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GrafTech Reports Second Quarter 2013 Results

Stocks in this article: GTI

Mr. Shular concluded, "We have built an advantaged, low-cost business model supported by a solid capital structure. GrafTech is well positioned to emerge from this difficult part of the cycle stronger than we entered it."

In summary, our expectations for 2013 are as follows:

  • EBITDA targeted in the range of $145 million to $165 million (previous guidance was $165 million to $195 million);
  • Overhead expense (selling and administrative, and research and development expenses) of approximately $135 million (previous guidance was $140 million);
  • Interest expense of approximately $37 million (previous guidance was $35 million to $40 million);
  • Capital expenditures in the range of $90 million to $110 million;
  • Depreciation and amortization expense of approximately $95 million (previous guidance was $90 million to $95 million);
  • An effective tax rate in the range of 35 percent to 40 percent (previous guidance was 33 percent to 36 percent); and
  • Cash flow from operations in the range of $110 million to $130 million (previous guidance was $150 million to $180 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. 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 (SEC) and other information available at www.graftech.com . This includes its quarterly report on Form 10-Q for the period reported. The information in our website is not part of this release or any other report we file or furnish to the SEC. 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 the third quarter and full year 2013; expected future or targeted operation and financial performance; growth prospects and rates; the markets we serve; our profitability, cash flow, and liquidity; future sales, costs, cost management, working capital, inventory management, revenues, and business opportunities and positioning; 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 and changes therein; 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; liquidity and 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 and changes therein, 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 2013 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; 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; customer or supplier bankruptcy or insolvency events; 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; fluctuating market prices for our products including 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.

** Excluding pension mark-to-market adjustments.

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

   

As of December 31, 2012

As of June 30, 2013

ASSETS
Current assets:
Cash and cash equivalents $ 17,317 $ 10,986

Accounts and notes receivable, net of allowance for doubtful accounts of$7,573 as of December 31, 2012 and $6,860 as of June 30, 2013

236,429 206,661
Inventories 513,065 540,773
Prepaid expenses and other current assets 56,190   73,271  
Total current assets 823,001   831,691  
Property, plant and equipment 1,532,359 1,548,088
Less: accumulated depreciation 698,452   711,412  
Net property, plant and equipment 833,907 836,676
Deferred income taxes 6,157 6,112
Goodwill 498,261 497,162
Other assets 136,589   124,577  
Total assets $ 2,297,915   $ 2,296,218  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 128,120 $ 111,379
Short-term debt 8,426 2,777
Accrued income and other taxes 30,923 28,047
Supply chain financing liability 26,962 18,594
Other accrued liabilities 50,953   50,301  
Total current liabilities 245,384   211,098  
 
Long-term debt 535,709 581,723
Other long-term obligations 125,005 117,432
Deferred income taxes 41,966 38,904
 
Stockholders’ equity:
Preferred stock, par value $.01, 10,000,000 shares authorized, none issued

Common stock, par value $.01, 225,000,000 shares authorized,150,869,227 shares issued as of December 31, 2012 and 151,556,133shares issued as of June 30, 2013

1,509 1,515
Additional paid-in capital 1,812,592 1,818,833
Accumulated other comprehensive loss (280,678 ) (297,603 )
Retained earnings 66,884 75,476

Less: cost of common stock held in treasury, 16,418,710 shares as ofDecember 31, 2012 and 16,508,309 shares as of June 30, 2013

(249,487 ) (250,196 )

Less: common stock held in employee benefit and compensation trusts,76,095 shares as of December 31, 2012 and 78,943 shares as ofJune 30, 2013

(969 ) (964 )
Total stockholders’ equity 1,349,851   1,347,061  
Total liabilities and stockholders’ equity $ 2,297,915   $ 2,296,218  
 

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

   
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2012   2013 2012   2013

CONSOLIDATED STATEMENTS OF INCOME

Net sales $ 315,611 $ 301,361 $ 556,549 $ 555,088
Cost of sales 231,234   252,440   405,241   457,617  
Gross profit 84,377 48,921 151,308 97,471
Research and development 2,942 2,787 7,141 5,880
Selling and administrative expenses 34,858   30,161   73,583   59,874  
Operating income 46,577 15,973 70,584 31,717
 
Other expense (income), net 394 975 (3,029 ) 1,525
Interest expense 5,132 8,947 9,894 17,955
Interest income (64 ) (49 ) (145 ) (113 )
Income before provision for income taxes 41,115 6,100 63,864 12,350
 
(Benefit) provision for income taxes (732 ) 1,718   4,488   3,758  
Net income $ 41,847   $ 4,382   $ 59,376   $ 8,592  
 
Basic income per common share:
Net income per share $ 0.30   $ 0.03   $ 0.42   $ 0.06  
Weighted average common shares outstanding 141,399 134,854 142,717 134,816
 
Diluted income per common share:
Net income per share $ 0.29   $ 0.03   $ 0.41   $ 0.06  
Weighted average common shares outstanding 142,054 135,056 143,382 134,988
 

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,

2012   2013 2012   2013
 
Cash flow from operating activities:
Net income $ 41,847 $ 4,382 $ 59,376 $ 8,592
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 20,276 24,492 36,363 44,868
Deferred income tax provision 3,943 1,937 3,725 277
Post-retirement and pension plan changes 1,888 1,101 2,684 2,242
Currency impact (2,800 ) 199 (2,939 ) 222
Stock-based compensation 2,825 1,379 6,363 3,745
Interest expense 3,097 3,486 6,072 6,919
Insurance recoveries 4,007
Other charges, net (4,196 ) 936 (10,643 ) 1,198
Increase in working capital* (80,543 ) (42,082 ) (127,653 ) (51,016 )
Increase in long-term assets and liabilities (2,430 ) (2,183 ) (8,822 ) (5,401 )
Net cash (used in) provided by operating activities (16,093 ) (6,353 ) (31,467 ) 11,646
Cash flow from investing activities:
Capital expenditures (30,152 ) (25,362 ) (61,576 ) (38,518 )
Proceeds from derivative instruments 3,298 (709 ) 6,921 1,472
Other   284   53   284  
Net cash used in investing activities (26,854 ) (25,787 ) (54,602 ) (36,762 )
Cash flow from financing activities:
Short-term debt reductions, net (2,886 ) 675 (5,898 ) (5,649 )
Revolving Facility borrowings 173,000 45,000 273,000 111,000
Revolving Facility reductions (48,000 ) (18,000 ) (95,000 ) (70,500 )
Principal payments on long-term debt (42 ) (41 ) (139 ) (140 )
Supply chain financing 452 5,935 (4,810 ) (8,369 )
Proceeds from exercise of stock options 43 92 175
Purchase of treasury shares (83,971 ) (528 ) (85,156 ) (709 )
Other (564 ) (793 ) (691 ) (6,440 )
Net cash provided by financing activities 37,989 32,291 81,398 19,368
Net decrease in cash and cash equivalents (4,958 ) 151 (4,671 ) (5,748 )
Effect of exchange rate changes on cash and cash equivalents (722 ) (469 ) (621 ) (583 )
Cash and cash equivalents at beginning of period 12,817   11,304   12,429   17,317  
Cash and cash equivalents at end of period $ 7,137   $ 10,986   $ 7,137   $ 10,986  
 
* Net change in working capital due to the following components:
Change in current assets:
Accounts and notes receivable, net $ (29,997 ) $ (19,691 ) $ 37,090 $ 28,076
Inventories (4,178 ) (9,595 ) (104,852 ) (33,384 )
Prepaid expenses and other current assets (7,816 ) (15,176 ) (6,509 ) (16,362 )
Decrease in accounts payable and accruals (38,632 ) 6,855 (53,242 ) (29,741 )
(Decrease) increase in interest payable 80   (4,475 ) (140 ) 395  
Increase in working capital $ (80,543 ) $ (42,082 ) $ (127,653 ) $ (51,016 )
 
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,

2012   2013 2012   2013
Net sales:
Industrial Materials $ 262,285 $ 231,339 $ 455,281 $ 440,116
Engineered Solutions 53,326   70,022   101,268   114,972  
Total net sales $ 315,611   $ 301,361   $ 556,549   $ 555,088  
 
Segment operating income:
Industrial Materials 41,877 7,530 66,802 23,608
Engineered Solutions 4,700   8,443   3,782   8,109  
Total segment operating income $ 46,577   $ 15,973   $ 70,584   $ 31,717  
 
Operating income margin:
Industrial Materials 16.0 % 3.3 % 14.7 % 5.4 %
Engineered Solutions 8.8 % 12.1 % 3.7 % 7.1 %
Total operating income margin 14.8 % 5.3 % 12.7 % 5.7 %
 

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

   

EBITDA Reconciliation

 

For the Three Months Ended June 30,

 

For the Six Months Ended June 30,

Third Quarter Target

Full Year Target
2012   2013 2012   2013 2013 2013
 
EBITDA $ 66,853 $ 40,465 $ 106,947 $ 76,585 $30,000 - $40,000 $145,000 - $165,000

Adjustments

Depreciation and amortization (20,276 ) (24,492 ) (36,363 ) (44,868 ) (24,000) (95,000)
Interest income 64 49 145 113
Interest expense (5,132 ) (8,947 ) (9,894 ) (17,955 ) (9,000) (37,000)
Other (income) expense, net (394 ) (975 ) 3,029 (1,525 )
Income taxes 732   (1,718 ) (4,488 ) (3,758 ) 1,000 - (3,000) (5,000) - (12,000)
Net income $ 41,847   $ 4,382   $ 59,376   $ 8,592   ($2,000) - $4,000 $8,000 - $21,000
 

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.

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

 

Net Debt Reconciliation

 

As of December 31, 2012

 

As of June 30, 2013

 
Long-term debt $ 535,709 $ 581,723
Short-term debt 8,426 2,777
Supply chain financing 26,962   18,594
Total debt 571,097 603,094
Less:
Cash and cash equivalents 17,317   10,986
Net Debt $ 553,780   $ 592,108
 

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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