GrafTech International Ltd. (NYSE: EAF) (GrafTech or the
Company) today announced financial results for the quarter ended
March 31, 2019, including net income of $197 million, or $0.68
per share, and Adjusted EBITDA from continuing operations of $284
million.
"GrafTech reported another successful quarter including net
sales of $475 million and net income of $197 million,” said David
Rintoul, President and Chief Executive Officer. “With these solid
results, during the year we plan to continue to return cash to
shareholders and repay debt.”
Key Financial Measures
For the Three Months Ended March 31,
(dollars in thousands, except per share amounts)
2019 2018 Net sales $ 474,994 $ 451,899
Net income $ 197,436 $ 223,673 Earnings per share (1) $ 0.68 $ 0.74
Adjusted EBITDA from continuing operations (2) $ 283,815 $ 310,339
(1) Earnings per share represents diluted earnings per share
after giving effect to the stock split effected on April 12, 2018
for both periods and the share repurchase effected on August 13,
2018, resulting in weighted average shares outstanding of
290,566,163 and 302,225,923 for the three months ended March 31,
2019 and 2018, respectively. (2) A non-GAAP financial measure, 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.
Net sales for the quarter ended March 31, 2019 increased to
$475 million compared to $452 million in the first quarter of 2018.
The improvement was primarily due to higher sales volumes of
GrafTech manufactured graphite electrodes. These sales volumes
increased to 45 thousand metric tons (MT) from 42 thousand metric
tons in the prior year period. The weighted average realized price
of these graphite electrodes was $9,954 per metric ton, in line
with the prior year period.
Net income for the first quarter of 2019 decreased to $197
million, or $0.68 per share, compared to $224 million, or $0.74 per
share in the first quarter of 2018. Adjusted EBITDA from continuing
operations also decreased to $284 million in the first quarter of
2019 compared to $310 million in the first quarter of 2018. Higher
graphite electrode sales volumes were offset by higher cost of
sales due to higher prices for third party needle coke.
Cash flow from operating activities increased to $157 million in
the first quarter of 2019 from $141 million in the comparable
period of 2018. First quarter 2018 cash flow from operating
activities was impacted primarily by a significant one-time change
in accounts receivable due to higher pricing for graphite
electrodes. First quarter cash flow typically includes the majority
of our annual cash tax payments. Cash tax payments totaled
approximately $61 million in the first quarter of 2019, but were
negligible in the prior year period.
Key operating metrics(1)
For the Three Months Ended March 31, (in
thousands, except price data) 2019
2018 Sales volume (MT) (2) 45 42 Weighted average
realized price (3) $ 9,954 $ 9,989 Production volume (MT) (4) 48 43
Production capacity excluding St. Marys during idle period (MT)
(5)(6) 51 44 Capacity utilization excluding St. Marys during idle
period (5)(7) 94 % 98 % Total production capacity (MT) (6)(8) 58 51
Total capacity utilization (7)(8) 83 % 84 % (1) Effective
the first quarter of 2019, we have recast the key metrics of sales
volume and weighted average price above to include only graphite
electrodes manufactured by GrafTech. This better reflects
management's assessment of our profitability and excludes resales
of low grade graphite electrodes manufactured by third party
suppliers. For comparability purposes, the prior period has been
recast to conform to this presentation. (2) Sales volume has been
recast to reflect the total sales volume of GrafTech manufactured
electrodes for which revenue has been recognized during the period.
(3) Weighted average realized price has been recast to reflect the
total revenues from sales of GrafTech manufactured electrodes for
the period divided by the GrafTech manufactured sales volume for
that period. (4) Production volume reflects graphite electrodes
produced during the period. (5) 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. In the first quarter of 2018, our St. Marys facility
began graphitizing a limited amount of electrodes sourced from our
Monterrey, Mexico facility. (6) Production capacity reflects
expected maximum production volume during the period under normal
operating conditions, standard product mix and expected maintenance
outage. Actual production may vary. (7) Capacity utilization
reflects production volume as a percentage of production capacity.
(8) Includes graphite electrode facilities in Calais, France;
Monterrey, Mexico; Pamplona, Spain and St. Marys, Pennsylvania.
Operational Update
Production of 48 thousand MT in the first quarter of 2019
increased from 43 thousand MT in the first quarter of 2018 due to
the completion of debottlenecking projects.
Commercial Strategy
As previously announced, GrafTech has successfully sold
approximately two-thirds of its cumulative long-term production
capacity through three- to five-year, fixed-volume, fixed-price,
take or pay contracts. These contracts provide reliability of
long-term graphite electrode supply for customers and stability of
future operating results for shareholders.
Capital Structure
As of March 31, 2019, GrafTech had cash and equivalents of
$42 million and total debt of $2.0 billion. During the first
quarter of 2019, the Company returned cash to shareholders in the
form of a quarterly dividend of $0.085 per share and repaid $125
million of debt.
Distribution
As previously announced, the Board of Directors has declared a
dividend of $0.085 per share to stockholders of record as of the
close of business on May 31, 2019, to be paid on June 28, 2019.
Conference Call
In conjunction with this earnings release, you are invited to
listen to our earnings call being held on May 1, 2019 at 10:00 a.m.
Eastern Daylight Time. The webcast and accompanying slide
presentation will be available at www.GrafTech.com, in the
Investors section. The earnings call dial-in number is +1 (866)
521-4909 toll-free in the U.S. and Canada or +1 (647) 427-2311 for
overseas calls, conference ID: 4597627. A replay of the Conference
Call will be available until August 1, 2019 by dialing +1 (800)
585-8367 toll-free in the U.S. and Canada or +1 (416) 621-4642 for
overseas calls, conference ID: 4597627. A replay of the webcast
will also be available on our website until August 1, 2019, at
www.GrafTech.com, in the Investors 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.
About GrafTech
GrafTech International Ltd. is a leading manufacturer of high
quality graphite electrode products essential to the production of
electric arc furnace steel and other ferrous and non-ferrous
metals. The Company has a competitive portfolio of low-cost
graphite electrode manufacturing facilities, including three of the
highest capacity facilities in the world. GrafTech is also the only
large scale graphite electrode producer that is substantially
vertically integrated into petroleum needle coke, the primary raw
material for graphite electrode manufacturing, which is currently
in limited supply. This unique position provides competitive
advantages in product quality and cost.
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", "remain solid", "remain
positive", "remain optimistic" 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. Our expectations
and targets are not predictions of actual performance and
historically our performance has deviated, often significantly,
from our expectations and targets. 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: the cyclical nature of our business and the selling
prices of our products may lead to periods of reduced profitability
and net losses in the future; the possibility that we may be unable
to implement our business strategies, including our initiative to
secure and maintain longer-term customer contracts, in an effective
manner; the possibility that tax legislation could adversely affect
us or our stockholders; pricing for graphite electrodes has
historically been cyclical and current prices are relatively high,
however, the price of graphite electrodes may decline in the
future; the sensitivity of our business and operating results to
economic conditions; our dependence on the global steel industry
generally and the electric arc furnace ("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 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 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, regulatory issues,
natural disasters, public health crises, political crises or other
catastrophic events; 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 significant changes in our jurisdictional earnings
mix or in the tax laws of those jurisdictions could adversely
affect our business; 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 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 could 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
possibility that we may not pay cash dividends on our common stock
in the future; 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; and our status as a "controlled company" within the
meaning of the New York Stock Exchange ("NYSE") corporate
governance standards, which allows us to qualify for exemptions
from certain corporate governance requirements.
These factors should not be construed as exhaustive and should
be read in conjunction with the other cautionary statements,
including the Risk Factors section included in our Annual Report on
Form 10-K and other filings with the SEC. 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,
rationalization-related charges, initial and follow-on 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,
related party Tax Receivable Agreement expense, stock-based
compensation 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. We also monitor, and present to investors, the ratio
of total debt to adjusted EBITDA from continuing operations,
because we believe it is a useful and widely used way to assess our
leverage.
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:
- adjusted EBITDA from continuing
operations does not reflect changes in, or cash requirements for,
our working capital needs;
- adjusted EBITDA from continuing
operations does not reflect our cash expenditures for capital
equipment or other contractual commitments, including any capital
expenditure requirements to augment or replace our capital
assets;
- 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;
- adjusted EBITDA from continuing
operations does not reflect tax payments that may represent a
reduction in cash available to us;
- adjusted EBITDA from continuing
operations does not reflect expenses relating to our pension and
OPEB plans;
- 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;
- adjusted EBITDA from continuing
operations does not reflect initial and follow-on public offering
expenses;
- adjusted EBITDA from continuing
operations does not reflect related party Tax Receivable Agreement
expense;
- adjusted EBITDA from continuing
operations does not reflect rationalization-related charges,
stock-based compensation 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.
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Unaudited
As of As of March 31, December
31, 2019 2018 ASSETS Current assets: Cash
and cash equivalents $ 42,289 $ 49,880
Accounts and notes receivable, net of
allowance for doubtful accounts of $1,036 as of March 31, 2019 and
$1,129 as of December 31, 2018
278,410 248,286 Inventories 299,794 293,717 Prepaid expenses and
other current assets 50,594 46,168 Total current
assets 671,087 638,051 Property, plant and equipment
692,186 688,842 Less: accumulated depreciation 185,121
175,137 Net property, plant and equipment 507,065 513,705
Deferred income taxes 58,760 71,707 Goodwill 171,117 171,117 Other
assets 121,670 110,911 Total assets $ 1,529,699
$ 1,505,491
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Accounts payable $ 85,219 $ 88,097
Short-term debt 15,492 106,323 Accrued income and other taxes
47,700 82,255 Other accrued liabilities 42,827 50,452 Related party
payable - tax receivable agreement 23,852 — Total
current liabilities 215,090 327,127 Long-term debt 2,017,716
2,050,311 Other long-term obligations 69,471 72,519 Deferred income
taxes 46,415 45,825 Related party payable - tax receivable
agreement 62,625 86,478 Long-term liabilities of discontinued
operations — — Stockholders’ equity: Preferred stock, par value
$0.01, 300,000,000 shares authorized, none issued — —
Common stock, par value $0.01,
3,000,000,000 shares authorized, 290,537,612 shares issued and
outstanding as of March 31, 2019 and December 31, 2018
2,905 2,905 Additional paid-in capital 819,915 819,622 Accumulated
other comprehensive income (loss) 16,318 (5,800 ) Accumulated
deficit (1,720,756 ) (1,893,496 ) Total stockholders’ (deficit)
equity (881,618 ) (1,076,769 ) Total liabilities and
stockholders’ equity $ 1,529,699 $ 1,505,491
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Unaudited
For the Three Months Ended March 31,
2019 2018
CONSOLIDATED
STATEMENTS OF OPERATIONS
Net sales $ 474,994 $ 451,899 Cost of sales 195,524 145,149
Gross profit 279,470 306,750 Research and development 637
429 Selling and administrative expenses 15,226 15,876
Operating profit 263,607 290,445 Other expense (income), net
467 2,005 Interest expense 33,700 37,865 Interest income (414 )
(115 )
Income from continuing operations before
provision for income taxes
229,854 250,690 Provision (benefit) for income taxes 32,418
28,643 Net income from continuing operations 197,436
222,047 Income from discontinued operations, net of tax —
1,626 Net income $ 197,436 $ 223,673
Basic income per common share*: Net income per share $ 0.68
$ 0.74 Net income from continuing operations per share $ 0.68 $
0.73 Weighted average common shares outstanding 290,559,025
302,225,923 Diluted income per common share*: Income per share $
0.68 $ 0.74 Diluted income from continuing operations per share $
0.68 $ 0.73 Weighted average common shares outstanding 290,566,163
302,225,923 * March 31, 2018 shares outstanding gives 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,
2019 2018 Cash flow from operating activities:
Net income $ 197,436 $ 223,673
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization 15,585 16,328 Deferred income tax
provision 6,427 19,791 Loss on extinguishment of debt — 23,827
Interest expense 1,588 1,129 Other charges, net 3,268 2,574 Net
change in working capital* (71,443 ) (150,527 ) Change in long-term
assets and liabilities 3,956 3,758 Net cash provided
by operating activities 156,817 140,553 Cash flow from investing
activities: Capital expenditures (14,569 ) (14,025 ) Proceeds from
the sale of assets 74 736 Net cash (used in) provided
by investing activities (14,495 ) (13,289 ) Cash flow from
financing activities: Short-term debt, net — (12,536 ) 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
repayments on long-term debt (125,000 ) — Dividends paid to
non-related-party (5,194 ) — Dividends paid to related-party
(19,502 ) (1,112,000 ) Net cash (used in) provided by financing
activities (149,696 ) (2,600 ) Net change in cash and cash
equivalents (7,374 ) 124,664 Effect of exchange rate changes on
cash and cash equivalents (217 ) 344 Cash and cash equivalents at
beginning of period 49,880 13,365 Cash and cash
equivalents at end of period $ 42,289 $ 138,373
* Net change in working capital due to
changes in the following components:
Accounts and notes receivable, net $ (31,389 ) $ (132,794 )
Inventories (4,705 ) (28,679 ) Prepaid expenses and other current
assets 7,425 10,754 Income taxes payable (38,333 ) 6,533 Accounts
payable and accruals (5,305 ) (8,227 ) Interest payable 864
1,886 Net change in working capital $ (71,443 ) $ (150,527 )
NON-GAAP RECONCILIATION
(Dollars in thousands)
The following table reconciles our
non-GAAP key financial measures to the most directly comparable
GAAP measures:
For the Three Months Ended March 31, 2019
2018 Net income 197,436 223,673 Add:
Discontinued operations — (1,626 ) Depreciation and amortization
15,585 16,328 Interest expense 33,700 37,865 Interest income (414 )
(115 ) Income taxes 32,418 28,643
EBITDA from
continuing operations 278,725 304,768 Adjustments: Pension and
OPEB plan expenses (1) 770 511 Initial and follow-on public
offering expenses (2) 685 3,187 Non-cash loss on foreign currency
remeasurement (3) 411 1,873 Stock-based compensation (4) 292 —
Non-cash fixed asset write-off (5) 2,932 —
Adjusted EBITDA from continuing operations 283,815 310,339
(1) Service and interest cost of our OPEB plans. Also
includes a mark-to-market loss (gain) for plan assets as of
December of each year. (2) Legal, accounting, printing and
registration fees associated with the initial and follow-on public
offerings. (3) Non-cash (gain) loss from foreign currency
remeasurement of non-operating liabilities of our non-U.S.
subsidiaries where the functional currency is the U.S. dollar. (4)
Non-cash expense for stock-based compensation grants. (5) Non-cash
fixed asset write-off recorded for obsolete manufacturing
equipment.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190501005212/en/
Meredith BandyVice President, Investor Relations216-676-2699
GrafTech (NYSE:EAF)
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