- GrafTech recognizes an estimated
non-cash impairment charge of $126 million due to recent changes in
the competitive environment impacting the Engineered Solutions
segment's advanced graphite materials business
- New initiatives to rationalize
Engineered Solutions product line expected to generate $18 million
in annual cost savings at a total cost of approximately $24
million
- Continued review across all aspects
of business underway for additional cost savings
- Industrial Materials rationalization
plan substantially complete, on target to achieve $75 million in
annual savings
- Cumulative impact of announced
initiatives expected to generate over $90 million in annual cost
savings when fully implemented
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.
Costs of these actions are estimated to be approximately $24
million, related primarily to inventory impairment, asset
write-offs and rationalization expenses. The company recorded a
charge of $11 million in the second quarter of 2014 and expects the
remaining $13 million to be recognized in the second half of 2014.
Approximately $7 million of the total costs will be cash that is
expected to be paid over the next 12 months.
The company also recorded an estimated $126 million non-cash
charge, reflecting the impairment of long-lived assets in the AGM
business. The recent deterioration of the outlook of profitability
related to production of graphite and related products primarily
servicing the solar industry and the migration of the supply chain
to a very competitive China market caused the company to
re-evaluate its participation in those product lines.
GrafTech also recorded a $59 million non-cash charge in the
second quarter of 2014 to increase the valuation allowance against
certain U.S. deferred income tax assets. The non-cash tax expense
is a result of near-term reduced profit expectations but does not
result in or limit the company's ability to utilize tax losses
carried forward in the future.
The above charges are based on the company's preliminary second
quarter earnings and are subject to adjustment.
Joel Hawthorne, Chief Executive Officer of GrafTech, commented,
“With the initiatives announced today and the substantial
completion of our Industrial Materials rationalization and recent
revolving credit facility refinancing, we're repositioning the
company to drive profitable and sustainable growth. We are
sharpening our commercial focus in Engineered Solutions by
targeting higher growth, higher margin product lines and leveraging
supply chain and collaborative relationships to optimize our
go-to-market strategy.”
Continued Cost Savings Review Across
All Aspects of Business Underway
The company is also reevaluating its business structure of the
Industrial Materials and Engineered Solutions segments and the
ongoing needs to support those businesses. The company expects to
complete this assessment over the next quarter. Anticipated actions
under consideration include a combination of layoffs, attrition,
early retirement, reduced contractor costs and other cost savings
initiatives designed to simplify work processes and drive greater
accountability.
Mr. Hawthorne concluded, "While it is always difficult to make
decisions that impact our teammates, these actions are designed to
make GrafTech a more competitive global company that is better
positioned to drive growth and innovation and respond more quickly
to customer demands. These actions further underscore our
continuing commitment to improving performance in the short-term as
we position the company to deliver long-term, sustainable value for
our shareholders."
In conjunction with this 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
interim report on Form 10-Q for the period reported. The
information in our website is not part of this release or any
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 2,600 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 2014; future or targeted
operational and financial performance; growth prospects and rates;
the markets we serve; future or targeted profitability, cash flow,
liquidity, sales, costs and expenses, tax rates, working capital,
inventory levels, debt levels, capital expenditures, EBITDA, cost
savings and business opportunities and positioning; strategic
plans; stock repurchase plans; cost, inventory and supply chain
management; rationalization and related activities; the impact of
rationalization, product line changes, cost competitiveness and
liquidity initiatives; expected or targeted changes in production
capacity or levels, operating rates or efficiency in our operations
or our competitors' or customers' operations; 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 integration or impact of acquired
businesses; investments and acquisitions that we may make in the
future; possible financing (including factoring and supply chain
financing) activities; our customers' operations 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; and currency
exchange and interest rates and changes therein.
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
preliminary 2014 second 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 cost savings, EBITDA 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 cost, 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 or achieve expected synergies, 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, product line changes, or pricing activities;
negative developments relating to health, safety or environmental
compliance, remediation or liabilities; downturns, production
reductions or suspensions, or other changes in steel, electronics
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; European sovereign debt issue; 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.
GTI-G
GrafTech International Ltd.Kelly Taylor, 216-676-2000Director,
Investor Relations