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FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from................TO...................
Commission File Number 1-584
FERRO CORPORATION
(Exact name of registrant as specified in its charter)
An Ohio Corporation 1000 LAKESIDE AVENUE, CLEVELAND, OH 44114 I.R.S.
No. 34-0217820
(Address of principal executive offices)
Registrant's telephone number, including area code: 216-641-8580
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class Name of Exchange on which registered
-------------- ------------------------------------
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
7 1/8% Debentures due April 1, 2028
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
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, 2000 there were 35,063,669 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 non-affiliates was
$683,741,546
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of Annual Report to Shareholders for the year ended December 31, 1999
(Incorporated into Parts I, II and IV of this Form 10-K).
Portions of Ferro Corporation's Proxy Statement for the Annual Meeting of
Shareholders on April 28, 2000
(Incorporated into Part III of this Form 10-K).
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TABLE OF CONTENTS
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PART I
Item 1. Business.......................................................................................... Page 3
Item 2. Properties........................................................................................ Page 5
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 7.A. Quantitative and Qualitative Disclosures About Market Risk...................................... 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
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PART I
ITEM 1- BUSINESS
Ferro Corporation ("Ferro" or "the Company"), which was incorporated under
the laws of Ohio in 1919, is a worldwide producer of performance materials for
manufacturers. It operates (either directly or through subsidiaries and
affiliates) in 18 countries worldwide. Ferro produces a variety of coatings,
chemicals and plastics by utilizing organic and inorganic chemistry. The
Company's materials are used extensively in the markets of building and
renovation, major appliances, household furnishings, transportation and
industrial products. Ferro's products are sold principally in the United States
and Europe; however, operations extend to the Latin America and Asia-Pacific
regions.
Most of the products produced by Ferro are classified as performance
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 finished products of Ferro customers. These materials are not sold in
the high volume normally associated with commodity businesses.
Ferro's materials require a high degree of technical service on an
individual customer basis. The value of these performance materials stems 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 12 through 17
of its 1999 Annual Report to Shareholders (the "Annual Report"), which is
attached hereto as Exhibit 13. The information contained under the headings on
pages 12 through 17 of the Annual Report is incorporated herein by reference.
Information concerning Ferro's business during 1999, 1998 and 1997 is included
under the heading "Management's Discussion and Analysis" on pages 19 through 22
of the Annual Report and in Note 7 to Ferro's Consolidated Financial Statements,
appearing on page 31 of the Annual Report. Such information is incorporated
herein by reference. Additional information about Ferro's reportable operating
segments, including financial information relating thereto, is set forth in Note
12 to Ferro's Consolidated Financial Statements, which appears on pages 35 and
36 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 22 of the Annual Report for additional information, which
information is incorporated herein by reference.
RAW MATERIALS
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 1999 and does not anticipate
such shortages in 2000.
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 believe that the invalidity or expiration of any single patent or group of
patents would have a material adverse effect on its business. Ferro patents
expire at various dates through the year 2020.
Ferro does not hold any licenses, franchises or concessions that it
considers to be material to its future.
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CUSTOMERS
Ferro does not consider that a material part of its coatings or its
plastics businesses is 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 material adverse effect on that segment.
BACKLOG OF ORDERS
In general, no significant lead time between order and delivery exists in
any of Ferro's business segments. As a result, Ferro does not consider that the
dollar amount of backlog 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
In most of its products, Ferro competes with a substantial number of
competitors, none of which is dominant. However, Ferro is the largest worldwide
supplier of ceramic glaze and porcelain enamel coatings. Competition varies by
product and by region. Due to the diverse nature of Ferro's product lines no
single company competes across all product lines in any of the Company's
segments.
In the coatings group worldwide, the Company is the largest producer of
porcelain enamel and ceramic glaze coatings. Strong local competition for
ceramic glaze exists in the markets of Italy and Spain. In powder coatings,
Ferro is one of the top five producers in the world. The top five producers of
powder coatings represent approximately 60% of the market. In the chemicals
group , the Company is one of the largest producers of polymer additives in the
United States and has several large competitors. The plastics group has a large
number of competitors in all businesses.
Product performance characteristics, customer and technical service, and
price are the most important components of the competition that Ferro encounters
in the sale of nearly all of its products.
RESEARCH AND DEVELOPMENT
A substantial number of Ferro's employees are involved in research and
development activities relating to new and existing products, services and
techniques 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 meet customer and market needs of the
particular geographical area. In the United States, laboratories are maintained
in each of its divisions. In addition, corporate research and development
activity is located in the Cleveland area. The research staff is organized by
major business group. The Company also operates central design and development
labs in Italy and Spain to serve the tile market worldwide.
Expenditures for research and development activities relating to the
development or significant improvement of new and/or existing products, services
and techniques were approximately $30.9 million in 1999, $29.4 million in 1998,
and $26.6 million in 1997. Expenditures for individual customer requests for
research and development were not material.
ENVIRONMENTAL MATTERS
Ferro's manufacturing facilities, like those of its industry generally,
are subject to numerous laws and regulations implemented to protect the
environment, particularly with respect to plant wastes and emissions. Ferro
believes that it is in compliance with the environmental regulations to which
its operations are subject and that, to the extent Ferro may not be in
compliance with such regulations, non-compliance has not had a materially
adverse effect on Ferro's operations. The Company's compliance has required a
continuous management effort and significant expenditures.
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Ferro and its international subsidiaries authorized $6.8 million in capital
expenditures for environmental control in 1999 and the Company's best estimate
of what it expects capital expenditures for environmental control to be in 2000
and 2001 is $4.5 million and $4.6 million. The Company does not consider these
capital expenditures to be material.
For additional information on other environmental matters see Item 3 of this
Annual Report on Form 10-K and information included under the heading
"Management's Discussion and Analysis" in the Annual Report and information
contained in Note 8 on page 32 of the Annual Report.
EMPLOYEES
At December 31, 1999, Ferro employed approximately 6,881 full-time employees,
including 3,831 employees in its foreign subsidiaries and affiliates and 3,050
in the United States.
Approximately 33% of the domestic workforce is covered by labor agreements,
and approximately 13% is affected by labor agreements that expire in 2000.
FOREIGN OPERATIONS
Financial information about Ferro's domestic and foreign operations is set
forth in footnote 12 to the consolidated financial statements 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, England, France, Germany, Holland, Italy, Mexico, Portugal
and Spain. Partially-owned subsidiaries manufacture in China, Indonesia, Taiwan,
Thailand, Turkey and Venezuela.
Foreign operations accounted for 44% of the consolidated net sales for the
year 1999 and 46% of consolidated net sales for 1998 and 1997.
The sales of Ege-Ferro Kimya A.S. (Turkey), Ferro Enamel do Brasil,
I.C.L.(Brazil), Ferro de Venezuela C.A.(Venezuela), Ferro Corporation Australia
Pty. Ltd.(Australia) and Ferro (Ningbo) Peoples Republic of China, are
principally for delivery of products inside the country in which the subsidiary
is located. The sales of each of Ferro's other subsidiaries are for delivery of
products both domestically and outside the country through exports. 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 products to
the entire European Community market. A similar process is occurring within the
MERCOSUR economic union in Latin America.
Ferro receives technical service fees and/or royalties from many of its
foreign subsidiaries. Historically, as a matter of corporate policy, the foreign
subsidiaries have been expected to remit a portion of their annual earnings to
the parent as dividends. 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
The Company's corporate headquarters office at 1000 Lakeside Avenue,
Cleveland, Ohio and other corporate facilities located in Independence, Ohio are
owned by the Company. The business segments in which manufacturing plants are
used and the locations of the principal manufacturing plants owned by Ferro in
the United States are as follows:
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COATINGS -- Cleveland, Ohio; Nashville, Tennessee; Pittsburgh, Pennsylvania;
Toccoa, Georgia; Orrville, Ohio; Shreve, Ohio; Penn Yan, New York; East
Liverpool, Ohio; Crooksville, Ohio and Niagra Falls, New York.
PLASTICS -- Carpentersville, Illinois; 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); and Vista, California (Coatings).
Outside the United States, Ferro or its subsidiaries own manufacturing
plants in Argentina, Australia, Brazil, France, Germany, Indonesia, Italy,
Mexico, the Netherlands, Spain, Taiwan, Thailand, Turkey 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 its 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
In 1994, the Company's Keil Chemical Division (Keil) settled an
enforcement proceeding brought by the Indiana Department of Environmental
Management (IDEM) concerning air emissions from Keil's Pryo-Chek(R) process. The
settlement was in the form of an Agreed Order with IDEM. The Agreed Order
confirmed the Company's plans to install additional controls and imposed certain
aggregate limitations on air emissions from the Pyro-Chek(R) production process
while the Company applied for and obtained a construction and operating permit
for the existing air source. The control equipment was installed, but the
Company has had a continuing disagreement with the agency over whether it has
been in compliance with the Agreed Order, including which methods should be used
to demonstrate compliance.
In November 1998, IDEM filed suit in Indiana state court seeking to shut
down operation of the Pyro-Chek(R) process. At a hearing held on December 4,
1998, the court denied IDEM's request for a preliminary injunction, and later
dismissed the claim for a permanent injunction on grounds that the dispute
arising out of the Agreed Order should be addressed before the Indiana Office of
Environmental Adjudication. The day before this hearing, IDEM denied Keil's
application for a permit for air emissions for the Pyro-Chek(R) process. The
Company appealed IDEM's denial of Keil's permit application to the Indiana
Office of Environmental Adjudication. On October 26, 1999, the Company and IDEM
entered into a Joint Stipulation of Dismissal whereby IDEM withdrew its denial
of Keil's permit application and agreed to proceed with its consideration of
Keil's revised permit application.
On December 29, 1998, IDEM wrote to the Company alleging that because Keil
is in violation of the Agreed Order, operation of the Pyro-Chek(R) process is
prohibited, and that the Company will be subject to fines of up to $25,000 for
each day of continued operation. The Company filed a petition for review before
the Indiana Office of Environmental Adjudication seeking to confirm that
operation of the Pyro-Chek(R) process has been and remains in compliance with
the Agreed Order. On February 24, 1999, IDEM withdrew its December 29, 1998
letter. On March 15, 1999, the Company's petition for review was dismissed
without objection.
On May 4, 1999, and December 16, 1999, the United States Environmental
Protection Agency (U.S.EPA) issued "Notices of Violation" (NOVs) alleging that
the Company violated various requirements of the Clean Air Act and related State
laws in modifying and operating the Pyro-Chek(R) process at its facility in
Hammond, Indiana. The Company has met with U.S.EPA and entered into negotiations
intended to resolve the issues raised in the NOVs. If the matter cannot be
resolved through negotiation, and the United States pursues and recovers the
maximum potential penalties on all of its claims, it could have a material
adverse affect on the Company. However, the Company believes that it will
resolve this matter in a manner that will not have a material adverse effect.
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There are also pending against the Company and its consolidated
subsidiaries various other lawsuits and claims beyond those mentioned above. In
the opinion of management, the ultimate liabilities resulting from such other
lawsuits and claims will not materially affect the consolidated financial
position or results of operations or liquidity of the Company.
The law firm of Squire, Sanders & Dempsey, of which Mark A. Cusick is a
partner, provided legal services to Ferro in 1999 and Ferro plans to retain
Squire, Sanders & Dempsey in 2000. 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 16, 2000 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.
David G. Campopiano - 50
Vice President, Mergers and Acquisitions, 1998
Vice President, Corporate Development, 1989
R. Jay Finch - 58
Senior Vice President, Specialty Plastics, 1999
Vice President, Specialty Plastics, 1991
J. Larry Jameson - 62
Senior Vice President, Industrial Coatings, 1999
Vice President, Industrial Coatings, 1998
Vice President, Powder Coatings, 1996
Self Employed, Coatings Consultant, 1993
Kent H. Lee - 58
Senior Vice President, Specialty Chemicals, 1999
Vice President, Specialty Chemicals, 1998
Director, United States Operations, Chemicals, 1998
General Manager Polymer Additives, 1996
Private Consultant to The BF Goodrich Company, 1994
Hector R. Ortino - 57
Chairman and Chief Executive Officer, 1999
President and Chief Executive Officer, 1999
President and Chief Operating Officer, 1996
President, 1996
Executive Vice President and Chief Financial-Administrative
Officer, 1993
Millicent W. Pitts - 45
Vice President, Global Support Operations, 1998
Director, Corporate Development, Rohm & Haas Company, 1996
Director, Corporate Planning, Rohm and Haas Company, 1994
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Paul V. Richard - 40
Vice President, Human Resources, 1998
Director, Human Resources, 1993
Robert A. Rieger - 49
Vice President, Ceramics, Colorants and Electronic Materials, 1999
Worldwide Business Director, Electronic Materials, 1998
President and Chief Executive Officer, Exolon-ESK 1997
Managing Director, Zircon Worldwide, Cookson Matthey Ceramics, 1994
Bret W. Wise - 39
Senior Vice President and Chief Financial Officer, 1999
Vice President and Chief Financial Officer, WCI Steel, 1994
Partner, KPMG LLP, 1993
PART II
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 of Common Stock is set forth under the heading "Quarterly Data
(unaudited)" in the Annual Report. This information is incorporated herein by
reference. Information concerning dividend restrictions is contained in Note 3
to Ferro's Consolidated Financial Statements in the Annual Report and this
information is incorporated here 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 " in the Annual Report is
incorporated here 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" in the Annual Report is incorporated here by reference.
ITEM 7. A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the heading "Management's Discussion and
Analysis" in the Annual Report is incorporated here by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Ferro and its subsidiaries
contained on pages 23 through 37, inclusive, including the Notes to Consolidated
Financial Statements, and the quarterly data (unaudited) on page 40 of the
Annual Report, are incorporated here 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
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors of Ferro contained under the headings
"Election of Directors" and "Stock Ownership of Management and Certain
Beneficial Owners"in Ferro's Proxy Statement for the Annual Meeting of
Shareholders on April 28, 2000, is incorporated here 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" in Ferro's Proxy Statement for the
Annual Meeting of Shareholders on April 28, 2000 and is incorporated here 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" in Ferro's Proxy Statement for the Annual Meeting of
Shareholders on April 28, 2000 and is incorporated here by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or transactions that are required to be
reported.
PART IV
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 23 THROUGH 40 INCLUSIVE, OF
THE ANNUAL REPORT ARE INCORPORATED HERE BY REFERENCE:
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
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Notes to Consolidated Financial Statements
(b) THE FOLLOWING ADDITIONAL INFORMATION FOR THE YEARS 1999, 1998 AND
1997, 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 Statement Schedule II, together with the independent
Auditors' Report, are contained on pages F-1 and F-2 of this Annual
Report on Form 10-K.
(c) EXHIBITS:
The exhibits listed in the attached Exhibit Index are filed pursuant to
Item 14 (c) of the Form 10-K.
2. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed for the three months ended December 31,
1999
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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/Hector R. Ortino
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Hector R. Ortino
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 as of the 25th
day of February, 2000.
/s/Hector R. Ortino Chairman and Chief Executive Officer
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Hector R. Ortino
/s/Bret W. Wise Senior Vice President and Chief Financial Officer
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Bret W. Wise
/s/Sandra Austin Crayton Director
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Sandra Austin Crayton
/s/Albert C. Bersticker Director
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Albert C. Bersticker
/s/Michael H. Bulkin Director
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Michael H. Bulkin
/s/Glenn R. Brown Director
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Glenn R. Brown
/s/William E. Butler Director
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William E. Butler
/s/William B. Lawrence Director
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William B. Lawrence
/s/John C. Morley Director
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John C. Morley
/s/Rex A. Sebastian Director
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Rex A. Sebastian
/s/William J. Sharp Director
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William J. Sharp
/s/Dennis W. Sullivan Director
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Dennis W. Sullivan
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INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To The Shareholders and Board of Directors Ferro Corporation:
Under date of January 25, 2000, we reported on the consolidated balance sheets
of Ferro Corporation and subsidiaries as of December 31, 1999 and 1998, 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, 1999, as
contained in the 1999 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 1999. 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 LLP
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KPMG LLP
Cleveland, Ohio
January 25, 2000
F-1
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FERRO CORPORATION AND SUBSIDIARIES
Schedule II -Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1999, 1998, and 1997
(thousands of dollars)
Additions
---------------------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End of
of Period Expenses Accounts Deductions Period
=============== ============== ================ ========== ==========
Year ended December 31, 1999
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply
Possible losses in collection of notes 457 (B)
and accounts receivable - trade $ 9,737 857 65 (C) 1,401 (A) 8,801
=============== ============== ================ ========== ==========
Year ended December 31, 1998
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply
Possible losses in collection of notes (181)(B)
and accounts receivable - trade $ 8,280 3,185 (63)(C) 1,846 (A) 9,737
=============== ============== ================ ========== ==========
Year ended December 31, 1997
Valuation and qualifying accounts which
are deducted on consolidated balance
sheet from the assets to which they apply
Possible losses in collection of notes 1,367 (B)
and accounts receivable - trade $ 9,497 2,630 15 (C) 2,495 (A) 8,280
=============== ============== ================ ========== ==========
Notes:
(A) Accounts written off, less recoveries
(B) Adjustment in respect of differences in rates of exchange
(C) Acquisitions and divestitures
F-2
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EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated here by
reference to a prior filing in accordance with Rule 12b-32 under the Securities
and Exchange Act of 1934. (Asterisk denotes exhibits filed with this report).
Exhibit:
(3) Articles of Incorporation and by-laws
(a) Eleventh Amended Articles of Incorporation. (Reference is made to
Exhibit (3)(a) to Ferro Corporation's Quarterly Report on Form 10-Q
for the three months ended June 30, 1998 which Exhibit is incorporated
here 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 Quarterly Report on
Form 10-Q for the three months ended June 30, 1998 which Exhibit is
incorporated here by reference.)
(c) Certificate of Amendment to the Eleventh Amended Articles of
Incorporation of Ferro Corporation filed January 19, 1998. (Reference
is made to Exhibit (3)(c) to Ferro Corporation's Quarterly Report on
Form 10-Q for the three months ended June 30, 1998, which Exhibit is
incorporated here by reference.)
(d) Amended Code of Regulations. (Reference is made to Exhibit (3)(d)
to Ferro Corporation's Quarterly Report on Form 10-Q for the three
months ended June 30, 1998, which Exhibit is incorporated here by
reference.)
(4) Instruments defining rights of security holders, including indentures
(a) Revolving Credit Agreement by and between Ferro and four commercial
banks dated August 22, 1990. (Reference is made to Exhibit 10 to Ferro
Corporation's Form 10-Q for the three months ended September 30, 1990,
which Exhibit is incorporated here 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 here 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 here
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 here 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 here by
reference.)
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(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 here
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 here
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 here by reference.)
(i) Amendment Number 8 dated July 24, 1997 to the Revolving Credit
Agreement by and between Ferro Corporation and four commercial
banks.(Reference is made to Exhibit 4(k) to Ferro Corporation's
Form10-Q for the three months ended June 30, 1997, which Exhibit is
incorporated here by reference.)
*(j) Amendment Number 9 dated June 30, 1999 to the Revolving Credit
Agreement by and between Ferro Corporation and four commercial banks.
*(k) Amended and Restated Shareholder Rights Agreement between Ferro
Corporation and National City Bank, Cleveland, Ohio, as Rights Agent,
dated as of December 10, 1999.
(l) 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 10-Q for the
three months ended June 30, 1993. Said Exhibit is incorporated here by
reference.
(m) The rights of the holders of Ferro's Debt Securities issued and to be
issued pursuant to a Senior Indenture between Ferro and Chase
Manhattan Trust Company, National Association, as Trustee, are
described in the Senior Indenture, dated March 25, 1998. (Reference is
made to Exhibit 4 (c) to Ferro Corporation's Quarterly Report on Form
10-Q for the three months ended March 31,1998.)
(n) Form of Security (7 1/8% Debentures due 2028). (Reference is made
toExhibit 4(a-1) to Ferro Corporation's Form 8-K filed March 31, 1998,
which Exhibit is incorporated here 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 15 through 18 of the Proxy Statement dated March
21, 2000. Said description is incorporated here by reference.
(b) Ferro's Performance Share Plan (Reference is made to Exhibit B of
Ferro Corporation's Proxy Statement dated March 20, 2000, which
exhibit is incorporated here 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 here by reference.)
(d) Ferro's Employee Stock Option Plan (Reference is made to Exhibit A
to Ferro Corporation's Proxy Statement dated March 20, 2000 which
Exhibit is incorporated by reference.)
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(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 here by reference.)
(f) Amended and Restated Executive Employment Agreement (Reference is made
to Exhibit 10 (a) of Ferro Corporation's Form 10-Q for the three
months ended March 31, 1998, which Exhibit is incorporated here by
reference.)
*(g) Schedule I listing the officers with whom Ferro has entered into
currently effective executive employment agreements and change in
control 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 here by reference. Reference is also made to Exhibit
10 of Ferro Corporation's 10-Q for the three months ended June 30,
1997 for an amendment to the agreements, which exhibit is incorporated
here by reference.
(i) Ferro's Supplemental Executive Defined Contribution Plan .
(Reference is made to Exhibit 10.1 to Ferro Corporation's Form 10-K
for the year ended December 31, 1996, which Exhibit is incorporated
here by reference).
*(j) Form of Change in Control Agreement.
*(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, 1999
*(21) List of Subsidiaries
*(23) Consent of Independent Auditors
*(27) Financial Data Schedule for the Year Ended December 31, 1999
(Electronic Filing Only)