##### 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 March 31, 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
  YES þ NO o
 YES o NO o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 YES o NO 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 25Item 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 36Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 37Item 3 Defaults Upon Senior Securities
    
    Page 37Item 4 Submission of Matters to a Vote of Security Holders
    
    Page 37Item 5 Other Information
    
    Page 37Item 6 Exhibits
    
    Page 37Exhibit 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 endedMarch 31,2009
    
    
    2008(Dollars in thousands,except per share amounts)Net sales
    
    $
    357,809
    
    
    $
    590,838Cost of sales
    
    
    302,563
    
    
    
    481,573Gross profit
    
    
    55,246
    
    
    
    109,265Selling, general and administrative expenses
    
    
    68,128
    
    
    
    77,576Restructuring charges
    
    
    1,398
    
    
    
    4,207Other expense (income):Interest expense
    
    
    11,174
    
    
    
    13,555Interest earned
    
    
    (268
    )
    
    
    (129
    )Foreign currency losses (gains), net
    
    
    1,829
    
    
    
    (1,541
    )Miscellaneous expense, net
    
    
    533
    
    
    
    1,440(Loss) income before taxes
    
    
    (27,548
    )
    
    
    14,157Income tax (benefit) expense
    
    
    (7,819
    )
    
    
    6,226(Loss) income from continuing operations
    
    
    (19,729
    )
    
    
    7,931Income from discontinued operations, net of income taxes
    
    
    
    
    
    
    1,644Loss on disposal of discontinued operations, net of income taxes
    
    
    (242
    )
    
    
    (25
    )Net (loss) income
    
    
    (19,971
    )
    
    
    9,550Less: Net income attributable to noncontrolling interest
    
    
    364
    
    
    
    410Net
(loss) income attributable to Ferro Corporation
    
    
    (20,335
    )
    
    
    9,140Dividends on preferred stock
    
    
    (171
    )
    
    
    (227
    )Net
(loss) income available to Ferro Corporation common shareholders
    
    $
    (20,506
    )
    
    $
    8,913Amounts attributable to Ferro Corporation:(Loss) income from continuing operations, net of tax
    
    $
    (20,093
    )
    
    $
    7,521(Loss) income from discontinued operations, net of tax
    
    
    (242
    )
    
    
    1,619$
    (20,335
    )
    
    $
    9,140Per common share dataBasic and diluted (loss) earnings attributable to Ferro
Corporation common shareholders:From continuing operations
    
    $
    (0.46
    )
    
    $
    0.17From discontinued operations
    
    
    0.00
    
    
    
    0.04$
    (0.46
    )
    
    $
    0.21Cash dividends declared
    
    $
    0.01
    
    
    $
    0.145
   3




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Balance Sheets
 March 31,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)ASSETSCurrent assetsCash and cash equivalents
    
    $
    15,071
    
    
    $
    10,191Accounts and trade notes receivable, net
    
    
    271,223
    
    
    
    296,423Inventories
    
    
    202,989
    
    
    
    256,411Deposits for precious metals
    
    
    65,472
    
    
    
    Deferred income taxes
    
    
    17,710
    
    
    
    19,167Other receivables
    
    
    47,130
    
    
    
    58,391Other current assets
    
    
    8,869
    
    
    
    8,306Total current assets
    
    
    628,464
    
    
    
    648,889Other assetsProperty, plant and equipment, net
    
    
    440,296
    
    
    
    456,549Goodwill
    
    
    229,245
    
    
    
    229,665Amortizable intangible assets, net
    
    
    11,446
    
    
    
    11,753Deferred income taxes
    
    
    137,057
    
    
    
    134,361Other non-current assets
    
    
    64,907
    
    
    
    62,900Total assets
    
    $
    1,511,415
    
    
    $
    1,544,117LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesLoans payable and current portion of long-term debt
    
    $
    9,806
    
    
    $
    8,883Accounts payable
    
    
    165,161
    
    
    
    232,113Income taxes
    
    
    12,270
    
    
    
    14,361Accrued payrolls
    
    
    19,444
    
    
    
    18,695Accrued expenses and other current liabilities
    
    
    62,404
    
    
    
    83,012Total current liabilities
    
    
    269,085
    
    
    
    357,064Other liabilitiesLong-term debt, less current portion
    
    
    654,817
    
    
    
    561,613Postretirement and pension liabilities
    
    
    219,133
    
    
    
    221,110Deferred income taxes
    
    
    13,351
    
    
    
    13,011Other non-current liabilities
    
    
    32,701
    
    
    
    34,047Total liabilities
    
    
    1,189,087
    
    
    
    1,186,845Series A convertible preferred stock (approximates redemption value)
    
    
    9,776
    
    
    
    11,548Shareholders equityFerro Corporation shareholders equity:Common stock
    
    
    52,323
    
    
    
    52,323Paid-in capital
    
    
    155,428
    
    
    
    178,420Retained earnings
    
    
    380,243
    
    
    
    401,186Accumulated other comprehensive loss
    
    
    (113,477
    )
    
    
    (98,436
    )Common shares in treasury, at cost
    
    
    (172,108
    )
    
    
    (197,524
    )Total Ferro Corporation shareholders equity
    
    
    302,409
    
    
    
    335,969Noncontrolling interest
    
    
    10,143
    
    
    
    9,755Total equity
    
    
    312,552
    
    
    
    345,724Total liabilities and shareholders equity
    
    $
    1,511,415
    
    
    $
    1,544,117
   4




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Statement 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)
    
    
    Interest
    
    
    Equity(In thousands, except per share data)Balances at December 31, 2008
    
    
    8,432
    
    
    $
    (197,524
    )
    
    $
    52,323
    
    
    $
    178,420
    
    
    $
    401,186
    
    
    $
    (98,436
    )
    
    $
    9,755
    
    
    $
    345,724Net (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,335
    )
    
    
    
    
    
    
    364
    
    
    
    (19,971
    )Other comprehensive income (loss),
net of tax:Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,668
    )
    
    
    4
    
    
    
    (17,664
    )Postretirement benefit
liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,797
    
    
    
    20
    
    
    
    1,817Raw material commodity swap
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    424
    
    
    
    
    
    
    
    424Interest rate swap adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    406
    
    
    
    
    
    
    
    406Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,988
    )Cash dividends:Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (437
    )
    
    
    
    
    
    
    
    
    
    
    (437
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (171
    )
    
    
    
    
    
    
    
    
    
    
    (171
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Stock-based compensation
transactions
    
    
    (1,197
    )
    
    
    25,416
    
    
    
    
    
    
    
    (22,993
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,423Balances at March 31, 2009
    
    
    7,235
    
    
    $
    (172,108
    )
    
    $
    52,323
    
    
    $
    155,428
    
    
    $
    380,243
    
    
    $
    (113,477
    )
    
    $
    10,143
    
    
    $
    312,552
   5




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##### Table of Contents



Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Statements of Cash Flows
 Three months endedMarch 31,2009
    
    
    2008(Dollars in thousands)Cash flows from operating activitiesNet (loss) income
    
    $
    (19,971
    )
    
    $
    9,550Depreciation and amortization
    
    
    18,609
    
    
    
    18,213Precious metals deposits
    
    
    (65,472
    )
    
    
    Accounts and trade notes receivable
    
    
    16,677
    
    
    
    (8,532
    )Inventories
    
    
    46,596
    
    
    
    (34,804
    )Accounts payable
    
    
    (67,001
    )
    
    
    27,815Other changes in current assets and liabilities, net
    
    
    (9,470
    )
    
    
    (68
    )Other adjustments, net
    
    
    2,738
    
    
    
    (1,375
    )Net cash (used for) provided by continuing operations
    
    
    (77,294
    )
    
    
    10,799Net cash (used for) provided by discontinued operations
    
    
    (245
    )
    
    
    139Net cash (used for) provided by operating activities
    
    
    (77,539
    )
    
    
    10,938Cash flows from investing activitiesCapital expenditures for property, plant and equipment of continuing operations
    
    
    (2,621
    )
    
    
    (14,426
    )Capital expenditures for property, plant and equipment of discontinued operations
    
    
    
    
    
    
    (836
    )Proceeds from sale of assets and businesses
    
    
    45
    
    
    
    148Net cash used for investing activities
    
    
    (2,576
    )
    
    
    (15,114
    )Cash flows from financing activitiesNet borrowings under short-term facilities
    
    
    964
    
    
    
    3,688Proceeds from revolving credit facility
    
    
    280,249
    
    
    
    180,276Principal payments on revolving credit facility
    
    
    (186,654
    )
    
    
    (171,878
    )Principal payments on term loan facility
    
    
    (762
    )
    
    
    (762
    )Debt issue costs
    
    
    (8,105
    )
    
    
    Cash dividends paid
    
    
    (608
    )
    
    
    (6,519
    )Other financing activities
    
    
    117
    
    
    
    (1,802
    )Net cash provided by financing activities
    
    
    85,201
    
    
    
    3,003Effect of exchange rate changes on cash and cash equivalents
    
    
    (206
    )
    
    
    543Increase (decrease) in cash and cash equivalents
    
    
    4,880
    
    
    
    (630
    )Cash and cash equivalents at beginning of period
    
    
    10,191
    
    
    
    12,025Cash and cash equivalents at end of period
    
    $
    15,071
    
    
    $
    11,395Cash paid during the period for:Interest
    
    $
    13,555
    
    
    $
    16,836Income taxes
    
    $
    3,895
    
    
    $
    4,178
   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 Three Months Ended March 31, 2009
 Business Combinations Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise From Contingencies
 Accounting
for Defensive Intangible Assets Accounting for the Impairment or Disposal of Long-Lived Assets Goodwill and Other Intangible Assets
 Determination of the Useful Life of
Intangible Assets
 Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51
  7




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##### Table of Contents



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 The Meaning of Indexed to a Companys Own Stock Accounting
for Derivative Instruments and Hedging Activitie
 Equity Method Investment Accounting
Considerations
 Employers Disclosures About
Postretirement Benefit Plan Assets
 Fair Value
Measurements Effective Date of FASB Statement No. 157
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities
  8




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##### Table of Contents



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
 Interim Disclosures about
Fair Value of Financial Instruments
 Recognition and
Presentation of Other-Than-Temporary Impairments
 3. Inventories
  March 31,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Raw materials
    
    $
    61,152
    
    
    $
    82,837Work in process
    
    
    36,227
    
    
    
    43,224Finished goods
    
    
    105,610
    
    
    
    130,350Total
    
    $
    202,989
    
    
    $
    256,411
  4. Property, Plant and Equipment
  5. Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets
  9




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##### Table of Contents



6. Financing and Long-term Debt
  March 31,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Loans payable to banks
    
    $
    5,698
    
    
    $
    4,754Current portion of long-term debt
    
    
    4,108
    
    
    
    4,129Total
    
    $
    9,806
    
    
    $
    8,883
  March 31,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)$172.5 million 6.50% Convertible Senior Notes, net of unamortized discounts
    
    $
    154,282
    
    
    $
    153,451Revolving credit facility
    
    
    205,398
    
    
    
    111,803Term loan facility
    
    
    291,736
    
    
    
    292,498Capitalized lease obligations
    
    
    6,973
    
    
    
    6,447Other notes
    
    
    536
    
    
    
    1,543658,925
    
    
    
    565,742Less current portion
    
    
    (4,108
    )
    
    
    (4,129
    )Total
    
    $
    654,817
    
    
    $
    561,613
 6.50% Convertible Senior Notes
   10




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##### 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.
  11




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##### Table of Contents



Receivable Sales Programs
     12




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##### Table of Contents



(Dollars in thousands)Trade accounts receivable sold to FFC
    
    $
    261,605Cash proceeds from FFC
    
    
    263,107Trade accounts receivable collected and remitted to FFC and the conduits
    
    
    250,429Servicing fees from FFC
    
    
    82
   2009
    
    
    2008(Dollars in thousands)Trade accounts receivable sold to financial institutions
    
    $
    23,217
    
    
    $
    65,543Cash proceeds from financial institutions
    
    
    30,138
    
    
    
    64,126Trade accounts receivable collected and remitted to financial institutions
for programs where we provide collection and administrative services
    
    
    10,572
    
    
    
    23,424
 7. Financial Instruments
  
    
    Cash and cash equivalents;
    
    Notes receivable;
    
    Deposits;
    
    Miscellaneous receivables; and
    
    Short-term loans payable to banks.
 Long-term Debt
  March 31, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(Dollars in thousands)$172.5 million 6.50% Convertible Senior Notes
    
    $
    154,282
    
    
    $
    57,668
    
    
    $
    153,451
    
    
    $
    84,725Revolving credit facility
    
    
    205,398
    
    
    
    182,119
    
    
    
    111,803
    
    
    
    88,757Term loan facility
    
    
    291,736
    
    
    
    253,819
    
    
    
    292,498
    
    
    
    225,731Other notes
    
    
    536
    
    
    
    339
    
    
    
    1,543
    
    
    
    975
  13




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##### Table of Contents



Derivative Instruments
  Interest rate swaps.
 Raw material commodity swaps.
 Foreign currency forward contracts.
 Precious metals forward contracts.
  14




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##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008
    
    
    Balance Sheet Location(Dollars in thousands)Derivatives designated as
hedging instruments:Liability derivatives:Interest rate swaps
    
    $
    (12,094
    )
    
    $
    (12,724
    )
    
    Other non-current liabilitiesRaw material commodity swaps
    
    
    (65
    )
    
    
    (576
    )
    
    Accrued expenses and other current liabilitiesTotal fair value
    
    $
    (12,159
    )
    
    $
    (13,300
    )Derivatives not designated as
hedging instruments:Asset derivatives:Foreign currency forward contracts
    
    $
    
    
    
    $
    1,621
    
    
    Other receivablesForeign currency forward contracts
    
    
    469
    
    
    
    230
    
    
    Accrued expenses and other current liabilitiesPrecious metals forward contracts
    
    
    16
    
    
    
    8
    
    
    Other receivablesTotal fair value
    
    $
    485
    
    
    $
    1,859Liability derivatives:Foreign currency forward contracts
    
    $
    
    
    
    $
    (1,140
    )
    
    Other receivablesForeign currency forward contracts
    
    
    (2,389
    )
    
    
    (807
    )
    
    Accrued expenses and other current liabilitiesTotal fair value
    
    $
    (2,389
    )
    
    $
    (1,947
    )
  15




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##### Table of Contents



March 31, 2009
    
    
    December 31,Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    2008(Dollars in thousands)AssetsForeign currency forward
contracts
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    480Precious metals forward
contracts
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    8Total fair value
    
    $
    
    
    
    $
    16
    
    
    $
    
    
    
    $
    16
    
    
    $
    488LiabilitiesInterest rate swaps
    
    $
    
    
    
    $
    (12,094
    )
    
    $
    
    
    
    $
    (12,094
    )
    
    $
    (12,724
    )Foreign currency forward
contracts
    
    
    
    
    
    
    (1,920
    )
    
    
    
    
    
    
    (1,920
    )
    
    
    (576
    )Raw material commodity
swaps
    
    
    
    
    
    
    (65
    )
    
    
    
    
    
    
    (65
    )
    
    
    (576
    )Total fair value
    
    $
    
    
    
    $
    (14,079
    )
    
    $
    
    
    
    $
    (14,079
    )
    
    $
    (13,876
    )
  16




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##### Table of Contents



Amount of Gain (Loss)
    
    
    Location ofAmount of Gain (Loss)
    
    
    Reclassified from AOCI
    
    
    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
    
    $
    (906
    )
    
    $
    (4,317
    )
    
    $
    (1,536
    )
    
    $
    (275
    )
    
    Interest expenseRaw material commodity swaps
    
    
    (36
    )
    
    
    204
    
    
    
    (716
    )
    
    
    (1,146
    )
    
    Cost of salesTotal
    
    $
    (942
    )
    
    $
    (4,113
    )
    
    $
    (2,252
    )
    
    $
    (1,421
    )
 Amount of Gain (Loss)Recognized in Income
    
    
    Location of Gain (Loss)2009
    
    
    2008
    
    
    Recognized in Income(Dollars in thousands)Derivatives Not Designated as
Hedging Instruments:Foreign currency forward contracts
    
    $
    567
    
    
    $
    (1,140
    )
    
    Foreign currency gains (losses)Precious metals
forward contracts
    
    
    2
    
    
    
    1,408
    
    
    Cost of salesPrecious metals
forward contracts
    
    
    9
    
    
    
    (765
    )
    
    Miscellaneous income (expense), netTotal
    
    $
    578
    
    
    $
    (497
    )
 8. Income Taxes
     17




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##### Table of Contents



9. Contingent Liabilities
    10. 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
    
    
    $
    1,003
    
    
    $
    1,501
    
    
    $
    4
    
    
    $
    16Interest cost
    
    
    5,236
    
    
    
    5,177
    
    
    
    2,484
    
    
    
    2,939
    
    
    
    719
    
    
    
    731Expected return on plan assets
    
    
    (3,863
    )
    
    
    (5,663
    )
    
    
    (1,662
    )
    
    
    (2,133
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    24
    
    
    
    25
    
    
    
    (97
    )
    
    
    24
    
    
    
    (437
    )
    
    
    (411
    )Net amortization and deferral
    
    
    3,845
    
    
    
    624
    
    
    
    246
    
    
    
    57
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    5,249
    
    
    $
    213
    
    
    $
    1,974
    
    
    $
    2,388
    
    
    $
    286
    
    
    $
    336
   18




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##### Table of Contents



11. Stock-Based Compensation
  2009
    
    
    2008(Dollars in thousands)Stock options
    
    $
    535
    
    
    $
    486Performance shares
    
    
    35
    
    
    
    45Deferred stock units
    
    
    134
    
    
    
    127Restricted shares
    
    
    139
    
    
    
    41Total
    
    $
    843
    
    
    $
    699
  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
    
    
    
    4.0Deferred stock units
    
    
    34,200
    
    
    
    1.33
    
    
    
    45
    
    
    
    0.9Restricted shares
    
    
    142,100
    
    
    
    1.37
    
    
    
    194
    
    
    
    2.9
  Common Sharesin Treasury
    
    
    Paid-inShares
    
    
    Amount
    
    
    Capital(In thousands)Stock options
    
    
    
    
    
    $
    
    
    
    $
    535Performance shares, net
    
    
    1
    
    
    
    (15
    )
    
    
    (141
    )Deferred stock units
    
    
    (34
    )
    
    
    835
    
    
    
    (701
    )Directors deferred compensation
    
    
    
    
    
    
    (629
    )
    
    
    629Preferred stock conversions
    
    
    (1,029
    )
    
    
    22,354
    
    
    
    (20,583
    )Restricted shares
    
    
    (135
    )
    
    
    2,871
    
    
    
    (2,732
    )Total
    
    
    (1,197
    )
    
    $
    25,416
    
    
    $
    (22,993
    )
 12. Restructuring and Cost Reduction Programs
   19




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Restructuring Program in Rotterdam, Netherlands
  Restructuring Program in Limoges, France
    Other Restructuring Programs
   EmployeeTermination
    
    
    OtherBenefits
    
    
    Costs
    
    
    Total(Dollars in thousands)Balance, December 31, 2008
    
    $
    1,206
    
    
    $
    5,102
    
    
    $
    6,308Restructuring charges
    
    
    925
    
    
    
    473
    
    
    
    1,398Cash payments
    
    
    (1,781
    )
    
    
    (500
    )
    
    
    (2,281
    )Currency translation adjustment
    
    
    (53
    )
    
    
    (125
    )
    
    
    (178
    )Non-cash items
    
    
    5
    
    
    
    
    
    
    
    5Balance, March 31, 2009
    
    $
    302
    
    
    $
    4,950
    
    
    $
    5,252
   20




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##### Table of Contents



13. Discontinued Operations
  (Dollars in thousands)Net sales
    
    $
    16,418Cost of sales
    
    
    12,364Gross profit
    
    
    4,054Selling, general and administrative expenses
    
    
    1,081Other expense (income):Interest expense
    
    
    474Income from discontinued operations before income taxes
    
    
    2,499Income tax expense
    
    
    855Income from discontinued operations, net of income taxes
    
    $
    1,644
  Three months endedMarch 31,2009
    
    
    2008(Dollars in thousands)Loss on disposal of discontinued operations before income tax benefit
    
    $
    393
    
    
    $
    41Income tax benefit
    
    
    151
    
    
    
    16Loss on disposal of discontinued operations, net of income tax benefit
    
    $
    242
    
    
    $
    25
   21




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##### Table of Contents



14. Per Share Amounts from Continuing Operations
  Three months endedMarch 31,2009
    
    
    2008Basic earnings per share computation:Net
(loss) income available to Ferro Corporation common shareholders
    
    $
    (20,506
    )
    
    $
    8,913Adjustment for loss (income) from discontinued operations
    
    
    242
    
    
    
    (1,619
    )$
    (20,264
    )
    
    $
    7,294Weighted-average common shares outstanding
    
    
    44,366
    
    
    
    43,655Basic (loss) earnings per share from continuing operations
    
    $
    (0.46
    )
    
    $
    0.17Diluted earnings per share computation:Net
(loss) income available to Ferro Corporation common shareholders
    
    $
    (20,506
    )
    
    $
    8,913Adjustment for loss (income) from discontinued operations
    
    
    242
    
    
    
    (1,619
    )Plus: Convertible preferred stock
    
    
    
    
    
    
    $
    (20,264
    )
    
    $
    7,294Weighted-average common shares outstanding
    
    
    44,366
    
    
    
    43,655Assumed exercise of stock options
    
    
    
    
    
    
    Assumed satisfaction of deferred stock unit conditions
    
    
    
    
    
    
    3Assumed conversion of convertible notes
    
    
    
    
    
    
    Assumed conversion of convertible preferred stock
    
    
    
    
    
    
    Weighted-average diluted shares outstanding
    
    
    44,366
    
    
    
    43,658Diluted (loss) earnings per share from continuing operations
    
    $
    (0.46
    )
    
    $
    0.17
  22




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##### Table of Contents



15. Comprehensive Income (Loss)
  Three months endedMarch 31,2009
    
    
    2008(Dollars in thousands)Net (loss) income
    
    $
    (19,971
    )
    
    $
    9,550Other comprehensive income (loss), net of tax:Foreign currency translation adjustments
    
    
    (17,664
    )
    
    
    21,506Postretirement benefit liability adjustments
    
    
    1,817
    
    
    
    (376
    )Raw material commodity swap adjustments
    
    
    424
    
    
    
    848Interest rate swap adjustments
    
    
    406
    
    
    
    (2,603
    )Comprehensive (loss) income
    
    
    (34,988
    )
    
    
    28,925Less: Comprehensive income attributable to noncontrolling interests
    
    
    388
    
    
    
    386Comprehensive (loss) income attributable to Ferro Copororation
    
    $
    (35,376
    )
    
    $
    28,539
 16. Reporting for Segments
    Three months endedMarch 31,2009
    
    
    2008(Dollars in thousands)Performance Coatings
    
    $
    108,588
    
    
    $
    160,792Electronic Materials
    
    
    82,489
    
    
    
    140,993Color and Glass Performance Materials
    
    
    67,416
    
    
    
    128,840Polymer Additives
    
    
    59,447
    
    
    
    92,311Specialty Plastics
    
    
    34,859
    
    
    
    61,793Pharmaceuticals
    
    
    5,010
    
    
    
    6,109Total net sales
    
    $
    357,809
    
    
    $
    590,838
  23




---



##### Table of Contents



Three months endedMarch 31,2009
    
    
    2008(Dollars in thousands)Performance Coatings
    
    $
    (599
    )
    
    $
    9,480Electronic Materials
    
    
    2,417
    
    
    
    8,749Color and Glass Performance Materials
    
    
    (2,455
    )
    
    
    15,436Polymer Additives
    
    
    1,889
    
    
    
    2,719Specialty Plastics
    
    
    1,462
    
    
    
    1,487Pharmaceuticals
    
    
    113
    
    
    
    1,222Total segment income
    
    
    2,827
    
    
    
    39,093Unallocated corporate expenses
    
    
    15,709
    
    
    
    7,404Restructuring charges
    
    
    1,398
    
    
    
    4,207Other expense, net
    
    
    13,268
    
    
    
    13,325Income (loss) before income taxes from continuing operations
    
    $
    (27,548
    )
    
    $
    14,157
  Three months endedMarch 31,2009
    
    
    2008(Dollars in thousands)United States
    
    $
    170,054
    
    
    $
    241,133Spain
    
    
    59,311
    
    
    
    91,599Other international
    
    
    128,444
    
    
    
    258,106Total net sales
    
    $
    357,809
    
    
    $
    590,838
  24




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
         Outlook
     25




---



##### Table of Contents



Results of Operations
 Comparison of the three months ended March 31, 2009 and 2008
 Three months endedMarch 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands,except per share amounts)Net sales
    
    $
    357,809
    
    
    $
    590,838
    
    
    $
    (233,029
    )
    
    
    (39.4
    %)Cost of sales
    
    
    302,563
    
    
    
    481,573
    
    
    
    (179,010
    )
    
    
    (37.2
    %)Gross profit
    
    
    55,246
    
    
    
    109,265
    
    
    
    (54,019
    )
    
    
    (49.4
    %)Gross profit percentage
    
    
    15.4
    %
    
    
    18.5
    %Selling, general and administrative expenses
    
    
    68,128
    
    
    
    77,576
    
    
    
    (9,448
    )
    
    
    (12.2
    %)Restructuring charges
    
    
    1,398
    
    
    
    4,207
    
    
    
    (2,809
    )
    
    
    (66.8
    %)Other expense (income):Interest expense
    
    
    11,174
    
    
    
    13,555
    
    
    
    (2,381
    )
    
    
    (17.6
    %)Interest earned
    
    
    (268
    )
    
    
    (129
    )
    
    
    (139
    )
    
    
    107.8
    %Foreign currency losses (gains), net
    
    
    1,829
    
    
    
    (1,541
    )
    
    
    3,370
    
    
    
    (218.7
    %)Miscellaneous expense (income), net
    
    
    533
    
    
    
    1,440
    
    
    
    (907
    )
    
    
    (63.0
    %)(Loss) income before taxes
    
    
    (27,548
    )
    
    
    14,157
    
    
    
    (41,705
    )
    
    
    (294.6
    %)Income tax (benefit) expense
    
    
    (7,819
    )
    
    
    6,226
    
    
    
    (14,045
    )
    
    
    (225.6
    %)(Loss) income from continuing operations
    
    
    (19,729
    )
    
    
    7,931
    
    
    
    (27,660
    )
    
    
    (348.8
    %)(Loss) income from discontinued operations, net of tax
    
    
    (242
    )
    
    
    1,619
    
    
    
    (1,861
    )
    
    
    (114.9
    %)Net (loss) income
    
    $
    (19,971
    )
    
    $
    9,550
    
    
    $
    (29,521
    )
    
    
    (309.1
    %)Diluted (loss) earnings per share
    
    $
    (0.46
    )
    
    $
    0.21
    
    
    $
    (0.67
    )
    
    
    (319.0
    %)
     26




---



##### Table of Contents



Three months endedMarch 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Segment SalesPerformance Coatings
    
    $
    108,588
    
    
    $
    160,792
    
    
    $
    (52,204
    )
    
    
    (32.5
    %)Electronic Materials
    
    
    82,489
    
    
    
    140,993
    
    
    
    (58,504
    )
    
    
    (41.5
    %)Color & Glass Performance Materials
    
    
    67,416
    
    
    
    128,840
    
    
    
    (61,424
    )
    
    
    (47.7
    %)Polymer Additives
    
    
    59,447
    
    
    
    92,311
    
    
    
    (32,864
    )
    
    
    (35.6
    %)Specialty Plastics
    
    
    34,859
    
    
    
    61,793
    
    
    
    (26,934
    )
    
    
    (43.6
    %)Pharmaceuticals
    
    
    5,010
    
    
    
    6,109
    
    
    
    (1,099
    )
    
    
    (18.0
    %)Total segment sales
    
    $
    357,809
    
    
    $
    590,838
    
    
    $
    (233,029
    )
    
    
    (39.4
    %)Segment Operating Income (Loss)Performance Coatings
    
    $
    (599
    )
    
    $
    9,480
    
    
    $
    (10,079
    )
    
    
    (106.3
    %)Electronic Materials
    
    
    2,417
    
    
    
    8,749
    
    
    
    (6,332
    )
    
    
    (72.4
    %)Color & Glass Performance Materials
    
    
    (2,455
    )
    
    
    15,436
    
    
    
    (17,891
    )
    
    
    (115.9
    %)Polymer Additives
    
    
    1,889
    
    
    
    2,719
    
    
    
    (830
    )
    
    
    (30.5
    %)Specialty Plastics
    
    
    1,462
    
    
    
    1,487
    
    
    
    (25
    )
    
    
    (1.7
    %)Pharmaceuticals
    
    
    113
    
    
    
    1,222
    
    
    
    (1,109
    )
    
    
    (90.8
    %)Total segment operating income
    
    $
    2,827
    
    
    $
    39,093
    
    
    $
    (36,266
    )
    
    
    (92.8
    %)
 Performance Coatings Segment Results.
  27




---



##### Table of Contents



Electronic Materials Segment Results.
 Color and Glass Performance Materials Segment Results.
 Polymer Additives Segment Results.
 Specialty Plastics Segment Results.
 Pharmaceuticals Segment Results.
 Three months endedMarch 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Geographic RevenuesUnited States
    
    $
    170,054
    
    
    $
    241,133
    
    
    $
    (71,079
    )
    
    
    (29.5
    %)International
    
    
    187,755
    
    
    
    349,705
    
    
    
    (161,950
    )
    
    
    (46.3
    %)Total
    
    $
    357,809
    
    
    $
    590,838
    
    
    $
    (233,029
    )
    
    
    (39.4
    %)
   28




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##### Table of Contents



Summary of Cash Flows for the three months ended March 31, 2009 and 2008
 Three months endedMarch 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Net cash (used for) provided by
operating activities
    
    $
    (77,539
    )
    
    $
    10,938
    
    
    $
    (88,477
    )
    
    
    (808.9
    %)Net cash used for investing activities
    
    
    (2,576
    )
    
    
    (15,114
    )
    
    
    12,538
    
    
    
    (83.0
    %)Net cash provided by (used for)
financing activities
    
    
    85,201
    
    
    
    3,003
    
    
    
    82,198
    
    
    
    2,737.2
    %Effect of exchange rate changes on cash
and cash equivalents
    
    
    (206
    )
    
    
    543
    
    
    
    (749
    )
    
    
    (137.9
    %)Increase (decrease) in cash and cash equivalents
    
    $
    4,880
    
    
    $
    (630
    )
    
    $
    5,510
    
    
    
    (874.6
    %)
    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,
  29




---



##### Table of Contents




    
    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.
     30




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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.
   Bank Guarantees and Standby Letters of Credit.
  31




---



##### Table of Contents



Other Financing Arrangements
  Liquidity Requirement
    Critical Accounting Policies and Their Application
  Risk Factors
   32




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      33




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##### Table of Contents



March 31,
    
    
    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
    
    $
    3,616
    
    
    $
    2,742Fixed-rate debt:Carrying amount
    
    $
    154,818
    
    
    $
    154,995Fair value
    
    $
    58,007
    
    
    $
    85,700Change in fair value from 1% increase in interest rate
    
    $
    (1,677
    )
    
    $
    (2,877
    )Change in fair value from 1% decrease in interest rate
    
    $
    1,742
    
    
    $
    3,003Interest rate swaps:Notional amount
    
    $
    150,000
    
    
    $
    150,000Carrying amount and fair value
    
    $
    (12,094
    )
    
    $
    (12,724
    )Change in fair value from 1% increase in interest rate
    
    $
    3,038
    
    
    $
    3,322Change in fair value from 1% decrease in interest rate
    
    $
    (3,104
    )
    
    $
    (3,401
    )Foreign currency forward contracts:Notional amount
    
    $
    175,954
    
    
    $
    156,840Carrying amount and fair value
    
    $
    (1,920
    )
    
    $
    (96
    )Change in fair value from 10% appreciation of U.S. dollar
    
    $
    5,005
    
    
    $
    2,523Change in fair value from 10% depreciation of U.S. dollar
    
    $
    (6,117
    )
    
    $
    (3,084
    )Raw material commodity swaps:Notional amount (in metric tons of base metals)
    
    
    56
    
    
    
    330Carrying amount and fair value
    
    $
    (65
    )
    
    $
    (576
    )Change in fair value from 10% change in forward prices
    
    $
    12
    
    
    $
    71Precious metals forward contracts:Notional amount (in troy ounces)
    
    
    96
    
    
    
    129Carrying amount and fair value
    
    $
    16
    
    
    $
    8Change in fair value from 10% change in forward prices
    
    $
    9
    
    
    $
    11
  34




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   35




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
    
 Item 1A. Risk Factors
   36




---



##### 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
   37




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##### Table of Contents



SIGNATURES
  FERRO CORPORATION
(Registrant)Date: May 6, 2009
    /s/ James F. KirschJames F. KirschChairman, President and Chief Executive Officer

(Principal Executive Officer)Date: May 6, 2009
    /s/ Sallie B. BaileySallie B. BaileyVice President and Chief Financial Officer
(Principal Financial Officer)  38




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EXHIBIT INDEX
  Exhibit: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
    
    
    Fourth Amendment to Amended and Restated Credit Agreement, dated March 11, 2009, among Ferro
Corporation; Credit Suisse, Cayman Islands Branch, as term loan administrative agent; National
City Bank, as revolving loan administrative agent. (Reference is made to Exhibit 10.1 to
Ferro Corporations Current Report on Form 8-K, filed March 11, 2009, which Exhibit is
incorporated here by reference.)
  39




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##### Table of Contents



Exhibit:10.2
    
    
    Amended and Restated Employment Agreement, dated as of December 31, 2008, between Mr. Kirsch
and Ferro Corporation. (Reference is made to Exhibit 10.3 to Ferro Corporations Current
Report on Form 8-K, filed January 7, 2009, which Exhibit is incorporated here by reference.)*10.3
    
    
    Change in Control Agreement, dated as of January 1, 2009, between Mr. Kirsch and Ferro
Corporation. (Reference is made to Exhibit 10.1 to Ferro Corporations Current Report on
Form 8-K, filed January 7, 2009, which Exhibit is incorporated here by reference.)*10.4
    
    
    Form of Change in Control Agreement, dated as of January 1, 2009. (Sallie B. Bailey, Mark H.
Duesenberg, Ann E. Killian, Michael J. Murry, Barry D. Russell and Peter T. Thomas have
entered into this form of change in control
agreement.) (Reference is made to Exhibit 10.2 to Ferro Corporations Current Report on
Form 8-K, filed January 7, 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.
 
 *
    
    Indicates management contract or compensatory plan, contract or
arrangement in which one or more Directors and/or executives of Ferro
Corporation may be participants.  40