BROOKLYN HEIGHTS, Ohio--(BUSINESS WIRE)--May 7, 2018--
GrafTech International Ltd. (NYSE: EAF) ("GrafTech") today announced
financial results for the first quarter ended March 31, 2018.
“We are very pleased with the strong start to the year. Our company has
been fundamentally restructured, and following our IPO last month, we
are confident that we are in an optimal position to fully leverage our
strengths in our structurally changed industry,” said David Rintoul,
President and CEO of GrafTech. "Our vertical integration, longer-term
sales contracts and premier production platform all contribute to give
us a unique competitive advantage."
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Key financial measures
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For the three months
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ended March 31,
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(dollars in thousands, except per share amounts)
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2018
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2017
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Net sales
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$
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451,899
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$
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104,739
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Net income (loss)
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$
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223,673
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$
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(26,344
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)
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Earnings per share (1)
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$
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0.74
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$
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(0.09
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)
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EBITDA from continuing operations (2)
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$
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304,768
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$
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1,048
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Adjusted EBITDA from continuing operations (2)
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$
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310,339
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$
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4,190
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(1)
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Earnings per share represents diluted earnings per share after
giving effect to the stock split effected on April 12, 2018,
resulting in 302,225,923 shares outstanding.
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(2)
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See below for more information and a reconciliation of EBITDA from
continuing operations and adjusted EBITDA from continuing operations
to net income (loss), the most directly comparable financial measure
calculated and presented in accordance with GAAP.
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Net sales for the quarter ended March 31, 2018 increased to $452
million, compared to $105 million in the first quarter of 2017. The
improvement was primarily due to an increase in the weighted average
realized price for graphite electrodes, which rose to $10,124 per metric
ton (MT) in the current quarter, compared to $2,288 per MT in the prior
period. Sales volume was also up, increasing 4.9% to 43 thousand MT from
41 thousand MT in the prior period. These increases in weighted average
realized price and sales volume were driven by robust demand for
electrodes due to the strong growth in electric arc furnace steel
manufacturing, combined with a constrained electrode supply due to
reductions in electrode manufacturing capacity over the past several
years and a limited supply of our key raw material, petroleum needle
coke.
Demand for our electrodes remains strong and is above the levels that we
are able to supply. We have been very pleased with the reception of our
new commercial strategy to provide our customers with stability and
reliability of supply by offering longer-term sales contracts. During
the first quarter of 2018, $272 million, or 60%, of our revenue was
generated from these contracts, with the remainder generated from other
graphite electrode sales and by-product sales. We expect the percentage
of revenue from these contracts to be even higher for the remainder of
the year.
Net income improved dramatically from the prior period due to the
increase in weighted average realized price levels. Net income increased
to $224 million, or $0.74 per share, in the first quarter of 2018,
compared to a loss of ($26) million, or ($0.09) per share, in the first
quarter of 2017.
Adjusted EBITDA from continuing operations in the quarter climbed to
$310 million compared to $4 million in the prior year period.
Cash flow from operations was $141 million in the quarter compared to $2
million in the prior year period. During the quarter, working capital
increased by $151 million due to increases in accounts receivable due to
higher weighted average realized prices and increases in inventory due
to higher raw materials cost. Capital expenditures in the quarter were
$14 million.
In February, we borrowed $1.5 billion in term loans under our new senior
secured term loan facility. We used the proceeds to repay existing debt
and to declare and pay a dividend to our sole stockholder pre-IPO.
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Key operating metrics
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For the three
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months ended
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March 31,
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(in thousands, except price data)
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2018
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2017
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Sales volume (MT) (1)
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43
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41
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Weighted average realized price (2)
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$
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10,124
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$
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2,288
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Production volume (MT) (3)
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43
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40
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Production capacity (MT) (4)
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51
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48
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Production capacity excluding St. Marys during idle period (MT) (5)
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44
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41
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Capacity utilization (6)
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84
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%
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83
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%
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Capacity utilization excluding St. Marys during idle period (5)(6)
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98
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%
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98
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%
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(1)
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Sales volume reflects the total volume of graphite electrodes sold
for which revenue has been recognized during the period.
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(2)
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Weighted average realized price reflects the total revenues from
sales of graphite electrodes for the period divided by the graphite
electrode sales volume for that period.
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(3)
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Production volume reflects graphite electrodes produced during the
period.
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(4)
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Production capacity reflects expected maximum production volume
during the period under normal operating conditions, standard
product mix and expected maintenance downtime. Actual production may
vary.
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(5)
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The St. Marys, Pennsylvania facility was temporarily idled effective
the second quarter of 2016, except for the machining of
semi-finished products sourced from other plants.
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(6)
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Capacity utilization reflects production volume as a percentage of
production capacity.
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Operational Update
Our manufacturing plants operated at very high levels during the first
quarter of 2018, with production of 43 thousand MT and capacity
utilization, excluding our St. Marys facility, of 98%. This compares to
production of 40 thousand MT and capacity utilization, excluding our St.
Marys facility, of 98% in the prior year period. We continue to make
solid progress on our debottlenecking initiative and continue to expect
completion of that project in the fourth quarter of 2018.
Distribution
The Board has declared a dividend of $0.0645 per share, payable on June
29, 2018. The dividend represents a prorated quarterly dividend of
$0.085 (or $0.34 per annum) per share of our common stock from the date
of our initial public offering, April 23, 2018, to June 30th, 2018. The
prorated dividend will be payable to stockholders of record as of the
close of business on May 31, 2018.
Conference Call
In conjunction with this earnings release, you are invited to listen to
our earnings call being held on May 7, 2018 at 10:00 a.m. Eastern Time.
The call will be webcast and available at www.GrafTech.com,
in the investor relations section. The earnings call dial-in number is
+1 (866) 521-4909 for domestic and +1 (647) 427-2311 for international.
A rebroadcast of the 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.
About GrafTech
GrafTech International Ltd. is a leading manufacturer of high
quality graphite electrode products essential to the production of
electric arc furnace (EAF) steel and other ferrous and non-ferrous
metals. GrafTech is listed on the New York Stock Exchange under the
ticker symbol “EAF”.
Special note regarding forward-looking statements
This news release and related discussions may contain forward-looking
statements that reflect our current views with respect to, among other
things, future events and financial performance. You can identify these
forward-looking statements by the use of forward-looking
words such as “will,” “may,” “plan,” “estimate,” “project,” “believe,”
“anticipate,” “expect,” “intend,” “should,” “would,” “could,” “target,”
“goal,” “continue to,” “positioned to,” "are confident" or the negative
version of those words or other comparable words. Any forward-looking
statements contained in this news release are based upon our historical
performance and on our current plans, estimates and expectations in
light of information currently available to us. The inclusion of this
forward-looking information should not be regarded as a
representation by us that the future plans, estimates or expectations
contemplated by us will be achieved. These forward-looking
statements are subject to various risks and uncertainties and
assumptions relating to our operations, financial results, financial
condition, business, prospects, growth strategy and liquidity.
Accordingly, there are or will be important factors that could cause our
actual results to differ materially from those indicated in these
statements. We believe that these factors include, but are not limited
to: our history of net losses and the possibility that we may not
achieve or maintain profitability in the future; the possibility that we
are unable to implement our business strategies, including our
initiative to secure and maintain longer-term customer contracts, in an
effective manner; the possibility that new tax legislation could
adversely affect us or our stockholders; the fact that pricing for
graphite electrodes has historically been cyclical and, in the future,
the price of graphite electrodes will likely decline from recent record
highs; the sensitivity of our business and operating results to economic
conditions; our dependence on the global steel industry generally and
the EAF steel industry in particular; the possibility that global
graphite electrode overcapacity may adversely affect graphite electrode
prices; the competitiveness of the graphite electrode industry; our
dependence on the supply of petroleum needle coke; our dependence on
supplies of raw materials (in addition to petroleum needle coke) and
energy; the legal, economic, social and political risks associated with
our substantial operations in multiple countries; the possibility that
fluctuation of foreign currency exchange rates could materially harm our
financial results; the possibility that our results of operations could
deteriorate if our manufacturing operations were substantially disrupted
for an extended period, including as a result of equipment failure,
climate change, natural disasters, public health crises, political
crises or other catastrophic events; the possibility that plant capacity
expansions may be delayed or may not achieve the expected benefits; our
dependence on third parties for certain construction, maintenance,
engineering, transportation, warehousing and logistics services; the
possibility that we are unable to recruit or retain key management and
plant operating personnel or successfully negotiate with the
representatives of our employees, including labor unions; the
possibility that we may divest or acquire businesses, which could
require significant management attention or disrupt our business; the
sensitivity of goodwill on our balance sheet to changes in the market;
the possibility that we are subject to information technology systems
failures, cybersecurity attacks, network disruptions and breaches of
data security; our dependence on protecting our intellectual property;
the possibility that third parties may claim that our products or
processes infringe their intellectual property rights; the possibility
that our manufacturing operations are subject to hazards; changes in, or
more stringent enforcement of, health, safety and environmental
regulations applicable to our manufacturing operations and facilities;
the possibility that significant changes in our jurisdictional earnings
mix or in the tax laws of those jurisdictions could adversely affect our
business; the fact that there are material limitations with making
estimates of our results for current or prior periods prior to the
completion of our normal review procedures; the possibility that our
indebtedness could limit our financial and operating activities or that
our cash flows may not be sufficient to service our indebtedness; the
possibility that restrictive covenants in our financing agreements could
restrict or limit our operations; the possibility that our cash flows
are insufficient to service our indebtedness; the fact that borrowings
under certain of our existing financing agreements subjects us to
interest rate risk; the possibility of a lowering or withdrawal of the
ratings assigned to our debt; the possibility that disruptions in the
capital and credit markets adversely affect our results of operations,
cash flows and financial condition, or those of our customers and
suppliers; the possibility that highly concentrated ownership of our
common stock may prevent minority stockholders from influencing
significant corporate decisions; the fact that certain of our
stockholders have the right to engage or invest in the same or similar
businesses as us; the fact that certain provisions of our Amended and
Restated Certificate of Incorporation and our Amended and Restated By-Laws
could hinder, delay or prevent a change of control; the fact that the
Court of Chancery of the State of Delaware will be the exclusive forum
for substantially all disputes between us and our stockholders; our
expectation to be a “controlled company” within the meaning of the NYSE
corporate governance standards, which would allow us to qualify for
exemptions from certain corporate governance requirements; and other
risks described in the “Risk Factors” section of the prospectus for our
initial public offering.
These factors should not be construed as exhaustive and should be
read in conjunction with the other cautionary statements that are
included in the prospectus for our initial public offering. The forward-looking
statements made in this press release relate only to events as of the
date on which the statements are made. We do not undertake any
obligation to publicly update or review any forward-looking
statement except as required by law, whether as a result of new
information, future developments or otherwise.
Non-GAAP financial measures
In addition to providing results that are determined in accordance with
GAAP, we have provided certain financial measures that are not in
accordance with GAAP. EBITDA from continuing operations and adjusted
EBITDA from continuing operations are non-GAAP financial measures. We
define EBITDA from continuing operations, a non-GAAP financial measure,
as net income or loss plus interest expense, minus interest income, plus
income taxes, discontinued operations and depreciation and amortization
from continuing operations. We define adjusted EBITDA from continuing
operations as EBITDA from continuing operations plus any pension and
other post-employment benefit ("OPEB") plan expenses, impairments,
rationalization-related charges, acquisition costs and costs related to
the change in control as well as proxy contests costs, initial public
offering expenses, non-cash gains or losses from foreign currency
remeasurement of non-operating liabilities in our foreign subsidiaries
where the functional currency is the U.S. dollar and non-cash fixed
asset write-offs. Adjusted EBITDA from continuing operations is the
primary metric used by our management and our board of directors to
establish budgets and operational goals for managing our business and
evaluating our performance.
We monitor adjusted EBITDA from continuing operations as a supplement to
our GAAP measures, and believe it is useful to present to investors,
because we believe that it facilitates evaluation of our
period-to-period operating performance by eliminating items that are not
operational in nature, allowing comparison of our recurring core
business operating results over multiple periods unaffected by
differences in capital structure, capital investment cycles and fixed
asset base. In addition, we believe adjusted EBITDA from continuing
operations and similar measures are widely used by investors, securities
analysts, ratings agencies, and other parties in evaluating companies in
our industry as a measure of financial performance and debt-service
capabilities.
Our use of adjusted EBITDA from continuing operations has limitations as
an analytical tool, and you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP. Some of
these limitations are:
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adjusted EBITDA from continuing operations does not reflect changes
in, or cash requirements for, our working capital needs;
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adjusted EBITDA from continuing operations does not reflect our cash
expenditures for capital equipment or other contractual commitments,
including any capital expenditures for future capital expenditure
requirements to augment or replace our capital assets;
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adjusted EBITDA from continuing operations does not reflect the
interest expense or the cash requirements necessary to service
interest or principal payments on our indebtedness;
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adjusted EBITDA from continuing operations does not reflect tax
payments that may represent a reduction in cash available to us;
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adjusted EBITDA from continuing operations does not reflect expenses
relating to our pension and OPEB plans;
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adjusted EBITDA from continuing operations does not reflect impairment
of long-lived assets and goodwill;
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adjusted EBITDA from continuing operations does not reflect the
non-cash gains or losses from foreign currency remeasurement of
non-operating liabilities in our foreign subsidiaries where the
functional currency is the U.S. dollar;
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adjusted EBITDA from continuing operations does not reflect initial
public offering expenses;
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adjusted EBITDA from continuing operations does not reflect
rationalization-related charges, acquisition costs, costs related to
the change in control and proxy contests costs or the non-cash
write-off of fixed assets; and
-
other companies, including companies in our industry, may calculate
EBITDA from continuing operations and adjusted EBITDA from continuing
operations differently, which reduces its usefulness as a comparative
measure.
In evaluating EBITDA from continuing operations and adjusted EBITDA from
continuing operations, you should be aware that in the future, we will
incur expenses similar to the adjustments in the reconciliation
presented below. Our presentations of EBITDA from continuing operations
and adjusted EBITDA from continuing operations should not be construed
as suggesting that our future results will be unaffected by these
expenses or any unusual or non-recurring items. When evaluating our
performance, you should consider EBITDA from continuing operations and
adjusted EBITDA from continuing operations alongside other financial
performance measures, including our net income (loss) and other GAAP
measures.
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GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands)
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Unaudited
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As of
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As of
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March 31,
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December 31,
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2018
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2017
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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138,373
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$
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13,365
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Accounts and notes receivable, net of allowance for doubtful
accounts of $994 as of March 31, 2018 and $1,097 as of December
31, 2017
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252,216
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116,841
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Inventories
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202,518
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174,151
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Prepaid expenses and other current assets
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35,563
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44,872
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Current assets of discontinued operations
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2,406
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5,313
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Total current assets
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631,076
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354,542
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Property, plant and equipment
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662,004
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642,651
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Less: accumulated depreciation
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143,862
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129,810
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Net property, plant and equipment
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518,142
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512,841
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Deferred income taxes
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19,678
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30,768
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Goodwill
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171,117
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171,117
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Other assets
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127,165
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129,835
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Total assets
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$
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1,467,178
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$
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1,199,103
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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79,178
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$
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69,110
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Short-term debt
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52,394
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16,474
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Accrued income and other taxes
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22,451
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9,737
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Other accrued liabilities
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|
32,508
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53,226
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Current liabilities of discontinued operations
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2,849
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3,412
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Total current liabilities
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189,380
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151,959
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Long-term debt
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1,421,265
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322,900
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Other long-term obligations
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80,176
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68,907
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Deferred income taxes
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52,166
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41,746
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Long-term liabilities of discontinued operations
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376
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376
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Stockholders’ equity:
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Preferred stock, par value $.01, 300,000,000 shares authorized,
none issued
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—
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—
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|
Common stock, par value $.01, 3,000,000,000 shares authorized,
302,225,923 shares issued as of March 31, 2018 and December 31,
2017*
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|
3,022
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|
|
3,022
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Additional paid-in capital
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|
851,315
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851,315
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Accumulated other comprehensive income
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19,216
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|
20,289
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Accumulated deficit
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(1,149,738
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)
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(261,411
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)
|
Total stockholders’ (deficit) equity
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|
(276,185
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)
|
|
613,215
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|
|
|
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Total liabilities and stockholders’ equity
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|
$
|
1,467,178
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|
|
$
|
1,199,103
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* Based on the number of common shares outstanding after giving
effect to the stock split that became effective on April 12, 2018
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GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
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(Dollars in thousands)
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(Unaudited)
|
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For the Three
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Months Ended March 31,
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2018
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2017
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
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|
|
Net sales
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|
$
|
451,899
|
|
|
$
|
104,739
|
|
Cost of sales
|
|
145,149
|
|
|
103,453
|
|
Gross profit
|
|
306,750
|
|
|
1,286
|
|
Research and development
|
|
429
|
|
|
820
|
|
Selling and administrative expenses
|
|
15,876
|
|
|
11,656
|
|
Operating profit (loss)
|
|
290,445
|
|
|
(11,190
|
)
|
|
|
|
|
|
Other (income) expense, net
|
|
2,005
|
|
|
3,304
|
|
Interest expense
|
|
37,865
|
|
|
7,546
|
|
Interest income
|
|
(115
|
)
|
|
(123
|
)
|
Income (loss) from continuing operations before provision for
income taxes
|
|
250,690
|
|
|
(21,917
|
)
|
|
|
|
|
|
Provision for income taxes
|
|
28,643
|
|
|
361
|
|
Net income (loss) from continuing operations
|
|
222,047
|
|
|
(22,278
|
)
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
1,626
|
|
|
(4,066
|
)
|
|
|
|
|
|
Net income (loss)
|
|
$
|
223,673
|
|
|
$
|
(26,344
|
)
|
|
|
|
|
|
Basic and diluted income (loss) per common share:*
|
|
|
|
|
Net income (loss) per share
|
|
$
|
0.74
|
|
|
$
|
(0.09
|
)
|
Income (loss) from continuing operations per common share
|
|
0.73
|
|
|
$
|
(0.07
|
)
|
Weighted average common shares outstanding
|
|
302,225,923
|
|
|
302,225,923
|
|
* Based on the number of common shares outstanding after giving
effect to the stock split that became effective on April 12, 2018
|
|
|
|
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Dollars in thousands, unaudited)
|
|
|
|
|
|
For the Three
|
|
|
Months Ended March 31,
|
|
|
2018
|
|
2017
|
Cash flow from operating activities:
|
|
|
|
|
Net income (loss)
|
|
$
|
223,673
|
|
|
$
|
(26,344
|
)
|
Adjustments to reconcile net income (loss) to cash provided by
operations:
|
|
|
|
|
Depreciation and amortization
|
|
16,328
|
|
|
17,309
|
|
Impairments
|
|
—
|
|
|
2,500
|
|
Deferred income tax provision
|
|
19,791
|
|
|
(761
|
)
|
Loss on extinguishment of debt
|
|
23,827
|
|
|
—
|
|
Interest expense
|
|
1,129
|
|
|
1,686
|
|
Other charges, net
|
|
2,574
|
|
|
1,505
|
|
Net change in working capital*
|
|
(150,527
|
)
|
|
8,646
|
|
Change in long-term assets and liabilities
|
|
3,758
|
|
|
(2,724
|
)
|
Net cash provided by operating activities
|
|
140,553
|
|
|
1,817
|
|
Cash flow from investing activities:
|
|
|
|
|
Capital expenditures
|
|
(14,025
|
)
|
|
(7,996
|
)
|
Proceeds from the sale of assets
|
|
736
|
|
|
368
|
|
Net cash used in investing activities
|
|
(13,289
|
)
|
|
(7,628
|
)
|
Cash flow from financing activities:
|
|
|
|
|
Short-term debt, net
|
|
(12,536
|
)
|
|
(534
|
)
|
Revolving Facility borrowings
|
|
—
|
|
|
13,000
|
|
Revolving Facility reductions
|
|
(45,692
|
)
|
|
—
|
|
Debt issuance costs
|
|
(20,090
|
)
|
|
—
|
|
Proceeds from the issuance of long-term debt, net of original
issuance discount
|
|
1,492,500
|
|
|
—
|
|
Repayment of Senior Notes
|
|
(304,782
|
)
|
|
—
|
|
Principal payments on long-term debt
|
|
—
|
|
|
—
|
|
Dividends paid
|
|
(1,112,000
|
)
|
|
—
|
|
Net cash (used in) provided by financing activities
|
|
(2,600
|
)
|
|
12,466
|
|
Net change in cash and cash equivalents
|
|
124,664
|
|
|
6,655
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
344
|
|
|
216
|
|
Cash and cash equivalents at beginning of period
|
|
13,365
|
|
|
11,610
|
|
Cash and cash equivalents at end of period
|
|
$
|
138,373
|
|
|
$
|
18,481
|
|
|
|
|
|
|
* Net change in working capital due to the following components:
|
|
|
|
|
Accounts and notes receivable, net
|
|
$
|
(132,794
|
)
|
|
$
|
5,798
|
|
Inventories
|
|
(28,679
|
)
|
|
2,718
|
|
Prepaid expenses and other current assets
|
|
10,754
|
|
|
(758
|
)
|
Change in accounts payable and accruals
|
|
(1,694
|
)
|
|
(3,927
|
)
|
Increase in interest payable
|
|
1,886
|
|
|
4,815
|
|
Net change in working capital
|
|
$
|
(150,527
|
)
|
|
$
|
8,646
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles our non-GAAP key financial measures to
the most directly comparable GAAP measures:
|
|
For the three months
|
|
|
|
ended March 31,
|
|
(in thousands)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
223,673
|
|
|
(26,344
|
)
|
Add:
|
|
|
|
|
|
|
Discontinued operations
|
|
(1,626
|
)
|
|
4,066
|
|
Depreciation and amortization
|
|
16,328
|
|
|
15,542
|
|
Interest expense
|
|
37,865
|
|
|
7,546
|
|
Interest income
|
|
(115
|
)
|
|
(123
|
)
|
Income taxes
|
|
28,643
|
|
|
361
|
|
EBITDA from continuing operations
|
|
304,768
|
|
|
1,048
|
|
Adjustments:
|
|
|
|
|
|
|
Pension and OPEB plan expenses (1)
|
|
511
|
|
|
765
|
|
Rationalization-related charges (2)
|
|
—
|
|
|
(8
|
)
|
Initial public offering expenses (3)
|
|
3,187
|
|
|
—
|
|
Non-cash loss on foreign currency remeasurement (4)
|
|
1,873
|
|
|
2,385
|
|
Adjusted EBITDA from continuing operations
|
|
310,339
|
|
|
4,190
|
|
(1)
|
|
Service and interest cost of our pension and OPEB plans. Also
includes a mark-to-market loss (gain) for plan assets as of December
of each year.
|
(2)
|
|
Costs associated with rationalizations in our graphite electrode
manufacturing operations and in the corporate structure. They
include severance charges, contract termination charges, write-off
of equipment and (gain)/loss on sale of manufacturing sites.
|
(3)
|
|
Legal, accounting, printing and registration fees associated with
the initial public offering in April 2018.
|
(4)
|
|
Non-cash loss from foreign currency remeasurement of non-operating
liabilities of our non-U.S. subsidiaries where the functional
currency is the U.S. dollar.
|

View source version on businesswire.com: https://www.businesswire.com/news/home/20180507005312/en/
Source: GrafTech International Ltd.
GrafTech International Ltd. Quinn Coburn, 216-676-2000 Vice
President and CFO
|