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GrafTech Reports Third Quarter 2013 Results, Announces Initiatives To Improve Operating Efficiencies And Global Competitiveness

In summary, our expectations for 2013, excluding the impact of rationalization and related charges, are as follows:

  • EBITDA * targeted in the range of $145 million to $155 million (previous guidance was $145 million to $165 million);
  • Overhead expense (selling and administrative, and research and development expenses) of approximately $130 million (previous guidance was $135 million);
  • Interest expense of approximately $36 million;
  • Capital expenditures in the range of $90 million to $100 million (previous guidance was $90 million to $110 million);
  • Depreciation and amortization expense of approximately $95 million to $100 million (previous guidance was $95 million);
  • An effective annual tax rate in the range of 10 percent to 20 percent (previous guidance was 35 percent to 40 percent); and
  • Cash flow from operations in the range of $100 million to $120 million (previous guidance was $110 million to $130 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 applications 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 fourth quarter and full year 2013; future or targeted operational and financial performance; growth prospects and rates; the markets we serve; future or targeted profitability, cash flow, and liquidity; future or targeted 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 rationalization, cost competitiveness and liquidity initiatives; expected or targeted changes in production capacity, operating rates or efficiency in our operations or our competitors' or customers' operations; expected or targeted 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; possible financing (including factoring and supply chain financing) activities; expected or targeted 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; expected or targeted 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, due to various factors, including: adjustments to our announced 2013 third quarter results; 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; actual outcome of uncertainties associated with assumptions and estimates used when applying critical accounting policies and preparing financial statements; 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 proposed investments or acquisitions; 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, or variances in the cost or timing of, organizational changes, rationalizations and restructurings; loss of market share or sales due to rationalization activities; 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; 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 condition; 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 September 30, 2013

ASSETS
Current assets:
Cash and cash equivalents $ 17,317 $ 11,470

Accounts and notes receivable, net of allowance for doubtful accounts of $7,573 as of December 31, 2012 and $7,023 as of September 30, 2013

236,429 205,427
Inventories 513,065 519,011
Prepaid expenses and other current assets 56,190   69,436  
Total current assets 823,001   805,344  
Property, plant and equipment 1,532,359 1,583,444
Less: accumulated depreciation 698,452   737,243  
Net property, plant and equipment 833,907 846,201
Deferred income taxes 6,157 7,463
Goodwill 498,261 497,073
Other assets 136,589   119,540  
Total assets $ 2,297,915   $ 2,275,621  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 128,120 $ 103,519
Short-term debt 8,426 4,344
Accrued income and other taxes 30,923 27,814
Rationalizations 14,129
Supply chain financing liability 26,962 12,540
Other accrued liabilities 50,953   52,953  
Total current liabilities 245,384   215,299  
 
Long-term debt 535,709 559,643
Other long-term obligations 125,005 117,847
Deferred income taxes 41,966 34,090
 
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 151,763,001 shares issued as of September 30, 2013

1,509 1,518
Additional paid-in capital 1,812,592 1,822,603
Accumulated other comprehensive loss (280,678 ) (291,897 )
Retained earnings 66,884 67,846

Less: cost of common stock held in treasury, 16,418,710 shares as of December 31, 2012 and 16,525,938 shares as of September 30, 2013

(249,487 ) (250,331 )

Less: common stock held in employee benefit and compensation trusts, 76,095 shares as of December 31, 2012 and 83,816 shares as of September 30, 2013

(969 ) (997 )
Total stockholders’ equity 1,349,851   1,348,742  
Total liabilities and stockholders’ equity $ 2,297,915   $ 2,275,621  
 
           
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

 
 
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2012   2013 2012   2013
 
Net sales $ 320,716 $ 303,084 $ 877,265 $ 858,172
Cost of sales 240,730   266,440   645,971   724,057  
Gross profit 79,986 36,644 231,294 134,115
Research and development 2,778 2,994 9,919 8,874
Selling and administrative expenses 33,645 27,626 107,228 87,500
Rationalizations   14,593    

14,593

 
Operating income (loss) 43,563 (8,569 ) 114,147 23,148
 
Other expense (income), net 1,653 (772 ) (1,376 ) 753
Interest expense 5,839 9,098 15,733 27,053
Interest income (33 ) (49 ) (178 ) (162 )
Income (loss) before provision for income taxes 36,104 (16,846 ) 99,968 (4,496 )
 
Provision (benefit) for income taxes 6,478   (9,216 ) 10,966   (5,458 )
Net income (loss) $ 29,626   $ (7,630 ) $ 89,002   $ 962  
 
Basic income per common share:
Net income (loss) per share $ 0.22   $ (0.06 ) $ 0.64   $ 0.01  
Weighted average common shares outstanding 134,347 135,134 139,939 134,949
 
Diluted income per common share:
Net income (loss) per share $ 0.22   $ (0.06 ) $ 0.63   $ 0.01  
Weighted average common shares outstanding 135,001 135,331 140,565 135,122
 
           
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 
 

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2012   2013 2012   2013
 
Cash flow from operating activities:
Net income (loss) $ 29,626 $ (7,630 ) $ 89,002 $ 962
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 21,869 26,902 58,232 71,770
Deferred income tax provision (1,819 ) (2,840 ) 1,906 (2,563 )
Post-retirement and pension plan changes 953 1,226 3,637 3,468
Currency impact (412 ) (303 ) (3,351 ) (81 )
Stock-based compensation 1,733 2,193 8,096 5,938
Interest expense 3,149 3,540 9,221 10,459
Insurance recoveries 4,007
Other charges, net (2,750 ) 1,899 (13,393 ) 3,097
(Increase) decrease in working capital* (708 ) 30,613 (128,361 ) (20,403 )
Increase in long-term assets and liabilities (6,568 ) (2,068 ) (15,390 ) (7,469 )
Net cash provided by operating activities 45,073 53,532 13,606 65,178
Cash flow from investing activities:
Capital expenditures (31,251 ) (24,180 ) (92,827 ) (62,698 )
Proceeds from derivative instruments (114 ) (620 ) 6,807 852
Other 68   2,049   121   2,333  
Net cash used in investing activities (31,297 ) (22,751 ) (85,899 ) (59,513 )
Cash flow from financing activities:
Short-term debt reductions, net (8,091 ) 1,567 (13,989 ) (4,082 )
Revolving Facility borrowings 70,000 23,000 343,000 134,000
Revolving Facility reductions (50,000 ) (48,000 ) (145,000 ) (118,500 )
Principal payments on long-term debt (43 ) (49 ) (182 ) (189 )
Supply chain financing 1,091 (6,053 ) (3,719 ) (14,422 )
Proceeds from exercise of stock options 92 175
Purchase of treasury shares (17,900 ) (135 ) (103,056 ) (844 )
Other 149   (766 ) (542 ) (7,206 )
Net cash (used in) provided by financing activities (4,794 ) (30,436 ) 76,604 (11,068 )
Net increase (decrease) in cash and cash equivalents 8,982 345 4,311 (5,403 )
Effect of exchange rate changes on cash and cash equivalents 74 139 (547 ) (444 )
Cash and cash equivalents at beginning of period 7,137   10,986   12,429   17,317  
Cash and cash equivalents at end of period $ 16,193   $ 11,470   $ 16,193   $ 11,470  
 
* Net change in working capital due to the following components:
Change in current assets:
Accounts and notes receivable, net $ (11,476 ) $ 2,895 $ 25,614 $ 30,971
Inventories 8,543 21,403 (96,309 ) (11,981 )
Prepaid expenses and other current assets 3,294 5,313 (3,215 ) (11,049 )
Decrease in accounts payable and accruals (1,131 ) (17,800 ) (54,373 ) (47,541 )
Rationalizations 14,129 14,129
Increase (decrease) in interest payable 62   4,673   (78 ) 5,068  
(Increase) decrease in working capital $ (708 ) $ 30,613   $ (128,361 ) $ (20,403 )
 
 
 
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

SEGMENT DATA SUMMARY

(Dollars in thousands)

(Unaudited)

 
 
       

For the Three Months Ended September 30,

   

For the Nine Months Ended September 30,

2012   2013 2012   2013
Net sales:
Industrial Materials $ 260,180 $ 233,277 $ 715,461 $ 673,394
Engineered Solutions 60,536   69,807   161,804   184,778  
Total net sales $ 320,716   $ 303,084   $ 877,265   $ 858,172  
 
Segment operating income:
Industrial Materials 37,301 (12,945 ) 104,103 10,663
Engineered Solutions 6,262   4,376   10,044   12,485  
Total segment operating income $ 43,563   $ (8,569 ) $ 114,147   $ 23,148  
 
Reconciling Items:
Rationalizations
Industrial Materials 14,345 14,345
Engineered Solutions 248 248
Rationalization related
Industrial Materials 2,954 2,954
Engineered Solutions
 
Segment adjusted operating income:
Industrial Materials 37,301 4,354 104,103 27,962
Engineered Solutions 6,262   4,624   10,044   12,733  
Total adjusted segment operating income $ 43,563   $ 8,978   $ 114,147   $ 40,695  
 
Adjusted operating income margin:
Industrial Materials 14.3 % 1.9 % 14.6 % 4.2 %
Engineered Solutions 10.3 % 6.6 % 6.2 % 6.9 %
Total adjusted operating income margin 13.6 % 3.0 % 13.0 % 4.7 %
 

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 September 30,

   

For the Nine Months Ended September 30,

Fourth Quarter Target

Full Year Target

2012   2013 2012   2013 2013 2013
 
EBITDA $ 65,432 $ 34,557 $ 172,379 $ 111,142 $33,858 - $43,858 $145,000 - $155,000

Adjustments

Depreciation and amortization

(21,869 ) (25,579 ) (58,232 ) (70,447 ) (24,533 - 29,533) (95,000 - 100,000)
Rationalizations (14,593 ) (14,593 ) (7,407) (22,000)

Rationalization related charges

  (2,954 )   (2,954 ) (44,134) (48,000)
Operating income 43,563 (8,569 ) 114,147 23,148 (42,236) - (37,236) (20,000) - (15,000)
Other (income) expense, net (1,653 ) 772 1,376 (753 ) (1,247) (2,000)
Interest expense (5,839 ) (9,098 ) (15,733 ) (27,053 ) (8,947) (36,000)
Interest income 33 49 178 162
Income taxes (6,478 ) 9,216   (10,966 ) 5,458   11,817 17,500
Net income $ 29,626   $ (7,630 ) $ 89,002   $ 962   $(40,775) - $(35,775) $(40,500) - $(35,500)
 

NOTE ON EBITDA RECONCILIATION: EBITDA is a non-GAAP financial measure that GrafTech currently calculates according to the schedule above, using historical or estimated target GAAP amounts as indicated above. 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 or other debt instruments.

                       
 
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Dollars in thousands)

(Unaudited)

 
 

Adjusted Net Income and Earnings Per Share Reconciliation

 

For the Three Months Ended September 30, 2012

For the Three Months Ended September 30, 2013

Income (Loss) EPS Income (Loss) EPS
Total Company
Net income $ 29,626 $ 0.22 $ (7,630 ) $ (0.06 )
Rationalizations, net 10,707 0.08
Rationalization related, net     2,661   0.02  
Adjusted net income $ 29,626   $ 0.22   $ 5,738   $ 0.04  
 

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 historical GAAP amounts. 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 June 30, 2013

 

As of September 30, 2013

 
Long-term debt $ 581,723 $ 559,643
Short-term debt 2,777 4,344
Supply chain financing 18,594   12,540
Total debt 603,094 576,527
Less:
Cash and cash equivalents 10,986   11,470
Net Debt $ 592,108   $ 565,057
 

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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