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EXHIBIT 13
MAKING THE WORLD
[GLOBE]
Thousands of manufacturers around the world -- including some of the
largest and best known -- rely on Ferro specialty materials to ensure the
improved performance of their products and processes. Ferro is truly a global
partner, committed to helping customers solve challenges innovatively and cost
effectively. With operations strategically located around the world, the Company
can supply customers in a variety of markets from the closest and most
competitive source. It can offer vast market knowledge and technical expertise
to help them improve product offerings virtually anywhere in the world.
MATERIALLY
BETTER
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INDUSTRY TRENDS
SPECIALTY COATINGS, COLORS AND CERAMICS
[Photo of stove]
GLASS COATINGS Tile manufacturers worldwide are increasingly looking to glaze
coatings producers for the creation of stylish designs to satisfy
fashion-conscious consumers. Dinnerware manufacturers continue to switch to
lead-free glazes to meet environmental standards. Newly industrialized
countries, especially within Asia-Pacific and Latin America, represent a large
growth market for ceramic and porcelain enamel coatings, as their demand for
modern conveniences increases. POWDER COATINGS The automotive and appliance
markets continue to find additional applications for powder coatings in place of
liquid coatings. For example, powders are gradually being used to prime
automotive body panels, as well as to coat wheels and underbodies, and continue
to be studied for use as a potential clear top coat. More and more general
industrial metal product manufacturers are converting to powder coatings for
their finishing needs. A revolutionary technology pioneered by Ferro may soon
permit the application of powder coatings to plastics, wood and other
heat-sensitive materials. PIGMENTS AND COLORANTS In the fashion-driven tile
industry, pigments are being used in innovative ways to create special effects,
from relief designs to stone appearances. The growth rate for fully colored
tiles, which incorporate pigments throughout the entire tile body, exceeds that
of any other segment of the floor tile market, fueling demand for larger
quantities of pigments. Manufacturers increasingly demand heavy-metal-free
formulations of pigments and colorants.
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SPECIALTY PLASTICS
[photo of toaster]
PLASTIC COLORANTS Packaging companies, looking to meet their needs through
consolidated purchasing, are seeking global suppliers of plastic color
concentrates. This trend is also likely to contribute to further consolidation
in the crowded color concentrate industry. Current issues facing concentrate
companies include increased speed in order fulfillment and decreased average
order size. Industry demand for plastic colorants remains strong because of many
opportunities to provide color for eye-catching packaging applications as well
as for recycled materials. FILLED AND REINFORCED PLASTICS Manufacturers in many
industries, convinced of the benefits of plastics over wood and metal, are now
looking for less expensive varieties of plastics. Specially formulated
thermoplastic compounds, consisting of polypropylene and other resins, are often
the answer in replacing more expensive engineering thermoplastics, a trend which
has been accelerated by the emergence of new polyolefin materials. Continued
consolidation among plastics compounders is anticipated.
Specialty chemicals
POLYMER ADDITIVES The rate of growth for polymer additives surpasses that of
plastics, as manufacturers and consumers seek the improved physical
characteristics that only products with these additives can deliver. Polymer
additive producers are also beginning to pursue strategic alliances to offer
customers "one-stop" shopping. Stronger regional markets, especially
Asia-Pacific, are providing additional growth opportunities.
[Photo of computer]
6b
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PRODUCTS AND MARKETS
Ferro's innovative performance materials add value to a wide range of
consumer and industrial products in five major end-use markets. Many
manufacturers in these end-use markets look to Ferro as a total supplier of
specialty materials for diverse and demanding applications. Open the opposite
page for insight into trends affecting Ferro's major products and markets.
End-use markets
Building
Specialty coatings, and Major Household Trans- Industrial
colors and ceramics renovation appliances furnishings portation products Other*
Ceramic glaze coatings X X x X
Porcelain enamel coatings x x x X
Powder coatings X X X X X X
Pigments and colorants X X X X X X
Electronic materials X X X X
Specialty ceramics X X X
Specialty plastics
Plastic colorants X X X X X X
Filled and reinforced plastics X X X X X X
Liquid coatings and dispersions X X X X X
Specialty chemicals
Polymer additives X X X X X
Industrial specialties X
Petroleum additives X X
*Packaging, leisure products and miscellaneous end-use markets
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strategic initiatives
MARKETING
[Photo of office chair]
Ferro's enhanced marketing efforts are geared toward optimum responsiveness
to customer and market needs. The Company has long been known for its close
customer relationships, nurtured by technical sales and service representatives
intent on delivering product and process solutions.
An example of this partnership approach is Ferro's account managers, who
represent all product lines to strategic customers in major industries such as
appliances and electronics. Teams targeting markets and customers that use
multiple Ferro products also ensure that resources are aligned to Ferro's best
opportunities.
Such initiatives are improving results and relationships with key
customers. Ferro recently earned 100 percent of a major appliance manufacturer's
powder coatings business, and its coatings and colorants plants were honored as
outstanding suppliers by another major appliance manufacturer.
A major focus of Ferro's marketing efforts, aimed at creating sustainable
growth, is more closely assessing the value of current and potential customers
and directing resources toward those that are successfully growing and impacting
their marketplace. Growth also will come from pursuing strategic alliances with
other producers to meet a variety of customer needs.
Other marketing initiatives in 1996 included adding marketing talent
throughout the Company and equipping key members of Ferro's sales force with
leading-edge technology to serve customers efficiently and effectively.
Marketing and technology functions have strengthened their collaboration to
offer value-added products grounded in market understanding.
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6
strategic initiatives
TECHNOLOGY
[Photo of steering wheel]
To remain a technological and market leader, Ferro is committed to
increasing the value and differentiation of its products and processes. This
effort revolves around leveraging its core competencies in chemical technologies
and materials sciences, which provide important synergies among the Company's
products and markets. A renewed focus on products that give customers a market
advantage has led to an array of new value-added products in 1996, including
high-scratch-resistant and high-gloss polypropylenes and a low
volatile-organic-compound gelcoat which dramatically reduces emissions. Ferro
also expanded its market leadership in such recent breakthrough products as
powder coatings for appliance "blanks" and lead-free glass enamels for
automobiles and other applications.
Bolstered by new production technology, the Evansville, Indiana, plastic
compounding plant is using metallocene-catalyzed polypropylene to formulate
lower-cost grades of materials with performance properties to displace high-cost
engineering resins. An exciting pilot project at the Zachary, Louisiana,
chemical plant is producing a precursor of a new polymer which will replace
existing plastics in a variety of applications.
In addition, research continues on products with outstanding market
potential, including high-purity electrolytic solutions for rechargeable
batteries, phosphorous-based flame retardants and low-temperature-cure powder
coatings for wood and plastics.
Technical service representatives, located throughout Ferro's
international network of labs, are skilled at adapting products and processes to
meet customers' specific requirements. Ferro's manufacturing facilities carry
through the commitment to innovative materials through cost-efficient,
high-quality production operations certified to international standards.
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strategic initiatives
PRODUCTIVITY IMPROVEMENT
[Photo of bottles/cup]
Ferro's ongoing productivity improvement efforts are creating a global
organization that is lean and responsive to multinational customers and markets.
Programs to consolidate operations and lower costs are also contributing to good
performance even under less-than-robust market conditions.
Since 1990, Ferro has reduced its operations worldwide by more than 30
plants. The Company is taking advantage of global economies and falling trade
barriers to reduce that number even more. For example, thanks to Latin America's
MERCOSUR alliance, Ferro is consolidating regional porcelain enamel production
into Argentina and color production into Brazil, as well as supplying colors to
Argentina through facilities in Brazil and Mexico.
Ferro's operations are also benefitting from redesigned business processes.
Several reengineering projects at the powder coatings plant in Nashville,
Tennessee, have resulted in a more than 25 percent improvement in productivity.
A pigment rationalization project, together with new manufacturing techniques
that rely on fewer, cost-effective materials, has contributed to a 22 percent
reduction in plastic colorants inventory in the past year. Uniform production
reports enable multi-plant businesses to pinpoint and address operational
problems by plant and product line anywhere in the world.
From refining order generation and fulfillment functions to rethinking the
product development process, Ferro is realigning resources to create sustainable
growth as well as faster turnaround and better service to benefit customers.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FERRO CORPORATION AND SUBSIDIARIES
Ferro Corporation is a major global producer of performance materials for
manufacturers. 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.
1996 results of operations
The Company achieved record net sales of $1.4 billion, an increase of 2%
over 1995. 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, is that the impact of a stronger U.S. dollar decreased sales by 1% when
foreign currency sales were translated into U.S. dollars; that changes in volume
and acquisitions increased sales by 1% and 6% respectively, while price/mix was
neutral and divestitures reduced sales by 4%.
Net income increased 11% to $54.6 million. Earnings per common share rose
17% to a record $1.82 (fully diluted).
Gross margin improved from 24.1% to 24.5%, primarily due to a combination
of volume improvement in the domestic plastics business and better price/mix
performance within the international coatings, colors and ceramics business.
Record operating income of $105.8 million was 10% above that of 1995.
The decrease in interest earned was due to the lower amount of cash and
cash equivalents, as well as the interest earned in 1995 on the proceeds of the
8% debentures issued in June to redeem the 11 3/4% debentures in October.
Similarly, the decrease in interest expense is primarily due to the substitution
of the 8% debentures for the 11 3/4% debentures.
Coatings, colors and ceramics
Total sales for this segment were comparable to those of 1995. Increased
volumes and favorable price/mix domestically and internationally were not quite
able to offset the negative impact of a stronger U.S. dollar and a late 1995
divestiture.
Operating profit increased 3% to $73.4 million, led by double-digit
improvements in powder coatings operating profit, as a result of better mix,
stable markets and production efficiencies. Further, the coatings, colors and
ceramics business was the primary beneficiary of double-digit improvements in
Latin America, as well as favorable raw material pricing relative to 1995.
Plastics
Worldwide plastics sales of $238.0 million were 12% less than those of
1995, as improved volumes were more than offset by other factors, most notably
the effect of the sale of the European engineering thermoplastics business late
in 1995.
Record operating profit of $13.7 million, up 56%, is primarily
attributable to stabilization of
[Photo]
Gary H. Ritondaro, Vice President and Chief Financial Officer,
at the Great Lakes Science Center.
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resin prices, widening of gross margins due to manufacturing cost controls and
sales emphasis on higher-value-added products, particularly in filled and
reinforced polypropylene.
Chemicals
Record sales of $336.7 million were 25% greater than those of 1995. The
most significant contributor to the sales increase was the effect of the October
1995 acquisition of Synthetic Products Company.
This business also established record operating profit for the year, up 24%
to $23.1 million, led by double-digit increases in the polymer additives
business, which more than offset a charge of approximately $1.5 million
associated with a cost restructuring effort at our French chemicals facility.
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, 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 income of $49.3 million was 4% greater than 1994 net income 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.
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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.
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.
OTHER ITEMS
Environmental
During 1995, the Company reached an agreement in principle to settle a suit
filed in August 1993 by the United States Environmental Protection Agency
alleging violation of the Clean Water Act and the Rivers 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 defendents, including three local
municipalities, one local government agency (a sewer district) and four other
area industrial concerns. In 1996, the Company signed a Consent Decree whereby
the Company agreed to pay a civil penalty of $0.4 million and to pay $1.4
million (the "Settlement Amount") into a fund to be established to help clean
sediment in the West Branch of the Grand Calumet River following entry of the
Consent Decree by the Court. The Consent Decree is expected to be entered by the
Court in the first quarter of 1997. The Company is obligated to pay the
Settlement Amount 30 days after entry of the Consent Decree by the Court.
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. 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 sales for 1996 declined 9%, largely because of sales
associated with late 1995 divestitures, and operating profit declined slightly,
most of which is due to a non-recurring $1.5 million pre-tax charge associated
with a chemicals facility in France taken in the fourth quarter of 1996.
Latin American sales increased 10% while operating profit was up 49% over
1995. The improvement in operating profit is primarily due to the Company's
actions in rationalizing facilities in Argentina and Brazil.
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Accounting changes
During 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The Statement is effective
after December 31, 1996 on a prospective basis, except for certain provisions
whose effective date was deferred by Statement of Financial Accounting Standards
No. 127, also issued during 1996. The Company does not have transactions which
qualify for deferred implementation and therefore will adopt Statement No. 125,
effective January 1, 1997. Implementation will likely result in an increase in
the reported amounts of accounts and trade notes receivable and notes and loans
payable.
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 recognized no impairment loss as a result of adoption.
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 chose to 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.
Cautionary note on forward-looking statements
Certain statements contained in this report reflect the Company's current
expectations with respect to the future performance of the Company and may
constitute "forward-looking statements" within the meaning of the federal
securities laws. From time to time, forward-looking statements may also be
contained in future filings with the Securities and Exchange Commission, as well
as in other written and oral communications made by, or with the approval of,
the Company. These statements are subject to a variety of uncertainties, unknown
risks and other factors concerning the Company's operations and business
environment, including, but not limited to: changes in customer requirements,
markets or industries served; changing economic conditions, particularly in
Europe or Latin America; foreign exchange rates, especially in Latin America;
changes in the prices of major raw materials, in particular polypropylene and
titanium dioxide; and significant technological or competitive developments.
Acquisitions and divestitures
In January 1996, the Company purchased the remaining interest in Ferro
Industrias Quimicas S.A., located in Portugal. In November 1996, the Company
purchased Ceramica Technica Industrial S.A. of Spain. Neither of these
transactions was material to Ferro.
In October 1996, the Company sold the dispersions portion of Synthetic
Products Company acquired in the prior October from Cookson Group plc as noted
below. The Company also sold two small plastics operations located in Canada.
The results of these operations were not material to Ferro.
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 and heat stabilizers.
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In December 1995, the Company sold the European engineering thermoplastics
business known as Eurostar to L.N.P. Engineering Plastics Europe B.V., a
subsidiary of Kawasaki Steel Corporation.
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.
During 1994, the Company sold the plastics operations located in Australia
and New Zealand.
Liquidity and capital resources
Cash flow from operations was again a strong source of funds in 1996,
permitting the Company to meet financial obligations, while repurchasing
approximately 1.5 million shares of Ferro common stock and providing for capital
expenditures. Cash flow from operating activities amounted to $111.6 million in
1996 compared with $107.8 million in 1995. This increase in cash from operating
activities was largely attributable to a higher level of net income and
improvements in working capital.
The Company purchased 1,455,014 shares of common stock during 1996,
1,050,965 shares during 1995 and 1,492,900 shares during 1994 under the stock
purchase plan.
Cash used for financing activities principally includes repurchases of
stock and cash dividends paid.
Capital expenditures for plant and equipment were $46.7 million in 1996,
$49.5 million in 1995 and $59.7 million in 1994. Information concerning these
expenditures by business segment can be found on page 30. Capital expenditures
for 1997 are estimated to be $65.0 million.
In October 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.
No issuances have been made against this registration.
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.
In October 1995, the Company redeemed the $50.0 million of 11 3/4%
debentures originally issued in 1985.
The common stock cash dividend was increased 14.8% during 1996 to an annual
payout of $0.62 per common share. 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 $0.58 per share in 1996 and $0.54 per
share in 1995. 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 a $150.0 million line of credit and the $300.0 million Shelf
Registration previously mentioned, 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.
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CONSOLIDATED STATEMENTS OF INCOME
Ferro Corporation and subsidiaries
(dollars in thousands)
Years ended December 31, 1996, 1995 and 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
NET SALES $1,355,685 1,322,954 1,194,247
COST OF SALES 1,023,401 1,003,638 896,587
SELLING, ADMINISTRATIVE AND GENERAL EXPENSE 226,518 223,101 211,983
- ----------------------------------------------------------------------------------------------------
1,249,919 1,226,739 1,108,570
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OPERATING INCOME 105,766 96,215 85,677
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OTHER INCOME
Interest earned 2,528 5,509 3,778
Equity in net earnings (losses) of affiliated companies 334 982 (1,143)
Foreign currency transaction gains (losses) 812 (160) (508)
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3,674 6,331 2,127
OTHER CHARGES
Interest expense 13,031 15,226 10,933
Miscellaneous - net 8,202 7,161 2,565
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21,233 22,387 13,498
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INCOME BEFORE TAXES 88,207 80,159 74,306
INCOME TAXES 33,621 30,905 26,912
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NET INCOME 54,586 49,254 47,394
DIVIDEND ON PREFERRED STOCK, NET OF TAX 3,735 3,670 3,583
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 50,851 45,584 43,811
- ----------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Primary earnings $ 1.92 1.64 1.52
Fully diluted earnings 1.82 1.56 1.45
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See accompanying notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
Ferro Corporation and subsidiaries
(dollars in thousands)
December 31, 1996 and 1995 1996 1995
- -------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 14,026 16,695
Accounts and trade notes receivable, after deduction of
$9,497 in 1996 and $9,877 in 1995 for possible losses 214,131 230,742
Inventories 149,343 155,253
Other current assets 39,022 30,840
- -------------------------------------------------------------------------------------
Total current assets 416,522 433,530
OTHER ASSETS
Investments in affiliated companies 7,126 7,622
Unamortized excess of cost over net assets acquired 93,302 95,553
Sundry other assets 46,135 33,119
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Total other assets 146,563 136,294
PLANT AND EQUIPMENT
Land 16,623 16,074
Buildings 146,061 142,436
Machinery and equipment 520,445 494,842
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683,129 653,352
Less accumulated depreciation and amortization 375,746 346,064
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Net plant and equipment 307,383 307,288
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$ 870,468 877,112
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable $ 30,200 35,587
Accounts payable 113,156 115,889
Income taxes payable 10,597 12,034
Accrued payrolls 16,559 16,718
Accrued expenses and other current liabilities 81,821 78,244
- -------------------------------------------------------------------------------------
Total current liabilities 252,333 258,472
LONG-TERM LIABILITIES, less current portion 105,308 104,910
ESOP LOAN GUARANTEE 22,592 30,470
POSTRETIREMENT LIABILITIES 44,846 43,570
OTHER NON-CURRENT LIABILITIES 61,185 57,540
SHAREHOLDERS' EQUITY
Serial convertible preferred stock, without par value.
Authorized 2,000,000 shares; 1,520,215 shares issued 70,500 70,500
Guaranteed ESOP obligation (22,592) (30,470)
Common stock, par value $1 per share.
Authorized 150,000,000 shares; 31,549,083 shares issued 31,549 31,549
Paid-in capital 14,107 13,237
Earnings retained in the business 463,177 427,611
Foreign currency translation adjustment (24,304) (20,576)
Other (7,230) (5,595)
- -------------------------------------------------------------------------------------
525,207 486,256
Less cost of common stock held in treasury, 5,918,239
shares in 1996 and 4,687,832 shares in 1995 132,595 97,626
Less cost of convertible preferred stock held in treasury,
181,306 shares in 1996 and 139,724 shares in 1995 8,408 6,480
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Total shareholders' equity 384,204 382,150
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$ 870,468 877,112
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See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Ferro Corporation and subsidiaries
December 31, 1996, 1995 and 1994 (dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------
Foreign Common Preferred Total
Guaranteed currency stock stock share-
Preferred ESOP Common Paid-in Retained translation held in held in holders'
stock obligation stock capital earnings adjustment treasury treasury Other equity
- ----------------------------------------------------------------------------------------------------------------------
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 (15,443) (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
Net income 54,586 54,586
Cash dividends:
Common stock (15,311) (15,311)
Preferred stock (4,408) (4,408)
Federal tax benefits 699 699
Transactions involving
benefit plans 7,878 870 4,285 (658) (1,635) 10,740
Foreign currency
translation adjustment (3,728) (3,728)
Purchase of treasury stock (39,254) (1,270) (40,524)
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1996 $70,500 (22,592) 31,549 14,107 463,177 (24,304) (132,595) (8,408) (7,230) 384,204
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
21
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ferro Corporation and subsidiaries
(dollars in thousands)
Years ended December 31, 1996, 1995 and 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 54,586 49,254 47,394
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 49,635 46,261 42,704
Change in deferred income taxes 498 2,173 (202)
Other non-cash items 4,143 7,677 1,546
Changes in current assets and liabilities,
net of effects of acquisitions
Accounts and trade notes receivable 13,297 (7,242) (39,378)
Inventories 2,169 1,370 (12,678)
Other current assets (8,901) 3,374 10,961
Accounts payable (1,218) (6,258) 22,204
Accrued expenses and other current liabilities 2,386 10,776 5,681
Other operating activities (5,023) 368 3,613
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 111,572 107,753 81,845
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 933 2,571 2,885
Capital expenditures for plant and equipment (46,655) (49,528) (59,700)
Proceeds from divestitures 6,049 6,869 3,151
Acquisition of companies, net of cash acquired (13,345) (69,919) (9,176)
Transactions with affiliated companies 830 1,833 126
Changes in marketable securities, net 0 0 38,335
Other investing activities (704) 4,338 (2,249)
- ----------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) INVESTING ACTIVITIES (52,892) (103,836) (26,628)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) under short-term lines (3,878) 16,491 (549)
Proceeds from long-term debt 2,626 75,035 0
Principal payments on long-term debt (1,533) (52,228) (2,070)
Proceeds from sale of stock 2,069 1,941 2,780
Purchase of treasury stock (40,524) (25,903) (38,144)
Cash dividends paid to minority shareholders of subsidiaries (646) (1,033) (701)
Cash dividends paid (19,719) (19,477) (20,041)
- ----------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) FINANCING ACTIVITIES (61,605) (5,174) (58,725)
Effect of exchange rate changes on Cash 256 (1,870) (1,786)
- ----------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (2,669) (3,127) (5,294)
Cash and cash equivalents at beginning of period 16,695 19,822 25,116
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,026 16,695 19,822
- ----------------------------------------------------------------------------------------------------------
CASH PAID DURING THE YEAR FOR
Interest $ 11,927 15,625 10,475
Income taxes $ 35,026 29,167 26,467
See accompanying notes to consolidated financial statements.
22
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ferro Corporation and subsidiaries
Years ended December 31, 1996, 1995 and 1994
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 1994 and 1995 financial statements and the
accompanying notes have been reclassified to conform to the 1996 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 investments 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 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The statement is effective
after December 31, 1996 on a prospective basis, except for certain provisions
whose effective date was deferred by Statement of Financial Accounting Standards
No. 127, also issued during 1996. The Company does not have transactions which
qualify for deferred implementation and therefore will adopt Statement No. 125,
effective January 1, 1997. Implementation will likely result in an increase in
the reported amounts of accounts and trade notes receivable and notes and loans
payable.
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 recognized no impairment loss as a result of adoption.
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 chose
23
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to 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.
Accumulated amortization was $27.1 million and $19.9 million at December 31,
1996 and 1995, 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
analyses necessarily involve significant management judgment to evaluate the
capacity of an acquired business to perform within projections. The Company
would recognize a write-down when significant events or changes occur which
might impair recovery of recorded costs. Historically, the Company has generated
sufficient returns from acquired businesses to recover the cost of its
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, 1996 and
1995 is as follows:
1996 1995
- -----------------------------------------------------
UNITED STATES 41% 40
OUTSIDE THE UNITED STATES 8 9
CONSOLIDATED 22 22
- -----------------------------------------------------
If the FIFO method of inventory valuation had been used exclusively by the
Company, inventories would have been $16.9 million and $17.6 million higher than
reported at December 31, 1996 and 1995, 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.
24
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3. FINANCING AND LONG-TERM LIABILITIES
Long-term liabilities at December 31, 1996 and 1995 are as follows:
(dollars in thousands) 1996 1995
- -----------------------------------------------------
PARENT COMPANY:
UNSECURED:
DEBENTURES, 7 5/8%, DUE 2013 $ 24,794 24,788
DEBENTURES, 8%, DUE 2025 49,341 49,318
DEBENTURES, 7 3/8%, DUE 2015 24,932 24,929
SECURED:
MORTGAGES, 7.3% TO 8.5%
PAYABLE TO 2017 76 155
SUBSIDIARY COMPANIES:
UNSECURED:
NOTES PAYABLE, 1.55% TO 13.0%
PAYABLE TO 2002 5,722 3,062
SECURED:
MORTGAGES, 8.8% TO 10.8%
PAYABLE TO 2002 2,801 4,506
- -----------------------------------------------------
107,666 106,758
LESS CURRENT PORTION (A) 2,358 1,848
- -----------------------------------------------------
TOTAL $105,308 104,910
=====================================================
(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)
1997 1998 1999 2000 2001
- -----------------------------------------------------
$2,358 2,681 1,301 733 567
At December 31, 1996, $2.9 million of long-term indebtedness was secured by
property, equipment and certain other assets with a net book value approximating
$4.9 million.
In 1993, the Company issued $25.0 million in 7 5/8% debentures under the
1992 Shelf Registration. These debentures mature in the year 2013, and the fair
market value was approximately $25.7 million at December 31, 1996.
In June 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 $50.7 million at December 31, 1996. In October
1995, proceeds from the issuance of the 8% debentures were used to retire the
11 3/4% debentures issued in 1985.
In November 1995, the Company issued $25.0 million in 7 3/8% debentures
under the 1992 Shelf Registration. These debentures mature in the year 2015, and
the fair market value was approximately $24.9 million at December 31, 1996.
The $100.0 million Shelf Registration originally filed in 1992 was
exhausted with the issuance of debentures in June and November of 1995.
In October 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, 2001. 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, 1996, the Company had no outstanding borrowing 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 $2.4 million, $3.0 million and $3.6 million in 1996,
1995 and 1994, 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 $0.6 million, $0.7 million and $1.0 million in
1996, 1995 and 1994, 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
25
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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 plans for the benefit of its
employees: a stock option plan, a performance share plan and a savings and stock
ownership plan which includes an investment savings plan and an ESOP.
The stock option plan provides for the issuance of stock options at no less
than the then current market price. Stock options have a maximum term of 10
years and vest evenly over four years.
Information pertaining to these stock options is shown below:
1996 1995 1994
- -----------------------------------------------------
SHARES GRANTED 389,515 200,935 201,850
AVERAGE OPTION
PRICE $23.87 24.00 33.39
SHARES EXERCISED 53,024 35,676 39,284
AVERAGE OPTION
PRICE $12.95 9.33 15.93
SHARES WHICH BECAME
EXERCISABLE 160,894 137,353 114,613
AVERAGE OPTION
PRICE $28.53 29.12 23.14
SHARES UNEXERCISED
AT YEAR-END 1,466,799 1,145,863 1,003,241
OPTION PRICE RANGE
PER SHARE $9.78 6.95 6.95
to 34.00 to 34.00 to 34.00
SHARES CANCELLED 15,556 22,637 4,876
SHARES AVAILABLE
FOR GRANTING
FUTURE OPTIONS 1,769,449 643,408 821,706
- -----------------------------------------------------
Significant option groups outstanding at December 31, 1996 and the related
weighted average price for the exercisable options and remaining life
information are as follows:
Options outstanding Options exercisable
- ---------------------------------- ----------------------
Range of Average Remain- Average
Exercise Exercise ing life Exercise
Prices Shares Price (years) Shares Price
- -----------------------------------------------------------
$30-34 194,675 $33.38 7 101,223 $33.33
26-30 193,050 29.14 6 127,554 29.39
22-26 706,947 23.67 8 201,690 23.52
10-18 372,127 13.67 2 372,127 13.67
- -----------------------------------------------------------
$10-34 1,466,799 $23.14 6 802,594 $21.12
All options were granted at an exercise price equal to the fair market
value of the Company's common stock at the date of grant. The weighted average
fair market value at date of grant for options granted during 1996 and 1995 was
$9.27 and $9.38 per option, respectively. The fair value of options at date of
grant was estimated using the Black-Scholes model with the following weighted
average assumptions:
1996 1995
- -----------------------------------------------------
EXPECTED LIFE (YEARS) 10 10
INTEREST RATE 6.25% 6.00%
VOLATILITY 26.40 26.90
DIVIDEND YIELD 1.92 1.88
- -----------------------------------------------------
On a pro forma basis, had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date consistent with
the provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts shown below:
1996 1995
- -----------------------------------------------------
NET INCOME - AS REPORTED $54,586 49,254
NET INCOME - PRO FORMA 53,770 48,973
EARNINGS PER SHARE - AS REPORTED 1.92 1.64
EARNINGS PER SHARE - PRO FORMA 1.89 1.63
- -----------------------------------------------------
The pro forma effects on net income for 1996 and 1995 are not
representative of the pro forma effects on net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1995.
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 162,319 shares, 166,467 shares and
235,395 shares were outstanding at the end of 1996, 1995 and 1994, 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 $582,000, $500,000 and $64,000 in 1996, 1995 and 1994,
respectively.
The ESOP provides for the Company to match eligible employee pre-tax
savings. Amounts expensed under the ESOP were $2.9 million, $2.6 million and
$2.5 million in 1996, 1995 and 1994, respectively.
5. CAPITAL STOCK
In 1989, Ferro issued 1,520,215 shares of 7% Series A ESOP Convertible
Preferred Stock to National
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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 1,455,015 shares of common stock in 1996 at an
aggregate cost of $39.3 million; purchased 1,050,965 shares of common stock in
1995 at an aggregate cost of $25.1 million; and purchased 1,492,900 shares of
common stock in 1994 at an aggregate cost of $37.1 million. At December 31,
1996, the Company had remaining authorization to acquire 1,910,021 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 in addition to any previously
authorized shares. These shares are to be purchased on the open market from time
to time.
The Company maintains a Shareholder Rights Plan ("the Plan") whereby, until
the occurrence of certain events, each share of 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 or
is declared an Adverse Person (as defined in the Plan) by the Board of
Directors. The Rights, which do not have the right to vote or receive dividends,
expire on April 8, 2006. Rights may be redeemed by the Company at $0.05 per
Right at any time until the 15th 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 shares of common stock at a
purchase price of 50% of the then current market price of the common stock up to
a value of $110.00 per right.
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 January 1996, the Company purchased the remaining interest in Ferro
Industrias Quimicas S.A., located in Portugal. In November 1996, the Company
purchased Ceramica Technica Industrial S.A. of Spain. Neither of these
transactions was material to Ferro.
In October 1995, the Company acquired Synthetic Products Company from
Cookson Group plc, of London, England. The cost 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. The acquisition was accounted for using the purchase method of
accounting.
The Company sold or discontinued operations representing annual sales of
approximately $25.0 million, $20.0 million and $30.0 million in 1996, 1995 and
1994, respectively. The results of these operations were not material to Ferro.
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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, 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 $23.8 million, $23.2
million and $22.9 million in 1996, 1995 and 1994, respectively.
9. RETIREMENT BENEFITS
The following information sets forth data for the pension plans of the
Company and its consolidated subsidiaries. Due to the diverse nature of the
regulatory environment of various countries, 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 defined benefit and defined contribution
plans of the Company and its subsidiaries were $8.9 million, $7.2 million and
$8.5 million in 1996, 1995 and 1994, 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 the significant defined benefit plans
included the following components:
(dollars in thousands) 1996 1995 1994
- ------------------------------------------------------
SERVICE COST-BENEFITS
EARNED DURING
THE PERIOD $ 6,477 5,310 7,212
INTEREST COST ON THE
PROJECTED BENEFIT
OBLIGATION 15,526 14,468 13,775
ACTUAL (RETURN) LOSS
ON PLAN ASSETS (24,240) (30,528) 4,269
NET AMORTIZATION
AND DEFERRAL 9,331 16,949 (18,628)
- ------------------------------------------------------
NET PERIODIC
PENSION COST $ 7,094 6,199 6,628
- ------------------------------------------------------
Net amortization and deferral consists of amoritization of net asset 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:
1996 1995 1994
- ----------------------------------------------------------------
DISCOUNT OR
SETTLEMENT RATE 6.0-10.0% 6.5-10.0 7.0-10.0
RATE OF INCREASE IN
COMPENSATION LEVELS 3.0-9.0 2.5-9.0 3.0-9.0
EXPECTED LONG-TERM
RATE OR RETURN
ON ASSETS 7.25-10.0 7.0-10.5 6.0-10.0
- ----------------------------------------------------------------
- --------------------------------------------------------------------------------
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 benefits
(dollars in thousands) accumulated benefits exceed assets
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
VESTED BENEFIT OBLIGATION $ 152,302 136,231 18,228 29,002
- ------------------------------------------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION 158,587 142,440 32,363 37,761
- ------------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION 187,591 166,953 33,302 42,698
PLAN ASSETS AT FAIR VALUE 190,502 167,752 10,453 21,647
- ------------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION (IN EXCESS OF) OR LESS THAN PLAN ASSETS 2,911 799 (22,849) (21,051)
UNRECOGNIZED NET (GAIN) OR LOSS (13,883) (2,650) 5,646 5,339
PRIOR SERVICE COST 5,150 3,543 4,813 3,153
UNRECOGNIZED NET TRANSITION (ASSET) OBLIGATION (2,655) (4,834) 1,605 2,404
MINIMUM LIABILITY ADJUSTMENT -- -- (11,254) (8,239)
- ------------------------------------------------------------------------------------------------------------------------
PENSION LIABILITY $ (8,477) (3,142) (22,039) (18,394)
- ------------------------------------------------------------------------------------------------------------------------
In the aggregate, at year-end 1996 and 1995 the various plans' assets at
fair value were less than the various plans' projected benefit obligations by
$19.9 million and $20.3 million, respectively. The Company recognized decreases
in equity of $0.2 million and $2.4 million for minimum liability adjustments in
1996 and 1995, respectively.
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23
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 $3.3 million and $5.1 million at
year-end 1996 and 1995, respectively.
The Company provides eligible domestic retired employees with health care
and life insurance benefits. These benefits are subject to the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The Company funds these benefits
as claims are presented.
The net periodic postretirement benefit cost included the following
components:
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------
SERVICE COST $ 715 498 731
INTEREST COST 2,820 2,935 3,077
NET AMORTIZATION
AND DEFERRAL (192) (442) --
- -----------------------------------------------------
NET PERIODIC
POSTRETIREMENT
BENEFIT COST $3,343 2,991 3,808
- -----------------------------------------------------
Assumptions used in developing the accumulated postretirement benefit
obligation as of December 31 were:
1996 1995 1994
- -----------------------------------------------------
DISCOUNT OR SETTLEMENT RATE 7.9% 7.7 9.5
RATE OF INCREASE IN COVERED
HEALTH CARE BENEFITS:
FIRST YEAR 8.3 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) 1996 1995
- -----------------------------------------------------
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION:
RETIREES $25,515 27,220
FULLY ELIGIBLE ACTIVE
PLAN PARTICIPANTS 4,063 3,335
OTHER ACTIVE PLAN
PARTICIPANTS 8,705 8,890
- -----------------------------------------------------
38,283 39,465
UNRECOGNIZED NET (GAIN) (6,563) (4,105)
- -----------------------------------------------------
ACCRUED POSTRETIREMENT
BENEFIT OBLIGATION $44,846 43,570
=====================================================
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, 1996 by $3.2 million and the net periodic
postretirement benefit cost by $0.3 million.
10. Income tax expense
Income tax expense is comprised of the following components:
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------
CURRENT:
U.S. FEDERAL $18,641 15,173 8,885
FOREIGN 12,968 12,063 13,498
STATE AND LOCAL 3,345 2,845 1,841
- -----------------------------------------------------
34,954 30,081 24,224
- -----------------------------------------------------
DEFERRED:
U.S. FEDERAL (588) (278) 3,054
FOREIGN (663) 1,613 (329)
STATE AND LOCAL (82) (511) (37)
- -----------------------------------------------------
(1,333) 824 2,688
- -----------------------------------------------------
TOTAL INCOME TAX $33,621 30,905 26,912
=====================================================
In addition to the 1996 income tax expense of $33.6 million, certain income
tax benefits of $0.9 million were allocated directly to shareholders' equity.
The above taxes are based on earnings before income taxes. These earnings
aggregated $53.7 million, $44.4 million and $34.4 million for domestic
operations and $34.5 million, $35.7 million and $39.9 million for foreign
operations in 1996, 1995 and 1994, respectively.
A reconciliation of the statutory federal income tax rate and the effective
tax rate follows:
1996 1995 1994
- -----------------------------------------------------
STATUTORY FEDERAL
INCOME TAX RATE 35.0% 35.0 35.0
FOREIGN TAX RATE
DIFFERENCE 0.4 1.9 (1.7)
U.S. TAXES ON DIVIDENDS
FROM SUBSIDIARIES 0.9 0.8 1.3
STATE AND LOCAL TAXES
NET OF FEDERAL
INCOME TAX 2.4 1.9 1.6
MISCELLANEOUS (0.6) (1.0) --
- -----------------------------------------------------
EFFECTIVE TAX RATE 38.1% 38.6 36.2
=====================================================
29
24
The components of deferred tax assets and liabilities at December 31 were:
(dollars in thousands) 1996 1995
- -----------------------------------------------------
DEFERRED TAX ASSETS:
PENSION AND OTHER
BENEFIT PROGRAMS $22,915 21,782
RESTRUCTURING RESERVES 2,238 2,857
ACCRUED LIABILITIES 6,488 5,671
NET OPERATING LOSS CARRYFORWARDS 9,858 12,507
INVENTORIES 3,412 3,900
OTHER 8,930 4,901
- -----------------------------------------------------
TOTAL DEFERRED TAX ASSETS 53,841 51,618
- -----------------------------------------------------
DEFERRED TAX LIABILITIES
PROPERTY AND EQUIPMENT -
DEPRECIATION AND AMORTIZATION 29,107 26,064
OTHER 1,486 1,541
- -----------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 30,593 27,605
- -----------------------------------------------------
NET DEFERRED TAX ASSET BEFORE
VALUATION ALLOWANCE 23,248 24,013
VALUATION ALLOWANCE (5,008) (8,348)
- -----------------------------------------------------
NET DEFERRED TAX ASSET $18,240 15,665
=====================================================
At December 31, 1996, the Company's foreign subsidiaries had deferred tax
assets relating to net operating loss carryforwards for income tax purposes of
$9.9 million that expire in years 1997 through 2002, and in two instances, have
no expiration period. For financial reporting purposes, a valuation allowance of
$3.9 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 $96.1 million. Deferred income taxes are not provided on these
earnings as it is intended that the majority of these earnings are indefinitely
invested in these entities.
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 38% of consolidated net sales during 1996 and
approximately 41% during 1995 and 1994; colors represented approximately 11% of
consolidated net sales in each of the three years. Within chemicals, polymer
additives represented approximately 14% of consolidated sales in 1996. 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 and
(dollars in millions) ceramics Plastics Chemicals Total
- ---------------------------------------------------------------------------
NET SALES
1996 $ 781.0 238.0 336.7 1,355.7
1995 782.6 270.7 269.7 1,323.0
1994 710.3 267.1 216.8 1,194.2
OPERATING PROFIT
1996 $ 73.4 13.7 23.1 110.2
1995 71.3 8.8 18.6 98.7
1994 74.4 7.4 6.3 88.1
IDENTIFIABLE ASSETS
1996 $ 464.8 86.3 225.7 776.8
1995 454.0 95.6 250.2 799.8
1994 444.2 120.3 157.9 722.4
CAPITAL
EXPENDITURES
1996 $ 29.6 3.5 13.6 46.7
1995 33.4 4.4 11.7 49.5
1994 35.4 7.7 16.6 59.7
DEPRECIATION AND
AMORTIZATION
1996 $ 27.5 7.0 15.1 49.6
1995 25.6 7.4 13.3 46.3
1994 24.5 7.0 11.2 42.7
- ---------------------------------------------------------------------------
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) 1996 1995 1994
- -----------------------------------------------------
OPERATING PROFIT $110.2 98.7 88.1
EQUITY IN NET EARNINGS
(LOSSES) OF AFFILIATED
COMPANIES 0.3 1.0 (1.1)
INTEREST EARNED 2.5 5.5 3.8
GENERAL CORPORATE
EXPENSE-NET (7.9) (6.6) (6.1)
INTEREST EXPENSE (13.0) (15.2) (10.9)
MISCELLANEOUS (3.9) (3.2) 0.5
- -----------------------------------------------------
INCOME BEFORE TAXES $ 88.2 80.2 74.3
=====================================================
30
25
A reconciliation of identifiable assets shown above to the total assets
included in the consolidated balance sheets follows:
(dollars in millions) 1996 1995 1994
- -----------------------------------------------------
TOTAL IDENTIFIABLE ASSETS $776.8 799.8 722.4
INVESTMENTS IN AFFILIATED
COMPANIES 7.1 7.6 8.9
CORPORATE ASSETS 86.6 68.5 70.1
- -----------------------------------------------------
TOTAL ASSETS $870.5 875.9 801.4
=====================================================
Geographic operating data follows:
(dollars in millions)
- -------------------------------------------------------
United
States and Latin Asia-
Canada Europe America Pacific Total
- -------------------------------------------------------
NET SALES
1996 $733.9 439.7 97.1 85.0 1,355.7
1995 658.1 483.5 88.3 93.1 1,323.0
1994 602.0 399.3 93.2 99.7 1,194.2
OPERATING
PROFIT
1996 $ 59.9 37.0 7.9 5.4 110.2
1995 46.5 39.2 5.3 7.7 98.7
1994 35.6 30.3 12.4 9.8 88.1
IDENTIFIABLE
ASSETS
1996 $404.4 258.7 52.4 61.3 776.8
1995 423.5 271.9 40.5 63.9 799.8
1994 348.7 260.6 47.1 66.0 722.4
- -------------------------------------------------------
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, 1996, the
market value of such forward contracts was $15.1 million, compared with a
contract value of $15.0 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, 1996, the face value or notional amount of all
outstanding currency options was $17.5 million. If liquidated at year-end 1996,
these options would have produced a cash amount of $589,900 versus an
unamortized cost of $302,000.
In addition to hedging foreign exchange risk, the Company also purchases
call options to hedge certain base metals raw materials against future increases
in price. At December 31, 1996, there were no base metal call options
outstanding.
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, 1996, are estimated to be at
$1.6 million.
31
26
SELECTED FINANCIAL DATA
Ferro Corporation and subsidiaries
Years ended December 31, 1986 through 1996
(Dollars in thousands except per share data
and sales per employee data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS (A)
Net sales $ 1,355,685 1,322,954 1,194,247 1,065,748 1,097,793
Income before taxes and
cumulative effect of changes
in accounting principles 88,207 80,159 74,306 89,289 97,689
Income taxes 33,621 30,905 26,912 31,784 38,861
Net income 54,586 49,254 47,394 36,955 58,828
Income as a percent of sales before
cumulative effect of changes in
accounting principles 4.0% 3.7% 4.0% 5.4% 5.4%
RETURN ON AVERAGE SHAREHOLDERS' EQUITY 14.2% 13.2% 13.1% 16.3% 18.1%
Per common share data (A,B)
Average shares outstanding 26,550,962 27,782,823 28,735,898 29,472,201 29,314,494
Primary earnings $ 1.92 1.64 1.52 1.13 1.90
Fully diluted earnings 1.82 1.56 1.45 1.09 1.77
Cash dividends .58 .54 .54 .51 .45
Book value 14.99 14.23 13.18 12.32 11.92
FINANCIAL CONDITION AT YEAR-END
Current assets $ 416,522 433,530 415,415 411,253 414,927
Current liabilities 252,333 258,472 228,336 198,958 205,043
- -----------------------------------------------------------------------------------------------------------------------
Working capital 164,189 175,058 187,079 212,295 209,884
- -----------------------------------------------------------------------------------------------------------------------
Plant and equipment 683,129 653,352 601,594 538,188 497,561
Accumulated depreciation
and amortization 375,746 364,064 313,005 280,367 269,998
- -----------------------------------------------------------------------------------------------------------------------
Net plant and equipment 307,383 307,288 288,589 257,821 227,563
- -----------------------------------------------------------------------------------------------------------------------
Other assets 146,563 136,294 97,372 98,820 54,055
Total assets 870,468 872,112 801,376 767,894 696,545
Long-term liabilities 105,308 104,910 77,611 79,349 53,210
ESOP loan guarantee 22,592 30,470 37,503 44,076 50,897
Deferred income taxes 23,391 21,380 17,309 14,884 10,918
Postretirement liabilities 44,846 43,570 42,076 40,096 --
Other non-current liabilities 37,794 36,160 31,797 31,734 31,504
Shareholders' equity 384,204 382,150 366,744 358,797 344,973
PLANT AND EQUIPMENT
Capital expenditures and
acquisitions 50,592 60,733 63,404 75,037 48,761
Depreciation 42,283 40,233 37,076 33,812 33,451
EMPLOYEES
Number (year-end) 6,912 6,914 6,817 6,627 6,535
Sales per employee $ 196,135 191,344 175,187 160,820 167,990
======================================================================================================================
32
27
1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------------------
1,056,940 1,124,833 1,083,573 1,008,990 871,008 725,241
20,349 43,509 83,764 88,436 61,023 45,482
15,532 24,090 34,016 41,816 29,336 21,400
4,817 19,419 49,748 46,620 31,687 24,082
0.5% 1.7% 4.6% 4.6% 3.6% 3.3%
1.6% 6.4% 16.8% 16.8% 13.1% 11.5%
28,821,380 29,064,517 30,972,625 30,884,797 31,043,830 30,599,257
.06 .55 1.53 1.51 1.02 .79
.06 .53 1.46 -- -- --
.43 .43 .40 .31 .30 .27
10.67 10.77 10.20 9.53 8.46 7.27
405,740 386,704 408,692 356,972 325,835 271,643
212,575 221,155 210,059 194,171 174,577 131,605
- -------------------------------------------------------------------------------------------
193,165 165,549 198,633 162,801 151,258 140,038
- -------------------------------------------------------------------------------------------
511,605 519,044 446,290 399,785 359,223 316,770
276,885 263,114 226,268 202,563 187,334 163,058
- -------------------------------------------------------------------------------------------
234,720 255,930 220,022 197,222 171,889 153,712
- -------------------------------------------------------------------------------------------
31,465 43,029 40,417 33,946 34,302 23,993
671,925 685,663 669,131 588,140 532,026 449,348
55,658 58,047 60,764 63,163 64,147 68,136
57,229 62,649 68,020 -- -- --
9,444 21,088 19,860 20,622 22,035 17,347
-- -- -- -- -- --
31,732 17,122 13,359 14,850 11,516 8,963
305,287 305,602 297,069 295,334 259,751 223,297
39,005 61,408 53,471 53,753 37,339 23,839
32,686 30,389 27,574 24,696 21,883 18,926
7,266 8,205 8,045 8,374 8,100 7,721
145,460 137,090 134,690 120,490 107,530 93,930
===========================================================================================
(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
28
QUARTERLY DATA (UNAUDITED)
Ferro Corporation and subsidiaries
(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
- ----------------------------------------------------------------------------------------------------------------------
1996 1 $ 348,184 85,259 13,151 .45 .43 .135 $28.375-22.875
2 344,715 84,507 14,315 .50 .47 .135 28.375-25.750
3 329,212 78,715 13,227 .47 .45 .155 27.375-25.500
4 333,574 83,803 13,893 .50 .47 .155 30.125-26.250
- ----------------------------------------------------------------------------------------------------------------------
Total $1,355,685 332,284 54,586 1.92 1.82 .580
======================================================================================================================
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
======================================================================================================================
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 February 6, 1997, the Company had 3,108 holders of its common stock.
34