##### 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, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from

to
 Commission File Number 1-584
 FERRO CORPORATION
  Ohio
(State of Corporation)
    
    34-0217820
(IRS Employer Identification No.)1000 Lakeside Avenue 
Cleveland, OH
(Address of Principal executive offices)
    
    44114
(Zip Code)
 216-641-8580
 þ o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller
 reporting company in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



TABLE OF CONTENTS
  
 PART IItem 1     Financial Statements (Unaudited)
    
    Page   3Item 2     Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 19Item 3     Quantitative and Qualitative Disclosures about Market Risk
    
    Page 27Item 4     Controls and Procedures
    
    Page 29PART IIItem 1     Legal Proceedings
    
    Page 30Item 1A  Risk Factors
    
    Page 30Item 2     Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 30Item 3     Defaults Upon Senior Securities
    
    Page 30Item 4     Submission of Matters to a Vote of Security Holders
    
    Page 30Item 5     Other Information
    
    Page 30Item 6     Exhibits
    
    Page 30EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Statements of Income
 Three months endedMarch 31,2008
    
    
    2007(Dollars in thousands,except per share amounts)Net sales
    
    $
    607,256
    
    
    $
    529,705Cost of sales
    
    
    493,937
    
    
    
    422,925Gross profit
    
    
    113,319
    
    
    
    106,780Selling, general and administrative expenses
    
    
    78,657
    
    
    
    78,757Restructuring charges
    
    
    4,207
    
    
    
    1,531Other expense (income):Interest expense
    
    
    14,029
    
    
    
    17,446Interest earned
    
    
    (129
    )
    
    
    (965
    )Foreign currency (gains) losses, net
    
    
    (1,541
    )
    
    
    511Miscellaneous expense (income), net
    
    
    1,850
    
    
    
    (1,269
    )Income before taxes
    
    
    16,246
    
    
    
    10,769Income tax expense
    
    
    7,081
    
    
    
    4,534Income from continuing operations
    
    
    9,165
    
    
    
    6,235Loss from discontinued operations, net of tax
    
    
    25
    
    
    
    156Net income
    
    
    9,140
    
    
    
    6,079Dividends on preferred stock
    
    
    227
    
    
    
    286Net income available to common shareholders
    
    $
    8,913
    
    
    $
    5,793Per common share dataBasic earnings:From continuing operations
    
    $
    0.21
    
    
    $
    0.14From discontinued operations
    
    
    0.00
    
    
    
    0.00$
    0.21
    
    
    $
    0.14Diluted earnings:From continuing operations
    
    $
    0.21
    
    
    $
    0.14From discontinued operations
    
    
    0.00
    
    
    
    0.00$
    0.21
    
    
    $
    0.14Cash dividends declared
    
    $
    0.145
    
    
    $
    0.145
  3




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Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Balance Sheets
 March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)ASSETSCurrent assetsCash and cash equivalents
    
    $
    11,395
    
    
    $
    12,025Accounts and trade notes receivable, net
    
    
    269,696
    
    
    
    245,369Note receivable from Ferro Finance Corporation
    
    
    27,376
    
    
    
    29,577Inventories
    
    
    309,752
    
    
    
    262,799Deferred income taxes
    
    
    17,423
    
    
    
    15,764Other receivables
    
    
    48,264
    
    
    
    33,419Other current assets
    
    
    7,246
    
    
    
    8,239Total current assets
    
    
    691,152
    
    
    
    607,192Other assetsProperty, plant and equipment, net
    
    
    538,203
    
    
    
    519,959Goodwill
    
    
    290,299
    
    
    
    291,070Amortizable intangible assets, net
    
    
    8,964
    
    
    
    9,071Deferred income taxes
    
    
    101,896
    
    
    
    100,935Other non-current assets
    
    
    111,870
    
    
    
    110,033Total assets
    
    $
    1,742,384
    
    
    $
    1,638,260LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesLoans payable and current portion of long-term debt
    
    $
    15,744
    
    
    $
    5,444Accounts payable
    
    
    313,289
    
    
    
    269,591Income taxes
    
    
    14,260
    
    
    
    Accrued payrolls
    
    
    34,372
    
    
    
    26,415Accrued expenses and other current liabilities
    
    
    102,791
    
    
    
    108,882Total current liabilities
    
    
    480,456
    
    
    
    410,332Other liabilitiesLong-term debt, less current portion
    
    
    522,065
    
    
    
    520,645Postretirement and pension liabilities
    
    
    144,507
    
    
    
    140,988Deferred income taxes
    
    
    10,753
    
    
    
    9,848Other non-current liabilities
    
    
    62,634
    
    
    
    56,644Total liabilities
    
    
    1,220,415
    
    
    
    1,138,457Minority interests
    
    
    9,770
    
    
    
    9,896Series A convertible preferred stock (approximates redemption value)
    
    
    12,952
    
    
    
    13,623Shareholders equityCommon stock
    
    
    52,323
    
    
    
    52,323Paid-in capital
    
    
    164,034
    
    
    
    166,391Retained earnings
    
    
    470,306
    
    
    
    468,190Accumulated other comprehensive income (loss)
    
    
    12,000
    
    
    
    (7,765
    )Common shares in treasury, at cost
    
    
    (199,416
    )
    
    
    (202,855
    )Total shareholders equity
    
    
    499,247
    
    
    
    476,284Total liabilities and shareholders equity
    
    $
    1,742,384
    
    
    $
    1,638,260
  4




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Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Statement of Shareholders Equity and Comprehensive Income (Loss)
 Accumulated
    
    
    TotalCommon Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Share-in Treasury
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    holdersShares
    
    
    Amount
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Equity(In thousands)Balances at December 31, 2007
    
    
    8,753
    
    
    $
    (202,855
    )
    
    $
    52,323
    
    
    $
    166,391
    
    
    $
    468,190
    
    
    $
    (7,765
    )
    
    $
    476,284Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,140
    
    
    
    
    
    
    
    9,140Other comprehensive income, net of tax:Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,529
    
    
    
    21,529Postretirement benefit liability adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (375
    )
    
    
    (375
    )Raw material commodity swap
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    848
    
    
    
    848Interest rate swap adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,603
    )
    
    
    (2,603
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,539Cash dividends:Common
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,292
    )
    
    
    
    
    
    
    (6,292
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (227
    )
    
    
    
    
    
    
    (227
    )Income tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11Stock-based compensation transactions
    
    
    (216
    )
    
    
    3,439
    
    
    
    
    
    
    
    (2,368
    )
    
    
    
    
    
    
    
    
    
    
    1,071Adjustment to initially apply FAS No. 158
as of January 1, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (505
    )
    
    
    366
    
    
    
    (139
    )Balances at March 31, 2008
    
    
    8,537
    
    
    $
    (199,416
    )
    
    $
    52,323
    
    
    $
    164,034
    
    
    $
    470,306
    
    
    $
    12,000
    
    
    $
    499,247
  5




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Ferro Corporation and Consolidated Subsidiaries  Condensed Consolidated Statements of Cash Flows
 Three months endedMarch 31,2008
    
    
    2007(Dollars in thousands)Cash flows from operating activitiesNet income
    
    $
    9,140
    
    
    $
    6,079Depreciation and amortization
    
    
    19,036
    
    
    
    21,779Precious metals deposits
    
    
    
    
    
    
    69,673Accounts and trade notes receivable, inventories, and accounts payable
    
    
    (17,563
    )
    
    
    (20,036
    )Other changes in current assets and liabilities, net
    
    
    (77
    )
    
    
    (10,729
    )Other adjustments, net
    
    
    427
    
    
    
    (2,977
    )Net cash provided by continuing operations
    
    
    10,963
    
    
    
    63,789Net cash (used for) provided by discontinued operations
    
    
    (25
    )
    
    
    12Net cash provided by operating activities
    
    
    10,938
    
    
    
    63,801Cash flows from investing activitiesCapital expenditures for plant and equipment
    
    
    (15,262
    )
    
    
    (12,811
    )Proceeds from sale of assets and businesses
    
    
    148
    
    
    
    1,964Other investing activities
    
    
    
    
    
    
    158Net cash used for investing activities
    
    
    (15,114
    )
    
    
    (10,689
    )Cash flows from financing activitiesNet borrowings (repayments) under short term facilities
    
    
    3,688
    
    
    
    (5,983
    )Proceeds from revolving credit facility
    
    
    180,276
    
    
    
    190,034Proceeds from term loan facility
    
    
    
    
    
    
    55,000Principal payments on revolving credit facility
    
    
    (171,878
    )
    
    
    (290,601
    )Principal payments on term loan facility
    
    
    (762
    )
    
    
    Proceeds from exercise of stock options
    
    
    
    
    
    
    6,128Cash dividends paid
    
    
    (6,519
    )
    
    
    (6,529
    )Other financing activities
    
    
    (1,802
    )
    
    
    (863
    )Net cash provided by (used for) financing activities
    
    
    3,003
    
    
    
    (52,814
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    543
    
    
    
    258(Decrease) increase in cash and cash equivalents
    
    
    (630
    )
    
    
    556Cash and cash equivalents at beginning of period
    
    
    12,025
    
    
    
    16,985Cash and cash equivalents at end of period
    
    $
    11,395
    
    
    $
    17,541Cash paid during the period for:Interest
    
    $
    16,836
    
    
    $
    20,173Income taxes
    
    $
    4,178
    
    
    $
    3,698
  6




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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, 2008
 Fair Value Measurements Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement Under Statement 13 Effective Date of FASB Statement No. 157 Accounting for Leases
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of
FASB Statements No. 87, 88, 106, and 132(R)
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards
 7




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3. Newly Issued Accounting Pronouncements
 Business Combinations Noncontrolling Interests in Consolidated Financial Statements 
an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
 4. Inventories
  March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Raw materials
    
    $
    91,849
    
    
    $
    74,659Work in process
    
    
    49,158
    
    
    
    41,640Finished goods
    
    
    168,745
    
    
    
    146,500Total
    
    $
    309,752
    
    
    $
    262,799
  5. Property, Plant and Equipment
  8




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6. Financing and Long-term Debt
  March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Loans payable to banks
    
    $
    4,902
    
    
    $
    954Current portion of long-term debt
    
    
    10,842
    
    
    
    4,490Total
    
    $
    15,744
    
    
    $
    5,444
  March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)$200,000 Senior Notes, 9.125%, due January 1, 2009 *
    
    $
    199,727
    
    
    $
    199,636Revolving credit facility
    
    
    22,255
    
    
    
    13,857Term loan facility
    
    
    301,188
    
    
    
    301,950Capitalized lease obligations
    
    
    9,019
    
    
    
    8,924Other notes
    
    
    718
    
    
    
    768532,907
    
    
    
    525,135Less current portion
    
    
    (10,842
    )
    
    
    (4,490
    )Total
    
    $
    522,065
    
    
    $
    520,645
 
 *
    
    Net of unamortized discounts. Credit Rating
  Revolving Credit and Term Loan Facilities
   9




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Senior Notes
  Receivable Sales Programs
   2008
    
    2007(Dollars in thousands)Trade accounts receivable sold to FFC
    
    $
    261,605
    
    
    $
    250,007Cash proceeds from FFC
    
    
    263,107
    
    
    
    246,716Trade accounts receivable collected and remitted to FFC and the conduits
    
    
    250,429
    
    
    
    235,616
   2008
    
    2007(Dollars in thousands)Trade accounts receivable sold to financial institutions
    
    $
    65,543
    
    
    $
    31,954Cash proceeds from financial institutions
    
    
    64,126
    
    
    
    32,583Trade accounts receivable collected and remitted to financial institutions
for programs where we provide collection and administrative services
    
    
    23,424
    
    
    
    22,426
 10




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7. Financial Instruments
  Senior Notes.
 Revolving credit facility.
 Term loan facility.
  
  Fair Value MeasurementsMarch 31,
    
    
    at March 31, 2008
    
    
    December 31,2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    2007(Dollars in thousands)AssetsForeign currency forward contracts
    
    $
    47
    
    
    $
    
    
    
    $
    47
    
    
    $
    
    
    
    $
    16Raw material commodity swaps
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    Precious metals forward contracts
    
    
    47
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    755Total Fair Value
    
    $
    108
    
    
    $
    
    
    
    $
    108
    
    
    $
    
    
    
    $
    771LiabilitiesInterest rate swaps
    
    $
    (12,151
    )
    
    $
    
    
    
    $
    (12,151
    )
    
    $
    
    
    
    $
    (8,109
    )Foreign currency forward contracts
    
    
    (1,031
    )
    
    
    
    
    
    
    (1,031
    )
    
    
    
    
    
    
    (284
    )Raw material commodity swaps
    
    
    (477
    )
    
    
    
    
    
    
    (477
    )
    
    
    
    
    
    
    (1,499
    )Precious metals forward contracts
    
    
    (71
    )
    
    
    
    
    
    
    (71
    )
    
    
    
    
    
    
    Total Fair Value
    
    $
    (13,730
    )
    
    $
    
    
    
    $
    (13,730
    )
    
    $
    
    
    
    $
    (9,892
    )
 11




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##### Table of Contents



Interest rate swaps.
 Foreign currency forward contracts.
 Raw material commodity swaps.
 Precious metals forward contracts.
 8. Income Taxes
    9. Contingent Liabilities
  12




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10. Retirement Benefits
  U.S. Pension Plans
    
    
    Non-U.S. Pension Plans
    
    
    Other Benefit Plans2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Components of net periodic cost:Service cost
    
    $
    50
    
    
    $
    316
    
    
    $
    1,501
    
    
    $
    1,592
    
    
    $
    16
    
    
    $
    152Interest cost
    
    
    5,177
    
    
    
    5,028
    
    
    
    2,939
    
    
    
    2,260
    
    
    
    731
    
    
    
    859Expected return on plan assets
    
    
    (5,663
    )
    
    
    (5,123
    )
    
    
    (2,133
    )
    
    
    (1,791
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    25
    
    
    
    40
    
    
    
    24
    
    
    
    27
    
    
    
    (411
    )
    
    
    (293
    )Net amortization and deferral
    
    
    624
    
    
    
    1,476
    
    
    
    57
    
    
    
    141
    
    
    
    
    
    
    
    Curtailment and settlement effects
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    213
    
    
    $
    1,987
    
    
    $
    2,388
    
    
    $
    2,229
    
    
    $
    336
    
    
    $
    718
  13




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11. Stock-Based Compensation
  2008
    
    
    2007(Dollars in thousands)Stock options
    
    $
    486
    
    
    $
    812Performance shares
    
    
    45
    
    
    
    509Deferred stock units
    
    
    127
    
    
    
    111Restricted shares
    
    
    41
    
    
    
    Total
    
    $
    699
    
    
    $
    1,432
  AggregateGrant DateNumber of
    
    Weighted-
    
    Fair Value of
    
    RemainingShares or
    
    Average Fair
    
    Shares or
    
    Service orUnits
    
    Value per
    
    Units
    
    PerformanceGranted
    
    Share or Unit
    
    Granted
    
    Period(Dollars inthousands)
    
    (In years)Stock options
    
    
    479,300
    
    
    $
    4.18
    
    
    $
    2,003
    
    
    
    3.9Performance shares
    
    
    76,825
    
    
    
    17.26
    
    
    
    1,326
    
    
    
    2.9Deferred stock units
    
    
    34,200
    
    
    
    16.69
    
    
    
    571
    
    
    
    0.9Restricted shares
    
    
    92,400
    
    
    
    17.26
    
    
    
    1,595
    
    
    
    2.9
  Common Sharesin Treasury
    
    
    Paid-inShares
    
    
    Amount
    
    
    Capital(In thousands)Stock options
    
    
    
    
    
    $
    427
    
    
    $
    59Performance shares, net
    
    
    (77
    )
    
    
    1,390
    
    
    
    (1,217
    )Deferred stock units
    
    
    
    
    
    
    127
    
    
    
    Directors deferred compensation
    
    
    
    
    
    
    (462
    )
    
    
    462Preferred stock conversions
    
    
    (47
    )
    
    
    243
    
    
    
    1Restricted shares
    
    
    (92
    )
    
    
    1,714
    
    
    
    (1,673
    )Total
    
    
    (216
    )
    
    $
    3,439
    
    
    $
    (2,368
    )
 Restricted Share Awards
  14




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12. Restructuring and Cost Reduction Programs
       EmployeeTermination
    
    
    OtherBenefits
    
    
    Costs
    
    
    Total(Dollars in thousands)Balance, December 31, 2007
    
    $
    8,381
    
    
    $
    1,560
    
    
    $
    9,941Restructuring charges
    
    
    2,421
    
    
    
    1,786
    
    
    
    4,207Cash payments
    
    
    (4,336
    )
    
    
    (348
    )
    
    
    (4,684
    )Currency translation adjustment
    
    
    500
    
    
    
    212
    
    
    
    712Non-cash items
    
    
    (82
    )
    
    
    
    
    
    
    (82
    )Balance, March 31, 2008
    
    $
    6,884
    
    
    $
    3,210
    
    
    $
    10,094
  15




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##### Table of Contents



13. Discontinued Operations
  2008
    
    
    2007(Dollars in thousands)Pre-tax loss
    
    $
    41
    
    
    $
    256Tax benefit
    
    
    16
    
    
    
    100Net of tax loss
    
    $
    25
    
    
    $
    156
  14. Earnings per Share
  2008
    
    
    2007(In thousands,except per share amounts)Basic earnings per share computation:Net income available to common shareholders
    
    $
    8,913
    
    
    $
    5,793Add back: Loss from discontinued operations
    
    
    25
    
    
    
    156$
    8,938
    
    
    $
    5,949Weighted-average common shares outstanding
    
    
    43,160
    
    
    
    42,708Basic earnings per share from continuing operations
    
    $
    0.21
    
    
    $
    0.14Diluted earnings per share computation:Net income available to common shareholders
    
    $
    8,913
    
    
    $
    5,793Add back: Loss from discontinued operations
    
    
    25
    
    
    
    156Plus: Convertible preferred stock
    
    
    
    
    
    
    $
    8,938
    
    
    $
    5,949Weighted-average common shares outstanding
    
    
    43,160
    
    
    
    42,708Assumed exercise of stock options
    
    
    
    
    
    
    Assumed satisfaction of performance share conditions
    
    
    75
    
    
    
    55Assumed satisfaction of deferred stock unit conditions
    
    
    3
    
    
    
    5Assumed conversion of convertible preferred stock
    
    
    
    
    
    
    Weighted-average diluted shares outstanding
    
    
    43,238
    
    
    
    42,768Diluted earnings per share from continuing operations
    
    $
    0.21
    
    
    $
    0.14
 16




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##### Table of Contents



15. Comprehensive Income
  2008
    
    
    2007(Dollars in thousands)Net income
    
    $
    9,140
    
    
    $
    6,079Other comprehensive income, net of tax:Foreign currency translation adjustments
    
    
    21,529
    
    
    
    6,900Postretirement benefit liability adjustments
    
    
    (375
    )
    
    
    263Raw material commodity swap adjustments
    
    
    848
    
    
    
    (391
    )Interest rate swap adjustments
    
    
    (2,603
    )
    
    
    Comprehensive income
    
    $
    28,539
    
    
    $
    12,851
 16. Reporting for Segments
    2008
    
    
    2007(Dollars in thousands)Performance Coatings
    
    $
    160,792
    
    
    $
    138,815Electronic Materials
    
    
    140,993
    
    
    
    112,944Color and Glass Performance Materials
    
    
    128,840
    
    
    
    105,700Polymer Additives
    
    
    92,311
    
    
    
    82,513Specialty Plastics
    
    
    61,793
    
    
    
    66,961Other Businesses
    
    
    22,527
    
    
    
    22,772Total net sales
    
    $
    607,256
    
    
    $
    529,705
 17




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##### Table of Contents



2008
    
    
    2007(Dollars in thousands)Performance Coatings
    
    $
    9,480
    
    
    $
    10,683Electronic Materials
    
    
    8,749
    
    
    
    6,083Color and Glass Performance Materials
    
    
    15,436
    
    
    
    15,067Polymer Additives
    
    
    2,719
    
    
    
    3,106Specialty Plastics
    
    
    1,487
    
    
    
    3,139Other Businesses
    
    
    3,845
    
    
    
    3,691Total segment income
    
    
    41,716
    
    
    
    41,769Unallocated corporate expenses
    
    
    7,054
    
    
    
    13,746Restructuring charges
    
    
    4,207
    
    
    
    1,531Other expense, net
    
    
    14,209
    
    
    
    15,723Income before income taxes from continuing operations
    
    $
    16,246
    
    
    $
    10,769
  2008
    
    
    2007(Dollars in thousands)United States
    
    $
    252,274
    
    
    $
    238,406International
    
    
    354,982
    
    
    
    291,299Total net sales
    
    $
    607,256
    
    
    $
    529,705
 18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
       Outlook
    19




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##### Table of Contents



Results of Operations
 Comparison of the three months ended March 31, 2008 and 2007
 Three months endedMarch 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands,except per share amounts)Net sales
    
    $
    607,256
    
    
    $
    529,705
    
    
    $
    77,551
    
    
    
    14.6
    %Cost of sales
    
    
    493,937
    
    
    
    422,925
    
    
    
    71,012
    
    
    
    16.8
    %Gross profit
    
    
    113,319
    
    
    
    106,780
    
    
    
    6,539
    
    
    
    6.1
    %Gross profit percentage
    
    
    18.7
    %
    
    
    20.2
    %Selling, general and administrative expenses
    
    
    78,657
    
    
    
    78,757
    
    
    
    (100
    )
    
    
    (0.1
    %)Restructuring charges
    
    
    4,207
    
    
    
    1,531
    
    
    
    2,676
    
    
    
    174.8
    %Other expense (income):Interest expense
    
    
    14,029
    
    
    
    17,446
    
    
    
    (3,417
    )
    
    
    (19.6
    %)Interest earned
    
    
    (129
    )
    
    
    (965
    )
    
    
    836
    
    
    
    (86.6
    %)Foreign currency (gains) losses, net
    
    
    (1,541
    )
    
    
    511
    
    
    
    (2,052
    )
    
    
    (401.6
    %)Miscellaneous expense (income), net
    
    
    1,850
    
    
    
    (1,269
    )
    
    
    3,119
    
    
    
    (245.8
    %)Income before taxes
    
    
    16,246
    
    
    
    10,769
    
    
    
    5,477
    
    
    
    50.9
    %Income tax expense
    
    
    7,081
    
    
    
    4,534
    
    
    
    2,547
    
    
    
    56.2
    %Income from continuing operations
    
    
    9,165
    
    
    
    6,235
    
    
    
    2,930
    
    
    
    47.0
    %Loss on disposal of discontinued operations, net of tax
    
    
    25
    
    
    
    156
    
    
    
    (131
    )
    
    
    (84.0
    %)Net income
    
    $
    9,140
    
    
    $
    6,079
    
    
    $
    3,061
    
    
    
    50.4
    %Diluted earnings per share
    
    $
    0.21
    
    
    $
    0.14
    
    
    $
    0.07
    
    
    
    50.0
    %
    20




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##### Table of Contents



Three months endedMarch 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Segment SalesPerformance Coatings
    
    $
    160,792
    
    
    $
    138,815
    
    
    $
    21,977
    
    
    
    15.8
    %Electronic Materials
    
    
    140,993
    
    
    
    112,944
    
    
    
    28,049
    
    
    
    24.8
    %Color & Glass Performance Materials
    
    
    128,840
    
    
    
    105,700
    
    
    
    23,140
    
    
    
    21.9
    %Polymer Additives
    
    
    92,311
    
    
    
    82,513
    
    
    
    9,798
    
    
    
    11.9
    %Specialty Plastics
    
    
    61,793
    
    
    
    66,961
    
    
    
    (5,168
    )
    
    
    (7.7
    %)Other Businesses
    
    
    22,527
    
    
    
    22,772
    
    
    
    (245
    )
    
    
    (1.1
    %)Total segment sales
    
    $
    607,256
    
    
    $
    529,705
    
    
    $
    77,551
    
    
    
    14.6
    %Segment Operating IncomePerformance Coatings
    
    $
    9,480
    
    
    $
    10,683
    
    
    $
    (1,203
    )
    
    
    (11.3
    %)Electronic Materials
    
    
    8,749
    
    
    
    6,083
    
    
    
    2,666
    
    
    
    43.8
    %Color & Glass Performance Materials
    
    
    15,436
    
    
    
    15,067
    
    
    
    369
    
    
    
    2.4
    %Polymer Additives
    
    
    2,719
    
    
    
    3,106
    
    
    
    (387
    )
    
    
    (12.5
    %)Specialty Plastics
    
    
    1,487
    
    
    
    3,139
    
    
    
    (1,652
    )
    
    
    (52.6
    %)Other Businesses
    
    
    3,845
    
    
    
    3,691
    
    
    
    154
    
    
    
    4.2
    %Total segment operating income
    
    $
    41,716
    
    
    $
    41,769
    
    
    $
    (53
    )
    
    
    (0.1
    %)
 Performance Coatings Segment Results.
 Electronic Materials Segment Results.
 21




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##### Table of Contents



Color and Glass Performance Materials Segment Results.
 Polymer Additives Segment Results.
 Specialty Plastics Segment Results.
 Other Businesses Segment Results.
 Three months endedMarch 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Geographic RevenuesUnited States
    
    $
    252,274
    
    
    $
    238,406
    
    
    $
    13,868
    
    
    
    5.8
    %International
    
    
    354,982
    
    
    
    291,299
    
    
    
    63,683
    
    
    
    21.9
    %Total
    
    $
    607,256
    
    
    $
    529,705
    
    
    $
    77,551
    
    
    
    14.6
    %
  22




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##### Table of Contents



Summary
of Cash Flows for the three months ended March 31, 2008 and
2007
 Three months endedMarch 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(Dollars in thousands)Net cash provided by operating activities
    
    $
    10,938
    
    
    $
    63,801
    
    
    $
    (52,863
    )
    
    
    (82.9
    %)Net cash used for investing activities
    
    
    (15,114
    )
    
    
    (10,689
    )
    
    
    (4,425
    )
    
    
    41.4
    %Net cash provided by (used for) financing activities
    
    
    3,003
    
    
    
    (52,814
    )
    
    
    55,817
    
    
    
    (105.7
    %)Effect of exchange rate changes on cash
and cash equivalents
    
    
    543
    
    
    
    258
    
    
    
    285
    
    
    
    110.5
    %(Decrease) increase in cash and cash equivalents
    
    $
    (630
    )
    
    $
    556
    
    
    $
    (1,186
    )
    
    
    (213.3
    %)
    Capital Resources and Liquidity
 Credit Rating
  Revolving Credit and Term Loan Facility
   23




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##### Table of Contents



Senior Notes and Debentures
  Off Balance Sheet Arrangements
 Receivable Sales Programs.
  Consignment and Customer Arrangements for Precious Metals.
 Bank Guarantees and Standby Letters of Credit.
 Other Financing Arrangements
  Liquidity Requirement
   Critical Accounting Policies and Their Application
  24




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##### Table of Contents



Newly Adopted Accounting Standards
 Fair Value Measurements Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement Under Statement 13 Effective Date of FASB Statement No. 157 Accounting for Leases
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of
FASB Statements No. 87, 88, 106, and 132(R)
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards
 Newly Issued Accounting Pronouncements
 Business Combinations Noncontrolling Interests in Consolidated Financial Statements 
an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 25




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##### Table of Contents



Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
 Risk Factors
  26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
     27




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##### Table of Contents



March 31,
    
    December 31,2008
    
    2007(Dollars in thousands,except as noted)Variable-rate debt and utilization of asset securitization program:Change in annual interest expense from 1% change in interest rates
    
    $
    2,920
    
    
    $
    2,636Fixed-rate debt:Carrying amount
    
    $
    200,445
    
    
    $
    200,404Fair value
    
    $
    203,161
    
    
    $
    205,705Change in fair value from 1% increase in interest rate
    
    $
    (1,446
    )
    
    $
    (1,929
    )Change in fair value from 1% decrease in interest rate
    
    $
    1,463
    
    
    $
    1,957Interest rate swaps:Notional amount
    
    $
    150,000
    
    
    $
    150,000Carrying amount and fair value
    
    $
    (12,151
    )
    
    $
    (8,109
    )Change in fair value from 1% increase in interest rate
    
    $
    4,465
    
    
    $
    5,000Change in fair value from 1% decrease in interest rate
    
    $
    (4,609
    )
    
    $
    (5,181
    )Foreign currency forward contracts:Notional amount
    
    $
    166,994
    
    
    $
    142,638Carrying amount and fair value
    
    $
    (984
    )
    
    $
    (268
    )Change in fair value from 10% appreciation of U.S. dollar
    
    $
    (1,062
    )
    
    $
    (1,402
    )Change in fair value from 10% depreciation of U.S. dollar
    
    $
    1,298
    
    
    $
    1,714Raw material commodity swaps:Notional amount (in metric tons of base metals)
    
    
    1,532
    
    
    
    1,171Carrying amount and fair value
    
    $
    (463
    )
    
    $
    (1,499
    )Change in fair value from 10% change in forward prices
    
    $
    718
    
    
    $
    507Precious metals forward contracts:Notional amount (in troy ounces)
    
    
    63,285
    
    
    
    159,648Carrying amount and fair value
    
    $
    (24
    )
    
    $
    755Change in fair value from 10% change in forward prices
    
    $
    360
    
    
    $
    612
 28




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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
  29




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
    
 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
  30




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##### Table of Contents



SIGNATURES
  Date: May 6, 2008
    FERRO CORPORATION
(Registrant)/s/ James F. KirschJames F. KirschChairman, President and Chief Executive Officer
(Principal Executive Officer)  /s/ Sallie B. BaileySallie B. BaileyVice President and Chief Financial Officer
(Principal Financial Officer) 31




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##### Table of Contents



EXHIBIT INDEX
   3
    
    Articles of Incorporation and by-laws3.1
    
    Eleventh Amended Articles of Incorporation. (Reference is made to Exhibit 3(a) to Ferro
Corporations Annual Report on Form 10-K for the year ended December 31, 2003, which Exhibit
is incorporated here by reference.)3.2
    
    Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro
Corporation filed December 28, 1994. (Reference is made to Exhibit 3(b) to Ferro Corporations
Annual Report on Form 10-K for the year ended December 31, 2003, which Exhibit is incorporated
here by reference.)3.3
    
    Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro filed
June 19, 1998. (Reference is made to Exhibit 3(c) to Ferro Corporations Annual Report on Form
10-K for the year ended December 31, 2003, which Exhibit is incorporated here by reference.)3.4
    
    Ferro Corporation Code of Regulations. (Reference is made to Exhibit 3.01 to Ferro
Corporations Current Report on Form 8-K, filed November 8, 2006, which Exhibit is
incorporated here by reference.)4
    
    Instruments defining rights of security holders, including indentures4.1
    
    The rights of the holders of Ferros Debt Securities issued and to be issued pursuant to an
Indenture between Ferro and J. P. Morgan Trust Company, National Association
(successor-in-interest to Chase Manhattan Trust Company, National Association) as Trustee, are
described in the Indenture, dated March 25, 1998. (Reference is made to Exhibit 4(b) to Ferro
Corporations Annual Report on Form 10-K for the year ended December 31, 2003, which Exhibit
is incorporated here by reference.)4.2
    
    Pledge and Security Agreement, dated as of June 6, 2006, made by Ferro Corporation and each
U.S. Subsidiary, as Grantors, in favor of J. P. Morgan Trust Company, National Association, as
Trustee, for the benefit of the Trustee and the Holders under the Indentures. (Reference is
made to Exhibit 10.3 to Ferro Corporations Current Report on Form 8-K, filed June 12, 2006,
which Exhibit is incorporated here by reference.)4.3
    
    Collateral Sharing Agreement, dated as of June 6, 2006, among National City Bank, as
Collateral Agent under the Credit Agreement, J.P. Morgan Trust Company, National Association,
as Trustee under the Indentures, and Ferro Corporation and each other Person listed on the
signature pages, as Obligors. (Reference is made to Exhibit 10.4 to Ferro Corporations
Current Report on Form 8-K, filed June 12, 2006, which Exhibit is incorporated here by
reference.)4.4
    
    Officers Certificate dated December 20, 2001, pursuant to Section 301 of the Indenture dated
as of March 25, 1998, between the Company and J. P. Morgan Trust Company, National Association
(the successor-in-interest to Chase Manhattan Trust Company, National Association), as Trustee
(excluding exhibits thereto). (Reference is made to Exhibit 4.2 to Ferro Corporations Annual
Report on Form 10-K for the year ended December 31, 2006, which Exhibit is incorporated here
by reference.)4.5
    
    Form of Global Note
(91/8


% Senior Notes due 2009). (Reference is made to Exhibit 4.3 to Ferro
Corporations Annual Report on Form 10-K for the year ended December 31, 2006, 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.
 32




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##### Table of Contents



10
    
    Material Contracts10.1
    
    Purchase Agreement, dated as of April 1, 2008, among Ferro Color & Glass Corporation, Ferro
Pfanstiehl Laboratories, Inc. and Ferro Corporation. (Reference is made to Exhibit 10.1 to
Ferro Corporations Current Report on Form 8-K, filed April 7, 2008, which Exhibit is
incorporated here by reference.)10.2
    
    Amended and Restated Purchase and Contribution Agreement, dated as of April 1, 2008, between
Ferro Corporation and Ferro Finance Corporation. (Reference is made to Exhibit 10.2 to Ferro
Corporations Current Report on Form 8-K, filed April 7, 2008, which Exhibit is incorporated
here by reference.)10.3
    
    Second Amended and Restated Receivables Purchase Agreement, dated as of April 1, 2008, among
Ferro Finance Corporation, as Seller, and CAFCO, LLC, as the Investor, and Citibank, N.A., as
a Bank, and Citicorp North America, Inc., as the Agent, and Ferro Color & Glass Corporation
and Ferro Pfanstiehl Laboratories, Inc., as Originators, and Ferro Corporation, as Collection
Agent and Originator. (Reference is made to Exhibit 10.3 to Ferro Corporations Current Report
on Form 8-K, filed April 7, 2008, which Exhibit is incorporated here by reference.)10.4
    
    Purchase Agreement, dated March 21, 2008, between Ferro (Holland) B.V. and Brix Houwelingen
Projecten XVIII B.V. (Reference is made to Exhibit 10.1 to Ferro Corporations Current Report
on Form 8-K, filed March 26, 2008, 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.
 33