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GrafTech Reports Second Quarter 2012 Results

In summary, based on IMF projections and other economic forecasts and factors described above, we expect the following targeted results in 2012:

  • EBITDA in the range of $235 million to $255 million (previous guidance was $250 million to $290 million);
  • Overhead expense (selling and administrative, and research and development expenses) of approximately $160 million (previous guidance was $170 million);
  • Interest expense of approximately $22 million (previous guidance was $18 million to $22 million);
  • Capital expenditures in the range of $120 million to $130 million (previous guidance was $125 million to $145 million);
  • Depreciation and amortization expense of approximately $85 million (previous guidance was $90 million);
  • An effective tax rate in the range of 23 percent to 25 percent;
  • Cash flow from operations in the range of $90 million to $120 million (previous guidance was $140 million to $170 million); and
  • Full year fully diluted share count of approximately 140 million shares.

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. The earnings call dial-in number is 877-736-7716 for domestic and 706-501-7465 for international. A rebroadcast webcast will be available following the call, and for 30 days thereafter, at www.graftech.com , in the investor relations section. GrafTech makes its complete financial reports that have been filed with the SEC, including its most recent annual report on Form 10-K, as well as its most recent investor presentation available at www.graftech.com . Upon request, GrafTech will provide its stockholders with a hard copy of its complete audited financial statement, 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 over 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, and petroleum needle coke, the raw material essential to the production of graphite electrodes. 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, defense, petrochemical and other metals markets. We operate 19 manufacturing facilities strategically located on four continents. For additional information on GrafTech, 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 outlook for 2012 and 2013; future profitability, cash flow, and liquidity; future sales, costs, debt levels, depreciation and amortization, working capital including variations in our inventory levels, revenues, margins, and business opportunities; scheduled maintenance; future operational performance; strategic plans; stock repurchase plans; supply chain obligations, opportunities and management; cost competitiveness and liquidity initiatives; changes in production capacity, operating rates or efficiency; capital expenditures; future prices and demand for our products; new products including their impact on our results; product quality; the impact of acquired businesses; investments and acquisitions that we may make in the future; the integration of acquisitions into our operations; financing (including factoring and supply chain financing) activities; debt levels; our customers' operations, production levels, electrode and needle coke usage, and demand for their products; our position in markets we serve; regional and global economic and industry prospects and market conditions, including third party projections and other economic forecasts and our expectations concerning their impact on us and our customers and suppliers; competitive pressure on sales and pricing; conditions and changes in the global financial and credit markets; future tax rates and the effects of jurisdictional mix; the impact of accounting changes; and currency exchange and interest rates and expenses.

We have no duty to update these statements. These statements are not predictions and historically actual future events, circumstances, performance and trends have deviated, often significantly, from our forward-looking statements. Actual future events, circumstances, performance and trends could differ materially, positively or negatively, from these statements due to various factors, including: any adjustments to our announced 2012 second quarter results; the actual timing of the filing of our Form 10-Q with the SEC and potential effects of delays in such filing; deteriorating economic conditions and the possibility of lower order rates, order cancellations, increases in past due receivables or bad debts, supply chain disruptions, inability to reduce production input sourcing commitments consistent with lower demand and other events that could adversely impact our revenues, profitability, cash flow, working capital, inventory levels, and debt levels; impacts of the delay or failure to resolve the European debt crisis or to address the U.S. “fiscal cliff;” failure to achieve financial targets or estimates; failure to successfully develop and commercialize new or improved products; adverse changes in inventory levels, including raw materials and finished goods; limitations or delays affecting capital expenditures or scheduled maintenance; production or other business or operating suspensions, interruptions or delays; delays or changes in investments or acquisitions or non-consummation of proposed investments or acquisitions; failure to successfully integrate into our business any completed investments and acquisitions; failure to achieve expected synergies or the performance or returns expected from any completed investments or acquisitions; inability to protect our intellectual property rights or infringement of intellectual property rights of others; changes in market prices of our securities and impact on our stock repurchase programs; changes in our ability to comply with financial covenants, maintain our business and implement our business plans within our current levels of revolving and other debt financing or maintain or obtain supply chain, local country company revolving debt and other debt financing on acceptable terms; adverse changes in labor relations; adverse developments in legal proceedings; non-realization of anticipated benefits from organizational changes and restructurings; negative developments relating to health, safety or environmental compliance, remediation or liabilities; changes in steel and other markets we or our customers serve; political unrest that adversely impacts us or our customers’ businesses; declines in demand; price or margin decreases; intensified competition, including growth by producers in developing countries; graphite electrode and needle coke manufacturing capacity increases; adverse differences between actual graphite electrode prices and spot or announced prices; consolidation of steel producers; mismatches between manufacturing capacity and demand; significant changes in our provision for income taxes and effective income tax rate; changes in the availability or cost of key inputs, including petroleum-based coke or energy; changes in interest or currency exchange rates; inflation or deflation; failure to satisfy conditions to government grants; changes in government fiscal and monetary policy; a protracted regional or global financial or economic crisis; 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.

*Non-GAAP financial measures. See attached reconciliations.

         
 
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)

(Unaudited)

 

At December 31, 2011

At June 30, 2012

ASSETS
Current assets:
Cash and cash equivalents $ 12,429 $ 7,137
Accounts and notes receivable, net of allowance for doubtful accounts of $4,153 at December 31, 2011 and $4,794 at June 30, 2012 253,151 217,487
Inventories 444,062 554,571
Prepaid expenses and other current assets 22,308   31,515  
Total current assets 731,950   810,710  
 
Property, plant and equipment 1,431,432 1,469,625
Less: accumulated depreciation 654,548   672,432  
Net property, plant and equipment 776,884 797,193
Deferred income taxes 7,931 7,284
Goodwill 498,681 498,540
Other assets 152,920   142,937  
Total assets $ 2,168,366   $ 2,256,664  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 74,280 $ 63,649
Short-term debt 14,168 8,270
Accrued income and other taxes 44,330 28,266
Supply chain financing liability 29,930 25,119
Other accrued liabilities 114,545   102,735  
Total current liabilities 277,253   228,039  
 
Long-term debt 387,624 570,758
Other long-term obligations 131,300 124,550

Deferred income taxes

32,245 33,864
 
Stockholders’ equity:
Preferred stock, par value $.01, 10,000,000 shares authorized, none issued - -
Common stock, par value $.01, 225,000,000 shares authorized, 149,861,081 shares issued at December 31, 2011 and 150,421,036 shares issued at June 30, 2012 1,499 1,504
Additional paid-in capital 1,798,161 1,806,845
Accumulated other comprehensive loss (261,937 ) (279,418 )
Accumulated deficit (50,757 ) 8,619

Less: cost of common stock held in treasury, 6,265,114 shares at December 31, 2011 and 15,109,730 shares at June 30, 2012

(146,041 ) (237,150 )
Less: common stock held in employee benefit and compensation trusts, 75,807 shares at December 31, 2011 and 73,680 shares at June 30, 2012 (981 ) (947 )
Total stockholders’ equity 1,339,944   1,299,453  
Total liabilities and stockholders’ equity $ 2,168,366   $ 2,256,664  
 

   
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

( Dollars in thousands, except share and per share data)

(Unaudited)

 
       

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2011   2012 2011   2012
 
Net sales $ 320,231 $ 315,611 $ 626,368 $ 556,549
Cost of sales 245,072   231,234   478,274   405,241  
Gross profit 75,159 84,377 148,094 151,308
 
Research and development 2,934 2,942 6,004 7,141
Selling and administrative expenses 32,656   34,858   64,875   73,583  
Operating income 39,569 46,577 77,215 70,584
 
Other (income) expense, net (196 ) 394 (187 ) (3,029 )
Interest expense 4,584 5,132 8,988 9,894
Interest income (115 )

(64

)

(244 ) (145 )
 
Income before provision for income taxes 35,296 41,115 68,658 63,864
Provision for (benefit from) income taxes 6,727  

(732

)

12,826   4,488  
Net income $ 28,569   $ 41,847   $ 55,832   $ 59,376  
 

Basic income per common share:

Net income per share $ 0.20   $ 0.30   $ 0.39   $ 0.42  
Weighted average common shares outstanding 145,166 141,399 145,011 142,717
 

Diluted income per common share:

Net income per share $ 0.20   $ 0.29   $ 0.38   $ 0.41  

Weighted average common shares outstanding

145,964 142,054 145,723 143,382
 

           
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2011   2012 2011   2012
 
Cash flow from operating activities:
Net income $ 28,569 $ 41,847 $ 55,832 $ 59,376
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 20,542 20,276 40,321 36,363
Deferred income tax provision 2,024 3,943 5,539 3,725
Post-retirement and pension plan changes 873 1,888 1,780 2,684
Currency gains (384 ) (2,800 ) (1,073 ) (2,939 )
Stock-based compensation 1,643 2,825 3,883 6,363
Interest expense 2,887 3,097 5,732 6,072
Insurance recoveries - - - 4,007
Other charges, net (2,410 ) (4,196 ) (3,893 ) (10,643 )
Increase in working capital* (68,471 ) (80,543 ) (123,022 ) (127,653 )

Increase in long-term assets and liabilities

(2,143 ) (2,430 ) (3,062 ) (8,822 )

Net cash used in operating activities

(16,870 ) (16,093 ) (17,963 ) (31,467 )
 
Cash flow from investing activities:
Capital expenditures (38,063 ) (30,152 ) (61,823 ) (61,576 )
Proceeds from derivative instruments 3,383 3,298 3,068 6,921
Cash paid for acquisition - - (6,500 ) -
Other 175   -   449   53  
Net cash used in investing activities (34,505 ) (26,854 ) (64,806 ) (54,602 )
 
Cash flow from financing activities:
Short-term debt borrowings (reductions), net 8,954 (2,886 ) 11,438 (5,898 )
Revolving Facility borrowings 93,000 173,000 160,000 273,000
Revolving Facility reductions (43,000 ) (48,000 ) (92,000 ) (95,000 )
Principal payments on long-term debt (29 ) (42 ) (116 ) (139 )
Supply chain financing (9,896 ) 452 (1,326 ) (4,810 )
Proceeds from exercise of stock options 296 - 1,066 92
Purchase of treasury shares (71 ) (83,971 ) (655 ) (85,156 )
Excess tax benefit from stock-based compensation 161 (140 ) 703 (136 )
Long-term financing obligations (118 ) 87 (417 ) (44 )
Revolver facility refinancing cost -   (511 ) -   (511 )
Net cash provided by financing activities 49,297   37,989   78,693   81,398  
 
Net decrease in cash and cash equivalents (2,078 ) (4,958 ) (4,076 ) (4,671 )
Effect of exchange rate changes on cash and cash equivalents 126 (722 ) 276 (621 )
Cash and cash equivalents at beginning of period 11,248   12,817   13,096   12,429  
Cash and cash equivalents at end of period $ 9,296   $ 7,137   $ 9,296   $ 7,137  
 
* Net change in working capital due to the following components:
Increase in current assets:
Accounts and notes receivable, net $ (30,037 ) $ (29,997 ) $ (47,099 ) $ 37,090
Inventories (23,359 ) (4,178 ) (53,830 ) (104,852 )
Prepaid expenses and other current assets (4,651 ) (7,816 ) (6,330 ) (6,509 )

Decrease in accounts payables and accruals

(10,195 ) (38,632 ) (15,633 ) (53,242 )

Increase (decrease) in interest payable

(229 ) 80   (130 ) (140 )
Increase in working capital $ (68,471 ) $ (80,543 ) $ (123,022 ) $ (127,653 )
 

 
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

SEGMENT DATA SUMMARY

(Dollars in thousands)

(Unaudited)

           

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2011   2012 2011   2012
 
Net sales:
Industrial Materials $ 269,751 $ 262,285 $ 533,236 $ 455,281
Engineered Solutions 50,480   53,326   93,132   101,268  
Total net sales $ 320,231   $ 315,611   $ 626,368   $ 556,549  
 
Segment operating income:

Industrial Materials

$ 32,136 $ 41,877 $ 66,341 $ 66,802

Engineered Solutions

7,433   4,700   10,874   3,782  
Total segment operating income $ 39,569   $ 46,577   $ 77,215   $ 70,584  
 
Operating income margin:

Industrial Materials

11.9 % 16.0 % 12.4 % 14.7 %

Engineered Solutions

14.7 % 8.8 % 11.7 % 3.7 %
Total operating income margin 12.4 % 14.8 % 12.3 % 12.7 %
 

 
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

(Dollars in thousands)

(Unaudited)

   

EBITDA Reconciliation

 
       

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2011   2012 2011   2012
Net sales $ 320,231   $ 315,611   $ 626,368   $ 556,549  
 
Net income $ 28,569 $ 41,847 $ 55,832 $ 59,376

Add:

Income taxes 6,727 (732 ) 12,826 4,488

Other (income) expense, net

(196 ) 394 (187 ) (3,029 )
Interest expense 4,584 5,132 8,988 9,894
Interest income (115 ) (64 ) (244 ) (145 )
Depreciation and amortization 20,542   20,276   40,321   36,363  
EBITDA $ 60,111   $ 66,853   $ 117,536   $ 106,947  
 

NOTE ON EBITDA RECONCILIATION: EBITDA is a non-GAAP financial measure that GrafTech currently calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GrafTech believes that EBITDA measures are generally accepted as providing useful information regarding a company’s ability to incur and service debt. GrafTech also believes that EBITDA measures provide useful information about the productivity and cash generation potential of its ongoing businesses. Management uses EBITDA measures as well as other financial measures in connection with its decision-making activities. EBITDA measures should not be considered in isolation or as a substitute for net income (loss), cash flows from operations or other consolidated income or cash flow data prepared in accordance with GAAP. GrafTech’s method for calculating EBITDA measures may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA measures under its senior secured revolving credit facility.

           
 
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

(Dollars in thousands)

(Unaudited)

 

Net Debt Reconciliation

 

At December 31, 2011

At June 30, 2012

 

Long-term debt

$

387,624 $ 570,758
Short-term debt 14,168 8,270
Supply chain financing 29,930 25,119
Total debt 431,722 604,147
 
 
Less:
Cash and cash equivalents 12,429 7,137
Net Debt

$

419,293

$

597,010

 

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 cash and cash equivalents from net debt. 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.

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