GrafTech Reports Fourth Quarter and Year Ended 2009 Results

Graftech International Ltd. (NYSE:GTI) today announced financial results for the fourth quarter and year ended December 31, 2009.

2009 Fourth Quarter Highlights (Q4 2009 as compared to Q3 2009 and Q4 2008)

• Net sales increased 23 percent to $202 million, versus the third quarter 2009, representing the strongest quarter of the year. Year-over-year fourth quarter net sales were down $63 million or 24 percent.
• Gross profit was $67 million or 33.0 percent of sales, a $20 million improvement over the third quarter 2009. This compares to gross profit of $97 million or 36.8 percent of sales in the fourth quarter 2008.
• Operating income was $46 million, as compared to $25 million in the third quarter 2009 and $70 million in the fourth quarter 2008. During the fourth quarter 2009, we settled a contingent liability in Brazil which had a favorable impact on operating income in the quarter of $4 million. Excluding the impact of this benefit, operating income was $42 million in the fourth quarter 2009, the highest quarterly operating income of the year.
• Net income was $34 million, or $0.28 per diluted share, versus $7 million, or $0.06 per diluted share, in the third quarter 2009. Net income was $35 million or $0.29 per diluted share in the fourth quarter 2008, including the unfavorable impact of the non-cash impairment of $23 million, after tax, associated with our investment in Seadrift Coke L.P. (Seadrift).
• On an operating basis, net income before special items* was $31 million, or $0.26 per diluted share, as compared to $18 million, or $0.15 per diluted share, in the third quarter 2009. Net income before special items* was $59 million, or $0.49 per diluted share, in the fourth quarter 2008.

2009 Full Year Review

• Net sales were $659 million, versus 2008 net sales of $1,190 million. The year-over-year decline in sales was primarily the result of lower volumes associated with significantly reduced demand driven by the global economic recession, partially offset by an increase in year-over-year price realization.
• Gross profit declined to $191 million or 29.0 percent of sales, as compared to $433 million or 36.4 percent of sales in 2008. The reduction in gross profit percentage was largely the result of unfavorable fixed cost absorption associated with lower sales volume.
• Operating income was $99 million, versus $329 million in 2008. Operating income margin decreased to 15.0 percent of sales, from 27.6 percent in 2008.
• Net income was $13 million, or $0.10 per diluted share, versus $201 million, or $1.74 per diluted share, in 2008. Adversely impacting net income in both periods were charges, net of tax, of $45 million in 2009 and $23 million in 2008, related to the non-cash impairment in the value of our investment in Seadrift.
• On an operating basis, net income before special items* was $69 million, or $0.57 per diluted share, as compared to $242 million, or $2.09 per diluted share, in 2008.
• Net cash provided by operating activities was $170 million, versus $249 million in 2008. Operating net cash in 2009 was favorably impacted by a $68 million decrease in working capital requirements. This solid performance allowed us to virtually eliminate our debt and finish the year with $50 million in cash and cash equivalents.

Craig Shular, Chief Executive Officer of GrafTech, commented, "Our team was able to achieve productivity and cost control initiatives allowing us to be profitable and cash flow positive in a very difficult operating environment. We completed the year with the strongest balance sheet in our Company’s history, closing the year with $50 million in cash and an undrawn revolver.”

Mr. Shular continued, "Standard & Poor’s recognized the improvements made to the balance sheet by raising our corporate credit rating two notches to ‘BB⁺’ and increasing the rating on our revolving credit facility to ‘BBB’, or investment grade. The improvement to our credit ratings positions our Company well for future growth.”

Industrial Materials Segment

The Industrial Materials segment’s net sales declined to $167 million in the fourth quarter 2009, as compared to $219 million in the fourth quarter 2008. Net sales in the quarter increased $30 million from $137 million in the 2009 third quarter primarily as a result of higher graphite electrode sales volume.

Operating income for the Industrial Materials segment was $42 million in the fourth quarter of 2009, versus $59 million in the same period in 2008. The decline year-over-year was primarily due to lower sales volume for graphite electrodes and unfavorable currency movement, offset in part by higher graphite electrode selling prices.

Engineered Solutions Segment

Net sales for the Engineered Solutions segment were $35 million in the fourth quarter 2009, as compared to $46 million in the fourth quarter 2008, due to lower sales volume associated with weak end market demand. Net sales increased $7 million as compared to the third quarter 2009.

Operating income for the Engineered Solutions segment was $4 million, as compared to $11 million in the fourth quarter 2008. The reduction in operating income was primarily the result of lower sales volume across multiple product lines and an unfavorable product mix.

Corporate

Selling and administrative and research and development expenses were $21 million in the fourth quarter 2009, as compared to $27 million in the fourth quarter 2008. During the fourth quarter 2009, we settled a contingent liability in Brazil, which had a favorable impact in the quarter of $4 million. Excluding this impact, overhead expense for the fourth quarter 2009 was $25 million.

Other income, net, was $7 million in the fourth quarter 2009, as compared to other expense, net, of $5 million in the same period in 2008. The change is largely due to the remeasurement of intercompany loans which generated a non-cash gain of approximately $6 million in the current reported quarter, as compared to a loss of approximately $4 million in the prior year.

The effective income tax rate in the fourth quarter 2009 and the full year 2009, excluding other special charges, was 24 percent, consistent with our prior guidance.

Outlook

Based on current International Monetary Fund (IMF) projections and other global economic forecasts, world output is projected to rise in 2010 in both advanced and emerging economies, although to varying degrees. IMF notes that the recovery in advanced economies is anticipated to be weak by past standards while emerging economies are poised for a quicker and stronger recovery given robust internal demand. While recovery has begun in certain regions, electric arc furnace steel end market demand is anticipated to remain below pre-crisis levels.

As a result, graphite electrode industry recovery is anticipated to be slow as operating rates remain subdued compared to historical standards. Weak end market demand remains a risk to price realization as we work to complete our 2010 graphite electrode order book. We expect 2010 results to benefit from improved volumes in our graphite electrode business; however, this impact will be partially offset due to significant higher raw material costs.

Given the fragile state of economic recovery, limited customer visibility and shift in customer order patterns to shorter term contracts, our ability to project full year detailed guidance is limited. We expect that the first quarter will be our weakest quarter of the year with operating income targeted to be in the range of $30 million to $34 million. A marginal improvement to earnings is anticipated in subsequent quarters, driven by a slight increase in Industrial Material volumes and the expectation that our Engineered Solutions segment begins to recover in the second half of 2010.

In 2010, we are targeting overhead expense to be in the range of $105 million to $110 million, capital expenditures to be in the range of $70 million to $75 million, depreciation expense to be approximately $35 million and the effective tax rate to be in the range of 24 percent to 27 percent.

Mr. Shular commented, "Given our strong balance sheet and commitment to growing our Company, we expect an increase in overhead expense and capital expenditures in 2010 to better position our Company for future growth. We are investing in organic growth by increasing our sales and marketing coverage, supporting Lean initiatives, and funding new product development projects.”

In conjunction with this earnings release, you are invited to listen to our earnings call being held today at 11:00 a.m. Eastern. The call will be webcast and available at www.graftech.com, in the investor relations section. A conference call will also be available. The dial-in number is 800-894-3831 for domestic and 763-416-5291 for international. The rebroadcast webcast will be available following the call, and for 30 days thereafter, at www.graftech.com, in the investor relations section. GrafTech also makes its complete financial reports that have been filed with the Securities and Exchange Commission available at www.graftech.com. This includes its annual report on Form 10-K for the period reported. Upon request, GrafTech will provide its stockholders with a hard copy of its complete audited financial statements free of charge.

GrafTech International Ltd. is one of the world’s largest manufacturers and providers of high quality synthetic and natural graphite and carbon based products and technical and research and development services, with customers in about 70 countries engaged in the manufacture of steel, automotive products and electronics. We manufacture graphite electrodes, products essential to the production of electric arc furnace steel. We also manufacture thermal management, fuel cell and other specialty graphite and carbon products for, and provide services to, the electronics, power generation, solar, oil and gas, transportation, petrochemical and other metals markets. We operate 11 manufacturing facilities strategically located on four continents. For additional information on GrafTech International Ltd., call 216-676-2000, or visit our website at www.graftech.com.

NOTE ON FORWARD-LOOKING STATEMENTS: This news release and related discussions may contain forward-looking statements about such matters as: our preliminary unaudited results for the fourth quarter and full year ended December 31, 2009 and outlook for 2010; regional and global economic and industry market conditions including our expectations concerning their impact on the markets we serve, our profitability, cash flow, and liquidity; conditions and changes in the global financial and credit markets and their impact on us and our customers and suppliers; the impact of actions being taken to improve our cost competitiveness and liquidity; estimated future capital expenditures and their impact on product quality and efficiencies; changes in operating rates and production capacity in our operations and our customers’ operations; growth rates for, future prices and sales of, and demand for our products and our customers products; costs of materials and production, including anticipated changes therein; our position in markets we serve; investments and acquisitions that we have made or may make in the future; tax rates and the effects of jurisdictional mix and nonrecurring and other items; future operational and financial performance; strategic and growth plans; currency exchange and interest rates; financing activities (including those with respect to our credit facilities which expire in July 2010 and our factoring and supply chain financing); stock repurchase plans; raw material and supply chain management; future sales, costs, working capital, revenues, business opportunities; operational and financial performance; and debt levels. We have no duty to update these statements. Our expectations and targets are not predictions of actual performance and historically our performance has deviated, often significantly, from our expectations and targets. Actual future events, circumstances, performance and trends could differ materially, positively or negatively, from those set forth in these statements due to various factors, including: the extent of any adjustments to our preliminary 2009 fourth quarter and full year results; the actual timing of the filing of our Form 10-K with the SEC and potential effects of delays in such filing; government fiscal and monetary stimulus and stabilization plans that could significantly impact us and our industry; further downturn or changes in steel and other markets we serve that could result in additional loss of revenue, profitability, and cash flow; a protracted regional or global financial or economic crisis that could cause us not to achieve our growth and diversification plans, or meet market expectations, or to lose market share; challenging economic conditions may lead to more intensified price competition and price or margin decreases; reductions in capacity or production by us and our customers; timing of customer destocking activities or failure of demand to increase thereafter; graphite electrode manufacturing capacity increases; differences between actual graphite electrode prices and spot or announced prices; changes in inventory management and utilization or in supply chain management; consolidation of steel producers; limitations on the amounts of or delays in the timing of our capital expenditures; absence of successful development and commercialization of new or improved products or subsequent displacement thereof by other products or technologies; failure to expand manufacturing capacity to meet growth in demand, if any; investments and acquisitions that we make or may make in the future may not be successfully integrated into our business or provide the performance or returns expected; inability to protect our intellectual property rights or infringement of intellectual property rights of others; unanticipated developments in legal proceedings or litigation; non-realization of anticipated benefits from organizational changes and restructurings; significant changes in our provision for income taxes and effective income tax rate; unanticipated developments relating to health, safety or environmental compliance or remediation obligations or liabilities to third parties, changes in labor relations; significant changes in the cost of key and other raw materials, including petroleum based coke, or energy by reason of shortages, market pricing, volume and other pricing terms in applicable supply contracts, or other events; changes in market prices of our securities, or other events that affect our financing and capital structure plans or limit our ability to obtain financing for growth and other initiatives on acceptable terms; changes in interest or currency exchange rates or competitive conditions, including activities of producers in developing countries and the mix, distribution, and pricing of their products; inflation or deflation; changes in appropriation of or failure to satisfy conditions to government grants; failure to achieve earnings or other estimates; business interruptions adversely affecting our ability to supply our products; and other risks and uncertainties, including those detailed in our SEC filings, as well as future decisions by us. This news release does not constitute an offer or solicitation as to any securities. References to street or analyst earnings estimates mean those published by First Call.

For the full year 2008, the non-GAAP earnings per diluted share included 13.6 million shares underlying our previously outstanding convertible debentures and excluded approximately $6 million, before and after tax, of previously outstanding convertible debenture interest expense applicable through June 19, 2008.

NOTE ON RECONCILIATION OF EARNINGS DATA: Income (loss) excluding the items mentioned above is a non-GAAP financial measure that GrafTech calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GrafTech believes that the excluded items are not primarily related to core operational activities. GrafTech believes that income (loss) excluding items that are not primarily related to core operational activities is generally viewed as providing useful information regarding a company’s operating profitability. Management uses income (loss) excluding these items as well as other financial measures in connection with its decision-making activities. Income (loss) excluding these items should not be considered in isolation or as a substitute for net income (loss), income (loss) from continuing operations or other consolidated income data prepared in accordance with GAAP. GrafTech’s method for calculating income (loss) excluding these items may not be comparable to methods used by other companies.

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* Non-GAAP financial measures. See attached reconciliations.

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