##### 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, 2009
 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 AvenueCleveland, OH
    
    44114(Address of Principal executive offices)
    
    (Zip Code)
 216-641-8580
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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 28Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    Page 42Item 4 Controls and Procedures
    
    Page 44PART IIItem 1 Legal Proceedings
    
    Page 45Item 1A Risk Factors
    
    Page 46Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 46Item 3 Defaults Upon Senior Securities
    
    Page 46Item 4 Submission of Matters to a Vote of Security Holders
    
    Page 46Item 5 Other Information
    
    Page 46Item 6 Exhibits
    
    Page 46Exhibit 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 Operations
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands,except per share amounts)Net sales
    
    $
    442,089
    
    
    $
    590,150
    
    
    $
    1,199,175
    
    
    $
    1,812,964Cost of sales
    
    
    348,920
    
    
    
    479,807
    
    
    
    985,531
    
    
    
    1,474,382Gross profit
    
    
    93,169
    
    
    
    110,343
    
    
    
    213,644
    
    
    
    338,582Selling, general and administrative expenses
    
    
    65,918
    
    
    
    76,943
    
    
    
    196,526
    
    
    
    234,243Impairment charges
    
    
    8,225
    
    
    
    
    
    
    
    8,225
    
    
    
    Restructuring charges
    
    
    2,842
    
    
    
    9,042
    
    
    
    3,931
    
    
    
    22,280Other expense (income):Interest expense
    
    
    17,891
    
    
    
    12,424
    
    
    
    46,255
    
    
    
    38,747Interest earned
    
    
    (216
    )
    
    
    (213
    )
    
    
    (689
    )
    
    
    (484
    )Loss on extinguishment of debt
    
    
    
    
    
    
    5,531
    
    
    
    
    
    
    
    5,531Foreign currency losses, net
    
    
    104
    
    
    
    1,647
    
    
    
    3,033
    
    
    
    756Miscellaneous (income) expense, net
    
    
    (655
    )
    
    
    237
    
    
    
    199
    
    
    
    3,231(Loss) income before income taxes
    
    
    (940
    )
    
    
    4,732
    
    
    
    (43,836
    )
    
    
    34,278Income tax (benefit) expense
    
    
    (3,749
    )
    
    
    876
    
    
    
    (15,844
    )
    
    
    14,290Income (loss) from continuing operations
    
    
    2,809
    
    
    
    3,856
    
    
    
    (27,992
    )
    
    
    19,988Income from discontinued operations, net of income taxes
    
    
    
    
    
    
    1,259
    
    
    
    
    
    
    
    4,586Gain (loss) on disposal of discontinued operations,
net of income taxes
    
    
    36
    
    
    
    (57
    )
    
    
    (322
    )
    
    
    (73
    )Net income(loss)
    
    
    2,845
    
    
    
    5,058
    
    
    
    (28,314
    )
    
    
    24,501Less: Net income attributable to noncontrolling interests
    
    
    728
    
    
    
    448
    
    
    
    1,712
    
    
    
    1,386Net income (loss) attributable to Ferro Corporation
    
    
    2,117
    
    
    
    4,610
    
    
    
    (30,026
    )
    
    
    23,115Dividends on preferred stock
    
    
    (168
    )
    
    
    (225
    )
    
    
    (538
    )
    
    
    (675
    )Net income (loss) attributable to Ferro Corporation
common shareholders
    
    $
    1,949
    
    
    $
    4,385
    
    
    $
    (30,564
    )
    
    $
    22,440Amounts attributable to Ferro Corporation:Income (loss) from continuing operations, net of tax
    
    $
    2,081
    
    
    $
    3,408
    
    
    $
    (29,704
    )
    
    $
    18,602Income (loss) from discontinued operations, net of tax
    
    
    36
    
    
    
    1,202
    
    
    
    (322
    )
    
    
    4,513$
    2,117
    
    
    $
    4,610
    
    
    $
    (30,026
    )
    
    $
    23,115Per common share dataBasic and diluted earnings (loss) attributable to
Ferro Corporation common shareholders:From continuing operations
    
    $
    0.04
    
    
    $
    0.07
    
    
    $
    (0.68
    )
    
    $
    0.41From discontinued operations
    
    
    0.00
    
    
    
    0.03
    
    
    
    (0.01
    )
    
    
    0.10$
    0.04
    
    
    $
    0.10
    
    
    $
    (0.69
    )
    
    $
    0.51Cash dividends declared
    
    $
    0.00
    
    
    $
    0.145
    
    
    $
    0.01
    
    
    $
    0.435
   3




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
 September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)ASSETSCurrent assetsCash and cash equivalents
    
    $
    14,271
    
    
    $
    10,191Accounts and trade notes receivable, net
    
    
    309,100
    
    
    
    296,423Inventories
    
    
    181,249
    
    
    
    256,411Deposits for precious metals
    
    
    92,330
    
    
    
    Deferred income taxes
    
    
    27,264
    
    
    
    19,167Other receivables
    
    
    27,509
    
    
    
    58,391Other current assets
    
    
    10,486
    
    
    
    8,306Total current assets
    
    
    662,209
    
    
    
    648,889Other assetsProperty, plant and equipment, net
    
    
    443,160
    
    
    
    456,549Goodwill
    
    
    222,403
    
    
    
    229,665Amortizable intangible assets, net
    
    
    11,042
    
    
    
    11,753Deferred income taxes
    
    
    150,985
    
    
    
    134,361Other non-current assets
    
    
    68,504
    
    
    
    62,900Total assets
    
    $
    1,558,303
    
    
    $
    1,544,117LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesLoans payable and current portion of long-term debt
    
    $
    38,491
    
    
    $
    8,883Accounts payable
    
    
    219,273
    
    
    
    232,113Income taxes
    
    
    3,407
    
    
    
    14,361Accrued payrolls
    
    
    19,979
    
    
    
    18,695Accrued expenses and other current liabilities
    
    
    70,092
    
    
    
    83,012Total current liabilities
    
    
    351,242
    
    
    
    357,064Other liabilitiesLong-term debt, less current portion
    
    
    582,536
    
    
    
    561,613Postretirement and pension liabilities
    
    
    232,166
    
    
    
    221,110Deferred income taxes
    
    
    11,778
    
    
    
    13,011Other non-current liabilities
    
    
    32,797
    
    
    
    34,047Total liabilities
    
    
    1,210,519
    
    
    
    1,186,845Series A convertible preferred stock (approximates redemption value)
    
    
    9,544
    
    
    
    11,548Shareholders equityFerro Corporation shareholders equity:Common stock
    
    
    52,323
    
    
    
    52,323Paid-in capital
    
    
    156,505
    
    
    
    178,420Retained earnings
    
    
    370,524
    
    
    
    401,186Accumulated other comprehensive loss
    
    
    (78,628
    )
    
    
    (98,436
    )Common shares in treasury, at cost
    
    
    (171,914
    )
    
    
    (197,524
    )Total Ferro Corporation shareholders equity
    
    
    328,810
    
    
    
    335,969Noncontrolling interests
    
    
    9,430
    
    
    
    9,755Total equity
    
    
    338,240
    
    
    
    345,724Total liabilities and shareholders equity
    
    $
    1,558,303
    
    
    $
    1,544,117
   4




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss)
 Ferro Corporation ShareholdersAccumulatedOtherCommon Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    Non-in Treasury
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Income
    
    
    controlling
    
    
    TotalShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    (Loss)
    
    
    Interests
    
    
    Equity(In thousands)Balances at December 31, 2007
    
    
    8,753
    
    
    $
    (202,855
    )
    
    $
    52,323
    
    
    $
    166,391
    
    
    $
    468,190
    
    
    $
    (7,765
    )
    
    $
    9,896
    
    
    $
    486,180Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,115
    
    
    
    
    
    
    
    1,386
    
    
    
    24,501Other comprehensive income (loss),
net of tax:Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,014
    )
    
    
    290
    
    
    
    (14,724
    )Postretirement benefit
liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,676
    
    
    
    
    
    
    
    2,676Raw material commodity swap
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    454
    
    
    
    
    
    
    
    454Interest rate swap adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    456
    
    
    
    
    
    
    
    456Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,363Cash dividends:Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,883
    )
    
    
    
    
    
    
    
    
    
    
    (18,883
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (675
    )
    
    
    
    
    
    
    
    
    
    
    (675
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Stock-based compensation
transactions
    
    
    (173
    )
    
    
    2,606
    
    
    
    
    
    
    
    682
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,288Issuance of Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,406Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,254
    )
    
    
    (1,254
    )Adjustment 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
    
    
    $
    179,511
    
    
    $
    471,242
    
    
    $
    (18,827
    )
    
    $
    10,318
    
    
    $
    494,318Balances at December 31, 2008
    
    
    8,432
    
    
    $
    (197,524
    )
    
    $
    52,323
    
    
    $
    178,420
    
    
    $
    401,186
    
    
    $
    (98,436
    )
    
    $
    9,755
    
    
    $
    345,724Net (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,026
    )
    
    
    
    
    
    
    1,712
    
    
    
    (28,314
    )Other comprehensive income (loss),
net of tax:Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,541
    
    
    
    (1
    )
    
    
    17,540Postretirement benefit
liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    
    
    
    
    163Raw material commodity swap
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577
    
    
    
    
    
    
    
    577Interest rate swap adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,527
    
    
    
    
    
    
    
    1,527Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,507
    )Cash dividends:Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (437
    )
    
    
    
    
    
    
    
    
    
    
    (437
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199
    )
    
    
    
    
    
    
    
    
    
    
    (199
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Stock-based compensation
transactions
    
    
    (1,038
    )
    
    
    25,610
    
    
    
    
    
    
    
    (21,916
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,694Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,036
    )
    
    
    (2,036
    )Balances at September 30, 2009
    
    
    7,394
    
    
    $
    (171,914
    )
    
    $
    52,323
    
    
    $
    156,505
    
    
    $
    370,524
    
    
    $
    (78,628
    )
    
    $
    9,430
    
    
    $
    338,240
   5




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
 Nine months endedSeptember 30,2009
    
    
    2008(Dollars in thousands)Cash flows from operating activitiesNet (loss) income
    
    $
    (28,314
    )
    
    $
    24,501Depreciation and amortization
    
    
    63,501
    
    
    
    55,596Precious metals deposits
    
    
    (92,330
    )
    
    
    Accounts and trade notes receivable
    
    
    (5,531
    )
    
    
    (13,270
    )Inventories
    
    
    77,477
    
    
    
    (45,980
    )Accounts payable
    
    
    (10,758
    )
    
    
    (2,781
    )Other changes in current assets and liabilities, net
    
    
    8,774
    
    
    
    (3,147
    )Other adjustments, net
    
    
    (18,263
    )
    
    
    (15,249
    )Net cash used for continuing operations
    
    
    (5,444
    )
    
    
    (330
    )Net cash (used for) provided by discontinued operations
    
    
    (325
    )
    
    
    2,168Net cash (used for) provided by operating activities
    
    
    (5,769
    )
    
    
    1,838Cash flows from investing activitiesCapital expenditures for property, plant and equipment of continuing operations
    
    
    (30,704
    )
    
    
    (49,695
    )Capital expenditures for property, plant and equipment of discontinued
operations
    
    
    
    
    
    
    (2,110
    )Expenditures for other assets
    
    
    
    
    
    
    (3,400
    )Proceeds from sale of assets and businesses
    
    
    104
    
    
    
    586Dividends received from affiliates
    
    
    169
    
    
    
    336Net cash used for investing activities
    
    
    (30,431
    )
    
    
    (54,283
    )Cash flows from financing activitiesNet borrowings under short-term facilities
    
    
    29,128
    
    
    
    2,102Proceeds from convertible notes
    
    
    
    
    
    
    172,500Proceeds from revolving credit facility
    
    
    561,624
    
    
    
    756,440Entinguishment of 9 1/8% notes
    
    
    
    
    
    
    (205,269
    )Principal payments on revolving credit facility
    
    
    (542,027
    )
    
    
    (638,227
    )Principal payments on term loan facility
    
    
    (2,287
    )
    
    
    (8,689
    )Debt issue costs
    
    
    (9,367
    )
    
    
    (5,462
    )Cash dividends paid
    
    
    (636
    )
    
    
    (19,558
    )Other financing activities
    
    
    748
    
    
    
    1,522Net cash provided by financing activities
    
    
    37,183
    
    
    
    55,359Effect of exchange rate changes on cash and cash equivalents
    
    
    3,097
    
    
    
    (415
    )Increase in cash and cash equivalents
    
    
    4,080
    
    
    
    2,499Cash and cash equivalents at beginning of period
    
    
    10,191
    
    
    
    12,025Cash and cash equivalents at end of period
    
    $
    14,271
    
    
    $
    14,524Cash paid during the period for:Interest
    
    $
    37,985
    
    
    $
    46,247Income taxes
    
    $
    8,221
    
    
    $
    8,379
   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, 2009
 Business Combinations Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise From Contingencies FASB Accounting Standards
Codification TM
 Accounting
for Defensive Intangible Assets
 Determination of the Useful Life of
Intangible Assets No. FAS 142-3),
  7




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##### Table of Contents



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
 Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 Determining Whether an Instrument (or an
Embedded Feature) Is Indexed to an Entitys Own Stock
 Equity Method Investment Accounting
Considerations
 Employers Disclosures About
Postretirement Benefit Plan Assets
  8




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##### Table of Contents



Fair Value
Measurements Effective Date of FASB Statement No. 157
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities
 Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly No. FAS 157-4),
 Interim Disclosures about
Fair Value of Financial Instruments
 Recognition and
Presentation of Other-Than-Temporary Impairments
 Subsequent Events
 Topic 105
 Generally Accepted Accounting Principles
 Fair Value Measurements and Disclosures 
Measuring Liabilities at Fair Value
  9




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##### Table of Contents



3. Newly Issued Accounting Pronouncements
 Accounting for Transfers of Financial Assets
 an amendment of FASB Statement No. 140
 Amendments to FASB Interpretation No. 46(R)
 4. Inventories
  September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Raw materials
    
    $
    52,245
    
    
    $
    82,837Work in process
    
    
    38,578
    
    
    
    43,224Finished goods
    
    
    90,426
    
    
    
    130,350Total
    
    $
    181,249
    
    
    $
    256,411
  5. Property, Plant and Equipment
  6. Goodwill and Other Intangible Assets
  (Dollars inthousands)Balance at December 31, 2008
    
    $
    229,665Impairment
    
    
    (8,225
    )Currency translation adjustments
    
    
    963Balance at September 30, 2009
    
    $
    222,403
  10




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Patents
    
    $
    5,851
    
    
    $
    5,775Other
    
    
    14,492
    
    
    
    14,451Total gross amortizable intangible assets
    
    
    20,343
    
    
    
    20,226Accumulated amortization
    
    
    (9,301
    )
    
    
    (8,473
    )Amortizable intangible assets, net
    
    $
    11,042
    
    
    $
    11,753
        11




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##### Table of Contents



7. Financing and Long-term Debt
  September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Loans payable to banks
    
    $
    5,445
    
    
    $
    4,754Accounts receivable asset securitization
program
    
    
    28,557
    
    
    
    Current portion of long-term debt
    
    
    4,489
    
    
    
    4,129Total
    
    $
    38,491
    
    
    $
    8,883
  September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)$172.5 million 6.50% Convertible Senior
Notes, net of unamortized discounts
    
    $
    156,004
    
    
    $
    153,451Revolving credit facility
    
    
    131,400
    
    
    
    111,803Term loan facility
    
    
    290,211
    
    
    
    292,498Capitalized lease obligations
    
    
    6,637
    
    
    
    6,447Other notes
    
    
    2,773
    
    
    
    1,543587,025
    
    
    
    565,742Less current portion
    
    
    (4,489
    )
    
    
    (4,129
    )Total
    
    $
    582,536
    
    
    $
    561,613
 6.50% Convertible Senior Notes
     12




---



##### Table of Contents



Revolving Credit and Term Loan Facilities
  
    
    Increase the interest rates and commitment fees payable thereunder pursuant to a grid
structure based on our leverage ratio,
 
    
    Increase the maximum permitted quarterly leverage ratio and decrease the minimum
permitted quarterly fixed charge coverage ratio,
 
    
    Add a minimum cumulative EBITDA requirement for each quarter in 2009,
 
    
    Restrict the Companys ability to engage in acquisitions and make investments,
 
    
    Limit the amount of cash and cash equivalent collateral the Company is permitted to
deliver to participants in our precious metals program to secure our obligations arising
under the precious metals consignment agreements,
 
    
    Require additional financial reporting by the Company to the lenders,
 
    
    Increase the amount of the annual excess cash flow required to be used to repay term
loans,
 
    
    Require application of the net proceeds of certain dispositions, but excluding the first
$20 million of such net proceeds, to be applied to repay debt outstanding under the
revolving credit facility and term loans and to permanently reduce availability under the
revolving loan facility on a dollar for dollar basis, provided that we are not required to
reduce the commitments under the revolving credit facility to below $150 million,
 
    
    Eliminate our ability to request an increase of $50 million in the revolving credit
facility,
 
    
    Add provisions governing the obligations of the Company and the lenders if one or more
lenders under the revolving credit facility fails to satisfy its funding obligations or
otherwise becomes a defaulting lender, and
 
    
    Restrict our ability to make payments with respect to our capital securities. The 2009
Amended Credit Facility effectively prohibits us from paying dividends on our preferred and
common stock beginning in the second quarter of 2009.
   13




---



##### Table of Contents



Receivable Sales Programs
      14




---



##### Table of Contents



(Dollars inthousands)Trade accounts receivable sold to FFC
    
    $
    840,151Cash proceeds from FFC
    
    
    840,405Trade accounts receivable collected and remitted to FFC and the conduits
    
    
    820,027Servicing fees from FFC
    
    
    444
   2009
    
    
    2008(Dollars in thousands)Trade accounts receivable sold to financial institutions
    
    $
    84,675
    
    
    $
    186,054Cash proceeds from financial institutions
    
    
    93,853
    
    
    
    184,628Trade accounts receivable collected and remitted to financial institutions
for programs where we provide collection and administrative services
    
    
    27,394
    
    
    
    60,863
 8. Financial Instruments
  
    
    Cash and cash equivalents;
 
    
    Notes receivable;
 
    
    Deposits;
 
    
    Miscellaneous receivables; and
 
    
    Short-term loans payable to banks.
 Long-term Debt
  September 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(Dollars in thousands)$172.5 million 6.50% Convertible Senior Notes
    
    $
    156,004
    
    
    $
    150,705
    
    
    $
    153,451
    
    
    $
    84,725Revolving credit facility
    
    
    131,400
    
    
    
    126,102
    
    
    
    111,803
    
    
    
    88,757Term loan facility
    
    
    290,211
    
    
    
    275,221
    
    
    
    292,498
    
    
    
    225,731Other notes
    
    
    2,773
    
    
    
    1,752
    
    
    
    1,543
    
    
    
    975
  15




---



##### Table of Contents



Derivative Instruments
  Interest rate swaps.
 Foreign currency forward contracts.
 Raw material commodity swaps.
 Precious metals forward contracts.
  16




---



##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008
    
    
    Balance Sheet Location(Dollars in thousands)Derivatives designated as hedging instruments:Asset derivatives:Raw material commodity swaps
    
    $
    42
    
    
    $
    
    
    
    Other receivablesLiability derivatives:Interest rate swaps
    
    $
    (10,352
    )
    
    $
    (12,724
    )
    
    Other non-current liabilitiesRaw material commodity swaps
    
    
    
    
    
    
    (576
    )
    
    Accrued expenses and other current liabilitiesTotal fair value
    
    $
    (10,352
    )
    
    $
    (13,300
    )Derivatives not designated as hedging
instruments:Asset derivatives:Foreign currency forward contracts
    
    $
    
    
    
    $
    1,621
    
    
    Other receivablesForeign currency forward contracts
    
    
    956
    
    
    
    230
    
    
    Accrued expenses and other current liabilitiesPrecious metals forward contracts
    
    
    
    
    
    
    8
    
    
    Other receivablesTotal fair value
    
    $
    956
    
    
    $
    1,859Liability derivatives:Foreign currency forward contracts
    
    $
    
    
    
    $
    (1,140
    )
    
    Other receivablesForeign currency forward contracts
    
    
    (1,650
    )
    
    
    (807
    )
    
    Accrued expenses and other current liabilitiesTotal fair value
    
    $
    (1,650
    )
    
    $
    (1,947
    )
  17




---



##### Table of Contents



September 30, 2009
    
    
    December 31,Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    2008(Dollars in thousands)AssetsForeign currency forward
contracts
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    480Raw material commodity swaps
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    42
    
    
    
    Precious metals forward contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Total fair value
    
    $
    
    
    
    $
    42
    
    
    $
    
    
    
    $
    42
    
    
    $
    488LiabilitiesInterest rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    (10,352
    )
    
    $
    (10,352
    )
    
    $
    (12,724
    )Foreign currency forward
contracts
    
    
    
    
    
    
    (694
    )
    
    
    
    
    
    
    (694
    )
    
    
    (576
    )Raw material commodity swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (576
    )Total fair value
    
    $
    
    
    
    $
    (694
    )
    
    $
    (10,352
    )
    
    $
    (11,046
    )
    
    $
    (13,876
    )
  Three
    
    
    Ninemonths endedSeptember 30, 2009(Dollars in thousands)Beginning balance
    
    $
    (9,425
    )
    
    $
    Total losses included in other comprehensive income
    
    
    (2,827
    )
    
    
    (1,802
    )Settlements
    
    
    1,900
    
    
    
    3,544Transfers in and/or out of Level 3
    
    
    
    
    
    
    (12,094
    )Ending balance
    
    $
    (10,352
    )
    
    $
    (10,352
    )
  18




---



##### Table of Contents



Amount of Gain (Loss)Amount of Gain (Loss)
    
    
    Reclassified from AOCI
    
    
    Location of Gain (Loss)Recognized in OCI
    
    
    into Income
    
    
    Reclassified from2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    AOCI into Income(Dollars in thousands)Derivatives in Cash
Flow Hedging
Relationships:Interest rate swaps
    
    $
    (2,708
    )
    
    $
    (1,707
    )
    
    $
    (5,080
    )
    
    $
    (2,415
    )
    
    Interest expenseRaw material commodity swaps
    
    
    56
    
    
    
    (1,681
    )
    
    
    (1,108
    )
    
    
    (2,420
    )
    
    Cost of salesTotal
    
    $
    (2,652
    )
    
    $
    (3,388
    )
    
    $
    (6,188
    )
    
    $
    (4,835
    )
 Amount of Gain (Loss)Recognized in Income
    
    
    Location of Gain (Loss)2009
    
    
    2008
    
    
    in Income(Dollars in thousands)Derivatives Not Designated as Hedging
Instruments:Foreign currency forward contracts
    
    $
    (12,970
    )
    
    $
    2,925
    
    
    Foreign currency gains (losses), netPrecious metals forward contracts
    
    
    16
    
    
    
    1,593
    
    
    Cost of salesPrecious metals forward contracts
    
    
    (8
    )
    
    
    (747
    )
    
    Miscellaneous income (expense), netTotal
    
    $
    (12,962
    )
    
    $
    3,771
 9. Income Taxes
     19




---



##### Table of Contents



10. Contingent Liabilities
    11. Retirement Benefits
  U.S. Pension Plans
    
    
    Non-U.S. Pension Plans
    
    
    Other Benefit Plans2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Components of net periodic cost:Service cost
    
    $
    7
    
    
    $
    50
    
    
    $
    1,095
    
    
    $
    1,308
    
    
    $
    4
    
    
    $
    16Interest cost
    
    
    5,235
    
    
    
    5,177
    
    
    
    2,743
    
    
    
    2,955
    
    
    
    719
    
    
    
    731Expected return on plan assets
    
    
    (3,863
    )
    
    
    (5,663
    )
    
    
    (1,841
    )
    
    
    (2,148
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    24
    
    
    
    25
    
    
    
    (107
    )
    
    
    29
    
    
    
    (437
    )
    
    
    (411
    )Net amortization and deferral
    
    
    3,845
    
    
    
    624
    
    
    
    274
    
    
    
    53
    
    
    
    
    
    
    
    Curtailment and settlement effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    5,248
    
    
    $
    213
    
    
    $
    2,164
    
    
    $
    2,064
    
    
    $
    286
    
    
    $
    336
  20




---



##### Table of Contents



U.S. Pension Plans
    
    
    Non-U.S. Pension Plans
    
    
    Other Benefit Plans2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Components of net periodic cost:Service cost
    
    $
    22
    
    
    $
    150
    
    
    $
    3,143
    
    
    $
    4,366
    
    
    $
    11
    
    
    $
    48Interest cost
    
    
    15,707
    
    
    
    15,531
    
    
    
    7,839
    
    
    
    8,934
    
    
    
    2,158
    
    
    
    2,193Expected return on plan assets
    
    
    (11,590
    )
    
    
    (16,989
    )
    
    
    (5,254
    )
    
    
    (6,484
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    73
    
    
    
    75
    
    
    
    (305
    )
    
    
    78
    
    
    
    (1,311
    )
    
    
    (1,233
    )Net amortization and deferral
    
    
    11,535
    
    
    
    1,872
    
    
    
    780
    
    
    
    165
    
    
    
    
    
    
    
    Curtailment and settlement effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    15,747
    
    
    $
    639
    
    
    $
    6,203
    
    
    $
    6,926
    
    
    $
    858
    
    
    $
    1,008
  12. Stock-Based Compensation
  2009
    
    
    2008(Dollars in thousands)Stock options
    
    $
    1,356
    
    
    $
    1,753Performance shares
    
    
    35
    
    
    
    187Deferred stock units
    
    
    118
    
    
    
    411Restricted shares
    
    
    371
    
    
    
    307Total
    
    $
    1,880
    
    
    $
    2,658
  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 inthousands)
    
    
    (In years)Stock options
    
    
    676,700
    
    
    $
    0.49
    
    
    $
    335
    
    
    
    3.5Deferred stock units
    
    
    34,200
    
    
    
    1.33
    
    
    
    45
    
    
    
    0.4Restricted shares
    
    
    142,100
    
    
    
    1.37
    
    
    
    194
    
    
    
    2.4
  21




---



##### Table of Contents



Common Sharesin Treasury
    
    
    Paid-inShares
    
    
    Amount
    
    
    Capital(In thousands)Stock options
    
    
    
    
    
    $
    
    
    
    $
    1,356Performance shares, net
    
    
    181
    
    
    
    (594
    )
    
    
    439Deferred stock units
    
    
    (34
    )
    
    
    835
    
    
    
    (718
    )Directors deferred compensation
    
    
    
    
    
    
    (757
    )
    
    
    757Preferred stock conversions
    
    
    (1,070
    )
    
    
    23,394
    
    
    
    (21,389
    )Restricted shares
    
    
    (115
    )
    
    
    2,732
    
    
    
    (2,361
    )Total
    
    
    (1,038
    )
    
    $
    25,610
    
    
    $
    (21,916
    )
 13. Restructuring and Cost Reduction Programs
    Restructuring Program in Rotterdam, Netherlands
  Restructuring Program in Limoges, France
    22




---



##### Table of Contents



Restructuring Program in Nules, Spain
  Restructuring Program in Penn Yan, New York
 13 employees,
 Other Restructuring Programs
   EmployeeTermination
    
    
    OtherBenefits
    
    
    Costs
    
    
    Total(Dollars in thousands)Balance at December 31, 2008
    
    $
    1,206
    
    
    $
    5,102
    
    
    $
    6,308Restructuring charges
    
    
    5,222
    
    
    
    (1,291
    )
    
    
    3,931Cash payments
    
    
    (6,194
    )
    
    
    (2,470
    )
    
    
    (8,664
    )Currency translation adjustment
    
    
    (66
    )
    
    
    229
    
    
    
    163Non-cash items
    
    
    5
    
    
    
    
    
    
    
    5Balance at September 30, 2009
    
    $
    173
    
    
    $
    1,570
    
    
    $
    1,743
   23




---



##### Table of Contents



14. Discontinued Operations
  Three
    
    
    Ninemonths endedSeptember 30, 2008(Dollars in thousands)Net sales
    
    $
    18,438
    
    
    $
    53,276Cost of sales
    
    
    14,770
    
    
    
    41,144Gross profit
    
    
    3,668
    
    
    
    12,132Selling, general and administrative expenses
    
    
    1,332
    
    
    
    3,880Other expense:Interest expense
    
    
    422
    
    
    
    1,342Foreign currency transactions, net
    
    
    13
    
    
    
    13Miscellaneous expense, net
    
    
    41
    
    
    
    41Income from discontinued operations before income taxes
    
    
    1,860
    
    
    
    6,856Income tax expense
    
    
    601
    
    
    
    2,270Income from discontinued operations, net of income taxes
    
    $
    1,259
    
    
    $
    4,586
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Gain (loss) on disposal of discontinued operations
before income tax expense (benefit)
    
    $
    63
    
    
    $
    (94
    )
    
    $
    (519
    )
    
    $
    (120
    )Income tax expense (benefit)
    
    
    27
    
    
    
    (37
    )
    
    
    (197
    )
    
    
    (47
    )Gain (loss) on disposal of discontinued operations,
net of income tax expense (benefit)
    
    $
    36
    
    
    $
    (57
    )
    
    $
    (322
    )
    
    $
    (73
    )
   24




---



##### Table of Contents



15. Per Share Amounts from Continuing Operations
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands,except per share amounts)Basic earnings (loss) per share computation:Net income (loss) attributable to Ferro Corporation
common shareholders
    
    $
    1,949
    
    
    $
    4,385
    
    
    $
    (30,564
    )
    
    $
    22,440Adjustment for (income) loss from discontinued
operations
    
    
    (36
    )
    
    
    (1,202
    )
    
    
    322
    
    
    
    (4,513
    )$
    1,913
    
    
    $
    3,183
    
    
    $
    (30,242
    )
    
    $
    17,927Weighted-average common shares outstanding
    
    
    44,711
    
    
    
    43,636
    
    
    
    44,593
    
    
    
    43,638Basic earnings (loss) per share from continuing
operations
attributable to Ferro Corporation common shareholders
    
    $
    0.04
    
    
    $
    0.07
    
    
    $
    (0.68
    )
    
    $
    0.41Diluted earnings (loss) per share computation:Net income (loss) attributable to Ferro Corporation
common shareholders
    
    $
    1,949
    
    
    $
    4,385
    
    
    $
    (30,564
    )
    
    $
    22,440Adjustment for (income) loss from discontinued
operations
    
    
    (36
    )
    
    
    (1,202
    )
    
    
    322
    
    
    
    (4,513
    )Plus: Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,913
    
    
    $
    3,183
    
    
    $
    (30,242
    )
    
    $
    17,927Weighted-average common shares outstanding
    
    
    44,711
    
    
    
    43,636
    
    
    
    44,593
    
    
    
    43,638Assumed exercise of stock options
    
    
    265
    
    
    
    161
    
    
    
    
    
    
    
    Assumed satisfaction of deferred stock unit conditions
    
    
    20
    
    
    
    20
    
    
    
    
    
    
    
    11Assumed conversion of convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assumed conversion of convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average diluted shares outstanding
    
    
    44,996
    
    
    
    43,817
    
    
    
    44,593
    
    
    
    43,649Diluted earnings (loss) per share from continuing
operations
attributable to Ferro Corporation common shareholders
    
    $
    0.04
    
    
    $
    0.07
    
    
    $
    (0.68
    )
    
    $
    0.41
  25




---



##### Table of Contents



16. Comprehensive Income (Loss)
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Net income (loss)
    
    $
    2,845
    
    
    $
    5,058
    
    
    $
    (28,314
    )
    
    $
    24,501Other comprehensive income (loss), net of tax:Foreign currency translation adjustments
    
    
    12,567
    
    
    
    (36,255
    )
    
    
    17,540
    
    
    
    (14,724
    )Postretirement benefit liability adjustments
    
    
    (498
    )
    
    
    3,090
    
    
    
    163
    
    
    
    2,676Raw material commodity swap adjustments
    
    
    18
    
    
    
    (1
    )
    
    
    577
    
    
    
    454Interest rate swap adjustments
    
    
    (598
    )
    
    
    (150
    )
    
    
    1,527
    
    
    
    456Comprehensive income (loss)
    
    
    14,334
    
    
    
    (28,258
    )
    
    
    (8,507
    )
    
    
    13,363Less: Comprehensive income attributable to
noncontrolling interests
    
    
    731
    
    
    
    454
    
    
    
    1,711
    
    
    
    1,676Comprehensive income (loss) attributable to
Ferro Corporation
    
    $
    13,603
    
    
    $
    (28,712
    )
    
    $
    (10,218
    )
    
    $
    11,687
 17. Reporting for Segments
    Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Performance Coatings
    
    $
    129,499
    
    
    $
    162,523
    
    
    $
    355,420
    
    
    $
    501,819Electronic Materials
    
    
    113,210
    
    
    
    155,122
    
    
    
    296,269
    
    
    
    452,317Color and Glass Performance Materials
    
    
    88,498
    
    
    
    115,013
    
    
    
    232,264
    
    
    
    374,083Polymer Additives
    
    
    67,660
    
    
    
    93,081
    
    
    
    190,105
    
    
    
    284,107Specialty Plastics
    
    
    39,040
    
    
    
    58,097
    
    
    
    110,833
    
    
    
    183,499Pharmaceuticals
    
    
    4,182
    
    
    
    6,314
    
    
    
    14,284
    
    
    
    17,139Total net sales
    
    $
    442,089
    
    
    $
    590,150
    
    
    $
    1,199,175
    
    
    $
    1,812,964
  26




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Performance Coatings
    
    $
    14,518
    
    
    $
    12,135
    
    
    $
    20,144
    
    
    $
    34,400Electronic Materials
    
    
    13,129
    
    
    
    17,095
    
    
    
    21,933
    
    
    
    43,527Color and Glass Performance Materials
    
    
    7,815
    
    
    
    9,712
    
    
    
    7,583
    
    
    
    40,695Polymer Additives
    
    
    4,386
    
    
    
    4,385
    
    
    
    7,863
    
    
    
    11,703Specialty Plastics
    
    
    2,977
    
    
    
    2,796
    
    
    
    7,148
    
    
    
    7,520Pharmaceuticals
    
    
    (1,316
    )
    
    
    656
    
    
    
    (989
    )
    
    
    199Total segment income
    
    
    41,509
    
    
    
    46,779
    
    
    
    63,682
    
    
    
    138,044Unallocated corporate expenses
    
    
    14,258
    
    
    
    13,379
    
    
    
    46,564
    
    
    
    33,705Impairment charges
    
    
    8,225
    
    
    
    
    
    
    
    8,225
    
    
    
    Restructuring charges
    
    
    2,842
    
    
    
    9,042
    
    
    
    3,931
    
    
    
    22,280Interest expense
    
    
    17,891
    
    
    
    12,424
    
    
    
    46,255
    
    
    
    38,747Other expense, net
    
    
    (767
    )
    
    
    7,202
    
    
    
    2,543
    
    
    
    9,034(Loss) income before income taxes from
continuing operations
    
    $
    (940
    )
    
    $
    4,732
    
    
    $
    (43,836
    )
    
    $
    34,278
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)United States
    
    $
    198,521
    
    
    $
    270,541
    
    
    $
    549,538
    
    
    $
    777,036Spain
    
    
    66,249
    
    
    
    90,459
    
    
    
    188,465
    
    
    
    290,353Other international
    
    
    177,319
    
    
    
    229,150
    
    
    
    461,172
    
    
    
    745,575Total net sales
    
    $
    442,089
    
    
    $
    590,150
    
    
    $
    1,199,175
    
    
    $
    1,812,964
 18. Subsequent Event
    27




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  1
percentage
        Outlook
   28




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Results of Operations
 Comparison of the three months ended September 30, 2009 and 2008
 Three months endedSeptember 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands,except per share amounts)Net sales
    
    $
    442,089
    
    
    $
    590,150
    
    
    $
    (148,061
    )
    
    
    (25.1
    %)Cost of sales
    
    
    348,920
    
    
    
    479,807
    
    
    
    (130,887
    )
    
    
    (27.3
    %)Gross profit
    
    
    93,169
    
    
    
    110,343
    
    
    
    (17,174
    )
    
    
    (15.6
    %)Gross profit percentage
    
    
    21.1
    %
    
    
    18.7
    %Selling, general and administrative expenses
    
    
    65,918
    
    
    
    76,943
    
    
    
    (11,025
    )
    
    
    (14.3
    %)Impairment charges
    
    
    8,225
    
    
    
    
    
    
    
    8,225
    
    
    
    Restructuring charges
    
    
    2,842
    
    
    
    9,042
    
    
    
    (6,200
    )
    
    
    (68.6
    %)Other expense (income):Interest expense
    
    
    17,891
    
    
    
    12,424
    
    
    
    5,467
    
    
    
    44.0
    %Interest earned
    
    
    (216
    )
    
    
    (213
    )
    
    
    (3
    )
    
    
    1.4
    %Loss on extinguishment of debt
    
    
    
    
    
    
    5,531
    
    
    
    (5,531
    )
    
    
    100.0
    %Foreign currency losses, net
    
    
    104
    
    
    
    1,647
    
    
    
    (1,543
    )
    
    
    (93.7
    %)Miscellaneous (income) expense, net
    
    
    (655
    )
    
    
    237
    
    
    
    (892
    )
    
    
    (376.4
    %)(Loss) income before income taxes
    
    
    (940
    )
    
    
    4,732
    
    
    
    (5,672
    )
    
    
    (119.9
    %)Income tax (benefit) expense
    
    
    (3,749
    )
    
    
    876
    
    
    
    (4,625
    )
    
    
    (528.0
    %)Income from continuing operations
    
    
    2,809
    
    
    
    3,856
    
    
    
    (1,047
    )
    
    
    (27.2
    %)Income from discontinued operations, including disposal,
net of income tax
    
    
    36
    
    
    
    1,202
    
    
    
    (1,166
    )
    
    
    (97.0
    %)Net income
    
    $
    2,845
    
    
    $
    5,058
    
    
    $
    (2,213
    )
    
    
    (43.8
    %)Diluted earnings per share
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    (0.06
    )
    
    
    (60.0
    %)
  29




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30




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Three months endedSeptember 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Segment SalesPerformance Coatings
    
    $
    129,499
    
    
    $
    162,523
    
    
    $
    (33,024
    )
    
    
    (20.3
    %)Electronic Materials
    
    
    113,210
    
    
    
    155,122
    
    
    
    (41,912
    )
    
    
    (27.0
    %)Color & Glass Performance Materials
    
    
    88,498
    
    
    
    115,013
    
    
    
    (26,515
    )
    
    
    (23.1
    %)Polymer Additives
    
    
    67,660
    
    
    
    93,081
    
    
    
    (25,421
    )
    
    
    (27.3
    %)Specialty Plastics
    
    
    39,040
    
    
    
    58,097
    
    
    
    (19,057
    )
    
    
    (32.8
    %)Pharmaceuticals
    
    
    4,182
    
    
    
    6,314
    
    
    
    (2,132
    )
    
    
    (33.8
    %)Total segment sales
    
    $
    442,089
    
    
    $
    590,150
    
    
    $
    (148,061
    )
    
    
    (25.1
    %)Segment Operating Income (Loss)Performance Coatings
    
    $
    14,518
    
    
    $
    12,135
    
    
    $
    2,383
    
    
    
    19.6
    %Electronic Materials
    
    
    13,129
    
    
    
    17,095
    
    
    
    (3,966
    )
    
    
    (23.2
    %)Color & Glass Performance Materials
    
    
    7,815
    
    
    
    9,712
    
    
    
    (1,897
    )
    
    
    (19.5
    %)Polymer Additives
    
    
    4,386
    
    
    
    4,385
    
    
    
    1
    
    
    
    0.0
    %Specialty Plastics
    
    
    2,977
    
    
    
    2,796
    
    
    
    181
    
    
    
    6.5
    %Pharmaceuticals
    
    
    (1,316
    )
    
    
    656
    
    
    
    (1,972
    )
    
    
    (300.6
    %)Total segment operating income
    
    $
    41,509
    
    
    $
    46,779
    
    
    $
    (5,270
    )
    
    
    (11.3
    %)
 Performance Coatings Segment Results.
 Electronic Materials Segment Results.
  31




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Color and Glass Performance Materials Segment Results.
 Polymer Additives Segment Results.
 Specialty Plastics Segment Results.
 Pharmaceuticals Segment Results.
 Three months endedSeptember 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Geographic RevenuesUnited States
    
    $
    198,521
    
    
    $
    270,541
    
    
    $
    (72,020
    )
    
    
    (26.6
    %)International
    
    
    243,568
    
    
    
    319,609
    
    
    
    (76,041
    )
    
    
    (23.8
    %)Total
    
    $
    442,089
    
    
    $
    590,150
    
    
    $
    (148,061
    )
    
    
    (25.1
    %)
   32




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##### Table of Contents



Comparison of the nine months ended September 30, 2009 and 2008
 Nine months endedSeptember 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands,except per share amounts)Net sales
    
    $
    1,199,175
    
    
    $
    1,812,964
    
    
    $
    (613,789
    )
    
    
    (33.9
    %)Cost of sales
    
    
    985,531
    
    
    
    1,474,382
    
    
    
    (488,851
    )
    
    
    (33.2
    %)Gross profit
    
    
    213,644
    
    
    
    338,582
    
    
    
    (124,938
    )
    
    
    (36.9
    %)Gross profit percentage
    
    
    17.8
    %
    
    
    18.7
    %Selling, general and administrative expenses
    
    
    196,526
    
    
    
    234,243
    
    
    
    (37,717
    )
    
    
    (16.1
    %)Impairment charges
    
    
    8,225
    
    
    
    
    
    
    
    8,225
    
    
    
    Restructuring charges
    
    
    3,931
    
    
    
    22,280
    
    
    
    (18,349
    )
    
    
    (82.4
    %)Other expense (income):Interest expense
    
    
    46,255
    
    
    
    38,747
    
    
    
    7,508
    
    
    
    19.4
    %Interest earned
    
    
    (689
    )
    
    
    (484
    )
    
    
    (205
    )
    
    
    42.4
    %Loss on extinguishment of debt
    
    
    
    
    
    
    5,531
    
    
    
    (5,531
    )
    
    
    (100.0
    %)Foreign currency losses (gains), net
    
    
    3,033
    
    
    
    756
    
    
    
    2,277
    
    
    
    301.2
    %Miscellaneous expense, net
    
    
    199
    
    
    
    3,231
    
    
    
    (3,032
    )
    
    
    (93.8
    %)(Loss) income before income taxes
    
    
    (43,836
    )
    
    
    34,278
    
    
    
    (78,114
    )
    
    
    (227.9
    %)Income tax (benefit) expense
    
    
    (15,844
    )
    
    
    14,290
    
    
    
    (30,134
    )
    
    
    (210.9
    %)(Loss) income from continuing operations
    
    
    (27,992
    )
    
    
    19,988
    
    
    
    (47,980
    )
    
    
    (240.0
    %)(Loss) income from discontinued operations, including disposal,
net of income tax
    
    
    (322
    )
    
    
    4,513
    
    
    
    (4,835
    )
    
    
    (107.1
    %)Net (loss) income
    
    $
    (28,314
    )
    
    $
    24,501
    
    
    $
    (52,815
    )
    
    
    (215.6
    %)Diluted (loss) earnings per share
    
    $
    (0.69
    )
    
    $
    0.51
    
    
    $
    (1.20
    )
    
    
    (235.3
    %)
     33




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34




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##### Table of Contents



Nine months endedSeptember 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Segment SalesPerformance Coatings
    
    $
    355,420
    
    
    $
    501,819
    
    
    $
    (146,399
    )
    
    
    (29.2
    %)Electronic Materials
    
    
    296,269
    
    
    
    452,317
    
    
    
    (156,048
    )
    
    
    (34.5
    %)Color & Glass Performance Materials
    
    
    232,264
    
    
    
    374,083
    
    
    
    (141,819
    )
    
    
    (37.9
    %)Polymer Additives
    
    
    190,105
    
    
    
    284,107
    
    
    
    (94,002
    )
    
    
    (33.1
    %)Specialty Plastics
    
    
    110,833
    
    
    
    183,499
    
    
    
    (72,666
    )
    
    
    (39.6
    %)Pharmaceuticals
    
    
    14,284
    
    
    
    17,139
    
    
    
    (2,855
    )
    
    
    (16.7
    %)Total segment sales
    
    $
    1,199,175
    
    
    $
    1,812,964
    
    
    $
    (613,789
    )
    
    
    (33.9
    %)Segment Operating Income (Loss)Performance Coatings
    
    $
    20,144
    
    
    $
    34,400
    
    
    $
    (14,256
    )
    
    
    (41.4
    %)Electronic Materials
    
    
    21,933
    
    
    
    43,527
    
    
    
    (21,594
    )
    
    
    (49.6
    %)Color & Glass Performance Materials
    
    
    7,583
    
    
    
    40,695
    
    
    
    (33,112
    )
    
    
    (81.4
    %)Polymer Additives
    
    
    7,863
    
    
    
    11,703
    
    
    
    (3,840
    )
    
    
    (32.8
    %)Specialty Plastics
    
    
    7,148
    
    
    
    7,520
    
    
    
    (372
    )
    
    
    (4.9
    %)Pharmaceuticals
    
    
    (989
    )
    
    
    199
    
    
    
    (1,188
    )
    
    
    (597.0
    %)Total segment operating income
    
    $
    63,682
    
    
    $
    138,044
    
    
    $
    (74,362
    )
    
    
    (53.9
    %)
 Performance Coatings Segment Results.
 Electronic Materials Segment Results.
 Color and Glass Performance Materials Segment Results.
  35




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##### Table of Contents



Polymer Additives Segment Results.
 Specialty Plastics Segment Results.
 Pharmaceuticals Segment Results.
 Nine months endedSeptember 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Geographic RevenuesUnited States
    
    $
    549,538
    
    
    $
    777,036
    
    
    $
    (227,498
    )
    
    
    (29.3
    %)International
    
    
    649,637
    
    
    
    1,035,928
    
    
    
    (386,291
    )
    
    
    (37.3
    %)Total
    
    $
    1,199,175
    
    
    $
    1,812,964
    
    
    $
    (613,789
    )
    
    
    (33.9
    %)
  Summary of Cash Flows for the nine months ended September 30, 2009 and 2008
 Nine months endedSeptember 30,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Net cash (used for) provided by
operating activities
    
    $
    (5,769
    )
    
    $
    1,838
    
    
    $
    (7,607
    )
    
    
    (413.9
    %)Net cash used for investing activities
    
    
    (30,431
    )
    
    
    (54,283
    )
    
    
    23,852
    
    
    
    (43.9
    %)Net cash provided by financing activities
    
    
    37,183
    
    
    
    55,359
    
    
    
    (18,176
    )
    
    
    (32.8
    %)Effect of exchange rate changes on cash
and cash equivalents
    
    
    3,097
    
    
    
    (415
    )
    
    
    3,512
    
    
    
    (846.3
    %)Increase in cash and cash equivalents
    
    $
    4,080
    
    
    $
    2,499
    
    
    $
    1,581
    
    
    
    63.3
    %
  36




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##### Table of Contents



Capital Resources and Liquidity
 6.50% Convertible Senior Notes
  Revolving Credit and Term Loan Facility
  
    
    Increase the interest rates and commitment fees payable thereunder pursuant to a
grid structure based on our leverage ratio,
    
    Increase the maximum permitted quarterly leverage ratio and decrease the minimum
permitted quarterly fixed charge coverage ratio,
    
    Add a minimum cumulative EBITDA requirement for each quarter in 2009,
    
    Restrict the Companys ability to engage in acquisitions and make investments,
    
    Limit the amount of cash and cash equivalent collateral the Company is permitted
to deliver to participants in our precious metals program to secure our obligations arising
under the precious metals consignment agreements,
    
    Require additional financial reporting by the Company to the lenders,
    
    Increase the amount of the annual excess cash flow required to be used to repay
term loans,
    
    Require application of the net proceeds of certain dispositions, but excluding the
first $20 million of such net proceeds, to be applied to repay debt outstanding under the
revolving credit facility and term loans and to permanently reduce availability under the
revolving loan facility on a dollar for dollar basis, provided that we are not required to
reduce the commitments under the revolving credit facility to below $150 million,
  37




---



##### Table of Contents




    
    Eliminate our ability to request an increase of $50 million in the revolving
credit facility,
    
    Add provisions governing the obligations of the Company and the lenders if one or
more lenders under the revolving credit facility fails to satisfy its funding obligations
or otherwise becomes a defaulting lender, and
    
    Restrict our ability to make payments with respect to our capital securities. The
2009 Amended Credit Facility effectively prohibits us from paying dividends on our
preferred and common stock beginning in the second quarter of 2009.
       38




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##### Table of Contents



Domestic Receivable Sales Program
    Off Balance Sheet Arrangements
 International Receivable Sales Programs.
 Consignment and Customer Arrangements for Precious Metals.
   39




---



##### Table of Contents



Bank Guarantees and Standby Letters of Credit.
 Other Financing Arrangements
  Liquidity Requirement
      40




---



##### Table of Contents



Critical Accounting Policies and Their Application
  Newly Issued Accounting Pronouncements
 Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140
 Amendments to FASB Interpretation No. 46(R)
 Risk Factors
   41




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      42




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008(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
    
    $
    3,188
    
    
    $
    2,742Fixed-rate debt:Carrying amount
    
    $
    158,777
    
    
    $
    154,995Fair value
    
    $
    152,457
    
    
    $
    85,700Change in fair value from 1% increase in interest rate
    
    $
    (4,902
    )
    
    $
    (2,877
    )Change in fair value from 1% decrease in interest rate
    
    $
    5,102
    
    
    $
    3,003Interest rate swaps:Notional amount
    
    $
    150,000
    
    
    $
    150,000Carrying amount and fair value
    
    $
    (10,352
    )
    
    $
    (12,724
    )Change in fair value from 1% increase in interest rate
    
    $
    2,471
    
    
    $
    3,322Change in fair value from 1% decrease in interest rate
    
    $
    (2,516
    )
    
    $
    (3,401
    )Foreign currency forward contracts:Notional amount
    
    $
    190,205
    
    
    $
    156,840Carrying amount and fair value
    
    $
    (694
    )
    
    $
    (96
    )Change in fair value from 10% appreciation of U.S. dollar
    
    $
    2,786
    
    
    $
    2,523Change in fair value from 10% depreciation of U.S. dollar
    
    $
    (3,405
    )
    
    $
    (3,084
    )Raw material commodity swaps:Notional amount (in metric tons of base metals)
    
    
    75
    
    
    
    330Carrying amount and fair value
    
    $
    42
    
    
    $
    (576
    )Change in fair value from 10% change in forward prices
    
    $
    15
    
    
    $
    71Precious metals forward contracts:Notional amount (in troy ounces)
    
    
    
    
    
    
    129Carrying amount and fair value
    
    $
    
    
    
    $
    8Change in fair value from 10% change in forward prices
    
    $
    
    
    
    $
    11
  43




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   44




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
         45




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##### Table of Contents



Item 1A. Risk Factors
  
 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
   46




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##### Table of Contents



SIGNATURES
  Date: October 26, 2009
    FERRO CORPORATION
(Registrant)/s/ James F. KirschJames F. KirschChairman, President and Chief Executive Officer
(Principal Executive Officer)Date: October 26, 2009/s/ Sallie B. BaileySallie B. BaileyVice President and Chief Financial Officer
(Principal Financial Officer)  47




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##### Table of Contents



EXHIBIT INDEX
   3
    
    Articles of incorporation and by-laws
 3.1
    
    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 with the Ohio Secretary of State on December 29, 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
Corporation filed with the Ohio Secretary of State on June 23, 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 indentures
 4.1
    
    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 Contracts
 10.1
    
    Separation Agreement and Release between Ferro Corporation and Barry D. Russell (Reference is
made to Exhibit 10.1 to Ferro Corporations Current Report on Form 8-K, filed September 29,
2009, which Exhibit is incorporated here by reference.)
 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.
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