##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended September 30, 2008
 or
 o
    
    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
  Ohio
    
    34-0217820(State of Corporation)
    
    (IRS Employer Identification No.)1000 Lakeside Avenue
    
    44114Cleveland, OH
    
    (Zip Code)(Address of Principal executive offices)
 216-641-8580
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PART IItem 1 Financial Statements (Unaudited)
    
    Page 3Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 21Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    Page 33Item 4 Controls and Procedures
    
    Page 35PART IIItem 1 Legal Proceedings
    
    Page 36Item 1A Risk Factors
    
    Page 37Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 43Item 3 Defaults Upon Senior Securities
    
    Page 43Item 4 Submission of Matters to a Vote of Security Holders
    
    Page 43Item 5 Other Information
    
    Page 43Item 6 Exhibits
    
    Page 43Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Statements of Income
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands, except per share amounts)Net sales
    
    $
    608,588
    
    
    $
    550,701
    
    
    $
    1,866,240
    
    
    $
    1,634,064Cost of sales
    
    
    494,577
    
    
    
    450,553
    
    
    
    1,515,526
    
    
    
    1,319,609Gross profit
    
    
    114,011
    
    
    
    100,148
    
    
    
    350,714
    
    
    
    314,455Selling, general and administrative expenses
    
    
    78,274
    
    
    
    71,069
    
    
    
    238,122
    
    
    
    234,212Restructuring charges
    
    
    9,042
    
    
    
    5,826
    
    
    
    22,280
    
    
    
    7,689Other expense (income):Interest expense
    
    
    12,497
    
    
    
    14,488
    
    
    
    39,740
    
    
    
    46,220Interest earned
    
    
    (213
    )
    
    
    (271
    )
    
    
    (484
    )
    
    
    (1,425
    )Loss on extinguishment of debt
    
    
    5,531
    
    
    
    
    
    
    
    5,531
    
    
    
    Foreign currency losses (gains), net
    
    
    1,660
    
    
    
    (10
    )
    
    
    769
    
    
    
    924Miscellaneous expense (income), net
    
    
    727
    
    
    
    (13
    )
    
    
    4,659
    
    
    
    (399
    )Income before taxes
    
    
    6,493
    
    
    
    9,059
    
    
    
    40,097
    
    
    
    27,234Income tax expense
    
    
    1,605
    
    
    
    3,472
    
    
    
    16,688
    
    
    
    10,814Income from continuing operations
    
    
    4,888
    
    
    
    5,587
    
    
    
    23,409
    
    
    
    16,420Loss from discontinued operations, net of tax
    
    
    57
    
    
    
    2
    
    
    
    73
    
    
    
    216Net income
    
    
    4,831
    
    
    
    5,585
    
    
    
    23,336
    
    
    
    16,204Dividends on preferred stock
    
    
    225
    
    
    
    252
    
    
    
    675
    
    
    
    797Net income available to common shareholders
    
    $
    4,606
    
    
    $
    5,333
    
    
    $
    22,661
    
    
    $
    15,407Per common share dataBasic earnings:From continuing operations
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.53
    
    
    $
    0.36From discontinued operations
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00$
    0.11
    
    
    $
    0.12
    
    
    $
    0.53
    
    
    $
    0.36Diluted earnings:From continuing operations
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.52
    
    
    $
    0.36From discontinued operations
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00$
    0.11
    
    
    $
    0.12
    
    
    $
    0.52
    
    
    $
    0.36Cash dividends declared
    
    $
    0.145
    
    
    $
    0.145
    
    
    $
    0.435
    
    
    $
    0.435
   3




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Balance Sheets
 September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)ASSETSCurrent assetsCash and cash equivalents
    
    $
    14,524
    
    
    $
    12,025Accounts and trade notes receivable, net
    
    
    253,183
    
    
    
    245,369Note receivable from Ferro Finance Corporation
    
    
    29,708
    
    
    
    29,577Inventories
    
    
    306,254
    
    
    
    262,799Deferred income taxes
    
    
    23,549
    
    
    
    15,764Other receivables
    
    
    52,500
    
    
    
    33,419Other current assets
    
    
    7,412
    
    
    
    8,239Total current assets
    
    
    687,130
    
    
    
    607,192Other assetsProperty, plant and equipment, net
    
    
    506,382
    
    
    
    519,959Goodwill
    
    
    290,088
    
    
    
    291,070Amortizable intangible assets, net
    
    
    11,899
    
    
    
    9,071Deferred income taxes
    
    
    99,210
    
    
    
    100,935Other non-current assets
    
    
    112,581
    
    
    
    110,033Total assets
    
    $
    1,707,290
    
    
    $
    1,638,260LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesLoans payable and current portion of long-term debt
    
    $
    7,372
    
    
    $
    5,444Accounts payable
    
    
    263,189
    
    
    
    269,591Income taxes
    
    
    23,926
    
    
    
    Accrued payrolls
    
    
    33,286
    
    
    
    26,415Accrued expenses and other current liabilities
    
    
    90,235
    
    
    
    108,882Total current liabilities
    
    
    418,008
    
    
    
    410,332Other liabilitiesLong-term debt, less current portion
    
    
    601,997
    
    
    
    520,645Postretirement and pension liabilities
    
    
    130,151
    
    
    
    140,988Deferred income taxes
    
    
    9,416
    
    
    
    9,848Other non-current liabilities
    
    
    53,068
    
    
    
    56,644Total liabilities
    
    
    1,212,640
    
    
    
    1,138,457Minority interests
    
    
    10,318
    
    
    
    9,896Series A convertible preferred stock (approximates redemption value)
    
    
    12,517
    
    
    
    13,623Shareholders equityCommon stock
    
    
    52,323
    
    
    
    52,323Paid-in capital
    
    
    167,105
    
    
    
    166,391Retained earnings
    
    
    471,463
    
    
    
    468,190Accumulated other comprehensive loss
    
    
    (18,827
    )
    
    
    (7,765
    )Common shares in treasury, at cost
    
    
    (200,249
    )
    
    
    (202,855
    )Total shareholders equity
    
    
    471,815
    
    
    
    476,284Total liabilities and shareholders equity
    
    $
    1,707,290
    
    
    $
    1,638,260
   4




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Statement of Shareholders Equity and Comprehensive Income
 Accumulated
    
    
    TotalCommon Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Share-in Treasury
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    holdersShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Equity(In thousands)Balances at
December 31, 2007
    
    
    8,753
    
    
    $
    (202,855
    )
    
    $
    52,323
    
    
    $
    166,391
    
    
    $
    468,190
    
    
    $
    (7,765
    )
    
    $
    476,284Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,336
    
    
    
    
    
    
    
    23,336Other comprehensive
income
(loss), net of tax:Foreign
currency
translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,014
    )
    
    
    (15,014
    )Postretirement
benefit liability
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,676
    
    
    
    2,676Raw material
commodity
swap
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    454
    
    
    
    454Interest rate
swap
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    456
    
    
    
    456Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,908Cash dividends:Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,883
    )
    
    
    
    
    
    
    (18,883
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (675
    )
    
    
    
    
    
    
    (675
    )Income tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Stock-based
compensation
transactions
    
    
    (173
    )
    
    
    2,606
    
    
    
    
    
    
    
    682
    
    
    
    
    
    
    
    
    
    
    
    3,288Adjustment to
initially apply FAS
No. 158 as of
January 1, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (505
    )
    
    
    366
    
    
    
    (139
    )Balances at
September 30, 2008
    
    
    8,580
    
    
    $
    (200,249
    )
    
    $
    52,323
    
    
    $
    167,105
    
    
    $
    471,463
    
    
    $
    (18,827
    )
    
    $
    471,815
   5




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Statements of Cash Flows
 Nine months endedSeptember 30,2008
    
    
    2007(Dollars in thousands)Cash flows from operating activitiesNet income
    
    $
    23,336
    
    
    $
    16,204Depreciation and amortization
    
    
    57,770
    
    
    
    63,825Precious metals deposits
    
    
    
    
    
    
    70,073Accounts and trade notes receivable, inventories, and accounts payable
    
    
    (66,426
    )
    
    
    13,696Note
receivable from Ferro Finance Corporation
    
    
    (131
    )
    
    
    (6,804
    )Other changes in current assets and liabilities, net
    
    
    (3,106
    )
    
    
    (27,964
    )Other adjustments, net
    
    
    (9,532
    )
    
    
    (7,701
    )Net cash provided by continuing operations
    
    
    1,911
    
    
    
    121,329Net cash used for discontinued operations
    
    
    (73
    )
    
    
    (48
    )Net cash provided by operating activities
    
    
    1,838
    
    
    
    121,281Cash flows from investing activitiesCapital expenditures for property, plant and equipment
    
    
    (51,805
    )
    
    
    (43,247
    )Expenditures for other assets
    
    
    (3,400
    )
    
    
    Proceeds from sale of assets and businesses
    
    
    586
    
    
    
    2,704Dividends received from affiliates
    
    
    336
    
    
    
    551Net cash used for investing activities
    
    
    (54,283
    )
    
    
    (39,992
    )Cash flows from financing activitiesNet borrowings (repayments) under short-term facilities
    
    
    2,102
    
    
    
    (740
    )Proceeds from convertible notes
    
    
    172,500
    
    
    
    Proceeds from revolving credit facility
    
    
    756,440
    
    
    
    592,167Proceeds from term loan facility
    
    
    
    
    
    
    55,000Extinguishment of 9 1/8% notes
    
    
    (205,269
    )
    
    
    Principal payments on revolving credit facility
    
    
    (638,227
    )
    
    
    (700,864
    )Principal payments on term loan facility
    
    
    (8,689
    )
    
    
    (2,287
    )Debt issue costs paid
    
    
    (5,462
    )
    
    
    (1,783
    )Proceeds from exercise of stock options
    
    
    58
    
    
    
    9,217Cash dividends paid
    
    
    (19,558
    )
    
    
    (19,570
    )Other financing activities
    
    
    1,464
    
    
    
    (4,442
    )Net cash provided by (used for) financing activities
    
    
    55,359
    
    
    
    (73,302
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (415
    )
    
    
    849Increase in cash and cash equivalents
    
    
    2,499
    
    
    
    8,836Cash and cash equivalents at beginning of period
    
    
    12,025
    
    
    
    16,985Cash and cash equivalents at end of period
    
    $
    14,524
    
    
    $
    25,821Cash paid during the period for:Interest
    
    $
    46,247
    
    
    $
    46,925Income taxes
    
    $
    8,379
    
    
    $
    11,387
   6




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries  Notes to Condensed Consolidated Financial Statements
 1. Basis of Presentation
  2. Accounting Standards Adopted in the Nine Months Ended September 30, 2008
 Fair Value Measurements Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement Under Statement 13 Effective Date of FASB Statement No. 157 Determining the Fair Value of a
Financial Asset When the Market for That Asset is not Active Accounting for
Leases
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of
FASB Statements No. 87, 88, 106, and 132(R)
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
  7




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Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards
 3. Newly Issued Accounting Pronouncements
 Business Combinations Noncontrolling Interests in Consolidated Financial Statements  an
amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 4. Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Raw materials
    
    $
    94,975
    
    
    $
    74,659Work in process
    
    
    50,639
    
    
    
    41,640Finished goods
    
    
    160,640
    
    
    
    146,500Total
    
    $
    306,254
    
    
    $
    262,799
  8




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##### Table of Contents



5. Property, Plant and Equipment
  6. Financing and Long-term Debt
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Loans payable to banks
    
    $
    3,128
    
    
    $
    954Current portion of long-term debt
    
    
    4,244
    
    
    
    4,490Total
    
    $
    7,372
    
    
    $
    5,444
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)$172.5 million 6.50% Convertible Senior Notes
    
    $
    172,500
    
    
    $
    $200 million 9 1/8% Senior Notes, net of unamortized discounts
    
    
    
    
    
    
    199,636Revolving credit facility
    
    
    132,070
    
    
    
    13,857Term loan facility
    
    
    293,261
    
    
    
    301,950Capitalized lease obligations
    
    
    7,863
    
    
    
    8,924Other notes
    
    
    547
    
    
    
    768606,241
    
    
    
    525,135Less current portion
    
    
    (4,244
    )
    
    
    (4,490
    )Total
    
    $
    601,997
    
    
    $
    520,645
 Credit Rating
  6.50% Convertible Senior Notes
   9




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##### Table of Contents



9 1/8% Senior Notes
  Revolving Credit and Term Loan Facilities
   Receivable Sales Programs
   10




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##### Table of Contents



2008
    
    
    2007(Dollars in thousands)Trade accounts receivable sold to FFC
    
    $
    840,151
    
    
    $
    739,005Cash proceeds from FFC
    
    
    840,405
    
    
    
    731,454Trade accounts receivable collected and remitted to FFC and the conduits
    
    
    820,027
    
    
    
    726,553
   2008
    
    
    2007(Dollars in thousands)Trade accounts receivable sold to financial institutions
    
    $
    186,054
    
    
    $
    128,788Cash proceeds from financial institutions
    
    
    184,628
    
    
    
    125,024Trade accounts receivable collected and remitted to
financial institutions for programs where we provide
collection and administrative services
    
    
    60,863
    
    
    
    65,060
 7. Financial Instruments
  6.50% Convertible Senior Notes.
 9 1/8% Senior Notes.
 Revolving credit facility.
 Term loan facility.
  11




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##### Table of Contents



Level 1:
    
    Quoted market prices in active markets for identical assets or liabilities.Level 2:
    
    Observable market-based inputs or unobservable inputs that are corroborated by
market data.Level 3:
    
    Unobservable inputs that are not corroborated by market data.
  Fair Value MeasurementsSeptember 30,
    
    
    at September 30, 2008
    
    
    December 31,2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    2007(Dollars in thousands)AssetsForeign currency
forward contracts
    
    $
    1,374
    
    
    $
    
    
    
    $
    1,374
    
    
    $
    
    
    
    $
    16Precious metals
forward contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    755Total fair value
    
    $
    1,374
    
    
    $
    
    
    
    $
    1,374
    
    
    $
    
    
    
    $
    771LiabilitiesInterest rate swaps
    
    $
    (7,401
    )
    
    $
    
    
    
    $
    (7,401
    )
    
    $
    
    
    
    $
    (8,109
    )Foreign currency
forward contracts
    
    
    (73
    )
    
    
    
    
    
    
    (73
    )
    
    
    
    
    
    
    (284
    )Raw material
commodity swaps
    
    
    (938
    )
    
    
    
    
    
    
    (938
    )
    
    
    
    
    
    
    (1,499
    )Precious metals
forward contracts
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    Total fair value
    
    $
    (8,418
    )
    
    $
    
    
    
    $
    (8,418
    )
    
    $
    
    
    
    $
    (9,892
    )
 Interest rate swaps.
 Foreign currency forward contracts.
 Raw material commodity swaps.
  12




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##### Table of Contents



Precious metals forward contracts.
 8. Income Taxes
    9. Contingent Liabilities
     13




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##### Table of Contents



10. Retirement Benefits
  U.S. Pension Plans
    
    
    Non-U.S. Pension Plans
    
    
    Other Benefit Plans2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Components of net periodic cost:Service cost
    
    $
    50
    
    
    $
    317
    
    
    $
    1,308
    
    
    $
    1,663
    
    
    $
    16
    
    
    $
    124Interest cost
    
    
    5,177
    
    
    
    5,026
    
    
    
    2,955
    
    
    
    2,359
    
    
    
    731
    
    
    
    836Expected return on plan assets
    
    
    (5,663
    )
    
    
    (5,140
    )
    
    
    (2,148
    )
    
    
    (1,871
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    25
    
    
    
    39
    
    
    
    29
    
    
    
    27
    
    
    
    (411
    )
    
    
    (349
    )Net amortization and deferral
    
    
    624
    
    
    
    1,456
    
    
    
    53
    
    
    
    148
    
    
    
    
    
    
    
    Curtailment and settlement
effects
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    
    
    
    
    
    
    
    
    (814
    )Special termination benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,189
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    213
    
    
    $
    1,698
    
    
    $
    2,064
    
    
    $
    4,515
    
    
    $
    336
    
    
    $
    (203
    )
  U.S. Pension Plans
    
    
    Non-U.S. Pension Plans
    
    
    Other Benefit Plans2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Components of net periodic cost:Service cost
    
    $
    150
    
    
    $
    948
    
    
    $
    4,366
    
    
    $
    4,888
    
    
    $
    48
    
    
    $
    428Interest cost
    
    
    15,531
    
    
    
    15,083
    
    
    
    8,934
    
    
    
    6,937
    
    
    
    2,193
    
    
    
    2,554Expected return on plan assets
    
    
    (16,989
    )
    
    
    (15,392
    )
    
    
    (6,484
    )
    
    
    (5,499
    )
    
    
    
    
    
    
    Amortization of prior service
cost
    
    
    75
    
    
    
    118
    
    
    
    78
    
    
    
    82
    
    
    
    (1,233
    )
    
    
    (935
    )Net amortization and deferral
    
    
    1,872
    
    
    
    4,405
    
    
    
    165
    
    
    
    434
    
    
    
    
    
    
    
    Curtailment and settlement
effects
    
    
    
    
    
    
    250
    
    
    
    (133
    )
    
    
    
    
    
    
    
    
    
    
    (814
    )Special termination benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,189
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    639
    
    
    $
    5,412
    
    
    $
    6,926
    
    
    $
    9,031
    
    
    $
    1,008
    
    
    $
    1,233
   14




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11. Stock-Based Compensation
  2008
    
    
    2007(Dollars in thousands)Stock options
    
    $
    1,753
    
    
    $
    2,333Performance shares
    
    
    187
    
    
    
    794Deferred stock units
    
    
    411
    
    
    
    505Restricted shares
    
    
    307
    
    
    
    Total
    
    $
    2,658
    
    
    $
    3,632
  AggregateWeighted-
    
    
    Grant Date
    
    
    RemainingNumber of
    
    
    Average Fair
    
    
    Fair Value of
    
    
    Service orShares or
    
    
    Value per
    
    
    Shares or
    
    
    PerformanceUnits Granted
    
    
    Share or Unit
    
    
    Units Granted
    
    
    Period(Dollars in
    
    
    (In years)thousands)Stock options
    
    
    513,100
    
    
    $
    4.27
    
    
    $
    2,191
    
    
    
    3.4Performance shares
    
    
    77,825
    
    
    
    17.26
    
    
    
    1,343
    
    
    
    2.4Deferred stock units
    
    
    34,200
    
    
    
    16.69
    
    
    
    571
    
    
    
    0.4Restricted shares
    
    
    99,600
    
    
    
    17.51
    
    
    
    1,744
    
    
    
    2.4
  Common Sharesin Treasury
    
    
    Paid-inShares
    
    
    Amount
    
    
    Capital(In thousands)Stock options
    
    
    (3
    )
    
    $
    367
    
    
    $
    2,236Performance shares, net
    
    
    
    
    
    
    25
    
    
    
    (654
    )Deferred stock units
    
    
    (33
    )
    
    
    143
    
    
    
    Directors deferred compensation
    
    
    
    
    
    
    (558
    )
    
    
    558Preferred stock conversions
    
    
    (38
    )
    
    
    689
    
    
    
    Restricted shares
    
    
    (99
    )
    
    
    1,940
    
    
    
    (1,458
    )Total
    
    
    (173
    )
    
    $
    2,606
    
    
    $
    682
 Restricted Share Awards
   15




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12. Restructuring and Cost Reduction Programs
          16




---



##### Table of Contents



EmployeeTermination
    
    
    Other
    
    
    AssetBenefits
    
    
    Costs
    
    
    Impairment
    
    
    Total(Dollars in thousands)Balance, December 31, 2007
    
    $
    8,381
    
    
    $
    1,560
    
    
    $
    
    
    
    $
    9,941Restructuring charges
    
    
    15,346
    
    
    
    6,025
    
    
    
    909
    
    
    
    22,280Cash payments
    
    
    (21,570
    )
    
    
    (1,723
    )
    
    
    
    
    
    
    (23,293
    )Currency translation adjustment
    
    
    (193
    )
    
    
    (363
    )
    
    
    
    
    
    
    (556
    )Non-cash items
    
    
    (76
    )
    
    
    (178
    )
    
    
    (909
    )
    
    
    (1,163
    )Balance, September 30, 2008
    
    $
    1,888
    
    
    $
    5,321
    
    
    $
    
    
    
    $
    7,209
  13. Discontinued Operations
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Pre-tax losses
    
    $
    94
    
    
    $
    4
    
    
    $
    120
    
    
    $
    355Tax benefits
    
    
    37
    
    
    
    2
    
    
    
    47
    
    
    
    139Net of tax losses
    
    $
    57
    
    
    $
    2
    
    
    $
    73
    
    
    $
    216
   17




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##### Table of Contents



14. Earnings per Share
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share amounts)Basic earnings per share computation:Net income available to common shareholders
    
    $
    4,606
    
    
    $
    5,333
    
    
    $
    22,661
    
    
    $
    15,407Add: Loss from discontinued operations
    
    
    57
    
    
    
    2
    
    
    
    73
    
    
    
    216$
    4,663
    
    
    $
    5,335
    
    
    $
    22,734
    
    
    $
    15,623Weighted-average common shares outstanding
    
    
    43,266
    
    
    
    43,030
    
    
    
    43,226
    
    
    
    42,881Basic earnings per share from continuing operations
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.53
    
    
    $
    0.36Diluted earnings per share computation:Net income available to common shareholders
    
    $
    4,606
    
    
    $
    5,333
    
    
    $
    22,661
    
    
    $
    15,407Add: Loss from discontinued operations
    
    
    57
    
    
    
    2
    
    
    
    73
    
    
    
    216Plus: Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,663
    
    
    $
    5,335
    
    
    $
    22,734
    
    
    $
    15,623Weighted-average common shares outstanding
    
    
    43,266
    
    
    
    43,030
    
    
    
    43,226
    
    
    
    42,881Assumed
conversion of convertible senior notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assumed conversion of convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assumed satisfaction of performance share
conditions
    
    
    76
    
    
    
    59
    
    
    
    72
    
    
    
    54Assumed satisfaction of deferred stock unit
conditions
    
    
    20
    
    
    
    24
    
    
    
    11
    
    
    
    14Assumed exercise of stock options
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average diluted shares outstanding
    
    
    43,523
    
    
    
    43,113
    
    
    
    43,309
    
    
    
    42,949Diluted earnings per share from continuing
operations
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.52
    
    
    $
    0.36
 15. Comprehensive Income
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Net income
    
    $
    4,831
    
    
    $
    5,585
    
    
    $
    23,336
    
    
    $
    16,204Other comprehensive income, net of tax:Foreign currency translation adjustments
    
    
    (36,261
    )
    
    
    15,441
    
    
    
    (15,014
    )
    
    
    28,183Postretirement benefit liability adjustments
    
    
    3,090
    
    
    
    (137
    )
    
    
    2,676
    
    
    
    (140
    )Raw material commodity swap adjustments
    
    
    (1
    )
    
    
    (391
    )
    
    
    454
    
    
    
    (1,903
    )Interest rate swap adjustments
    
    
    (150
    )
    
    
    (2,089
    )
    
    
    456
    
    
    
    (2,840
    )Comprehensive income
    
    $
    (28,491
    )
    
    $
    18,409
    
    
    $
    11,908
    
    
    $
    39,504
  18




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16. Reporting for Segments
    Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Performance Coatings
    
    $
    162,523
    
    
    $
    153,742
    
    
    $
    501,819
    
    
    $
    451,058Electronic Materials
    
    
    155,122
    
    
    
    116,645
    
    
    
    452,317
    
    
    
    338,412Color and Glass Performance Materials
    
    
    115,013
    
    
    
    113,575
    
    
    
    374,083
    
    
    
    329,195Polymer Additives
    
    
    93,081
    
    
    
    85,230
    
    
    
    284,107
    
    
    
    252,903Specialty Plastics
    
    
    58,097
    
    
    
    62,236
    
    
    
    183,499
    
    
    
    198,994Other Businesses
    
    
    24,752
    
    
    
    19,273
    
    
    
    70,415
    
    
    
    63,502Total net sales
    
    $
    608,588
    
    
    $
    550,701
    
    
    $
    1,866,240
    
    
    $
    1,634,064
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Performance Coatings
    
    $
    12,135
    
    
    $
    8,449
    
    
    $
    34,400
    
    
    $
    29,947Electronic Materials
    
    
    17,095
    
    
    
    8,522
    
    
    
    43,527
    
    
    
    19,534Color and Glass Performance Materials
    
    
    9,712
    
    
    
    11,727
    
    
    
    40,695
    
    
    
    39,462Polymer Additives
    
    
    4,385
    
    
    
    3,417
    
    
    
    11,703
    
    
    
    10,576Specialty Plastics
    
    
    2,796
    
    
    
    3,586
    
    
    
    7,520
    
    
    
    10,961Other Businesses
    
    
    2,645
    
    
    
    593
    
    
    
    7,405
    
    
    
    7,982Total segment income
    
    
    48,768
    
    
    
    36,294
    
    
    
    145,250
    
    
    
    118,462Unallocated corporate expenses
    
    
    13,031
    
    
    
    7,215
    
    
    
    32,658
    
    
    
    38,219Restructuring charges
    
    
    9,042
    
    
    
    5,826
    
    
    
    22,280
    
    
    
    7,689Other expense, net
    
    
    20,202
    
    
    
    14,194
    
    
    
    50,215
    
    
    
    45,320Income before taxes from continuing
operations
    
    $
    6,493
    
    
    $
    9,059
    
    
    $
    40,097
    
    
    $
    27,234
  19




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)United States
    
    $
    281,502
    
    
    $
    232,405
    
    
    $
    811,678
    
    
    $
    710,423International
    
    
    327,086
    
    
    
    318,296
    
    
    
    1,054,562
    
    
    
    923,641Total net sales
    
    $
    608,588
    
    
    $
    550,701
    
    
    $
    1,866,240
    
    
    $
    1,634,064
 17. Subsequent Event
    20




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
       Outlook
     21




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Results of Operations
 Comparison of the three months ended September 30, 2008 and 2007
 Three months endedSeptember 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands,except per share amounts)Net sales
    
    $
    608,588
    
    
    $
    550,701
    
    
    $
    57,887
    
    
    
    10.5
    %Cost of sales
    
    
    494,577
    
    
    
    450,553
    
    
    
    44,024
    
    
    
    9.8
    %Gross profit
    
    
    114,011
    
    
    
    100,148
    
    
    
    13,863
    
    
    
    13.8
    %Gross profit percentage
    
    
    18.7
    %
    
    
    18.2
    %Selling, general and administrative expenses
    
    
    78,274
    
    
    
    71,069
    
    
    
    7,205
    
    
    
    10.1
    %Restructuring charges
    
    
    9,042
    
    
    
    5,826
    
    
    
    3,216
    
    
    
    55.2
    %Other expense (income):Interest expense
    
    
    12,497
    
    
    
    14,488
    
    
    
    (1,991
    )
    
    
    (13.7
    %)Interest earned
    
    
    (213
    )
    
    
    (271
    )
    
    
    58
    
    
    
    (21.4
    %)Loss on extinguishment of debt
    
    
    5,531
    
    
    
    
    
    
    
    5,531
    
    
    
    Foreign currency losses (gains), net
    
    
    1,660
    
    
    
    (10
    )
    
    
    1,670
    
    
    
    (16,700.0
    %)Miscellaneous expense (income), net
    
    
    727
    
    
    
    (13
    )
    
    
    740
    
    
    
    (5,692.3
    %)Income before taxes
    
    
    6,493
    
    
    
    9,059
    
    
    
    (2,566
    )
    
    
    (28.3
    %)Income tax expense
    
    
    1,605
    
    
    
    3,472
    
    
    
    (1,867
    )
    
    
    (53.8
    %)Income from continuing operations
    
    
    4,888
    
    
    
    5,587
    
    
    
    (699
    )
    
    
    (12.5
    %)Loss from discontinued operations, net of tax
    
    
    57
    
    
    
    2
    
    
    
    55
    
    
    
    2,750.0
    %Net income
    
    $
    4,831
    
    
    $
    5,585
    
    
    $
    (754
    )
    
    
    (13.5
    %)Diluted earnings per share
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    (0.01
    )
    
    
    (8.3
    %)
      22




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Three months endedSeptember 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Segment SalesPerformance Coatings
    
    $
    162,523
    
    
    $
    153,742
    
    
    $
    8,781
    
    
    
    5.7
    %Electronic Materials
    
    
    155,122
    
    
    
    116,645
    
    
    
    38,477
    
    
    
    33.0
    %Color & Glass Performance Materials
    
    
    115,013
    
    
    
    113,575
    
    
    
    1,438
    
    
    
    1.3
    %Polymer Additives
    
    
    93,081
    
    
    
    85,230
    
    
    
    7,851
    
    
    
    9.2
    %Specialty Plastics
    
    
    58,097
    
    
    
    62,236
    
    
    
    (4,139
    )
    
    
    (6.7
    %)Other Businesses
    
    
    24,752
    
    
    
    19,273
    
    
    
    5,479
    
    
    
    28.4
    %Total segment sales
    
    $
    608,588
    
    
    $
    550,701
    
    
    $
    57,887
    
    
    
    10.5
    %Segment Operating IncomePerformance Coatings
    
    $
    12,135
    
    
    $
    8,449
    
    
    $
    3,686
    
    
    
    43.6
    %Electronic Materials
    
    
    17,095
    
    
    
    8,522
    
    
    
    8,573
    
    
    
    100.6
    %Color & Glass Performance Materials
    
    
    9,712
    
    
    
    11,727
    
    
    
    (2,015
    )
    
    
    (17.2
    %)Polymer Additives
    
    
    4,385
    
    
    
    3,417
    
    
    
    968
    
    
    
    28.3
    %Specialty Plastics
    
    
    2,796
    
    
    
    3,586
    
    
    
    (790
    )
    
    
    (22.0
    %)Other Businesses
    
    
    2,645
    
    
    
    593
    
    
    
    2,052
    
    
    
    346.0
    %Total segment operating income
    
    $
    48,768
    
    
    $
    36,294
    
    
    $
    12,474
    
    
    
    34.4
    %
 Performance Coatings Segment Results.
 Electronic Materials Segment Results.
  23




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Color and Glass Performance Materials Segment Results.
 Polymer Additives Segment Results.
 Specialty Plastics Segment Results.
 Other Businesses Segment Results.
 Three months endedSeptember 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Geographic RevenuesUnited States
    
    $
    281,502
    
    
    $
    232,405
    
    
    $
    49,097
    
    
    
    21.1
    %International
    
    
    327,086
    
    
    
    318,296
    
    
    
    8,790
    
    
    
    2.8
    %Total
    
    $
    608,588
    
    
    $
    550,701
    
    
    $
    57,887
    
    
    
    10.5
    %
   24




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Comparison of the nine months ended September 30, 2008 and 2007
 Nine months endedSeptember 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands,except per share amounts)Net sales
    
    $
    1,866,240
    
    
    $
    1,634,064
    
    
    $
    232,176
    
    
    
    14.2
    %Cost of sales
    
    
    1,515,526
    
    
    
    1,319,609
    
    
    
    195,917
    
    
    
    14.8
    %Gross profit
    
    
    350,714
    
    
    
    314,455
    
    
    
    36,259
    
    
    
    11.5
    %Gross profit percentage
    
    
    18.8
    %
    
    
    19.2
    %Selling, general and administrative expenses
    
    
    238,122
    
    
    
    234,212
    
    
    
    3,910
    
    
    
    1.7
    %Restructuring charges
    
    
    22,280
    
    
    
    7,689
    
    
    
    14,591
    
    
    
    189.8
    %Other expense (income):Interest expense
    
    
    39,740
    
    
    
    46,220
    
    
    
    (6,480
    )
    
    
    (14.0
    %)Interest earned
    
    
    (484
    )
    
    
    (1,425
    )
    
    
    941
    
    
    
    (66.0
    %)Loss on extinguishment of debt
    
    
    5,531
    
    
    
    
    
    
    
    5,531
    
    
    
    Foreign currency losses, net
    
    
    769
    
    
    
    924
    
    
    
    (155
    )
    
    
    (16.8
    %)Miscellaneous expense (income), net
    
    
    4,659
    
    
    
    (399
    )
    
    
    5,058
    
    
    
    (1,267.7
    %)Income before taxes
    
    
    40,097
    
    
    
    27,234
    
    
    
    12,863
    
    
    
    47.2
    %Income tax expense
    
    
    16,688
    
    
    
    10,814
    
    
    
    5,874
    
    
    
    54.3
    %Income from continuing operations
    
    
    23,409
    
    
    
    16,420
    
    
    
    6,989
    
    
    
    42.6
    %Loss from discontinued operations, net of tax
    
    
    73
    
    
    
    216
    
    
    
    (143
    )
    
    
    (66.2
    %)Net income
    
    $
    23,336
    
    
    $
    16,204
    
    
    $
    7,132
    
    
    
    44.0
    %Diluted earnings per share
    
    $
    0.52
    
    
    $
    0.36
    
    
    $
    0.16
    
    
    
    44.4
    %
     25




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26




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Nine months endedSeptember 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Segment SalesPerformance Coatings
    
    $
    501,819
    
    
    $
    451,058
    
    
    $
    50,761
    
    
    
    11.3
    %Electronic Materials
    
    
    452,317
    
    
    
    338,412
    
    
    
    113,905
    
    
    
    33.7
    %Color & Glass Performance Materials
    
    
    374,083
    
    
    
    329,195
    
    
    
    44,888
    
    
    
    13.6
    %Polymer Additives
    
    
    284,107
    
    
    
    252,903
    
    
    
    31,204
    
    
    
    12.3
    %Specialty Plastics
    
    
    183,499
    
    
    
    198,994
    
    
    
    (15,495
    )
    
    
    (7.8
    %)Other Businesses
    
    
    70,415
    
    
    
    63,502
    
    
    
    6,913
    
    
    
    10.9
    %Total segment sales
    
    $
    1,866,240
    
    
    $
    1,634,064
    
    
    $
    232,176
    
    
    
    14.2
    %Segment Operating IncomePerformance Coatings
    
    $
    34,400
    
    
    $
    29,947
    
    
    $
    4,453
    
    
    
    14.9
    %Electronic Materials
    
    
    43,527
    
    
    
    19,534
    
    
    
    23,993
    
    
    
    122.8
    %Color & Glass Performance Materials
    
    
    40,695
    
    
    
    39,462
    
    
    
    1,233
    
    
    
    3.1
    %Polymer Additives
    
    
    11,703
    
    
    
    10,576
    
    
    
    1,127
    
    
    
    10.7
    %Specialty Plastics
    
    
    7,520
    
    
    
    10,961
    
    
    
    (3,441
    )
    
    
    (31.4
    %)Other Businesses
    
    
    7,405
    
    
    
    7,982
    
    
    
    (577
    )
    
    
    (7.2
    %)Total segment operating income
    
    $
    145,250
    
    
    $
    118,462
    
    
    $
    26,788
    
    
    
    22.6
    %
 Performance Coatings Segment Results.
 Electronic Materials Segment Results.
 Color and Glass Performance Materials Segment Results.
 Polymer Additives Segment Results.
  27




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Specialty Plastics Segment Results.
 Other Businesses Segment Results.
 Nine months endedSeptember 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Geographic RevenuesUnited States
    
    $
    811,678
    
    
    $
    710,423
    
    
    $
    101,255
    
    
    
    14.3
    %International
    
    
    1,054,562
    
    
    
    923,641
    
    
    
    130,921
    
    
    
    14.2
    %Total
    
    $
    1,866,240
    
    
    $
    1,634,064
    
    
    $
    232,176
    
    
    
    14.2
    %
  Summary of Cash Flows for the nine months ended September 30, 2008 and 2007
 Nine months endedSeptember 30,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Net cash provided by
operating activities
    
    $
    1,838
    
    
    $
    121,281
    
    
    $
    (119,443
    )
    
    
    (98.5
    %)Net cash used for investing activities
    
    
    (54,283
    )
    
    
    (39,992
    )
    
    
    (14,291
    )
    
    
    35.7
    %Net cash provided by (used for)
financing activities
    
    
    55,359
    
    
    
    (73,302
    )
    
    
    128,661
    
    
    
    (175.5
    %)Effect of exchange rate changes on
cash and cash equivalents
    
    
    (415
    )
    
    
    849
    
    
    
    (1,264
    )
    
    
    (148.9
    %)Increase in cash and cash equivalents
    
    $
    2,499
    
    
    $
    8,836
    
    
    $
    (6,337
    )
    
    
    (71.7
    %)
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Capital Resources and Liquidity
 Credit Rating
  6.50% Convertible Senior Notes
  9 1/8% Senior Notes
  Revolving Credit and Term Loan Facility
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Off Balance Sheet Arrangements
 Receivable Sales Programs.
   Consignment and Customer Arrangements for Precious Metals.
 Bank Guarantees and Standby Letters of Credit.
 Other Financing Arrangements
  Liquidity Requirement
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Critical Accounting Policies and Their Application
  Newly Adopted Accounting Standards
 Fair Value Measurements Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement Under Statement 13 Effective Date of FASB Statement No. 157 Determining the Fair Value of a
Financial Asset When the Market for That Asset is not Active Accounting for
Leases
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of
FASB Statements No. 87, 88, 106, and 132(R)
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards
 Newly Issued Accounting Pronouncements
 Business Combinations Noncontrolling Interests in Consolidated Financial Statements  an
amendment of ARB No. 51
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Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 Risk Factors
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
      33




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================================================================================

September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands,except as noted)Variable-rate debt and utilization of accounts receivable sales programs:Change in annual interest expense from 1% change in interest rates
    
    $
    3,823
    
    
    $
    2,636Fixed-rate debt:Carrying amount
    
    $
    173,047
    
    
    $
    200,404Fair value
    
    $
    160,155
    
    
    $
    205,705Change in fair value from 1% increase in interest rate
    
    $
    (1,656
    )
    
    $
    (1,929
    )Change in fair value from 1% decrease in interest rate
    
    $
    1,984
    
    
    $
    1,957Interest rate swaps:Notional amount
    
    $
    150,000
    
    
    $
    150,000Carrying amount and fair value
    
    $
    (7,401
    )
    
    $
    (8,109
    )Change in fair value from 1% increase in interest rate
    
    $
    3,785
    
    
    $
    5,000Change in fair value from 1% decrease in interest rate
    
    $
    (3,889
    )
    
    $
    (5,181
    )Foreign currency forward contracts:Notional amount
    
    $
    154,025
    
    
    $
    142,638Carrying amount and fair value
    
    $
    1,301
    
    
    $
    (268
    )Change in fair value from 10% appreciation of U.S. dollar
    
    $
    2,323
    
    
    $
    (1,402
    )Change in fair value from 10% depreciation of U.S. dollar
    
    $
    (2,839
    )
    
    $
    1,714Raw material commodity swaps:Notional amount (in metric tons of base metals)
    
    
    772
    
    
    
    1,171Carrying amount and fair value
    
    $
    (938
    )
    
    $
    (1,499
    )Change in fair value from 10% change in forward prices
    
    $
    232
    
    
    $
    507Precious metals forward contracts:Notional amount (in troy ounces)
    
    
    64
    
    
    
    159,648Carrying amount and fair value
    
    $
    (6
    )
    
    $
    755Change in fair value from 10% change in forward prices
    
    $
    7
    
    
    $
    612
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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
    
    
    Formal policies and procedures relative to granting access to the
Companys financial systems were redesigned to provide for a more
standardized approach and additional safeguards in the process of
granting access to financial systems.
    
    Procedures and automated tools, to provide the Company better
visibility to and management of access granted to sensitive financial
transactions and data, were implemented.
    
    User access to sensitive financial transactions and data in the
Companys financial systems was evaluated and, where possible, was
limited to better align user access with employee job
responsibilities.
    
    A project to centralize the control and maintenance of the Companys
financial system master files, including customer, vendor, and
materials master files, was completed, which strengthen the Companys
assurance of complete and accurate master data.
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
     36




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##### Table of Contents



Item 1A. Risk Factors
  We depend on reliable sources of energy and raw materials, including petroleum-based materials and
other supplies, at a reasonable cost, but the availability of these materials and supplies could be
interrupted and/or their prices could escalate and adversely affect our sales and profitability.
  The markets for our products are highly competitive and subject to intense price competition, and
that could adversely affect our sales and earnings performance.
  We strive to improve operating margins through sales growth, price increases, productivity gains,
improved purchasing techniques and restructuring activities, but we may not achieve the desired
improvements.
  We sell our products into industries where demand has been unpredictable, cyclical or heavily
influenced by consumer spending, and such demand and our results of operations may be further
impacted by the recent macro-economic circumstances and uncertainty in credit markets.
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The global scope of our operations exposes us to risks related to currency conversion rates and
changing economic, social and political conditions around the world.
  
    
    new and different legal and regulatory requirements and enforcement mechanisms in local jurisdictions;
    
    U.S. export licenses may be difficult to obtain and we may be subject to export duties or import
quotas or other trade barriers;
    
    increased costs of, and decreased availability of, transportation or shipping;
    
    credit risk and financial conditions of local customers and distributors;
    
    risk of nationalization of private enterprises by foreign governments or restrictions on investments;
    
    potentially adverse tax consequences, including imposition or increase of withholding and other taxes
on remittances and other payments by subsidiaries; and
    
    local political, economic and social conditions, including the possibility of hyperinflationary
conditions and political instability in certain countries.
  We have a growing presence in the Asia-Pacific region where it can be difficult for a U.S.-based
company, such as Ferro, to compete lawfully with local competitors.
  Regulatory authorities in the U.S., European Union and elsewhere are taking a much more aggressive
approach to regulating hazardous materials, and those regulations could affect sales of our
products.
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Our operations are subject to operating hazards and, as a result, to stringent environmental,
health and safety regulations, and compliance with those regulations could require us to make
significant investments.
   We depend on external financial resources, and the current economic environment and credit market
uncertainty could interrupt our access to capital markets, borrowings, or financial transactions to
hedge certain risks, which could adversely affect our financial condition.
  Interest rates on some of our borrowings are variable, and our borrowing costs could be affected
adversely by interest rate increases.
  Many of our assets are encumbered by liens that have been granted to lenders, and those liens
affect our flexibility to dispose of property and businesses.
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##### Table of Contents



We are subject to a number of restrictive covenants under our credit facilities, which could affect
our flexibility to fund strategic initiatives, and, if we are unable to maintain compliance with
such covenants, could lead to significant challenges in meeting our liquidity requirements.
   We have significant deferred tax assets, and our ability to utilize these assets will depend on our
future performance.
  We are a defendant in several lawsuits that could have an adverse effect on our financial condition
and/or financial performance, unless they are successfully resolved.
  Our businesses depend on a continuous stream of new products, and failure to introduce new products
could affect our sales and profitability.
  We are subject to stringent labor and employment laws in certain jurisdictions in which we operate,
we are party to various collective bargaining arrangements, and our relationship with our employees
could deteriorate, which could adversely impact our operations.
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Employee benefit costs, especially postretirement costs, constitute a significant element of our
annual expenses, and funding these costs could adversely affect our financial condition.
  Our restructuring initiatives may not provide sufficient cost savings to justify their expense.
  We are exposed to intangible asset risk.
  We have in the past identified material weaknesses in our internal controls, and the identification
of any material weaknesses in the future could affect our ability to ensure timely and reliable
financial reports.
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##### Table of Contents



We are exposed to risks associated with acts of God, terrorists and others, as well as fires,
explosions, wars, riots, accidents, embargoes, natural disasters, strikes and other work stoppages,
quarantines and other governmental actions, and other events or circumstances that are beyond our
control.
    42




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
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SIGNATURES
  FERRO CORPORATION(Registrant)Date: November 5, 2008/s/ James F. KirschJames F. KirschChairman, President and Chief Executive Officer
(Principal Executive Officer)Date: November 5, 2008/s/ Sallie B. BaileySallie B. BaileyVice President and Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX






3
    
    
    Articles of incorporation and by-laws3.1
    
    
    Eleventh Amended Articles of Incorporation. (Reference is made to Exhibit 4.1 to Ferro
Corporations Registration Statement on Form S-3, filed March 5, 2008, which Exhibit is
incorporated here by reference.)3.2
    
    
    Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro
Corporation filed December 28, 1994. (Reference is made to Exhibit 4.2 to Ferro Corporations
Registration Statement on Form S-3, filed March 5, 2008, which Exhibit is incorporated here by
reference.)3.3
    
    
    Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro filed
June 19, 1998. (Reference is made to Exhibit 4.3 to Ferro Corporations Registration Statement
on Form S-3, filed March 5, 2008, which Exhibit is incorporated here by reference.)3.4
    
    
    Ferro Corporation Code of Regulations. (Reference is made to Exhibit 4.4 to Ferro
Corporations Registration Statement on Form S-3, filed March 5, 2008, which Exhibit is
incorporated here by reference.)4
    
    
    Instruments defining rights of security holders, including indentures4.1
    
    
    Senior Indenture, dated as of March 5, 2008, by and between Ferro Corporation and U.S. Bank
National Association. (Reference is made to Exhibit 4.5 to Ferro Corporations Registration
Statement on Form S-3, filed March 5, 2008, which Exhibit is incorporated here by reference.)4.2
    
    
    First Supplemental Indenture, dated August 19, 2008, by and between Ferro Corporation and
U.S. Bank National Association (with Form of 6.50% Convertible Senior Note due 2013).
(Reference is made to Exhibit 4.2 to Ferro Corporations Current Report on Form 8-K, filed
August 19, 2008, which Exhibit is incorporated here by reference.)The Company agrees, upon request, to furnish to the U.S. Securities and Exchange Commission a
copy of any instrument authorizing long-term debt that does not authorize debt in excess of
10% of the total assets of the Company and its subsidiaries on a consolidated basis.10
    
    
    Material Contracts10.1
    
    
    Underwriting Agreement, dated as of August 13, 2008, by and among Ferro Corporation and the
underwriters named therein, pertaining to $150 million in aggregate principal amount of 6.50%
Convertible Senior Notes due 2013. (Reference is made to Exhibit 10.1 to Ferro Corporations
Current Report on Form 8-K, filed August 14, 2008, which Exhibit is incorporated here by
reference.)10.2
    
    
    First Amendment to Asset Purchase Agreement, dated October 31, 2008, between
Ferro Corporation and Novolyte Technologies LP. (Reference is made to Exhibit 10.1 to
Ferro Corporations Current Report on Form 8-K, filed November 4, 2008, which Exhibit
is incorporated here by reference.)10.3
    
    
    Asset Purchase Agreement, dated as of September 29, 2008, between Ferro Corporation and
Novolyte Technologies LP. (Reference is made to Exhibit 10.1 to Ferro Corporations Current
Report on Form 8-K, filed October 3, 2008, which Exhibit is incorporated here by reference.)10.4
    
    
    Suzhou Equity Transfer Agreement, dated October 31, 2008, among Novolyte
Technologies Limited, Novolyte Technologies LP and Ferro Corporation. (Reference is
made to Exhibit 10.3 to Ferro Corporations Current Report on Form 8-K, filed November
4, 2008, which Exhibit is incorporated here by reference.)10.5
    
    
    Form of Change in Control Agreement. (Reference is made to Exhibit 10(h) to Ferro
Corporations Annual Report on Form 10-K for the year ended December 31, 2004, which Exhibit
is incorporated here by reference.) (Mark H. Duesenberg, Vice President, General Counsel and
Secretary signed a change in control agreement effective September 17, 2008.)




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31.1
    
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).31.2
    
    
    Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).32.1
    
    
    Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350.32.2
    
    
    Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350.
  46