GrafTech Reports First Quarter 2019 Results

Sponsored by Businesswire

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/