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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ............ to ............
Commission file number 1-584
FERRO CORPORATION
An Ohio Corporation 1000 LAKESIDE AVENUE I.R.S. No. 34-0217820
CLEVELAND, OHIO 44114
Registrant's telephone number, including area code:
216-641-8580
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of Class on which registered
--------------------------- ---------------------
<S> <C>
Shares of Common Stock of
the Par Value of $1.00 each New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
11-3/4% Debentures due October 15, 2000
7-5/8% Debentures due May 1, 2013
Series A ESOP Convertible Preferred Stock,
without Par Value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES __X__ NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
On February 25, 1994, there were 29,229,116 shares of Ferro Common Stock, Par
Value $1.00 outstanding. As of the same date, the aggregate market value
(based on closing sale price) of Ferro's common stock held by nonaffiliates was
$1,002,186,065.
-------------
An Exhibit Index listing all Exhibits hereto is found on page
27 hereof. This Form 10-K (including all Exhibits hereto and all other
documents filed herewith) consists of 73 pages.
Documents Incorporated by Reference
-----------------------------------
Portions of Annual Report to Shareholders for the Year Ended December 31, 1993
(Incorporated into Parts I, II and IV of this Form 10-K)
Portions of Ferro Corporation's Proxy Statement dated March 14, 1994
(Incorporated into Parts II and III of this Form 10-K)
PART I
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ITEM 1 Business
- ---------------
Ferro Corporation ("Ferro"), which was incorporated under the
laws of Ohio in 1919, is a worldwide producer of specialty materials by organic
and inorganic chemistry for industry. It operates (either directly or through
wholly owned subsidiaries or partially owned affiliates) in 22 countries
worldwide. Ferro produces a variety of specialty coatings, specialty colors,
specialty chemicals, specialty ceramics, specialty plastics and related
products and services. Ferro's most important product is frit produced for use
in porcelain enamels and ceramic glazes.
Most of the products produced by Ferro are classified as
specialty materials, rather than commodities, because they are formulated or
designed to perform a specific and important function in the manufacturing
processes of Ferro customers or in their end products. These specialty
materials are not sold in the high volume normally associated with commodity
businesses.
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Ferro specialty materials require a high degree of technical
service on an individual customer basis. The value of these specialty
materials stems not just from their raw materials composition, but from the
result and performance they achieve in actual use.
A further description of Ferro's business, its principal products,
their markets and applications is contained under all headings on pages 4
through 13 of Ferro's 1993 Annual Report to Shareholders which is attached
hereto as Exhibit 13 (the "Annual Report"). The information contained under
the aforementioned headings on pages 4 through 13 of the Annual Report
(excluding those pages on which only pictures appear and the pictures and text
describing such pictures on pages 7, 9, 11, and 13) is incorporated herein by
reference. Information concerning Ferro's business during 1993, 1992, and 1991
and certain transactions consummated during those years is included under the
heading "Management's Discussion and Analysis" on pages 15 through 20 of the
Annual Report and in Note 6 to Ferro's Consolidated Financial Statements, which
are included in the Annual Report. Note 6 appears at page 29 of the Annual
Report. Such information is incorporated herein by reference. Additional
information about Ferro's industry segments, including financial information
relating thereto, is set forth in Note 11 to Ferro's Consolidated Financial
Statements, which appears on pages 33 through 35 of the Annual Report and is
incorporated herein by reference.
Raw Materials
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For the most part the raw materials essential to Ferro's
operations both in the United States and overseas are obtainable from multiple
sources worldwide. Ferro did not encounter significant raw material shortages
in 1993 and does not anticipate such shortages in 1994.
Patents and Licenses
--------------------
Ferro owns a substantial number of patents relating to its
various products and their uses. While these patents are of importance to
Ferro, it does not consider that the invalidity or expiration of any single
patent or group of patents would have a material adverse effect on its
business. Ferro patents expire at various dates through the year 2010.
Ferro does not hold any licenses, franchises or concessions
which it considers to be material.
Customers
---------
Ferro does not consider that a material part of its business
is dependent on any single customer or group of customers.
Backlog of Orders
-----------------
In general there is no significant lead time between order and
delivery in any of Ferro's business segments. As a result, Ferro does not
consider that the dollar amount of
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backlog of orders believed to be firm as of any particular date is material for
an understanding of its business. Ferro does not regard any material part of
its business to be seasonal.
Competition
-----------
With respect to most of its products, Ferro competes with a
substantial number of companies, none of which is dominant. An exception is
frit, as to which Ferro believes that it is the largest worldwide supplier.
The details of foreign competition necessarily vary with respect to each
foreign market.
Because of the specialty nature of Ferro's products, product
performance characteristics and customer service are the most important
components of the competition which Ferro encounters in the sale of nearly all
of its products. However, in some of the markets served by Ferro, strong price
competition is encountered from time to time.
Research and Development
------------------------
A substantial number of Ferro's employees are involved in
technical activities concerned with products required by the ever-changing
markets of its customers. Laboratories are located at each of Ferro's major
subsidiaries around the globe, where technical efforts are applied to the
customer and market needs of that geographical area. In the United States,
laboratories are maintained in each of its divisions. Backing up these
divisional customer services laboratories is Corporate research activity
involving approximately 52 scientists and support personnel in the Cleveland
area.
Expenditures for research and development activities relating
to the development or significant improvement of new and/or existing products,
services and techniques were approximately $19,334,000, $15,440,000, and
$17,643,000 in 1993, 1992 and 1991, respectively. Expenditures for
individual customer requested research and development were not material.
Environmental Matters
---------------------
Ferro's manufacturing facilities, like those of industry
generally, are subject to numerous laws and regulations designed to protect the
environment, particularly in regard to plant wastes and emissions. In general,
Ferro believes that it is in substantial compliance with the environmental
regulations to which its operations are subject and that, to the extent Ferro
may not be in compliance with such regulations, such non-compliance has not had
a material adverse effect on Ferro. Moreover, while Ferro has not generally
experienced substantial difficulty in complying with environmental
requirements, compliance has required a continuous management effort and
significant expenditures.
Ferro and its international subsidiaries authorized
approximately $8,970,000, $9,622,000 and $3,287,000 in capital expenditures
for environmental control during 1993, 1992
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and 1991, respectively. Three major projects accounted for the high level of
environmental control capital expenditures in 1992. They were:
<TABLE>
<S> <C> <C>
a. Wastewater treatment plant at a Ferro chemical
facility in Bedford, Ohio $2,700,000
b. Bulk Unloading/Loading Stations for spill
containment at a Ferro chemical facility in
Hammond, Indiana 900,000
c. Scrubbers at the Ferro facility in Taiwan 2,100,000
---------
Total -- Major Projects (1992) $5,700,000
</TABLE>
Three major projects accounted for the high level of environmental control
capital expenditures in 1993. They were:
<TABLE>
<S> <C> <C>
a. Wastewater treatment plant at a Ferro chemical
facility in France $2,300,000
b. Replacement of underground tank farms at a Ferro
chemical facility in Bedford, Ohio 1,600,000
c. Scrubbers at a Ferro facility in Brazil 1,400,000
----------
Total -- Major Projects (1993) $5,300,000
</TABLE>
During 1993, the Company became involved in two separate
environmental claims regarding Keil Chemical, a production facility owned and
operated by Ferro in Hammond, Indiana. The Company has been named as one of
several defendants, including three local municipalities, one local government
agency (a sewer district) and four other area industrial concerns in a suit
filed by the United States Environmental Protection Agency alleging violation
of the Clean Water Act and the River and Harbors Act. The suit was filed in
the Federal District Court for the Northern District of Indiana on August 2,
1993. The suit alleges violation of pre-treatment requirements for removal of
pollutants prior to discharge of wastewater into the Grand Calumet and Little
Calumet Rivers. Relief sought includes orders to comply with environmental
regulations, civil penalties of up to $25,000 per day for each violation, and
contribution to the cost of removing contaminated sediments from the west
branch of the Grand Calumet River. The Company believes it is in substantial
compliance with applicable law and intends to vigorously defend this
litigation. However, the Company will also explore settlement
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possibilities, and if it is more economical to settle than to defend, the
Company will pursue that course of action.
In a separate matter, in late July 1993, the United States
Environmental Protection Agency, the Indiana Department of Environmental
Management and the Hammond Department of Environmental Management alleged
violation of air emission regulations by the Keil Chemical facility. The
allegations relate to materials used in the manufacture of flame retardants.
The notices from the governmental authorities threaten the possibility of
proceedings to suspend operations in the manufacture of flame retardants and
threaten civil penalties of up to $25,000 per day of violation. The Company
has voluntarily commenced a capital program, estimated to cost $3.0 million, to
reduce air emissions related to its flame retardant process at Keil Chemical
and in consultation with the agencies, has taken interim measures to reduce air
emissions pending completion of the capital program. The Company has been
working with the appropriate environmental agencies and is exploring whether
the agencies' claims can be settled on reasonable terms. If reasonable
settlement cannot be reached, the Company intends to vigorously defend against
the agencies' claims.
Employees
---------
At December 31, 1993, Ferro employed approximately 6,627
full-time employees, including 4,325 employees in its foreign subsidiaries and
affiliates and 2,302 in the United States.
Set forth below is a table of union contracts showing name of
union, expiration date of union agreement, number of employees covered by the
union agreement, and percentage of United States work force covered by the
union agreement.
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<TABLE>
<CAPTION>
Percentage of
Expiration Number of Domestic
Name of Union Date Employees Work Force
- ------------- ---------- --------- -------------
<S> <C> <C> <C>
Glass, Pottery, Plastics
& Allied Workers Int'l
Union
-- Local #274-Louthan 10/12/95 61 2.6%
-Porcelain 6/24/96 57 2.3%
-- Local #207-A-Cesco 12/1/95 53 2.3%
United Glass & Ceramics
Workers of North America
-- Local #501-Nashville 4/22/97 107 4.6%
Laborers' International
Union of North America
-- Local #498-Orrville 12/10/96 12 0.5%
International Union, United
Automobile, Aerospace &
Agricultural Implement
Workers of America
-- Local #52-Plymouth 12/11/96 19 0.8%
United Steel Workers of
America
-- Local #1170 10/12/95 165 7.2%
Cleveland
-- Local #4084-Pittsburgh 2/28/96 18 0.8%
Allied Industrial Workers
-- Local #243-Bedford 9/6/94 59 2.6%
---- -----
551 23.9%
</TABLE>
As indicated by the foregoing table, only 2.6% of Ferro's
domestic work force is affected by union agreements which expire in 1994.
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Foreign Operations
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Financial information about Ferro's domestic and foreign
operations is set forth under the heading "Geographic Operating Data" on page
35 of the Annual Report and is incorporated herein by reference.
Ferro's products are produced and distributed in foreign as
well as domestic markets. Ferro commenced its international operations in
1927.
Wholly-owned subsidiaries operate manufacturing facilities in
Argentina, Australia, Brazil, Canada, England, France, Germany, Holland, Italy,
Mexico, New Zealand, Spain and Taiwan. Partially-owned affiliates manufacture
in Ecuador, Indonesia, Italy, Japan, Portugal, Taiwan, Thailand, Turkey and
Venezuela.
Foreign operations (excluding Canada) accounted for 50% of the
consolidated net sales and 57% of Ferro's consolidated operating income for
the fiscal year 1993; comparable amounts for the fiscal year 1992 were 55% and
74% and for fiscal year 1991 were 55% and 159%. The split of operating
income between foreign and domestic operations in 1991 was skewed heavily
against domestic results due to the one time restructuring charge.
Except for the sales of Ferro Enamel Espanola S.A. (Spain),
Ferro France, S.a R.L. (France), Ferro Chemicals S.A. (France), Ferro
(Holland) B.V., Ferro Mexicana S.A. de C.V. (Mexico), Ferro (Great Britain)
Ltd., Ferro Industrial Products Limited (Taiwan), Ferro Toyo Co., Ltd. (Taiwan)
and Metal Portuguesa S.A. (Portugal), the sales of each of Ferro's subsidiaries
are principally for delivery in the country in which the subsidiary is located.
Ferro's European Community subsidiaries continue to reduce and eliminate, to
the extent practical, duplication of product lines with the intended result
being that only one subsidiary will be the primary provider of each line of
Ferro specialty products to the entire European Community market.
Ferro receives technical service fees and/or royalties from
many of its foreign subsidiaries. Under historical practice, as a matter of
general corporate policy, the foreign subsidiaries were normally expected to
remit a portion of their annual earnings to the parent by way of dividends.
Under current practice, earnings of the Company's European subsidiaries are
being reinvested in European operations. Several of the countries where Ferro
has subsidiaries control the transfer of currency out of the country, but in
recent years Ferro has been able to receive such remittances without material
hindrance from foreign government restrictions. To the extent earnings of
foreign subsidiaries are not remitted to Ferro, such earnings are intended to
be indefinitely invested in those subsidiaries.
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ITEM 2 Properties
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Ferro's research and development center is located in leased
space in Cleveland, Ohio. The corporate headquarters office is located at 1000
Lakeside Avenue, Cleveland, Ohio, and such property is owned by the Company.
The business segments in which Ferro's plants are used and the locations of the
principal manufacturing plants it owns in the United States are as follows:
Coatings, Colors and Ceramics -- Cleveland, Ohio, Lake Park, Florida,
Nashville, Tennessee, Pittsburgh, Pennsylvania, Toccoa, Georgia, Orrville,
Ohio, Penn Yan, New York, East Liverpool, Ohio, Crooksville, Ohio, and East
Rochester, New York; Plastics -- Plymouth, Indiana, Evansville, Indiana,
Stryker, Ohio, Edison, New Jersey and South Plainfield, New Jersey; Chemicals
- -- Bedford, Ohio, Hammond, Indiana and Baton Rouge, Louisiana. In addition,
Ferro leases manufacturing facilities in Santa Barbara, California (Coatings);
Schaumburg, Illinois (Plastics) and Lake Park, Florida (Coatings).
Outside the United States, Ferro or its subsidiaries own
manufacturing plants in Argentina, Australia, Brazil, Canada, France, Germany,
Indonesia, Italy, Japan, Mexico, the Netherlands, Portugal, Spain, Taiwan,
Thailand and the United Kingdom. Ferro or its subsidiaries lease manufacturing
plants in Italy, the Netherlands and New Zealand. In many instances, the
manufacturing facilities outside of the United States are used in multiple
business segments of Ferro.
Ferro believes that all of the foregoing facilities are
generally well maintained and adequate for their present use. During the past
year, several of Ferro's plants have been operating near capacity.
ITEM 3 Legal Proceedings
- --------------------------
The information set forth in Note 7 to Ferro's Consolidated
Financial Statements on page 29 of the Annual Report is incorporated herein by
reference.
Information regarding certain legal proceedings with respect
to environmental matters is contained under Part I of this Annual Report on
Form 10-K.
The law firm of Squire, Sanders & Dempsey, of which Paul B. Campbell
is a partner, provided legal services to Ferro in 1993 and Ferro plans to
continue the use of such firm in 1994. Mr. Campbell is the Secretary and a
Director of Ferro.
ITEM 4 Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of Ferro's security
holders during the fourth quarter of the fiscal year covered by this report.
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Executive Officers of the Registrant
------------------------------------
There is set forth below the name, age, positions and offices
held by each of Ferro's executive officers as of March 15, 1994 as well as
their business experience during the past five years. Years indicate the year
the individual was named to the indicated position. There is no family
relationship between any of Ferro's executive officers.
Albert C. Bersticker - 59
President and Chief Executive Officer, 1991
President and Chief Operating Officer, 1988
Werner F. Bush - 54
Executive Vice President and Chief Operating Officer, 1993
Senior Vice President, Coatings, Colors and Ceramics, 1991
Group Vice President, Coatings, Colors and Electronic
Materials, 1988
David G. Campopiano - 45
Vice President, Corporate Development, 1989
Senior Vice President, Prescott, Ball & Turben, Inc., 1987
Frank A. Carragher - 62
Senior Vice President, Chemicals and Polymers, 1991
Group Vice President, Chemicals, 1979
R. Jay Finch - 52
Vice President, Specialty Plastics, 1991
Vice President and General Manager, Plastics & Rubber Division,
Mobay Corporation, 1984
James F. Fisher - 56
Senior Vice President, Coatings, Colors and Ceramics, 1993
Group Vice President, International, 1991
Vice President, International, 1988
D. Thomas George - 46
Treasurer, 1991
Director, Treasury Operations, 1989
Area Controller, Latin America and Far East, 1988
Marino Lopez-Vega - 52
Vice President, Frit, 1992
Managing Director of Ferro Spain, 1984
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Hector R. Ortino - 51
Executive Vice President and Chief Financial-Administrative
Officer, 1993
Senior Vice President and Chief Financial Officer, 1991
Vice President, Finance and Chief Financial Officer, 1987
Richard C. Oudersluys - 55
Vice President, Pigments and Glass/Ceramics Colorants, 1992
General Manager, Color Division, 1987
Robert E. Price - 55
Vice President, International, 1993
Managing Director, Asia-Pacific, 1989
President, Ferro Far East Ltd., 1987
Thomas O. Purcell, Jr. - 50
Vice President, Research and Development, 1991
Associate Director Research, Plastics, 1990
Manager, Technology Assessment Operation, General Electric
Plastics, 1988
Gary H. Ritondaro - 47
Vice President, Finance, 1993
Vice President, Controller, 1991
Controller, 1986
PART II
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ITEM 5 Market for Registrant's Common Equity and Related
Stockholder Matters
- ----------------------------------------------------------
Information regarding the recent price and dividend history of
Ferro's Common Stock, the principal market for its Common Stock and the number
of holders thereof is set forth under the heading "Quarterly Data" on page 38
of the Annual Report. Said information is incorporated herein by reference.
Information concerning dividend restrictions is contained in Note 3 to Ferro's
Consolidated Financial Statements on pages 26 and 27 of the Annual Report and
said information is incorporated herein by reference.
ITEM 6 Selected Financial Data
- --------------------------------
The summary of selected financial data for each of the last
five years set forth under the heading "Selected Financial Data" on
pages 36 and 37 of the Annual Report is incorporated herein by reference.
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ITEM 7 Management's Discussion and Analysis of Financial
Conditions and Results of Operation
- ----------------------------------------------------------
The information contained under the heading "Management's
Discussion and Analysis" on pages 15 through 20 of the Annual Report is
incorporated herein by reference.
ITEM 8 Financial Statements and Supplementary Data
- ----------------------------------------------------
The Consolidated Financial Statements of Ferro and its
subsidiaries contained on pages 21 through 35, inclusive, of the Annual Report,
including the Notes to Consolidated Financial Statements, are incorporated
herein by reference.
ITEM 9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- ------------------------------------------------------------------------
There are no such changes or disagreements.
PART III
--------
ITEM 10 Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The information regarding directors of Ferro contained under
the headings "Election of Directors" and "Certain Matters Pertaining to the
Board of Directors" on pages 1 through 9, inclusive, of Ferro's Proxy Statement
dated March 14, 1994 is incorporated herein by reference. Information
regarding executive officers of Ferro is contained under Part I of this Annual
Report on Form 10-K.
ITEM 11 Executive Compensation
- -------------------------------
The information required by this Item 11 is set forth under
the heading "Information Concerning Executive Officers" on pages 15 through 20,
inclusive, of Ferro's Proxy Statement dated March 14, 1994 and is incorporated
herein by reference.
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
The information required by this Item 12 is set forth under
the headings "Election of Directors" and "Security Ownership of Directors,
Officers and Certain Beneficial Owners" on pages 1 through 8 of Ferro's Proxy
Statement dated March 14, 1994 and is incorporated herein by reference.
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ITEM 13 Certain Relationships and Related Transactions
- -------------------------------------------------------
There are no relationships or transactions that are required
to be reported.
PART IV
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ITEM 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K
- ------------------------------------------------------------
1. Documents filed as part of this Annual Report on Form 10-K
(a) The following Consolidated Financial Statements of Ferro
Corporation and its subsidiaries, contained on pages 21 through 35, inclusive,
of the Annual Report are incorporated herein by reference:
Consolidated Statements of Income for the Years ended December 31,
1993, 1992 and 1991
Consolidated Balance Sheets at December 31, 1993 and 1992
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the Years ended December
31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
(b) Financial Statement Schedules V, VI, VIII, IX and X, together
with the independent Auditor's Report thereon, are contained on pages F-1
through F-7 of this Annual Report on Form 10-K.
(c) Exhibits
(3) Articles of Incorporation and by-laws
(a) Eleventh Amended Articles of Incorporation.
(Reference is made to Exhibit 3 to Ferro
Corporation's Quarterly Report on Form 10-Q
for the three months ended September 30, 1989,
which Exhibit is incorporated herein by
reference.)
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(b) Amended Code of Regulations. (Reference is
made to Exhibit (3)(b) to Ferro Corporation's
Quarterly Report on Form 10-Q for the three
months ended June 30, 1987, which Exhibit is
incorporated herein by reference.)
(4) Instruments defining rights of security holders,
including indentures
(a) Revolving Credit Agreement by and between
Ferro and four commercial banks dated August
22, 1990. (Reference is made to Exhibit 10 to
Ferro Corporation's Quarterly Report on Form
10-Q for the three months ended September 30,
1990, which Exhibit is incorporated herein by
reference.)
(b) Amendment Number 1 dated May 31, 1991, to the
Revolving Credit Agreement by and between
Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(1) to Ferro
Corporation's Quarterly Report on Form 10-Q
for the three months ended June 30, 1991,
which Exhibit is incorporated herein by
reference.)
(c) Amendment Number 2 dated July 30, 1991, to the
Revolving Credit Agreement by and between
Ferro and four commercial banks. (Reference
is made to Exhibit 4(b)(2) to Ferro
Corporation's Quarterly Report on Form 10-Q
for the three months ended June 30, 1991,
which Exhibit is incorporated herein by
reference.)
(d) Amendment Number 3 dated December 31, 1991, to
the Revolving Credit Agreement by and between
Ferro and four commercial banks. (Reference is
hereby made to Exhibit 4 to Ferro
Corporation's Form 10-K for the year ended
December 31, 1991, which Exhibit is
incorporated herein by reference.)
(e) Amendment Number 4 dated July 21, 1992, to the
Revolving Credit Agreement by and between
Ferro and four commercial banks. (Reference is
hereby made to Exhibit 4 to Ferro
Corporation's Form 10-Q for the three months
ended June 30, 1992, which Exhibit is
incorporated herein by reference.)
(f) Amendment Number 5 dated April 20, 1993, to
the Revolving Credit Agreement by and between
Ferro and four commercial banks. (Reference
is hereby made to Exhibit 4(b)(4) to Ferro
Corporation's Form 10-Q for the three months
ended June 30, 1993, which Exhibit is
incorporated herein by reference.)
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(g) The rights of the holders of Ferro's 11-3/4%
Debentures due October 15, 2000 are described
in the form of Indenture filed as Exhibit 4(b)
to Amendment No. 1 to the Registration
Statement on Form S- 3 filed with the
Commission on October 8, 1985 (Registration
No. 33-529). Said Exhibit is incorporated
herein by reference.
(h) Rights Agreement between Ferro Corporation and
National City Bank, Cleveland, Ohio, as Rights
Agent, dated as of March 21, 1986. (Reference
is made to Exhibit 1.2 to the Registration
Statement on Form 8-A dated March 26, 1986,
which Exhibit is incorporated herein by
reference.)
(i) Amendment No. 1 to Rights Agreement between
Ferro Corporation and National City Bank,
Cleveland, Ohio, as Rights Agent, dated as of
March 31, 1989. (Reference is made to Exhibit
1 to Form 8-K filed with the Commission on
March 31, 1989, which Exhibit is incorporated
herein by reference.)
(j) The rights of the holders of Ferro's Debt
Securities to be issued pursuant to an
Indenture between Ferro and Society National
Bank, as Trustee, are described in the form of
Indenture dated May 1, 1993 filed as Exhibit
4(j) to Ferro Corporation's Form 10-Q for the
three months ended June 30, 1993. Said
Exhibit is incorporated herein by reference.
(10) Material Contracts
(a) Key elements of Ferro's Incentive Compensation
Plan are set forth under the heading "Report
of the Compensation and Organization
Committee" on pages 11 through 13 of the Proxy
Statement dated March 14, 1994. Said
description is incorporated herein by
reference.
(b) Key elements of Ferro's Performance Share Plan
are set forth under the heading "Performance
Share Plan Awards" on pages 15, note 1, 17 and
18 of Ferro Corporation's Proxy Statement
dated March 15, 1993. Said description is
incorporated herein by reference.
(c) Ferro Corporation Savings and Stock Ownership
Plan. (Reference is made to Exhibit 4.3 to
Ferro Corporation's Quarterly Report on Form
10-Q for the three months ended March 31,
1989, which Exhibit is incorporated herein by
reference.)
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(d) Ferro's 1985 Employee Stock Option Plan for
Key Personnel (Amended and Restated).
(Reference is hereby made to Exhibit A to
Ferro Corporation's Proxy Statement dated
March 11, 1991, which Exhibit is hereby
incorporated by reference.)
(e) Form of Indemnification Agreement (adopted
January 25, 1991 for use from and after that
date). (Reference is hereby made to Exhibit
10 to Ferro Corporation's Form 10-K for the
year ended December 31, 1990, which Exhibit is
incorporated herein by reference.)
(f) Form of Executive Employment Agreement
(adopted October 1, 1991 for use from and
after that date). (Reference hereby is made
to Exhibit 10 to Ferro Corporation's Form 10-K
for the year ended December 31, 1991, which
Exhibit is incorporated herein by reference.)
(g) Schedule I listing the officers with whom
Ferro has entered into currently effective
executive employment agreements. A copy of
such Schedule I is attached hereto as Exhibit
10.
(h) Agreement between Ferro Corporation and Frank
A. Carragher dated October 18, 1993 is
attached hereto as Exhibit 10.1.
(11) Statement Regarding Computation of Earnings Per Share.
(12) Ratio of Earnings to Fixed Charges.
(13) Annual Report to Shareholders for the year ended
December 31, 1993.
(21) List of Subsidiaries.
(23) Consent of KPMG Peat Marwick to the incorporation by
reference of their audit report on the Consolidated
Financial Statements contained in the Annual Report
into Ferro's Registration Statements on Form S-8
Registration Nos. 2-61407, 33-28520 and 33-45582 and
Ferro's Registration Statement on Form S-3
Registration No. 33-51284.
2. No reports on Form 8-K were filed for the three months ended
December 31, 1993.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
FERRO CORPORATION
By /s/Albert C. Bersticker
-----------------------------------
Albert C. Bersticker, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in their indicated capacities and as of
this 28th day of March, 1994.
<TABLE>
<S> <C>
/s/Albert C. Bersticker President and Chief Executive
- -----------------------------------------------------
Albert C. Bersticker Officer and Director
(Principal Executive Officer)
/s/Hector R. Ortino Executive Vice President and Chief
- -----------------------------------------------------
Hector R. Ortino Financial-Administrative Officer and Director
(Principal Financial Officer)
/s/Gary H. Ritondaro Vice President, Finance
- -----------------------------------------------------
Gary H. Ritondaro (Principal Accounting Officer)
/s/Paul S. Brentlinger Director
- -----------------------------------------------------
Paul S. Brentlinger
/s/Glenn R. Brown Director
- -----------------------------------------------------
Glenn R. Brown
/s/Werner F. Bush Director
- -----------------------------------------------------
Werner F. Bush
/s/William E. Butler Director
- -----------------------------------------------------
William E. Butler
/s/Paul B. Campbell Director
- -----------------------------------------------------
Paul B. Campbell
/s/A. James Freeman Director
- -----------------------------------------------------
A. James Freeman
</TABLE>
- 17 -
<PAGE> 18
<TABLE>
<S> <C>
/s/John C. Morley Director
- -----------------------------------------------------
John C. Morley
/s/Kevin O'Donnell Director
- -----------------------------------------------------
Kevin O'Donnell
/s/Adolph Posnick Director
- -----------------------------------------------------
Adolph Posnick
/s/Rex A. Sebastian Director
- -----------------------------------------------------
Rex A. Sebastian
/s/Dennis W. Sullivan Director
- -----------------------------------------------------
Dennis W. Sullivan
</TABLE>
- 18 -
<PAGE> 19
FERRO CORPORATION AND SUBSIDIARIES
Supporting Schedules to
Consolidated Financial Statements and Schedules
Submitted in Response to Part IV -- Form 10-K
December 31, 1993, 1992 and 1991
<PAGE> 20
KPMG PEAT MARWICK
CERTIFIED PUBLIC ACCOUNTANTS
1500 National City Center
1800 East Ninth Street
Cleveland, OH 44114-3495
INDEPENDENT AUDITORS' REPORT
----------------------------
The Shareholders and Board of Directors
Ferro Corporation:
Under date of January 27, 1994, we reported on the consolidated balance
sheets of Ferro Corporation and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three- year period
ended December 31, 1993, as contained in the 1993 annual report to
shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for
the year 1993. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related
financial statement schedules listed in the accompanying table of contents.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
/s/ KPMG PEAT MARWICK
Cleveland, Ohio
January 27, 1994
F-1
<PAGE> 21
FERRO CORPORATION AND SUBSIDIARIES
Table of Contents
-----------------
Financial Statements
--------------------
Audited
Consolidated Balance Sheets -
December 31, 1992 and 1991
Consolidated Statements of Income -
Years ended December 31, 1993, 1992, and 1991
Consolidated Statements of Shareholders' Equity -
Years ended December 31, 1993, 1992, and 1991
Consolidated Statements of Cash Flows -
Years ended December 31, 1993, 1992, and 1991
Notes to Consolidated Financial Statements -
December 31, 1993, 1992, and 1991
Schedules
---------
Plant and Equipment -
Years ended December 31, 1993, 1992, and 1991 Schedule V
Accumulated Depreciation of Plant and Equipment -
Years ended December 31, 1993, 1992, and 1991 Schedule VI
Valuation and Qualifying Accounts and Reserves -
Years ended December 31, 1993, 1992, and 1991 Schedule VIII
Short-Term Borrowings -
Years ended December 31, 1993, 1992, and 1991 Schedule IX
Supplementary Income Statement Information -
Years ended December 31, 1993, 1992, and 1991 Schedule X
All other schedules have been omitted because the material is not
applicable or is not required as permitted by the rules and regulations of
the Securities and Exchange Commission, or the required information is
included in notes to consolidated financial statements.
Financial statements of foreign affiliates in which Company ownership
exceeds 20 percent, accounted for on the equity method, are not included
herein since, in the aggregate, these companies do not constitute a
significant subsidiary. Financial statements are incorporated herein by
reference to the Company's annual report to its shareholders, the required
number of copies of which were furnished to the Commission pursuant to
Rule 14A-3.
F-2
<PAGE> 22
Schedule V
----------
<TABLE>
FERRO CORPORATION AND SUBSIDIARIES
Plant and Equipment
Years ended December 31, 1993, 1992, and 1991
(thousands of dollars)
<CAPTION>
Retirements
Balance at Additions - Other and Balance
Beginning Companies Additions Companies Other at End of
Classification of Period Purchased at Cost Divested Changes Period
-------------- ----------- ---------- --------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Land $ 13,139 1,333 892 - (450)(B) 14,914
Buildings 113,656 6,799 9,105 1,564 (1,015)(B) 126,981
Machinery and equipment 370,766 23,194 33,714 19,501 (13,506)(B) 396,293
1,626 (A)
---------- ------ ------ ------ ---------- --------
$ 497,561 31,326 43,711 21,065 (13,345) 538,188
========== ====== ====== ====== ========== ========
Year ended December 31, 1992
Land $ 11,849 350 2,093 463 (690)(B) 13,139
Buildings 122,645 1,534 7,134 13,241 (4,416)(B) 113,656
Machinery and equipment 377,111 2,118 35,532 27,639 116(A) 370,766
(16,472)(B)
---------- ------ ------ ------ ---------- --------
$ 511,605 4,002 44,759 41,343 (21,462) 497,561
========== ====== ====== ====== ========== ========
Year ended December 31, 1991
Land $ 9,624 - 222 83 2,017 (A) 11,849
69 (B)
Buildings 125,153 - 4,469 4,823 (2,017) 122,645
(137)(B)
Machinery and equipment 384,267 - 34,314 40,726 (744) 377,111
---------- ------ ------ ------ ---------- --------
$ 519,044 - 39,005 45,632 (812) 511,605
========== ====== ====== ====== ========== ========
<FN>
Notes
- -----
(A) Transfers and adjustments.
(B) Exchange adjustments to restate plant and equipment at the applicable year-end exchange rates.
</TABLE>
F-3
<PAGE> 23
Schedule VI
-----------
<TABLE>
FERRO CORPORATION AND SUBSIDIARIES
Accumulated Depreciation of Plant and Equipment
Years ended December 31, 1993, 1992, and 1991
(thousands of dollars)
<CAPTION>
Additions
Balance at Charged to Retirements and
Beginning of Costs and Companies Other Balance at end
Classification Period Expenses Divested Changes of Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Buildings $ 46,688 4,674 487 (1,219)(B) 49,656
Machinery and equipment 223,310 29,138 14,468 (7,269)(B) 230,711
------- ------ ------ ------- -------
$ 269,998 33,812 14,955 (8,488) 280,367
======= ====== ====== ======= =======
Year ended December 31, 1992
Buildings $ 49,678 3,811 4,652 (2,149)(B) 46,688
Machinery and equipment 227,207 29,640 23,263 (10,274)(B) 223,310
------- ------ ------ ------ -------
$ 276,885 33,451 27,915 (12,423) 269,998
======= ====== ====== ====== =======
Year ended December 31, 1991
Buildings $ 47,545 3,335 1,138 17(A) 49,678
(81)(B)
Machinery and equipment 215,569 29,351 17,998 (17)(A) 227,207
302 (B)
------- ------ ------ ------ -------
$ 263,114 32,686 19,136 221 276,885
======= ====== ====== ======= =======
<FN>
Notes
- -----
(A) Transfers and adjustments.
(B) Exchange adjustments to restate plant and equipment at the applicable year-end exchange rates.
</TABLE>
F-4
<PAGE> 24
Schedule VIII
-------------
<TABLE>
FERRO CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1993, 1992, and 1991
(thousands of dollars)
<CAPTION>
Additions
---------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Valuation and qualifying accounts which are
deducted on consolidated balance sheet from
the assets to which they apply
Possible losses in collection of notes
and accounts receivable - trade $ 7,924 811 (517) (B) 1,754 (A) 6,464
======= ====== ====== ===== =======
Year ended December 31, 1992
Valuation and qualifying accounts which are
deducted on consolidated balance sheet from
the assets to which they apply
Possible losses in collection of notes
and accounts receivable - trade $10,418 2,530 (1,063) (B) 3,961 (A) 7,924
====== ====== ===== ===== =======
Year ended December 31, 1991
Valuation and qualifying accounts which are
deducted on consolidated balance sheet from
the assets to which they apply
Possible losses in collection of notes (841) (B)
and accounts receivable - trade $ 9,381 3,346 (241) (C) 1,227 (A) 10,418
======= ===== ====== ===== ======
<FN>
Notes
- -----
(A) Accounts written off, less recoveries.
(B) Adjustment in respect of differences in rates of exchange.
(C) Divestiture of business or subsidiary.
</TABLE>
F-5
<PAGE> 25
Schedule IX
-----------
<TABLE>
FERRO CORPORATION AND SUBSIDIARIES
Short-Term Borrowings
Years ended December 31, 1993, 1992, and 1991
(thousands of dollars)
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
End of Interest During the During the During the
Category Period Rate Period Period (A) Period (B)
-------- ---------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December, 1993
Bank $ 18,376 10.81% $ 20,063 $ 18,084 11.97%
====== ===== ====== ======== =====
Year ended December 31, 1992
Bank $ 16,251 12.10% $ 16,252 $ 10,616 11.65%
====== ===== ====== ======== =====
Year ended December 31, 1991
Bank $ 12,504 19.43% $ 21,089 $ 14,938 19.19%
====== ===== ====== ======== =====
<FN>
Notes
- -----
(A) Average amount outstanding during the period is computed by dividing the total of
month-end short-term borrowings by 12.
(B) Weighted average interest rate during the period is computed by dividing interest expense
applicable to short-term borrowings by the weighted average short-term debt outstanding.
</TABLE>
F-6
<PAGE> 26
Schedule X
----------
<TABLE>
FERRO CORPORATION AND SUBSIDIARIES
Supplementary Income Statement Information
Years ended December 31, 1993, 1992, and 1991
(thousands of dollars)
<CAPTION>
Charged to Costs and Expenses
-----------------------------
Item 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $ 43,590 47,269 44,937
====== ====== ======
Note
- ----
Depreciation and amortization of intangible assets, taxes other than payroll,
and income taxes, royalties, and advertising costs have been excluded from the
above table because each of those expenses amounted to less than 1 percent of
total revenues in the years presented or is included in the consolidated
financial statements.
</TABLE>
F-7
<PAGE> 27
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
(10) Schedule I
(10.1) Agreement Between Ferro Corporation
and Frank A. Carragher
(11) Statement Regarding Computation of
Earnings Per Share
(12) Ratio of Earnings to Fixed Charges
(13) Annual Report to Shareholders
(21) List of Subsidiaries
(23) Consent of KPMG Peat Marwick
</TABLE>
<PAGE> 1
EXHIBIT 10
SCHEDULE I
Ferro Corporation has entered into a number of executive employment
agreements with its officers listed below substantially identical in all
material respects to the Form of Executive Employment Agreement (Exhibit 10 to
Ferro Corporation's Form 10-K for the year ended December 31, 1991, which
Exhibit is incorporated herein by reference), except the lump sum severance
payment is equal to a full year's compensation (base salary and incentive
compensation) multiplied by three in the cases of Albert C. Bersticker, Werner
F. Bush and Hector R. Ortino and multiplied by two in the case of all other
officers.
Albert C. Bersticker
Werner F. Bush
David G. Campopiano
R. Jay Finch
James F. Fisher
D. Thomas George
Marino Lopez-Vega
Hector R. Ortino
Richard C. Oudersluys
Robert E. Price
Thomas O. Purcell
Gary H. Ritondaro
David B. Woodbury, a former officer, resigned and therefore
his executive employment agreement is no longer in effect. The executive
employment agreement previously in effect with Mr. Carragher has been
superseded by the agreement with him filed as Exhibit 10.1 to this Form 10-K.
<PAGE> 1
Exhibit 10.1
Agreement Between
Ferro Corporation and Frank A. Carragher
----------------------------------------
Frank A. Carragher ("FAC") and Ferro Corporation ("Ferro") hereby
voluntarily enter into the following Agreement:
1. Effective March 31, 1994, FAC shall cease to hold the
title of Senior Vice President, Chemicals and Polymers of Ferro, but shall
remain an employee of Ferro without specified duties, until the earlier of
February 4, 1997 or his death. FAC shall be retained on the payroll of Ferro
through March 31, 1994 at his salary level of $19,667.00 per month.
Compensation arrangements applicable after March 31, 1994 shall be as set forth
in this Agreement.
2. For the period April 1, 1994 through February 4, 1997, FAC
shall be retained on the payroll and shall be paid an aggregate salary of
$660,800, payable in equal installments in accordance with Ferro's salaried
employee payroll practices at the time of any such payment.
3. FAC shall be entitled to bonus participation applicable to
the year 1993 in accordance with the normal functioning and operation of the
bonus plan. Bonus payments will be made in accordance with the timing of
payments of bonus to other executive participants in the Ferro bonus program.
FAC shall not be entitled to any bonus applicable to years after 1993.
4. FAC will make himself available to Ferro for consultation
by telephone or in person at Ferro's headquarters in Cleveland, Ohio as Ferro
may from time to time reasonably request. No such request by Ferro shall
unreasonably interfere with new employment or other obligations or activities
which FAC may undertake, nor shall it impose travel expenses upon FAC unless
Ferro agrees to reimburse FAC for such expenses.
<PAGE> 2
5. FAC will not be entitled to participate in the following
Ferro employee plans after March 31, 1994:
a. Salary continuation plan;
b. Long-term disability plan;
c. Workers' compensation benefits; and
d. Business travel accident insurance.
FAC will be entitled to participate in the following
employee plans (or their successor plans) as a continuing salaried employee
through February 4, 1997:
a. Ferro Flex Choice Program;
b. Savings and Stock Ownership Plan;
c. Salaried Employees Retirement Plan;
d. Supplemental Pension Agreement dated August 25,
1988; and
e. Excess Benefits Plan.
FAC's continued participation in such plans is subject
to the ongoing right of Ferro to modify, amend or discontinue such plans in any
manner, so long as any such modification, amendment or discontinuance is one of
general application, rather than one that uniquely discriminates against FAC.
Effective March 1, 1997, FAC shall be eligible to
participate as a retiree in the Ferro Salaried Retiree Medical Program (or any
successor plan), provided he follows the procedures in such plan to activate
his participation. In such case, FAC's contribution to the cost of any such
health and hospitalization plans that he participates in as a Ferro retiree
shall be calculated based upon his actual years of service with Ferro from date
of hire through February 4, 1997. If FAC dies prior to February 4, 1997, his
wife shall become eligible to
<PAGE> 3
participate in the Ferro Salaried Retiree Medical Program or any successor plan
as if she were a qualified widow of a salaried retiree.
6. Commencing March 1, 1997, Ferro (or retirement plans
sponsored by Ferro) will pay to FAC a monthly pension, for the balance of his
lifetime, currently estimated at $9,270.00 per month. This amount has been
determined in accordance with the assumptions and procedures set forth in
Appendix I. In the event FAC predeceases his wife after pension payments
hereunder have commenced, his wife shall be entitled to receive a surviving
spouse's benefit as provided by the Ferro Salaried Employee Retirement Plan and
Excess Benefits Plan and Supplemental Pension Agreement dated August 25, 1988.
In the event FAC predeceases his wife before pension payments hereunder have
commenced, his wife shall be entitled to receive, (a) for the balance of the
period to February 4, 1997, those amounts which would otherwise be payable to
FAC under Section 2 hereof, were it not for his death, and (b) such surviving
spousal pension benefits as are provided under Ferro's qualified Salaried
Employee Retirement Plan and Excess Benefits Plan as though FAC had been an
active salaried employee at the time of his death (but not including Ferro's
Supplemental Pension Agreement dated August 25, 1988).
7. FAC shall be deemed to have retired as of February 4, 1997,
with respect to his rights under the Ferro Stock Option Plan, and the stock
option awards and agreements pursuant to such Plan shall be determined under
the provisions of that Plan and those agreements, based upon termination of
employment through such deemed retirement, on February 4, 1997. No new stock
option awards shall be made to FAC after the date of this Agreement.
<PAGE> 4
8. FAC shall be deemed to have retired as of March 31, 1994,
with respect to his rights under the Ferro Performance Share Plan, and the
Performance Share Awards and Performance Share Award Agreements pursuant to
such Plan shall be determined under the provisions of that Plan and those
agreements, based upon termination of employment through such deemed early
retirement, on March 31, 1994. No new performance share awards shall be made
to FAC after the date of this Agreement.
9. Ferro shall have no obligation to FAC on account of unused
vacation, illness or personal absence, it being deemed that any such
obligations are fulfilled by the terms of this Agreement.
10. FAC may continue to use his current Ferro provided leased
automobile until February 4, 1997. Ferro will insure and will reimburse FAC
for maintenance and operating expenses for the vehicle in accordance with past
practice through February 4, 1997 (except that if FAC accepts other employment
which includes the use of an employer provided automobile, the obligation of
this sentence shall cease at that time). Upon expiration of the lease, but no
later than February 4, 1997, Ferro will transfer title to the automobile to FAC
without additional consideration.
11. Ferro will continue to cause to be made available to FAC,
at Ferro's expense, the services of KPMG Peat Marwick with respect to tax
advice and tax return preparation through February 4, 1997, as well as the
preparation of FAC's 1996 and 1997 tax returns, whenever completed.
12. FAC hereby reaffirms his obligations and commitments
pursuant to that Employment Agreement between Ferro and FAC (the "Secrecy
Agreement") that he signed at
<PAGE> 5
the time of commencement of his employment with Ferro. FAC agrees that he will
not, at any time prior to February 4, 1997, without Ferro's prior written
consent, accept any other employment or engage, as a proprietor, consultant,
partner, or otherwise in any outside business or enterprise, which, with
respect to such employment or engagement, is engaged in activities competitive
with the chemicals or the polymers business of Ferro as carried on during FAC's
tenure as Senior Vice President, Chemicals and Polymers of Ferro. Except as
aforesaid, no other restriction or noncompetition obligations shall be imposed
upon FAC and FAC shall be free to obtain employment or participate as a
principal, shareholder, or partner in any other business enterprise.
13. FAC hereby releases and discharges Ferro, its successors,
subsidiaries, employees, officers, directors and representatives from all
claims, liabilities, demands and causes of action, known or unknown, fixed or
contingent, which he may have to claim to have against them, or any of them,
(other than his rights under or described in this Agreement). This includes,
but is not limited to, claims arising under Federal, state or local laws
prohibiting age, sex, race or other forms of discrimination or claims arising
out of any legal or equitable restrictions on Ferro's right to terminate the
employment of its employees. It also includes a release of all rights under
his Executive Employment Agreement with Ferro dated October 1, 1991, but only
to the extent not otherwise incorporated by reference under Section 16 of this
Agreement.
This release also includes waiver of any right FAC may have
or claim to have to recovery in any lawsuit brought on his behalf by any state
or Federal agency with respect to his employment termination.
<PAGE> 6
14. FAC agrees to furnish to Ferro promptly such documentation
as Ferro may reasonably request for the release to Ferro of any funds held in
escrow to secure Ferro's obligations to FAC under his Executive Employment
Agreement with Ferro.
15. In the event of the death of FAC prior to February 4, 1997,
the payments described in Section 2 hereof shall continue to be paid to his
surviving spouse and, in the event of her death prior to February 4, 1997, to
FAC's estate, until completion of payment of the amounts provided for in such
Section 2.
16. This Agreement hereby expressly incorporates by reference
the provisions of Sections IV(H) (pertaining to mitigation and offset), VII
(pertaining to arbitration), and VIII(A) (pertaining to successors and assigns,
but as if it referred to the compensation and benefits payable under this
agreement, rather than those payable under the Executive Employment Agreement),
of the Executive Employment Agreement, as if such provisions were fully
rewritten herein and applicable as between FAC and Ferro.
17. For Federal, state, and local income tax reporting and
withholding purposes, the payments in Sections 2 and 6 herein shall be deemed
taxable and therefore reported as such in the years which the payments are
made. For purposes of employment tax under Internal Revenue Code Section
3121(v)(2)(A), the payments under Section 6, to the extent subject to tax under
Section 3121, shall be deemed taxable, in full, in 1997.
18. Except as specifically provided otherwise in this
Agreement, the terms of this Agreement shall supersede any different or
conflicting provisions of any other agreement between FAC and Ferro, and of any
plans or policies of Ferro applicable to FAC.
<PAGE> 7
This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, but all of which shall collectively constitute one and the same
instrument.
<TABLE>
<S> <C>
Date: 10/18/93 /s/Frank A. Carragher
------------------- -----------------------------------------------------
Frank A. Carragher
Date: 10/18/93 FERRO CORPORATION
--------------------
By: /s/A. C. Bersticker
------------------------------------------------------
A. C. Bersticker
President and Chief Executive
Officer
</TABLE>
<PAGE> 8
APPENDIX 1 Page 1 of 2
FERRO CORPORATION
BENEFIT CALCULATION FOR
FRANK A. CARRAGHER
(Service to Normal Retirement Date)
<TABLE>
<S> <C> <C>
A. 50% of Regular Compensation
Benefit (service to 12/31/93) $5,853.51
B. Additional Excess Benefit
(service to NRD) + 1,216.75
--------
C. 50% of Regular Compensation
Benefit (with service to NRD) $7,070.26
D. Short Service Plan Benefit + 2,200.19 *
--------
E. Total Benefit (Sum of C and D) $9,270.45
F. Value of (B) $157,738 **
G. Value of (D) $256,722 **
</TABLE>
*Payable beginning at age 65 and continuing for as long as the
participant lives, but no less than 120 months
**These amounts were calculated as of January 1, 1994, using
UP1984 mortality with no setback, 4.25% immediate and 4.00%
deferred interest rate assumptions
<PAGE> 9
Page 2 of 2
FERRO CORPORATION RETIREMENT PLAN
BENEFIT CALCULATION FOR
FRANK A. CARRAGHER
<TABLE>
<S> <C> <C> <C>
BASIC DATA:
SOCIAL SECURITY NUMBER ###-##-####
EMPLOYEE NUMBER 2184
LOCATION NUMBER 95
DATE OF BIRTH 02/04/32
LAST HIRE DATE 03/12/79
CREDITED SERVICE FROM 03/12/79
DATE OF TERMINATION 02/04/97
BENEFIT COMMENCEMENT DATE 03/01/97
NORMAL RETIREMENT DATE 02/04/97
CREDITED BENEFIT SERVICE AT DOT 17.91667
REGULAR COMPENSATION (INCLUDING 1989 224,735.00
EST. INCENTIVE COMPENSATION) 1990 241,881.00
1991 295,175.84
1992 398,157.92
(PROJ) 1993 330,400.00
BENEFIT CALCULATION:
A. AVERAGE MONTHLY COMPENSATION = $24,839.16
B. 50% OF AVERAGE COMPENSATION = $12,419.58
C. 50% OF SOCIAL SECURITY PIA BENEFIT OF $1,162
BASED ON ACTUAL SALARY HISTORY = $581.00
----------
D. GROSS BENEFIT (B MINUS C) = $11,838.58
E. SERVICE FRACTION: SERVICE (MAX 30) / 30 = 0.597222
F. 50% OF REGULAR COMPENSATION BENEFIT (D TIMES E) = $7,070.26
G. 42% OF AVERAGE COMPENSATION = $10,432.45
H. LESS SOCIAL SECURITY PIA BENEFIT = 1,162.00
----------
I. TOTAL OF QUALIFIED, EXCESS, & SHORT
SERVICE PLAN BENEFITS (G MINUS H) = $9,270.45
ESTIMATES - 1997 SOCIAL SECURITY BENEFIT IS UNAVAILABLE
</TABLE>
<TABLE>
<CAPTION>
BASIC PERFORMANCE CORPORATE
COMPENSATION SHARES INCENTIVE
<S> <C> <C> <C>
89 152,004 29,363 43,368
90 164,004 65,331 12,546
91 190,000 85,777 19,399
92 215,000 136,138 47,020
93 236,000 0 94,400
</TABLE>
__________________________________________
WILLIAM M. MERCER, INC.
10/18/93
<PAGE> 1
<TABLE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE FOR 1993
<CAPTION>
(Dollars in Thousands) 1993
----
<S> <C>
Primary:
Weighted average shares and common
stock equivalents 29,472,201
Net Income $36,955
Less Preferred Stock Dividend
Net of Tax 3,524
Income Available to Common
Shareholders $33,431
Primary Earnings Per Common Share $1.13
Fully Diluted:
Weighted average shares and common
stock equivalents from above 29,472,201
Adjustments (primarily assumed con-
version of convertible preferred
stock) 2,511,010
----------
31,983,211
Net Income $36,955
Additional ESOP Contribution,
Net of Tax 2,174
Adjusted Net Income $34,781
Fully Diluted Earnings Per Common Share $1.09
</TABLE>
<PAGE> 1
EXHIBIT 12
<TABLE>
<CAPTION>
RATIO OF EARNINGS TO FIXED CHARGES
PER REGULATION S-K 229.503 (ITEM 503)
BEFORE
ACCT CHG
DECEMBER DECEMBER DECEMBER
1993 1993 1992
------- ------- -------
<S> <C> <C> <C>
Earnings:
Pre-Tax Income 1. 89,289 89,289 97,689
Accounting Change (37,764) - -
Add: Fixed Charges 11,989 11,989 10,780
Less: Interest Capitalization (1,108) (1,108) (753)
------------ ------- -------
Total Earnings (Loss) 62,406 100,170 107,716
============ ======= =======
Fixed Charges:
Interest Expense 10,081 10,081 9,227
Interest Capitalization 1,108 1,108 753
Interest Portion of
Rental Expense 800 800 800
------------ ------- -------
Total Fixed Charges 11,989 11,989 10,780
============ ======= =======
Total Earnings (Loss) 62,406 100,170 107,716
Divided By:
Total Fixed Charges 11,989 11,989 10,780
------------ ------- -------
Ratio 5.21 8.36 9.99
<FN>
1. Pre - tax effect of FASB 106, accounting for retiree benefits.
Note: Preferred dividends are excluded. Amortization of debt expense and discounts and premiums were deemed
immaterial to the above calculation. Interest portion of rental expense are conservative estimates based on
actual amounts from prior years.
</TABLE>
<PAGE> 1
Exhibit 13
<TABLE>
<S> <C>
Ferro's core competency is the custom formulation and production
of specialty materials for industry. This competency relies on expertise in
eight fundamental technologies -- synthesis, formulation, processes, color,
STRATEGIES FOR particle size technology, deposition, environmental science and material
RESEARCH AND characterization.
DEVELOPMENT Ferro is implementing new strategies for research and development
to maximize the Company's technological strengths. Scientists have been
reorganized along the lines of Ferro's technologies so that they think of
themselves as, for example, organic or inorganic chemists, rather than plastic
stabilizer or ceramic frit experts. This identity change facilitates the
exploration and achievement of synergies across Ferro's businesses to improve
processing techniques and product development through leveraging its technical
resources.
To foster collaboration, Ferro assembles multifunctional technical
teams to enhance usage of specific technologies, such as the electrostatic
method of spray deposition which is extremely critical in both organic and
inorganic powder coatings. Other current areas of focus are particle size
technology, which is used in powder coatings, chemicals and colors; formulation
of heavy-metal-free products, which are used in dinnerware, glass enamel
products and plastic color concentrates; extrusion technology, which involves
both thermoplastics and organic powder coatings; and melting processes and
formulations, which are used for a wide range of Ferro's products from glass to
plastics.
Ferro has elevated R&D to a full partner in planning efforts,
along with manufacturing, sales and finance. This ensures that R&D has
technical objectives that are fully aligned with the Company's business
objectives.
Finally, Ferro is focusing on distinct challenges identified by
specific businesses -- a targeted approach to maximize efficiencies and
technical know-how. Development efforts center on accelerating the flow of new
products for higher value-added applications and on more environmentally
acceptable products.
Ferro's R&D organization is dedicated to the highest quality
standards. Late in 1993, the Technical Center in Independence, Ohio, became
one of the few research facilities in the world to achieve International
Standards Organization's ISO 9000 series certification. This quality assurance
standard underscores the integrity of Ferro's research effort.
</TABLE>
4
<PAGE> 2
FERRO'S CORE COMPETENCY AND RELATED TECHNOLOGIES
FERRO'S CORE COMPETENCY
is the custom formulation and production of specialty materials for industry.
This competency relies on expertise in eight fundamental technologies:
FORMULATION
uses sophisticated techniques,
including statistical design and
expert systems, to identify and
formulate products that meet
customers' requirements.
COLOR
is integral to many of
Ferro's businesses and SYNTHESIS
demands a complete applies Ferro's specialized
understanding of materials expertise in organic and
science, as well as precise inorganic chemistry, as well as
measurement and control. in polymetric materials and
analytic chemistry.
MATERIAL PROCESSES
CHARACTERIZATION require expertise in a variety
is determined by the application of scientific disciplines,
requirements and physical including rheology, polymer
properties of the materials chemistry, glass technology
used. and surface chemistry,
which support core
businesses.
ENVIRONMENTAL DEPOSITION
SCIENCE involves the full range of
dictates product and process Ferro coatings technology and
design to ensure responsible includes specialized tech-
stewardship of the environment niques such as electrostatic
and compliance with processes, screen printing,
government tape casting and extrusion
regulations. methods.
PARTICLE SIZE
TECHNOLOGY
applies to almost every Ferro
product or raw material.
Issues include size reduction
and distribution, handling and
applications requiring
surface treatment.
5
<PAGE> 3
<TABLE>
F E R R O A T A G L A N C E Typical Applications
SPECIALTY COATINGS, COLORS AND CERAMICS
COATINGS
<S> <C>
Glaze Frit Floor and wall tile, sanitaryware, tableware,
artware and roof tiles.
Porcelain Enamel Frit Appliances, sanitaryware and architectural
coatings.
Organic Powder Coatings Appliances, automotive parts, lighting
fixtures, leisure furniture, toys, architectural
elements and recreational vehicles.
COLORS
Complex Inorganic Color Ceramic and plastic applications which
Pigments require heat, light or weather stability, including
PORCELAIN ENAMEL COLORS for appliances, archi-
tectural panels and sanitaryware; GLAZE and
BODY STAINS for floor and wall tile, sanitaryware,
tableware, roof tiles and artware; PIGMENTS
for paints, military camouflage materials,
automotive finishes and vinyl house siding.
Decorating Colors Enamels for appliance control panels, archi-
tectural spandrels, automotive windows, glass
beverage containers and cosmetic containers.
Decoration on dinnerware and other ceramic
applications.
Forehearth Colors Glass beverage and decorative containers.
CERAMICS
Ceramic Powders Precision polishing of optical lenses, television
picture tubes and gemstones.
Kiln Furniture Production of ceramics.
Porous Ceramics Water treatment facilities.
Wear-Resistant Shapes and Material handling and processing.
Grinding Media
ELECTRONIC MATERIALS
Electronic Ceramics Dielectric capacitors and varistors.
Thick Film Pastes and Electronic circuitry and component/
Electronic Glasses packaging applications such as controls,
games, automotive systems and appliances.
Ceramic Coated Substrates Circuit board applications subject to heat,
vibration and hostile atmospheric conditions.
</TABLE>
5A
<PAGE> 4
<TABLE>
Typical Applications
<CAPTION>
<S> <C>
SPECIALTY PLASTICS
PLASTIC COLORANTS
Concentrates and Liquid Colors for plastics used in
Color appliances, furniture,
power tool housings, tableware, cups,
automotive functional parts and decorative
trim.
FILLED AND REINFORCED PLASTICS
Polypropylene Compounds Appliances, furniture, power tool housings,
aseptic food packaging, microwaveable food containers
and automotive functional parts.
Engineering Thermoplastics Applications requiring high strength,
high performance plastics, such as automotive
and leisure products.
Special Polyolefin Alloys Medical disposables and packaging,
including tubing, catheters and solution
containers.
LIQUID COATINGS AND DISPERSIONS
Gelcoats Sanitaryware, boats, recreational
vehicles and truck components.
Color Dispersions Thermoset plastics.
SPECIALTY CHEMICALS
POLYMER ADDITIVES
Heat Stabilizers Vinyl floor tile, wall coverings,
dashboards and siding.
Light Stabilizers Indoor/outdoor carpeting, upholstery
and agricultural film.
Antimicrobials Pool covers, shower curtains and other
flexible vinyl products.
Antioxidants Plastic and rubber products.
Epoxy Plasticizers Refrigerator gaskets, food wrap,
infantwear, film and medical tubing.
Flame Retardants Electrical and electronic applications,
including appliances, business machines,
computers and home entertainment systems.
FUEL ADDITIVES & FRICTION Automotive engine oils and fuels.
MODIFIERS
Solvents, Catalysts and Processing for petrochemical, pharmaceutical
Intermediate Chemicals and paper industries.
METALWORKING LUBRICANTS Industrial lubricants.
</TABLE>
5B
<PAGE> 5
TARGETING GROWTH IN PROFITABLE MARKETS
Over the past several years, Ferro Corporation has sharpened its
focus to concentrate on the best opportunities for profitable growth in its
core businesses -- coatings, colors, ceramics, plastics and chemicals. The
Company plans to grow by gaining market share in its traditional markets,
participating in growing geographic and end-use markets and targeting new
product development. Ferro will continue to pursue acquisitions that
complement existing businesses to supplement internal growth.
ACHIEVING AND MAINTAINING LEADING MARKET POSITIONS Ferro strives to be
number one in all markets served. A major strategy in achieving this goal is
to make existing operations and functions as efficient and effective as
possible. Ferro has rationalized its operations worldwide to reflect the
development of regional trading blocs and global trading patterns; centralized
purchasing of major raw materials to gain buying power; devoted R&D attention
to improving processes; and recently embarked on a business process redesign
program to enhance productivity and efficiency while providing for profitable
growth.
These programs, as well as quality improvement initiatives, serve
to maintain or increase production capacity. For example, the consolidation of
Ferro's worldwide plastics operations, from 31 facilities in 1990 to 19 by
year-end 1993, was achieved with no loss of production capacity. Such efforts
have positioned Ferro as the low-cost producer in many of its businesses, able
to respond quickly to customer demand and pursue targeted growth opportunities.
Customer-driven marketing has positioned Ferro as a leader in
specialty and custom chemical manufacturing including halogenation and high
purity catalysts.
CAPITALIZING ON OPPORTUNITIES TO GAIN MARKET SHARE One way Ferro is
mobilizing capabilities to gain market share in its businesses is through
incorporating new ideas and technologies into traditional products. Several
years ago, Ferro engineers developed ceramic glaze frits that can be used with
single fast-firing production technology. Because of this innovation, it takes
about 40 minutes to produce glazed ceramic tile, compared with up to 48 hours
two decades ago.
Ferro's domestic specialty ceramics businesses continue to grow
following recent investments to improve the manufacturing efficiency of
grinding media products and to produce lighter-weight kiln furniture, which is
used primarily to support dinnerware and sanitaryware during the firing
process.
7
<PAGE> 6
Ferro has accepted the challenge of today's ever-increasing demand
for specialized intermediate chemicals by manufacturing and marketing products
such as glycol diethers. These glymes are used in a variety of chemical
processes in a wide range of products -- industrial, pharmaceutical, electronic
and environmental.
In the plastics area, Ferro has reformulated products to produce a
premier glass-reinforced polypropylene compound to replace many engineered
thermoplastic materials, providing improved physical properties and lower costs
to customers.
Ferro's ability to adapt to changing market needs is well
illustrated in its frit business. Increasingly, ceramic tile is produced as a
decorative fashion item with distinctive designs. Instead of selling frit only
as a raw material to customers, Ferro now also supplies complete ready-to-use
products, including specifications, materials and technical support to
implement unique designs which may be supplied by Ferro. To serve customers
even further, Ferro has developed a computer software system for rapid
interchange of design technology among Company facilities throughout the world.
The Company's level of service and technological expertise is unmatched in the
industry.
Among manufacturers in the tableware and fine china markets, Ferro
has gained market share by formulating leadless glazes and heavy-metal-free
color pigments to allay environmental concerns. Ferro's lead-free enamels for
glass decorating are also gaining market share as manufacturers increasingly
practice environmental stewardship.
An innovative development combining Ferro's frit and color for
glass decorating created new sources of value in the color pigment business.
The largest use of glass decorating materials currently is for beverage
containers, but automotive applications are expanding rapidly. In addition,
the Company jointly markets a broad spectrum of Ferro products -- such as
powder coatings, porcelain enamel and thermoplastic compounds -- to the
appliance and automotive industries.
Ferro is also responding effectively to market needs for improved
quality in one of the largest market segments for its complex inorganic color
pigments -- plastic construction materials such as vinyl siding and window
profiles. Whereas Ferro previously sold inorganic color pigments directly to
vinyl siding manufacturers, today it markets inorganic color pigments to color
concentrate manufacturers whose products permit improved dispersion. The
result for Ferro has been increased product value and market share. In the
plastics industry, Ferro's color concentrates continue to displace
precolored resins by offering plastic molders greater flexibility.
9
<PAGE> 7
ENSURING CUSTOMER SATISFACTION Each year Ferro receives recognition from
customers for quality products and superior technical service. Furthermore,
most Ferro operations have already achieved International Standards
Organization's ISO 9000 certification. The ISO 9000 series is an
internationally recognized quality management system which addresses all
areas of quality assurance, including management, operations and technical
functions. These awards and certifications reflect the dedication of Ferro
employees to the highest standards of customer service and quality. Employees
are backed by training programs that have proven effective in helping them
enhance performance.
In addition, the Company's involvement in the Chemical Manufacturers
Association Responsible Care (Registered trademark) program reflects continued
commitment to health, safety and environmental matters as they affect
employees, customers and the communities in which it operates.
PARTICIPATING IN GROWING MARKETS Following the restructuring of the past
several years, all Ferro businesses are positioned to pursue opportunities in
both traditional and new markets where powerful trends are propelling growth.
Worldwide plastics usage continues to outpace economic growth as these
materials continue to replace wood and metal in many applications. Similarly,
the replacement of solvent-based paints in industrial applications is expected
to produce long-term annual growth in powder coatings usage worldwide.
Another trend is the continuing quest by manufacturers and
consumers alike for higher product quality and performance. Today, traditional
commodity-type materials are no longer suitable for producing superior
products. Specialty materials, such as those produced by Ferro, are gaining
market share around the world.
The ceramic tile industry continues to expand
consumption of body stain, which is used to color the tile's entire body, in
contrast to coloring just the surface finish as with glaze stains. Body stains
can be combined with other colorant materials to create special effects such as
a marble or natural stone look. This coloring trend has led to a substantial
increase in Ferro pigment sales in Europe in recent years.
Most of Ferro's businesses have the potential for geographic
expansion, and this is a key strategy for growth. The market for ceramic floor
and wall tile, the principal application for ceramic glazes, has grown
enormously worldwide. In recent years, Ferro has formed joint ventures in
Turkey,
11
<PAGE> 8
Indonesia and Thailand to participate in the rapid economic development
and rising living standards occurring in the Middle East and Asia-Pacific. New
manufacturers using ceramic production equipment in developing markets look to
Ferro for materials and technical support, as well as information on design
trends.
Ferro anticipates a great opportunity to increase sales of color
pigments and chemical additives to the paint and plastics industries in Europe
and to gain market share in Asia-Pacific by offering a complete package of
product, design and technical service.
STRENGTHENING CORE BUSINESSES THROUGH ACQUISITIONS Ferro expects
acquisitions to be a major source of growth for the rest of this decade. In
1993, Ferro completed a number of very important acquisitions, including one
that made the Company a leading powder coatings producer. Consolidation of
Ferro's existing powder operations with the ICI powder coatings business in
Europe and North America will be completed by the end of 1994. With greater
production efficiencies and leading marketing and technical positions, Ferro is
well positioned to gain further market share in this rapidly growing industry.
Ferro's acquisition of the frit and color business of Bayer S.p.A.
in Italy strengthened the Company's position in this key market. Italy
currently produces about a quarter of the world's output of ceramic tile and
also sets fashion trends for the ceramic tile industry worldwide.
With the acquisition of MSI, Ferro's Electronic Materials Division
became one of the few suppliers capable of offering the full range of materials
required to produce multilayer ceramic capacitors. Total worldwide market
sales for capacitors, which have become the dominant passive component in most
electronic circuitry during the past 20 years, are expected to exceed $4
billion in 1994. With products such as these, Ferro's electronic materials
business could become a core business within the next several years.
FUTURE LOOKS BRIGHT FOR FERRO The strategies Ferro has adopted --
becoming the lowest-cost, highest-quality supplier of innovative materials,
offering exceptional service and value, penetrating new high-growth markets and
supplementing internal growth with acquisitions -- are designed to produce
long-term annual growth of 12 percent in earnings per share. The Company is
well positioned in both traditional and developing markets to pursue and
achieve this ambitious financial objective.
13
<PAGE> 9
MANAGEMENT'S DISCUSSION & ANALYSIS
Ferro Corporation and Subsidiaries
Ferro Corporation is a major international producer of industrial specialty
materials. The Company's business consists 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.
1993
RESULTS OF
OPERATIONS
The Company performed well compared with 1992 despite very poor economic
conditions in Europe. Excluding a $1.8 million after-tax charge related to the
acquisition of ICI's European and North American powder coatings business and
a net after-tax charge of $20.6 million for required accounting changes, 1993
net earnings were comparable with those of the record established in 1992.
Net earnings before the above charges were $59.3 million or $1.89 per
common share (primary), compared with net earnings of $58.8 million or $1.90
per common share in 1992. Net earnings after the above charges were $36.9
million or $1.13 per common share.
Consolidated revenues were $1.066 billion, 3% less than those of 1992.
The impact of the stronger U.S. dollar decreased sales by 5% when foreign
currency sales were translated into U.S. dollars. The combination of
acquisitions and volume differences combined to increase sales by 4%, while
businesses sold or discontinued reduced sales by 4%. Lastly, a favorable
price/mix effect increased sales by 2%.
Gross margin improved slightly from 26.2% of sales to 26.4%, though in
dollar terms gross profit declined nominally, in accordance with the decline in
total sales.
Total operating income of $94.5 million, which includes a $3.0 million
charge associated with the ICI acquisition, was 9% less than the $103.6 million
in 1992. Improvements were noted in all geographic regions except Europe and in
all businesses except Coatings, Colors and Ceramics. The decline in Coatings,
Colors and Ceramics was related to the sizable European exposure of this
business.
Interest earned decreased because of the reduction in cash and market-
able securities utilized to finance acquisitions.
Equity in net earnings of affiliated companies declined because of
divestitures of non-core businesses, unfavorable business conditions in the
markets served by the Turkish affiliate and slower than anticipated penetration
of developing markets in Thailand.
Foreign currency transaction gains during 1993 were $2.7 million, 31%
less than the $4.0 million gain recorded for 1992, largely attributable to
lower translation gains in Brazil. For further information, see Note 12 to the
Consolidated Financial Statements.
The effective tax rate declined from 39.8% to 35.6%, reflecting
effective worldwide tax planning, utilization of tax loss carryforwards and the
impact of various tax law changes.
The Company adopted changes in accounting required by the Financial
Accounting Standards Board associated with accounting for postretirement
benefits other than pensions and accounting for income taxes. The after- tax
effect of these accounting changes was a net charge of $20.6 million. See Notes
to Consolidated Financial Statements for additional information.
15
<PAGE> 10
COATINGS, COLORS AND CERAMICS
Sales of $616.9 million were down 2% from 1992 as the positive effect of 1993
acquisitions was exceeded by the negative effects of the European recession,
the stronger U.S. dollar and the decline in sales associated with businesses
sold or discontinued. While sales declined in both Europe and Latin America,
they increased in the United States and Canada as a result of acquisitions and
growth in many markets served. Sales also increased in Asia-Pacific due to the
start-up of the joint venture located in Indonesia.
Operating profit declined 15%, due largely to the European economic
situation and the inclusion of a $3.0 million charge associated with an
acquisition in powder coatings. Beyond Europe, operating profit improved in the
United States and Canada, as well as Latin America, but declined nominally in
Asia-Pacific.
PLASTICS
Plastics sales of $246.9 million declined 3% from 1992, primarily because of
the strength of the U.S. dollar and the economic conditions in Europe. Sales
increased in the United States and Canada, as well as in Asia-Pacific, but
declined in Latin America because the Company curtailed plastics operations
in the area over the past two years.
Operating profit increased by 16% as improvements in all other regions
more than compensated for the decline in Europe. Improved volumes in some
domestic markets, stable raw material prices and productivity improvements
contributed to the increase in margin.
CHEMICALS
Sales of $201.9 million were 5% less than those of 1992, due largely to the
stronger U.S. dollar, the economic situation in Europe and decreased demand
for products in the United States. Sales increased in Asia-Pacific and declined
marginally in Latin America.
Significant contributors to the profitability of the chemicals business
in 1993 were payments received from certain customers in settlement of con-
tractual obligations. Operating profit improved $2.6 million.
1992
RESULTS OF
OPERATIONS
The Company enjoyed a record year in 1992, as net income rose to $58.8 million
or $1.90 per common share from $4.8 million or $0.06 per common share.
Earnings in 1991 included a $31.7 million after-tax restructuring charge
associated with the Company's Profitability Improvement Plan, which is further
discussed on page 17.
Consolidated sales increased 4% to $1.098 billion. Improved volume and
acquisitions combined to increase sales by 7%. A weaker U.S. dollar increased
sales by 1% when foreign currency sales were translated to U.S. dollars, while
an unfavorable price/mix effect decreased sales nominally. Divestitures reduced
sales by 4%.
Gross profit improved from 24.5% of sales to 26.2% of sales in response
to the Company's Profitability Improvement Plan to reduce costs worldwide.
Total operating income increased dramatically from $28.2 million to
$103.6 million, $45.3 million of which was due to the restructuring charge
incurred in 1991 and the rest of which was associated with gross profit
improvement and the decline in selling, general and administrative expenses.
All businesses and geographic areas showed operating profit increases.
16
<PAGE> 11
Interest earned increased primarily due to the interest on the
incremental marketable securities.
Foreign currency transaction gains improved because of gains in Brazil
due to higher local inflation and gains on hedging of income streams of certain
European currencies.
The effective tax rate declined from 76.3% in 1991 to 39.8% as a result
of effective worldwide tax planning and the fact that the 1991 rate was
influenced by the impact of the Company's restructuring charge. Excluding the
restructuring charge, the effective rate for 1991 would have been 43.4%.
COATINGS, COLORS AND CERAMICS
Sales of $629.5 million were 6% greater than 1991. Favorable increases in
volume, price and exchange effect exceeded the decline associated with
divestitures. Sales increased in all geographic areas, largely on improved
volumes.
Operating profit improved 84% to $84.6 million, of which $20.1 million
was due to the 1991 restructuring charge.
PLASTICS
Sales declined 6% to $255.2 million, primarily because of the divestiture of
the Composites business in mid-1991, the discontinuance of plastics operations
in Latin America and a decline in European business.
Operating profit increased dramatically from a loss of $16.4 million to
a profit of $8.9 million, $17.1 million of which was associated with the 1991
restructuring charge. Stable to moderately reduced raw material prices con-
tributed to the 1992 profit.
CHEMICALS
Chemicals sales increased 10%, primarily due to increased demand worldwide for
custom chemicals used in fuel additives and other proprietary products. Sales
increased in Europe, the United States and Canada, declined in Latin America
because the Company discontinued chemical operations in the region and were
essentially flat in Asia-Pacific.
Similar to the other businesses, operating profit increased
substantially, from $2.2 million to $10.9 million, primarily because of the
$6.3 million restructuring charge of 1991. Higher plant utilization also
contributed to the operating profit improvement in 1992.
OTHER ITEMS
PROFITABILITY IMPROVEMENT PLAN
The Company adopted a Profitability Improvement Plan in April 1991, which
was designed to improve performance by reducing expenses, improving under-
performing operations and improving working capital utilization. Included
in the plan are strategies to concentrate on core businesses, focus research
and development on projects with high likelihood of good payback, improve
efficiency of operations and reduce and control expenses.
17
<PAGE> 12
Concentration on core businesses is evidenced by the sale of unrelated
businesses such as the Composites business in 1991 and by acquisitions of
related businesses such as ICI's powder coatings business and Bayer's ceramic
frit and color business in 1993.
Focused research has resulted in effort shifting from the traditional
businesses such as frit and colors to the higher growth areas of powder
coatings and plastics.
Efficiency improvements and cost reductions resulted in decreases in
cost of sales and selling, general and administrative expenses, in reduction of
employment levels and in the number of facilities, as in the case of plastics,
which has declined from 31 facilities in 1990 to 19 as of year-end 1993.
ENVIRONMENTAL
During 1993, the Company's Keil Chemical facility in Hammond, Indiana, was
named by the United States Environmental Protection Agency as one of several
defendants, including local governmental agencies, alleged to be in violation
of water discharge standards and was issued Notifications of Violation by the
United States Environmental Protection Agency, the Indiana Department of
Environmental Management and the Hammond Department of Environmental
Management alleging violation of air emission regulations. Additionally,
governmental agencies have identified several disposal sites for cleanup 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
cleanup efforts. However, the Company's share of such costs has not been
material and is not expected to have material adverse impact on the Company's
financial condition or results of operations.
INTERNATIONAL
Macroeconomic conditions in Europe were quite depressed throughout 1993, as
evidenced by the 16% decline in revenues and the 50% decline in operating
earnings. As of this writing, there is no sign of noticeable improvement in
Europe, though some economic reports suggest that there may be improvement in
the second half of 1994.
The Company's Brazilian operations showed income after tax, but before
any U.S. tax effect, of $5.0 million in 1989, an $8.0 million loss in 1990,
modest income in 1991 and 1992, and income of approximately $5.0 million in
1993. Indicative of Brazilian economic volatility is the fact that the
industrial sector GDP growth rate was estimated at 9% for 1993, while
contraction in the GDP rate for 1992 was estimated at 4%. In order to lessen
the impact of Brazilian operations on consolidated earnings, in 1992 the
Company discontinued Brazilian plastics and chemicals operations. The Company
has expressed interest in selling 51% of the remaining business. The timing of
any such sale is highly uncertain.
ACCOUNTING CHANGES
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, ``Employers' Accounting for Post-
employment Benefits,'' which becomes effective for fiscal year 1994. The
Company does not anticipate a material impact on its financial statements when
this standard is adopted in 1994.
18
<PAGE> 13
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, ``Accounting for Certain Investments
in Debt and Equity Securities,'' which becomes effective for fiscal year 1994.
Under the new standard, debt securities which are classified as available-for-
sale are to be carried at fair value, and unrealized holding gains or losses
must 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 invest-
ment 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 does not anticipate a material impact on its
financial statements when this standard is adopted in 1994.
ACQUISITIONS AND DIVESTITURES
The Company acquired the North American and European powder coatings business
of Imperial Chemical Industries (ICI) in April 1993, and with this acquisi-
tion 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. These acquisitions add approximately
$100.0 million annually to the Company's revenue base. See Note 6 to
Consolidated Financial Statements.
During 1993, the Company sold several small operations totaling annual
sales of approximately $15.0 million. The results of these operations were not
material to Ferro.
During 1992, the Company sold or discontinued operation of several
facilities representing annual sales of approximately $50.0 million. The
largest of these were the Foundry Products business and the Steel Mill Products
business, representing approximately $34.0 million in annual sales.
LIQUIDITY AND
CAPITAL
RESOURCES
Cash flow from operations continues to be the Company's most important source
of funds, and in 1993 permitted the Company to make significant acquisitions
and capital expenditures, while meeting other financial obligations. Cash flow
from operating activities amounted to $62.0 million in 1993 versus $101.6
million in 1992. The decrease was largely attributable to increases in working
capital requirements associated with acquisitions.
Cash flow from investing activities was affected by the amount of cash
used for acquiring the businesses previously discussed. The decrease in
proceeds from divestitures from the prior year was due to the reduced activity
of divesting businesses which do not meet the Company's criteria for long-term
growth and profitability.
Capital expenditures for plant and equipment were $43.7 million in
1993, $44.8 million in 1992 and $39.0 million in 1991. Information concerning
these expenditures by business segment can be found on page 34. Capital
expenditures for 1994 are estimated to be $55.0 million.
On May 13, 1993, the Company issued $25.0 million of 7-5/8 % debentures
with a 20-year maturity under a Shelf Registration originally filed with the
Securities and Exchange Commission in August 1992. Accordingly, $75.0 million
of the original $100.0 million remains available under the Shelf Registration.
This registration will enable the Company to access the public debt market if
advantageous opportunities should present themselves and is intended to be used
for general corporate purposes.
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<PAGE> 14
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 $0.51 and $0.45 per share in 1993 and 1992, respectively. See
page 38 for additional dividend data.
The Company did not purchase any shares of common stock under the stock
purchase program in 1993. In 1992, the Company purchased 91,100 shares and in
1991, purchased 98,598 shares. As of December 31, 1993, the Company had
remaining authorization under its current treasury stock purchase program to
acquire an additional 908,900 shares.
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 an unused $150.0 million line of credit, to finance its
on-going capital requirements and to take advantage of acquisition
opportunities.
Strengthening of the U.S. dollar, primarily against European currencies
during 1993 increased foreign currency translation adjustments within the
equity section of the balance sheet. It is expected that this trend will
continue in 1994, but at a reduced rate.
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.
20
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
FERRO CORPORATION AND SUBSIDIARIES
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(Dollars in Thousands)
1993 1992 1991
<S> <C> <C> <C>
=============================================================================================
NET SALES $1,065,748 1,097,793 1,056,940
COST OF SALES 783,897 809,948 797,556
SELLING, ADMINISTRATIVE AND GENERAL EXPENSE 184,372 184,198 185,920
RESTRUCTURING CHARGE 3,000 - 45,303
- ---------------------------------------------------------------------------------------------
971,269 994,146 1,028,779
- ---------------------------------------------------------------------------------------------
OPERATING INCOME 94,479 103,647 28,161
- ---------------------------------------------------------------------------------------------
OTHER INCOME:
Interest earned 4,654 6,224 5,110
Equity in net earnings of affiliated companies 770 2,707 1,863
Foreign currency transaction gain 2,743 3,997 2,159
- ---------------------------------------------------------------------------------------------
8,167 12,928 9,132
OTHER CHARGES:
Interest expense 10,081 9,227 9,940
Miscellaneous--net 3,276 9,659 7,004
- ---------------------------------------------------------------------------------------------
13,357 18,886 16,944
- ---------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES 89,289 97,689 20,349
INCOME TAXES 31,784 38,861 15,532
- ---------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES 57,505 58,828 4,817
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES FOR:
Postretirement benefits, net of tax (23,603) - -
Income taxes 3,053 - -
=============================================================================================
NET INCOME 36,955 58,828 4,817
DIVIDEND ON PREFERRED STOCK, NET OF TAX 3,524 3,150 3,219
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS 33,431 55,678 1,598
=============================================================================================
PER COMMON SHARE DATA:
Before cumulative effect of accounting changes:
Primary earnings 1.83 1.90 .06
Fully diluted earnings 1.73 1.77 .06
After cumulative effect of accounting changes:
Primary earnings 1.13 1.90 .06
Fully diluted earnings 1.09 1.77 .06
=============================================================================================
<FN>
See accompanying notes to consolidated financial statements.
21
</TABLE>
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
FERRO CORPORATION AND SUBSIDIARIES
December 31, 1993 and 1992
<TABLE>
<CAPTION>
(Dollars in Thousands)
1993 1992
<S> <C> <C>
====================================================================================================
ASSETS
CURRENT ASSETS:
Cash including cash equivalents $ 25,116 60,812
Marketable securities 38,335 48,109
Trade notes and accounts receivable, after deduction of
$6,464,000 in 1993 and $7,924,000 in 1992 for possible losses 175,826 158,469
Inventories (note 2) 128,736 102,350
Other current assets 43,240 45,187
- ---------------------------------------------------------------------------------------------------
Total current assets 411,253 414,927
OTHER ASSETS:
Investments in affiliated companies 10,096 13,438
Unamortized excess of cost over net assets acquired 53,988 22,329
Sundry other assets 34,736 18,288
- ---------------------------------------------------------------------------------------------------
Total other assets 98,820 54,055
PLANT AND EQUIPMENT:
Land 14,914 13,139
Buildings 126,981 113,656
Machinery and equipment 396,293 370,766
- ---------------------------------------------------------------------------------------------------
538,188 497,561
Less accumulated depreciation and amortization 280,367 269,998
- ---------------------------------------------------------------------------------------------------
Net plant and equipment 257,821 227,563
- ---------------------------------------------------------------------------------------------------
$ 767,894 696,545
====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and loans payable (note 3) $ 19,301 17,906
Accounts payable, trade 97,247 86,490
Income taxes payable 5,957 20,115
Accrued payrolls 15,917 16,076
Accrued expenses and other current liabilities 60,536 64,456
- ---------------------------------------------------------------------------------------------------
Total current liabilities 198,958 205,043
LONG-TERM LIABILITIES, less current portion (note 3) 79,349 53,210
ESOP LOAN GUARANTEE (note 3) 44,076 50,897
DEFERRED INCOME TAXES 14,884 10,918
POSTRETIREMENT LIABILITIES (note 9) 40,096 -
OTHER NON-CURRENT LIABILITIES 31,734 31,504
SHAREHOLDERS' EQUITY (notes 4 and 5):
Serial convertible preferred stock, without par value.
Authorized 2,000,000 shares;
1,520,215 shares issued in 1993 and 1992 70,500 70,500
Guaranteed ESOP obligation (44,076) (50,897)
Common stock, par value $1 per share. Authorized
75,000,000 shares; issued 31,549,083 shares in 1993 and 1992 31,549 31,549
Paid-in capital 9,760 9,323
Earnings retained in the business 368,590 349,981
Other (3,690) (1,081)
Foreign currency translation adjustment (29,121) (17,617)
- ---------------------------------------------------------------------------------------------------
403,512 391,758
Less cost of common stock held in treasury, 2,413,091 shares
in 1993 and 2,603,478 shares in 1992 40,571 43,905
Less cost of convertible preferred stock held in treasury,
89,355 shares in 1993 and 62,105 shares in 1992 4,144 2,880
- ---------------------------------------------------------------------------------------------------
Total shareholders' equity 358,797 344,973
- ---------------------------------------------------------------------------------------------------
$767,894 696,545
====================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
22
<PAGE> 17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FERRO CORPORATION AND SUBSIDIARIES
December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
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
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1990 $70,500 (62,649) 21,033 22,259 317,936 (7,889) (55,254) (334) - 305,602
Net income 4,817 4,817
Cash dividends:
Common stock (12,143) (12,143)
Preferred stock (4,878) (4,878)
Federal tax benefits 1,659 1,659
Transactions involving
benefit plans 5,420 (2,189) 7,392 10,623
Foreign currency
translation adjustment 3,023 3,023
Purchase of treasury stock (2,166) (1,250) (3,416)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1991 70,500 (57,229) 21,033 20,070 307,391 (4,866) (50,028) (1,584) 305,287
Net income 58,828 58,828
Cash dividends:
Common stock (13,088) (13,088)
Preferred stock (4,772) (4,772)
Federal tax benefits 1,622 1,622
Transactions involving
benefit plans 6,332 (217) 8,474 (1,081) 13,508
Foreign currency
translation adjustment (12,751) (12,751)
Three-for-two stock split 10,516 (10,516) -
Cash paid in lieu of
fractional shares (14) (14)
Purchase of treasury stock (2,351) (1,296) (3,647)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance 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)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1993 $ 70,500 (44,076) 31,549 9,760 368,590 (29,121) (40,571) (4,144) (3,690) 358,797
===================================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
23
</TABLE>
<PAGE> 18
CONSOLIDATED STATEMENTS OF CASH FLOWS
FERRO CORPORATION AND SUBSIDIARIES
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(Dollars in Thousands)
1993 1992 1991
==================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 36,955 58,828 4,817
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 38,257 34,622 33,854
Change in deferred income taxes (11,520) 1,474 (11,644)
Restructuring charge (A) - - 31,525
Effect of accounting change for postretirement benefits 37,764 - -
Other non-cash items (139) (1,055) 120
Changes in current assets and liabilities, net of effects
of acquisitions:
Trade notes and accounts receivable, net (11,131) 13,770 19,963
Inventories (20,602) 10,594 11,974
Other current assets 4,092 (3,334) (5,940)
Accounts payable trade 8,026 (10,609) (5,720)
Accrued expenses and other current liabilities (14,605) (2,463) 7,886
Other operating activities (5,137) (251) 6,190
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 61,960 101,576 93,025
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 1,687 2,943 2,623
Capital expenditures for plant and equipment (43,711) (44,759) (39,005)
Proceeds from divestitures 5,048 17,548 25,440
Acquisition of companies, net of cash acquired (75,456) (26,809) -
Transactions with affiliated companies 2,036 1,356 909
Change in marketable securities, net 9,774 (16,497) (31,612)
Other investing activities (1,240) (1,422) 118
- -----------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (101,862) (67,640) (41,527)
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings (payments) under short-term lines (1,308) 2,223 (6,120)
Proceeds from long-term debt 25,962 992 2,429
Principal payments on long-term debt (1,245) (2,618) (4,014)
Proceeds from sale of stock 3,109 3,716 2,587
Purchase of treasury stock (1,264) (3,647) (3,416)
Cash dividends paid to minority shareholders of subsidiaries (312) (459) (579)
Cash dividends paid (19,497) (17,860) (17,021)
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES 5,445 (17,653) (26,134)
Effect of Exchange Rate Changes on Cash (1,239) (2,381) 350
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (35,696) 13,902 25,714
Cash and Cash Equivalents at Beginning of Year 60,812 46,910 21,196
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 25,116 60,812 46,910
=================================================================================================================
CASH PAID DURING THE YEAR FOR:
Interest $ 11,001 10,480 11,781
Income taxes $ 35,090 25,653 21,540
<FN>
See accompanying notes to consolidated financial statements.
(A) Includes non-cash and non-current portion of 1991 restructuring charge.
</TABLE>
24
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FERRO CORPORATION AND SUBSIDIARIES
Years ended December 31, 1993, 1992 and 1991
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 1991 and 1992 financial statements and the
accompanying notes have been reclassified to conform to the 1993 presentation.
Financial results for acquisitions are included in the consolidated
financial statements from the date of acquisition. 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.
TRANSLATION OF FOREIGN CURRENCIES Except for international companies
whose functional currency is the United States dollar, financial statements of
international companies are translated into United States dollar equivalents at
exchange rates as follows: (1) balance sheet accounts at year-end rates; (2)
income statement accounts at exchange rates weighted by the monthly volume of
trans- actions occurring during the year. Translation gains or losses are
recorded in shareholders' equity and transaction gains and losses are reflected
in net income.
The United States dollar is the functional currency for the Company's
Latin American operations 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.
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.
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 05 to 15 years
INCOME TAXES In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, ``Accounting for Income
Taxes.'' Statement 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax con-
sequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
25
<PAGE> 20
Effective January 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1993 consolidated statements of income. Prior years'
financial statements have not been restated to apply the provisions of
Statement 109.
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 further reflect the potential dilution of the assumed
conversion of the convertible preferred shares into common shares.
2. INVENTORIES:
<TABLE>
The portion of inventories valued on a LIFO basis at December 31, 1993 and
1992 is as follows:
<CAPTION>
1993 1992
============================================================
<S> <C> <C>
United States 44% 31
Outside the United States 14 15
Consolidated 26 20
============================================================
</TABLE>
If the FIFO method of inventory valuation had been used exclusively by
the Company, inventories would have been $17,279,000 and $21,602,000 higher
than reported at December 31, 1993 and 1992, 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:
<TABLE>
Long-term liabilities at December 31, 1993 and 1992 are as follows:
<CAPTION>
(Dollars in Thousands) 1993 1992
=================================================================================
<S> <C> <C>
Parent Company:
Unsecured:
Debentures, 11-3/4%, due 2000 $49,954 49,945
Debentures, 7-5/8%, due 2013 24,777 -
Secured:
Mortgages, 6.5% to 8.5%, payable to 2016 341 424
Subsidiary Companies:
Unsecured:
Notes payable, 7.0% to 16.0%, payable to 1996 2,733 3,393
Secured:
Mortgages, 6.3% to 11.8%, payable to 2001 2,469 1,103
- --------------------------------------------------------------------------------
80,274 54,865
Less current portion (A) 925 1,655
- --------------------------------------------------------------------------------
Total $79,349 53,210
================================================================================
<FN>
(A) Included in notes and loans payable.
</TABLE>
<TABLE>
The aggregate principal payments on long-term indebtedness for the
next five years are as follows:
<CAPTION>
(Dollars in Thousands)
1994 1995 1996 1997 1998
=================================================================================
<S> <C> <C> <C> <C>
$925 1,602 1,456 474 365
</TABLE>
26
<PAGE> 21
At December 31, 1993, $2,810,000 of long-term indebtedness was secured
by property, equipment and certain other assets with a net book value
approximating $4,009,000.
The 11-3/4% debentures in the principal amount of $50,000,000 are due in
the year 2000. These debentures, issued in 1985, may be called by the Company
in 1995 at par. The fair market value of these debentures was approximately
$57,500,000 at December 31, 1993.
On August 25, 1992, the Company filed a Shelf Registration with the
Securities and Exchange Commission for the issuance of up to $100,000,000 in
debt securities. The Company intends to offer these debt securities from time
to time in the future on terms determined at the time of sale. The Shelf
Registration will enable the Company to access the public debt market quickly
if advantageous opportunities should present themselves. The proceeds from the
future sale of debt securities under the Shelf Registration are intended to be
used for general corporate purposes.
On May 13, 1993, the Company issued $25,000,000 in 7-5/8% debentures
under the aforementioned Shelf Registration. These debentures mature in the
year 2013 and the fair market value was approximately $25,844,000 at December
31, 1993.
The Company has a five-year revolving credit agreement in the amount of
$150,000,000. The maturity date of this facility is August 1, 1998. The
agreement permits the maturity date to be extended annually for one additional
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. There have been no borrowings under this
agreement.
There are no covenants in either the 11-3/4% indenture, the Shelf
Registration or revolving credit agreement which significantly limit dividend
payment capability of the Company. In addition, there are no significant
restrictions on the payment of dividends by the subsidiaries and affiliates to
the Company.
In 1989, the Company created an Employee Stock Ownership Plan (ESOP).
The ESOP borrowed $63,500,000 at an interest rate of 8.5% and $7,000,000 at an
adjustable interest rate in 10-year loans guaranteed by the Company. Interest
paid by the ESOP totaled $4,103,000, $4,628,000 and $5,115,000 in 1993, 1992
and 1991, 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 stockholders' 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 $1,108,000, $753,000 and $1,629,000 in 1993,
1992 and 1991, 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. There are no legal restrictions on these
balances, which are available to the Company and its subsidiaries for use at
all times. Cash in excess of such operating requirements is invested in
short-term securities.
4. STOCK PLANS:
The Company maintains stock option plans, a performance share plan and a
savings and stock ownership plan which includes an investment savings plan
and the ESOP for the benefit of its employees.
27
<PAGE> 22
The stock option plans provide for the issuance of stock options at no
less than the market price. Options are exercisable over a 10-year period.
Information pertaining to these stock options is shown below:
<TABLE>
<CAPTION>
1993 1992 1991
================================================================================================
<S> <C> <C> <C>
Shares granted 180,775 67,650 122,250
Average option price $ 29.42 26.10 21.50
Shares exercised 98,961 200,841 307,566
Average option price $ 14.04 11.64 10.14
Shares which became exercisable 103,068 138,337 275,871
Average option price $ 19.03 16.48 13.47
Shares unexercised at year-end 845,551 776,707 945,835
Option price range per share $ 6.95 6.95 6.95
to 30.42 to 30.42 to 21.50
Shares cancelled 12,970 35,937 23,233
Shares available for granting future options 1,018,680 1,186,485 1,218,207
================================================================================================
</TABLE>
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 provides
for 50% of the value of any earned performance shares to be paid to participants
in the form of cash and 50% in the form of common stock of the Company.
Performance share awards in the amount of 305,858 shares, 442,440 shares and
301,448 shares were outstanding at the end of 1993, 1992 and 1991, 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 $1,144,000, $3,658,000 and $2,612,000 in 1993, 1992 and
1991, respectively.
The ESOP provides for the Company to match eligible employee pretax
savings. Amounts expensed under the ESOP were $2,141,000, $1,929,000 and
$1,855,000 in 1993, 1992 and 1991, 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
$70,500,000. 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.
During 1992, the Board of Directors authorized the purchase of up to
1,000,000 shares of Ferro Corporation common stock and cancelled the remaining
authority under the previous treasury stock purchase program. Purchase of
authorized shares is to take place in the open market from time to time.
The Company did not purchase any shares of common stock during 1993;
however, during 1992, it purchased 91,100 shares of common stock at an aggregate
cost of $2,351,000; and during 1991, it purchased 98,598 shares of common stock
at an aggregate cost of $2,166,000. At December 31, 1993, the Company had
remaining authorization under its current treasury stock purchase program to
acquire an additional 908,900 shares.
In 1992, the Company effected a three-for-two stock split.
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
28
<PAGE> 23
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, from the Company, one share
of its 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,
and 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 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 $75,456,000 and were accounted for using the purchase method of
accounting. Accordingly, the results of operations for these acquisitions have
been included within the Coatings, Colors and Ceramics segment since their
dates of acquisition. Purchase prices have been allocated based on fair values
of assets at date of acquisitions with approximately $37,400,000 being assigned
to goodwill and other intangibles.
From 1991 to 1993, largely in accordance with the Profitability
Improvement Plan, the Company sold or ceased operating several businesses
representing approximately $130,000,000 in annual sales for the fiscal year
preceeding the sale or closure, the most significant of these being the
Composites business (1991), the Foundry Products business (1992) and the Steel
Mill Products business (1992). The costs associated with these transactions
were principally included in the $45,300,000 pretax restructuring charge
incurred in 1991. Results of the operations of these businesses 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 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 $19,334,000,
$15,440,000 and $17,643,000 in 1993, 1992 and 1991, respectively.
29
<PAGE> 24
9. RETIREMENT
BENEFITS:
The information following 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 $6,021,000, $7,218,000 and $7,176,000
in 1993, 1992 and 1991, 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 included the following components:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1993 1992 1991
==================================================================================================
<S> <C> <C> <C>
Service cost\benefits earned during the period $ 5,815 5,919 5,667
Interest cost on the projected benefit obligation 13,082 12,815 11,611
Actual return on plan assets (15,645) (18,020) (20,624)
Net amortization and deferral 1,577 4,395 7,703
Special benefit for early retirement - - 1,194
==================================================================================================
Net periodic pension cost $4,829 5,109 5,551
==================================================================================================
</TABLE>
Net amortization and deferral consists of amortization of net assets and
obligations at transition and deferral and amortization of subsequent net gains
and losses. In conjunction with the Profitability Improvement Plan, certain
pension liabilities were settled, resulting in special benefits.
Assumptions used in this calculation for the various plans were:
<TABLE>
<CAPTION>
1993 1992 1991
===========================================================================================
<S> <C> <C> <C>
Discount or settlement rate 6.0-10.0% 8.0-10.0 8.0-10.0
Rate of increase in compensation levels 4.0-9.0 5.0-8.0 5.0-8.0
Expected long-term rate of return on assets 8.0-11.0 7.0-11.0 7.0-11.0
===========================================================================================
</TABLE>
The following table sets forth the funded status of the plans and the
amounts recognized in the Company's Consolidated Balance sheets:
<TABLE>
<CAPTION>
PLANS IN WHICH PLANS IN WHICH
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
(Dollars in Thousands) BENEFITS EXCEED ASSETS
==================================================================================================
1993 1992 1993 1992
==================================================================================================
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $135,608 110,000 13,364 9,155
==================================================================================================
Accumulated benefit obligation $140,463 114,681 18,378 12,547
==================================================================================================
Projected benefit obligation $167,113 141,125 20,706 16,957
Plan assets at fair value 161,966 155,436 9,465 7,786
- --------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of) or
less than plan assets (5,147) 14,311 (11,241) (9,171)
Unrecognized net (gain) or loss 5,517 (12,157) 3,119 851
Prior service cost 5,008 6,903 2,164 1,490
Unrecognized net transition (asset) obligation (5,941) (7,150) 2,498 3,646
Minimum liability adjustment - - (6,253) (2,242)
- --------------------------------------------------------------------------------------------------
Prepaid pension cost (pension liability) $ (563) 1,907 (3,460) (5,426)
==================================================================================================
</TABLE>
30
<PAGE> 25
In the aggregate, at year-end 1993, the various plans' assets at fair
value were less than the various plans' projected benefit obligations by
$16,388,000. In the aggregate, at year-end 1992, the various plans' assets at
fair value exceeded the various plans' projected benefit obligations by
$5,140,000. The Company recognized a $3,221,000 charge to equity in 1993 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 $10,790,000 and $9,146,000 at year-end
1993 and 1992, 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 transition
obligation resulting in a charge against income of $23,603,000 after related
income tax benefit of $14,161,000 representing the cumulative effect of the
change in accounting on results prior to January 1, 1993. Under Statement 106
the current period expense exceeded the amount under the previous accounting
method by $1,516,000 after-tax for the year ended December 31, 1993.
The Company provides eligible domestic retired employees with health
care and life insurance benefits. Medical coverage is provided to salaried
employees on a contributory basis. Medical coverage is provided to hourly
employees on a non-contributory basis. Life insurance is provided on a
non-contributory basis.
The Company funds these benefits as the claims are presented.
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1993
=========================================================================
<S> <C>
Service cost $ 588
Interest cost 3,129
- -------------------------------------------------------------------------
Net periodic postretirement benefit cost $3,717
=========================================================================
</TABLE>
The following table sets forth the funded status of the plans and the
amounts recognized in the Company's consolidated balance sheets.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1993
==============================================================================
<S> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $27,868
Fully-eligible active plan participants 6,476
Other active plan participants 6,048
- ------------------------------------------------------------------------------
40,392
Unrecognized net gain (296)
- ------------------------------------------------------------------------------
Accrued postretirement benefit cost $40,096
==============================================================================
</TABLE>
For January 1, 1993, a 9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for the first year. This rate was
assumed to decrease gradually to 5.5% by 2015 and remain constant thereafter.
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 January 1, 1993, by $3,750,000 and the net periodic post-
retirement benefit cost by $382,000.
The discount rate utilized in determining the accumulated postretirement
benefit obligation as of December 31, 1993, was 7.5%. The increase in per capita
costs was assumed to be 9% for the first year and to decrease to 4% by 2015.
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, ``Employers' Accounting for
Postemployment Benefits,'' which becomes effective for fiscal year 1994. The
Company does not anticipate a material impact on its financial statements when
this standard is adopted in 1994.
31
<PAGE> 26
10. INCOME TAX
EXPENSE:
As discussed in Note 1, the Company adopted Statement 109 as of January 1,
1993. The cumulative effect of this change in accounting for income taxes was
to increase net income by $3,053,000.
Income before income taxes and cumulative effect of change in
accounting principles for domestic and foreign operations was as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1993 1992 1991
===================================================================
<S> <C> <C> <C>
Domestic $47,400 38,343 3,100
Foreign 41,889 59,346 17,249
- -------------------------------------------------------------------
Total $89,289 97,689 20,349
===================================================================
</TABLE>
Income tax expense attributable to income before taxes and cumulative
effect of accounting changes:
<TABLE>
<CAPTION>
Liability Deferred
Method Method
- -------------------------------------------------------------------------------
(Dollars in Thousands) 1993 1992 1991
===============================================================================
<S> <C> <C> <C>
Current:
U.S. Federal $11,035 12,293 9,228
Foreign 12,323 23,087 16,876
State and local 1,904 1,840 907
- ------------------------------------------------------------------------------
25,262 37,220 27,011
- ------------------------------------------------------------------------------
Deferred:
U.S. Federal 5,151 1,262 (2,636)
Foreign 787 206 (8,436)
State and local 584 173 (407)
- ------------------------------------------------------------------------------
6,522 1,641 (11,479)
- ------------------------------------------------------------------------------
Total income tax $31,784 38,861 15,532
===============================================================================
</TABLE>
In addition to the 1993 income tax expense of $31,784,000, income tax
benefits of $17,214,000 were reflected in the cumulative effect of accounting
changes in the consolidated statements of income, and certain income tax
benefits of $1,676,000 were allocated directly to Shareholders' Equity.
A reconciliation of the statutory federal income tax rate and the
effective tax rate follows:
<TABLE>
<CAPTION>
1993 1992 1991
=======================================================================================
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 34.0 34.0
Foreign tax rate difference (1.4) 3.9 8.4
U.S. taxes on dividends from subsidiaries 1.9 2.6 3.1
State and local taxes net of federal income tax 1.8 1.4 1.2
Impact of restructuring charge - - 32.9
Miscellaneous (1.7) (2.1) (3.3)
- ---------------------------------------------------------------------------------------
Effective tax rate 35.6% 39.8 76.3
=======================================================================================
</TABLE>
32
<PAGE> 27
In 1991, the Company recorded a restructuring charge of $45,300,000,
which on an after-tax basis was $31,700,000. This charge had a negative effect
on the Company's ability to utilize foreign tax credits. Excluding the
restructuring charge, the effective tax rate for 1991 would have been 43.4%.
The components of deferred tax assets and liabilities at December 31,
1993 were:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1993
===============================================================================
<S> <C>
Deferred Tax Assets:
Pension and other benefit programs $ 18,682
Restructuring reserves 4,972
Accrued liabilities 5,137
Net operating loss carryforwards 6,428
Inventory 3,751
Other 7,996
- -------------------------------------------------------------------------------
Total Deferred Tax Assets 46,966
- -------------------------------------------------------------------------------
Deferred Tax Liabilities:
Property and equipment-depreciation
and amortization 20,388
Other 6,142
- -------------------------------------------------------------------------------
Total Deferred Tax Liabilities 26,530
- -------------------------------------------------------------------------------
Net Deferred Tax Asset Before
Valuation Allowance 20,436
Valuation Allowance (5,821)
===============================================================================
Net Deferred Tax Asset $ 14,615
===============================================================================
</TABLE>
At December 31, 1993, the Company's foreign subsidiaries had net
operating loss carryforwards of $6,400,000 for income tax purposes that expire
in years 1994 through 1999, and in one instance, had no expiration period. For
financial reporting purposes, a valuation allowance of $4,700,000 had been
recognized to offset the deferred tax assets related to the carryforwards
existing at December 31, 1993.
Undistributed earnings of the Company's foreign subsidiaries amounted
to approximately $88,000,000. Deferred income taxes are not provided on these
earnings as it is intended that the majority of them 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 the Coatings, Colors and Ceramics, coatings
revenues represented 41%, 38% and 37% of consolidated net sales for 1993, 1992
and 1991, respectively, while colors represented 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.
33
<PAGE> 28
Identifiable assets are those used in the operation of each segment.
Corporate assets consist primarily of cash and short-term securities.
Information about the Company's segment operating data follows:
<TABLE>
<CAPTION>
COATINGS, COLORS
(Dollars in Millions) AND CERAMICS PLASTICS CHEMICALS TOTAL
===============================================================================
<S> <C> <C> <C> <C>
SALES:
1993 $ 616.9 246.9 201.9 1,065.7
1992 629.5 255.2 213.1 1,097.8
1991 591.0 272.1 193.8 1,056.9
OPERATING PROFIT:
1993 $ 71.9 10.3 13.5 95.7
1992 84.6 8.9 10.9 104.4
1991 (A) 46.0 (16.4) 2.2 31.8
IDENTIFIABLE ASSETS:
1993 $ 402.9 107.0 131.2 641.1
1992 306.0 111.6 124.4 542.0
1991 303.4 119.0 128.5 550.9
CAPITAL EXPENDITURES:
1993 $ 20.0 8.6 15.1 43.7
1992 26.2 5.4 13.2 44.8
1991 14.8 5.2 19.0 39.0
DEPRECIATION AND AMORTIZATION:
1993 $ 20.9 6.8 10.6 38.3
1992 16.2 7.5 10.9 34.6
1991 15.4 8.8 9.7 33.9
===============================================================================
<FN>
(A) Excluding the restructuring charge operating profit would have been
$66,100,000 for Coatings, Colors and Ceramics, $700,000 for Plastics
and $8,500,000 for Chemicals.
</TABLE>
A reconciliation of operating profit to income before income taxes and
changes in accounting principles included in the consolidated statements of
income follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1993 1992 1991
=================================================================================================
<S> <C> <C> <C>
Operating profit $ 95.7 104.4 31.8
Equity in net earnings of affiliated companies 0.8 2.7 1.9
Interest earned 4.7 6.2 5.1
General corporate expense--net (A) (5.4) (7.5) (10.4)
Interest expense (10.1) (9.0) (9.9)
Miscellaneous 3.6 0.9 1.8
- -------------------------------------------------------------------------------------------------
Income before taxes and changes in accounting principles $ 89.3 97.7 20.3
=================================================================================================
<FN>
(A) Excluding restructuring charge of $1,900,000, general corporate expense
would have been $8,500,000 in 1991.
</TABLE>
A reconciliation of identifiable assets shown above to the total assets
included in the consolidated balance sheets follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1993 1992 1991
==================================================================================================
<S> <C> <C> <C>
Total identifiable assets $ 641.1 542.0 550.9
Investments in affiliated companies 10.1 13.4 12.3
Corporate assets (primarily cash and marketable securities) 116.7 141.1 108.7
- --------------------------------------------------------------------------------------------------
Total assets $ 767.9 696.5 671.9
==================================================================================================
</TABLE>
34
<PAGE> 29
<TABLE>
Geographic operating data follows:
<CAPTION>
UNITED
STATES
AND LATIN ASIA-
(Dollars in Millions) CANADA EUROPE AMERICA PACIFIC TOTAL
================================================================================================
<S> <C> <C> <C> <C> <C>
1993
NET SALES $ 534.0 347.6 91.6 92.5 1,065.7
OPERATING INCOME 40.6 28.0 16.2 9.7 94.5
IDENTIFIABLE ASSETS 300.8 243.7 38.2 58.4 641.1
1992
Net sales $ 493.8 412.0 107.6 84.4 1,097.8
Operating income 27.2 55.6 12.8 8.0 103.6
Identifiable assets 229.0 221.1 37.7 54.2 542.0
1991
Net sales $ 477.1 387.4 106.3 86.1 1,056.9
Operating income (loss) (A) (16.8) 30.5 7.0 7.5 28.2
Identifiable assets 222.2 232.5 46.9 49.3 550.9
================================================================================================
<FN>
(A) Excluding the restructuring charge operating income for 1991 would have
been $6,200,000 for the United States and Canada, $47,700,000 for Europe,
$11,000,000 for Latin America and $8,600,000 for Asia-Pacific.
</TABLE>
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 Ferro's foreign exchange hedging policy to neutralize or mitigate
the potentially negative effects of currency movements. It is not the policy of
the Company to enter into speculative hedges for which there is no underlying
exposure and whose purpose is to make speculative gains.
The Company uses forward foreign exchange contracts and currency options
to hedge its exposure to foreign currency fluctuations. The results of the
hedging instruments effectively offset the results of the underlying exposure.
As of December 31, 1993 and December 31, 1992, $91,900,000 and $92,400,000
(notional amounts) in hedging instruments were outstanding, respectively, the
majority of which were denominated in European currencies. The maturity of the
hedges is consistent with the underlying exposure, generally not in excess of
one year. The market value of these instruments, had liquidation occurred at
year end, is greater than the underlying basis of the instruments.
The hedge contracts are executed with major reputable multinational
financial institutions. Accordingly, the Company does not anticipate
counterparty default and believes that such risk is immaterial.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, ``Accounting for Certain Investments
in Debt and Equity Securities,'' which becomes effective for fiscal year 1994.
Under the new standard, debt securities which are classified as
available-for-sale are to be carried at fair value, and unrealized holding gains
or losses must 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 does not anticipate a material impact on its
financial statements when this standard is adopted in 1994.
35
<PAGE> 30
SELECTED FINANCIAL DATA
FERRO CORPORATION AND SUBSIDIARIES
Years ended December 31, 1983 through 1993
<TABLE>
<CAPTION>
(Dollars in thousands except per share data
and sales per employee data) 1993 1992 1991 1990 1989
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS (A)
Net sales $ 1,065,748 1,097,793 1,056,940 1,124,833 1,083,573
Income before taxes and cumulative effect
of changes in accounting principles 89,289 97,689 20,349 43,509 83,764
Income taxes 31,784 38,861 15,532 24,090 34,016
Net income $ 36,955 58,828 4,817 19,419 49,748
Income as a percent of sales before
cumulative effect of changes in
accounting principles 5.4% 5.4% 0.5% 1.7% 4.6%
RETURN ON AVERAGE NET WORTH 16.3% 18.1% 1.6% 6.4% 16.8%
PER COMMON SHARE DATA (A,B)
Average shares outstanding 29,472,201 29,314,494 28,821,380 29,064,517 30,972,625
Primary net income $ 1.13 1.90 .06 .55 1.53
Fully diluted net income $ 1.09 1.77 .06 .53 1.46
Cash dividends $ .51 .45 .43 .43 .40
Book value $ 12.32 11.92 10.67 10.77 10.20
FINANCIAL CONDITION AT YEAR-END
Current assets $ 411,253 414,927 405,740 386,704 408,692
Current liabilities 198,958 205,043 212,575 221,155 210,059
- -------------------------------------------------------------------------------------------------------------------------
Working capital $ 212,295 209,884 193,165 165,549 198,633
- -------------------------------------------------------------------------------------------------------------------------
Plant and equipment $ 538,188 497,561 511,605 519,044 446,290
Accumulated depreciation and
amortization 280,367 269,998 276,885 263,114 226,268
- -------------------------------------------------------------------------------------------------------------------------
Net plant and equipment $ 257,821 227,563 234,720 255,930 220,022
- -------------------------------------------------------------------------------------------------------------------------
Other assets $ 98,820 54,055 31,465 43,029 40,417
Total assets 767,894 696,545 671,925 685,663 669,131
Long-term liabilities 79,349 53,210 55,658 58,047 60,764
ESOP loan guarantee 44,076 50,897 57,229 62,649 68,020
Deferred income taxes 14,884 10,918 9,444 21,088 19,860
Postretirement liabilities 40,096 - - - -
Other non-current liabilities 31,734 31,504 31,732 17,122 13,359
Shareholders' equity $ 358,797 344,973 305,287 305,602 297,069
PLANT AND EQUIPMENT
Capital expenditures and
acquisitions $ 75,037 48,761 39,005 61,408 53,471
Depreciation $ 33,812 33,451 32,686 30,389 27,574
EMPLOYEES
Number (year-end) 6,627 6,535 7,266 8,205 8,045
Sales per employee $ 160,820 167,990 145,460 137,090 134,690
=========================================================================================================================
</TABLE>
36
<PAGE> 31
<TABLE>
<CAPTION>
(Dollars in thousands except per share data
and sales per employee data) 1988 1987 1986 1985 1984 1983
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS (A)
Net sales 1,008,990 871,008 725,241 651,071 662,867 619,179
Income before taxes and cumulative effect
of changes in accounting principles 88,436 61,023 45,482 18,265 32,351 38,862
Income taxes 41,816 29,336 21,400 9,372 15,465 19,634
Net income 46,620 31,687 24,082 8,893 16,886 19,228
Income as a percent of sales before
cumulative effect of changes in
accounting principles 4.6% 3.6% 3.3% 1.4% 2.5% 3.1%
RETURN ON AVERAGE NET WORTH 16.8% 13.1% 11.5% 4.6% 9.0% 10.9%
PER COMMON SHARE DATA (A,B)
Average shares outstanding 30,884,797 31,043,830 30,599,257 30,287,551 30,046,725 28,444,320
Primary net income 1.51 1.02 .79 .29 .57 .67
Fully diluted net income - - - - - -
Cash dividends .31 .30 .27 .27 .27 .27
Book value 9.53 8.46 7.27 6.46 6.25 6.10
FINANCIAL CONDITION AT YEAR-END
Current assets 356,972 325,835 271,643 227,467 207,233 218,403
Current liabilities 194,171 174,577 131,605 109,521 95,398 108,708
- ---------------------------------------------------------------------------------------------------------------------
Working capital 162,801 151,258 140,038 117,946 111,835 109,695
- ---------------------------------------------------------------------------------------------------------------------
Plant and equipment 399,785 359,223 316,770 282,986 258,488 248,908
Accumulated depreciation and
amortization 202,563 187,334 163,058 137,335 122,026 116,399
- ---------------------------------------------------------------------------------------------------------------------
Net plant and equipment 197,222 171,889 153,712 145,651 136,462 132,509
- ---------------------------------------------------------------------------------------------------------------------
Other assets 33,946 34,302 23,993 20,272 18,603 16,350
Total assets 588,140 532,026 449,348 393,390 362,298 367,262
Long-term liabilities 63,163 64,147 68,136 68,391 60,950 55,933
ESOP loan guarantee - - - - - -
Deferred income taxes 20,622 22,035 17,347 12,812 11,828 10,188
Postretirement liabilities - - - - - -
Other non-current liabilities 14,850 11,516 8,963 6,559 5,779 4,695
Shareholders' equity 295,334 259,751 223,297 196,107 188,343 187,738
PLANT AND EQUIPMENT
Capital expenditures and
acquisitions 53,753 37,339 23,839 27,050 29,364 20,252
Depreciation 24,696 21,883 18,926 16,832 15,988 15,088
EMPLOYEES
Number (year-end) 8,374 8,100 7,721 8,018 7,950 8,062
Sales per employee 120,490 107,530 93,930 81,200 83,380 76,800
=====================================================================================================================
<FN>
(A) Included in 1993 is a pretax 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
pretax 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.
37
</TABLE>
<PAGE> 32
QUARTERLY DATA
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Share Data) EARNINGS (LOSS) PER
COMMON SHARE DIVIDENDS COMMON
NET ------------------------ PER STOCK
NET GROSS INCOME/ FULLY COMMON PRICE
QUARTER SALES PROFIT (LOSS) PRIMARY DILUTED SHARE RANGE
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
1993(A) 1 $ 257,036 68,722 (7,428) (.28) (.28) .120 $34.75 -26.875
2 279,717 73,559 13,597 .43 .41 .120 32.375-26.125
3 263,697 67,585 14,988 .48 .45 .135 34.25 -28.50
4 265,298 71,985 15,798 .51 .48 .135 33.875-29.75
- -----------------------------------------------------------------------------------------------------------------------------------
Total $1,065,748 281,851 36,955 1.13 1.09 .51
===================================================================================================================================
1992 1 $ 272,610 69,271 12,925 .42 .39 .107 $30.00 -24.00
2 291,948 77,735 14,740 .47 .44 .107 31.50 -25.625
3 272,030 69,857 14,796 .48 .44 .120 30.875-24.375
4 261,205 70,982 16,367 .53 .50 .120 28.75 -23.50
- -----------------------------------------------------------------------------------------------------------------------------------
Total $1,097,793 287,845 58,828 1.90 1.77 .45
===================================================================================================================================
</TABLE>
Primary earnings per common share are calculated using a weighted average of
common and common equivalent shares.
Per share data is adjusted to reflect the three-for-two stock split in August
1992.
The common stock of the Company is listed on the New York Stock Exchange.
Ticker symbol: FOE.
At January 31, 1994, the Company had 3,099 holders of its common stock.
The Company's fully diluted earnings per share in 1993 differ from the total of
the quarterly amounts because of the effect of antidilutive securities in the
second and fourth quarter calculations.
(A) Included in 1993 is an after-tax charge of $20,550 for the cumulative
effect of changes in accounting for postretirement benefits and income taxes.
Excluding this charge, net income for 1993 would have been $57,505, or $1.83
per common share primary and $1.73 per common share fully diluted.
38
<PAGE> 1
<TABLE>
EXHIBIT 21
LIST OF SUBSIDIARIES
<CAPTION>
Sovereign power
under the laws of
Name of Subsidiary* which organized
------------------ -----------------
<S> <C>
Cercoa, Inc. Florida
Ferro Corporation (Australia) Pty. Ltd. Australia
Fletcher Chemical Company, Ltd. Australia
Ferro Corporation New Zealand Pty. Ltd. New Zealand
Ferro Plastics (N.Z.) Ltd. New Zealand
Ferro Industrial Products Ltd. Canada
Ferro (Great Britain) Ltd. United Kingdom
Ferro B.V. The Netherlands
Ferro (Holland) B.V. The Netherlands
Ferro France S.a R.L. France
Eurostar S.A. France
Ferro Chemicals S.A. France
Metal Portuguesa S.A. (51%) Portugal
Ruhr-Pulverlack G.m.b.H. Germany
Ferro Plastics (Germany) G.m.b.H. Germany
Ferro (Deutschland) G.m.b.H. Germany
Ferro (Italia) S.R.L. Italy
Ecotech Italia, S.p.A. (51%) Italy
Ferro Toyo Co., Ltd. (60%) Taiwan, Republic of China
Ferro Enamel do Brasil, I.C.L. Brazil
Ferro Enamel do Sul I.C.L. Brazil
Ferro Mexicana S.A. de C.V. Mexico
Ferro Enamel Argentina S.A.I.C.y M. Argentina
Ferro Far East, Ltd. Hong Kong
Ferro Enamel Espanola S.A. Spain
Ferro Industrial Products Limited Taiwan, Republic of China
Nissan Ferro Organic Chemical Co. Ltd. (51%) Japan
PT Ferro Mas Dinamika (55%) Indonesia
<FN>
- ---------------------
* Percentages in parentheses indicate Ferro's ownership.
</TABLE>
Ferro has a number of sales and warehousing subsidiaries throughout the
world which are omitted from the foregoing list because they are
considered in the aggregate or individually not to constitute a
significant subsidiary.
<PAGE> 1
KPMG PEAT MARWICK
Certified Public Accountants
1500 National City Center
1900 East Ninth Street
Cleveland, OH 44114-3195
Exhibit 23
-----------
The Board of Directors
Ferro Corporation
We consent to incorporation by reference in the Registration Statements (File
Nos. 2-61407, 33-28520, and 33-45582) on Form S-8 (File No. 33-51284) and on
Form S-3 of Ferro Corporation of our report dated January 27, 1994 relating to
the consolidated balance sheets of Ferro Corporation and subsidiaries as of
December 31, 1993 AND 1992, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993, which report appears in the December 31, 1993
annual report on Form 10-K of Ferro Corporation.
/s/ KPMG Peat Marwick
Cleveland, Ohio
March 28, 1994
