Ferro Announces Completion of Financial Filings for 2006 First and Second Quarters

CLEVELAND--Ferro Corporation announced today that it has filed its Quarterly Reports on Form 10-Q with the U.S. Securities and Exchange Commission (SEC) for the three-month periods ended March 31 and June 30, 2006.

Sales for the first quarter ended March 31, 2006, were $505.2 million, an increase of 9.4% from the first quarter of 2005. Net income from continuing operations was $8.4 million, or $0.19 per diluted share, compared with $0.6 million, or less than $0.01 per share, in the first quarter of 2005.

Sales for the second quarter, ended June 30, 2006, were $538.5 million, an increase of 8.4% from the prior year’s quarter. Net income from continuing operations was $10.5 million, or $0.24 per share, compared with $8.1 million, or $0.18 per share, in the second quarter of 2005.

“Ferro turned in an excellent first half,” said President and CEO James Kirsch. “We are looking forward to building on this good start as we complete 2006 and move into 2007. We will continue to win from within as we build our foundation for high-quality earnings growth.”

Included in the first quarter net income from continuing operations were certain items, that had a combined negative pre-tax effect of approximately $4.8 million. These charges were primarily from expenses related to the accounting investigation and restatement of 2003 and first quarter 2004 results. These items reduced first quarter net income from continuing operations by $0.07 per share. In the first quarter of 2005, these charges reduced net income by $0.11 per share. In addition, the Company recognized a $2.9 million non-cash, pre-tax loss in the first quarter resulting from mark-to-market supply contracts for natural gas. The Company recognized a $2.4 million non-cash, pre-tax gain from natural gas supply contracts in the 2005 first quarter.

Included in the second quarter net income were additional items that had a combined net unfavorable pre-tax effect of approximately $3.7 million. These items primarily included charges for the write-off of previously unamortized fees and discounts for certain of the Company’s former borrowings, and charges related to the accounting investigation and restatement. These items reduced second quarter net income by approximately $0.06 per share. In the second quarter of 2005, charges reduced net income by $0.04 per share. In addition, during the 2006 second quarter, the Company recognized a $0.3 million non-cash, pre-tax, mark-to-market loss from natural gas contracts, compared to a $0.8 million loss in the second quarter of 2005.

Changes in 2006 First Quarter Results From Prior Announcement

The results for the 2006 first quarter differ from the preliminary earnings announced by the Company on July 12, 2006, largely as a result of the final determination of the appropriate timing for charges and benefits associated with a benefit plan curtailment and changes in the Company’s employee pension plan and retiree benefits programs. Charges and benefits related to the benefit plan curtailment and pension plan changes are recorded in the results for the second quarter of 2006 rather than in the first quarter, as originally anticipated. As a result of the changes, net income for the first quarter is $1.3 million higher than originally indicated.

Second Quarter Results

Sales for the second quarter set a record, surpassing the record set in the first quarter of 2006. Sales were particularly strong in the Electronic Materials segment, where revenue increased by 33%. Sales also increased in Color and Glass Performance Materials, Performance Coatings and Polymer Additives. Sales declined less than one percent in Specialty Plastics and declined in the Other segment. Sales benefited by less than one percent from changes in foreign exchange rates.

Most of the revenue increase for the quarter was due to increases in average selling prices, including changes in product mix and price increases. Total product volume was about flat with the second quarter of 2005.

Gross margins for the second quarter were 20.6% of sales. Across the Company, improved pricing and product mix were able to fully offset increases in the cost of raw materials during the quarter. However, an increase in precious metal prices, which are generally passed through to customers without mark-up, lowered the gross margin percentage.

Sales, general and administrative (SG&A) expenses for the second quarter were $78.7 million, or 14.6% of sales. SG&A expense was nearly flat with the prior-year and was lower as a percent of sales than the 15.9% recorded in the second quarter of 2005. Included in the second quarter SG&A expense were additional items that had a combined net unfavorable pre-tax effect of approximately $1.6 million. These items primarily included charges related to the accounting investigation and restatement. Additionally, the effects of certain retirement plan events largely offset one another. These second quarter events included a $4.8 million settlement charge relating to the lump sum payment to the beneficiary of the Company’s deceased former Chief Executive Officer from a non-qualified defined benefit retirement plan, offset by curtailment gains totaling $4.8 million related to limiting future retirement benefits under the Company’s largest United States defined benefit pension plan and limiting eligibility for its United States retiree medical and life insurance programs.

Total segment income for the second quarter was $42.7 million, an increase of 19.3% from the second quarter of 2005. For the first half, total segment income increased to $84.9 million, an increase of $21.4 million, or 34%, from the first half of 2005.

As of the end of June, total debt, including off balance arrangements, was $660.4 million, an increase of $105.7 million from the end of 2005. As previously indicated, this increase was the result of increased deposit requirements for precious metal consignment arrangements and for working capital to support increased sales. The Company expects to reduce the amount of material under consignment requiring cash deposits by year end and anticipates that substantially all of the deposits will be returned in the first quarter of 2007.

Interest expense for the quarter was $18.1 million, reflecting increases in the Company’s debt and higher interest rates. The interest expense also includes a non-recurring charge of $2.5 million for unamortized fees and discounts associated with the Company’s previous credit facility and certain of the Company’s notes and debentures where the Company had received acceleration notices.

Third Quarter Preliminary Results

Sales for the third quarter are expected to be approximately $500 million, up more than 7% from the third quarter of 2005. Current business conditions remain generally favorable in the Company’s markets, although there has been some weakening of demand from specific regions and application markets. In the U.S., housing and automotive-related demand was weaker than previously expected while demand in Europe continued to be relatively strong. In addition to these market issues, interest expense for the third quarter was higher than originally forecast, as the Company continued to fund a higher-than-expected level of cash deposits for precious metal consignments.

The Company now expects to report net income for the third quarter ended September 30, 2006 of approximately $0.12 per diluted share. Included in the preliminary earnings per-share results are charges, primarily related to previously announced restructuring programs, which reduced earnings by approximately 2 cents per share. Fourth quarter 2006 sales are expected to be modestly higher than in the third quarter.

These preliminary results are subject to final reviews and adjustments prior to the filing of the Company’s Quarterly Reports on Form 10-Q.

Third Quarter Financial Filings and Conference Call

The Company expects to file its third quarter results on Form 10-Q prior to the end of December. With that filing, the Company will be current in its financial filings with the SEC. Shortly after the filing, the Company will issue a press release and conduct a conference call to discuss the results in detail. Information regarding the conference call will be provided in a press release prior to the call.

About Ferro Corporation

Ferro Corporation (http://www.ferro.com) is a leading global supplier of technology-based performance materials for manufacturers. Ferro materials enhance the performance of products in a variety of end markets, including electronics, telecommunications, pharmaceuticals, building and renovation, appliances, automotive, household furnishings, and industrial products.

Headquartered in Cleveland, Ohio, the Company has approximately 6,800 employees globally and reported 2005 sales of $1.9 billion.

Cautionary Note on Forward-Looking Statements

Certain statements in this Ferro press release may constitute “forward-looking statements” within the meaning of Federal securities laws. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning the Company’s operations and business environment, which are difficult to predict and often beyond the control of the Company. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company’s future financial performance, include the following:

• The Company depends on reliable sources of raw materials and other supplies at a reasonable cost, but availability of such materials and supplies could be interrupted and/or the prices charged for them could escalate.
• The markets in which the Company participates are highly competitive and subject to intense price competition.
• The Company is striving to improve operating margins through price increases, productivity gains and improved purchasing techniques, but it may not be successful in achieving the desired improvements.
• The Company’s products are sold into industries that are heavily influenced by consumer spending or otherwise have proven to be unpredictable and cyclical.
• The global scope of the Company’s operations exposes the Company to risks related to currency conversion and changing economic, social and political conditions around the world.
• The Company has a growing presence in the Asia/Pacific region where it can be difficult for an American company to compete lawfully with local competitors.
• Regulatory authorities in the U.S., European Union and elsewhere are taking a much more aggressive approach to regulating hazardous materials and those regulations could affect sales of the Company’s products.
• The Company’s operations are subject to stringent environmental, health and safety regulations and compliance with those regulations could require the Company to make significant investments.
• The Company depends on external financial resources and any interruption in access to capital markets or borrowings could adversely affect the Company’s financial condition.
• Interest rates on some of the Company’s external borrowings are variable and the Company’s borrowing cost could be affected adversely by interest rate increases.
• Many of the Company’s assets are encumbered by liens that have been granted to lenders and those liens affect the Company’s flexibility in making timely dispositions of property and businesses.
• The Company is subject to a number of restrictive covenants in its credit facilities and those covenants could affect the Company’s flexibility in making investments and acquisitions.
• The Company has deferred tax assets and its ability to utilize those assets will depend on the Company’s future performance.
• The Company is a defendant in several lawsuits that could have, unless successfully resolved, an adverse effect on the Company’s financial condition and/or financial performance.
• The Company’s businesses depend of a continuous stream of new products and failure to introduce new products could affect the Company’s sales and profitability.
• Employee benefit costs, especially post-retirement costs, constitute a significant element of the Company’s annual expenses, and the funding of these costs could adversely affect the Company’s financial condition.
• The Company is exposed to risks associated with acts of God, terrorists and others, as well as fires, explosions, wars, riots, accidents, embargos, natural disasters, strikes and other work stoppages, quarantines and other governmental actions, and other events or circumstances that are beyond the Company’s reasonable control.

Additional information regarding these risk factors can be found in the Company’s Annual Report on Form 10-K for the period ended December 31, 2005.

The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on the Company’s business, financial condition and results of operations.

This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.

Ferro Corporation and Consolidated Subsidiaries Condensed Consolidated Statements of Income (Unaudited)
		Three Months Ended March 31,
(Dollars in thousands, except per share amounts)		2006		2005
Net Sales		$505,153		$461,674
Cost of Sales		397,246		368,716
Selling, General and Administrative Expenses		79,104		83,561
Other Charges (Income):
Interest Expense		13,250		11,028
Foreign Currency Expense, Net		321		767
Miscellaneous Expense (Income), Net		2,656		(1,828)
Income Before Taxes		12,576		(570)
Income Tax Expense (Benefit)		4,138		(1,153)
Income from Continuing Operations		8,438		583
Discontinued Operations		126		65
Net Income		8,312		518
Dividends on Preferred Stock		328		387
Net Income Available to Common Shareholders		$7,984		$131
Per Common Share Data:
Basic Earnings
From Continuing Operations		$0.19		$0.00
From Discontinued Operations		($0.00)		($0.00)
		$0.19		$0.00
Diluted
From Continuing Operations		$0.19		$0.00
From Discontinued Operations		($0.00)		($0.00)
		$0.19		$0.00
Dividends		$0.145		$0.145
Shares Outstanding:
Basic		42,337,283		42,280,777
Diluted		42,347,378		42,335,574
End of Period		42,451,610		42,376,076

Ferro Corporation and Consolidated Subsidiaries Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share amounts)		Three Months Ended June 30,				Six Months Ended June 30,
		2006		2005		2006		2005
Net Sales		$538,492		$496,626		$1,043,645		$958,300
Cost of Sales		427,602		392,160		824,848		760,876
Selling, General and Administrative Expenses		78,735		78,794		157,839		162,355
Other Charges (Income):
Interest Expense		18,087		11,678		31,337		22,706
Foreign Currency Expense, Net		219		219		540		986
Miscellaneous Expense (Income), Net		(1,784)		1,785		872		(43)
Income Before Taxes		15,633		11,990		28,209		11,420
Income Tax Expense		5,142		3,913		9,280		2,760
Income from Continuing Operations		10,491		8,077		18,929		8,660
Loss On Disposal of Discontinued Operations, Net		341		154		467		219
Net Income		10,150		7,923		18,462		8,441
Dividends on Preferred Stock		317		375		645		762
Net Income Available to Common Shareholders		$9,833		$7,548		$17,817		$7,679
Per Common Share Data:
Basic Earnings
From Continuing Operations		$0.24		$0.18		$0.43		$0.19
From Discontinued Operations		($0.01)		($0.00)		($0.01)		($0.01)
		$0.23		$0.18		$0.42		$0.18
Diluted
From Continuing Operations		$0.24		$0.18		$0.43		$0.19
From Discontinued Operations		($0.01)		($0.00)		($0.01)		($0.01)
		$0.23		$0.18		$0.42		$0.18
Dividends		$0.145		$0.145		$0.29		$0.29
Shares Outstanding:
Basic		42,448,004		42,295,830		42,392,643		42,288,303
Diluted		42,463,737		42,322,426		42,405,558		42,329,000
End of Period		42,387,661		42,313,758		42,387,661		42,313,758

Ferro Corporation and Consolidated Subsidiaries Segment Sales and Segment Income (Unaudited)
(Dollars in thousands)			Three Months Ended March 31,
			2006		2005
Segment Sales
Performance Coatings			$126,109		$118,716
Electronic Materials			107,366		78,168
Color and Glass Perf. Materials			94,612		92,619
Polymer Additives			82,723		76,308
Specialty Plastics			71,724		70,861
Other			22,619		25,002
Total			$505,153		$461,674
Segment Income
Performance Coatings			$8,995		$7,796
Electronic Materials			8,182		(237)
Color and Glass Perf. Materials			12,866		10,923
Polymer Additives			4,562		4,820
Specialty Plastics			5,946		3,592
Other			1,597		815
Total Segment Income			$42,148		$27,709
Unallocated expenses - Consolidated Results
Unallocated expenses			$13,345		$18,312
Interest expense			13,250		11,028
Other expense (income), Net			2,977		(1,061)
Income (loss) before taxes from continuing operations			$12,576		($570)
Geographic Sales
United States			$248,671		$226,062
International			256,482		235,612
Total			$505,153		$461,674

Ferro Corporation and Consolidated Subsidiaries Segment Sales and Segment Income (Unaudited)
(Dollars in thousands)		Three Months Ended June 30,				Six Months Ended June 30,
		2006		2005		2006		2005
Segment Sales
Performance Coatings		$135,959		$130,044		$262,068		$248,760
Electronic Materials		123,167		92,646		230,533		170,814
Color and Glass Perf. Materials		102,987		95,994		197,599		188,613
Polymer Additives		82,519		78,570		165,242		154,878
Specialty Plastics		72,039		72,456		143,763		143,318
Other		21,821		26,916		44,440		51,917
Total		$538,492		$496,626		$1,043,645		$958,300
Segment Income
Performance Coatings		$11,267		$9,334		$20,262		$17,130
Electronic Materials		10,350		4,427		18,532		4,190
Color and Glass Perf. Materials		11,918		11,948		24,784		22,871
Polymer Additives		3,340		5,582		7,902		10,402
Specialty Plastics		4,182		3,271		10,128		6,864
Other		1,651		1,230		3,248		2,044
Total Segment Income		$42,708		$35,792		$84,856		$63,501
Unallocated expenses - Consolidated Results
Unallocated expenses		$10,553		$10,120		$23,898		$28,432
Interest expense		18,087		11,678		31,337		22,706
Other expense (income), Net		(1,565)		2,004		1,412		943
Income before taxes from continuing operations		$15,633		$11,990		$28,209		$11,420
Geographic Sales
United States		$257,858		$240,053		$506,529		$466,115
International		280,634		256,573		537,116		492,185
Total		$538,492		$496,626		$1,043,645		$958,300

Ferro Corporation and Consolidated Subsidiaries Condensed Consolidated Balance Sheets
(Dollars in thousands)
		June 30, 2006		December 31, 2005
Assets		(Unaudited)
Current Assets:
Cash and Cash Equivalents		$15,509		$17,413
Accounts and Trade Notes Receivable, net		224,510		182,390
Inventories		241,253		215,257
Other Current Assets		193,072		195,659
Total Current Assets		674,344		610,719
Property, Plant & Equipment, net		530,673		531,139
Intangibles, net		410,824		410,666
Miscellaneous Other Assets		146,720		116,020
Total Assets		$1,762,561		$1,668,544
Liabilities and Shareholders' Equity
Current Liabilities:
Notes and Loans Payable		$8,691		$7,555
Accounts Payable		245,166		236,282
Other Current Liabilities		133,996		123,047
Total Current Liabilities		387,853		366,884
Long-Term Debt, less current portion		592,815		546,168
Other Non-Current Liabilities		255,730		266,933
Total Liabilities		1,236,398		1,179,985
Series A Convertible Preferred Stock		17,730		20,468
Shareholders' Equity		508,433		468,091
Total Liabilities and Shareholders' Equity		$1,762,561		$1,668,544