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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(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, 1996
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
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FERRO CORPORATION
(Exact name of registrant as specified in its charter)
An Ohio Corporation 1000 LAKESIDE AVENUE I.R.S. No. 34-0217820
CLEVELAND, OH 44114
(Address of principal executive offices)
Registrant's telephone number, including area code: 216-641-8580
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class Name of Exchange on which registered
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Common Stock, par value $1.00 New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
7 5/8% Debentures due May 1, 2013
7 3/8% Debentures due November 1, 2015
8% Debentures due June 15, 2025
Series A ESOP Convertible Preferred Stock, without Par Value
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
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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, January 31, 1997 there were 25,537,533 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
$759,741,607.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Annual Report to Shareholders for the year ended December 31, 1996
(Incorporated into Parts I, II and IV of this Form 10-K).
Portions of Ferro Corporation's Proxy Statement dated March 13, 1997
(Incorporated into Parts II and III of this Form 10-K).
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I
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Item 1. Business..................................................................................Page 3
Item 2. Properties................................................................................Page 6
Item 3. Legal Proceedings.........................................................................Page 6
Item 4. Submission of Matters to a Vote of Security Holders.......................................Page 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.....................Page 8
Item 6. Selected Financial Data...................................................................Page 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....Page 8
Item 8. Financial Statements and Supplementary Data...............................................Page 8
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..... Page 9
PART III
Item 10. Directors and Executive Officers of the Registrant........................................Page 9
Item 11. Executive Compensation....................................................................Page 9
Item 12. Security Ownership of Certain Beneficial Owners and Management............................Page 9
Item 13. Certain Relationships and Related Transactions............................................Page 9
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................Page 9
</TABLE>
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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 for industry by organic
and inorganic chemistry. It operates (either directly or through subsidiaries
and affiliates) in 21 countries worldwide. Ferro produces a variety of specialty
coatings, colors, ceramics, plastics, chemicals, 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 both in the manufacturing processes
and in the end products of Ferro customers. These specialty materials are not
sold in the high volume normally associated with commodity businesses.
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 6 through 13
of its 1996 Annual Report to Shareholders, which is attached hereto as Exhibit
13 (the "Annual Report"). The information contained under the aforementioned
headings on pages 6 through 13 of the Annual Report (excluding pages 8, 11 and
12 on which only pictures appear and the text describing such pictures on pages
9, 10 and 13) is incorporated herein by reference. Information concerning
Ferro's business during 1996, 1995 and 1994 and certain transactions consummated
during those years is included under the heading "Management's Discussion and
Analysis" on pages 14 through 18 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 27 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 30 and 31 of
the Annual Report and is incorporated herein by reference.
Certain Statements contained herein and in future filings with the
Securities and Exchange Commission reflect the Company's current expectations
with respect to the future performance of the Company and may constitute
"Forward-Looking Statements." Because they are based on current expectations,
actual results may differ materially. Please refer to the "Cautionary Note on
Forward-Looking Statements" section of "Management's Discussion and Analysis"
contained on page 17 of the Annual Report for additional information, which
information is incorporated herein by reference.
RAW MATERIALS
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 1996 and does not
anticipate such shortages in 1997.
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
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group of patents would have a materially adverse effect on its business. Ferro
patents expire at various dates through the year 2017.
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 Coatings, Colors and
Ceramics or its Plastics businesses are dependent on any single customer or
group of customers. In the Chemicals segment however, the loss of two or three
of the largest customers could have a materially adverse effect on this segment.
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 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. The exception to this is frit,
where 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 world, 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 61 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 $23,779,000, $23,150,000 and $22,919,000 in
1996, 1995 and 1994 respectively. Expenditures for individual customer requests
for 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
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subject and that, to the extent Ferro may not be in compliance with such
regulations, such non-compliance has not had a materially 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 $4.2 million in capital
expenditures for environmental control in 1996 and the Company's best estimate
of what it expects capital expenditures for environmental control to be in 1997
and 1998 are $3.0 million and $3.5 million, respectively. The Company does not
consider these capital expenditures to be material.
During 1995 the Company reached an agreement in principle to settle a suit
filed in August 1993 by the United States Environmental Protection Agency
alleging violation of the Clean Water Act and the Rivers and Harbors Act by Keil
Chemical, a production facility owned and operated by Ferro in Hammond, Indiana.
The Company had been named as one of several defendants, including three local
municipalities, one local government agency (a sewer district) and four other
area industrial concerns. In 1996 the Company signed a Consent Decree whereby
the Company agreed to pay a civil penalty of $0.4 million and to pay $1.4
million (the "Settlement Amount") into a fund to be established to help clean up
sediment in the West Branch of the Grand Calumet River following entry of the
Consent Decree by the Court. The Consent Decree is expected to be entered by the
Court in the first quarter of 1997. The Company is obligated to pay the
Settlement Amount 30 days after entry of the Consent Decree by the Court.
EMPLOYEES
At December 31, 1996, Ferro employed approximately 6,912 full-time
employees, including 4,040 employees in its foreign subsidiaries and affiliates
and 2,872 in the United States.
Approximately 27% of the domestic workforce is covered by labor agreements,
and approximately 7% is affected by union agreements which expire in 1997.
FOREIGN OPERATIONS
Financial information about Ferro's domestic and foreign operations is set
forth on pages 30 and 31 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,
Portugal, Spain and Taiwan. Partially-owned subsidiaries manufacture in Ecuador,
Indonesia, Japan, Taiwan, Thailand, Turkey and Venezuela.
Foreign operations (excluding Canada) accounted for 46% of the consolidated
net sales and 46% of Ferro's consolidated operating income for the fiscal year
1996; comparable amounts for the fiscal year 1995 were 50% and 53% and for
fiscal year 1994 were 50% and 60%.
Except for the sales of Ferro Enamel Argentina, S.A.I.C.y.M.(Argentina),
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.,
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Ltd. (Taiwan), Ruhr-Pulverlack G.m.b.H.(Germany) and Ferro Industrias Quimicas
(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. Historically, as a matter of general corporate policy, the
foreign subsidiaries have been expected to remit a portion of their annual
earnings to the parent as dividends. 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.
ITEM 2 - PROPERTIES
Ferro's corporate headquarters office is located at 1000 Lakeside Avenue,
Cleveland, Ohio; and the Research and Development Center is located in
Independence, Ohio; both properties are 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; Nashville, Tennessee;
Pittsburgh, Pennsylvania; Toccoa, Georgia; Orrville, Ohio; Shreve, 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 Cleveland, Ohio
(Chemicals); Fort Worth, Texas (Chemicals); Santa Barbara, California (Coatings)
and San Marcos, California (Coatings).
Outside the United States, Ferro or its subsidiaries own manufacturing
plants in Argentina, Australia, Brazil, Canada, Ecuador, France, Germany,
Indonesia, Italy, Japan, Mexico, the Netherlands, Spain, Taiwan, Thailand and
the United Kingdom. Ferro or its subsidiaries lease manufacturing plants in
Italy, Portugal, Germany and the Netherlands. 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
Information set forth in Note 7 to Ferro's Consolidated Financial
Statements on page 28 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 Mark A. Cusick is a
partner, provided legal services
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to Ferro in 1996 and Ferro plans to continue the use of such firm in 1997. Mr.
Cusick is the Secretary 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
There is set forth below the name, age, positions and offices held by each
individual serving as executive officer as of March 15, 1997 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 - 62
Chairman of the Board and Chief Executive Officer, 1996
President and Chief Executive Officer, 1991
David G. Campopiano - 47
Vice President, Corporate Development, 1989
R. Jay Finch - 55
Vice President, Specialty Plastics, 1991
James F. Fisher - 59
Vice President, Ceramics and Colorants 1996
Senior Vice President, Powder Coatings, Specialty Ceramics and
Electronic Materials, 1994
Senior Vice President, Coatings, Colors and Ceramics, 1993
Group Vice President, International, 1991
James B. Friederichsen - 54
Vice President, Specialty Chemicals, 1994
President, MTM Americas, 1990
D. Thomas George - 49
Treasurer, 1991
J. Larry Jameson - 59
Vice President, Powder Coatings, 1996
Self Employed, Coatings Consultant, 1993
Chief Executive Officer, Pirelli Cable Corporation, 1993
President, Coatings and Colorants Division, BASF Corporation, 1986
Charles M. Less - 47
Vice President, Marketing, 1995
Group Market Manager, Rohm and Haas, 1992
Business Manager Coatings, Europe, Rohm and Haas, 1987
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Hector R. Ortino - 54
President and Chief Operating Officer, 1996
President, 1996
Executive Vice President and Chief Financial-Administrative Officer,
1993
Senior Vice President and Chief Financial Officer, 1991
Thomas O. Purcell, Jr. - 52
Vice President and Chief Technical Officer, 1996
Vice President, Research and Development, 1991
Gary H. Ritondaro - 50
Vice President and Chief Financial Officer, 1996
Vice President, Finance, 1993
Vice President, Controller, 1991
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 (unaudited)" on
page 34 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 25 and 26 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 32 and 33 of the
Annual Report is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The information contained under the heading "Management's Discussion and
Analysis" on pages 14 through 18 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 19 through 31, inclusive, including the Notes to Consolidated
Financial Statements, and the quarterly data (unaudited) on page 34 of the
Annual Report, are incorporated herein by reference.
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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no such changes or disagreements.
PART III
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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 13, 1997 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 14 through 27, inclusive,
of Ferro's Proxy Statement dated March 13, 1997, 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, inclusive, of Ferro's Proxy
Statement dated March 13, 1997 and is incorporated herein by reference.
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 19 THROUGH 31, INCLUSIVE, OF
THE ANNUAL REPORT ARE INCORPORATED HEREIN BY REFERENCE:
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Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(B) THE FOLLOWING ADDITIONAL INFORMATION FOR THE YEARS 1996, 1995 AND
1994, IS SUBMITTED HEREWITH:
Independent Auditors' Report on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
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 because, in the aggregate, these companies do not
constitute a significant subsidiary.
Financial Statement Schedule II, together with the independent
Auditors' Report thereon, are contained on pages F-1 and F-2 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.)
(b) Certificate of Amendment to the Eleventh Amended Articles of
Incorporation of Ferro Corporation filed December 28, 1994.
(Reference is made to Exhibit (3)(b) to Ferro Corporation's
Annual Report on Form 10-K for the year ended December 31,
1994, which Exhibit is incorporated herein by reference.)
(c) 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
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(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 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 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 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 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 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.)
(g) Amendment Number 6 dated June 22, 1995, to the Revolving
Credit Agreement by and between Ferro and four commercial
banks. (Reference is made to Exhibit 4(b)(4) to Ferro
Corporation's Form 10-Q for the three months ended June 30,
1995, which Exhibit is incorporated herein by reference.)
(h) Amendment Number 7 dated October 25, 1995 to the Revolving
Credit Agreement by and between Ferro Corporation and four
commercial banks. (Reference is made to Exhibit 4(b)(4) to
Ferro Corporation's Form 10-Q for the three months ended
September 30, 1995, which Exhibit is incorporated herein by
reference.)
(i) Shareholder Rights Agreement between Ferro Corporation and
National City Bank, Cleveland, Ohio, as Rights Agent, dated
as of March 22, 1996. (Reference is made to the Exhibit to
the Registration Statement on Form 8-A dated May 15, 1996
which Exhibit is incorporated herein by reference.)
(j) The rights of the holders of Ferro's Debt Securities issued
and 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
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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 14 through 17 of the Proxy
Statement dated March 13, 1997. Said description is
incorporated herein by reference.
(b) Ferro's 1997 Performance Share Plan, subject to shareholder
approval at the 1997 annual meeting. Reference is made to
Exhibit A of Ferro Corporation's Proxy Statement dated March
13, 1997, which exhibit 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.)
(d) Ferro's 1985 Employee Stock Option Plan for Key Personnel
(Amended and Restated). (Reference is made to Exhibit A to
Ferro Corporation's Proxy Statement dated March 11, 1991,
which Exhibit is incorporated by reference.) Reference is
also made to pages 13 and 14 of Ferro Corporation's Proxy
Statement dated March 20, 1995, for an amendment to the
plan. Reference is also made to pages 10 through 13 of Ferro
Corporation's Proxy Statement dated March 12, 1996, for an
amendment to the plan. Attached hereto as Exhibit 10.3 is
an amendment to the plan effective with respect to options
granted beginning in January 1997.
(e) Form of Indemnification Agreement (adopted January 25, 1991
for use from and after that date). (Reference is 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) Amended and Restated Executive Employment Agreement dated
July 28, 1995. (Reference is made to Exhibit 10(b) of Ferro
Corporation's Form 10-Q for the three months ended September
30, 1995, 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) Various agreements relating to an Asset Defeasance Financing
including a Participation Agreement dated as of October 31,
1995 among Ferro Corporation, State Street Bank and Trust
Company (not in its individual capacity but solely as
Trustee), the financial institutions named as Purchasers,
and Citibank N.A, as Agent, and a Lease dated October 31,
1995 between State Street Bank and Trust Company (not in its
individual capacity but solely as Trustee) as Lessor and
Ferro Corporation as Lessee. The additional agreements are
available upon request. (Reference is made to Exhibit 10(a)
of Ferro Corporation's Form 10-Q for the three months ended
September 30, 1995, which Exhibit is incorporated herein by
reference.)
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(i) Ferro's Supplemental Executive Defined Contribution Plan is
attached hereto as Exhibit 10.1.
(j) Separation Agreement between Ferro Corporation and Werner F.
Bush dated September 30, 1996 is attached hereto as Exhibit
10.2.
(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, 1996.
(21) List of Subsidiaries.
(23) Consent of KPMG Peat Marwick LLP 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 and
Registration No. 33-63855.
2. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed for the three months ended December 31,
1996
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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,
Chairman 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 21st
day of March, 1997
/s/ Albert C. Bersticker Chairman and Chief Executive Officer
Albert C. Bersticker and Director
(Principal Executive Officer)
/s/ Gary H. Ritondaro Vice President and Chief Financial
Gary H. Ritondaro Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Sandra Harden Austin Director
Sandra Harden Austin
/s/ Paul S. Brentlinger Director
Paul S. Brentlinger
/s/ Glenn R. Brown Director
Glenn R. Brown
Director
William E. Butler
/s/ A. James Freeman Director
A. James Freeman
Director
John C. Morley
/s/ Hector R. Ortino Director
Hector R. Ortino
/s/ Rex A. Sebastian Director
Rex A. Sebastian
/s/ Dennis W. Sullivan Director
Dennis W. Sullivan
-14-
<PAGE> 15
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Shareholders and Board of Directors Ferro Corporation
Under date of January 23, 1997, we reported on the consolidated balance sheets
of Ferro Corporation and subsidiaries as of December 31, 1996 and 1995, 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, 1996, as
contained in the 1996 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 1996. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement Schedule II, Valuation and Qualifying Accounts and
Reserves. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Cleveland, Ohio
January, 23, 1997
F-1
<PAGE> 16
FERRO CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1996, 1995 and 1994
(thousands of dollars)
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End of
of Period Expenses Accounts Deductions Period
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply 254 (C)
Possible losses in collection of notes 225 (B)
and accounts receivable - trade $ 9,877 3,006 2,907 (A) 9,497
========== ========== ======== ========== =========
Year ended December 31, 1995
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply
Possible losses in collection of notes 12 (C)
and accounts receivable - trade $ 7,129 4,750 174 (B) 2,188 (A) 9,877
========== ========== ======== ========== =========
Year ended December 31, 1994
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply
Possible losses in collection of notes 68 (C)
and accounts receivable - trade $ 6,464 2,113 264 (B) 1,780 (A) 7,129
========== ========== ======== ========== =========
<FN>
(A) Accounts written off, less recoveries
(B) Adjustment in respect of differences in rates of exchange
(C) Acquisitions and divestitures, net
</TABLE>
F-2
<PAGE> 17
EXHIBIT INDEX
Exhibit (10) Schedule I
Exhibit (10.1) Supplemental Executive Defined Contribution Plan
Exhibit (10.2) Separation Agreement Between Ferro Corporation and
Werner F. Bush
Exhibit (10.3) Ammendment to Ferro Corporation 1985 Employee Stock Option
Plan for Key Personnel Effective with Respect to Options
Granted Beginning in January 1997.
Exhibit (11) Statement Regarding Computation of Earnings per Share
Exhibit (12) Ratio of Earnings to Fixed Charges
Exhibit (13) Annual Report to Shareholders
Exhibit (21) List of Subsidiaries
Exhibit (23) Consent of KPMG Peat Marwick LLP
Exhibit (27) Financial Data Schedule (Electronic Filing Only)
<PAGE> 1
Exhibit 10
SCHEDULE I
Ferro Corporation has entered into executive employment agreements with its
officers listed below substantially identical in all material respects to the
Form of Amended and Restated Executive Employment Agreement (Exhibit 10(b) to
Ferro Corporation's Form 10-Q for the three months ended September 30, 1995,
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, Hector R. Ortino and multiplied by two in the case of all other
officers.
Albert C. Bersticker
David G. Campopiano
R. Jay Finch
James F. Fisher
James B. Friederichsen
D. Thomas George
J. Larry Jameson
Charles M. Less
Hector R. Ortino
Thomas O. Purcell
Gary H. Ritondaro
<PAGE> 1
Exhibit 10.1
FERRO CORPORATION
SUPPLEMENTAL EXECUTIVE
DEFINED CONTRIBUTION PLAN
<PAGE> 2
FERRO CORPORATION
SUPPLEMENTAL EXECUTIVE
DEFINED CONTRIBUTION PLAN
Section Page
- ------- ----
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions ......................................................... 2
1.2 Construction ........................................................ 4
ARTICLE II
ELIGIBILITY FOR PLAN PARTICIPATION 5
----------------------------------
ARTICLE III
SUPPLEMENTAL MATCHING CONTRIBUTIONS
-----------------------------------
3.1 Supplemental Matching Contributions ................................. 6
3.2 Vesting of Supplemental Matching
Contributions...................................................... 6
3.3 Years of Vesting Service............................................. 7
ARTICLE IV
SEPARATE ACCOUNTS
-----------------
4.1 Types of Separate Accounts .......................................... 8
4.2 Adjustment of Separate Accounts ..................................... 8
ARTICLE V
DISTRIBUTION
------------
5.1 Distribution Upon Termination of Employment ......................... 9
5.2 Method of Distribution .............................................. 9
5.3 Times of Payments.................................................... 9
5.4 Distributions Upon Death............................................. 9
5.5 Taxes................................................................ 9
(i)
<PAGE> 3
ARTICLE VI
BENEFICIARIES 11
-------------
ARTICLE VII
ADMINISTRATIVE PROVISIONS
-------------------------
7.1 Administration ..................................................... 12
7.2 Powers and Authorities of the Board ................................ 12
7.3 Indemnification .................................................... 12
ARTICLE VIII
AMENDMENT AND TERMINATION 14
-------------------------
ARTICLE IX
MISCELLANEOUS
-------------
9.1 Non-Alienation of Benefits ......................................... 15
9.2 Payment of Benefits to Others ...................................... 15
9.3 Qualified Domestic Relations Orders................................. 15
9.4 Plan Non-Contractual ............................................... 16
9.5 Funding ............................................................ 16
9.6 Claims of Other Persons ............................................ 17
9.7 Severability ....................................................... 17
9.8 Governing Law ...................................................... 17
(ii)
<PAGE> 4
FERRO CORPORATION
SUPPLEMENTAL EXECUTIVE
DEFINED CONTRIBUTION PLAN
WHEREAS, Ferro Corporation (hereinafter referred to as the "Company")
desires to establish a supplemental retirement plan for the benefit of a select
group of management or highly compensated employees employed by the Company or
an Affiliate thereof whose benefits under the Ferro Corporation Savings and
Stock Ownership Plan are limited or reduced by certain provisions of the
Internal Revenue Code of 1986, as amended (hereinafter referred to as the
"Code");
NOW, THEREFORE, effective as of January 1, 1996, the Company hereby
establishes the Ferro Corporation Supplemental Executive Defined Contribution
Plan (hereinafter referred to as the "Plan") to provide benefits not otherwise
provided due to such limitations as hereinafter set forth.
<PAGE> 5
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. Except as otherwise required by the context, the terms
used in the Plan shall have the meaning hereinafter set forth.
(i) AFFILIATE. The term "AFFILIATE" shall mean any member of a
controlled group of corporations (as determined under Section 414(b) of the
Code) of which the Company is a member; any member of a group of trades or
businesses under common control (as determined under Section 414(c) of the
Code) with the Company; and any member of an affiliated service group (as
determined under Section 414(m) of the Code) of which the Company is a
member.
(ii) BENEFICIARY. The term "BENEFICIARY" shall mean the person who, in
accordance with the provisions of Article VI, shall be entitled to receive
a distribution hereunder in the event a Participant dies before his
interest under the Plan has been distributed to him in full.
(iii) BOARD. The term "BOARD" shall mean the Board of Directors of the
Company.
(iv) CHANGE OF CONTROL. The term "CHANGE OF CONTROL" shall mean a
change in control of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended
("Exchange Act"); provided that, without limitation, such a Change in
Control shall be deemed to have occurred if and at such times as (i) any
"person" (as such term is used in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing twenty-five percent (25%) or more
of the combined voting power of the Company's then outstanding securities;
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
and any new director (other than a director designated by a person who has
entered into
-2-
<PAGE> 6
an agreement or arrangement with the Company to effect a transaction
described in clause (i) or (iii) of this sentence) whose appointment,
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority of the Board of Directors of
the Company; or (iii) there is consummated a merger or consolidation of the
Company or a subsidiary thereof with or into any other corporation, other
than a merger or consolidation which would result in the holders of the
voting securities of the Company outstanding immediately prior thereto
holding securities which represent immediately after such merger or
consolidation more than 50% of the combined voting power of the voting
securities of either the Company or the other entity which survives such
merger or consolidation or the parent of the entity which survives such
merger or consolidation; or (iv) there is consummated the sale or
disposition by the Company of all or substantially all the Company's
assets.
(v) CODE. The term "CODE" shall mean the Internal Revenue Code of
1986, as amended from time to time. Reference to a section of the Code
shall include such section and any comparable section or sections of any
future legislation that amends, supplements, or supersedes such section.
(vi) COMPANY. The term "COMPANY" shall mean Ferro Corporation, its
corporate successors, and the surviving corporation resulting from any
merger of Ferro Corporation with any other corporation or corporations.
(vii) COMPENSATION. The term "COMPENSATION" shall mean the
compensation within the meaning of Section 415(c)(3) of the Code, subject
to the provisions of Section 414(q)(6), paid during a Plan Year by the
Employer to a Participant while a Participant, including all wages and
salary, commissions and bonuses, overtime pay, and used or accrued vacation
pay and any Pre-Tax Contributions contributed under the SSOP with respect
to such Participant during such Plan Year and elective employer
-3-
<PAGE> 7
contributions made on behalf of a Participant that are not includable in
gross income under Section 125, Section 402(e)(3), Section 402(h)(1)(B),
and Section 403(b) of the Code, but excluding relocation expense
reimbursements (including mortgage interest differentials) or other expense
allowances or fringe benefits, which are paid with respect to a period
following termination of employment, automobile allowance income and
foreign service premiums, deferred compensation (other than Pre-Tax
Contributions), and allowances or any other extraordinary income and
welfare benefits.
(viii) DISABILITY. The term "DISABILITY" shall mean eligibility to
receive disability benefits under a long-term disability plan maintained by
the Company or an Affiliate.
(ix) FUND. The term "FUND" shall mean any of the funds maintained for
the investment of Plan assets in accordance with the provisions of Article
VII.
(x) PARTICIPANT. The term "PARTICIPANT" shall mean any employee of the
Company or an Affiliate, who participates in the Plan pursuant to Article
II of the Plan.
(xi) PLAN. The term "PLAN" shall mean the Ferro Corporation
Supplemental Executive Defined Contribution Plan as set forth herein.
(xii) SSOP. The term "SSOP" shall mean the Ferro Corporation Savings
and Stock Ownership Plan, as amended from time to time.
(xiii) SEPARATE ACCOUNT. The term "SEPARATE ACCOUNT" shall mean the
account maintained in the name of a Participant pursuant to Section 4.1 of
the Plan.
(xiv) VALUATION DATE. The term "VALUATION DATE" shall mean the last
day of each calendar year.
(xv) YEARS OF VESTING SERVICE. The term "YEARS OF VESTING SERVICE"
shall mean service credited to a Participant under the provisions of
Section 3.5.
1.2 CONSTRUCTION. Where necessary or appropriate to the meaning hereof, the
singular shall be deemed to include the plural, the plural to include
the singular, the masculine to include the feminine, and the feminine
to include the masculine.
-4-
<PAGE> 8
ARTICLE II
ELIGIBILITY FOR PLAN PARTICIPATION
----------------------------------
Any select management or highly compensated employee of the Company or an
Affiliate who is classified as being in Salary Grade 22 or higher and whose
contributions under the SSOP are limited due to the provisions of Section
401(a)(17), Section 401(k), Section 401(m), Section 402(g), or Section 415 of
the Code, shall become a Participant in the Plan as of the Effective Date or the
January 1 immediately following the date he is classified as being in Salary
Grade 22 or higher, whichever occurs later.
-5-
<PAGE> 9
ARTICLE III
SUPPLEMENTAL MATCHING CONTRIBUTIONS
-----------------------------------
3.1 SUPPLEMENTAL MATCHING CONTRIBUTIONS. Each Plan Year a Supplemental
Matching Contribution shall be credited to the Supplemental Matching Account of
each Participant (i) who is making the maximum 401(k) Contributions permitted
under the SSOP and (ii) who is employed by the Employer on the last day of the
Plan Year or who died, retired and began receiving pension benefits under a
defined benefit plan of the Company or an Affiliate, or incurred a Disability
during the Plan Year. Such Supplemental Matching Contribution shall be equal to
the amount of Matching Contributions that would have been made under the SSOP
for such Plan Year if the 401(k) Contributions of such Participant under the
SSOP had not been limited due to the provisions of the Code and if the
Participant had elected to make 401(k) Contributions under the SSOP equal to 8
percent of his Compensation, minus the amount of Matching Contributions actually
credited to such Participant under the SSOP for such Plan Year.
3.2 VESTING OF SUPPLEMENTAL MATCHING CONTRIBUTIONS. A Participant shall
become vested in the balance of his Supplemental Matching Account pursuant to
the following schedule.
Years of Vesting Service Percentage Vested
------------------------ -----------------
Less than 1 year 0%
1 year, but less than 2 20%
2 years, but less than 3 40%
3 years, but less than 4 60%
4 years, but less than 5 80%
5 years or more 100%
Notwithstanding the foregoing, a Participant who is employed by the Company or
an Affiliate shall become 100% vested in his Supplemental Matching Account upon
the earlier of: (i)
-6-
<PAGE> 10
attainment of age 65, (ii) Disability, (iii) death, or (iv) a Change of Control.
3.3 YEARS OF VESTING SERVICE. For purposes of determining the vested
interest of a Participant in his Supplemental Matching Account, a Participant
shall be credited with Years of Vesting Service equal to the Years of Service
with which he is credited under the SSOP.
-7-
<PAGE> 11
ARTICLE IV
SEPARATE ACCOUNTS
-----------------
4.1 TYPES OF SEPARATE ACCOUNTS. Each Participant shall have established in
his name a Separate Account which shall reflect the Supplemental Matching
Contributions credited to him under Section 3.1 and any adjustment thereto
pursuant to Section 4.2.
4.2 ADJUSTMENT OF SEPARATE ACCOUNTS. The Separate Account of a Participant
shall be adjusted as of each Valuation Date to reflect the deemed investment of
such Separate Accounts in the Fund as determined by the Company.
-8-
<PAGE> 12
ARTICLE V
DISTRIBUTION
------------
5.1 DISTRIBUTION UPON TERMINATION OF EMPLOYMENT. The entire value credited
to a Participant's Separate Account shall be distributed in cash to such
Participant or his Beneficiary after the Disability of such Participant or after
the termination of such Participant's employment with the Company and
Affiliates, whichever occurs earlier.
5.2 METHOD OF DISTRIBUTION. Except as otherwise may be provided in Sections
5.3 and 5.4, the benefits payable under the Plan from a Participant's Separate
Account shall be paid to the Participant, or his Beneficiary, if applicable, in
a single sum cash payment and shall be determined as of the most recent
Valuation Date plus a pro-rata share of the investment credit through the last
day of the month in which termination occurred. Any Supplemental Matching
Contribution earned in the final year of employment shall be determined on the
next succeeding Valuation Date.
5.3 TIME OF PAYMENTS. Except as otherwise provided in Section 5.4,
distribution of the value of a Participant's Separate Accounts shall commence as
soon as practicable after the Participant's termination of employment due to
resignation, retirement, death or other reason.
5.4 DISTRIBUTIONS UPON DEATH. Upon the death of a Participant, the value of
his Separate Account shall be paid to his Beneficiary pursuant to the provisions
of Section 5.3 and Article VI.
5.5 TAXES. In the event any taxes are required by law to be withheld or
paid from any payments made pursuant to the Plan, the Company shall cause the
withholding of such amounts from such payments and shall transmit the withheld
amounts to the appropriate taxing
-9-
<PAGE> 13
authority.
-10-
<PAGE> 14
ARTICLE VI
BENEFICIARIES
-------------
In the event a Participant dies before his interest under the Plan in his
Separate Account has been distributed to him in full, any remaining interest
shall be distributed pursuant to Article V to his Beneficiary, who shall be the
person designated in writing and in the form and manner specified by the Company
as his Beneficiary under the Plan. In the event a Participant does not designate
a Beneficiary or his designated Beneficiary does not survive him, his
beneficiary under the SSOP shall be his Beneficiary for Plan purposes.
-11-
<PAGE> 15
ARTICLE VII
ADMINISTRATIVE PROVISIONS
-------------------------
7.1 ADMINISTRATION. The Plan shall be administered by the Company in a
manner that is generally consistent with the administration of the SSOP, as from
time to time amended, except that the Plan shall be administered as an unfunded
plan not intended to meet the qualification requirements of Section 401 of the
Code.
7.2 POWERS AND AUTHORITIES OF THE COMPANY. The Company shall have full
power and authority to interpret, construe and administer the Plan and its
interpretations and construction hereof, and actions hereunder, including the
timing, form, amount or recipient of any payment to be made hereunder, shall be
binding and conclusive on all persons for all purposes. The Company may delegate
any of its powers, authorities, or responsibilities for the operation and
administration of the Plan to any person or a committee so designated in writing
by it and may employ such attorneys, agents, and accountants as it may deem
necessary or advisable to assist it in carrying out its duties hereunder.
7.3 INDEMNIFICATION. In addition to whatever rights of indemnification a
person or persons to whom any power, authority, or responsibility is delegated
pursuant to Section 7.2, may be entitled under the articles of incorporation,
regulations, or by-laws of the Company, under any provision of law, or under any
other agreement, the Company shall satisfy any liability actually and reasonably
incurred by any such member or such other person or persons, including expenses,
attorneys' fees, judgments, fines, and amounts paid in settlement, in connection
with any threatened, pending, or completed action, suit, or proceeding which is
related to the exercise or failure to exercise by such member or such other
person or persons of any of the powers,
-12-
<PAGE> 16
authority, responsibilities, or discretion provided under the Plan.
-13-
<PAGE> 17
ARTICLE VIII
AMENDMENT AND TERMINATION
-------------------------
The Company reserves the right to amend or terminate the Plan at any time
by action of the Board; provided, however, that no such action shall adversely
affect any Participant who is receiving benefits under the Plan or whose
Separate Account is credited with any Supplemental Matching Contributions
thereto, unless an equivalent benefit is provided under another plan or program
sponsored by the Company or an Affiliate.
-14-
<PAGE> 18
ARTICLE IX
MISCELLANEOUS
-------------
9.1 NON-ALIENATION OF BENEFITS. Except as provided in Section 9.3, no
benefit under the Plan shall at any time be subject in any manner to alienation
or encumbrance. If any Participant or Beneficiary shall attempt to, or shall,
alienate or in any way encumber his benefits under the Plan, or any part
thereof, or if by reason of his bankruptcy or other event happening at any time
any such benefits would otherwise be received by anyone else or would not be
enjoyed by him, his interest in all such benefits shall automatically terminate
and the same shall be held or applied to or for the benefit of such person, his
spouse, children, or other dependents as the Board may select.
9.2 PAYMENT OF BENEFITS TO OTHERS. If any Participant or Beneficiary to
whom a benefit is payable is unable to care for his affairs because of illness
or accident, any payment due (unless prior claim therefor shall have been made
by a duly qualified guardian or other legal representative) may be paid to the
spouse, parent, brother, or sister, or any other individual deemed by the Board
to be maintaining or responsible for the maintenance of such person. Any payment
made in accordance with the provisions of this Section 9.2 shall be a complete
discharge of any liability of the Plan with respect to the benefit so paid.
9.3 QUALIFIED DOMESTIC RELATIONS ORDERS. Notwithstanding the foregoing, the
provisions of Section 9.1 shall not apply with respect to a "qualified domestic
relations order." As used herein, a "qualified domestic relations order" shall
mean a judgment, decree or order (including approval of any property settlement
agreement) which relates to a provision of child support, alimony payments or
marital property rights to a spouse, child or other dependent of a
-15-
<PAGE> 19
Participant and which is made pursuant to the domestic relations or community
property laws of any State. Any such order must comply with the provisions of
Section 414(p) of the Code and with any regulations issued thereunder. The
Company shall in its sole discretion establish such rules and regulations as it
deems necessary to determine whether an order meets such requirements.
9.4 PLAN NON-CONTRACTUAL. Nothing herein contained shall be construed as a
commitment or agreement on the part of any person employed by the Company or an
Affiliate to continue his employment with the Company or Affiliate, and nothing
herein contained shall be construed as a commitment on the part of the Company
or the Affiliate to continue the employment or the annual rate of compensation
of any such person for any period, and all Participants shall remain subject to
discharge to the same extent as if the Plan had never been established.
9.5 FUNDING. In order to provide a source of payment for its obligations
under the Plan, the Company may establish a trust fund. Subject to the
provisions of the trust agreement governing such trust fund, the obligation of
the Company under the Plan to provide a Participant or a Beneficiary with a
benefit constitutes the unsecured promise of the Company to make payments as
provided herein, and no person shall have any interest in, or a lien or prior
claim upon, any property of the Company. In addition, it is the intention of the
Company that benefits credited to a Participant under the Plan shall not be
included in the gross income of the Participants or their Beneficiaries until
such time as benefits are distributed under the provisions of the Plan. If, at
any time, it is determined that benefits under the Plan are currently taxable to
a Participant or his Beneficiary, the currently amounts credited to the
Participant's Separate
-16-
<PAGE> 20
Account which become so taxable shall be distributable immediately to him;
provided, however, that in no event shall amounts so payable to a Participant
exceed the value of his Separate Account.
9.6 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event
be construed as giving any person, firm or corporation any legal or equitable
right as against the Company, its officers, employees, or directors, except any
such rights as are specifically provided for in the Plan or are hereafter
created in accordance with the terms and provisions of the Plan.
9.7 SEVERABILITY. The invalidity or unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the Plan
shall be construed in all respects as if such invalid or unenforceable provision
were omitted herefrom.
9.8 GOVERNING LAW. The provisions of the Plan shall be governed and
construed in accordance with the laws of the State of Ohio.
EXECUTED at Cleveland, Ohio, this 25 day of July, 1996.
FERRO CORPORATION
By: /s/ Gary H. Ritondaro
---------------------------
Title: Vice President and Chief Financial
Officer
-17-
<PAGE> 1
Exhibit 10.2
Agreement Between
Ferro Corporation and Werner F. Bush
------------------------------------
Werner F. Bush ("WFB") and Ferro Corporation hereby voluntarily enter into
the following Agreement:
1. Effective September 30, 1996, WFB shall cease to be an officer of Ferro,
but shall remain an employee of Ferro without specified duties, until the
earlier of January 3, 2000 or his death. WFB shall be retained on the payroll of
Ferro through December 31, 1996 at his preexisting salary level. Compensation
arrangements applicable after December 31, 1996 shall be as set forth in this
Agreement.
2. For the period January 1, 1997 through January 3, 2000, WFB shall be
retained on the payroll and shall be paid a salary at an annual rate of $543,750
payable in equal installments in accordance with Ferro's salaried employee
payroll practices at the time of any such payment. For purposes of pension
calculation, the $543,750 annual payment will be considered as $375,000 base
salary and $168,750 bonus.
3. WFB shall be entitled to bonus participation applicable to the year 1996
as if he had remained employed in his executive capacity for the full year.
Bonus payments will be made in accordance with the timing of payments of bonus
to other executive participants in the Ferro bonus program. WFB's personal
performance bonus calculation shall be made based upon a 100% personal
performance rating. Bonus calculations will be based on an annual salary of
$375,000.00.
WFB shall not be entitled to any bonus applicable to periods after December
31, 1996.
4. WFB 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 other obligations or activities which WFB may undertake, nor
shall it impose travel expenses upon WFB unless Ferro agrees to reimburse WFB
for such expenses.
5. WFB will not be entitled to participate in the following Ferro employee
plans after September 30, 1996:
a. Salary continuation plan;
b. Long-term disability plan;
c. Business travel accident insurance.
WFB will be entitled to participate in the following employee plans (or
their successor plans) as a continuing salaried employee through January 3,
2000:
a. Ferro FlexChoice Program;
b. Savings and Stock Ownership Plan;
<PAGE> 2
c. Ferro Corporation Retirement Plan;
d. Ferro Corporation Excess Benefits Plan; and
e. Annual executive physical
WFB's continued participation in such plans is subject to the ongoing right
of Ferro to modify, amend or discontinue such plans (and the Ferro Salaried
Retiree Medical Program) in any manner, so long as any such modification,
amendment or discontinuance is one of general application, rather than one that
uniquely discriminates against WFB.
Effective February 1, 2000, WFB 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.
If WFB dies prior to February 1, 2000, his wife shall become eligible to
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 February 1, 2000, Ferro will pay to WFB a monthly pension,
for the balance of his lifetime, in the amount determined by the terms and
provisions of the Ferro Corporation Retirement Plan and the Ferro Corporation
Excess Benefits Plan. In the event WFB predeceases his wife after payments under
this Section 6. have commenced, his wife shall be entitled to receive a
surviving spouse's benefit as provided by the Ferro Corporation Retirement Plan
and Ferro Corporation Excess Benefits Plan. In the event WFB predeceases his
wife before payments under this Section 6 have commenced, his wife shall be
entitled to receive (a) for the balance of the period to January 3, 2000, those
amounts which would otherwise be payable to WFB under Section 1, 2, and 3
hereof, were it not for his death, and (b) such surviving spousal pension
benefits as are provided under the Ferro Corporation Retirement Plan and Ferro
Corporation Excess Benefits Plan as though WFB had been an active salaried
employee at the time of his death.
7. The provisions of this Agreement are based upon an election by WFB of
early retirement as of February 1, 2000 and the commencement of early retirement
income payments to him as of that date under the Ferro Corporation Retirement
Plan.
Pursuant to Agreement between WFB and Ferro, WFB shall elect such early
retirement as of February 1, 2000.
8. Provided that he survives to January 3, 2000, WFB shall be deemed to
have retired as of February 1, 2000, with respect to his rights under the Ferro
Stock Option Plan and Performance Share Plan, and the stock option awards and
performance share awards and agreements pursuant to such Plans shall be
determined under the provisions of those Plans and those agreements, based upon
termination of
<PAGE> 3
employment on January 31, 2000. WFB shall not be entitled to receive additional
awards under those Plans in addition to those granted prior to the date of this
Agreement.
9. Ferro shall have no obligation to WFB 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. WFB may continue to use a Ferro provided leased automobile. Ferro will
insure and will reimburse WFB for maintenance expenses for the vehicle. At any
time prior to the expiration of the current lease, WFB will either return the
automobile to Ferro or purchase it at a price to be provided and arrangements
made through Ferro's Corporate Purchasing Department.
11. Ferro will continue to cause to be made available to WFB, at Ferro's
expense, the services of KPMG Peat Marwick with respect to tax advice and tax
return preparation through December 31, 1999, as well as the preparation of
WFB's 1999 tax returns, whenever completed.
12. WFB hereby reaffirms his obligations and commitment pursuant to that
Employment Agreement between Ferro and WFB (the "Secrecy Agreement") that he
signed at the time of commencement of his employment with Ferro. WFB agrees that
he will not, at any time prior to January 3, 2000 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
business of Ferro as carried on during WFB's tenure as Executive Vice President
and Chief Operating Officer of Ferro. Except as aforesaid, no other restriction
or noncompetition obligations shall be imposed upon WFB and WFB shall be free to
obtain employment or participate as a principal, shareholder, or partner in any
other business enterprise.
13. WFB 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 or 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 as amended and restated July 28, 1995.
This release also includes waiver of any right WFB 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.
14. WFB agrees to furnish to Ferro such documentation as Ferro may
reasonably request for the release to Ferro of any funds held in escrow to
secure Ferro's obligations to WFB under his Executive Employment
<PAGE> 4
Agreement with Ferro.
15. In the event of the death of WFB prior to December 31, 1999, the
payments described in Section 1, 2, and 3 hereof shall continue to be paid to
his surviving spouse and, in the event of her death prior to December 31, 1999,
to WFB's estate, until completion of payment of the amounts provided for in such
Section 1, 2 and 3.
16. This Agreement hereby expressly incorporates by reference the
provisions pertaining to mitigation and offset, arbitration, and 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 WFB 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 the Internal Revenue Code Section
3121(v)(2)(A), the payments under Section 6, to the extent subject to tax shall
be deemed taxable.
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 WFB and Ferro, and of any plans or policies of Ferro
applicable to WFB.
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.
DATE: September 30, 1996 /s/ Werner F. Bush
---------------------------
Werner F. Bush
FERRO CORPORATION
DATE: September 30, 1996 BY: /s/ Albert C. Bersticker
---------------------------
Albert C. Bersticker
<PAGE> 1
Exhibit 10.3
FERRO CORPORATION
1985 EMPLOYEE STOCK OPTION PLAN
(AMENDED AND RESTATED 4/26/91)
(1996 AMENDMENTS)
1. Purpose of Plan. The purpose of this Plan is to advance the
interests of Ferro Corporation (hereinafter called the "Corporation") and its
shareholders by providing a means whereby officers, non-employee directors and
key employees of the Corporation and its subsidiaries may be given an
opportunity to purchase Common Stock, $1.00 par value (hereinafter called
"shares") of the Corporation under options and stock appreciation rights granted
under the Plan, to the end that the Corporation may retain present personnel
upon whose judgment, initiative and efforts the successful conduct of the
business of the Corporation largely depends, and may attract new personnel. Some
of the options granted under this Plan may be options which are intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor provision and are
hereinafter sometimes called "incentive stock options."
2. Shares Subject to the Plan. The aggregate number of shares
of the Corporation for which options may be granted under this Plan shall be
that number of shares remaining available for grant under the Plan on the close
of business on the date immediately prior to the 1996 Annual Meeting of
Shareholders plus 1,500,000, provided, however, that whatever number of said
shares shall remain reserved for issuance pursuant to this Plan at the time of
any stock split, stock dividend or other change in the Corporation's
capitalization shall be appropriately adjusted to reflect such stock dividend,
stock split or other change in capitalization. Shares issued pursuant to the
exercise of options granted hereunder shall be made available from authorized
but unissued shares of the Corporation or shares held by the Corporation as
treasury shares. Any shares for which an option is granted hereunder that are
released from such option for any reason other than the exercise of stock
appreciation rights granted hereunder shall become available for other options
to be granted under this Plan.
3. Administration of the Plan. Except to the extent the Board
of Directors reserves to itself the authority with respect thereto, this Plan
shall be administered under the supervision of a committee (hereinafter called
the "Committee") composed of not less than three directors of the Corporation
appointed by the Board of Directors. The members of the Committee shall not,
pursuant to the exercise of discretion, be eligible, and shall not have been so
eligible for a period of at least one year prior to their appointment, to
participate in this Plan or to have been selected to participate in any other
plan of the Corporation or any affiliate (as defined under the Securities
Exchange Act of 1934) of the Corporation entitling the participants herein to
acquire stock, stock options or stock appreciation rights of the Corporation or
any affiliate of the Corporation. Members of the Committee shall serve at the
pleasure of the Board of Directors, and may resign by written notice filed with
the Chairman of the Board or the Secretary of the Corporation. A vacancy in the
membership of the Committee shall be filled by the appointment of a successor
member by the Board of Directors. Until such vacancy is filled, the remaining
members shall constitute a quorum and the action at any meeting of a majority of
the entire Committee, or an action unanimously approved in writing, shall
constitute action of the Committee. Subject to the express provisions of this
Plan, the Committee shall have conclusive authority to construe and interpret
the Plan, any stock option agreement entered into hereunder, and any stock
appreciation right granted hereunder, to adopt and amend forms of Option
Agreements and Grants of Stock Appreciation Rights and to establish, amend, and
rescind rules and regulations for the administration of this Plan and shall have
such additional authority as the Board of Directors may from time to time
determine to be necessary or desirable.
<PAGE> 2
In addition, with respect to Key Employees who are foreign
nationals or employed outside the United States, or both, there may be adopted
in the manner provided herein such rules and regulations, policies, subplans or
the like as are necessary or advisable in order to effectuate the purposes of
the Plan.
4. Granting of Options. The Committee from time to time shall
designate from among the full-time employees of the Corporation and its
subsidiaries and any corporation at least 20% of the voting securities of which
is owned by the Corporation or a subsidiary of the Corporation to whom options
to purchase shares shall be granted under this Plan, the type of option to be
granted and the number of shares which shall be subject to each option so
granted; provided however, that incentive stock options may only be granted to
full-time employees of the Corporation and its subsidiaries, as such term is
defined in this Plan. Except to the extent the Board of Directors reserves to
itself the authority with respect thereto, all actions of the Committee under
this Paragraph shall be conclusive; provided, however, that the aggregate fair
market value (determined as of the date the option is granted) of shares for
which incentive stock options are exercisable for the first time by any
individual during any calendar year (under this Plan or any other plan of the
Corporation which provides for the granting of incentive stock options) may not
exceed $100,000. Any incentive stock option that is granted to any employee who
is, at the time the option is granted, deemed for purposes of Section 422 of the
Code, or any successor provision, to own shares of the Corporation possessing
more than ten percent (10%) of the total combined voting power of all classes of
shares of the Corporation or of a parent or subsidiary of the Corporation, shall
have an option price that is at least 110 percent (110%) of the fair market
value of the shares and shall not be exercisable after the expiration of 5 years
from the date it is granted. The maximum number of options granted to any single
executive during any period of eleven consecutive months shall not exceed
options for 100,000 shares, subject to adjustment in accordance with Section 2
of the Plan.
5. Granting of Stock Appreciation Rights. Except to the extent
the Board of Directors reserves to itself the authority with respect thereto,
the Committee shall have the discretion to grant to optionees stock appreciation
rights in connection with options to purchase shares on such terms and
conditions as it deems appropriate. A stock appreciation right will allow an
optionee to surrender an option or portion thereof and to receive payment from
the Corporation in an amount equal to the excess of the aggregate fair market
value of the shares with respect to which options are surrendered over the
aggregate option price of such shares. A stock appreciation right shall be
exercisable no sooner than six months after it is granted and thereafter at any
time prior to its stated expiration date, but only to the extent the related
stock option right may be exercised. Payment shall be made in shares, cash or a
combination of shares and cash, as provided in the Grant of Stock Appreciation
Rights. Shares as to which any option is so surrendered shall not be available
for future option grants hereunder. The Committee may grant stock appreciation
rights concurrently with the grant of an option or, in the case of an option
which is not an incentive stock option, with respect to an outstanding option.
6. Option Period. No option granted under this Plan
may be exercised later than ten years from the date of grant.
7. Option Price. The option price shall be set forth in the
Option Agreement, which price in no case shall be less than the per share fair
market value of the outstanding shares of the Corporation on the date that the
option is granted. The option price may be fixed in terms of a formula and one
or more officers of the Corporation may be authorized to compute the price in
accordance with that formula. Payment of the option price may be made in cash,
shares, or a combination of cash and shares, as provided in the
- 2 -
<PAGE> 3
Option Agreement in effect from time to time. The date on which the granting of
an option is approved shall be deemed the date on which the option is granted.
8. Option Agreement. The Option Agreement pursuant to
which option rights are granted to an employee shall be in the applicable form
(consistent with this Plan) from time to time approved in the manner provided
herein and shall be signed on behalf of the Corporation by the Chief Executive
Officer or any Vice President of the Corporation, other than the employee who is
a party thereto. The Option Agreement shall set forth the number of shares which
are subject to the option to purchase, the type of option granted, the option
price to be paid upon exercise, the manner in which the option is to be
exercised and the option price is to be paid, and the option period, and may
include such other terms not inconsistent with this Plan as are from time to
time approved in the manner provided herein.
9. Grant of Stock Appreciation Rights. The Grant of Stock
Appreciation Rights pursuant to which stock appreciation rights are granted
shall be in the applicable form (consistent with this Plan) from time to time
approved in the manner provided herein and shall be signed on behalf of the
Corporation by the Chief Executive Officer or any Vice President of the
Corporation, other than the employee to whom the grant is made. The Grant of
Stock Appreciation Rights shall set forth the option or options to which the
grant relates, the manner in which the stock appreciation rights are
exercisable, and may include such other terms not inconsistent with this Plan as
are from time to time approved in the manner provided herein.
10. Transferability. No option or stock appreciation right
shall be transferable by the optionee except by will or the laws of descent and
distribution, and options and stock appreciation rights may be exercised during
the employee's lifetime only by him or his guardian or legal representative.
Notwithstanding the foregoing, the Committee may, in its discretion, authorize
the transfer of all or a portion of options granted to an optionee (a) to the
optionee's spouse, children, grandchildren, parents, siblings and to other
family members approved by the Committee ("Family Members"); (b) to trust(s) for
the exclusive benefit of such Family Members; or (c) to partnerships in which
such Family Members are at all times the only partners. Any transfer to or for
the benefit of Family Members permitted hereunder may be made subject to such
conditions or limitations as the Committee may establish to ensure compliance
under the federal securities laws, or for other purposes. Options transferred to
or for the benefit of Family Members may be exercised by the transferee during
or after the employee's lifetime.
11. Extraordinary Distributions and Pro-Rata Repurchases. In
the event the Corporation shall at any time when a stock option is outstanding
make an Extraordinary Distribution (as hereinafter defined) in respect of Common
Stock or effect a Pro-Rata Repurchase of Common Stock (as hereinafter defined),
the Committee shall consider the economic impact of the Extraordinary
Distribution or Pro-Rata Repurchase on Participants and make such adjustments as
it deems equitable under the circumstances. The determination of the Committee
shall, subject to revision by the Board of Directors, be final and binding upon
all Participants.
As used herein, the term "Extraordinary Distribution" means
any dividend or other distribution of:
(a) cash, where the aggregate amount of such cash
dividend or distribution together with the amount of all cash
dividends and distributions made during the preceding twelve
months, when combined with the aggregate amount of all Pro
Rata Repurchases (for this purpose, including only that
-3-
<PAGE> 4
portion of the aggregate purchase price of such Pro Rata
Repurchases which is in excess of the Fair Market Value of the
Common Stock repurchased during such twelve month period),
exceeds ten percent (10%) of the aggregate Fair Market Value
of all shares of Common Stock outstanding on the record date
for determining the shareholders entitled to receive such
Extraordinary Distribution, or
(b) any shares of capital stock of the Corporation
(other than shares of Common Stock), other securities of the
Corporation, evidences of indebtedness of the Corporation or
any other person or any other property (including shares of
any subsidiary of the Corporation), or any combination
thereof.
As used herein "Pro Rata Repurchase" means any purchase of
shares of Common Stock by the Corporation or any subsidiary thereof, pursuant to
any tender offer or exchange offer subject to section 13(e) of the Exchange Act
or any successor provision of law, or pursuant to any other offer available to
substantially all holders of Common Stock; provided, however,, that no purchase
of shares of the Corporation or an subsidiary thereof made in open market
transactions shall be deemed a Pro Rata Repurchase.
12. Amendment and Termination of the Plan. The Corporation, by
action of its Board of Directors, reserves the right to amend, modify or
terminate at any time this Plan, or, by action of the Committee with the consent
of the optionee, to amend, modify or terminate any outstanding Option Agreement
or Grant of Stock Appreciation Rights, except that the Corporation may not,
without further shareholder approval, increase the total number of shares as to
which options may be granted under this Plan (except increases attributable to
the adjustments authorized in Paragraph 2 hereof), change the employees or class
of employees eligible to receive options or materially increase the benefits
accruing to participants under this Plan. Notwithstanding the foregoing, the
provisions of Section 17 shall not be amended more than once every six months
other than to comport with changes in the Code or the Employee Retirement Income
Security Act or the rules and regulations thereunder. Moreover, no action shall
be taken by the Corporation which will impair the validity of any option or
stock appreciation right then outstanding, or which will prevent the options
issued and stock appreciation rights granted pursuant to this Plan from meeting
the requirements for exemption from Section 16(b) of the Securities Exchange Act
of 1934, or subsequent comparable statute, as set forth in Rule 16b-3 under said
Act or subsequent comparable rule, or which will prevent any incentive stock
option issued or to be issued under this Plan from being an "incentive stock
option" under Section 422 of the Code, or any successor provision.
13. Subsidiary. The term "subsidiary" as used herein shall
mean any corporation in an unbroken chain of corporations beginning with the
Corporation and ending with the employer corporation if, at the time of the
granting of the option, each of the corporations other than the employer
corporation owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
Settlement of stock options or stock appreciation rights
exercised by employees of subsidiaries shall be made by and at the expense of
such subsidiary. Except as prohibited by law, the Corporation shall sell and
transfer to the subsidiary, and the subsidiary shall purchase, the number of
shares necessary to settle any stock option that is exercised.
- 4 -
<PAGE> 5
14. Noncompetition Provision. Unless the Option Agreement
specifies otherwise, an optionee shall forfeit all unexercised stock options and
stock appreciation rights if, (i) in the opinion of the Committee, such
optionee, without the written consent of the Corporation, engages directly or
indirectly in any manner or capacity as principal, agent, partner, officer,
director, employee, or otherwise, in any business or activity competitive
with the business conducted by the Corporation or any subsidiary; or (ii) the
optionee performs any act or engages in any activity which in the opinion of the
Committee is inimical to the best interests of the Corporation.
15. Effective Date of Plan. The Amended and Restated Plan
shall be effective upon approval by the shareholders at the 1991 annual meeting.
16. Expiration of Plan. Options may be granted under
this Plan at any time prior to April 26, 2001, on which date the Plan shall
expire but without affecting any options then outstanding.
17. Directors' Stock Options.
(a) Grants. Stock options may be granted to non-employee
Directors only in accordance with the requirements of this Section 17. On the
date of the 1996 Annual Meeting of Shareholders and on the date of each annual
shareholders' meeting thereafter, there shall automatically be granted to each
non-employee Director who continues as a Director after the annual meeting an
option to purchase 2,500 shares of Common Stock. Notwithstanding the foregoing,
no stock options shall be granted to a director whose normal retirement under a
plan or policy of the Corporation would occur prior to the date of the next
annual shareholders' meeting.
(b) Option Price. The option exercise price shall be the per
share fair market value of the outstanding shares of the Common Stock on the
date such options are granted. The Committee shall be authorized to determine
such price per share. Payment of the option price may be made in cash or in
shares of Common Stock or any combination of cash and Common Stock.
(c) Administration. Subject to the express provisions of this
Section 17, the Committee shall have conclusive authority to construe and
interpret any stock option granted under this Section 17 and to adopt
administrative policies with respect thereto; provided, however, that no action
shall be taken which would prevent the options granted under this Section 17
from meeting the requirements for exemption from Section 16(b) of the Exchange
Act, or subsequent comparable statute, as set forth in Rule 16(b)-3 of the
Exchange Act or any subsequent comparable rule.
(d) Option Agreement. The options granted hereunder shall be
evidenced by an option agreement, dated as of the date of the grant, which
agreement shall be in such form, consistent with the terms and requirements of
this Section 17, as shall be approved by the Committee from time to time and
executed on behalf of the Corporation by the Chief Executive Officer.
(e) Option Period. Options granted under this Section 17
shall not be exercisable later than 10 years from the date of grant.
(f) Transferability. No option shall be transferable by the
non-employee director except by will or the laws of descent and distribution,
and during the director's life
-5-
<PAGE> 6
time options may be exercised only by such director or his or her guardian or
legal representative.
(g) Limitations on Exercise. Directors' stock options shall
become exercisable to the extent of 25% of the optioned shares after the first
anniversary of the date of grant, 50% after the second anniversary, 75% after
the third anniversary and 100% after the fourth anniversary of the date of
grant. To the extent an option is not otherwise exercisable at the date of the
Director's retirement under a retirement plan or policy of the Corporation, it
shall become fully exercisable upon such retirement; provided, however, that
Director stock options shall not become exercisable under this sentence prior to
the expiration of six months from the date of grant. Options not otherwise
exercisable at the time of the death of a Director during continued service with
the Corporation shall become fully exercisable upon his death. Upon the death of
a Director, such options shall remain exercisable for a period of one year after
the date of death. To the extent an option is exercisable on the date a Director
ceases to be a director (other than by reason of death or retirement as
described above), the option shall continue to be exercisable (subject to the
original term of the option) for a period of ninety (90) days thereafter.
- 6 -
<PAGE> 1
Exhibit 11
FERRO CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
12 Months 12 Months
(Dollars in Thousands Except Per Share Data) December December
1996 1995
----------- -----------
<S> <C> <C>
PRIMARY:
Weighted average shares and common stock equivalents 26,550,962 27,782,823
Net Income $54,586 $49,254
Less Preferred Stock Dividend, Net of Tax (3,735) (3,670)
----------- -----------
Income Available to Common Shareholders $50,851 $45,584
PRIMARY EARNINGS PER COMMON SHARE $1.92 $1.64
FULLY DILUTED:
Weighted average shares and common stock equivalents 26,550,962 27,782,823
Adjustments (primarily assumed conversion of
convertible preferred stock) 2,393,468 2,427,400
----------- -----------
28,944,430 30,210,223
Net Income $54,586 $49,254
Additional ESOP Contribution, Net of Tax (1,873) (2,016)
----------- -----------
Adjusted Net Income $52,713 $47,238
FULLY DILUTED EARNINGS PER SHARE $1.82 $1.56
</TABLE>
<PAGE> 1
Exhibit 12
FERRO CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
DECEMBER DECEMBER
(Dollars in Thousands) 1996 1995
-------- --------
<S> <C> <C>
Earnings:
Pre-Tax Income 88,207 80,159
Add: Fixed Charges 15,868 16,963
Less: Interest Capitalization (555) (687)
-------- --------
Total Earnings $103,520 $96,435
======== ========
Fixed Charges:
Interest Expense 13,031 15,226
Interest Capitalization 555 687
Interest Portion of Rental Expense 2,282 1,050
-------- --------
Total Fixed Charges $15,868 $16,963
======== ========
Total Earnings $103,520 $96,435
Divided By:
Total Fixed Charges $15,868 $16,963
-------- --------
Ratio 6.52 5.69
</TABLE>
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 includes conservative estimates based
on actual amounts from prior years.
<PAGE> 1
EXHIBIT 13
MAKING THE WORLD
[GLOBE]
Thousands of manufacturers around the world -- including some of the
largest and best known -- rely on Ferro specialty materials to ensure the
improved performance of their products and processes. Ferro is truly a global
partner, committed to helping customers solve challenges innovatively and cost
effectively. With operations strategically located around the world, the Company
can supply customers in a variety of markets from the closest and most
competitive source. It can offer vast market knowledge and technical expertise
to help them improve product offerings virtually anywhere in the world.
MATERIALLY
BETTER
<PAGE> 2
INDUSTRY TRENDS
SPECIALTY COATINGS, COLORS AND CERAMICS
[Photo of stove]
GLASS COATINGS Tile manufacturers worldwide are increasingly looking to glaze
coatings producers for the creation of stylish designs to satisfy
fashion-conscious consumers. Dinnerware manufacturers continue to switch to
lead-free glazes to meet environmental standards. Newly industrialized
countries, especially within Asia-Pacific and Latin America, represent a large
growth market for ceramic and porcelain enamel coatings, as their demand for
modern conveniences increases. POWDER COATINGS The automotive and appliance
markets continue to find additional applications for powder coatings in place of
liquid coatings. For example, powders are gradually being used to prime
automotive body panels, as well as to coat wheels and underbodies, and continue
to be studied for use as a potential clear top coat. More and more general
industrial metal product manufacturers are converting to powder coatings for
their finishing needs. A revolutionary technology pioneered by Ferro may soon
permit the application of powder coatings to plastics, wood and other
heat-sensitive materials. PIGMENTS AND COLORANTS In the fashion-driven tile
industry, pigments are being used in innovative ways to create special effects,
from relief designs to stone appearances. The growth rate for fully colored
tiles, which incorporate pigments throughout the entire tile body, exceeds that
of any other segment of the floor tile market, fueling demand for larger
quantities of pigments. Manufacturers increasingly demand heavy-metal-free
formulations of pigments and colorants.
<PAGE> 3
SPECIALTY PLASTICS
[photo of toaster]
PLASTIC COLORANTS Packaging companies, looking to meet their needs through
consolidated purchasing, are seeking global suppliers of plastic color
concentrates. This trend is also likely to contribute to further consolidation
in the crowded color concentrate industry. Current issues facing concentrate
companies include increased speed in order fulfillment and decreased average
order size. Industry demand for plastic colorants remains strong because of many
opportunities to provide color for eye-catching packaging applications as well
as for recycled materials. FILLED AND REINFORCED PLASTICS Manufacturers in many
industries, convinced of the benefits of plastics over wood and metal, are now
looking for less expensive varieties of plastics. Specially formulated
thermoplastic compounds, consisting of polypropylene and other resins, are often
the answer in replacing more expensive engineering thermoplastics, a trend which
has been accelerated by the emergence of new polyolefin materials. Continued
consolidation among plastics compounders is anticipated.
Specialty chemicals
POLYMER ADDITIVES The rate of growth for polymer additives surpasses that of
plastics, as manufacturers and consumers seek the improved physical
characteristics that only products with these additives can deliver. Polymer
additive producers are also beginning to pursue strategic alliances to offer
customers "one-stop" shopping. Stronger regional markets, especially
Asia-Pacific, are providing additional growth opportunities.
[Photo of computer]
6b
<PAGE> 4
PRODUCTS AND MARKETS
Ferro's innovative performance materials add value to a wide range of
consumer and industrial products in five major end-use markets. Many
manufacturers in these end-use markets look to Ferro as a total supplier of
specialty materials for diverse and demanding applications. Open the opposite
page for insight into trends affecting Ferro's major products and markets.
<TABLE>
End-use markets
<CAPTION>
Building
Specialty coatings, and Major Household Trans- Industrial
colors and ceramics renovation appliances furnishings portation products Other*
<S> <C> <C> <C> <C> <C> <C>
Ceramic glaze coatings X X x X
Porcelain enamel coatings x x x X
Powder coatings X X X X X X
Pigments and colorants X X X X X X
Electronic materials X X X X
Specialty ceramics X X X
Specialty plastics
Plastic colorants X X X X X X
Filled and reinforced plastics X X X X X X
Liquid coatings and dispersions X X X X X
Specialty chemicals
Polymer additives X X X X X
Industrial specialties X
Petroleum additives X X
*Packaging, leisure products and miscellaneous end-use markets
</TABLE>
7
<PAGE> 5
strategic initiatives
MARKETING
[Photo of office chair]
Ferro's enhanced marketing efforts are geared toward optimum responsiveness
to customer and market needs. The Company has long been known for its close
customer relationships, nurtured by technical sales and service representatives
intent on delivering product and process solutions.
An example of this partnership approach is Ferro's account managers, who
represent all product lines to strategic customers in major industries such as
appliances and electronics. Teams targeting markets and customers that use
multiple Ferro products also ensure that resources are aligned to Ferro's best
opportunities.
Such initiatives are improving results and relationships with key
customers. Ferro recently earned 100 percent of a major appliance manufacturer's
powder coatings business, and its coatings and colorants plants were honored as
outstanding suppliers by another major appliance manufacturer.
A major focus of Ferro's marketing efforts, aimed at creating sustainable
growth, is more closely assessing the value of current and potential customers
and directing resources toward those that are successfully growing and impacting
their marketplace. Growth also will come from pursuing strategic alliances with
other producers to meet a variety of customer needs.
Other marketing initiatives in 1996 included adding marketing talent
throughout the Company and equipping key members of Ferro's sales force with
leading-edge technology to serve customers efficiently and effectively.
Marketing and technology functions have strengthened their collaboration to
offer value-added products grounded in market understanding.
9
<PAGE> 6
strategic initiatives
TECHNOLOGY
[Photo of steering wheel]
To remain a technological and market leader, Ferro is committed to
increasing the value and differentiation of its products and processes. This
effort revolves around leveraging its core competencies in chemical technologies
and materials sciences, which provide important synergies among the Company's
products and markets. A renewed focus on products that give customers a market
advantage has led to an array of new value-added products in 1996, including
high-scratch-resistant and high-gloss polypropylenes and a low
volatile-organic-compound gelcoat which dramatically reduces emissions. Ferro
also expanded its market leadership in such recent breakthrough products as
powder coatings for appliance "blanks" and lead-free glass enamels for
automobiles and other applications.
Bolstered by new production technology, the Evansville, Indiana, plastic
compounding plant is using metallocene-catalyzed polypropylene to formulate
lower-cost grades of materials with performance properties to displace high-cost
engineering resins. An exciting pilot project at the Zachary, Louisiana,
chemical plant is producing a precursor of a new polymer which will replace
existing plastics in a variety of applications.
In addition, research continues on products with outstanding market
potential, including high-purity electrolytic solutions for rechargeable
batteries, phosphorous-based flame retardants and low-temperature-cure powder
coatings for wood and plastics.
Technical service representatives, located throughout Ferro's
international network of labs, are skilled at adapting products and processes to
meet customers' specific requirements. Ferro's manufacturing facilities carry
through the commitment to innovative materials through cost-efficient,
high-quality production operations certified to international standards.
10
<PAGE> 7
strategic initiatives
PRODUCTIVITY IMPROVEMENT
[Photo of bottles/cup]
Ferro's ongoing productivity improvement efforts are creating a global
organization that is lean and responsive to multinational customers and markets.
Programs to consolidate operations and lower costs are also contributing to good
performance even under less-than-robust market conditions.
Since 1990, Ferro has reduced its operations worldwide by more than 30
plants. The Company is taking advantage of global economies and falling trade
barriers to reduce that number even more. For example, thanks to Latin America's
MERCOSUR alliance, Ferro is consolidating regional porcelain enamel production
into Argentina and color production into Brazil, as well as supplying colors to
Argentina through facilities in Brazil and Mexico.
Ferro's operations are also benefitting from redesigned business processes.
Several reengineering projects at the powder coatings plant in Nashville,
Tennessee, have resulted in a more than 25 percent improvement in productivity.
A pigment rationalization project, together with new manufacturing techniques
that rely on fewer, cost-effective materials, has contributed to a 22 percent
reduction in plastic colorants inventory in the past year. Uniform production
reports enable multi-plant businesses to pinpoint and address operational
problems by plant and product line anywhere in the world.
From refining order generation and fulfillment functions to rethinking the
product development process, Ferro is realigning resources to create sustainable
growth as well as faster turnaround and better service to benefit customers.
13
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
FERRO CORPORATION AND SUBSIDIARIES
Ferro Corporation is a major global producer of performance materials for
manufacturers. The Company's business segments consist of coatings, colors and
ceramics; plastics; and chemicals. Geographically, the Company operates in the
United States and Canada; Europe; Latin America; and Asia-Pacific. See note 11
to the consolidated financial statements for segment operating data.
1996 results of operations
The Company achieved record net sales of $1.4 billion, an increase of 2%
over 1995. The variety of products sold by the Company makes it difficult to
determine with certainty the increases or decreases in sales resulting from
changes in the volume of products sold and selling prices. However, management's
best estimate of volume and selling price changes, as well as changes in other
factors, is that the impact of a stronger U.S. dollar decreased sales by 1% when
foreign currency sales were translated into U.S. dollars; that changes in volume
and acquisitions increased sales by 1% and 6% respectively, while price/mix was
neutral and divestitures reduced sales by 4%.
Net income increased 11% to $54.6 million. Earnings per common share rose
17% to a record $1.82 (fully diluted).
Gross margin improved from 24.1% to 24.5%, primarily due to a combination
of volume improvement in the domestic plastics business and better price/mix
performance within the international coatings, colors and ceramics business.
Record operating income of $105.8 million was 10% above that of 1995.
The decrease in interest earned was due to the lower amount of cash and
cash equivalents, as well as the interest earned in 1995 on the proceeds of the
8% debentures issued in June to redeem the 11 3/4% debentures in October.
Similarly, the decrease in interest expense is primarily due to the substitution
of the 8% debentures for the 11 3/4% debentures.
Coatings, colors and ceramics
Total sales for this segment were comparable to those of 1995. Increased
volumes and favorable price/mix domestically and internationally were not quite
able to offset the negative impact of a stronger U.S. dollar and a late 1995
divestiture.
Operating profit increased 3% to $73.4 million, led by double-digit
improvements in powder coatings operating profit, as a result of better mix,
stable markets and production efficiencies. Further, the coatings, colors and
ceramics business was the primary beneficiary of double-digit improvements in
Latin America, as well as favorable raw material pricing relative to 1995.
Plastics
Worldwide plastics sales of $238.0 million were 12% less than those of
1995, as improved volumes were more than offset by other factors, most notably
the effect of the sale of the European engineering thermoplastics business late
in 1995.
Record operating profit of $13.7 million, up 56%, is primarily
attributable to stabilization of
[Photo]
Gary H. Ritondaro, Vice President and Chief Financial Officer,
at the Great Lakes Science Center.
<PAGE> 9
resin prices, widening of gross margins due to manufacturing cost controls and
sales emphasis on higher-value-added products, particularly in filled and
reinforced polypropylene.
Chemicals
Record sales of $336.7 million were 25% greater than those of 1995. The
most significant contributor to the sales increase was the effect of the October
1995 acquisition of Synthetic Products Company.
This business also established record operating profit for the year, up 24%
to $23.1 million, led by double-digit increases in the polymer additives
business, which more than offset a charge of approximately $1.5 million
associated with a cost restructuring effort at our French chemicals facility.
1995 results of operations
Record net sales of $1.3 billion were 11% greater than 1994 sales. Revenues
increased in each of the business segments, as well as geographically in the
United States and Canada and Europe. The variety of products sold by the Company
makes it difficult to determine with certainty the increases or decreases in
sales resulting from changes in the volume of products sold and selling prices.
However, management's best estimate of volume and selling price changes, as well
as changes in other factors, is that the impact of a weaker U.S. dollar
increased sales by 3% when foreign currency sales were translated into U.S.
dollars, and that other positive factors of volume increased sales by 3%,
price/mix by 4% and acquisitions by 2%, while divestitures reduced sales by 1%.
Net income of $49.3 million was 4% greater than 1994 net income of $47.4
million. Earnings per common share of $1.56 (fully diluted) were 8% greater than
the $1.45 per common share earned in 1994.
Macroeconomic conditions in Latin America and the resultant decline in
business in the region, coupled with lower demand for domestic durable goods in
the second half of the year, were major contributors to the decline in gross
margin percentage during the year.
Operating income of $96.2 million, which included a $5.6 million
severance-related charge in the first quarter, was 12% greater than that of
1994.
The increase in interest earned is associated with income on $50.0 million,
8% debentures issued in June 1995 for the purpose of redeeming $50.0 million,
11 3/4% debentures in October 1995. Similarly, the increase in interest expense
is also largely associated with the issuance of the 8% debentures in advance of
and in anticipation of redeeming the 11 3/4% debentures, as well as the issuance
of $25.0 million, 7 3/8% debentures associated with an acquisition later in the
year.
The inclusion of Thailand as a consolidated subsidiary in 1995 is primarily
responsible for the improvement in equity in net earnings of affiliates.
Differences in foreign tax rates relative to the United States statutory
rate are primary reasons for the increase in the effective tax rate.
Coatings, colors and ceramics
Sales increased 10% to $782.6 million. Increased demand and improved
product mix in Europe, coupled with the favorable impact of the relatively weak
U.S. dollar, more than offset reduced business activity in Latin America and the
reduced demand in domestic durable goods.
Operating profit declined slightly, largely because of the sizable exposure
of this business to economic conditions in Latin America and the impact of the
first-quarter severance charge. Double-digit increases in operating profit in
the United States and Canada and Europe were not sufficient to offset these
factors.
Plastics
Worldwide sales increased marginally to $270.7 million as overall favorable
price/mix and currency impacts exceeded the combination of the volume decline in
the domestic business and the absence in 1995 of revenues associated with
operations sold in 1994.
15
<PAGE> 10
The improvement in operating profit is largely attributable to European
performance. Additionally, 1995 earnings included no contribution from the
businesses divested in 1994. Margin pressures eased as prices for major raw
materials stabilized or declined relative to the second half of 1994.
Chemicals
Chemicals sales were up a strong 24% to $269.7 million, with double-digit
volume increases in both the United States and Europe. Industrial specialties
sales in the United States and in Europe were especially strong, as were those
of flame retardants and other polymer additives. Sales also benefited from the
acquisition of Synthetic Products Company from Cookson Group plc in late
October.
Operating profits were essentially triple those of the prior year owing to
the strong volume increase, a margin improvement initiative and the effective
replacement of large fuel additive component volumes lost in the previous year.
OTHER ITEMS
Environmental
During 1995, the Company reached an agreement in principle to settle a suit
filed in August 1993 by the United States Environmental Protection Agency
alleging violation of the Clean Water Act and the Rivers and Harbors Act by Keil
Chemical, a production facility owned and operated by Ferro in Hammond, Indiana.
The Company had been named as one of several defendents, including three local
municipalities, one local government agency (a sewer district) and four other
area industrial concerns. In 1996, the Company signed a Consent Decree whereby
the Company agreed to pay a civil penalty of $0.4 million and to pay $1.4
million (the "Settlement Amount") into a fund to be established to help clean
sediment in the West Branch of the Grand Calumet River following entry of the
Consent Decree by the Court. The Consent Decree is expected to be entered by the
Court in the first quarter of 1997. The Company is obligated to pay the
Settlement Amount 30 days after entry of the Consent Decree by the Court.
During 1994, the Company signed an Agreed Order with the Indiana Department
of Environmental Management and the Hammond Department of Environmental
Management, settling the agencies' claims that the Keil Chemical facility had
violated various air emission regulations. Subject to satisfactory compliance
with the terms of the Agreed Order, the United States Environmental Protection
Agency has concluded its Notice of Violations against the Keil Chemical
facility. Under the Agreed Order, the Company paid a civil cash penalty of $1.5
million, constructed a supplemental environmental project and commenced
reduction of air emissions to reach compliance with federal and state air
emission regulations, according to compliance schedules contained in the Agreed
Order.
Additionally, governmental agencies have identified several disposal sites
for clean-up under Superfund and similar laws to which the Company has been
named a Potential Responsible Party. The Company is participating in the cost of
certain clean-up efforts. However, the Company's share of such costs has not
been material and is not expected to have a material adverse impact on the
Company's financial condition or results of operations.
International
European sales for 1996 declined 9%, largely because of sales
associated with late 1995 divestitures, and operating profit declined slightly,
most of which is due to a non-recurring $1.5 million pre-tax charge associated
with a chemicals facility in France taken in the fourth quarter of 1996.
Latin American sales increased 10% while operating profit was up 49% over
1995. The improvement in operating profit is primarily due to the Company's
actions in rationalizing facilities in Argentina and Brazil.
16
<PAGE> 11
Accounting changes
During 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The Statement is effective
after December 31, 1996 on a prospective basis, except for certain provisions
whose effective date was deferred by Statement of Financial Accounting Standards
No. 127, also issued during 1996. The Company does not have transactions which
qualify for deferred implementation and therefore will adopt Statement No. 125,
effective January 1, 1997. Implementation will likely result in an increase in
the reported amounts of accounts and trade notes receivable and notes and loans
payable.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," which provides
guidance for recognition of impairment losses to long-lived assets. The
Statement is effective for fiscal years beginning after December 15, 1995. The
Company recognized no impairment loss as a result of adoption.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which provides a basis for measurement and recognition of all
stock-based employee compensation plans. The disclosure requirements of this
Statement are effective for fiscal years beginning after December 15, 1995. The
Company chose to maintain its current accounting method for stock-based
compensation and disclose the pro forma effects on net income and earnings per
share of the fair market value method as permitted by the Statement.
Cautionary note on forward-looking statements
Certain statements contained in this report reflect the Company's current
expectations with respect to the future performance of the Company and may
constitute "forward-looking statements" within the meaning of the federal
securities laws. From time to time, forward-looking statements may also be
contained in future filings with the Securities and Exchange Commission, as well
as in other written and oral communications made by, or with the approval of,
the Company. These statements are subject to a variety of uncertainties, unknown
risks and other factors concerning the Company's operations and business
environment, including, but not limited to: changes in customer requirements,
markets or industries served; changing economic conditions, particularly in
Europe or Latin America; foreign exchange rates, especially in Latin America;
changes in the prices of major raw materials, in particular polypropylene and
titanium dioxide; and significant technological or competitive developments.
Acquisitions and divestitures
In January 1996, the Company purchased the remaining interest in Ferro
Industrias Quimicas S.A., located in Portugal. In November 1996, the Company
purchased Ceramica Technica Industrial S.A. of Spain. Neither of these
transactions was material to Ferro.
In October 1996, the Company sold the dispersions portion of Synthetic
Products Company acquired in the prior October from Cookson Group plc as noted
below. The Company also sold two small plastics operations located in Canada.
The results of these operations were not material to Ferro.
In October 1995, the Company acquired Synthetic Products Company (Synpro)
from Cookson Group plc of London, England. Continuing Synpro operations are
maintained in Cleveland, Ohio, and Ft. Worth, Texas. Synpro produces a line of
polymer additives, including lubricants and heat stabilizers.
17
<PAGE> 12
In December 1995, the Company sold the European engineering thermoplastics
business known as Eurostar to L.N.P. Engineering Plastics Europe B.V., a
subsidiary of Kawasaki Steel Corporation.
During 1994, the Company acquired Diamonite Products from W.R. Grace & Co.
Located in Shreve, Ohio, Diamonite manufactures custom ceramic products for the
automotive, aerospace, electronics, metalworking, textile and power generation
industries.
During 1994, the Company sold the plastics operations located in Australia
and New Zealand.
Liquidity and capital resources
Cash flow from operations was again a strong source of funds in 1996,
permitting the Company to meet financial obligations, while repurchasing
approximately 1.5 million shares of Ferro common stock and providing for capital
expenditures. Cash flow from operating activities amounted to $111.6 million in
1996 compared with $107.8 million in 1995. This increase in cash from operating
activities was largely attributable to a higher level of net income and
improvements in working capital.
The Company purchased 1,455,014 shares of common stock during 1996,
1,050,965 shares during 1995 and 1,492,900 shares during 1994 under the stock
purchase plan.
Cash used for financing activities principally includes repurchases of
stock and cash dividends paid.
Capital expenditures for plant and equipment were $46.7 million in 1996,
$49.5 million in 1995 and $59.7 million in 1994. Information concerning these
expenditures by business segment can be found on page 30. Capital expenditures
for 1997 are estimated to be $65.0 million.
In October 1995, the Company filed a $300.0 million Shelf Registration with
the Securities and Exchange Commission. This registration will enable the
Company to offer, either separately or together, debt securities, common stock
and/or preferred stock, warrants, stock purchase contracts, depositary shares
and stock purchase units. Proceeds would be used for general corporate purposes.
No issuances have been made against this registration.
The Company filed a $100.0 million Shelf Registration with the Securities
and Exchange Commission in August 1992. Securities sold under that registration
include the following: On November 7, 1995, the Company issued $25.0 million of
7 3/8% debentures with a 20-year maturity; on June 20, 1995, the Company issued
$50.0 million of 8% debentures with a 30-year maturity; and on May 13, 1993, the
Company issued $25.0 million of 7 5/8% debentures with a 20-year maturity.
In October 1995, the Company redeemed the $50.0 million of 11 3/4%
debentures originally issued in 1985.
The common stock cash dividend was increased 14.8% during 1996 to an annual
payout of $0.62 per common share. The common stock cash dividend was increased
by 12.5% during 1993 to an annual payout of $0.54 per common share. Common stock
cash dividends were paid at the rate of $0.58 per share in 1996 and $0.54 per
share in 1995. See page 34 for additional dividend data.
The Company's financial condition remains strong, and the Company has the
resources necessary to meet future anticipated funding requirements. In addition
to cash flow from operations, the Company has sufficient unused debt capacity,
including a $150.0 million line of credit and the $300.0 million Shelf
Registration previously mentioned, to finance its ongoing capital requirements
and to take advantage of acquisition opportunities.
Inflation
Management does not consider its business as a whole to be subject to
significant effects of inflationary pressures. Because of the diverse geographic
distribution of the Company's operations, the high inflation in certain of the
countries in which the Company operates is not considered to create an
unacceptable risk to conducting business worldwide.
18
<PAGE> 13
CONSOLIDATED STATEMENTS OF INCOME
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands)
Years ended December 31, 1996, 1995 and 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,355,685 1,322,954 1,194,247
COST OF SALES 1,023,401 1,003,638 896,587
SELLING, ADMINISTRATIVE AND GENERAL EXPENSE 226,518 223,101 211,983
- ----------------------------------------------------------------------------------------------------
1,249,919 1,226,739 1,108,570
- ----------------------------------------------------------------------------------------------------
OPERATING INCOME 105,766 96,215 85,677
- ----------------------------------------------------------------------------------------------------
OTHER INCOME
Interest earned 2,528 5,509 3,778
Equity in net earnings (losses) of affiliated companies 334 982 (1,143)
Foreign currency transaction gains (losses) 812 (160) (508)
- ----------------------------------------------------------------------------------------------------
3,674 6,331 2,127
OTHER CHARGES
Interest expense 13,031 15,226 10,933
Miscellaneous - net 8,202 7,161 2,565
- ----------------------------------------------------------------------------------------------------
21,233 22,387 13,498
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 88,207 80,159 74,306
INCOME TAXES 33,621 30,905 26,912
- ----------------------------------------------------------------------------------------------------
NET INCOME 54,586 49,254 47,394
DIVIDEND ON PREFERRED STOCK, NET OF TAX 3,735 3,670 3,583
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 50,851 45,584 43,811
- ----------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Primary earnings $ 1.92 1.64 1.52
Fully diluted earnings 1.82 1.56 1.45
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands)
December 31, 1996 and 1995 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 14,026 16,695
Accounts and trade notes receivable, after deduction of
$9,497 in 1996 and $9,877 in 1995 for possible losses 214,131 230,742
Inventories 149,343 155,253
Other current assets 39,022 30,840
- -------------------------------------------------------------------------------------
Total current assets 416,522 433,530
OTHER ASSETS
Investments in affiliated companies 7,126 7,622
Unamortized excess of cost over net assets acquired 93,302 95,553
Sundry other assets 46,135 33,119
- -------------------------------------------------------------------------------------
Total other assets 146,563 136,294
PLANT AND EQUIPMENT
Land 16,623 16,074
Buildings 146,061 142,436
Machinery and equipment 520,445 494,842
- -------------------------------------------------------------------------------------
683,129 653,352
Less accumulated depreciation and amortization 375,746 346,064
- -------------------------------------------------------------------------------------
Net plant and equipment 307,383 307,288
- -------------------------------------------------------------------------------------
$ 870,468 877,112
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and loans payable $ 30,200 35,587
Accounts payable 113,156 115,889
Income taxes payable 10,597 12,034
Accrued payrolls 16,559 16,718
Accrued expenses and other current liabilities 81,821 78,244
- -------------------------------------------------------------------------------------
Total current liabilities 252,333 258,472
LONG-TERM LIABILITIES, less current portion 105,308 104,910
ESOP LOAN GUARANTEE 22,592 30,470
POSTRETIREMENT LIABILITIES 44,846 43,570
OTHER NON-CURRENT LIABILITIES 61,185 57,540
SHAREHOLDERS' EQUITY
Serial convertible preferred stock, without par value.
Authorized 2,000,000 shares; 1,520,215 shares issued 70,500 70,500
Guaranteed ESOP obligation (22,592) (30,470)
Common stock, par value $1 per share.
Authorized 150,000,000 shares; 31,549,083 shares issued 31,549 31,549
Paid-in capital 14,107 13,237
Earnings retained in the business 463,177 427,611
Foreign currency translation adjustment (24,304) (20,576)
Other (7,230) (5,595)
- -------------------------------------------------------------------------------------
525,207 486,256
Less cost of common stock held in treasury, 5,918,239
shares in 1996 and 4,687,832 shares in 1995 132,595 97,626
Less cost of convertible preferred stock held in treasury,
181,306 shares in 1996 and 139,724 shares in 1995 8,408 6,480
- -------------------------------------------------------------------------------------
Total shareholders' equity 384,204 382,150
- -------------------------------------------------------------------------------------
$ 870,468 877,112
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Ferro Corporation and subsidiaries
December 31, 1996, 1995 and 1994 (dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------
Foreign Common Preferred Total
Guaranteed currency stock stock share-
Preferred ESOP Common Paid-in Retained translation held in held in holders'
stock obligation stock capital earnings adjustment treasury treasury Other equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1993 $70,500 (44,076) 31,549 9,760 368,590 (29,121) (40,571) (4,144) (3,690) 358,797
Net income 47,394 47,394
Cash dividends:
Common stock (15,443) (15,443)
Preferred stock (4,598) (4,598)
Federal tax benefits 1,026 1,026
Transactions involving
benefit plans 6,573 473 3,425 2,140 12,611
Foreign currency
translation adjustment 5,101 5,101
Purchase of treasury stock (37,061) (1,083) (38,144)
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1994 $70,500 (37,503) 31,549 10,233 396,969 (24,020) (74,207) (5,227) (1,550) 366,744
Net income 49,254 49,254
Cash dividends:
Common stock (14,953) (14,953)
Preferred stock (4,524) (4,524)
Federal tax benefits 865 865
Transactions involving
benefit plans 7,033 3,004 1,653 (442) (4,045) 7,223
Foreign currency
translation adjustment 3,444 3,444
Purchase of treasury stock (25,072) (831) (25,903)
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1995 $70,500 (30,470) 31,549 13,237 427,611 (20,576) (97,626) (6,480) (5,595) 382,150
Net income 54,586 54,586
Cash dividends:
Common stock (15,311) (15,311)
Preferred stock (4,408) (4,408)
Federal tax benefits 699 699
Transactions involving
benefit plans 7,878 870 4,285 (658) (1,635) 10,740
Foreign currency
translation adjustment (3,728) (3,728)
Purchase of treasury stock (39,254) (1,270) (40,524)
- ----------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1996 $70,500 (22,592) 31,549 14,107 463,177 (24,304) (132,595) (8,408) (7,230) 384,204
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands)
Years ended December 31, 1996, 1995 and 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 54,586 49,254 47,394
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 49,635 46,261 42,704
Change in deferred income taxes 498 2,173 (202)
Other non-cash items 4,143 7,677 1,546
Changes in current assets and liabilities,
net of effects of acquisitions
Accounts and trade notes receivable 13,297 (7,242) (39,378)
Inventories 2,169 1,370 (12,678)
Other current assets (8,901) 3,374 10,961
Accounts payable (1,218) (6,258) 22,204
Accrued expenses and other current liabilities 2,386 10,776 5,681
Other operating activities (5,023) 368 3,613
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 111,572 107,753 81,845
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 933 2,571 2,885
Capital expenditures for plant and equipment (46,655) (49,528) (59,700)
Proceeds from divestitures 6,049 6,869 3,151
Acquisition of companies, net of cash acquired (13,345) (69,919) (9,176)
Transactions with affiliated companies 830 1,833 126
Changes in marketable securities, net 0 0 38,335
Other investing activities (704) 4,338 (2,249)
- ----------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) INVESTING ACTIVITIES (52,892) (103,836) (26,628)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) under short-term lines (3,878) 16,491 (549)
Proceeds from long-term debt 2,626 75,035 0
Principal payments on long-term debt (1,533) (52,228) (2,070)
Proceeds from sale of stock 2,069 1,941 2,780
Purchase of treasury stock (40,524) (25,903) (38,144)
Cash dividends paid to minority shareholders of subsidiaries (646) (1,033) (701)
Cash dividends paid (19,719) (19,477) (20,041)
- ----------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) FINANCING ACTIVITIES (61,605) (5,174) (58,725)
Effect of exchange rate changes on Cash 256 (1,870) (1,786)
- ----------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (2,669) (3,127) (5,294)
Cash and cash equivalents at beginning of period 16,695 19,822 25,116
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,026 16,695 19,822
- ----------------------------------------------------------------------------------------------------------
CASH PAID DURING THE YEAR FOR
Interest $ 11,927 15,625 10,475
Income taxes $ 35,026 29,167 26,467
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ferro Corporation and subsidiaries
Years ended December 31, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries after elimination of significant intercompany
accounts, transactions and profits. Affiliates in which the Company has stock
ownership from 20% to 50% are accounted for on the equity basis.
Certain amounts in the 1994 and 1995 financial statements and the
accompanying notes have been reclassified to conform to the 1996 presentation.
Financial results for acquisitions are included in the consolidated
financial statements from the date of acquisition.
Translation of foreign currencies
Except for international companies whose functional currency is the U.S.
dollar, financial statements of international companies are translated to U.S.
dollar equivalents at the following exchange rates: (1) balance sheet accounts
at year-end rates; (2) income statement accounts at exchange rates weighted by
the monthly volume of transactions occurring during the year. Translation gains
or losses are recorded in shareholders' equity, and transaction gains and losses
are reflected in net income.
The U.S. dollar is the functional currency of the Company's operations in
Brazil and Ecuador due to the high inflation experienced in those countries.
Translation gains or losses for these operations are reflected in net income.
Cash equivalents
Cash equivalents consist of highly liquid instruments with a maturity of
three months or less and are carried at cost, which approximates market value.
Marketable securities
Marketable securities consist of highly liquid investments carried at cost,
which approximates market value.
Risk management derivatives
Derivatives primarily consist of forward exchange contracts, foreign
currency options and options related to primary metals. Gains and losses related
to qualifying hedges of firm commitments or anticipated transactions are
deferred and are recognized as adjustments of carrying amounts when the hedged
transaction occurs. Gains and losses on derivative financial instruments that do
not qualify as hedges are recognized as foreign currency transaction gains or
losses. Premiums paid on purchased options are deferred and amortized over the
life of the option.
New accounting pronouncements
During 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The statement is effective
after December 31, 1996 on a prospective basis, except for certain provisions
whose effective date was deferred by Statement of Financial Accounting Standards
No. 127, also issued during 1996. The Company does not have transactions which
qualify for deferred implementation and therefore will adopt Statement No. 125,
effective January 1, 1997. Implementation will likely result in an increase in
the reported amounts of accounts and trade notes receivable and notes and loans
payable.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which provides
guidance for recognition of impairment losses to long-lived assets. The
Statement is effective for fiscal years beginning after December 15, 1995. The
Company recognized no impairment loss as a result of adoption.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which provides a basis for measurement and recognition of all
stock-based employee compensation plans. The disclosure requirements of this
Statement are effective for fiscal years beginning after December 15, 1995. The
Company chose
23
<PAGE> 18
to maintain its current accounting method for stock-based compensation and
disclose the pro forma effects on net income and earnings per share of the fair
market value method as permitted by the Statement.
Use of estimates in the preparation of
financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
utilizing the first-in, first-out (FIFO) method, except for selected domestic
and international inventories which utilize the last-in, first-out (LIFO)
method.
Goodwill and other intangibles
The excess of cost over equity in net assets of acquired companies is being
amortized over periods benefited, with the most extended period being 40 years.
Accumulated amortization was $27.1 million and $19.9 million at December 31,
1996 and 1995, respectively.
The realizability of goodwill and other intangibles is evaluated
periodically as events or circumstances warrant. Such evaluations are based on
various analyses, including cash flow and profitability projections that
incorporate, as applicable, the impact on existing Company business. The
analyses necessarily involve significant management judgment to evaluate the
capacity of an acquired business to perform within projections. The Company
would recognize a write-down when significant events or changes occur which
might impair recovery of recorded costs. Historically, the Company has generated
sufficient returns from acquired businesses to recover the cost of its
intangible assets.
Plant and equipment
Plant and equipment is carried at cost. Depreciation of plant and equipment
is provided substantially on a straight-line basis for financial reporting
purposes. The annual depreciation provision has been based upon the following
estimated useful lives:
Buildings 20 to 40 years
Machinery and equipment 5 to 15 years
Environmental costs
The Company expenses recurring costs associated with control and disposal
of hazardous materials in current operations. Costs associated with the
remediation of environmental pollution are accrued when it becomes probable that
a liability has been incurred and the costs can be reasonably estimated.
Income taxes
Commencing with 1993, income taxes have been provided using the liability
method.
Earnings per share
Primary net income per common share is based on a weighted average of
common and common equivalent shares. Fully diluted earnings per share reflect
the potential dilution of earnings per share assuming that convertible preferred
shares are converted into common shares.
2. INVENTORIES
The portion of inventories valued on a LIFO basis at December 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------
<S> <C> <C>
UNITED STATES 41% 40
OUTSIDE THE UNITED STATES 8 9
CONSOLIDATED 22 22
- -----------------------------------------------------
</TABLE>
If the FIFO method of inventory valuation had been used exclusively by the
Company, inventories would have been $16.9 million and $17.6 million higher than
reported at December 31, 1996 and 1995, respectively.
Inasmuch as certain of the inventory costs are determined by use of the
LIFO dollar value method (under which the raw materials, work in process and
finished goods are included in one pool), it is impracticable to separate LIFO
inventory values among raw materials, work in process and finished goods.
24
<PAGE> 19
3. FINANCING AND LONG-TERM LIABILITIES
Long-term liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995
- -----------------------------------------------------
<S> <C> <C>
PARENT COMPANY:
UNSECURED:
DEBENTURES, 7 5/8%, DUE 2013 $ 24,794 24,788
DEBENTURES, 8%, DUE 2025 49,341 49,318
DEBENTURES, 7 3/8%, DUE 2015 24,932 24,929
SECURED:
MORTGAGES, 7.3% TO 8.5%
PAYABLE TO 2017 76 155
SUBSIDIARY COMPANIES:
UNSECURED:
NOTES PAYABLE, 1.55% TO 13.0%
PAYABLE TO 2002 5,722 3,062
SECURED:
MORTGAGES, 8.8% TO 10.8%
PAYABLE TO 2002 2,801 4,506
- -----------------------------------------------------
107,666 106,758
LESS CURRENT PORTION (A) 2,358 1,848
- -----------------------------------------------------
TOTAL $105,308 104,910
=====================================================
</TABLE>
(A) INCLUDED IN NOTES AND LOANS PAYABLE.
The aggregate principal payments on long-term indebtedness for the next
five years are as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1998 1999 2000 2001
- -----------------------------------------------------
<S> <C> <C> <C> <C>
$2,358 2,681 1,301 733 567
</TABLE>
At December 31, 1996, $2.9 million of long-term indebtedness was secured by
property, equipment and certain other assets with a net book value approximating
$4.9 million.
In 1993, the Company issued $25.0 million in 7 5/8% debentures under the
1992 Shelf Registration. These debentures mature in the year 2013, and the fair
market value was approximately $25.7 million at December 31, 1996.
In June 1995, the Company issued $50.0 million in 8% debentures under the
1992 Shelf Registration. These debentures mature in the year 2025, and the fair
market value was approximately $50.7 million at December 31, 1996. In October
1995, proceeds from the issuance of the 8% debentures were used to retire the
11 3/4% debentures issued in 1985.
In November 1995, the Company issued $25.0 million in 7 3/8% debentures
under the 1992 Shelf Registration. These debentures mature in the year 2015, and
the fair market value was approximately $24.9 million at December 31, 1996.
The $100.0 million Shelf Registration originally filed in 1992 was
exhausted with the issuance of debentures in June and November of 1995.
In October 1995, the Company filed a $300.0 million Shelf Registration with
the Securities and Exchange Commission. This registration will enable the
Company to offer, separately or together, debt securities, common stock and/or
preferred stock, warrants, stock purchase contracts, depositary shares and stock
purchase units. Proceeds would be used for general corporate purposes.
The Company has a five-year revolving credit agreement in the amount of
$150.0 million which matures on August 1, 2001. The agreement permits the
maturity date to be extended for one year with the consent of the parties.
Interest on revolving credit borrowings is payable at floating prime or lower
rates based on Company options. There is a commitment fee of 3/16% per year. At
December 31, 1996, the Company had no outstanding borrowing under this
agreement.
There are no covenants in the revolving credit agreement which
significantly limit the dividend payment capability of the Company, and the
Company does not expect to include any such covenants in future offerings under
the Shelf Registration. In addition, there are no significant restrictions on
the payment of dividends by the subsidiaries and affiliates of the Company.
In 1989, the Company created an Employee Stock Ownership Plan (ESOP). The
ESOP borrowed $63.5 million at an interest rate of 8.5% and $7.0 million at an
adjustable interest rate in 10-year loans guaranteed by the Company. Interest
paid by the ESOP totaled $2.4 million, $3.0 million and $3.6 million in 1996,
1995 and 1994, respectively. The Company has reflected the guaranteed ESOP
borrowings as a loan guarantee on its balance sheet with a like amount of
"Guaranteed ESOP Obligation" recorded as a reduction of shareholders' equity. As
the Company and its employees make contributions to the ESOP, these
contributions, plus the dividends paid on the Company's preferred stock held by
the ESOP, are used to service the borrowings. As the principal amounts of the
loans are repaid, the "Guaranteed ESOP Obligation" is reduced accordingly.
Capitalized interest was $0.6 million, $0.7 million and $1.0 million in
1996, 1995 and 1994, respectively.
The maintenance of minimum cash balances is informally agreed to with
certain banks as a result of loans, commitments and services rendered. Cash
balances maintained to meet operating needs on a daily basis are sufficient to
satisfy these informal agreements. These balances are available for use by
25
<PAGE> 20
the Company and its subsidiaries at all times and do not contain legal
restrictions. Cash in excess of such operating requirements is invested in
short-term securities.
4. STOCK PLANS
The Company maintains the following stock plans for the benefit of its
employees: a stock option plan, a performance share plan and a savings and stock
ownership plan which includes an investment savings plan and an ESOP.
The stock option plan provides for the issuance of stock options at no less
than the then current market price. Stock options have a maximum term of 10
years and vest evenly over four years.
Information pertaining to these stock options is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
SHARES GRANTED 389,515 200,935 201,850
AVERAGE OPTION
PRICE $23.87 24.00 33.39
SHARES EXERCISED 53,024 35,676 39,284
AVERAGE OPTION
PRICE $12.95 9.33 15.93
SHARES WHICH BECAME
EXERCISABLE 160,894 137,353 114,613
AVERAGE OPTION
PRICE $28.53 29.12 23.14
SHARES UNEXERCISED
AT YEAR-END 1,466,799 1,145,863 1,003,241
OPTION PRICE RANGE
PER SHARE $9.78 6.95 6.95
to 34.00 to 34.00 to 34.00
SHARES CANCELLED 15,556 22,637 4,876
SHARES AVAILABLE
FOR GRANTING
FUTURE OPTIONS 1,769,449 643,408 821,706
- -----------------------------------------------------
</TABLE>
Significant option groups outstanding at December 31, 1996 and the related
weighted average price for the exercisable options and remaining life
information are as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
- ---------------------------------- ----------------------
Range of Average Remain- Average
Exercise Exercise ing life Exercise
Prices Shares Price (years) Shares Price
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$30-34 194,675 $33.38 7 101,223 $33.33
26-30 193,050 29.14 6 127,554 29.39
22-26 706,947 23.67 8 201,690 23.52
10-18 372,127 13.67 2 372,127 13.67
- -----------------------------------------------------------
$10-34 1,466,799 $23.14 6 802,594 $21.12
</TABLE>
All options were granted at an exercise price equal to the fair market
value of the Company's common stock at the date of grant. The weighted average
fair market value at date of grant for options granted during 1996 and 1995 was
$9.27 and $9.38 per option, respectively. The fair value of options at date of
grant was estimated using the Black-Scholes model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------
<S> <C> <C>
EXPECTED LIFE (YEARS) 10 10
INTEREST RATE 6.25% 6.00%
VOLATILITY 26.40 26.90
DIVIDEND YIELD 1.92 1.88
- -----------------------------------------------------
</TABLE>
On a pro forma basis, had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date consistent with
the provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts shown below:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------
<S> <C> <C>
NET INCOME - AS REPORTED $54,586 49,254
NET INCOME - PRO FORMA 53,770 48,973
EARNINGS PER SHARE - AS REPORTED 1.92 1.64
EARNINGS PER SHARE - PRO FORMA 1.89 1.63
- -----------------------------------------------------
</TABLE>
The pro forma effects on net income for 1996 and 1995 are not
representative of the pro forma effects on net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1995.
The Company maintains a performance share plan whereby awards, expressed as
shares of common stock of the Company, are earned only if the Company meets
specific performance targets over a three- to five-year period. The plan pays
50% cash and 50% common stock for the value of any earned performance shares.
Performance share awards in the amount of 162,319 shares, 166,467 shares and
235,395 shares were outstanding at the end of 1996, 1995 and 1994, respectively.
The Company accrues amounts based on performance reflecting the value of cash
and common stock which is anticipated to be earned. The effect of the plan was
to reduce income by $582,000, $500,000 and $64,000 in 1996, 1995 and 1994,
respectively.
The ESOP provides for the Company to match eligible employee pre-tax
savings. Amounts expensed under the ESOP were $2.9 million, $2.6 million and
$2.5 million in 1996, 1995 and 1994, respectively.
5. CAPITAL STOCK
In 1989, Ferro issued 1,520,215 shares of 7% Series A ESOP Convertible
Preferred Stock to National
26
<PAGE> 21
City Bank, trustee for the Ferro ESOP. The shares were issued at a price of
$46.375 per share for a total consideration of $70.5 million. Each share of ESOP
convertible preferred stock is convertible into 1.7325 shares of common stock.
As the loans are repaid by the trustee, preferred shares are allocated to
participating individual employee accounts. The Company is required to
repurchase at the original issue price, for cash or common stock at the
Company's option, the preferred shares allocated to an employee's ESOP account
upon distribution of such account to the employee unless such shares have been
converted to common stock. Each preferred share carries one vote, voting
together with the common stock on most matters.
The Company purchased 1,455,015 shares of common stock in 1996 at an
aggregate cost of $39.3 million; purchased 1,050,965 shares of common stock in
1995 at an aggregate cost of $25.1 million; and purchased 1,492,900 shares of
common stock in 1994 at an aggregate cost of $37.1 million. At December 31,
1996, the Company had remaining authorization to acquire 1,910,021 shares under
the current treasury stock purchase program.
On January 26, 1996, the Board of Directors authorized the repurchase of up
to 3,000,000 shares of Ferro common stock in addition to any previously
authorized shares. These shares are to be purchased on the open market from time
to time.
The Company maintains a Shareholder Rights Plan ("the Plan") whereby, until
the occurrence of certain events, each share of outstanding common stock
represents ownership of one right (Right). The Rights become exercisable only if
a person or group acquires 20% or more of the Company's common stock (10% under
certain circumstances) or commences a tender or exchange offer upon consummation
of which such person or group would control 20% or more of the common shares or
is declared an Adverse Person (as defined in the Plan) by the Board of
Directors. The Rights, which do not have the right to vote or receive dividends,
expire on April 8, 2006. Rights may be redeemed by the Company at $0.05 per
Right at any time until the 15th day following public announcement that a person
or group has acquired 20% or more of the voting power, unless such period is
extended by the Board of Directors while the Rights are redeemable.
If any person becomes the owner of 20% or more of the common stock (10%
under certain circumstances), or if the Company is the surviving corporation in
a merger with a 20% or more stockholder and its common shares are not changed or
converted, or if a 20% or more stockholder engages in certain self-dealing
transactions with the Company, then each Right not owned by such person or
related parties will entitle its holder to purchase shares of common stock at a
purchase price of 50% of the then current market price of the common stock up to
a value of $110.00 per right.
In the event the Company engages in a merger or other business combination
transaction in which the Company is not the surviving corporation or the Company
is the surviving corporation but its common stock is changed or exchanged or 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a Right shall have the right to receive, upon exercise thereof at the
then current exercise price of the Right, that number of shares of common stock
of the surviving company which at the time of the transaction would have a
market value of two times the exercise price of the Right.
6. ACQUISITIONS AND DIVESTITURES
In January 1996, the Company purchased the remaining interest in Ferro
Industrias Quimicas S.A., located in Portugal. In November 1996, the Company
purchased Ceramica Technica Industrial S.A. of Spain. Neither of these
transactions was material to Ferro.
In October 1995, the Company acquired Synthetic Products Company from
Cookson Group plc, of London, England. The cost of this acquisition was
approximately $69.0 million and was accounted for using the purchase method of
accounting. The purchase price was allocated based on fair value of assets at
the date of acquisition with approximately $48.7 million being assigned to
goodwill and other intangibles. See note 13 for further information.
In December 1995, the Company sold the European engineering thermoplastics
business known as Eurostar to LNP Engineering Plastics Europe B.V., a subsidiary
of Kawasaki Steel Corporation. The results of this operation were not material
to Ferro.
During 1994, the Company acquired Diamonite Products from W.R. Grace &
Company. The acquisition was accounted for using the purchase method of
accounting.
The Company sold or discontinued operations representing annual sales of
approximately $25.0 million, $20.0 million and $30.0 million in 1996, 1995 and
1994, respectively. The results of these operations were not material to Ferro.
27
<PAGE> 22
7. CONTINGENT LIABILITIES
There are pending against the Company and its consolidated subsidiaries
various lawsuits and claims.
In the opinion of management, the ultimate liabilities resulting from such
lawsuits and claims will not materially affect the consolidated financial
position, results of operations or liquidity of the Company.
8. RESEARCH AND DEVELOPMENT EXPENSE
Amounts expended for development or significant improvement of new and/or
existing products, services and techniques approximated $23.8 million, $23.2
million and $22.9 million in 1996, 1995 and 1994, respectively.
9. RETIREMENT BENEFITS
The following information sets forth data for the pension plans of the
Company and its consolidated subsidiaries. Due to the diverse nature of the
regulatory environment of various countries, pension plans have varied benefit
determinations. The largest plan is for United States salaried employees whose
benefits are primarily based on employees' highest consecutive five years'
earnings. Annual pension costs for the defined benefit and defined contribution
plans of the Company and its subsidiaries were $8.9 million, $7.2 million and
$8.5 million in 1996, 1995 and 1994, respectively.
The Company's funding policy is to contribute annually amounts required by
the various agencies governing the retirement plans of the Company.
The net periodic pension cost for the significant defined benefit plans
included the following components:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995 1994
- ------------------------------------------------------
<S> <C> <C> <C>
SERVICE COST-BENEFITS
EARNED DURING
THE PERIOD $ 6,477 5,310 7,212
INTEREST COST ON THE
PROJECTED BENEFIT
OBLIGATION 15,526 14,468 13,775
ACTUAL (RETURN) LOSS
ON PLAN ASSETS (24,240) (30,528) 4,269
NET AMORTIZATION
AND DEFERRAL 9,331 16,949 (18,628)
- ------------------------------------------------------
NET PERIODIC
PENSION COST $ 7,094 6,199 6,628
- ------------------------------------------------------
</TABLE>
Net amortization and deferral consists of amoritization of net asset and
obligations at transition and deferral and amortization of subsequent net gains
and losses.
Assumptions used in developing the projected benefit obligation as of
December 31 were:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
DISCOUNT OR
SETTLEMENT RATE 6.0-10.0% 6.5-10.0 7.0-10.0
RATE OF INCREASE IN
COMPENSATION LEVELS 3.0-9.0 2.5-9.0 3.0-9.0
EXPECTED LONG-TERM
RATE OR RETURN
ON ASSETS 7.25-10.0 7.0-10.5 6.0-10.0
- ----------------------------------------------------------------
</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 benefits
(dollars in thousands) accumulated benefits exceed assets
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
VESTED BENEFIT OBLIGATION $ 152,302 136,231 18,228 29,002
- ------------------------------------------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION 158,587 142,440 32,363 37,761
- ------------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION 187,591 166,953 33,302 42,698
PLAN ASSETS AT FAIR VALUE 190,502 167,752 10,453 21,647
- ------------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION (IN EXCESS OF) OR LESS THAN PLAN ASSETS 2,911 799 (22,849) (21,051)
UNRECOGNIZED NET (GAIN) OR LOSS (13,883) (2,650) 5,646 5,339
PRIOR SERVICE COST 5,150 3,543 4,813 3,153
UNRECOGNIZED NET TRANSITION (ASSET) OBLIGATION (2,655) (4,834) 1,605 2,404
MINIMUM LIABILITY ADJUSTMENT -- -- (11,254) (8,239)
- ------------------------------------------------------------------------------------------------------------------------
PENSION LIABILITY $ (8,477) (3,142) (22,039) (18,394)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the aggregate, at year-end 1996 and 1995 the various plans' assets at
fair value were less than the various plans' projected benefit obligations by
$19.9 million and $20.3 million, respectively. The Company recognized decreases
in equity of $0.2 million and $2.4 million for minimum liability adjustments in
1996 and 1995, respectively.
28
<PAGE> 23
The plans' assets consist primarily of equities and government and
corporate obligations. The United States plans' assets included shares of the
Company's stock with a market value of $3.3 million and $5.1 million at
year-end 1996 and 1995, respectively.
The Company provides eligible domestic retired employees with health care
and life insurance benefits. These benefits are subject to the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The Company funds these benefits
as claims are presented.
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
SERVICE COST $ 715 498 731
INTEREST COST 2,820 2,935 3,077
NET AMORTIZATION
AND DEFERRAL (192) (442) --
- -----------------------------------------------------
NET PERIODIC
POSTRETIREMENT
BENEFIT COST $3,343 2,991 3,808
- -----------------------------------------------------
</TABLE>
Assumptions used in developing the accumulated postretirement benefit
obligation as of December 31 were:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
DISCOUNT OR SETTLEMENT RATE 7.9% 7.7 9.5
RATE OF INCREASE IN COVERED
HEALTH CARE BENEFITS:
FIRST YEAR 8.3 9.0 9.0
DECREASING GRADUALLY
OVER 20 YEARS TO 4.0 4.0 4.0
- -----------------------------------------------------
</TABLE>
The following table sets forth the accrued postretirement benefit
obligation recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995
- -----------------------------------------------------
<S> <C> <C>
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION:
RETIREES $25,515 27,220
FULLY ELIGIBLE ACTIVE
PLAN PARTICIPANTS 4,063 3,335
OTHER ACTIVE PLAN
PARTICIPANTS 8,705 8,890
- -----------------------------------------------------
38,283 39,465
UNRECOGNIZED NET (GAIN) (6,563) (4,105)
- -----------------------------------------------------
ACCRUED POSTRETIREMENT
BENEFIT OBLIGATION $44,846 43,570
=====================================================
</TABLE>
Increasing the assumed health care cost trend rates by one percentage point
for each future year would increase the accumulated postretirement benefit
obligation as of December 31, 1996 by $3.2 million and the net periodic
postretirement benefit cost by $0.3 million.
10. Income tax expense
Income tax expense is comprised of the following components:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
CURRENT:
U.S. FEDERAL $18,641 15,173 8,885
FOREIGN 12,968 12,063 13,498
STATE AND LOCAL 3,345 2,845 1,841
- -----------------------------------------------------
34,954 30,081 24,224
- -----------------------------------------------------
DEFERRED:
U.S. FEDERAL (588) (278) 3,054
FOREIGN (663) 1,613 (329)
STATE AND LOCAL (82) (511) (37)
- -----------------------------------------------------
(1,333) 824 2,688
- -----------------------------------------------------
TOTAL INCOME TAX $33,621 30,905 26,912
=====================================================
</TABLE>
In addition to the 1996 income tax expense of $33.6 million, certain income
tax benefits of $0.9 million were allocated directly to shareholders' equity.
The above taxes are based on earnings before income taxes. These earnings
aggregated $53.7 million, $44.4 million and $34.4 million for domestic
operations and $34.5 million, $35.7 million and $39.9 million for foreign
operations in 1996, 1995 and 1994, respectively.
A reconciliation of the statutory federal income tax rate and the effective
tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
STATUTORY FEDERAL
INCOME TAX RATE 35.0% 35.0 35.0
FOREIGN TAX RATE
DIFFERENCE 0.4 1.9 (1.7)
U.S. TAXES ON DIVIDENDS
FROM SUBSIDIARIES 0.9 0.8 1.3
STATE AND LOCAL TAXES
NET OF FEDERAL
INCOME TAX 2.4 1.9 1.6
MISCELLANEOUS (0.6) (1.0) --
- -----------------------------------------------------
EFFECTIVE TAX RATE 38.1% 38.6 36.2
=====================================================
</TABLE>
29
<PAGE> 24
The components of deferred tax assets and liabilities at December 31 were:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995
- -----------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
PENSION AND OTHER
BENEFIT PROGRAMS $22,915 21,782
RESTRUCTURING RESERVES 2,238 2,857
ACCRUED LIABILITIES 6,488 5,671
NET OPERATING LOSS CARRYFORWARDS 9,858 12,507
INVENTORIES 3,412 3,900
OTHER 8,930 4,901
- -----------------------------------------------------
TOTAL DEFERRED TAX ASSETS 53,841 51,618
- -----------------------------------------------------
DEFERRED TAX LIABILITIES
PROPERTY AND EQUIPMENT -
DEPRECIATION AND AMORTIZATION 29,107 26,064
OTHER 1,486 1,541
- -----------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 30,593 27,605
- -----------------------------------------------------
NET DEFERRED TAX ASSET BEFORE
VALUATION ALLOWANCE 23,248 24,013
VALUATION ALLOWANCE (5,008) (8,348)
- -----------------------------------------------------
NET DEFERRED TAX ASSET $18,240 15,665
=====================================================
</TABLE>
At December 31, 1996, the Company's foreign subsidiaries had deferred tax
assets relating to net operating loss carryforwards for income tax purposes of
$9.9 million that expire in years 1997 through 2002, and in two instances, have
no expiration period. For financial reporting purposes, a valuation allowance of
$3.9 million has been recognized to offset the deferred tax assets relating to
the net operating loss carryforwards.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $96.1 million. Deferred income taxes are not provided on these
earnings as it is intended that the majority of these earnings are indefinitely
invested in these entities.
11. REPORTING FOR SEGMENTS
Major product lines of the Company are coatings, colors and ceramics;
plastics; and chemicals. Within coatings, colors and ceramics, coatings revenues
represented approximately 38% of consolidated net sales during 1996 and
approximately 41% during 1995 and 1994; colors represented approximately 11% of
consolidated net sales in each of the three years. Within chemicals, polymer
additives represented approximately 14% of consolidated sales in 1996. The
Company's sales are primarily made through its own full-time sales force, though
some sales are made through manufacturers' representatives and distributors.
Identifiable assets are those used in the operation of each segment.
Information about the Company's segment operating data follows:
<TABLE>
<CAPTION>
Coatings,
colors and
(dollars in millions) ceramics Plastics Chemicals Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
1996 $ 781.0 238.0 336.7 1,355.7
1995 782.6 270.7 269.7 1,323.0
1994 710.3 267.1 216.8 1,194.2
OPERATING PROFIT
1996 $ 73.4 13.7 23.1 110.2
1995 71.3 8.8 18.6 98.7
1994 74.4 7.4 6.3 88.1
IDENTIFIABLE ASSETS
1996 $ 464.8 86.3 225.7 776.8
1995 454.0 95.6 250.2 799.8
1994 444.2 120.3 157.9 722.4
CAPITAL
EXPENDITURES
1996 $ 29.6 3.5 13.6 46.7
1995 33.4 4.4 11.7 49.5
1994 35.4 7.7 16.6 59.7
DEPRECIATION AND
AMORTIZATION
1996 $ 27.5 7.0 15.1 49.6
1995 25.6 7.4 13.3 46.3
1994 24.5 7.0 11.2 42.7
- ---------------------------------------------------------------------------
</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) 1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
OPERATING PROFIT $110.2 98.7 88.1
EQUITY IN NET EARNINGS
(LOSSES) OF AFFILIATED
COMPANIES 0.3 1.0 (1.1)
INTEREST EARNED 2.5 5.5 3.8
GENERAL CORPORATE
EXPENSE-NET (7.9) (6.6) (6.1)
INTEREST EXPENSE (13.0) (15.2) (10.9)
MISCELLANEOUS (3.9) (3.2) 0.5
- -----------------------------------------------------
INCOME BEFORE TAXES $ 88.2 80.2 74.3
=====================================================
</TABLE>
30
<PAGE> 25
A reconciliation of identifiable assets shown above to the total assets
included in the consolidated balance sheets follows:
<TABLE>
<CAPTION>
(dollars in millions) 1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
TOTAL IDENTIFIABLE ASSETS $776.8 799.8 722.4
INVESTMENTS IN AFFILIATED
COMPANIES 7.1 7.6 8.9
CORPORATE ASSETS 86.6 68.5 70.1
- -----------------------------------------------------
TOTAL ASSETS $870.5 875.9 801.4
=====================================================
</TABLE>
Geographic operating data follows:
<TABLE>
<CAPTION>
(dollars in millions)
- -------------------------------------------------------
United
States and Latin Asia-
Canada Europe America Pacific Total
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES
1996 $733.9 439.7 97.1 85.0 1,355.7
1995 658.1 483.5 88.3 93.1 1,323.0
1994 602.0 399.3 93.2 99.7 1,194.2
OPERATING
PROFIT
1996 $ 59.9 37.0 7.9 5.4 110.2
1995 46.5 39.2 5.3 7.7 98.7
1994 35.6 30.3 12.4 9.8 88.1
IDENTIFIABLE
ASSETS
1996 $404.4 258.7 52.4 61.3 776.8
1995 423.5 271.9 40.5 63.9 799.8
1994 348.7 260.6 47.1 66.0 722.4
- -------------------------------------------------------
</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 the Company's hedging policy to neutralize or mitigate the
potentially negative effects of currency movements and raw material prices. The
Company's use of derivative financial instruments is limited to the hedging of
underlying exposures. The Company does not engage in speculative transactions
for trading purposes.
The Company uses forward exchange contracts and currency options to hedge
its exposure to foreign currency fluctuations. Several of the Company's foreign
subsidiaries enter into forward contracts to protect against the risk of
increased cost of non-local currency denominated raw materials. The most
prevalent transactions involve the purchase of U.S. dollars against Dutch
guilders and Spanish pesetas. The maturity of the hedges is consistent with the
underlying exposure, generally not beyond one year. At December 31, 1996, the
market value of such forward contracts was $15.1 million, compared with a
contract value of $15.0 million.
The Company enters into foreign currency options to protect the U.S. dollar
value of profits generated by certain European operations. Such activity
involves the purchase of put options for the Dutch guilder, Spanish peseta and
French franc against the U.S. dollar. The maturity of the options is generally
under one year. At December 31, 1996, the face value or notional amount of all
outstanding currency options was $17.5 million. If liquidated at year-end 1996,
these options would have produced a cash amount of $589,900 versus an
unamortized cost of $302,000.
In addition to hedging foreign exchange risk, the Company also purchases
call options to hedge certain base metals raw materials against future increases
in price. At December 31, 1996, there were no base metal call options
outstanding.
All forward contract, option and hedging activity is executed with major
reputable multinational financial institutions. Accordingly, the Company does
not anticipate counterparty default and believes that such risk is immaterial.
13. LEASE COMMITMENT
In 1995, in conjunction with the Synthetic Products Company acquisition,
the Company entered into a five-year operating lease agreement for certain land,
buildings, machinery and equipment. The Company has the option to purchase the
assets at the end of the lease term for a price of $22.2 million. In the event
the Company chooses not to exercise this option, the Company is obligated to
pay, or is entitled to receive from the lessor, the difference between the net
sales proceeds and the outstanding lease balance.
Rentals are based on floating rates, and the total annual lease payments,
based on the amount outstanding as of December 31, 1996, are estimated to be at
$1.6 million.
31
<PAGE> 26
SELECTED FINANCIAL DATA
Ferro Corporation and subsidiaries
<TABLE>
<CAPTION>
Years ended December 31, 1986 through 1996
(Dollars in thousands except per share data
and sales per employee data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS (A)
Net sales $ 1,355,685 1,322,954 1,194,247 1,065,748 1,097,793
Income before taxes and
cumulative effect of changes
in accounting principles 88,207 80,159 74,306 89,289 97,689
Income taxes 33,621 30,905 26,912 31,784 38,861
Net income 54,586 49,254 47,394 36,955 58,828
Income as a percent of sales before
cumulative effect of changes in
accounting principles 4.0% 3.7% 4.0% 5.4% 5.4%
RETURN ON AVERAGE SHAREHOLDERS' EQUITY 14.2% 13.2% 13.1% 16.3% 18.1%
Per common share data (A,B)
Average shares outstanding 26,550,962 27,782,823 28,735,898 29,472,201 29,314,494
Primary earnings $ 1.92 1.64 1.52 1.13 1.90
Fully diluted earnings 1.82 1.56 1.45 1.09 1.77
Cash dividends .58 .54 .54 .51 .45
Book value 14.99 14.23 13.18 12.32 11.92
FINANCIAL CONDITION AT YEAR-END
Current assets $ 416,522 433,530 415,415 411,253 414,927
Current liabilities 252,333 258,472 228,336 198,958 205,043
- -----------------------------------------------------------------------------------------------------------------------
Working capital 164,189 175,058 187,079 212,295 209,884
- -----------------------------------------------------------------------------------------------------------------------
Plant and equipment 683,129 653,352 601,594 538,188 497,561
Accumulated depreciation
and amortization 375,746 364,064 313,005 280,367 269,998
- -----------------------------------------------------------------------------------------------------------------------
Net plant and equipment 307,383 307,288 288,589 257,821 227,563
- -----------------------------------------------------------------------------------------------------------------------
Other assets 146,563 136,294 97,372 98,820 54,055
Total assets 870,468 872,112 801,376 767,894 696,545
Long-term liabilities 105,308 104,910 77,611 79,349 53,210
ESOP loan guarantee 22,592 30,470 37,503 44,076 50,897
Deferred income taxes 23,391 21,380 17,309 14,884 10,918
Postretirement liabilities 44,846 43,570 42,076 40,096 --
Other non-current liabilities 37,794 36,160 31,797 31,734 31,504
Shareholders' equity 384,204 382,150 366,744 358,797 344,973
PLANT AND EQUIPMENT
Capital expenditures and
acquisitions 50,592 60,733 63,404 75,037 48,761
Depreciation 42,283 40,233 37,076 33,812 33,451
EMPLOYEES
Number (year-end) 6,912 6,914 6,817 6,627 6,535
Sales per employee $ 196,135 191,344 175,187 160,820 167,990
======================================================================================================================
</TABLE>
32
<PAGE> 27
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,056,940 1,124,833 1,083,573 1,008,990 871,008 725,241
20,349 43,509 83,764 88,436 61,023 45,482
15,532 24,090 34,016 41,816 29,336 21,400
4,817 19,419 49,748 46,620 31,687 24,082
0.5% 1.7% 4.6% 4.6% 3.6% 3.3%
1.6% 6.4% 16.8% 16.8% 13.1% 11.5%
28,821,380 29,064,517 30,972,625 30,884,797 31,043,830 30,599,257
.06 .55 1.53 1.51 1.02 .79
.06 .53 1.46 -- -- --
.43 .43 .40 .31 .30 .27
10.67 10.77 10.20 9.53 8.46 7.27
405,740 386,704 408,692 356,972 325,835 271,643
212,575 221,155 210,059 194,171 174,577 131,605
- -------------------------------------------------------------------------------------------
193,165 165,549 198,633 162,801 151,258 140,038
- -------------------------------------------------------------------------------------------
511,605 519,044 446,290 399,785 359,223 316,770
276,885 263,114 226,268 202,563 187,334 163,058
- -------------------------------------------------------------------------------------------
234,720 255,930 220,022 197,222 171,889 153,712
- -------------------------------------------------------------------------------------------
31,465 43,029 40,417 33,946 34,302 23,993
671,925 685,663 669,131 588,140 532,026 449,348
55,658 58,047 60,764 63,163 64,147 68,136
57,229 62,649 68,020 -- -- --
9,444 21,088 19,860 20,622 22,035 17,347
-- -- -- -- -- --
31,732 17,122 13,359 14,850 11,516 8,963
305,287 305,602 297,069 295,334 259,751 223,297
39,005 61,408 53,471 53,753 37,339 23,839
32,686 30,389 27,574 24,696 21,883 18,926
7,266 8,205 8,045 8,374 8,100 7,721
145,460 137,090 134,690 120,490 107,530 93,930
===========================================================================================
</TABLE>
(A) Included in 1993 is a pre-tax restructuring charge of $3.0 million which on
an after-tax basis is $1.8 million, or $0.06 per common share. Also
included in 1993 is the cumulative effect of accounting changes of $20.6
million which on an after-tax basis is $0.70 per common share. Included in
1991 is a pre-tax restructuring charge of $45.3 million which on an
after-tax basis is $31.7 million, or $1.11 per common share. A litigation
charge of $12.0 million is included in 1990 which on an after-tax basis is
$7.9 million, or $0.27 per common share. Excluding the charges in 1991 and
1990, net income for 1991 would have been $36.5 million, or $1.17 per
common share, and net income for 1990 would have been $27.3 million, or
$0.82 per common share.
(B) Primary earnings per common share are calculated on a weighted average of
common and common equivalent shares. Net income per common share for 1988
and prior periods is based on average shares outstanding during the year.
Fully diluted earnings per share further reflect the potential dilution of
the assumed conversion of the convertible preferred shares (issued in 1989)
into common shares. Book value is based on outstanding common shares and
net worth at the end of the year. Outstanding common shares and per share
data are adjusted to reflect the 2-for-1 stock split in August 1987,
3-for-2 stock split in August 1989 and 3-for-2 stock split in August
1992.
33
<PAGE> 28
QUARTERLY DATA (UNAUDITED)
Ferro Corporation and subsidiaries
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Earnings per
common share Dividends Common
--------------- per stock
Net Gross Net Fully common price
Quarter sales profit income Primary diluted share range
- ----------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1 $ 348,184 85,259 13,151 .45 .43 .135 $28.375-22.875
2 344,715 84,507 14,315 .50 .47 .135 28.375-25.750
3 329,212 78,715 13,227 .47 .45 .155 27.375-25.500
4 333,574 83,803 13,893 .50 .47 .155 30.125-26.250
- ----------------------------------------------------------------------------------------------------------------------
Total $1,355,685 332,284 54,586 1.92 1.82 .580
======================================================================================================================
1995 1 $ 342,947 85,732 13,096 .43 .41 .135 $26.000-23.125
2 334,011 83,300 14,658 .49 .46 .135 30.625-24.500
3 310,841 69,988 9,825 .32 .31 .135 29.250-24.000
4 335,155 80,296 11,675 .40 .38 .135 25.000-21.375
- ----------------------------------------------------------------------------------------------------------------------
Total $1,322,954 319,316 49,254 1.64 1.56 .540
======================================================================================================================
</TABLE>
Primary earnings per common share are calculated using a weighted average of
common and common equivalent shares.
The common stock of the Company is listed on the New York Stock Exchange.
Ticker symbol: FOE
At February 6, 1997, the Company had 3,108 holders of its common stock.
34
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES
Sovereign power under
Name of Subsidiary* the laws of which organized
- -------------------------------------------------------------------------------
Ferro Industrial Products Ltd. Canada
Ferro B.V. The Netherlands
Ferro (Holland) B.V. The Netherlands
Ferro France S.a.R.L. France
Ferro Plastics S.A. France
Ferro Chemicals S.A. France
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
Ferro Industrias Quimicas S.A. Portugal
Ferro Toyo Co., Ltd. (60%) Taiwan, Republic of China
Ferro Enamel Espanola S.A. Spain
CTI Ceramica Tecnica Industrial S.A Spain
Ege-Ferro Kimya A.S. (49.9%) Turkey
Ferro (Great Britain) Ltd. United Kingdom
Ferro Enamel Argentina S.A.I.C.y.M. Argentina
Ferro Enamel do Brasil, I.C.L. Brazil
Ferro Ecuatoriana S.A. (51%) Ecuador
Ferro Mexicana S.A. de C.V. Mexico
Ferro de Venezuela C.A. (49%) Venezuela
Ferro Corporation (Australia) Pty. Ltd. Australia
Fletcher Chemical Company, Ltd. Australia
Ferro Corporation New Zealand Pty. Ltd. New Zealand
Ferro Far East, Ltd. Hong Kong
Ferro Industrial Products Limited (Taiwan) Taiwan, Republic of China
Ferro (Thailand) Co., Ltd. (49%) Thailand
Nissan Ferro Organic Chemical Co. Ltd. (51%) Japan
PT Ferro Mas Dinamika (55%) Indonesia
- -------------------------------------------------------------------------------
* Percentages in parentheses indicate Ferro's ownership.
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
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
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 and in the Registration
Statement (File Nos. 33-51284 and 33-63855) on Form S-3 of Ferro Corporation of
our report dated January 23, 1997 relating to the consolidated balance sheets of
Ferro Corporation and subsidiaries as of December 31, 1996 and 1995, 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, 1996, which
report appears in the December 31, 1996 annual report on Form 10-K of Ferro
Corporation.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Cleveland, Ohio
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000035214
<NAME> FERRO CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,026
<SECURITIES> 0
<RECEIVABLES> 214,131
<ALLOWANCES> 0
<INVENTORY> 149,343
<CURRENT-ASSETS> 416,522
<PP&E> 683,129
<DEPRECIATION> 375,746
<TOTAL-ASSETS> 870,468
<CURRENT-LIABILITIES> 252,333
<BONDS> 105,308
<COMMON> 31,549
0
0
<OTHER-SE> 352,655
<TOTAL-LIABILITY-AND-EQUITY> 870,468
<SALES> 1,355,685
<TOTAL-REVENUES> 1,355,685
<CGS> 1,023,401
<TOTAL-COSTS> 1,249,919
<OTHER-EXPENSES> 17,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,031
<INCOME-PRETAX> 88,207
<INCOME-TAX> 33,621
<INCOME-CONTINUING> 54,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,586
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.82
</TABLE>
