GrafTech Reports Unaudited Full Year and Fourth Quarter 2018 Results

BROOKLYN HEIGHTS, Ohio–(BUSINESS WIRE)–GrafTech International Ltd. (NYSE: EAF) (GrafTech or the Company) today
announced unaudited financial results for the fiscal year ended
December 31, 2018, including net income of $854 million, or $2.87 per
share, and Adjusted EBITDA from continuing operations of $1.2 billion.
Results for the fourth quarter of 2018 were also strong including net
income of $230 million, or $0.79 per share, and Adjusted EBITDA from
continuing operations of $326 million.

“2018 was a very successful year for GrafTech including record net sales
of $1.9 billion and net income of $854 million,” said David Rintoul,
President and Chief Executive Officer. “Based on our strong cash flow
from operations of $837 million in 2018 and consistent with our stated
policy to be a shareholder friendly and responsible company, we returned
cash to shareholders and maintained a strong balance sheet. Looking
ahead to 2019, demand for our products remains solid and we expect to
have continued robust cash flows.”

Key Financial Measures

  For the Three Months     For the Year
Ended December 31, Ended December 31,
(dollars in thousands, except per share amounts)   2018   2017 2018   2017
   
Net sales $ 532,789 $ 192,473 $ 1,895,910 $ 550,771
Net income $ 229,632 $ 55,628 $ 854,219 $ 7,983
Earnings per share (1) $ 0.79 $ 0.18 $ 2.87 $ 0.03
Adjusted EBITDA from continuing operations (2) $ 325,913 $ 57,150 $ 1,205,021 $ 95,806
(1)   Earnings per share represents diluted earnings per share after
giving effect to the stock split effected on April 12, 2018 for 2018
and 2017 and the share repurchase effected on August 13, 2018,
resulting in weighted average shares outstanding of 290,557,637 and
297,753,770 for the three months and year ended December 31, 2018,
respectively.
(2) 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 year ended December 31, 2018, increased to $1.9
billion compared to $551 million in 2017. Net sales for the fourth
quarter of 2018 also increased to $533 million, compared to $192 million
in the fourth quarter of 2017. The improvement was primarily due to an
increase in graphite electrode pricing. The weighted average realized
price of graphite electrodes rose to $9,937 per metric ton (MT) in 2018,
including $9,950 per MT in the fourth quarter. During 2018, graphite
electrode demand and pricing remained positive due to a combination of
growth in electric arc furnace steel manufacturing, long-term reductions
in electrode manufacturing capacity, and limited supply of petroleum
needle coke, the primary raw material for graphite electrodes.

Net income for 2018 increased to $854 million, or $2.87 per share,
compared to $8 million, or $0.03 per share in 2017. Likewise, fourth
quarter 2018 net income increased to $230 million, or $0.79 per share,
compared to $56 million, or $0.18 per share, in the fourth quarter of
2017.

Adjusted EBITDA from continuing operations also climbed to $1.2 billion
in 2018 compared to $96 million in 2017. Fourth quarter Adjusted EBITDA
from continuing operations climbed to $326 million compared to $57
million in the prior year period. Higher graphite electrode revenues
were the primary driver of higher net income and Adjusted EBITDA from
continuing operations.

Cash flow from operations increased to $837 million in fiscal year 2018
up from $37 million in 2017. Fourth quarter cash flow from operations
increased to $224 million in the quarter up from $3 million in the prior
year period. This increase was primarily due to higher net income.
Full-year 2018 capital expenditures were $68 million, including $21
million in the fourth quarter.

Key operating metrics

  For the Three     For the
Months Ended Year Ended
December 31, December 31,
(in thousands, except price data)   2018   2017 2018   2017
Sales volume (MT)(1) 53   43 185   172
Weighted average realized price(2) $ 9,950 $ 4,137 $ 9,937 $ 2,945
Production volume (MT)(3) 51 44 179 166
Production capacity excluding St. Marys during idle period (MT)(4)(5) 51 44 180 167
Capacity utilization excluding St. Marys during idle period(4)(6) 100 % 100 % 99 % 99 %
Total production capacity (MT)(5)(7) 58 51 208 195
Total capacity utilization(6)(7) 88 % 86 % 86 % 85 %

(1)

  Sales volume reflects the total volume of graphite electrodes sold
for which revenue has been recognized during the period.
(2) 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.
(3) Production volume reflects graphite electrodes produced during the
period.
(4) 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.
(5) 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.
(6) Capacity utilization reflects production volume as a percentage of
production capacity.
(7) Includes graphite electrode facilities in Calais, France; Monterrey,
Mexico; Pamplona, Spain and St. Marys, Pennsylvania.
 

Operational Update

Our graphite electrode manufacturing plants operated at high levels
throughout 2018. Annual production was 179 thousand MT compared to 166
thousand MT for 2017. Fourth quarter 2018 production of 51 thousand MT
was also up from 44 thousand MT in the prior year period due to progress
on the debottlenecking projects at our graphite electrode plants.

Commercial Strategy

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 December 31, 2018, GrafTech has cash and equivalents of $50
million and total debt of $2.2 billion. During the fourth quarter, the
Company returned $228 million cash to shareholders in the form of a
special dividend of $0.70 per share and a regular quarterly dividend of
$0.085 per share.

Distribution

The Board of Directors has declared a dividend of $.085 per share to
stockholders of record as of the close of business on February 28, 2019,
to be paid on March 29, 2019.

Conference Call

In conjunction with this earnings release, you are invited to listen to
our earnings call being held on February 8, 2019 at 10:00 a.m. Eastern
Standard Time. The webcast and accompanying slide presentation will be
available at www.GrafTech.com,
in the Investor Relations section. The earnings call dial-in number is
+1 (866) 521-4909 in the U.S. and Canada or +1 (647) 427-2311 for
international. A rebroadcast of the webcast will be available following
the call until May 8, 2019, 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.

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 forwardlooking statements

This news release and related discussions may contain forwardlooking
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 forwardlooking
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: our history of net losses and the possibility that we may not
maintain profitability 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 recent 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 highs; 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 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 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 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 status
as a “controlled company” within the meaning of the NYSE corporate
governance standards, which allows us to qualify for exemptions from
certain corporate governance requirements; and other risks described in
the “Risk Factors” section of our quarterly reports on Form 10-Q and
other filings with the SEC.

These factors should not be construed as exhaustive and should be
read in conjunction with the other cautionary statements that are
included in our quarterly reports on Form 10-Q 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.

NonGAAP 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, initial public offering expenses,
acquisition and proxy contest costs, 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 expenditures 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 impairment
    of long-lived assets and goodwill;
  • 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
    public offering expenses or acquisition and proxy contest costs;
  • adjusted EBITDA from continuing operations does not reflect related
    party Tax Receivable Agreement expenses;
  • 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
December 31, December 31,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 49,880 $ 13,365
Accounts and notes receivable, net of allowance for doubtful
accounts of $1,129 as of December 31, 2018 and $1,097 as of December
31, 2017
248,286 116,841
Inventories 293,717 174,151
Prepaid expenses and other current assets 46,168 44,872
Current assets of discontinued operations   5,313  
Total current assets 638,051   354,542  
Property, plant and equipment 688,842 642,651
Less: accumulated depreciation 175,137   129,810  
Net property, plant and equipment 513,705 512,841
Deferred income taxes 71,707 30,768
Goodwill 171,117 171,117
Other assets 110,911   129,835  
Total assets $ 1,505,491   $ 1,199,103  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 88,097 $ 69,110
Short-term debt 106,323 16,474
Accrued income and other taxes 82,255 9,737
Other accrued liabilities 50,452 53,226
Current liabilities of discontinued operations   3,412  
Total current liabilities 327,127 151,959
Long-term debt 2,050,311 322,900
Other long-term obligations 72,519 68,907
Deferred income taxes 45,825 41,746
Related party payable 86,478
Long-term liabilities of discontinued operations 376
 
Stockholders’ equity (deficit):
Preferred stock, par value $0.01, 300,000,000 shares authorized,
none issued
Common stock, par value $.01, 3,000,000,000 shares authorized,
290,537,612 and 302,225,923 shares issued and outstanding as of
December 31, 2018 and December 31, 2017*, respectively
2,905 3,022
Additional paid – in capital 819,622 851,315
Accumulated other comprehensive (loss) income (5,800 ) 20,289
Accumulated deficit (1,893,496 ) (261,411 )
Total stockholders’ equity (deficit) (1,076,769 ) 613,215
   
Total liabilities and stockholders’ equity (deficit) $ 1,505,491   $ 1,199,103  
*   Based on the number of common shares outstanding after giving effect
to the stock split that became effective on April 12, 2018 and the
share repurchase effected on August 13, 2018.
 
   
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

Unaudited

 
For the Three Months For the Year Ended
Ended December 31, December 31,
2018   2017 2018   2017

CONSOLIDATED STATEMENTS OF OPERATIONS

Net sales $ 532,789 $ 192,473 $ 1,895,910 $ 550,771
Cost of sales 214,359 132,684 705,698 461,545
Additions to lower of cost or market inventory reserve       1,509  
Gross profit 318,430 59,789 1,190,212 87,717
Research and development 601 373 2,129 3,456
Selling and administrative expenses 15,683   15,389   62,032   52,506  
Operating profit 302,146 44,027 1,126,051 31,755
 
Other expense (income), net 828 (6,426 ) 3,361 (2,104 )
Related party Tax Receivable Agreement expense 24,677 86,478
Interest expense 34,674 7,583 135,061 30,823
Interest income (589 ) (75 ) (1,657 ) (395 )

Income from continuing operations before provision for income taxes

242,556 42,945 902,808 3,431
 
Provision (benefit) for income taxes 12,670   (14,030 ) 48,920   (10,781 )
Net income from continuing operations 229,886 56,975 853,888 14,212
 

(Loss) income from discontinued operations, net of tax

(254 ) (1,347 ) 331 (6,229 )
       
Net income $ 229,632   $ 55,628   $ 854,219   $ 7,983  
 
Basic income per common share:
Net income per share $ 0.79 $ 0.18 $ 2.87 $ 0.03
Net income from continuing operations per share $ 0.79 $ 0.19 $ 2.87 $ 0.05
Weighted average common shares outstanding 290,550,907 302,225,923 297,748,327 302,225,923
Diluted income per common share:
Income per share $ 0.79 $ 0.18 $ 2.87 $ 0.03
Diluted income from continuing operations per share $ 0.79 $ 0.19 $ 2.87 $ 0.05
Weighted average common shares outstanding 290,557,637 302,225,923 297,753,770 302,225,923

Contacts

Meredith Bandy
Vice President, Investor Relations
216-676-2699

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