GrafTech Reports Third Quarter 2009 Results

October 29, 2009 7:04 AM EDT

PARMA, Ohio--(BUSINESS WIRE)-- GrafTech International Ltd. (NYSE: GTI) today announced financial results for the third quarter ended September 30, 2009.

2009 Third Quarter Highlights (Q3 2009 as compared to Q2 2009)

    --  Net sales increased five percent to $165 million over the second quarter
        of 2009.
    --  Gross profit was $47 million, an increase of $1 million versus the
        second quarter of 2009.
    --  Operating income increased 29 percent to $25 million. Operating income
        margin expanded nearly three percentage points to 15.2 percent.
    --  Net income was $7 million, or $0.06 per diluted share, versus net loss
        of $37 million, or $0.31 per diluted share, in the second quarter of
        2009.
    --  On an operating basis, net income before special items* was $18 million,
        or $0.15 per diluted share, as compared to $15 million, or $0.12 per
        diluted share, in the second quarter of 2009.
    --  Net cash provided by operating activities was $61 million, a $15 million
        improvement over operating cash flow generated in the second quarter of
        2009. This solid cash flow performance allowed us to complete the early
        redemption of all remaining 10-year Senior Notes, originally issued in
        2002, and reduce our net debt* to $4 million.
    --  As a result of stronger than expected third quarter results and
        anticipation of a solid fourth quarter, we are increasing 2009 annual
        operating income guidance by more than 25 percent.

2009 Third Quarter Highlights (Q3 2009 as compared to Q3 2008)

    --  Net sales were $165 million, versus $316 million in the third quarter of
        2008, primarily the result of lower volumes associated with
        significantly reduced demand driven by the global economic recession.
    --  Gross profit declined to $47 million or 28.3 percent of sales, as
        compared to $114 million or 36.1 percent of sales in the third quarter
        of 2008. The reduction in gross profit percentage was largely the result
        of unfavorable fixed cost absorption associated with lower sales volumes
        and the flow-through of higher cost raw materials.
    --  Operating income was $25 million, versus $87 million in the third
        quarter of 2008. Operating income margin decreased to 15.2 percent of
        sales, from 27.5 percent in the same period in 2008.
    --  Net income was $7 million, or $0.06 per diluted share, versus net income
        of $83 million, or $0.70 per diluted share, in the third quarter of
        2008.
    --  On an operating basis, net income before special items* was $18 million,
        or $0.15 per diluted share, as compared to $66 million, or $0.55 per
        diluted share, in the third quarter of 2008.
    --  Net cash provided by operating activities was $61 million, versus $67
        million in the third quarter of 2008.
    --  Net debt* was $4 million, a reduction of $127 million year-over-year.

Craig Shular, Chief Executive Officer of GrafTech, commented, "Our team continues to execute on productivity initiatives and remains focused on maximizing flow-through of sales dollars to bottom line results. On the cash flow front, this discipline has allowed us to remain cash flow positive in a very difficult operating environment. As a result, we exited the quarter virtually debt free. On the operating income front, we expect second half 2009 results to be approximately double the first half 2009 as a result of increased sales and continued tight cost control."

Industrial Materials Segment

The Industrial Materials segment's net sales were $137 million in the 2009 third quarter, as compared to $266 million in the 2008 third quarter. Net sales in the quarter increased $7 million from $130 million in the 2009 second quarter, as a result of slightly higher graphite electrode sales volume and prices.

Operating income for the Industrial Materials segment was $24 million, versus $74 million in the third quarter 2008. The decline was primarily due to lower sales volume for graphite electrodes related to the sharp reduction in global steel operating rates and the flow-through of higher cost raw materials.

Engineered Solutions Segment

Net sales for the Engineered Solutions segment were $28 million in the 2009 third quarter, as compared to $50 million in the 2008 third quarter. Net sales for the quarter were flat as compared to the second quarter 2009.

Operating income for the Engineered Solutions segment was $1 million, as compared to $13 million in the 2008 third quarter. The decrease was largely the result of lower sales volume across multiple product lines and an unfavorable product mix.

Corporate

Selling and administrative and research and development expenses declined $6 million to $21 million in the 2009 third quarter versus the same period last year. The reduction was largely due to approximately $3 million lower variable compensation expense in the third quarter 2009. The balance of the reduction is primarily related to successful execution of previously announced cost savings initiatives and effective resolution to various contingent liabilities.

Interest expense in the quarter was $1 million, versus $3 million in the third quarter 2008. The reduction was driven primarily by the Company's successful deleveraging initiatives.

Mr. Shular commented, "In the third quarter, we completed the early redemption of the Senior Notes, which originally totaled $550 million and represented our most expensive debt. For the full year 2009, we expect to generate approximately $150 million of operating net cash. The improvement to our balance sheet was recognized by Standard & Poor's, which has placed the Company's corporate credit ratings on positive watch."

Other expense, net, was $11 million in the 2009 third quarter, as compared to other income, net, of $17 million in the third quarter 2008. The change in the quarter is largely due to the foreign currency remeasurement of intercompany loans which generated a non-cash loss of approximately $10 million in the current quarter.

The effective income tax rate in the third quarter 2009, excluding special charges, was 24 percent, as compared to 21 percent in the 2008 third quarter. For the full year 2009, we continue to expect the effective tax rate to be in the range of 22 percent to 25 percent.

Outlook

Based on International Monetary Fund (IMF) projections and other economic forecasts, the global recession has begun to ease, driven by strength in Asian economies and unprecedented global government intervention. While stabilization has begun, steel end market demand remains far below pre-crisis levels and the pace of recovery is anticipated to be slow. As a result, steel producers continue to operate at low rates in order to match current market demand.

Third quarter results came in better than expected due to stronger than anticipated European steel operating rates as well as continued increases in steel operating rates in several geographies. As a result, we believe customers in various geographies have completed their graphite electrode destocking activities earlier than initially expected and began reordering in the third quarter. Accordingly, we are increasing our 2009 full year operating income guidance to reflect the improved third quarter performance and anticipation of a solid fourth quarter.

While the global economy remains fragile, we continue to expect an improvement in fourth quarter results as customers will have largely completed inventory destocking initiatives and continue restocking.

Given global economic conditions, which have been and may continue to be volatile and uncertain, GrafTech expects the following full year 2009 results:

    --  Operating income targeted to be in the range of $80 million to $85
        million (previous guidance was $60 million to $70 million);
    --  The effective tax rate to be in the range of 22 percent to 25 percent;
    --  Capital expenditures to be approximately $50 million to $55 million;
    --  Depreciation expense to be in the range of $32 million to $34 million
        (previous guidance was approximately $35 million);
    --  Cash flow from operations targeted to be approximately $150 million.

In conjunction with this earnings release, you are invited to listen to our earnings call being held today at 11:00 a.m. Eastern Time. 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 quarterly report on Form 10-Q for the period reported. Upon request, GrafTech will provide its stockholders with a hard copy of its complete 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 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 third quarter ended September 30, 2009 and outlook for the 2009 fourth quarter and for 2009 as a whole; regional and global economic and industry market conditions, including our expectations concerning their impact on the markets we serve and, our profitability, operating income, 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 production capacity, inventories, or operating rates in our operations and our customers' operations or possible suspensions thereof; 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, 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 third quarter results; the actual timing of the filing of our Form 10-Q with the SEC and potential effects of delays in such filing; the adoption of government fiscal and monetary stimulus and stabilization plans that could significantly impact us and our industry; further downturns, production suspensions, or changes in steel and other markets we serve or that our customers 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; delays in 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 or inadequacy in production lead times to meet growth in demand, if any; investments and acquisitions that we make or may make in the future, failure to successfully integrate into our business or the failure of such investments and acquisitions to 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 availability or cost of key and other raw materials, including petroleum based coke, or energy; 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 working capital, growth, or other initiatives on acceptable terms; changes in interest or currency exchange rates or competitive conditions, including growth by 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.

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)

                                               At December 31,  At September 30,
                                               2008             2009

 ASSETS                                        (as adjusted)

Current Assets:

 Cash and cash equivalents                     $ 11,664         $ 8,665

 Accounts and notes receivable, net of
 allowance for doubtful accounts of $4,110 at    146,986          104,450
 December 31, 2008 and $5,061 at September
 30, 2009

 Inventories                                     290,397          251,802

 Loan to non-consolidated affiliate              -                6,000

 Prepaid expenses and other current assets       14,376           19,044

 Total current assets                            463,423          389,961

 Property, plant and equipment                   873,932          957,015

 Less: accumulated depreciation                  536,562          591,672

 Net property, plant and equipment               337,370          365,343

 Deferred income taxes                           1,907            6,516

 Goodwill                                        7,166            8,784

 Other assets                                    12,887           12,089

 Investment in non-consolidated affiliate        118,925          64,460

 Restricted cash                                 1,451            2,450

 Total assets                                  $ 943,129        $ 849,603

 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

 Accounts payable                              $ 55,132         $ 41,248

 Interest payable                                953              7

 Short-term debt                                 9,347            10,256

 Accrued income and other taxes                  34,861           33,134

 Other accrued liabilities                       140,330          64,814

 Total current liabilities                       240,623          149,459

Long-term debt:

 Principal                                       50,328           2,145

 Fair value adjustments for hedge instruments    191              -

 Unamoritized premium (discount)                 38               (651      )

 Total long-term debt                            50,557           1,494

 Other long-term obligations                     118,272          121,723

 Deferred income taxes                           29,087           30,012

Stockholders' equity:

 Preferred stock, par value $.01, 10,000,000     -                -
 shares authorized, none issued

 Common stock, par value $.01, 150,000,000
 shares authorized at December 31, 2008 and
 225,000,000 authorized at September 30,         1,226            1,239
 2009, 122,634,854 shares issued at December
 31, 2008 and 123,945,414 shares issued at
 September 30, 2009

 Additional paid-in capital                      1,290,381        1,298,108

 Accumulated other comprehensive loss            (355,960  )      (299,557  )

 Accumulated deficit                             (317,752  )      (339,510  )

 Less: cost of common stock held in treasury,
 3,974,345 shares at December 31, 2008 and       (112,511  )      (112,511  )
 September 30, 2009

 Less: common stock held in employee benefit
 and compensation trusts, 55,728 shares at       (794      )      (854      )
 December 31, 2008 and 69,661 shares at
 September 30, 2009

Total stockholders' equity                       504,590          546,915

 Total liabilities and stockholders' equity    $ 943,129        $ 849,603

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited)

                          For the                     For the
                          Three Months Ended          Nine Months Ended
                          September 30,               September 30,

                          2008           2009         2008           2009

                          (as adjusted)               (as adjusted)

Net sales                 $ 315,748      $ 164,879    $ 925,288      $ 456,679

Cost of sales               201,795        118,226      588,884        332,244

Gross profit                113,953        46,653       336,404        124,435

Research and development    2,479          2,871        6,579          8,048

Selling and                 24,754         18,589       71,033         63,319
administrative expenses

Restructuring charges,      7              120          349            88
net

Operating income            86,713         25,073       258,443        52,980

Equity in losses and
write-down of investment    -              953          -              54,343
in non-consolidated
affiliate

Other (income) expense,     (16,919 )      10,710       7,035          8,446
net

Interest expense            3,427          1,168        16,859         4,236

Interest income             (204    )      (251    )    (782    )      (552    )

Income (loss) before
provision for income        100,409        12,493       235,331        (13,493 )
taxes

Provision for (benefit      17,009         5,629        69,392         8,265
from) income taxes

Net income (loss)         $ 83,400       $ 6,864      $ 165,939      $ (21,758 )

Basic income (loss) per
common share:

Net income (loss) per     $ 0.70         $ 0.06       $ 1.52         $ (0.18   )
share

Weighted average common     118,764        119,928      109,063        119,596
shares outstanding

Diluted earnings (loss)
per common share:

Net income (loss) per     $ 0.70         $ 0.06       $ 1.45         $ (0.18   )
share

Weighted average common     119,965        120,716      118,920        119,596
shares outstanding

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

                         For the                     For the
                         Three Months Ended          Nine Months Ended
                         September 30,               September 30,

                         2008           2009         2008           2009

                         (as adjusted)               (as adjusted)

Cash flow from
operating activities:

Net income (loss)        $ 83,400       $ 6,864      $ 165,939      $ (21,758  )

Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:

Depreciation and           9,332          7,703        26,748         23,905
amortization

Deferred income taxes      (880    )      (11,677 )    10,212         (10,829  )

Equity in losses and       -              953          -              54,343
write-down of
investment in
non-consolidated
affiliate

Gain on redemption of      -              -            (4,060   )     -
debentures

Currency (gains) losses    (22,065 )      8,817        (7,752   )     5,135

Post retirement and        5,098          1,290        6,679          6,688
pension plan changes

Stock based
compensation, including    1,488          999          3,861          5,957
incentive compensation
paid in company stock

Interest expense           519            380          7,488          1,040

Other (credits)            (9,915  )      2,067        (7,298   )     14,666
charges, net

Dividends from
non-consolidated           -              -            -              122
affiliate

(Increase) decrease in     5,442          44,290       (29,560  )     47,693
working capital1

Long-term assets and       (5,501  )      (414    )    (2,978   )     (5,259   )
liabilities

Net cash provided by       66,918         61,272       169,279        121,703
operating activities

Cash flow from
investing activities:

Capital expenditures       (20,056 )      (10,580 )    (47,610  )     (40,544  )

Proceeds from              87             170          311            433
derivative instruments

Investment in and loan
to non-consolidated        (1,779  )      (6,000  )    (136,390 )     (6,000   )
affiliate

Proceeds from sale of      301            43           319            112
assets

Change in restricted       257            (980    )    91             (999     )
cash

Net cash used in           (21,190 )      (17,347 )    (183,279 )     (46,998  )
investing activities

Cash flow from
financing activities:

Short-term debt            (3,368  )      (1,756  )    11,625         773
borrowings, net

Revolving Facility         25,036         10,000       180,661        124,715
borrowings

Revolving Facility         (67     )      (43,231 )    (70,877  )     (155,231 )
reductions

Long-term debt             -              1,837        -              1,837
additions

Long-term debt             (54,910 )      (19,906 )    (179,418 )     (20,035  )
reductions

Excess tax benefit from
stock-based                2,137          -            14,273         10
compensation

Supply chain financing     -              -            -              (30,115  )

Long-term financing        (296    )      (279    )    (296     )     (815     )
obligations

Purchase of treasury       (15,927 )      -            (21,250  )     -
shares

Proceeds from exercise     595            32           36,910         89
of stock options

Net cash provided by
(used in) financing        (46,800 )      (53,303 )    (28,372  )     (78,772  )
activities

Net increase (decrease)
in cash and cash           (1,072  )      (9,378  )    (42,372  )     (4,067   )
equivalents

Effect of exchange rate
changes on cash and        (1,359  )      414          (1,237   )     1,068
cash equivalents

Cash and cash
equivalents at             13,563         17,629       54,741         11,664
beginning of period

Cash and cash
equivalents at end of    $ 11,132       $ 8,665      $ 11,132       $ 8,665
period

1Net change in working
capital due to the
following components:

(Increase) decrease in
current assets:

Accounts and notes       $ (12,410 )    $ (9,506  )  $ (60,596  )   $ 64,187
receivable

Effect of factoring on     323            (175    )    24,096         (15,993  )
accounts receivable

Inventories                (5,450  )      32,352       (11,009  )     62,819

Prepaid expenses and       241            245          (735     )     (596     )
other current assets

Restructuring payments     (57     )      (1      )    (873     )     (12      )

Increase (decrease) in
accounts payable and       20,202         9,258        10,540         (62,672  )
accruals

Increase in accrued        4,899          13,077       17,837         906
income taxes

(Decrease) in interest     (2,306  )      (960    )    (8,820   )     (946     )
payable

(Increase) decrease in   $ 5,442        $ 44,290     $ (29,560  )   $ 47,693
working capital

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
SEGMENT DATA SUMMARY
(Dollars in thousands)
(Unaudited)

                          For the                   For the
                          Three Months Ended        Nine Months Ended
                          September 30,             September 30,

                          2008         2009         2008         2009

Net sales:

Industrial Materials      $ 266,046    $ 136,721    $ 789,456    $ 371,076

Engineered Solutions        49,702       28,158       135,832      85,603

Net sales                 $ 315,748    $ 164,879    $ 925,288    $ 456,679

Operating income:

Industrial Materials      $ 74,180     $ 23,828     $ 228,491    $ 46,986

Engineered Solutions        12,533       1,245        29,952       5,994

Operating income          $ 86,713     $ 25,073     $ 258,443    $ 52,980

Operating income margin:

Industrial Materials        27.9    %    17.4    %    28.9    %    12.7    %

Engineered Solutions        25.2    %    4.4     %    22.1    %    7.0     %

Operating income margin     27.5    %    15.2    %    27.9    %    11.6    %

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
SELECTED SECOND QUARTER 2009 DATA
(Dollars in thousands)
(Unaudited)

                                           For the Three Months Ended June 30,

                                           2009

Net Sales                                  $ 157,774

Industrial Materials Net Sales             $ 129,834

Engineered Solutions Net Sales             $ 27,940

Gross Profit                               $ 45,688

Operating Income                           $ 19,484

Net Income                                 $ (37,091 )

Net Income Before Special Items*           $ 14,778

Net Cash Provided by Operating Activities  $ 46,107

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
(Unaudited)

Net Income and Earnings per
Share Reconciliation

                              For the                  For the
                              Three Months Ended       Three Months Ended
                              September 30, 2008       September 30, 2009

                              Income       EPS Impact  Income       EPS Impact

Net Income                    $ 83,400     $ 0.70      $ 6,864      $ 0.06

Adjustments, net of tax, per
diluted share

 - Equity in losses of and
 write down of investment in    -            -           766          0.01
 non-consolidated affiliate

 - Non-recurring tax            274          -           (1,253  )    (0.02 )
 adjustments

 - Restructuring and Other      (17,636 )    (0.15 )     12,085       0.10
 (income) expense, net

Net Income before special     $ 66,038     $ 0.55      $ 18,462     $ 0.15
items

                              For the                  For the
                              Nine Months Ended        Nine Months Ended
                              September 30, 2008       September 30, 2009

                              Income       EPS Impact  Income       EPS Impact

Net Income                    $ 165,939    $ 1.45      $ (21,758 )  $ (0.18 )

Adjustments, net of tax, per
diluted share

 - Equity in losses of and
 write down of investment in    -            -           46,953       0.39
 non-consolidated affiliate

 - Non-recurring tax            902          0.01        2,662        0.02
 adjustments

 - Accounting standards         5,841        0.05        -            -
 codification ACS 470-2

 - Restructuring and Other      10,928       0.09        10,208       0.09
 (income) expense, net

Net Income before special     $ 183,610    $ 1.60      $ 38,065     $ 0.32
items

For 2008, the non-GAAP earnings per diluted share includes 13.6 million shares underlying our previously outstanding contingently convertible debentures and excludes approximately $3 million (before and after tax) in the second quarter of 2008 and $6 million (before and after tax) through June 19, 2008 of contingently convertible debenture interest expense.

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.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)

Net Debt Reconciliation

                At September 30,  At December 31,  At June 30,  At September 30,
                2008              2008             2009         2009

Long-term debt  $ 130,577         $ 50,557         $ 53,712     $ 1,494

Short-term        11,982            9,347            12,019       10,256
debt

Supply chain      -                 30,115           -            -
financing

Total debt      $ 142,559         $ 90,019         $ 65,731     $ 11,750

Less:

Fair value
adjustments       204               191              165          -
for hedge
instruments

Unamortized
premium           41                38               33           (651   )
(discount)

Cash and cash     11,132            11,664           17,629       8,665
equivalents

Net Debt        $ 131,182         $ 78,126         $ 47,904     $ 3,736

NOTE ON NET DEBT RECONCILIATION: Net debt is a non-GAAP financial measure that GrafTech calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GrafTech excludes the unamortized bond premium from its sale of $150 million aggregate principal amount of additional senior notes in May 2002 at a price of 104.5% of principal amount. The premium received in excess of principal amount is amortized to reduce interest expense over the term of the senior notes. GrafTech also excludes the fair value adjustments for hedge instruments, which includes interest rate swaps that have been marked-to-market and realized gains or (losses) on interest rate swaps. GrafTech believes that net debt is generally accepted as providing useful information regarding a company's indebtedness and that net debt provides meaningful information to investors to assist them to analyze leverage. Management uses net debt as well as other financial measures in connection with its decision-making activities. Net debt should not be considered in isolation or as a substitute for total debt or total debt and other long-term obligations calculated in accordance with GAAP. GrafTech's method for calculating net debt may not be comparable to methods used by other companies and is not the same as the method for calculating net debt under its senior secured revolving credit facility. GrafTech does not forecast the fair value adjustment for hedging instruments.

*Non-GAAP financial measures. See attached reconciliations.

GTI-G

    Source: GrafTech International Ltd.

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