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Ferro Corporation Message Board

  • How_did_that_happen How_did_that_happen Jan 29, 2000 1:49 PM Flag

    Ferro hits a new 52 week low

    The worst case scenario is becoming a reality.
    Ferro employees have 60 to 80% of their 401k money in
    Ferro stock which is dropping like a stone. Let's
    examine this problem closely.

    Since 1989, when the
    preferred stock was introduced to save management from a
    unfriendly takeover, Ferro employees have been forced to buy
    the preferred stock until it ran out last year. We
    have been buying it $46.375 since its inception and it
    coverts into nearly 2.6 shares of Ferro common stock. At
    yesterday's closing price that works out to be $49.60.
    However, the value of the 1989 dollar was 40% more than
    the current dollar. So in real terms, we bought the
    preferred stock at nearly $65 in 1989. Thus, we have lost
    about $15 per share. While the average stock is up more
    than 250% in real terms and more than 420% in nominal
    terms. The NASDAQ stock market is up nearly 600% in real
    terms and about 950 to 1000% in nominal

    The bottom line is that our 401k plan is worth about
    30 to 40% of what it could have been worth if it had
    just been invested in the average stock (S&P500
    index). And if Ferro stock continues to drop, then there
    will be significant layoffs. So this is going to be a
    double whammy for many Ferro employees. No job and no
    money gained in the fantastic rise of the stock market
    of the last decade.

    It is a first principle
    of investing to not have more than 10% in any given
    stock. Yet the genius Hector loads the 401k accounts
    with Ferro stock and prevents employees from selling
    their own preferred shares. If you watch TV ads these
    days, you will see football players insulting each
    other by pointing out that portfolios are not well
    diversified. Yet, this knowledge has not permeated into Ferro
    management. And now we have the prospect of a worst case
    scenario. Falling stock prices. More job cuts. The
    employees whose jobs are cut need money. So they liquidate
    their portfolios. This engenders more selling. Ferro
    does not have money to absorb all this selling since
    they bought quite a bit at an average price of $24.74
    last year. This causes further drops in the stock

    It was stupid, incompetent and callous
    not to have planned a better 401k strategy for
    hardworking and loyal Ferro employees. The current management
    is failing on all counts. Hector is fixated on the
    stock price and yet it falls relentlessly. No one cares
    about the employee 401k plan and it is already halfway
    down to the bottom of the deep blue sea.

    need new competent management for the new millennium.

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    • Since I am an investor, not an employee, I have
      to gather my data from annual reports, 10Ks, and
      other sources (like this board). From what I've found
      so far, you don't seem to be telling the full story
      about the 401K and employees retirement prospects in
      Consider these points:

      1. In addition to providing
      a before tax 401K for Ferro employees, the company
      also matches up to 3% of your annual salary, which
      they are not required to do. Is this included in your

      2. The preferred stock you complain about yields 7%
      interest (significantly more than the dividend I receive
      as an investor); is this included in your

      3. Unlike my stock, yours has a floor price; you
      can't lose! Is this risk free aspect taken into account
      in your analysis?

      4. Unlike virtually every
      Nasdaq company, in addition to a 401K employees also
      have a defined benefit retirement plan at Ferro; is
      this included in your calculations?

      Comparing Ferro stock with the Nasdaq is like comparing
      apples to kumquats. When you CHOSE to join Ferro, you
      joined a Specialty Materials/Chemical Company, and
      compared to the Specialty Chemicals index, Ferro's stock
      has generally performed as good as or better than
      this index.

      I suggest you factor in all the
      facts prior to complaining about Ferro's

      Until recently the moaning and groaning on this board
      had been replaced by dialog on how Ferro can grow
      profitably. I hope to positively contribute to this dialog in
      the future.

      • 5 Replies to nonitron
      • Let's agree about one thing and then I will
        proceed to answer your points. Do you agree that the 401k
        plan is meant for the benefit of employees or do you
        think that the 401k plan is meant for the benefit of
        management? If you subscribe to the notion that the 401k plan
        is meant to aid management then I have nothing to
        say. If you agree that the 401k plan is meant to help
        the average employee retire with financial security,
        then I will proceed.

        Please note that one can
        only contribute around $9000 per year maximum (pretax)
        to this plan. So for senior management, the 401k
        plan is meaningless. Hector probably makes more in 3
        months than his entire 401k plan. However, for the
        common employee, who does not have any Ferro options,
        the plan is the centerpiece of their retirement
        financial security. That's what the plan is meant to be -
        future financial security for the average

        It is extremely easy to show that the 401k plan is
        underperforming the average stock by a wide margin. Just look up
        the average return on a S&P500 index fund, say, the
        Vanguard S&P 500 Index fund for the last decade. That
        works out to be 18.03% per year. The return on the
        preferred stock has been only 7% (the price of the
        preferred stock has been basically flat). Now factor out
        3.3% inflation per year. Thus, $1000 invested in Ferro
        preferred stock in 1990 will grow to $1000 x (1+
        0.07-0.033)^10 or $1438 in 1990 dollars. $1000 invested in the
        S&P500 Index fund will have grown to $1000 x
        (1+0.18-0.033)^10 or $3941. The difference in the two numbers is
        enormous. The real return in the S&P500 fund is 6.71 times
        that obtained by the preferred stock. Now do you see
        why I complain about the non-performance of the 401k
        plan? To add insult to injury, Hector is now paying out
        taxable dividends further reducing the after-tax return
        of the 401k plan. This payout of dividends probably
        triggered selling of Ferro stock and the results are there
        for everyone to see.

        The point of the 401k
        plan is to provide diversification. You want to invest
        in companies different from your own so that if your
        industry should have a downturn, you are hedged by your
        better performing investments in other areas. It is
        completely asinine to invest the majority of your 401k plan
        money in the company that you work for. If anything
        goes wrong with your company, then you have no job and
        no investment. Please note that hundreds of lawsuits
        are filed every year against investment advisers who
        have more than 10% in any given stock. To have a
        complete 401k plan so heavily invested in one stock is a
        massive liability. And an unnecessary risk which is now
        working into a worst case scenario.

        reference for

      • Some thoughts:

        1) I wouldn't consider 3%
        match any great revolution - probably at market std (or
        most likely below) what other Fortune 500 companies

        2) Company match is/was in preferred stock, hence
        earlier arguments apply.

        3) Big advantage to 401k
        matching (tax deferral) shot to hell when Hector decided
        to begin paying out all dividends (both common and
        preferred) last year, greatly changing everyone's tax

      • You state "When you CHOSE to join Ferro, you
        joined a Specialty Materials/Chemical Company, and
        compared to the Specialty Chemicals index, Ferro's stock
        has generally performed as good as or better than
        this index." Are you implying that when I chose to
        work for Ferro, I chose to have a majority of my 401k
        plan assets to be invested in Ferro? My future could
        only be as good as Ferro's? If incompetent management
        destroyed Ferro, I should put up with it?

        I assume
        that you live in Cleveland. Does that mean that you
        will only invest in Cleveland-based

        And what have you got against the NASDAQ? A third of
        the NASDAQ's marketcap is composed of household names
        like Microsoft, Cisco, Intel, Sun Microsystems and
        Dell. Even local specialty chemical companies are
        listed on the NASDAQ. Besides, it is a perfect way for
        people in mature industries to hedge their retirement
        portfolios. And the 85% return in the NASDAQ last year, and
        the nearly 1000% return over the last decade confirm
        this view. Unfortunately, Ferro management seems to
        share your views and we are all the worse for it.

      • You state "Unlike virtually every Nasdaq company,
        in addition to a 401K employees also have a defined
        benefit retirement plan at Ferro; is this included in
        your calculations?"

        May I remind you that in
        most high-tech companies such as Cisco and Dell,
        virtually everyone in the company, from the CEO to the
        janitor, gets stock options. At Ferro, only a chosen few
        are important enough to receive options. And Hector
        who is the CEO, COO, Chairman of the Board, and
        President gets his fair share.

        As for defined
        benefits, this has been the traditional way to handle
        retirement in the mature industries. It's only a matter of
        time before the Hector trims away this benefit. Would
        you care to place a bet that this benefit will be
        replaced by defined contributions if Hector stays in
        charge for a couple more years? After all, Hector has
        proven himself to be an expert in screwing his own
        employees - like the decision to payout the 401k dividends
        as taxable dividends to save a paltry $1.5 million a
        year (that's the number I got from informed sources
        within the company).

        Besides, what does the
        retirement plan have to do with 401k plan? Will this plan
        make up for even 1% of the underperformance of the
        401k plan? The answer is an unequivocal no.

      • thank you nonitron. As you may have gathered this
        board has become a real ---ch board. I want to say that
        certain of these posters are obviously, and every company
        has them, a few disgruntled employees or
        ex-employees. You can't say anything positive or they tear you
        apart - accuse you of being one of "hector's henchman",
        which means that they are accusing me of being "3rd
        floor" or our senior management. Unfortunately, just
        isn't true. What i would like you to know is that the
        very best thing about working at ferro is the people.
        My fellow employees as a rule are the nicest people
        i have ever had the pleasure to meet and make a
        great team effort! That also goes for the sr.
        Management that has been slandered here, especially our ceo
        hector ortino!! It's a great company with great people
        and i want our investors to know that. There are a
        lot of great things going on right now so stay tuned
        and, as another investor has said, buy, buy, buy!

    • It is not nice to shout. As in "IT'S NOT NICE TO SHOUT." Learn some internet manners.

    • Maybe there's someone out there with a little
      cash who could help us out. We've got a good
      foundation - we just need some management with real vision,
      communicate it, the integrity to be honest, and then stay the
      course. They talk the tlak but don't walk the walk.
      Despite all saying all the right things managers still
      focus on short term monthly results, throwing out all
      the good business concepts such as employees and
      customers at the end of every month and quarter.

      need a bass with some courage.

    • Sorry, Benzley. Obviously I didn't know the protocol. It is an old habit, I'm lousy on the keyboard.

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