In the near term, we expect relatively flat worldwide demand in our targeted end-use applications and positive, but temporary, impact from government stimulus programs. Our visibility to future demand for our products is limited, as our customers' production plans are uncertain and subject to rapid adjustment to unanticipated changes in sales of their products. Our customers may choose to reduce their inventory levels during the fourth quarter, which would negatively impact our sales in the period. Because we have limited order lead times from our customers, customer orders are not a reliable indicator of our future results.
Our responses to the worldwide economic downturn have included restructuring initiatives to lower manufacturing costs, reduced manufacturing staffing and reduced working hours to adjust production resources to the decline in customer demand, lower discretionary expense spending, reduced incentive compensation and suspension of other employee benefits, lower capital spending, and elimination of our common stock dividends. We expect to continue to record charges associated with our current and future restructuring programs, as we proceed with initiatives to rationalize our manufacturing operations in Europe, align our worldwide operations to reduced customer demand and take action to lower SG&A expense.
Factors that could adversely affect our future financial performance are described under the heading "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2008. Results of Operations
Comparison of the three months ended September 30, 2009 and 2008

                                          Three months ended
                                            September 30,
                                         2009           2008          $ Change        % Change
                                                (Dollars in thousands,
                                              except per share amounts)
Net sales                              $ 442,089      $ 590,150      $ (148,061 )         (25.1 %)
Cost of sales                            348,920        479,807        (130,887 )         (27.3 %)

Gross profit                              93,169        110,343         (17,174 )         (15.6 %)
Gross profit percentage                     21.1 %         18.7 %
Selling, general and administrative
expenses                                  65,918         76,943         (11,025 )         (14.3 %)
Impairment charges                         8,225              -           8,225               -
Restructuring charges                      2,842          9,042          (6,200 )         (68.6 %)
Other expense (income):
Interest expense                          17,891         12,424           5,467            44.0 %
Interest earned                             (216 )         (213 )            (3 )           1.4 %
Loss on extinguishment of debt                 -          5,531          (5,531 )         100.0 %
Foreign currency losses, net                 104          1,647          (1,543 )         (93.7 %)
Miscellaneous (income) expense, net         (655 )          237            (892 )        (376.4 %)

(Loss) income before income taxes           (940 )        4,732          (5,672 )        (119.9 %)
Income tax (benefit) expense              (3,749 )          876          (4,625 )        (528.0 %)

Income from continuing operations          2,809          3,856          (1,047 )         (27.2 %)
Income from discontinued
operations, including disposal, net
of income tax                                 36          1,202          (1,166 )         (97.0 %)

Net income                             $   2,845      $   5,058      $   (2,213 )         (43.8 %)


Diluted earnings per share             $    0.04      $    0.10      $    (0.06 )         (60.0 %)

Net sales in the three months ended September 30, 2009, declined primarily as a result of lower sales volume due to the global economic downturn and the resulting lower customer demand. Lower sales volume accounted for approximately 17 percentage points of the overall sales decline and changes in product mix and prices accounted for approximately 6 percentage points of the decline. These factors include reduced sales of precious metals. Lower precious metal sales contributed approximately 3 percentage points to the lower sales. Changes in foreign currency exchange rates were responsible for approximately 1 percentage point of the third-quarter sales decline. Sales declined in all segments and in all regions compared with the prior-year period.
Gross profit was lower in the 2009 third quarter compared with the 2008 third quarter as a result of the decline in net sales. Cost reduction initiatives, including staffing reductions, plant closures and restructuring actions, partially offset the decline in gross profit. Gross margin percentage increased compared with the prior-year period as a result of the cost reduction initiatives. Raw material costs declined by approximately $26 million compared with the 2008 third quarter. The benefit from lower raw material costs was largely offset by lower product prices. Charges primarily related to manufacturing rationalization activities reduced gross profit by approximately $0.3 million during the 2009 third quarter. Gross profit was reduced by approximately $1.5 million in the third quarter of 2008 as a result of charges associated with manufacturing rationalization and asset write-offs. Selling, general and administrative ("SG&A") expense declined by $11.0 million in the quarter ended September 30, 2009, compared with the prior-year period. SG&A expense was 14.9 percent of sales in the quarter compared with 13.0 percent during the 2008 third quarter due to lower sales. SG&A expense declined as a result of expense reduction efforts we made in response to weak customer demand. The expense reductions included reduced staffing, lower incentive compensation expense and reduced discretionary spending. These actions contributed to a reduction of approximately $7.5 million in salary and wage expense and a $2.4 million reduction in travel and entertainment expense compared with the prior-year period. Partially offsetting these declines was an increase of approximately $5.0 million in pension expense. SG&A expense during the quarter included charges of approximately $2.7 million primarily related to expense reduction initiatives. The 2008 third-quarter SG&A expense included charges of approximately $1.9 million primarily related to corporate development activities, partially offset by a favorable insurance settlement.
We recorded impairment charges of $8.2 million during the third quarter related to a reduction in goodwill associated with our pharmaceutical business. The impairment was triggered by changes made to the assumptions used to determine valuation under the market approach.
Restructuring charges declined to $2.8 million in the third quarter of 2009 from $9.0 million in the third quarter of 2008. In the period, the restructuring charges were primarily related to manufacturing rationalization activities in our European inorganic materials operations and other cost-reduction actions. Interest expense increased during the 2009 third quarter compared with the prior-year period. Interest expense increased approximately $3.7 million due to higher interest rates primarily resulting from an amendment to our credit facilities that we signed in March 2009 and approximately $0.8 million due to increased borrowings. Additional changes in interest expense resulted from differences in the amortization of fees and discounts. A primary driver of the increased borrowing levels was a requirement to provide cash collateral for precious metal leases. As of September 30, 2009, we had $92.3 million of cash on deposit as collateral for precious metals.
During the 2008 third quarter, we refinanced our 9 1/8% coupon senior notes using the proceeds of a new convertible bond issue and additional borrowing from our revolving credit facility. In connection with the repayment of the previous senior notes, we recorded a loss on extinguishment of debt of $5.5 million. This loss did not recur in the 2009 third quarter.
Net foreign currency transaction losses were $0.1 million during the 2009 third quarter compared with losses of $1.6 million in the 2008 third quarter. We manage currency translation risks in a wide variety of foreign currencies principally by entering into forward contracts to mitigate the impact of currency fluctuations on transactions arising from international trade. The carrying values of these contracts are adjusted to market value and the resulting gains and losses are charged to income or expense in the period. The income tax benefit for the three months ended September 30, 2009 was $3.7 million, or 400 percent of pre-tax loss, compared with income tax expense of $0.9 million, or 18.5 percent of pre-tax income, in the 2008 third quarter. The primary reason for the significant improvement in the effective rate was due to an increase in the deferred tax asset for research credits.

The 2009 third quarter loss from operations was primarily the result of lower net sales and the consequent reduction in gross profit, the impairment charge for goodwill in our pharmaceutical business and higher interest expense. Reduced SG&A expense and lower restructuring charges combined to reduce the loss from operations.
During 2008, we sold the Fine Chemicals business, which was previously part of our Other Businesses segment. As a consequence of the sale, the results from Fine Chemicals are now included in discontinued operations for all periods presented.

                                         Three months ended
                                            September 30,
                                         2009          2008         $ Change      % Change
                                               (Dollars in thousands)
 Segment Sales
 Performance Coatings                  $ 129,499     $ 162,523     $  (33,024 )       (20.3 %)
 Electronic Materials                    113,210       155,122        (41,912 )       (27.0 %)
 Color & Glass Performance Materials      88,498       115,013        (26,515 )       (23.1 %)
 Polymer Additives                        67,660        93,081        (25,421 )       (27.3 %)
 Specialty Plastics                       39,040        58,097        (19,057 )       (32.8 %)
 Pharmaceuticals                           4,182         6,314         (2,132 )       (33.8 %)

 Total segment sales                   $ 442,089     $ 590,150     $ (148,061 )       (25.1 %)


 Segment Operating Income (Loss)
 Performance Coatings                  $  14,518     $  12,135     $    2,383          19.6 %
 Electronic Materials                     13,129        17,095         (3,966 )       (23.2 %)
 Color & Glass Performance Materials       7,815         9,712         (1,897 )       (19.5 %)
 Polymer Additives                         4,386         4,385              1           0.0 %
 Specialty Plastics                        2,977         2,796            181           6.5 %
 Pharmaceuticals                          (1,316 )         656         (1,972 )      (300.6 %)

 Total segment operating income        $  41,509     $  46,779     $   (5,270 )       (11.3 %)

Performance Coatings Segment Results. Sales declined in Performance Coatings primarily as a result of lower volumes of tile coatings, partially offset by modestly higher sales volume of porcelain enamel products. The decline in net volume was responsible for approximately $20 million of the reduction in sales, while changes in product prices and mix reduced sales by approximately $6.6 million and changes in foreign currency exchange rates contributed approximately $6.1 million to the sales decline. The sales decline was the largest in Europe, our largest market for these products, and sales also declined in the United States. Operating income increased due to a reduction in SG&A expense of $4.0 million, which more than offset a decline in gross profit of $1.6 million. The decline in SG&A expense was due to staffing reductions and expense control initiatives. The decline in gross profit was due to the negative effects of lower sales volume of tile products partially offset by increased gross profit from porcelain enamel products and lower manufacturing costs. Electronic Materials Segment Results. Sales declined in Electronic Materials as a result of lower sales volume, primarily related to reduced demand for dielectric materials that are used by our customers to make capacitors. Sales of conductive metal pastes and powders and surface finishing products also declined compared with the prior-year period. A decline in sales of precious metals contributed approximately $18.8 million, or slightly less than half of the overall sales reduction, reflecting both price and volume changes. Our sales of precious metals fluctuate with both the volume of product sold and the price of precious metals. The costs of precious metals included in our product sales are generally passed through to customers with minimal gross profit contribution. Operating income declined due to a $9.0 million decrease in gross profit partially offset by a reduction of $5.0 million in SG&A expense. The decline in gross profit was primarily due to the negative effects of lower sales volumes. The decline in SG&A expense was due to expense control initiatives, including the elimination of incentive compensation and staffing reductions.

Color and Glass Performance Materials Segment Results. Sales of Color and Glass Performance Materials declined as a result of lower sales volume. Approximately $16.9 million of the reduction in sales during the third quarter was the result of lower sales volume. The remaining reduction in sales was due to a $7.3 million unfavorable change in product mix and pricing and a $2.2 million negative effect from foreign currency exchanges rates. All regions contributed to the sales decline. Operating income declined due to a $5.6 million decline in gross profit, partially offset by a $3.7 million reduction in SG&A expense. The decline in gross profit was primarily due to the negative effects of lower sales volumes. The reduction in SG&A expense was primarily due to staffing reductions and expense control initiatives.
Polymer Additives Segment Results. Sales declined in Polymer Additives primarily as a result of lower sales volume and changes in product pricing in the United States and Europe. The reduction in volume accounted for approximately $13.2 million of the reduction in sales, while changes in product pricing and mix contributed approximately $11.2 million to the sales decline. Operating profit was flat compared with the prior-year period as a decline of $1.4 million in gross profit was matched by a $1.4 million reduction in SG&A expense. The decline in gross profit was due to the negative effects of lower sales volumes partially offset by lower manufacturing costs. The decline in SG&A expense was due to staffing reductions and expense control initiatives.
Specialty Plastics Segment Results. Sales declined in Specialty Plastics primarily as a result of lower sales volume. Approximately $14.1 million of the reduction in sales during the third quarter was the result of lower sales volume and the remaining reduction was primarily driven by a $4.3 million unfavorable change in product pricing and mix. Operating income increased compared with the prior-year period as a $1.9 million reduction in SG&A expense more than offset a $1.7 million decline in gross profit. The reduction in SG&A expense was due to staffing reductions and expense control initiatives. The decline in gross profit was due to the negative effects of lower sales volumes partially offset by improved manufacturing cost performance.
Pharmaceuticals Segment Results. Sales declined in Pharmaceuticals primarily as a result of changes in product mix. An operating loss was recorded during the third quarter, compared with an operating profit in the prior-year period primarily due to a $2.6 million decline in gross profit, which was partially offset by a $0.6 million reduction in SG&A expense. The decline in gross profit was primarily due to product mix changes. The decline in SG&A expense was primarily due to expense control initiatives. Results related to our Fine Chemicals business, which had previously been combined with the results from our Pharmaceuticals business and reported as "Other Businesses," are now reported as discontinued operations following the sale of the Fine Chemicals business in 2008.

                                 Three months ended
                                    September 30,
                                 2009          2008         $ Change       % Change
                                       (Dollars in thousands)
         Geographic Revenues
         United States         $ 198,521     $ 270,541     $  (72,020 )        (26.6 %)
         International           243,568       319,609        (76,041 )        (23.8 %)

         Total                 $ 442,089     $ 590,150     $ (148,061 )        (25.1 %)

For the third quarter, international sales were approximately 55 percent of total net sales. Compared with the prior-year period, sales declined in all regions due to reduced customer demand resulting from the global economic downturn. Also contributing to the sales decline were reduced sales of precious metals and changes in foreign currency exchange rates.

Comparison of the nine months ended September 30, 2009 and 2008

                                            Nine months ended
                                              September 30,
                                          2009             2008           $ Change        % Change
                                                  (Dollars in thousands,
                                                except per share amounts)
Net sales                              $ 1,199,175      $ 1,812,964      $ (613,789 )         (33.9 %)
Cost of sales                              985,531        1,474,382        (488,851 )         (33.2 %)

Gross profit                               213,644          338,582        (124,938 )         (36.9 %)
Gross profit percentage                       17.8 %           18.7 %
Selling, general and administrative
expenses                                   196,526          234,243         (37,717 )         (16.1 %)
Impairment charges                           8,225                -           8,225               -
Restructuring charges                        3,931           22,280         (18,349 )         (82.4 %)
Other expense (income):
Interest expense                            46,255           38,747           7,508            19.4 %
Interest earned                               (689 )           (484 )          (205 )          42.4 %
Loss on extinguishment of debt                   -            5,531          (5,531 )        (100.0 %)
Foreign currency losses (gains),
net                                          3,033              756           2,277           301.2 %
Miscellaneous expense, net                     199            3,231          (3,032 )         (93.8 %)

(Loss) income before income taxes          (43,836 )         34,278         (78,114 )        (227.9 %)
Income tax (benefit) expense               (15,844 )         14,290         (30,134 )        (210.9 %)

(Loss) income from continuing
operations                                 (27,992 )         19,988         (47,980 )        (240.0 %)
(Loss) income from discontinued
operations, including disposal, net
of income tax                                 (322 )          4,513          (4,835 )        (107.1 %)

Net (loss) income                      $   (28,314 )    $    24,501      $  (52,815 )        (215.6 %)


Diluted (loss) earnings per share      $     (0.69 )    $      0.51      $    (1.20 )        (235.3 %)

Net sales for the nine months ended September 30, 2009, declined by 34 percent compared to the corresponding prior-year period primarily as a result of lower sales volume as our customers responded to the economic downturn. Lower sales volume accounted for approximately 27 percentage points of the overall sales decline. Changes in product mix and prices accounted for approximately 4 percentage points of the decline. These factors include reduced sales of precious metals. Lower precious metal sales contributed approximately 6 percentage points to the lower sales. Changes in foreign currency exchange rates were responsible for approximately 3 percent of the sales decline. Sales declined in all segments and all regions.
Gross profit declined in the first nine months of 2009 compared with the prior-year period primarily as a result of reduced sales. Reduced cost of sales resulting from cost reduction actions, including staffing reductions, plant closures and other restructuring actions, moderated the decline in gross profit. Raw material costs also declined compared with the first half of 2008; however, the benefit from lower raw material costs was largely offset by lower product prices. Gross profit for the first nine months of 2009 was reduced by charges of $3.9 million primarily related to accelerated depreciation and other costs of manufacturing rationalization. Gross profit in the first nine months of 2008 was reduced by approximately $3.0 million related to charges for asset write-offs and manufacturing rationalization activities. Also, gross profit in the prior-year period was reduced by costs of approximately $3.3 million to clean up an accidental discharge of product into the wastewater treatment facility at our Bridgeport, New Jersey, manufacturing location.
Selling, general and administrative ("SG&A") expense declined by $37.7 million during the first nine months of 2009 compared with the same period in 2008. The decline in SG&A expense was driven by expense reduction efforts including reduced staffing, lower incentive compensation expense and suspension of other employee benefits, a furlough program for certain salaried employees and containment of discretionary spending. These actions contributed to a reduction of approximately $28.8 million in salary and wage expense and a $9.4 million reduction in travel and entertainment expense compared with the prior-year period. Partially offsetting these expense reductions was an increase of approximately $15.1 million in pension expense that resulted from a reduction in the value of pension assets in 2008. SG&A expense for the first nine months of 2009 included approximately $7.0 million of charges related to expense reduction initiatives and manufacturing rationalization activities. SG&A expense in the first nine months of 2008 included charges of approximately $3.8 million primarily related to corporate development activities, asset write-offs and employee severance expenses, partially offset by benefits from litigation settlements and insurance proceeds.

During the first nine months of 2009 we recorded impairment charges of . . .