure requirements of this
Statement are effective for fiscal years beginning after December 15, 1995. The
Company expects that it will maintain its current accounting method for
stock-based compensation and disclose the pro-forma effects on net income and
earnings per share of the fair market value method as permitted by the
Statement.
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The Company adopted the new Statement as of the
beginning of fiscal year 1994. The Company provides certain postemployment
benefits to certain former and inactive employees. The new Statement requires
that costs of such benefits be accrued over the employees' years of service
rather than on a cash basis. The incremental cost of adopting this Statement was
insignificant to the year of adoption and on an ongoing basis.
In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company adopted this Statement as of the
beginning of fiscal year 1994. Under the new Statement, debt securities which
are classified as available-for-sale are to be carried at fair value, and
unrealized holding gains or losses are to be carried as a separate component of
shareholders' equity. The Company's debt securities are deemed to be
available-for-sale and the Company's investment guidelines require that such
securities be primarily short-term. Because of the short-term nature of these
securities, market value generally approximates cost, and the Company
experienced no material impact on its financial statements in 1994.
Acquisitions and Divestitures
In October 1995, the Company acquired Synthetic Products Company (Synpro)
from Cookson Group plc of London, England. Continuing Synpro operations are
maintained in Cleveland, Ohio, and Ft. Worth, Texas. Synpro produces a line of
polymer additives, including lubricants, heat stabilizers and dispersions.
During 1994, the Company acquired Diamonite Products from W. R. Grace & Co.
Located in Shreve, Ohio, Diamonite manufactures custom ceramic products for the
automotive, aerospace, electronics, metalworking, textile and power generation
industries.
In April 1994, the Company signed agreements with Guangdong Fotao Group Co.
Ltd. to establish a joint venture in the People's Republic of China to
manufacture and market ceramic frit, glazes, colors and grinding media. Ferro
will hold a majority interest of 60%.
The Company acquired the North American and European powder coatings
business of Imperial Chemical Industries (ICI) in April 1993, and with this
acquisition became one of the largest powder coatings producers in the world.
Bayer S.p.A.'s ceramic frit and color business in Italy was acquired in June
1993 and enhanced the Company's already strong presence in the very significant
Italian ceramic marketplace. In October 1993, the Company acquired the binder
and ink business, previously known as the MSI Materials Division of Palomar-MSI,
Inc., from Electro Scientific Industries, Inc.
In December 1995, the Company sold the European engineering thermoplastics
business known as Eurostar to LNP Engineering Plastics Europe B.V., a subsidiary
of Kawasaki Steel Corporation. During 1994, the Company sold the plastics
operation located in Australia and New Zealand. During 1993, the Company sold
several small operations. The results of these operations were not material to
Ferro.
17
11
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations was again a strong source of funds in 1995,
permitting the Company to meet financial obligations, while repurchasing
approximately 1.1 million shares of Ferro common stock and providing for
significant capital expenditures. Cash flow from operating activities amounted
to $107.8 million in 1995 compared with $81.8 million in 1994. This increase in
cash from operating activities was largely attributable to improvements in
working capital.
The Company purchased 1,050,965 shares of common stock during 1995 and
1,492,900 shares during 1994 under the stock purchase plan. It did not purchase
any shares of common stock under the stock purchase program in 1993.
Cash used or provided for by financing activities was primarily affected by
the stock repurchase and the proceeds of various debentures discussed below.
Capital expenditures for plant and equipment were $49.5 million in 1995,
$59.7 million in 1994 and $43.7 million in 1993. Information concerning these
expenditures by business segment can be found on page 30. Capital expenditures
for 1996 are estimated to be $74.0 million.
On October 31, 1995, the Company filed a $300.0 million Shelf Registration
with the Securities and Exchange Commission. This registration will enable the
Company to offer, either separately or together, debt securities, common stock
and/or preferred stock, warrants, stock purchase contracts, depositary shares,
and stock purchase units. Proceeds would be used for general corporate purposes.
On October 15, 1995, the Company redeemed the $50.0 million of 11 3/4%
debentures originally issued in 1985.
The Company filed a $100.0 million Shelf Registration with the Securities
and Exchange Commission in August 1992. Securities sold under that registration
include the following: On November 7, 1995, the Company issued $25.0 million of
7 3/8% debentures with a 20-year maturity; on June 20, 1995, the Company issued
$50.0 million of 8% debentures, with a 30-year maturity; and on May 13, 1993,
the Company issued $25.0 million of 7 5/8% debentures with a 20-year maturity.
The common stock cash dividend was increased by 12.5% during 1993 to an
annual payout of $0.54 per common share. Common stock cash dividends were paid
at the rate of $0.54 per share in 1995 and 1994. See page 34 for additional
dividend data.
The Company's financial condition remains strong, and the Company has the
resources necessary to meet future anticipated funding requirements. In addition
to cash flow from operations, the Company has sufficient unused debt capacity,
including $140.0 million of a $150.0 million line of credit, to finance its
ongoing capital requirements and to take advantage of acquisition opportunities.
INFLATION
Management does not consider its business as a whole to be subject to
significant effects of inflationary pressures. Because of the diverse geographic
distribution of the Company's operations, the high inflation in certain of the
countries in which the Company operates is not considered to create an
unacceptable risk to conducting business worldwide.
18
12
CONSOLIDATED STATEMENTS OF INCOME
Ferro Corporation and Subsidiaries
(Dollars in Thousands)
Years ended December 31, 1995, 1994 and 1993 1995 1994 1993
====================================================================================================================================
NET SALES $1,322,954 1,194,247 1,065,748
COST OF SALES 1,003,638 896,587 783,897
SELLING, ADMINISTRATIVE AND GENERAL EXPENSE 223,101 211,983 184,372
RESTRUCTURING CHARGE - - 3,000
- ------------------------------------------------------------------------------------------------------------------------------------
1,226,739 1,108,570 971,269
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 96,215 85,677 94,479
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Interest earned 5,509 3,778 4,654
Equity in net earnings (losses) of affiliated companies 982 (1,143) 770
Foreign currency transaction gains (losses) (160) (508) 2,743
- ------------------------------------------------------------------------------------------------------------------------------------
6,331 2,127 8,167
OTHER CHARGES
Interest expense 15,226 10,933 10,081
Miscellaneous - net 7,161 2,565 3,276
- ------------------------------------------------------------------------------------------------------------------------------------
22,387 13,498 13,357
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 80,159 74,306 89,289
INCOME TAXES 30,905 26,912 31,784
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 49,254 47,394 57,505
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES FOR
Postretirement benefits, net of tax - - (23,603)
Income taxes - - 3,053
====================================================================================================================================
Net Income 49,254 47,394 36,955
Dividend on Preferred Stock, Net of Tax 3,670 3,583 3,524
Net Income Available to Common Shareholders $ 45,584 43,811 33,431
====================================================================================================================================
PER COMMON SHARE DATA
Before cumulative effect of accounting changes
Primary earnings 1.64 1.52 1.83
Fully diluted earnings 1.56 1.45 1.73
After cumulative effect of accounting changes
Primary earnings 1.64 1.52 1.13
Fully diluted earnings 1.56 1.45 1.09
====================================================================================================================================
See accompanying notes to consolidated financial statements.
19
13
CONSOLIDATED BALANCE SHEETS
Ferro Corporation and Subsidiaries
(Dollars in Thousands)
December 31, 1995 and 1994 1995 1994
====================================================================================================================================
ASSETS
====================================================================================================================================
CURRENT ASSETS
Cash and cash equivalents $ 16,695 19,822
Trade notes and accounts receivable, after deduction of
$9,877 in 1995 and $7,129 in 1994 for possible losses 230,742 217,889
Inventories (note 2) 155,253 142,133
Other current assets 29,676 35,571
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 432,366 415,415
OTHER ASSETS
Investments in affiliated companies 7,622 8,923
Unamortized excess of cost over net assets acquired 95,553 50,629
Sundry other assets 33,119 37,820
- ------------------------------------------------------------------------------------------------------------------------------------
Total other assets 136,294 97,372
PLANT AND EQUIPMENT
Land 16,074 14,989
Buildings 142,436 135,282
Machinery and equipment 494,842 451,323
- ------------------------------------------------------------------------------------------------------------------------------------
653,352 601,594
Less accumulated depreciation and amortization 346,064 313,005
- ------------------------------------------------------------------------------------------------------------------------------------
Net plant and equipment 307,288 288,589
- ------------------------------------------------------------------------------------------------------------------------------------
$875,948 801,376
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
====================================================================================================================================
CURRENT LIABILITIES
Notes and loans payable (note 3) $ 35,587 18,752
Accounts payable 115,889 120,308
Income taxes payable 10,870 8,553
Accrued payrolls 16,718 15,553
Accrued expenses and other current liabilities 78,244 65,170
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 257,308 228,336
LONG-TERM LIABILITIES, less current portion (note 3) 104,910 77,611
ESOP LOAN GUARANTEE (note 3) 30,470 37,503
POSTRETIREMENT LIABILITIES (note 9) 43,570 42,076
OTHER NON-CURRENT LIABILITIES 57,540 49,106
SHAREHOLDERS' EQUITY (notes 4 and 5)
Serial convertible preferred stock, without par value.
Authorized 2,000,000 shares; 1,520,215 shares issued 70,500 70,500
Guaranteed ESOP obligation (30,470) (37,503)
Common stock, par value $1 per share. Authorized
150,000,000 shares; 31,549,083 shares issued 31,549 31,549
Paid-in capital 13,237 10,233
Earnings retained in the business 427,611 396,969
Foreign currency translation adjustment (20,576) (24,020)
Other (5,595) (1,550)
- ------------------------------------------------------------------------------------------------------------------------------------
486,256 446,178
Less cost of common stock held in treasury, 4,687,832
shares in 1995 and 3,722,464 shares in 1994 97,626 74,207
Less cost of convertible preferred stock held in treasury,
139,724 shares in 1995 and 112,717 shares in 1994 6,480 5,227
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 382,150 366,744
- ------------------------------------------------------------------------------------------------------------------------------------
$875,948 801,376
====================================================================================================================================
See accompanying notes to consolidated financial statements.
20
14
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Ferro Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
FOREIGN COMMON PREFERRED TOTAL
GUARANTEED CURRENCY STOCK STOCK SHARE-
PREFERRED ESOP COMMON PAID-IN RETAINED TRANSLATION HELD IN HELD IN HOLDERS'
(Dollars in Thousands) STOCK OBLIGATION STOCK CAPITAL EARNINGS ADJUSTMENT TREASURY TREASURY OTHER EQUITY
====================================================================================================================================
BALANCES AT
DECEMBER 31, 1992 $ 70,500 (50,897) 31,549 9,323 349,981 (17,617) (43,905) (2,880) (1,081) 344,973
Net income 36,955 36,955
Cash dividends:
Common stock (14,822) (14,822)
Preferred stock (4,675) (4,675)
Federal tax benefits 1,151 1,151
Transactions involving
benefit plans 6,821 437 3,334 (2,609) 7,983
Foreign currency
translation adjustment (11,504) (11,504)
Purchase of treasury stock (1,264) (1,264)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1993 70,500 (44,076) 31,549 9,760 368,590 (29,121) (40,571) (4,144) (3,690) 358,797
Net income 47,394 47,394
Cash dividends:
Common stock (15,433) (15,443)
Preferred stock (4,598) (4,598)
Federal tax benefits 1,026 1,026
Transactions involving
benefit plans 6,573 473 3,425 2,140 12,611
Foreign currency
translation adjustment 5,101 5,101
Purchase of treasury stock (37,061) (1,083) (38,144)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1994 70,500 (37,503) 31,549 10,233 396,969 (24,020) (74,207) (5,227) (1,550) 366,744
Net income 49,254 49,254
Cash dividends:
Common stock (14,953) (14,953)
Preferred stock (4,524) (4,524)
Federal tax benefits 865 865
Transactions involving
benefit plans 7,033 3,004 1,653 (442) (4,045) 7,223
Foreign currency
translation adjustment 3,444 3,444
Purchase of treasury stock (25,072) (831) (25,903)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1995 $ 70,500 (30,470) 31,549 13,237 427,611 (20,576) (97,626) (6,480) (5,595) 382,150
====================================================================================================================================
See accompanying notes to consolidated financial statements.
21
15
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ferro Corporation and Subsidiaries
(Dollars in Thousands)
Years ended December 31, 1995, 1994 and 1993 1995 1994 1993
====================================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 49,254 47,394 36,955
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 46,261 42,704 38,257
Change in deferred income taxes 2,173 (202) (11,520)
Effect of accounting change for postretirement benefits -- -- 37,764
Other non-cash items 7,677 1,546 (139)
Changes in current assets and liabilities,
net of effects of acquisitions
Trade notes and accounts receivable (7,242) (39,378) (11,131)
Inventories 1,370 (12,678) (20,602)
Other current assets 3,374 10,961 4,092
Accounts payable (6,258) 22,204 8,026
Accrued expenses and other current liabilities 10,776 5,681 (14,605)
Other operating activities 368 3,613 (5,137)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 107,753 81,845 61,960
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 2,571 2,885 1,687
Capital expenditures for plant and equipment (49,528) (59,700) (43,711)
Proceeds from divestitures 6,869 3,151 5,048
Acquisition of companies, net of cash acquired (69,919) (9,176) (75,456)
Transactions with affiliated companies 1,833 126 2,036
Change in marketable securities, net -- 38,335 9,774
Other investing activities 4,338 (2,249) (1,240)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (103,836) (26,628) (101,862)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) under short-term lines 16,491 (549) (1,308)
Proceeds from long-term debt 75,035 -- 25,962
Principal payments on long-term debt (52,228) (2,070) (1,245)
Proceeds from sale of stock 1,941 2,780 3,109
Purchase of treasury stock (25,903) (38,144) (1,264)
Cash dividends paid to minority shareholders of subsidiaries (1,033) (701) (312)
Cash dividends paid (19,477) (20,041) (19,497)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (5,174) (58,725) 5,445
Effect of Exchange Rate Changes on Cash (1,870) (1,786) (1,239)
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,127) (5,294) (35,696)
Cash and Cash Equivalents at Beginning of Year 19,822 25,116 60,812
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 16,695 19,822 25,116
====================================================================================================================================
CASH PAID DURING THE YEAR FOR
Interest (net of amounts capitalized) $ 15,625 10,475 9,893
Income taxes $ 29,167 26,467 35,090
See accompanying notes to consolidated financial statements.
22
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ferro Corporation and Subsidiaries
Years ended December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
================================================================================
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries after elimination of significant intercompany
accounts, transactions and profits. Affiliates in which the Company has stock
ownership from 20% to 50% are accounted for on the equity basis.
Certain amounts in the 1993 and 1994 financial statements and the
accompanying notes have been reclassified to conform to the 1995 presentation.
Financial results for acquisitions are included in the consolidated financial
statements from the date of acquisition.
TRANSLATION OF FOREIGN CURRENCIES
Except for international companies whose functional currency is the U.S.
dollar, financial statements of international companies are translated to U.S.
dollar equivalents at the following exchange rates: (1) balance sheet accounts
at year-end rates; (2) income statement accounts at exchange rates weighted by
the monthly volume of transactions occurring during the year. Translation gains
or losses are recorded in shareholders' equity and transaction gains and losses
are reflected in net income.
The U.S. dollar is the functional currency of the Company's operations in
Brazil and Ecuador due to the high inflation experienced in those countries.
Translation gains or losses for these operations are reflected in net income.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid instruments with a maturity of
three months or less and are carried at cost which approximates market value.
MARKETABLE SECURITIES
Marketable securities consist of highly liquid invest-ments carried at cost
which approximates market value.
RISK MANAGEMENT DERIVATIVES
Derivatives primarily consist of forward exchange contracts, foreign
currency options and options related to primary metals. Gains and losses related
to qualifying hedges of firm commitments or anticipated transactions are
deferred and are recognized as adjustments of carrying amounts when the hedged
transaction occurs. Gains and losses on derivative financial instruments that do
not qualify as hedges are recognized as foreign currency transaction gains or
losses. Premiums paid on purchased options are deferred and amortized over the
life of the option.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which provides
guidance for recognition of impairment losses to long-lived assets. The
Statement is effective for fiscal years beginning after December 15, 1995. The
Company does not anticipate the adoption of this Statement to have a material
effect on the Company's financial position or results of operations.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which provides a basis for measurement and recognition of all
stock-based employee compensation plans. The disclosure requirements of this
Statement are effective for fiscal years beginning after December 15, 1995. The
Company expects that it will maintain its current accounting method for stock-
based compensation and disclose the pro forma effects on net income and earnings
per share of the fair market value method as permitted by the Statement.
USE OF ESTIMATES IN THE PREPARATION OF
FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
utilizing the first-in, first-out (FIFO) method, except for selected domestic
and international inventories which utilize the last-in, first-out (LIFO)
method.
GOODWILL AND OTHER INTANGIBLES
The excess of cost over equity in net assets of acquired companies is being
amortized over periods benefited, with the most extended period being 40 years.
23
17
Accumulated amortization was $19.9 million and $13.9 million at December 31,
1995 and 1994, respectively.
The realizability of goodwill and other intangibles is evaluated
periodically as events or circumstances warrant. Such evaluations are based on
various analyses, including cash flow and profitability projections that
incorporate, as applicable, the impact on existing company business. The
analysis necessarily involve significant management judgment to evaluate the
capacity of an acquired business to perform within projections. Historically,
the Company has generated sufficient returns from acquired businesses to recover
the cost of their intangible assets.
PLANT AND EQUIPMENT
Plant and equipment is carried at cost. Depreciation of plant and equipment
is provided substantially on a straight-line basis for financial reporting
purposes. The annual depreciation provision has been based upon the following
estimated useful lives:
Buildings 20 to 40 years
Machinery and equipment 5 to 15 years
ENVIRONMENTAL COSTS
The Company expenses recurring costs associated with control and disposal of
hazardous materials in current operations. Costs associated with the remediation
of environmental pollution are accrued when it becomes probable that a liability
has been incurred and the costs can be reasonably estimated.
INCOME TAXES
Commencing with 1993, income taxes have been provided using the liability
method.
EARNINGS PER SHARE
Primary net income per common share is based on a weighted average of common
and common equivalent shares. Fully diluted earnings per share reflect the
potential dilution of earnings per share assuming that convertible preferred
shares are converted into common shares.
2. INVENTORIES
================================================================================
The portion of inventories valued on a LIFO basis at December 31, 1995 and
1994 is as follows:
1995 1994
===============================================
United States 40% 50
Outside the United States 9 12
Consolidated 22 26
===============================================
If the FIFO method of inventory valuation had been used exclusively by the
Company, inventories would have been $17.6 million and $17.7 million higher than
reported at December 31, 1995 and 1994, respectively.
Inasmuch as certain of the inventory costs are determined by use of the LIFO
dollar value method (under which the raw materials, work in process and finished
goods are included in one pool), it is impracticable to separate LIFO inventory
values among raw materials, work in process and finished goods.
3. FINANCING AND LONG-TERM LIABILITIES
================================================================================
Long-term liabilities at December 31, 1995 and 1994 are as follows:
(Dollars in Thousands) 1995 1994
================================================================================
Parent Company:
Unsecured:
Debentures, 11 3/4%, due 2000 $ - 49,964
Debentures, 7 5/8, due 2013 24,788 24,782
Debentures, 8%, due 2025 49,318 -
Debentures, 7 3/8%, due 2015 24,929 -
Secured:
Mortgages, 7.3% to 8.5%
payable to 2017 155 252
Subsidiary Companies:
Unsecured:
Notes payable, 1.55% to 9.675%
payable to 1998 3,062 2,418
Secured:
Mortgages, 8.8% to 10.8%
payable to 2002 4,506 1,670
- --------------------------------------------------------------------------------
106,758 79,086
Less current portion (A) 1,848 1,475
- --------------------------------------------------------------------------------
Total $104,910 77,611
================================================================================
(A) Included in notes and loans payable.
The aggregate principal payments on long-term indebtedness for the next five
years are as follows:
(Dollars in Thousands)
1996 1997 1998 1999 2000
===========================================================
$1,848 1,896 926 880 970
At December 31, 1995, $4.7 million of long-term indebtedness was secured by
property, equipment and certain other assets with a net book value approximating
$8.4 million.
The 11 3/4% debentures issued in 1985 in the principal amount of $50.0
million and due in the year 2000 were called by the Company at par in October
1995. The $100.0 million Shelf Registration originally filed in 1992 was
exhausted with the issuance of debentures in June and November of 1995.
24
18
On June 20, 1995, the Company issued $50.0 million in 8% debentures under
the 1992 Shelf Registration. These debentures mature in the year 2025 and the
fair market value was approximately $52.4 million at December 31, 1995.
On November 7, 1995, the Company issued $25.0 million in 7C/,% debentures
under the 1992 Shelf Registration. These debentures mature in the year 2015, and
the fair market value was approximately $25.8 million at December 31, 1995.
In 1993, the Company issued $25.0 million in 7B/,% debentures under the 1992
Shelf Registration. These debentures mature in the year 2013, and the fair
market value was approximately $26.4 million at December 31, 1995.
On October 31, 1995, the Company filed a $300.0 million Shelf Registration
with the Securities and Exchange Commission. This registration will enable the
Company to offer, separately or together, debt securities, common stock and/or
preferred stock, warrants, stock purchase contracts, depositary shares, and
stock purchase units. Proceeds would be used for general corporate purposes.
The Company has a five-year revolving credit agreement in the amount of
$150.0 million which matures on August 1, 2000. The agreement permits the
maturity date to be extended for one year with the consent of the parties.
Interest on revolving credit borrowings is payable at floating prime or lower
rates based on Company options. There is a commitment fee of 3/16% per year. At
December 31, 1995, the Company had an outstanding borrowing of $10.0 million
under this agreement.
There are no covenants in the revolving credit agreement which significantly
limit the dividend payment capability of the Company, and the Company does not
expect to include any such covenants in future offerings under the Shelf
Registration. In addition, there are no significant restrictions on the payment
of dividends by the subsidiaries and affiliates of the Company.
In 1989, the Company created an Employee Stock Ownership Plan (ESOP). The
ESOP borrowed $63.5 million at an interest rate of 8.5% and $7.0 million at an
adjustable interest rate in 10-year loans guaranteed by the Company. Interest
paid by the ESOP totaled $3.0 million, $3.6 million and $4.1 million in 1995,
1994 and 1993, respectively. The Company has reflected the guaranteed ESOP
borrowings as a loan guarantee on its balance sheet with a like amount of
"Guaranteed ESOP Obligation" recorded as a reduction of shareholders' equity. As
the Company and its employees make contributions to the ESOP, these
contributions, plus the dividends paid on the Company's preferred stock held by
the ESOP, are used to service the borrowings. As the principal amounts of the
loans are repaid, the "Guaranteed ESOP Obligation" is reduced accordingly.
Capitalized interest was $0.7 million, $1.0 million and $1.1 million in
1995, 1994 and 1993, respectively.
The maintenance of minimum cash balances is informally agreed to with
certain banks as a result of loans, commitments and services rendered. Cash
balances maintained to meet operating needs on a daily basis are sufficient to
satisfy these informal agreements. These balances are available for use by the
Company and its subsidiaries at all times and do not contain legal restrictions.
Cash in excess of such operating requirements is invested in short-term
securities.
4. STOCK PLANS
================================================================================
The Company maintains the following stock option plans for the benefit of
its employees: a performance share plan, a savings and stock ownership plan
which includes an investment savings plan and the ESOP.
The stock option plans provide for the issuance of stock options at no less
than the then current market price. Options are exercisable over a 10-year
period.
Information pertaining to these stock options is shown below:
1995 1994 1993
================================================================================
Shares granted 200,935 201,850 180,775
Average option price $24.00 33.39 29.42
Shares exercised 35,676 39,284 98,961
Average option price $9.33 15.93 14.04
Shares which became
exercisable 137,353 114,613 103,068
Average option price $29.12 23.14 19.03
Shares unexercised at
year-end 1,145,863 1,003,241 845,551
Option price range
per share $6.95 6.95 6.95
to 34.00 to 34.00 to 30.42
Shares cancelled 22,637 4,876 12,970
Shares available for
granting future options 643,408 821,706 1,018,680
================================================================================
25
19
The Company maintains a performance share plan whereby awards, expressed as
shares of common stock of the Company, are earned only if the Company meets
specific performance targets over a three-to-five-year period. The plan pays 50%
cash and 50% common stock for the value of any earned performance shares.
Performance share awards in the amount of 166,467 shares, 235,395 shares and
305,858 shares were outstanding at the end of 1995, 1994 and 1993, respectively.
The Company accrues amounts based on performance reflecting the value of cash
and common stock which is anticipated to be earned. The effect of the plan was
to reduce income by $500,000, $64,000 and $1,144,000 in 1995, 1994 and 1993,
respectively.
The ESOP provides for the Company to match eligible employee pretax savings.
Amounts expensed under the ESOP were $2.6 million, $2.5 million and $2.1 million
in 1995, 1994 and 1993, respectively.
5. CAPITAL STOCK
================================================================================
In 1989, Ferro issued 1,520,215 shares of 7% Series A ESOP Convertible
Preferred Stock to National City Bank, trustee for the Ferro ESOP. The shares
were issued at a price of $46.375 per share for a total consideration of $70.5
million. Each share of ESOP convertible preferred stock is convertible into
1.7325 shares of common stock. As the loans are repaid by the trustee, preferred
shares are allocated to participating individual employee accounts. The Company
is required to repurchase at the original issue price, for cash or common stock
at the Company's option, the preferred shares allocated to an employee's ESOP
account upon distribution of such account to the employee unless such shares
have been converted to common stock. Each preferred share carries one vote,
voting together with the common stock on most matters.
The Company purchased 1,050,965 shares of common stock in 1995 at an
aggregate cost of $25.1 million; purchased 1,492,900 shares of common stock in
1994 at an aggregate cost of $37.1 million; and did not purchase any shares of
common stock in 1993. At December 31, 1995, the Company had remaining
authorization to acquire 365,035 shares under the current treasury stock
purchase program.
On January 26, 1996, the Board of Directors authorized the repurchase of up
to 3,000,000 shares of Ferro common stock. These shares are to be purchased on
the open market from time to time.
The Company maintains a Shareholder Rights Plan whereby, until the
occurrence of certain events, each share of the outstanding common stock
represents ownership of one right (Right). The Rights become exercisable only if
a person or group acquires 20% or more of the Company's common stock (10% under
certain circumstances) or commences a tender or exchange offer upon consummation
of which such person or group would control 20% or more of the common shares.
Each Right entitles holders to buy one share of Ferro common stock at an
exercise price of $20.00 per share. The Rights, which do not have the right to
vote or receive dividends, expire on April 9, 1996. Rights may be redeemed by
the Company at $0.022 per Right at any time until the fifteenth day following
public announcement that a person or group has acquired 20% or more of the
voting power, unless such period is extended by the Board of Directors while the
Rights are redeemable.
If any person becomes the owner of 20% or more of the common stock (10%
under certain circumstances), or if the Company is the surviving corporation in
a merger with a 20% or more stockholder and its common shares are not changed or
converted, or if a 20% or more stockholder engages in certain self-dealing
transactions with the Company, then each Right not owned by such person or
related parties will entitle its holder to purchase one share of common stock at
a purchase price of 20% of the then current market price of the common stock.
In the event the Company engages in a merger or other business combination
transaction in which the Company is not the surviving corporation or the Company
is the surviving corporation but its common stock is changed or exchanged or 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a Right shall have the right to receive, upon exercise thereof at the
then current exercise price of the Right, that number of shares of common stock
of the surviving company which at the time of the transaction would have a
market value of two times the exercise price of the Right.
6. ACQUISITIONS AND DIVESTITURES
================================================================================
In October 1995, the Company acquired Synthetic Products Company (Synpro)
from Cookson Group plc, of London, England. Continuing operations are maintained
in Cleveland, Ohio and Fort Worth, Texas. Synpro produces a line of polymer
additives including lubricants, heat stabilizers and dispersions. The cost
26
20
of this acquisition was approximately $69.0 million and was accounted for
using the purchase method of accounting. The purchase price was allocated based
on fair value of assets at the date of acquisition with approximately $48.7
million being assigned to goodwill and other intangibles. See Note 13 for
further information.
In December 1995, the Company sold the European engineering thermoplastics
business known as Eurostar to LNP Engineering Plastics Europe B.V., a subsidiary
of Kawasaki Steel Corporation. The results of this operation were not material
to Ferro.
During 1994, the Company acquired Diamonite Products from W. R. Grace &
Company. Diamonite, located in Shreve, Ohio, manufactures custom ceramic
products for the automotive, aerospace, electronics, metalworking, textile and
power generation industries. The acquisition was accounted for using the
purchase method of accounting.
In April 1994, the Company signed agreements with Guangdong Fotao Group Co.
Ltd. to establish a joint venture in the People's Republic of China to
manufacture and market ceramic frit, glazes, colors and grinding media. Ferro
will hold a majority interest of 60%.
In 1993, the Company acquired the North American and European powder
coatings business of Imperial Chemical Industries (ICI), the Italian ceramic
frit and color business of Bayer S.p.A. and the binder and ink business of
Electro Scientific Industries, Inc. Acquisitions were completed for cash of
approximately $75.5 million and were accounted for using the purchase method of
accounting. Purchase prices have been allocated based on fair values of assets
at date of acquisitions with approximately $37.4 million being assigned to
goodwill and other intangibles.
The Company sold or discontinued operations representing annual sales of
approximately $20.0 million, $30.0 million and $15.0 million in 1995, 1994 and
1993, respectively. The largest of these were the 1994 sale of the plastics
businesses located in Australia and New Zealand, representing approximately
$30.0 million in annual sales. The results of these operations were not material
to Ferro.
7. CONTINGENT LIABILITIES
================================================================================
There are pending against the Company and its consolidated subsidiaries
various lawsuits and claims. In the opinion of Management, the ultimate
liabilities resulting from such lawsuits and claims will not materially affect
the consolidated financial position or results of operations or liquidity of the
Company.
8. RESEARCH AND DEVELOPMENT EXPENSE
================================================================================
Amounts expended for development or significant improvement of new and/or
existing products, services and techniques approximated $23.2 million, $22.9
million and $19.3 million in 1995, 1994 and 1993, respectively.
9. RETIREMENT BENEFITS
================================================================================
The following information sets forth data for those selected pension plans
of the Company and those subsidiaries which are subject to Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions."
Several other pension plans for the international subsidiaries are insured and
fully funded. Due to the diverse nature of the regulatory environment of various
countries, the pension plans have varied benefit determinations. The largest
plan is for United States salaried employees whose benefits are primarily based
on employees' highest consecutive five years' earnings. Annual pension costs for
the Company and its subsidiaries were $7.2 million, $8.5 million and $6.0
million in 1995, 1994 and 1993, respectively.
The Company's funding policy is to contribute annually amounts required by
the various agencies governing the retirement plans of the Company. The net
periodic pension cost for plans accounted for under Statement No. 87 included
the following components:
(Dollars in Thousands) 1995 1994 1993
================================================================================
Service cost-benefits earned
during the period $ 5,310 7,212 5,815
Interest cost on the projected
benefit obligation 14,468 13,775 13,082
Actual return on plan assets (30,528) 4,269 (15,645)
Net amortization and deferral 16,949 (18,628) 1,577
- --------------------------------------------------------------------------------
Net periodic pension cost $ 6,199 6,628 4,829
================================================================================
Net amortization and deferral consists of amortization of net assets and
obligations at transition and deferral and amortization of subsequent net gains
and losses.
Assumptions used in developing the projected benefit obligation as of
December 31 were:
1995 1994 1993
================================================================================
Discount or settlement
rate 6.5-10.0% 7.0-10.0 6.0-10.0
Rate of increase in
compensation levels 2.5- 9.0 3.0- 9.0 6.0- 9.0
Expected long-term rate
of return on assets 7.0-10.5 6.0-10.0 8.0-11.0
================================================================================
27
21
The following table sets forth the funded status of the plans and the
amounts recognized in the Company's consolidated balance sheets:
PLANS IN WHICH PLANS IN WHICH
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
(Dollars in Thousands) BENEFITS EXCEED ASSETS
============================================================================================================================
1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $136,231 113,004 29,002 20,472
============================================================================================================================
Accumulated benefit obligation 142,440 117,848 37,761 26,195
============================================================================================================================
Projected benefit obligation 166,953 136,506 42,698 28,987
Plan assets at fair value 167,752 145,490 21,647 16,847
- ----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of) or less than plan assets 799 8,984 (21,051) (12,140)
Unrecognized net (gain) or loss (2,650) (9,212) 5,339 (1,427)
Prior service cost 3,543 4,534 3,153 2,979
Unrecognized net transition (asset) obligation (4,834) (5,760) 2,404 2,737
Minimum liability adjustment -- -- (8,239) (3,745)
- ----------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost (pension liability) $(3,142) (1,454) (18,394) (11,596)
============================================================================================================================
In the aggregate, at year-end 1995 and 1994, the various plans' assets at
fair value were less than the various plans' projected benefit obligations by
$20.3 million and $3.2 million, respectively. The Company recognized a $2.4
million decrease in equity in 1995 and a $2.2 million increase in equity in 1994
for the minimum liability adjustment.
The plans' assets consist primarily of equities and government and corporate
obligations. The United States plans' assets included shares of the Company's
stock with a market value of $5.1 million and $8.1 million at year-end 1995 and
1994, respectively.
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," as of
January 1, 1993. The Company immediately recognized the transaction obligation
resulting in a charge against income of $23.6 million after related income tax
benefit of $14.2 million representing the cumulative effect of the change in
accounting on results prior to January 1, 1993. Under Statement No. 106, 1993
current period expense exceeded the amount under the previous accounting method
by $1.5 million after-tax.
The Company provides eligible domestic retired employees with health care
and life insurance benefits. Medical coverage is provided to all active domestic
employees on a contributory basis. Life insurance is provided to all active
domestic employees on a non-contributory basis.
The Company funds these benefits as claims are presented.
The net periodic postretirement benefit cost included the following
components:
(Dollars in Thousands) 1995 1994 1993
================================================================================
Service cost $ 498 731 588
Interest cost 2,935 3,077 3,129
Amortization of prior
service cost (442) - -
- --------------------------------------------------------------------------------
Net periodic postretirement
benefit cost $2,991 3,808 3,717
================================================================================
Assumptions used in developing the accumulated postretirement benefit
obligation as of December 31 were:
1995 1994 1993
================================================================================
Discount or settlement rate 7.75% 9.5 7.5
Rate of increase in covered
health care benefits:
First year 9.0 9.0 9.0
Decreasing gradually
over 20 years to 4.0 4.0 4.0
================================================================================
The following table sets forth the accrued postretirement benefit obligation
recognized in the Company's consolidated balance sheets.
(Dollars in Thousands) 1995 1994
==========================================================
Accumulated postretirement
benefit obligation:
Retirees $27,220 26,122
Fully eligible active plan
participants 3,335 3,801
Other active plan participants 8,890 5,876
- ----------------------------------------------------------
39,465 35,799
Unrecognized net (gain) or loss (4,105) (6,277)
- ----------------------------------------------------------
Accrued postretirement
benefit obligation $43,570 42,076
==========================================================
28
22
Increasing the assumed health care cost trend rates by one percentage point
for each future year would increase the accumulated postretirement benefit
obligation as of December 31, 1995, by $3.4 million and the net periodic
postretirement benefit cost by $0.3 million.
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," as of January 1, 1994. The
effect on the Company's financial statements was not material.
10. INCOME TAX EXPENSE
================================================================================
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of January 1, 1993. The cumulative effect of
this change was to increase net income by $3.1 million.
Income tax expense attributable to income before taxes and cumulative effect
of accounting changes:
(Dollars in Thousands) 1995 1994 1993
================================================================
Current:
U.S. Federal $15,173 8,885 11,035
Foreign 12,063 13,498 12,323
State and local 2,845 1,841 1,904
- ----------------------------------------------------------------
30,081 24,224 25,262
- ----------------------------------------------------------------
Deferred:
U.S. Federal (278) 3,054 5,151
Foreign 1,613 (329) 787
State and local (511) (37) 584
- ----------------------------------------------------------------
824 2,688 6,522
- ----------------------------------------------------------------
Total income tax $30,905 26,912 31,784
================================================================
In addition to the 1995 income tax expense of $30.9 million, certain income
tax benefits of $2.4 million were allocated directly to shareholders' equity.
The above taxes are based on earnings before income taxes and the cumulative
effect of changes in accounting principles. These earnings aggregated $44.4
million, $34.4 million and $47.4 million for domestic operations and $35.7
million, $39.9 million and $41.9 million for foreign operations in 1995, 1994
and 1993, respectively.
A reconciliation of the statutory federal income tax rate and the effective
tax rate follows:
(Dollars in Thousands) 1995 1994 1993
================================================================
Statutory federal income tax rate 35.0% 35.0 35.0
Foreign tax rate difference 1.9 (1.7) (1.4)
U.S. taxes on dividends from
subsidiaries 0.8 1.3 1.9
State and local taxes net of
federal income tax 1.9 1.6 1.8
Miscellaneous (1.0) -- (1.7)
- ----------------------------------------------------------------
Effective tax rate 38.6% 36.2 35.6
================================================================
The components of deferred tax assets and liabilities at December 31 were:
(Dollars in Thousands) 1995 1994
=========================================================
Deferred Tax Assets:
Pension and other
benefit programs $21,782 18,937
Restructuring reserves 2,857 4,070
Accrued liabilities 5,671 4,922
Net operating loss carryforwards 12,507 8,733
Inventories 3,900 3,100
Other 4,901 5,269
- ---------------------------------------------------------
Total Deferred Tax Assets 51,618 45,031
- ---------------------------------------------------------
Deferred Tax Liabilities
Property and equipment-
depreciation and amortization 26,064 22,275
Other 1,541 2,082
- ---------------------------------------------------------
Total Deferred Tax Liabilities 27,605 24,357
- ---------------------------------------------------------
Net Deferred Tax Asset Before
Valuation Allowance 24,013 20,674
Valuation Allowance (8,348) (5,980)
- ---------------------------------------------------------
Net Deferred Tax Asset $15,665 14,694
=========================================================
At December 31, 1995, the Company's foreign subsidiaries had deferred tax
assets relating to net operating loss carryforwards for income tax purposes of
$12.5 million that expire in years 1996 through 2002, and in one instance, have
no expiration period. For financial reporting purposes, a valuation allowance of
$7.3 million has been recognized to offset the deferred tax assets relating to
the net operating loss carryforwards.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $94.2 million. Deferred income taxes are not provided on these
earnings as it is intended that the majority of them are indefinitely invested
in these entities.
29
23
11. REPORTING FOR SEGMENTS
================================================================================
Major product lines of the Company are Coatings, Colors and Ceramics;
Plastics; and Chemicals. Within Coatings, Colors and Ceramics, Coatings revenues
represented approximately 41% of consolidated net sales during 1995, 1994 and
1993, while Colors represented approximately 10% of consolidated net sales in
each of the three years. The Company's sales are primarily made through its own
full-time sales force, though some sales are made through manufacturers'
representatives and distributors.
Identifiable assets are those used in the operation of each segment.
Information about the Company's segment operating data follows:
COATINGS, COLORS
(Dollars in Millions) AND CERAMICS PLASTICS CHEMICALS TOTAL
============================================================================================
NET SALES
1995 $782.6 270.7 269.7 1,323.0
1994 710.3 267.1 216.8 1,194.2
1993 616.9 246.9 201.9 1,065.7
OPERATING PROFIT
1995 $ 71.3 8.8 18.6 98.7
1994 74.4 7.4 6.3 88.1
1993 71.9 10.3 13.5 95.7
IDENTIFIABLE ASSETS
1995 $454.0 95.6 250.2 799.8
1994 444.2 120.3 157.9 722.4
1993 402.9 107.0 131.2 641.1
CAPITAL EXPENDITURES
1995 $ 33.4 4.4 11.7 49.5
1994 35.4 7.7 16.6 59.7
1993 20.0 8.6 15.1 43.7
DEPRECIATION AND AMORTIZATION
1995 $ 25.6 7.4 13.3 46.3
1994 24.5 7.0 11.2 42.7
1993 20.9 6.8 10.6 38.3
============================================================================================
A reconciliation of operating profit to income before income taxes and
changes in accounting principles included in the consolidated statements of
income follows:
(Dollars in Millions) 1995 1994 1993
===========================================================================================================================
Operating profit $98.7 88.1 95.7
Equity in net earnings of affiliated companies 1.0 (1.1) 0.8
Interest earned 5.5 3.8 4.7
General corporate expense-net (6.6) (6.1) (5.4)
Interest expense (15.2) (10.9) (10.1)
Miscellaneous (3.2) 0.5 3.6
- ---------------------------------------------------------------------------------------------------------------------------
Income before taxes and changes in accounting principles $80.2 74.3 89.3
===========================================================================================================================
A reconciliation of identifiable assets shown above to the total assets
included in the consolidated balance sheets follows:
(Dollars in Millions) 1995 1994 1993
===========================================================================================================================
Total identifiable assets $799.8 722.4 641.1
Investments in affiliated companies 7.6 8.9 10.1
Corporate assets 68.5 70.1 116.7
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $875.9 801.4 767.9
===========================================================================================================================
30
24
Geographic operating data follows:
UNITED
STATES AND LATIN ASIA-
(Dollars in Millions) CANADA EUROPE AMERICA PACIFIC TOTAL
===============================================================================================
1995
NET SALES $658.1 483.5 88.3 93.1 1,323.0
OPERATING PROFIT 46.5 39.2 5.3 7.7 98.7
IDENTIFIABLE ASSETS 423.5 271.9 40.5 63.9 799.8
1994
Net sales $602.0 399.3 93.2 99.7 1,194.2
Operating profit 35.6 30.3 12.4 9.8 88.1
Identifiable assets 348.7 260.6 47.1 66.0 722.4
1993
Net sales $534.0 347.6 91.6 92.5 1,065.7
Operating profit 44.8 26.6 15.4 8.9 95.7
Identifiable assets 300.8 243.7 38.2 58.4 641.1
===============================================================================================
Transfers between geographic areas are immaterial. Identifiable assets are
those used in the operation of each geographic area.
The Company's international operations may be affected by exchange controls,
currency fluctuations, and laws or policies of particular countries, as well as
by laws and policies of the United States affecting foreign trade and
investment. Because of the diversity of Ferro's international operations, the
Company does not consider that its international business, as a whole, is
exposed to significant political or economic risks which are disproportionate to
ordinary risks of doing business, whether domestic or international.
12. FINANCIAL INSTRUMENTS
================================================================================
It is the Company's hedging policy to neutralize or mitigate the potentially
negative effects of currency movements and raw material prices. The Company's
use of derivative financial instruments is limited to the hedging of underlying
exposures. The Company does not engage in speculative transactions for trading
purposes.
The Company uses forward exchange contracts and currency options to hedge
its exposure to foreign currency fluctuations. Several of the Company's foreign
subsidiaries enter into forward contracts to protect against the risk of
increased cost of non-local currency denominated raw materials. The most
prevalent transactions involve the purchase of U.S. dollars against Dutch
guilders and Spanish pesetas. The maturity of the hedges is consistent with the
underlying exposure, generally not beyond one year. At December 31, 1995, the
market value of such forward contracts was $4.0 million, compared with a
contract value of $3.9 million.
The Company enters into foreign currency options to protect the U.S. dollar
value of profits generated by certain European operations. Such activity
involves the purchase of put options for the Dutch guilder, Spanish peseta and
French franc against the U.S. dollar. The maturity of the options is generally
under one year. At December 31, 1995, the face value or notional amount of all
outstanding currency options was $9.1 million. If liquidated at year-end 1995,
these options would have produced a cash amount of $90,000 versus an unamortized
cost of $134,000.
In addition to hedging foreign exchange risk, the Company also purchases
call options to hedge certain raw materials against future increases in price.
At December 31, 1995, the face value of notional amount of all raw material call
options was $0.9 million. If liquidated at year-end 1995, these options would
have produced a cash amount of $14,000 versus an unamortized cost of $95,000.
All forward contract, option and hedging activity is executed with major
reputable multinational financial institutions. Accordingly, the Company does
not anticipate counterparty default and believes that such risk is immaterial.
13. LEASE COMMITMENT
================================================================================
In 1995, in conjunction with the Synthetic Products Company acquisition, the
Company entered into a five-year operating lease agreement for certain land,
buildings, machinery and equipment. The Company has the option to purchase the
assets at the end of the lease term for a price of $22.2 million. In the event
the Company chooses not to exercise this option, the Company is obligated to
pay, or is entitled to receive from the lessor, the difference between the net
sales proceeds and the outstanding lease balance.
Rentals are based on floating rates and the total annual lease payments,
based on the amount outstanding as of December 31, 1995, are estimated to be at
$1.4 million.
31
25
SELECTED FINANCIAL DATA
Ferro Corporation and Subsidiaries
Years ended December 31, 1985 through 1995 (Dollars in thousands except per
share data
and sales per employee data) 1995 1994 1993 1992 1991
===========================================================================================================================
OPERATING RESULTS (A)
Net sales $ 1,322,954 1,194,247 1,065,748 1,097,793 1,056,940
Income before taxes and cumulative effect
of changes in accounting principles 80,159 74,306 89,289 97,689 20,349
Income taxes 30,905 26,912 31,784 38,861 15,532
Net income $ 49,254 47,394 36,955 58,828 4,817
Income as a percent of sales before
cumulative effect of changes in
accounting principles 3.7% 4.0% 5.4% 5.4% 0.5%
RETURN ON AVERAGE NET WORTH 13.2% 13.1% 16.3% 18.1% 1.6%
PER COMMON SHARE DATA (A) (B)
Average shares outstanding 27,782,823 28,735,898 29,472,201 29,314,494 28,821,380
Primary net income $ 1.64 1.52 1.13 1.90 .06
Fully diluted net income $ 1.56 1.45 1.09 1.77 .06
Cash dividends $ .54 .54 .51 .45 .43
Book value $ 14.23 13.18 12.32 11.92 10.67
FINANCIAL CONDITION AT YEAR-END
Current assets $ 432,366 415,415 411,253 414,927 405,740
Current liabilities 257,308 228,336 198,958 205,043 212,575
- ---------------------------------------------------------------------------------------------------------------------------
Working capital $ 175,058 187,079 212,295 209,884 193,165
- ---------------------------------------------------------------------------------------------------------------------------
Plant and equipment $ 655,951 601,594 538,188 497,561 511,605
Accumulated depreciation and
amortization 348,663 313,005 280,367 269,998 276,885
- ---------------------------------------------------------------------------------------------------------------------------
Net plant and equipment $ 307,288 288,589 257,821 227,563 234,720
- ---------------------------------------------------------------------------------------------------------------------------
Other assets $ 136,294 97,372 98,820 54,055 31,465
Total assets 875,948 801,376 767,894 696,545 671,925
Long-term liabilities 104,910 77,611 79,349 53,210 55,658
ESOP loan guarantee 30,470 37,503 44,076 50,897 57,229
Deferred income taxes 21,380 17,309 14,884 10,918 9,444
Postretirement liabilities 43,570 42,076 40,096 -- --
Other non-current liabilities 36,160 31,797 31,734 31,504 31,732
Shareholders' equity $ 382,150 366,744 358,797 344,973 305,287
PLANT AND EQUIPMENT
Capital expenditures and
acquisitions $ 60,733 63,404 75,037 48,761 39,005
Depreciation $ 40,233 37,076 33,812 33,451 32,686
EMPLOYEES
Number (year-end) 6,914 6,817 6,627 6,535 7,266
Sales per employee $ 191,344 175,187 160,820 167,990 145,460
===========================================================================================================================
32
26
1990 1989 1988 1987 1986 1985
====================================================================================================================================
OPERATING RESULTS (A)
Net sales 1,124,833 1,083,573 1,008,990 871,008 725,241 651,071
Income before taxes and cumulative effect
of changes in accounting principles 43,509 83,764 88,436 61,023 45,482 18,265
Income taxes 24,090 34,016 41,816 29,336 21,400 9,372
Net income 19,419 49,748 46,620 31,687 24,082 8,893
Income as a percent of sales before
cumulative effect of changes in
accounting principles 1.7% 4.6% 4.6% 3.6% 3.3% 1.4%
RETURN ON AVERAGE NET WORTH 6.4% 16.8% 16.8% 13.1% 11.5% 4.6%
PER COMMON SHARE DATA (A) (B)
Average shares outstanding 29,064,517 30,972,625 30,884,797 31,043,830 30,599,257 30,287,551
Primary net income .55 1.53 1.51 1.02 .79 .29
Fully diluted net income .53 1.46 -- -- -- --
Cash dividends .43 .40 .31 .30 .27 .27
Book value 10.77 10.20 9.53 8.46 7.27 6.46
FINANCIAL CONDITION AT YEAR-END
Current assets 386,704 408,692 356,972 325,835 271,643 227,467
Current liabilities 221,155 210,059 194,171 174,577 131,605 109,521
- -----------------------------------------------------------------------------------------------------------------------------------
Working capital 165,549 198,633 162,801 151,258 140,038 117,946
- -----------------------------------------------------------------------------------------------------------------------------------
Plant and equipment 519,044 446,290 399,785 359,223 316,770 282,986
Accumulated depreciation and
amortization 263,114 226,268 202,563 187,334 163,058 137,335
- -----------------------------------------------------------------------------------------------------------------------------------
Net plant and equipment 255,930 220,022 197,222 171,889 153,712 145,651
- -----------------------------------------------------------------------------------------------------------------------------------
Other assets 43,029 40,417 33,946 34,302 23,993 20,272
Total assets 685,663 669,131 588,140 532,026 449,348 393,390
Long-term liabilities 58,047 60,764 63,163 64,147 68,136 68,391
ESOP loan guarantee 62,649 68,020 -- -- -- --
Deferred income taxes 21,088 19,860 20,622 22,035 17,347 12,812
Postretirement liabilities -- -- -- -- -- --
Other non-current liabilities 17,122 13,359 14,850 11,516 8,963 6,559
Shareholders' equity 305,602 297,069 295,334 259,751 223,297 196,107
PLANT AND EQUIPMENT
Capital expenditures and
acquisitions 61,408 53,471 53,753 37,339 23,839 27,050
Depreciation 30,389 27,574 24,696 21,883 18,926 16,832
EMPLOYEES
Number (year-end) 8,205 8,045 8,374 8,100 7,721 8,018
Sales per employee 137,090 134,690 120,490 107,530 93,930 81,200
====================================================================================================================================
(A) Included in 1993 is a pre-tax restructuring charge of $3.0 million which on
an after-tax basis is $1.8 million, or $0.06 per common share. Also included in
1993 is the cumulative effect of accounting changes of $20.6 million which on an
after-tax basis is $0.70 per common share. Included in 1991 is a pre-tax
restructuring charge of $45.3 million which on an after-tax basis is $31.7
million, or $1.11 per common share. A litigation charge of $12.0 million is
included in 1990 which on an after-tax basis is $7.9 million, or $0.27 per
common share. Excluding the charges in 1991 and 1990, net income for 1991 would
have been $36.5 million, or $1.17 per common share, and net income for 1990
would have been $27.3 million, or $0.82 per common share.
(B) Primary earnings per common share are calculated on a weighted average of
common and common equivalent shares. Net income per common share for 1988 and
prior periods is based on average shares outstanding during the year. Fully
diluted earnings per share further reflect the potential dilution of the assumed
conversion of the convertible preferred shares (issued in 1989) into common
shares. Book value is based on outstanding common shares and net worth at the
end of the year. Outstanding common shares and per share data are adjusted to
reflect the 2-for-1 stock split in August 1987, 3-for-2 stock split in August
1989 and 3-for-2 stock split in August 1992.
33
27
QUARTERLY DATA
(Unaudited)
(Dollars in Thousands Except Per Share Data)
EARNINGS PER
COMMON SHARE DIVIDENDS COMMON
------------ PER STOCK
NET GROSS NET FULLY COMMON PRICE
QUARTER SALES PROFIT INCOME PRIMARY DILUTED SHARE RANGE
===========================================================================================================================
1995 1 $ 342,947 85,732 13,096 .43 .41 .135 $26.000-23.125
2 334,011 83,300 14,658 .49 .46 .135 30.625-24.500
3 310,841 69,988 9,825 .32 .31 .135 29.250-24.000
4 335,155 80,296 11,675 .40 .38 .135 25.000-21.375
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL $1,322,954 319,316 49,254 1.64 1.56 .540
===========================================================================================================================
1994 1 $ 283,324 70,942 11,324 .35 .34 .135 $35.875-30.875
2 300,225 76,195 11,966 .38 .36 .135 31.625-22.375
3 296,803 73,693 11,632 .38 .36 .135 27.250-21.625
4 313,895 76,830 12,472 .41 .39 .135 26.125-22.875
- ---------------------------------------------------------------------------------------------------------------------------
Total $1,194,247 297,660 47,394 1.52 1.45 .540
===========================================================================================================================
Primary earnings per common share are calculated using a weighted average of
common and common equivalent shares.
The common stock of the Company is listed on the New York Stock Exchange. Ticker
symbol: FOE At January 31, 1996, the Company had 3,048 holders of its common
stock.
34