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GrafTech Reports Second Quarter 2005 Results.

Article Excerpt
WILMINGTON, Del. -- GrafTech International Ltd. (NYSE: GTI) today reported second quarter 2005 results.

Second Quarter 2005 Summary

-- Net sales were $220 million, versus $213 million in the second quarter of 2004. -- Average graphite electrode sales revenue per metric ton increased 14 percent, versus the second quarter of 2004, to $2,849. -- Graphite electrode volume for the quarter was 48.2 thousand metric tons. -- Electronic thermal management (ETM) net sales increased 50 percent to $4.5 million. GTI now expects ETM sales of about $20 million in 2005, representing an almost 70 percent increase over 2004. -- Gross profit increased by approximately five percent to $57 million, versus $54 million for the second quarter of 2004, driven primarily by higher average graphite electrode revenue per metric ton and productivity enhancements. GTI's graphite electrode production costs have been tracking at the lower end of its cost guidance due primarily to productivity improvements. -- Net income for the quarter was $5 million, or $0.06 per diluted share, versus net income of $18 million, or $0.16 per diluted share, in the second quarter of 2004. Net income in the second quarter of 2005 included a gain of $12 million (before and after tax) from the successful reduction of the EU antitrust fine. -- Net income before special items was $11 million, or $0.11 per diluted share, versus $13 million or $0.12 per diluted share, in the second quarter of 2004. The decrease in net income was primarily due to an increase of $3 million in interest expense in the second quarter of 2005. (See attached reconciliation.) -- Free cash flow before antitrust and restructuring payments was breakeven. GTI generated positive cash flow from operations of $5 million, despite using $17 million for working capital, primarily for inventory. (See attached reconciliation.) -- Received the prestigious 2005 R&D 100 Award for GTI's new Apollo brand graphite electrode, a technological breakthrough that enables higher steel productivity in the largest and most demanding electric arc furnace (EAF) applications. -- Obtained first ETM product approvals in the following market segments: -- Liquid crystal display (LCD) flat panel displays used in televisions and computer monitors; -- Wireless personal data assistant (PDA) communication devices; and -- Video gaming devices. -- Received Federal Mogul's prestigious "Supplier of the Year" award, one of only six companies recognized out of over 7,000 of their suppliers.

GTI Chief Executive Officer Craig Shular commented, "We continued to grow our revenues this quarter despite the much lower than anticipated operating levels of our steel customers. Graphite electrode shipments were slightly lower than plan as our steel customers continued working through high steel inventories. Despite these lower shipments, gross profit and gross margin percent in our synthetic graphite segment continued to improve, achieving a four-year high, driven by both higher realized prices and better than anticipated productivity improvements."

Mr. Shular continued, "During the quarter, we also made significant progress in commercializing new advantaged technologies. We received the prestigious 2005 R&D 100 Award for our new Apollo brand graphite electrode that enables higher steel productivity in the largest and most demanding EAF applications. This is the third consecutive year that GTI has received this prestigious award for commercializing new products with its advantaged technologies.

We also received our first approval in the very important LCD flat panel display segment. We believe the LCD television segment, when coupled with the plasma display panel television segment, is expected to grow from about eight million units, or four percent of total televisions sold in 2004, to 60 million units, or 28 percent of the total television market, by 2008. We are now positioned to participate in the anticipated rapid growth of both of these segments over the next few years."

Synthetic Graphite Reporting Segment

(Graphite electrodes, cathodes and advanced synthetic graphite products)

Net sales for GTI's synthetic graphite segment increased three percent in the second quarter of 2005 to $193 million as compared to $188 million in the second quarter of 2004. The increase was primarily attributable to higher sales volume in the company's cathode and advanced graphite material product lines and increased average graphite electrode revenue per metric ton.

Second quarter 2005 average graphite electrode revenue per metric ton increased approximately 14 percent to $2,849 as compared to $2,507 in the second quarter of 2004. Graphite electrode sales volume was 48.2 thousand metric tons as compared to 55.9 thousand metric tons in the same period in the prior year, primarily due to the company's price initiatives and the lower operating levels of its steel customers.

Gross profit for the synthetic graphite segment increased six percent to $51 million as a result of higher graphite electrode prices and stronger volumes in the advanced graphite materials product line. The improvement was partially offset by increased costs, in line with the company's guidance. During the quarter, the graphite electrode gross profit represented the single best gross margin performance since 2001, contributing to GTI's total company gross profit performance.

Other Reporting Segment

(Natural graphite (AET), and carbon refractories and electrodes)

Net sales for GTI's other segment increased eight percent to $27 million in the second quarter of 2005, versus $25 million in the second quarter of 2004, representing a four-year high for GTI. This increase was primarily driven by second quarter 2005 ETM sales of $4.5 million, representing a 50 percent or $1.5 million increase over net sales of $3 million in the second quarter of 2004.

Commenting on the growth of GTI's ETM product line, Mr. Shular said, "We are pleased with our market penetration to date and continued revenue growth. We expect to...