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GrafTech Reports Fourth Quarter And Year Ended 2012 Results

Stocks in this article: GTI

In summary, our expectations for 2013 are as follows:

  • EBITDA targeted in the range of $175 million to $205 million;
  • Overhead expense (selling and administrative, and research and development expenses) of approximately $140 million;
  • Interest expense in the range of $35 million to $40 million;
  • Capital expenditures in the range of $90 million to $120 million;
  • Depreciation expense in the range of $90 million to $95 million;
  • An effective tax rate in the range of 33 percent to 36 percent;
  • Cash flow from operations in the range of $150 million to $180 million; and
  • Fully diluted share count of approximately 136 million shares.

Mr. Shular concluded, “We have built an advantaged, backward integrated, low-cost business model supported by a solid capital structure, which we believe positions us well to capitalize on future growth opportunities. The advancements in graphite electrode and needle coke quality combined with our industry-leading customer technical service and global production platform position us to best serve our world-wide customers. In addition, our Engineered Solutions segment, which has produced double-digit revenue growth over the past three years, provides us with a sustainable base for further diversification.

“Our team has a proven track record of successfully managing through electrode industry cycles and will continue to leverage our business model and strategic advantages to drive long-term shareholder value.”

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 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 statement, free of charge.

GrafTech International is a global company that has been redefining limits for more than 125 years. We offer innovative graphite material solutions for our customers in a wide range of industries and end markets, including steel manufacturing, advanced energy and latest generation electronics. GrafTech operates 20 principal manufacturing facilities on four continents and sells products in over 70 countries. Headquartered in Parma, Ohio, GrafTech employs approximately 3,000 people. For more information, call 216-676-2000 or visit 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 2013; expected future or targeted operation and financial performance; growth prospects; the markets we serve; our profitability, cash flow, and liquidity; future sales, costs, working capital, revenues, and business opportunities; strategic plans; stock repurchase plans; supply chain management; the impact of cost competitiveness and liquidity initiatives; changes in production capacity, operating rates or efficiency in our operations or our competitors' or customers' operations; capital expenditures; future prices and demand for our products; product quality; diversification, new products, and product improvements and their impact on our business, the impact of acquired businesses and backward integration; 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 and demand for their products; our position in markets we serve; regional and global economic and industry market conditions, including our expectations concerning their impact on us and our customers and suppliers; conditions and changes in the global financial and credit markets; tax rates and the effects of jurisdictional mix; the impact of accounting changes; depreciation and amortization expenses and currency exchange and interest rates and expenses.

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 announced 2012 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; failure to achieve earnings or other estimates; the actual outcome of uncertainties associated with assumptions and estimates using judgment when applying critical accounting policies and preparing financial statements having a material impact on results of operations or financial positions; failure to successfully develop and commercialize new or improved products; adverse changes in inventory or supply chain management; limitations or delays on capital expenditures; business interruptions including those caused by weather, natural disaster, or other causes; delays or changes in or non-consummation of investments or acquisitions that we may make in the future; failure to successfully integrate into our business any completed investments and acquisitions or to successfully realize upon completed investments; 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; changes in our ability to obtain financing on acceptable terms; adverse changes in labor relations; adverse developments in legal proceedings or investigations; non-realization of anticipated benefits from organizational changes and restructurings; negative developments relating to health, safety or environmental compliance or remediation or liabilities; downturns, production reductions or suspensions, or changes in steel and other markets we or our customers serve; political unrest which adversely impacts us or our customers' businesses; declines in demand; intensified competition and price or margin decreases, 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; continuing uncertainty over U.S. fiscal policy or the continuation of the European debt crisis; 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.

** The charges related to mark to market accounting treating of pension expense of $22 million ($14 million, after tax) in 2011 compared to $9 million ($6 million, after tax) in 2012. This adjustment does not remove the ongoing pension expense (service cost, interest cost, expected return on plan assets, etc.) of approximately $3 million in 2011 and $4 million in 2012.

           
 

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

 

As of December 31, 2011

As of December 31, 2012

ASSETS
Current Assets:
Cash and cash equivalents $ 12,429 $ 17,317
Accounts and notes receivable, net of allowance for doubtful accounts of $4,153 at December 31, 2011 and $7,573 at December 31, 2012 253,151 261,654
Inventories 444,062 513,065
Prepaid expenses and other current assets 22,308   30,965  
Total current assets 731,950   823,001  
Property, plant and equipment 1,431,432 1,532,359
Less: accumulated depreciation 654,548   698,452  
Net property, plant and equipment 776,884 833,907
Deferred income taxes 7,931 6,157
Goodwill 498,681 498,261
Other assets 152,920   136,589  
Total assets $ 2,168,366   $ 2,297,915  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 74,280 $ 58,797
Short-term debt 14,168 8,426
Accrued income and other taxes 44,330 30,923
Supply chain financing liability 29,930 26,962
Other accrued liabilities 114,545   120,276  
Total current liabilities 277,253   245,384  

Long-term debt

387,624 535,709

Other long-term obligations

131,300 125,005
Deferred income taxes 32,245 41,966
 
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 150,869,227 shares issued at December 31, 2012 1,499 1,509
Additional paid – in capital 1,798,161 1,812,592
Accumulated other comprehensive loss (261,937 ) (280,678 )
(Accumulated deficit) retained earnings (50,757 ) 66,884
Less: cost of common stock held in treasury, 6,265,114 shares at December 31, 2011 and 16,418,710 at December 31, 2012 (146,041 ) (249,487 )
Less: common stock held in employee benefit and compensation trusts, 75,807 shares at December 31, 2011 and 76,095 shares at December 31, 2012 (981 ) (969 )
Total stockholders’ equity 1,339,944   1,349,851  
Total liabilities and stockholders’ equity $ 2,168,366   $ 2,297,915  
 
           
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts)

 

For the Three Months Ended December 31,

For the Twelve Months Ended December 31,

2011   2012 2011   2012
 
Net sales $ 347,984 370,999 $ 1,320,184 $ 1,248,264
Cost of sales 264,276   286,489   995,638   932,460  
Gross profit 83,708 84,510 324,546 315,804
 
Research and development 5,120 3,877 13,976 13,796
Selling and administrative expenses 47,285   38,312   144,561   145,540  
Operating income 31,303 42,321 166,009 156,468
 
Other (income) expense, net (299 ) 371 4,835 (1,005 )
Interest expense 4,527 7,514 18,307 23,247
Interest income (61 ) (83 ) (424 ) (261 )
Income before income taxes 27,136 34,519 143,291 134,487
 
(Benefit) provision for income taxes (29,919 ) 5,880   (9,893 ) 16,846  
Net income $ 57,055   $ 28,639   $ 153,184   $ 117,641  
 
Basic income per common share:
Net income per share $ 0.39   $ 0.21   $ 1.06   $ 0.85  
Weighted average common shares outstanding 144,642 134,351 145,156 138,552
 
Diluted income per common share:
Net income per share $ 0.39   $ 0.21   $ 1.05   $ 0.84  
Weighted average common shares outstanding 145,678 135,437 146,402 139,700
 
 
 

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

           

For the Three Months Ended December 31,

For the Twelve Months Ended December 31,

2011   2012 2011   2012
Cash flow from operating activities:
Net income $ 57,055 $ 28,639 $ 153,184 $ 117,641
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 21,271 23,428 81,953 81,660
Deferred income tax provision (49,873 ) 6,224 (45,053 ) 8,130
Post-retirement and pension plan changes 24,062 9,712 27,184 13,349
Currency gains (577 ) (158 ) (1,463 ) (3,509 )
Stock-based compensation 2,856 1,505 8,910 9,601
Interest expense 2,948 3,279 11,607 12,500
Insurance recoveries 4,007
Other charges, net (4,280 ) (3,099 ) (11,201 ) (16,492 )
(Increase) decrease in working capital* (2,768 ) 22,141 (142,587 ) (106,220 )
Increase in long-term assets and liabilities (3,393 ) (3,877 ) (5,937 ) (19,267 )
Net cash provided by operating activities 47,301 87,794 76,597 101,400
 
Cash flow from investing activities:
Capital expenditures (54,598 ) (34,901 ) (156,616 ) (127,728 )
Proceeds from derivative instruments 6,640 765 14,412 7,572
Cash paid for acquisition (14,010 ) (20,510 )
Other 320   73   748   194  
Net cash used in investing activities (61,648 ) (34,063 ) (161,966 ) (119,962 )
 
Cash flow from financing activities:
Short-term debt (reductions) borrowings, net (4,014 ) 8,251 14,016 (5,738 )

Revolving facility borrowings

407,000 82,000 584,000 425,000

Revolving facility reductions

(358,000 ) (442,500 ) (482,000 ) (587,500 )
Proceeds from the issuance of long-term debt 300,000 300,000
Principal payments on long-term debt (44 ) (43 ) (222 ) (225 )
Supply chain financing 7,927 752 4,970 (2,967 )
Proceeds from exercise of stock options 111 65 2,028 157
Purchase of treasury shares (30,257 ) (389 ) (30,940 ) (103,445 )

Refinancing fees and debt issuance cost

(4,988 ) (6,385 ) (4,988 ) (6,385 )
Other

(2,072

)

5,757

 

(1,403

)

5,215

 
Net cash provided by (used in) financing activities 15,663 (52,492 ) 85,461 24,112
 
Net increase in cash and cash equivalents 1,316 1,239 92 5,550
Effect of exchange rate changes on cash and cash equivalents (227 ) (115 ) (759 ) (662 )
Cash and cash equivalents at beginning of period 11,340   16,193   13,096   12,429  
Cash and cash equivalents at end of period $ 12,429   $ 17,317   $ 12,429   $ 17,317  
* Net change in working capital due to the following components:
Change in current assets:
Accounts and notes receivable, net $ (13,548 ) $ (31,177 ) $ (68,462 ) $ (5,563 )
Inventories (35,188 ) 28,995 (111,395 ) (67,314 )
Prepaid expenses and other current assets 3,268 934 (2,082 ) (2,281 )
Increase (decrease) in accounts payables and accruals 42,356 21,614 39,097 (32,759 )
Increase in interest payable 344   1,775   255   1,697  
(Increase) decrease in working capital $ (2,768 ) $ 22,141   $ (142,587 ) $ (106,220 )
 
 
 
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

SEGMENT DATA SUMMARY

(Dollars in thousands)

(Unaudited)

 
       

For the Three Months Ended December 31,

   

For the Twelve Months Ended December 31,

2011   2012 2011   2012
Net sales:
Industrial Materials $ 296,603 $ 310,110 $ 1,132,194 $ 1,025,571
Engineered Solutions 51,381   60,889   187,990   222,693  
Total net sales $ 347,984   $ 370,999   $ 1,320,184   $ 1,248,264  
 
Segment operating income:
Industrial Materials 38,083 39,165 158,547 143,268
Engineered Solutions (6,780 ) 3,156   7,462   13,200  
Total segment operating income $ 31,303   $ 42,321   $ 166,009   $ 156,468  
 
Operating income margin:
Industrial Materials 12.8 % 12.6 % 14.0 % 14.0 %
Engineered Solutions (13.2 )% 5.2 % 4.0 % 5.9 %
Total operating income margin 9.0 % 11.4 % 12.6 % 12.5 %
 
               
 

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

 

Adjusted Operating Income Reconciliation

For the Three Months Ended December 31,

For the Twelve Months Ended December 31,

2011 2012 2011 2012
Total Company
Operating Income $ 31,303 $ 42,321 $ 166,009 $ 156,468
Mark to Market Pension Adjustment 22,263   8,868   22,263   8,868
Adjusted Operating Income $ 53,566   $ 51,189   $ 188,272   $ 165,336
 

For the Three Months Ended December 31,

For the Twelve Months Ended December 31,

2011 2012 2011 2012
Industrial Materials
Operating Income $ 38,083 $ 39,165 $ 158,547 $ 143,268
Mark to Market Pension Adjustment 11,261   5,099   11,261   5,099
Adjusted Operating Income $ 49,344   $ 44,264   $ 169,808   $ 148,367
 

For the Three Months Ended December 31,

For the Twelve Months Ended December 31,

2011 2012 2011 2012
Engineered Solutions
Operating Income $ (6,780 ) $ 3,156 $ 7,462 $ 13,200
Mark to Market Pension Adjustment 11,002   3,768   11,002   3,768
Adjusted Operating Income $ 4,222   $ 6,924   $ 18,464   $ 16,968
 

NOTE ON RECONCILIATION OF OPERATING INCOME DATA: Adjusted operating income 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 adjusted operating income 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 adjusted operating income excluding these items as well as other financial measures in connection with its decision-making activities. Adjusted operating income excluding these items should not be considered in isolation or as a substitute for operating income or other consolidated income data prepared in accordance with GAAP. GrafTech's method for calculating adjusted operating income excluding these items may not be comparable to methods used by other companies.

 
 
 

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

 

EBITDA Reconciliation

       

For the Three Months Ended December 31,

   

For the Twelve Months Ended December 31,

2011   2012 2011   2012
Net sales $ 347,984   $ 370,999   $ 1,320,184   $ 1,248,264  
 
Net income $ 57,055 $ 28,639 $ 153,184 $ 117,641

Add:

Income taxes (29,919 ) 5,880 (9,893 ) 16,846
Other (income) expense, net (299 ) 371 4,835 (1,005 )
Interest expense 4,527 7,514 18,307 23,247
Interest income (61 ) (83 ) (424 ) (261 )
Depreciation and amortization 21,033   23,428   80,998   81,660  
EBITDA $ 52,336   $ 65,749   $ 247,007   $ 238,128  
 
Excluding Mark to Market Adjustment 22,263   $ 8,868   22,263   $ 8,868  
Adjusted EBITDA $ 74,599   $ 74,617   $ 269,270   $ 246,996  
 

NOTE ON EBITDA RECONCILIATION: EBITDA and adjusted EBITDA are non-GAAP financial measures that GrafTech currently calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GrafTech believes that EBITDA and adjusted EBITDA measures are generally accepted as providing useful information regarding a Company’s ability to incur and service debt. GrafTech also believes that EBITDA and adjusted EBITDA measures provide useful information about the productivity and cash generation potential of its ongoing businesses. Management uses EBITDA and adjusted EBITDA measures as well as other financial measures in connection with its decision-making activities. EBITDA and adjusted 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 and adjusted EBITDA measures may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA and adjusted EBITDA measures under its senior secured revolving credit facility. The adjusted EBITDA is a non-GAAP financial measure that further excludes pension mark to market adjustments from the GAAP net income. GAAP cost of sales and operating expenses include pension and benefit related charges based on projected discount rate and an estimated return on plan assets as well as a fourth quarter mark to market (MTM) adjustment entry to reflect the actual discount rate and actual return on plan assets for the year. The non-GAAP adjusted EBITDA excludes the pension mark to market adjustment to provide for more meaningful quarterly and annual comparisons. This adjustment does not remove the ongoing pension expense (service cost, interest cost, expected return on plan assets, etc.) of approximately $3 million in 2011 and $4 million in 2012.

               
 
 

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

 

Adjusted Net Income Reconciliation

 

For the Three Months Ended December 31,

For the Twelve Months Ended December 31,

2011 2012 2011 2012
Total Company

Net income

$ 57,055 $ 28,639 $ 153,184 $ 117,641

Non-cash discrete tax benefit

(26,463 ) (26,463 ) (10,475 )

Mark to market pension adjustment (after tax)

14,238   5,794   14,238   5,794  

Adjusted net income

$ 44,830   $ 34,433   $ 140,959   $ 112,960  
 

NOTE ON RECONCILIATION OF EARNINGS DATA: Adjusted net income 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 adjusted net income 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 adjusted net income excluding these items as well as other financial measures in connection with its decision-making activities. Adjusted net income excluding these items should not be considered in isolation or as a substitute for net income or other consolidated income data prepared in accordance with GAAP. GrafTech's method for calculating adjusted net income excluding these items may not be comparable to methods used by other companies.

 
 
 

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

 

Net Debt Reconciliation

       

As of December 31, 2011

   

As of December 31, 2012

 
Long-term debt $ 387,624 $ 535,709
Short-term debt 14,168 8,426
Supply chain financing 29,930   26,962
Total debt 431,722 571,097
Less:
Cash and cash equivalents 12,429   17,317
Net Debt $ 419,293 $ 553,780
 

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 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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