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GrafTech International Ltd. (NYSE:GTI) today announced an estimated $126 million non-cash impairment charge and additional initiatives to increase its global competitiveness, reduce cost and improve profitability. These initiatives build on the progress the company has made over the last nine months and are expected to generate $18 million in annual savings. Together with the $75 million in annual savings generated by the largely completed Industrial Materials production rationalization, GrafTech expects to generate over $90 million in ongoing annual cost savings.
Product Line Rationalization in Engineered Solutions
As a result of recent changes in the business environment, management reviewed its advanced graphite materials (AGM) business, and evaluated opportunities to improve efficiencies and more effectively utilize supply chain and collaborative relationships. As a result, the company has decided to exit production of certain AGM product lines, including its isomolded products primarily serving the solar industry, where compressing margins in an increasingly competitive environment have eroded the value proposition. Given the recent continuing rapid rate of decline in pricing in the solar supply chain, the returns associated with these product lines have become insufficient to contribute to our target of mid-teen percentage operating margins for the Engineered Solutions segment.
As part of these efforts, the company plans to discontinue certain product line production at its facilities in Clarksburg, West Virginia; Columbia, Tennessee; and Emporium, Pennsylvania. The company will also realign overhead related to these product lines. The product lines discontinuance and related overhead reductions are expected to yield approximately $18 million of annual cost savings, of which $8 million are expected to be cash savings. The actions are targeted to be substantially complete by the end of 2014 and are expected to contribute approximately $1 million in savings in 2014, with the full effect being reflected in the second half of 2015.