UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 30, 2014
GRAFTECH INTERNATIONAL LTD.
(Exact Name of Registrant as Specified in its Charter)
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| | |
Delaware | 1-13888 | 27-2496053 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
|
|
12900 Snow Road |
Parma, Ohio 44130 |
(Address of Principal Executive Offices, including Zip Code) |
Registrant’s Telephone Number, including Area Code: 216-676-2000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition
On October 30, 2014 GrafTech International Ltd. issued a press release. A copy of this press release is furnished herewith as exhibit 99.1. Such press release shall not be deemed "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934 and shall not be incorporated by reference in any filing under the Securities Act of 1933 except as shall be expressly set forth by specific reference in such filing.
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Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits.
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99.1 | Press release of GrafTech International Ltd., dated October 30, 2014 |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.
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| | GRAFTECH INTERNATIONAL LTD. |
| | |
| | |
Date: | October 30, 2014 | By: | /s/ Erick R. Asmussen |
| | | Erick R. Asmussen |
| | | Chief Financial Officer and Vice President |
EXHIBIT INDEX
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99.1 | Press release of GrafTech International Ltd., dated October 30, 2014 |
| |
CONTACT:
Kelly Taylor
Director, Investor Relations
(216) 676-2000
GrafTech Reports Third Quarter 2014 Results
PARMA, Ohio - October 30, 2014 - GrafTech International Ltd. (NYSE:GTI) today announced financial results for the third quarter ended September 30, 2014.
2014 Third Quarter Review
| |
• | Net sales were $260 million, a decrease of 14 percent, compared to $303 million in the same period of the prior year. |
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• | Industrial Materials segment revenue declined 11 percent primarily due to lower graphite electrode realized pricing and weaker sales volumes outside of the United States. |
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• | Engineered Solutions segment revenue decreased 26 percent due to weaker sales volumes in advanced consumer electronics. |
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• | Earnings were a net loss of $(35) million, or $(0.26) per diluted share, versus net loss of $(8) million, or $(0.06) per diluted share in the same period of the prior year. The net loss in the third quarter of 2014 includes $22 million, net of tax, of special charges. The net loss in the third quarter of 2013 includes $13 million, net of tax, of special charges. Excluding these charges, adjusted net loss* was $(13) million, or $(0.09) per diluted share in the current quarter, as compared to net income of $6 million or $0.04 per diluted share in the third quarter of 2013. |
| |
• | EBITDA* (which excludes special charges) was $24 million as compared to $35 million in the same period of the prior year. |
| |
• | Net cash provided by operating activities was $27 million and net debt* was $530 million, a $10 million reduction from year-end 2013. |
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• | On September 23, 2014, GrafTech announced an incremental $30 million in cost savings actions through additional rightsizing initiatives, redesign of the research and development function and downsizing of corporate functions. |
*Non-GAAP financial measures. See attached reconciliations.
Joel Hawthorne, Chief Executive Officer of GrafTech, commented, "We remain focused on our initiative, launched in October 2013, to identify and implement actions to streamline our business model with greater accountability and cost efficiency. In the third quarter, we identified and began implementing an additional $30 million in cost savings, bringing annual cost savings announced in the last year to over $120 million."
Industrial Materials Segment
Net sales for Industrial Materials decreased 11 percent to $209 million in the third quarter of 2014, as compared to $233 million in the third quarter of 2013. The decline in revenue was driven by lower realized graphite electrode pricing and weaker graphite electrode shipments outside of the United States.
The Industrial Materials segment had an operating loss of $(7) million in the third quarter of 2014 versus an operating loss of $(13) million in the same period of the prior year, largely driven by charges related to the rationalization initiatives announced in both periods. Adjusted segment operating income* (which excludes special charges in both periods) was approximately $2 million in the third quarter of 2014 and approximately $4 million in the third quarter of 2013.
Mr. Hawthorne commented, “The demand for graphite electrodes in the United States has been solid, but has not been able to offset weakening demand in other regions. As a result, and as detailed in our September release, we expect that some graphite electrode shipments will be delayed into 2015."
Mr. Hawthorne continued, "Despite price levels being approximately eight percent lower than the prior year quarter, operating income was essentially flat, reflecting some of the benefits of our completed cost reduction initiatives. We remain focused on maximizing the cost efficiency of our Industrial Materials segment and are well positioned to capitalize on a recovery in demand for our products."
Engineered Solutions Segment
Net sales for Engineered Solutions decreased 26 percent to $52 million in the third quarter of 2014 compared to $70 million in the third quarter of 2013. Operating loss for the Engineered
*Non-GAAP financial measures. See attached reconciliations.
Solutions segment was $(16) million in the third quarter of 2014 versus operating income of $4 million in the same period in 2013.
On October 6, 2014, one of the Company's customers in its advanced graphite materials business unexpectedly filed for bankruptcy, resulting in a $5 million charge in the third quarter of 2014 related to accounts receivable and inventory. Revenue associated with this customer was $4 million in the third quarter of 2014 and $18 million year-to-date.
Adjusted segment operating loss* (which excludes the impact of the customer bankruptcy and other special charges) was $(2) million in the third quarter of 2014. Weak demand and order cancellations for our advanced consumer electronics products adversely impacted revenue and profitability in the quarter.
Mr. Hawthorne commented, "While discrete events such as weak product launches by an end customer and the unexpected bankruptcy of another have significantly impacted our 2014 expectations for Engineered Solutions, we continue to believe that this segment will be a driving factor in future value creation. We are fully committed to returning this segment to profitability and this is a priority as we continue to take actions to improve its performance."
Corporate
Total Company selling and administrative expenses and research and development expenses were $30 million for the third quarter of 2014, compared to $31 million in the third quarter of 2013.
Interest expense was $9 million in the third quarter of 2014, which was flat compared to the third quarter of 2013.
Outlook
In its October 7, 2014 report, the International Monetary Fund (IMF), reduced its estimate for 2014 global GDP growth to 3.3 percent, 0.4 percentage points lower than its April forecast. The report states that downside risks to the global economic recovery have increased due to geopolitical uncertainty and volatility in financial markets. Although recoveries in certain developed
*Non-GAAP financial measures. See attached reconciliations.
economies including the United States have been stronger than previously expected, the slowdown in emerging economies has contributed to the lower global growth projection.
According to the World Steel Association, 2014 global steel production increased two percent, excluding China, through the end of September 2014. While North American operating rates continued to show improvement in the third quarter of 2014, the European Union reported lower steel production year-over-year in the month of September, reversing prior growth trends.
Mr. Hawthorne commented, "We continue to face a challenging operating environment and, as previously stated, we have seen five to ten percent of graphite electrode shipments for the second half of 2014 being delayed into 2015, resulting in reduced graphite electrode production rates. We remain focused on execution of our cost savings initiatives and providing our customers with superior service and quality."
In summary, the Company’s expectations for 2014 (excluding the impact of special charges) are as follows:
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• | Full year EBITDA* target of $105 million to $115 million; |
| |
• | Operating cash flow of approximately $95 million to $110 million; |
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• | Working capital reduction of approximately $70 million; and |
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• | Capital expenditures of approximately $80 million to $90 million. |
Mr. Hawthorne concluded, “Delevering our balance sheet remains a priority for our Company, and we continue to reduce costs, inventories and capital expenditures to achieve that goal. The GrafTech Board and management team are committed to restoring and growing value for our shareholders by leveraging our backward-integrated, low-cost, differentiated business model and executing on our strategy by commercializing solutions."
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. 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.
*Non-GAAP financial measures. See attached reconciliations.
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 18 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 and 2015; 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; 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 or refinancing (including factoring and supply chain financing) activities; our customers' operations, order patterns and demand for their products; the impact of customer bankruptcies; 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; legal proceedings and antitrust investigations; our liquidity and capital resources, including our obligations under our senior subordinated notes that mature in November 2015; 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 2014 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 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 new or refinance existing 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 fiscal or monetary policies or conditions in the U.S., Europe, China or elsewhere; changes in 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.
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited) |
| | | | | | | |
| As of December 31, 2013 | | As of September 30, 2014 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 11,888 |
| | $ | 10,878 |
|
Accounts and notes receivable, net of allowance for doubtful accounts of
$6,718 as of December 31, 2013 and $8,592 as of September 30, 2014 | 199,566 |
| | 163,971 |
|
Inventories | 490,414 |
| | 418,477 |
|
Prepaid expenses and other current assets | 73,790 |
| | 87,988 |
|
Total current assets | 775,658 |
| | 681,314 |
|
Property, plant and equipment | 1,588,880 |
| | 1,573,995 |
|
Less: accumulated depreciation | 767,895 |
| | 908,440 |
|
Net property, plant and equipment | 820,985 |
| | 665,555 |
|
Deferred income taxes | 10,334 |
| | 13,614 |
|
Goodwill | 496,810 |
| | 495,944 |
|
Other assets | 114,061 |
| | 105,018 |
|
Total assets | $ | 2,217,848 |
| | $ | 1,961,445 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 115,212 |
| | $ | 98,722 |
|
Short-term debt | 1,161 |
| | 1,144 |
|
Accrued income and other taxes | 30,687 |
| | 26,073 |
|
Rationalizations | 18,421 |
| | 12,747 |
|
Supply chain financing liability | 9,455 |
| | — |
|
Other accrued liabilities | 40,939 |
| | 44,211 |
|
Total current liabilities | 215,875 |
| | 182,897 |
|
| | | |
Long-term debt | 541,593 |
| | 539,509 |
|
Other long-term obligations | 97,947 |
| | 89,984 |
|
Deferred income taxes | 41,684 |
| | 40,676 |
|
| | | |
Stockholders’ equity: | | | |
Preferred stock, par value $.01, 10,000,000 shares authorized, none issued | — |
| | — |
|
Common stock, par value $.01, 225,000,000 shares authorized, 151,929,565 shares issued as of December 31, 2013 and 152,604,441 shares issued as of September 30, 2014 | 1,519 |
| | 1,525 |
|
Additional paid-in capital | 1,820,451 |
| | 1,826,935 |
|
Accumulated other comprehensive loss | (292,624 | ) | | (313,560 | ) |
Retained earnings (deficit) | 39,625 |
| | (162,268 | ) |
Less: cost of common stock held in treasury, 16,341,311 shares as of December 31, 2013 and 16,092,662 shares as of September 30, 2014 | (247,190 | ) | | (243,098 | ) |
Less: common stock held in employee benefit and compensation trusts, 87,206 shares as of December 31, 2013 and 107,406 shares as of September 30, 2014 | (1,032 | ) | | (1,155 | ) |
Total stockholders’ equity | 1,320,749 |
| | 1,108,379 |
|
Total liabilities and stockholders’ equity | $ | 2,217,848 |
| | $ | 1,961,445 |
|
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, |
| 2013 | | 2014 | | 2013 | | 2014 |
| | | | | | | |
Net sales | $ | 303,084 |
| | $ | 260,458 |
| | $ | 858,172 |
| | $ | 825,433 |
|
Cost of sales | 266,440 |
| | 242,814 |
| | 724,057 |
| | 764,142 |
|
Gross profit | 36,644 |
| | 17,644 |
| | 134,115 |
| | 61,291 |
|
| | | | | | | |
Research and development | 2,994 |
| | 2,871 |
| | 8,874 |
| | 8,544 |
|
Selling and administrative expenses | 27,626 |
| | 26,980 |
| | 87,500 |
| | 89,024 |
|
Rationalizations | 14,593 |
| | 10,844 |
| | 14,593 |
| | 11,761 |
|
Impairments | — |
| | — |
| | — |
| | 121,570 |
|
Operating (loss) income | (8,569 | ) | | (23,051 | ) | | 23,148 |
| | (169,608 | ) |
| | | | | | | |
Other expense, net | (772 | ) | | 1,149 |
| | 753 |
| | 1,902 |
|
Interest expense | 9,098 |
| | 9,069 |
| | 27,053 |
| | 27,223 |
|
Interest income | (49 | ) | | (144 | ) | | (162 | ) | | (257 | ) |
Loss before provision for income taxes | (16,846 | ) | | (33,125 | ) | | (4,496 | ) | | (198,476 | ) |
| | | | | | | |
Provision for income taxes | (9,216 | ) | | 1,818 |
| | (5,458 | ) | | 3,417 |
|
Net (loss) income | $ | (7,630 | ) | | $ | (34,943 | ) | | $ | 962 |
| | $ | (201,893 | ) |
| | | | | | | |
Basic (loss) income per common share: | | | | | | | |
Net (loss) income per share | $ | (0.06 | ) | | $ | (0.26 | ) | | $ | 0.01 |
| | $ | (1.48 | ) |
Weighted average common shares outstanding | 135,134 |
| | 136,375 |
| | 134,949 |
| | 136,007 |
|
| | | | | | | |
Diluted (loss) income per common share: | | | | | | | |
Net (loss) income per share | $ | (0.06 | ) | | $ | (0.26 | ) | | $ | 0.01 |
| | $ | (1.48 | ) |
Weighted average common shares outstanding | 135,134 |
| | 136,375 |
| | 135,122 |
| | 136,007 |
|
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, |
| 2013 | | 2014 | | 2013 | | 2014 |
Cash flow from operating activities: | | | | | | | |
Net (loss) income | $ | (7,630 | ) | | $ | (34,943 | ) | | $ | 962 |
| | $ | (201,893 | ) |
Adjustments to reconcile net income to cash provided by operations: | | | | | | | |
Depreciation and amortization | 26,902 |
| | 26,616 |
| | 71,770 |
| | 93,123 |
|
Impairments | — |
| | — |
| | — |
| | 121,570 |
|
Inventory write-downs | 1,600 |
| | 8,100 |
| | 1,600 |
| | 18,800 |
|
Deferred income tax provision | (2,840 | ) | | (3,219 | ) | | (2,563 | ) | | (4,943 | ) |
Post-retirement and pension plan changes | 1,226 |
| | 1,004 |
| | 3,468 |
| | 4,097 |
|
Stock-based compensation | 2,193 |
| | 1,257 |
| | 5,938 |
| | 4,009 |
|
Interest expense | 3,540 |
| | 3,634 |
| | 10,459 |
| | 11,105 |
|
Other charges, net | 1,596 |
| | 1,264 |
| | 3,016 |
| | 4,047 |
|
Decrease (increase) in working capital* | 29,013 |
| | 28,861 |
| | (22,003 | ) | | 48,577 |
|
Increase in long-term assets and liabilities | (2,068 | ) | | (5,585 | ) | | (7,469 | ) | | (15,603 | ) |
Net cash provided by operating activities | 53,532 |
| | 26,989 |
| | 65,178 |
| | 82,889 |
|
Cash flow from investing activities: | | | | | | | |
Capital expenditures | (24,180 | ) | | (22,850 | ) | | (62,698 | ) | | (69,314 | ) |
Proceeds from the sale of assets | — |
| | 1,556 |
| | — |
| | 4,079 |
|
(Payments for) proceeds from derivative instruments | (620 | ) | | (379 | ) | | 852 |
| | (573 | ) |
Insurance recoveries | 2,049 |
| | — |
| | 2,333 |
| | 2,834 |
|
Net cash used in investing activities | (22,751 | ) | | (21,673 | ) | | (59,513 | ) | | (62,974 | ) |
Cash flow from financing activities: | | | | | | | |
Short-term debt reductions, net | 1,567 |
| | 1,002 |
| | (4,082 | ) | | (17 | ) |
Revolving Facility borrowings | 23,000 |
| | 20,000 |
| | 134,000 |
| | 229,000 |
|
Revolving Facility reductions | (48,000 | ) | | (35,000 | ) | | (118,500 | ) | | (240,000 | ) |
Principal payments on long-term debt | (49 | ) | | (32 | ) | | (189 | ) | | (158 | ) |
Supply chain financing | (6,053 | ) | | — |
| | (14,422 | ) | | (9,455 | ) |
Proceeds from exercise of stock options | — |
| | — |
| | 175 |
| | 2,813 |
|
Purchase of treasury shares | (135 | ) | | (185 | ) | | (844 | ) | | (620 | ) |
Revolving Facility refinancing | — |
| | (105 | ) | | — |
| | (2,741 | ) |
Other | (766 | ) | | 93 |
| | (7,206 | ) | | 1,011 |
|
Net cash used in financing activities | (30,436 | ) | | (14,227 | ) | | (11,068 | ) |
| (20,167 | ) |
Net increase (decrease) in cash and cash equivalents | 345 |
| | (8,911 | ) | | (5,403 | ) | | (252 | ) |
Effect of exchange rate changes on cash and cash equivalents | 139 |
| | (939 | ) | | (444 | ) | | (758 | ) |
Cash and cash equivalents at beginning of period | 10,986 |
| | 20,728 |
| | 17,317 |
| | 11,888 |
|
Cash and cash equivalents at end of period | $ | 11,470 |
| | $ | 10,878 |
| | $ | 11,470 |
| | $ | 10,878 |
|
| | | | | | | |
* Net change in working capital due to the following components: | | | | | | | |
Change in current assets: | | | | | | | |
Accounts and notes receivable, net | $ | 2,895 |
| | $ | 7,535 |
| | $ | 30,971 |
| | $ | 29,693 |
|
Inventories | 19,803 |
| | 14,826 |
| | (13,581 | ) | | 46,424 |
|
Prepaid expenses and other current assets | 5,313 |
| | 3,100 |
| | (11,049 | ) | | (15,560 | ) |
Decrease in accounts payable and accruals | (17,800 | ) | | (10,788 | ) | | (47,541 | ) | | (11,072 | ) |
Rationalizations | 14,129 |
| | 9,405 |
| | 14,129 |
| | (5,671 | ) |
Increase in interest payable | 4,673 |
| | 4,783 |
| | 5,068 |
| | 4,763 |
|
Decrease (increase) in working capital | $ | 29,013 |
| | $ | 28,861 |
| | $ | (22,003 | ) | | $ | 48,577 |
|
| | | | | | | |
|
| | | | | | | | | | | | | | | | |
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES SEGMENT DATA SUMMARY AND RECONCILIATION (Dollars in thousands) (Unaudited) |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2013 | | 2014 | | 2013 | | 2014 |
Net sales: | | | | | | | | |
Industrial Materials | | $ | 233,277 |
| | $ | 208,573 |
| | $ | 673,394 |
| | $ | 634,004 |
|
Engineered Solutions | | 69,807 |
| | 51,885 |
| | 184,778 |
| | 191,429 |
|
Total net sales | | $ | 303,084 |
| | $ | 260,458 |
| | $ | 858,172 |
| | $ | 825,433 |
|
| | | | | | | | |
Segment operating income: | | | | | | | | |
Industrial Materials | | (12,945 | ) | | (7,219 | ) | | 10,663 |
| | (28,009 | ) |
Engineered Solutions | | 4,376 |
| | (15,832 | ) | | 12,485 |
| | (141,599 | ) |
Total segment operating income | | $ | (8,569 | ) | | $ | (23,051 | ) | | $ | 23,148 |
| | $ | (169,608 | ) |
| | | | | | | | |
Reconciling Items: | | | | | | | | |
| | | | | | | | |
Rationalizations - Industrial Materials (including corporate allocations) | | 14,345 |
| | 7,093 |
| | 14,345 |
| | 8,038 |
|
Rationalizations - Engineered Solutions (including corporate allocations) | | 248 |
| | 3,751 |
| | 248 |
| | 3,723 |
|
Impairments - Engineered Solutions | | — |
| | — |
| | — |
| | 121,570 |
|
Total rationalizations and impairments | | 14,593 |
| | 10,844 |
| | 14,593 |
| | 133,331 |
|
| | | | | | | | |
Rationalization related | | | | | | | | |
Industrial Materials (recorded in Cost of sales) | | 2,954 |
| | 2,456 |
| | 2,954 |
| | 27,884 |
|
Industrial Materials (recorded in Selling and administrative) | | — |
| | 93 |
| | — |
| | 171 |
|
Engineered Solutions (recorded in Cost of sales) | | — |
| | 5,593 |
| | — |
| | 17,597 |
|
Engineered Solutions (recorded in Selling and administrative) | | — |
| | 16 |
| | — |
| | 16 |
|
Total rationalization related | | — |
| | 8,158 |
| | 2,954 |
| | 45,668 |
|
| | | | | | | | |
Proxy contest expenses - allocated to Industrial Materials | | — |
| | — |
| | — |
| | 1,888 |
|
Proxy contest expenses - allocated to Engineered Solutions | | — |
| | — |
| | — |
| | 550 |
|
Advanced graphite materials customer bad debt, inventory charge | | — |
| | 4,829 |
| | — |
| | 4,829 |
|
Total other expenses | | — |
| | 4,829 |
| | — |
| | 7,267 |
|
| | | | | | | | |
Segment adjusted operating income: | | | | | | | | |
Industrial Materials | | 4,354 |
| | 2,423 |
| | 27,962 |
| | 9,972 |
|
Engineered Solutions | | 4,624 |
| | (1,643 | ) | | 12,733 |
| | 6,686 |
|
Total adjusted segment operating income | | $ | 8,978 |
| | $ | 780 |
| | $ | 40,695 |
| | $ | 16,658 |
|
| | | | | | | | |
Adjusted operating income margin: | | | | | | | | |
Industrial Materials | | 1.9 | % | | 1.2 | % | | 4.2 | % | | 1.6 | % |
Engineered Solutions | | 6.6 | % | | (3.2 | )% | | 6.9 | % | | 3.5 | % |
Total adjusted operating income margin | | 3.0 | % | | 0.3 | % | | 4.7 | % | | 2.0 | % |
NOTE ON RECONCILIATION OF OPERATING INCOME DATA: Adjusted segment operating income 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 segment operating income is generally viewed as providing useful information regarding a segment's operating profitability. Management uses adjusted segment operating income as well as other financial measures in connection with its decision-making activities. Adjusted segment operating income should not be considered in isolation or as a substitute for segment operating income or other consolidated income data prepared in accordance with GAAP. GrafTech's method for calculating adjusted segment operating income may not be comparable to methods used by other companies.
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
RECONCILIATION OF OTHER NON-GAAP FINANCIAL MEASURES
(Dollars in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | |
| | |
EBITDA Reconciliation | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | Full Year Target |
| | 2013 | | 2014 | | 2013 | | 2014 | | 2014 |
| | | | | | | | | | |
EBITDA | | $ | 34,557 |
| | $ | 23,749 |
| | $ | 111,142 |
| | $ | 84,458 |
| | $105,000 - $115,000 |
Adjustments | | | | | | | | | | |
Depreciation and amortization | | (25,579 | ) | | (22,971 | ) | | (70,447 | ) | | (67,799 | ) | | (90,000) |
Rationalization related depreciation | | — |
| | (3,645 | ) | | — |
| | (25,324 | ) | | (30,324) |
Rationalizations | | (14,593 | ) | | (10,843 | ) | | (14,593 | ) | | (11,761 | ) | | (11,761) |
Impairments | | — |
| | — |
| | — |
| | (121,570 | ) | | (121,570) |
Rationalizations related charges | | (2,954 | ) | | (4,512 | ) | | (2,954 | ) | | (20,345 | ) | | (23,345) |
Advanced graphite materials customer bad debt and inventory charge | | — |
| | (4,829 | ) | | — |
| | (4,829 | ) | | (4,829) |
Proxy contest expenses | | — |
| | — |
| | — |
| | (2,438 | ) | | (2,438) |
Operating income | | (8,569 | ) | | (23,051 | ) | | 23,148 |
| | (169,608 | ) | | (179,267) - (169,267) |
Other (expense) income, net | | 772 |
| | (1,149 | ) | | (753 | ) | | (1,902 | ) | | (2,500) |
Interest expense | | (9,098 | ) | | (9,069 | ) | | (27,053 | ) | | (27,223 | ) | | (36,000) |
Interest income | | 49 |
| | 144 |
| | 162 |
| | 257 |
| | 300 |
Income taxes | | 9,216 |
| | (1,818 | ) | | 5,458 |
| | (3,417 | ) | | 0 - (3,000) |
Net income (loss) | | $ | (7,630 | ) | | $ | (34,943 | ) | | $ | 962 |
| | $ | (201,893 | ) | | $(217,467) - $(210,467) |
| | | | | | | | | | |
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 as well as productivity and cash generation. 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 OTHER NON-GAAP FINANCIAL MEASURES
(Dollars in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | | | | | | |
Adjusted Net Income and Earnings Per Share Reconciliation | | |
| | | | | | | |
| For the Three Months Ended September 30, 2013 | | For the Three Months Ended September 30, 2014 |
| Income (Loss) | | EPS | | Income (Loss) | | EPS |
Total Company | | | | | | | |
Net income (loss) | $ | (7,630 | ) | | $ | (0.06 | ) | | $ | (34,943 | ) | | $ | (0.26 | ) |
Rationalizations, net of tax | 10,707 |
| | 0.08 |
| | 7,123 |
| | 0.05 |
|
Rationalization and impairment related, net of tax | 2,661 |
| | 0.02 |
| | 5,088 |
| | 0.05 |
|
Valuation allowance | — |
| | — |
| | 6,786 |
| | 0.05 |
|
Advanced graphite materials customer bad debt and inventory charge | — |
| | — |
| | 3,062 |
| | 0.02 |
|
Adjusted net income (loss) | $ | 5,738 |
| | $ | 0.04 |
| | $ | (12,884 | ) | | $ | (0.09 | ) |
| | | | | | | |
| | | | | | | |
| For the Nine Months Ended September 30, 2013 | | For the Nine Months Ended September 30, 2014 |
| Income (Loss) | | EPS | | Income (Loss) | | EPS |
Total Company | | | | | | | |
Net income (loss) | $ | 962 |
| | $ | 0.01 |
| | $ | (201,893 | ) | | $ | (1.48 | ) |
Rationalizations, net of tax | 10,707 |
| | 0.08 |
| | 7,760 |
| | 0.06 |
|
Impairment of long-lived assets, net of tax | — |
| | — |
| | 76,544 |
| | 0.56 |
|
Rationalization and impairment related, net of tax | 2,661 |
| | 0.02 |
| | 30,346 |
| | 0.22 |
|
Valuation allowance | — |
| | — |
| | 65,715 |
| | 0.49 |
|
Advanced graphite materials customer bad debt and inventory charge | — |
| | — |
| | 3,062 |
| | 0.02 |
|
Proxy contest expenses, net of tax | — |
| | — |
| | 1,521 |
| | 0.01 |
|
Adjusted net income (loss) | $ | 14,330 |
| | $ | 0.11 |
| | $ | (16,945 | ) | | $ | (0.12 | ) |
NOTE ON RECONCILIATION OF EARNINGS DATA: Adjusted net income and adjusted earnings per share are non-GAAP financial measures 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 and adjusted earnings per share are generally viewed as providing useful information regarding a company's operating profitability. Management uses adjusted net income and adjusted earnings per share as well as other financial measures in connection with its decision-making activities. Adjusted net income and adjusted earnings per share 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 and adjusted earnings per share may not be comparable to methods used by other companies.
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
RECONCILIATION OF OTHER NON-GAAP FINANCIAL MEASURES
(Dollars in thousands)
(Unaudited)
|
| | | | | | | | |
Net Debt Reconciliation |
| | As of December 31, 2013 | | As of September 30, 2014 |
| | | | |
Long-term debt | | $ | 541,593 |
| | $ | 539,509 |
|
Short-term debt | | 1,161 |
| | 1,144 |
|
Supply chain financing | | 9,455 |
| | — |
|
Total debt | | 552,209 |
| | 540,653 |
|
Less: | | | | |
Cash and cash equivalents | | 11,888 |
| | 10,878 |
|
Net Debt | | $ | 540,321 |
| | $ | 529,775 |
|
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 or other debt instruments.