Ferris
2019 Annual Report
Sensing today for a
better tomorrow
Table of Contents
To our Shareholders..............................................................................................................2
Corporate Directory ..............................................................................................................4
About Our Company .............................................................................................................4
Our Mission ......................................................................................................................4
Corporate Strategy ...........................................................................................................4
Business Segment Highlights ................................................................................................5
Traditional Segment .........................................................................................................5
Low End Segment .............................................................................................................7
Size Segment ....................................................................................................................9
Performance Segment .....................................................................................................11
High End Segment ...........................................................................................................13
Financial Results...................................................................................................................14
Plans for the Future .............................................................................................................17
1
To Our Shareholders
To our shareholders:
It is with tremendous pride that we reflect on our company’s performance in 2019. We have made great
strides not only in the past year, but also in the previous five years since our company’s inception in 2014.
Therefore, I would like to share with you some of the highlights from the past year:

We produced the highest sales in the industry, with a total of $216,347,099 in 2019. In addition, we
had the highest profits in the industry, indicating that we have controlled costs adequately.

We maintained our A S&P credit rating, which is the second highest in the industry, while retiring
$20 million in long term debt and paying dividends of $10 per share – the highest in the industry. Our
excellent credit rating ensures that we are able to finance short-term debt at prime interest rates. By
retiring such a significant portion of our long-term debt, we have positioned the company for future
financial health.

We Increased our stock price by $39.67 to a record high of $124.44 – the second highest in the
industry. Our healthy stock price indicates that investors and the industry alike view our company as
a wise investment and recognize our ability to maximize the wealth of our shareholders.

We improved forecasting techniques, which prevented a stock out in all but one of our product lines.
Revising our forecasting techniques allowed us to more accurately predict the number of products
sold in each segment, preventing stock outs and enabling us to fully capitalize on our sales potential.

We expanded capacity in the Size and Low-End segments in order to meet growing customer
demand, which ensured that competitors could not capitalize on us under producing

We held the highest single product market share in every segment in which we competed and the
second largest overall market share in the industry at 17.77%. I believe that our current market share
demonstrates our company’s remarkable potential, which we intend to capitalize on in the coming
years by introducing new products into several of our strategically important segments.
I would like to personally extend my thanks to you, the shareholders, for your unwavering support of our
company. We could not have achieved such incredible success without you. As we look toward the future, I
can assure you that we will continue to exceed your expectations in all aspects of our company.
Sincerely,
_______________________________________________
Katelyn Stojanovic
_______________________________________________
Emilio Veneziano
CEO
VP of R&D & VP of Production/Operations
_____________________________________
_____________________________________
Michael Keith Tester
Zachery Trexler
CFO
VP of Marketing
2
Corporate Directory
Dr. James Fairbank
Chairman of the Board
Katelyn E. Stojanovic
Chief Executive Officer
Low-End Segment Manger
Emilio L. Veneziano
Vice President of R&D
Vice President of Production/Operations
Performance Segment Manager
Zachary Trexler
Vice President of Marketing
Size & High-End Segment Manager
Michael K. Tester
Chief Financial Officer
Traditional Segment Manager
3
About Our Company
Our Mission Statement
We strive to develop versatile sensor solutions that exceed customer expectations while maintaining
reasonable prices. We believe that we are fully accountable to our shareholders and seek to maximize
shareholder wealth through prudent investments and well-planned growth initiatives. We are firmly
committed to our responsibility as a corporate citizen and to promoting diversity within our workforce.
Corporate Strategy
At the outset of 2014, our company entered the sensor market with several strategic objectives:




Become the low-cost leader in the Traditional and Low-End segments
Become the best-cost provider in the Size, High-End, and Performance segments
Pursue a conservative financing strategy based mainly on operating profits
Invest heavily in TQM initiatives to streamline value chain
Throughout the past six years, we have accomplished a number of these objectives and, as we continue
to grow, have altered our corporate to suit our evolving company.
Though we have withdrawn from the High-End segment, we currently hold the greatest single product
market share in the other four segments in which we compete. We have successfully used our large
market share in the Low-End and Traditional segments to produce profits that we have used to fund
investments in the Size and Performance segments.
Our company has been in excellent financial health since its inception five years ago. We have
continually financed the majority of our capital expenditures using operating profits rather than taking
on debt. Furthermore, we have maintained the second highest S&P credit rating in the industry for the
past three years and will continue to improve that rating through prudent investments designed to
maximize shareholder wealth.
We began investing in TQM initiatives in 2016 and continued until we reached the point of diminishing
marginal returns in 2018. As a result of these investments, we have reduced costs along our value chain
by 85.82% in addition to reducing R&D cycle time by 40%. As a result, we have significantly raised our
contribution margin and have been able to design technologically advanced products in considerably
shorter periods of time than our competitors.
4
Business Segment Highlights
Traditional Segment
Strategic Assessment:
Initially, the Traditional segment had been a primary focus for our company to generate cash
that we could use to support our high-tech segments. Each year we have gained more market share and
are currently leading the segment. The gap between our competitors and us grows each year. While we
had initially sought to be a best-cost provider to gain market share, but discovered that our customers
are best served with a low-cost leader strategy. In 2016 we manufactured a highly advanced product in
order to avoid spending valuable capital on Research and Development costs the following year and to
reduce prices in accordance with our low-cost leader strategy. Our price was reduced by $2.00 from
2016 to 2017, giving us the lowest price within the Traditional segment. From 2016 to 2017, our market
share grew from 18% to 25%, as we became the segment leader in market share. Although we
experienced a stock out in 2017, we ensured this would not occur in the following years by expanding
capacity. As a result, we currently have the highest production capacity in the Traditional segment.
Another factor that enabled us to increase market share, and consequently stock out, was the
decreased competition due to Andrews’ decision to exit the Traditional segment this past year. We have
transformed our product into the leading competitor by providing our customers with the lowest price,
highest customer
satisfaction, and highest
Traditional Segment Price Trend
capacity.
Our company has
$30.00
gained a competitive
$29.00
advantage by providing
Ferris
the lowest priced
$28.00
product through our
Chester
$27.00
investments in TQM and
Baldwin
increased automation.
$26.00
Digby
With these investments,
$25.00
we were able to reduce
Erie
the following labor costs:
$24.00
Andrews
material costs, R&D cycle
$23.00
time, and administrative
2014 2015 2016 2017 2018 2019
costs. We had reached
diminishing returns on
TQM by the end of 2018, and have subsequently turned our focus to increasing automation.
One of our greatest concerns in this segment has been maintaining a high contribution margin.
Despite having a contribution margin of only 29% in 2014, we succeeded in increasing it to 36% this past
year.
Competitive Assessment:
Competition in the Traditional segment was difficult to overcome from 2014 through 2016. Our
new strategy of becoming a low-cost leader, however, enabled us to gain a competitive advantage and
5
grow our market share. In subsequent years we have continued to increase our market share and have
establish an ever-growing lead over our competitors. In 2019, we sold nearly one million more units
than our leading competitor and possess an 8% larger market share than that competitor. Despite
having a significant competitive advantage in the Traditional segment, our company has not overlooked
or underestimated any potential threats of competition.
Upon review, it is apparent our competitors have made a mistake in reducing their capacity in
the Traditional segment during the past six years. This oversight has given us an inherent competitive
advantage because we are able to meet customer demand without stocking out. Chester and Erie have
remained our largest competitors in the Traditional segment with their consistently low prices. In 2017,
however, Erie reduced capacity, which limited their ability to seriously compete in the segment.
Conversely, Chester has taken the initiative to increase their capacity, thereby maintaining relevance in
the segment. In 2020 we will be vigilant regarding the potential threat of Chester, despite their low
market share in 2019. We have noticed that they are releasing a new product in late January 2020.
Future Plans:
We currently hold the greatest market share in the traditional segment at 30% and will continue
to increase our market share in the coming years. As we gain market share we will also increase capacity
to meet demand. In addition, we will increase automation in order to reduce second shift labor and,
therefore, labor costs. These initiatives will increase our contribution margins, lower costs, and give us
the ability to lower our prices and remain the low-cost leader in the Traditional segment.
Market Share Trend:Traditional
40
30
20
10
0
2014
2015
2016
2017
6
2018
2019
Low-End Segment
Strategic Assessment:
At the outset, we had sought to be the low-cost leader in the Low-End segment. We planned to
accomplish this by manufacturing a product that met customers’ specifications and could be sold for a
significantly lower price than that of our competitors. Because customers in this segment valuable an
older, more reliable product, we made only infrequent product revisions. This ensured that customers
received the proven product that they desired and enabled us to continually lower the product price.
We also lowered production costs by investing in TQM and automation. As a result of these initiatives,
we have been able to maintain a consistently high contribution margin. Our contribution margin for
2019 was 46%, which is well above the segment average.
Competitive Assessment:
We have consistently been rated the highest in customer satisfaction for the past three years.
Though customers expect a $0.50 price decrease annually, we have lowered our price by $1.00 for the
past four years in order to seize market share from competitors and maintain our market share in years
when our product specifications have been less than ideal due to revisions. This has been a key factor in
our success in the Low-End
segment, because price is
the most important factor
in determining customer$23.00
purchasing decisions.
$22.00
Andrews
In 2019, we
$21.00
regained a portion of the
Baldwin
$20.00
market share that we had
Chester
$19.00
lost in the previous year
$18.00
Digby
and currently possess the
$17.00
greatest market share in
Erie
$16.00
the low-end segment at
Ferris
$15.00
20%. This was
2014 2015 2016 2017 2018 2019
accomplished through our
newly expanded capacity
and superior customer satisfaction rating. However, actual sales still fell far short of our potential,
indicating that further capacity expansions are necessary. Presently, we have the highest customer
satisfaction rating within the low-end segment. Though we are on par with the competition in regards to
both customer awareness and accessibility, we do not yet have the highest ratings in either of these
categories.
Throughout the past five years, our largest competitor in the Low-End segment has shifted from
Chester to Erie. Our analysis indicates that Erie is currently the largest threat to our market share in this
segment. They currently hold the same market share as we do, in addition to having slightly higher
customer awareness. However, we have an identical price and customer accessibility, and a significantly
higher customer satisfaction rating. Consequently, we have concluded that the main reason for Erie’s
increased market share was the stock out that we experienced in 2019. In order to avoid future stock
outs and meet sales potential, we will continue expanding capacity more aggressively in the future. The
resulting increase in capacity should allow us to emerge as the definitive segment leader within the next
two years.
Unit Price: Low-End
7
Future Plans:
The largest impediment that we face to increasing market share in the Low-End segment is our
lack of capacity. Therefore, we intend to begin increasing capacity annually in order to produce
adequate inventory to meet growing customer demand. We will also increase automation so that we
can lower production costs further and continue to offer the low prices that our customers have come
to expect. By implementing these measures over the next several years, we will not only maintain our
current position as market leader, but also increase our market share significantly.
8
Size Segment
Strategic Assessment:
Our original strategy for the Size segment was to be a Best-Cost Provider. We did not seek to
provide customers with the highest quality product, but rather a competitive product at a lower price.
For 2014, Research and Development created a product that was not the best in the industry, but still
adequate for the segment. Altering the marketing mix also allowed for increased customer awareness
and accessibility all while maintaining lower costs. As a result of these initiatives and the competition’s
underproduction, we had sold the highest number of units at the end of 2014.
Our Best-Cost Provider strategy continued the following year; however our competitors did not
stock out in 2015. Our market share remained stagnant between 2014 and 2015 at 17%. In 2015 we
began to increase marketing budgets in order to stay competitive within the segment. Unfortunately, in
2016, our customers were unable to access our product resulting in decreased market share.
Due to that decrease in market share, we decided to change our initial strategy and become the
leaders in product quality while commanding a premium price. We were able to shift our focus to this
new strategy because of TQM initiatives that enabled Research and Development to produce a higher
quality product at a faster pace. Our TQM investments also helped reduce material costs, allowing for an
even higher contribution margin to be achieved despite the higher price and aggressive new marketing
strategy.
To ensure that our customers would not switch to our competitors’ products we more than
doubled our sales budget, increasing the accessibility of our products by 20%. With a higher quality
product available as well as accessible, we were able to capture the leading market share in 2017 at
25%. Our aggressive marketing strategy helped us to capitalize on one of our competitors withdrawing
from the Size segment.
We continued to maintain our leading market share in 2018 at 23%. We also adjusted our
product revisions to properly align with changing industry standards; thus providing the best product for
the customers. Although our contribution margin dropped 3% between 2017 and 2018, it was still above
the industry average. The decrease in our contribution margin can attributed to our lack of production
capacity, which raised the cost of labor. To combat this, we increased capacity in 2018 and again raised
our contribution margin to 33%.
Although the competition introduced a new
product into the segment for 2019, we still
Customer Satisfaction: Size
maintained the highest selling product; we sold
200,000 more units than the next best selling
100
product. Since we changed our strategy in 2017, we
80
have maintained the highest customer satisfaction
60
rating in the segment.
40
Competitive Assessment:
20
The competition within the Size segment
0
was very intense in 2014 due to all companies
2014
2015
2016
2017
2018
2019
having similar market shares (between 14%-17%).
However, Erie started to withdraw from the
segment in 2015 by selling off production capacity, which increased sales for the remaining competitors
in the segment. 2016 and 2017 marked all time low levels of sales for both Erie and Baldwin, despite
both companies increasing their production capacities.
9
The following year resulted in close levels of sales between Andrews, Baldwin, Chester, Digby,
and Erie with our company ahead by 5% of the market share. For 2019, however, the introduction of a
second product by Digby enabled them to surpass our market share by 8%, while we remained ahead of
the other four companies by 6%.
Future Plans:
For the future, we will continue to provide the best possible product for our customers at a
premium price while continuing to expand upon our production capacity in order to keep labor costs
low. We also are planning to introduce another product within the next three years in order to regain
the leading market share.
10
Performance Segment
Strategic Assessment:
Based on our Best-Cost Provider strategy for the Performance segment, our company was
dedicated to provide our customers with the highest quality product at its lowest possible price. Each
year, our goal was to offer a highly technological, reliable product that our customers demanded.
Through continual adjustment that reflected segment trends and buying criteria, we established
ourselves early on as one of the segment leaders. In order to maintain and improve this competitive
edge, we consistently increased our marketing and sales efforts to enhance customer satisfaction and
awareness. Due to the fast-paced growth rate in this segment, it was essential to properly plan our
production schedule to align with industry demand. While we experienced our first and only stock out
in 2015, there were several unexpected factors that led to this outcome and prevented us from
achieving our highest potential in sales and market share. After that incident in 2015, our company
remained determined to uphold our strong position in the segment and take over the top spot in the
segment.
Our company created a competitive advantage by differentiating our product based on industry
conditions each year. We were able to frequently command price premiums by aggressively promoting
and selling our product,
satisfying both customer
demands and our overall
corporate strategy. As we
25
attained the highest market
20
share from 2017 to 2019, we
15
were reassured that
10
customers valued out
5
product and preferred what
0
we offered relative to our
2014
2015
2016
2017
2018
2019
competitors. Please refer to
Figure 1 to view out market
Figure 1: Performance Segment Market Share Trend
share in the
Performance segment over the past six
years. Unfortunately, our company was not able to meet our goal of maintaining a 30% contribution
margin. This was due to the increasing labor and material costs associated with our Performance
product. We have realized where the mistakes were made and have a plan to fix it in the coming years
to help increase contribution margin.
Market Share Trend: Performance
Over the past six years, our company has been able to deliver exceptional products that contained the
latest technological advancements and highest reliability per the stated customer demand in the
Performance segment. Investments in TQM, strategic product placement, and allocating the proper
marketing and sales funds, allowed us to meet our goal to emerge as the segment leader and have set
the stage to command a dominant presence for years to come.
Competitive Assessment:
During the past six years, the Performance segment experienced some unique
competitive factors. Initially, our company had to compete with an extra Performance product
because in 2016, Digby introduced a new Performance product. This was an issue at first as we
11
know had to compete with an extra product therefore decreasing the potential amount of market share
available. The industry them took another unexpected twist when Baldwin dropped their Performance
product completely the following year. This proved to be an unexpected advantage to us in a sense that
we no longer had to compete with an extra product. The Performance segment was again equal in its
initial available market share.
After analyzing our results from 2018, we observed that the advantages of spending the most in
marketing and sales, maintaining a healthy inventory, having the highest customer survey scores, and
outselling the competition led us to continue our reign as the segment leader. We were able to
maintain high profits by pricing out product competitively and keeping our customers due to them
valuing the reliability and technological advancements of our product. Our heavy investments in
marketing and sales resulted in one of the highest awareness and accessibility throughout the segment.
Based on our assessment and performance in the last few years, we have established as a clear leader in
the Performance segment.
Future Plans:
Looking into the future, it is essential to maintain our competitive edge and continue to take
market share with the few competitors in the Performance segment. It would extremely beneficial for
our company to increase automation in the future as long as there is not a significant impact when
revised products are released. This will also allow us to decrease labor costs, which is a major factor in
why our contribution margin is so low, and will allow us to release out products faster than our
competition. In addition, purchasing capacity will be a priority for future success in this segment based
on the high growth rate and industry demand. This will also help lower labor costs as we will be able to
produce more products without paying more for second shift employees. Another consideration for the
future management team would be to release a new product in this segment. This strategic move
would create an opportunity to further distance our company from the competition based on an ideally
positioned and reliable products with a lower age. Continual revisions to our original product will
sustain our position as the segment leader for some time, but designing a new product allows for the
potential to command the segment in the long run.
12
High-End Segment
Strategic Assessment:
The initial strategy for the High End segment was to offer the highest possible quality at a
competitive price. Our goal for the segment was to be a Best-Cost Provider; that is we wanted to
provide the customers with a product that was both innovative in terms as the size and performance of
the product, all while not charging them the highest price within the segment.
In 2014, we had purposely overdeveloped the product beyond the capabilities of being able to
release it within the year as both a ploy to make the competition believe we were not interested in the
segment as well as having the best product release in 2015. Through marketing budget reallocations, we
were able to raise customer awareness of our product without investing any more capital as well as
raise the accessibility while making budget cuts.
However, when the product released in early third quarter of 2015, our product was still not as
high of quality as the competition had provided for the market. This dropped our product down to only
12% market share; the lowest in the segment. This oversight would prove to be difficult to overcome
since Research and Development could not adjust the product to meet the quality standards the
customers demanded within a year.
Sales continued to decline in
2016 as the competition prepared to
Sales in Thousands of Units
introduce another product to the
1400
segment. Consequently, we decided
1200
that our energy and capital would be
better spent on our more profitable
1000
segments. In 2017 we initiated budget
800
cuts in marketing and R&D, and began
600
selling off capacity to raise capital.
Our goal for 2017 was to charge a
400
premium price while preparing to
200
back out of the segment entirely,
0
which we decided to do in 2018.
Ferris
Erie
Digby
Chester Baldwin Andrews
Competitive Assessment:
The competition in the High End segment was close in 2014 and 2015. In 2015, Erie introduced a
second product into the segment, thus ganing more market share. The market share divisions then
changed in 2016 when Digby and Chester took the highest market shares at 23% and 19% respectively.
Andrews also introduced a second product into the segment this year. Digby and Chester continued to
lead the market in 2017, however, Andrewsdiscontinued their original High End product and introduced
another new one. Although Andrews could not capture the lead market share in the same year, they
made up for it in 2018 by taking 29% of all sales. Upon analysis of the segment at the end of 2017, we
decided that we would fully withdraw from the High End segment in 2018.
13
2014
2015
2016
2017
Financial Results
Ferris Balance Sheet
(All Numbers in Thousands)
2019
2018
Assets
Current Assets
Cash
Accounting
Receivable
Inventory
Total Current
Assets
Fixed Assets
Plant &
Equipment
Accumulated
Depreciation
Total Fixed Assets
Total Assets
Liabilities
Accounts
Payable
Current Debt
Total Current
Liabilities
Long Term
Debt
Total Liabilities
2017
$25,287
$17,782
$5,704
$15,165
$30,361
$15,654
$9,016
$52,085
$9,049
$29,918
$280
$46,295
$162,400
$162,400
$140,200
($83,893)
($73,067)
($67,640)
$78,507
$130,592
$89,333
$119,252
$72,560
$118,856
$11,209
$9,965
$9,784
$20,000
$31,209
$0
$9,965
$0
$9,784
$11,763
$31,513
$31,513
$42,972
$41,478
$41,297
$20,811
$20,811
$22,599
$66,808
$56,962
$54,960
$87,619
$130,592
$77,773
$119,252
$77,559
$118,856
Equity
Common
Stock
Retained
Earnings
Total Equity
Total Liability &
Equity
14
Ferris Income Statement
(All Numbers in Thousands)
2019
2018
$216,347
$184,512
2017
$190,462
$63,677
$72,727
$52,878
$59,595
$61,495
$62,759
$1,082
$1,086
$34
$137,486
$113,558
$124,288
$78,861
$70,953
$66,174
Period Costs
Depreciation
R&D
Promotions
Sales Budget
Admin.
Total Period
Net Margin
$10,827
$1,214
$6,025
$9,275
$1,559
$28,900
$49,961
$10,827
$2,857
$6,025
$9,275
$1,852
$30,836
$40,117
$9,347
$1,415
$6,150
$10,675
$1,826
$29,413
$36,761
Other
EBIT
$550
$49,411
$7,842
$32,275
$14,723
$22,039
Interest Short Term
Debt
Interest Long Term
Debt
Taxes
Profit Sharing
Net Profit
$2,040
$0
$0
$1,232
$3,897
$3,897
$16,148
$600
$29,390
$9,932
$369
$18,077
$6,350
$236
$11,556
Sales
COGS
Direct Labor
Direct
Material
Inventory
Carry
Total Variable
Cost
Contribution Margin
15
Ferris Cash Flow Statement
(All Numbers in Thousands)
2019
2018
Cash Flows from
Operating Activities
Net Income (Loss)
Depreciation
Extraordinary Gains/
Losses/Write-offs
Accounts Payable
Inventory
Accounts Receivable
Net Cash from
Operations
Cash Flows from
Investing Activities
Plant Improvements
Cash Flows from
Financing Activities
Dividends Paid
Sales of Common
Stock
Purchase of Common
Stock
Cash from Long Term
Debt
Retirement of Long
Term Debt
Change in Current
Debt (net)
Net Cash from
Financing Activities
Change in Cash
Closing Cash
2017
$29,390
$10,827
$250
$18,077
$10,827
($2,250)
$11,556
$9,347
($929)
$1,244
$33
($2,617)
$39,127
$181
($8,769)
$489
$18,555
$2,128
$5,219
($3,517)
$23,803
$0
($25,350)
($20,920)
($19,544)
$0
($11,726)
$0
$0
$0
$0
($6,136)
($5,142)
$0
$0
$10,000
($20,000)
$0
($5,000)
$20,000
$0
$0
($19,544)
($17,862)
(142)
$19,583
$25,287
($24,657)
$5,704
$2,741
$30,361
16
Plans for the Future
As we look toward the future, we are not content to rest upon our past success. Instead, we are firmly
committed to building upon that success. There are several measures that we plan to enact within the
next five years in order to expand more aggressively:

We will expand capacity in all segments in order to decrease reliance on second shift labor,
which will lower labor costs

We will capture more market share by introducing new products in strategically significant
segments

We will continue to increase automation in all segments, specifically in the Performance
segment, which currently has the lowest contribution margin

We will continue to improve our S&P credit rating and pay generous dividends to shareholders
while increasing our stock price
Implementing these initiatives, in addition to continuing to produce quality products at reasonable
prices, will ensure that we are well positioned for future growth.
17