MRO Magazine

GrafTech Reports Third Quarter 2015 Results


November 4, 2015
By Business Wire News

INDEPENDENCE, Ohio

GrafTech International Ltd. today announced financial results for the third quarter ended September 30, 2015.

On August 17, 2015, GrafTech became an indirect wholly-owned subsidiary of Brookfield Asset Management Inc. (NYSE:BAM) (TSX:BAM.A) (Euronext:BAMA). In accordance with GAAP and using business combination accounting guidelines, results for the third quarter of 2015 are presented in two distinct periods labeled as predecessor (to reflect the period prior to the Brookfield acquisition) and as successor (which reflects the period following the acquisition and includes the provisional purchase price allocation). Due to the different basis of accounting, the predecessor and successor results are not directly comparable, but for narrative purposes in this press release, the predecessor and successor results have been combined for ease of discussion and analysis.

2015 Third Quarter Review

  • Net sales* (on a combined basis) were $160 million, a decrease of 38 percent, compared to net sales of $260 million in the third quarter of 2014. Lower sales volume and weaker pricing in both business segments drove the reduction in revenue.
  • Reported net loss* (on a combined basis) was $(50) million, compared to a net loss of $(35) million in the same period of the prior year. The net loss in the third quarter of 2015 includes $23 million of special charges1, net of tax. The third quarter of 2014 included special charges of $22 million, net of tax.
  • Adjusted net loss* (on a combined basis), which excludes special charges, was $(27) million, compared to adjusted net loss* of $(13) million in the third quarter of 2014.
  • EBITDA* (on a combined basis), which excludes special charges, was $9 million, versus $24 million in the same period of the prior year.
  • Net cash provided by operating activities* (on a combined basis) was $8 million, compared to $27 million in the third quarter of 2014. Rationalization and transaction-related cash outlays of approximately $13 million negatively impacted operating cash flow in the quarter.

Industrial Materials

Net sales for Industrial Materials(on a combined basis) declined to $126 million, compared to $209 million in the third quarter of 2014. The Industrial Materials segment reported essentially breakeven operating income (on a combined basis), compared to $5 million of operating income in the same period of the prior year. Adjusted segment operating income* (on a combined basis), which excludes special charges, was $3 million in the third quarter of 2015, compared to $12 million in the third quarter of 2014 and $4 million in the second quarter of 2015. The reduction in revenue and adjusted operating income was largely due to lower graphite electrode shipments in response to weak global steel customer demand and lower realized graphite electrode pricing year-over-year.

           

Combined

Q3 2014 Q2 2015 Q3 2015
Industrial Materials net sales: $ 208,573

$

125,012

$ 126,004
Industrial Materials adjusted operating income: 12,283 3,995 3,030
Industrial Materials adjusted operating income margin: 5.9 % 3.2 % 2.4 %
 

Engineered Solutions

Net sales for Engineered Solutions(on a combined basis) decreased to $34 million, compared to $52 million in the third quarter of 2014. Operating loss (on a combined basis) for the Engineered Solutions segment was $(8) million, compared to $(12) million in the same period of the prior year. Adjusted segment operating loss* (on a combined basis), which excludes special charges, was $(4) million in the third quarter of 2015, compared to adjusted operating income of $1 million in the third quarter of 2014 and breakeven results in the second quarter of 2015. Weak demand for products serving the advanced consumer electronics industry and softness in advanced graphite materials product sales adversely impacted revenue and adjusted operating income in the quarter.

           

Combined

Q3 2014 Q2 2015 Q3 2015
Engineered Solutions net sales: $ 51,885 $ 40,110 $ 34,184
Engineered Solutions adjusted operating income: 1,225 (138 ) (3,509 )
Engineered Solutions adjusted operating income margin: 2.4 % (0.3 )% (10.3 )%
 

Selling and Administrative and Research and Development Expense

Total company selling and administrative expense and research and development expenses (on a combined basis), which include corporate expenses, were $41 million in the third quarter of 2015, compared to $30 million in the third quarter of 2014. Overhead expense in the third quarter of 2015 was negatively impacted by special charges of $21 million in the third quarter of 2015 due to accelerated stock compensation expense and transaction costs related to the acquisition, compared to special charges of $1 million in the prior year quarter. Excluding special charges in both periods, overhead declined $9 million, or 31 percent, year-over-year to $20 million in the third quarter of 2015, due to continued cost reduction efforts.

Interest expense (on a combined basis) was $13 million, compared to $9 million in the same period of the prior year primarily resulting from accelerated interest expense due to the prepayment of the Senior Subordinated Notes.

Outlook

In its September 28, 2015 report, the International Monetary Fund (IMF) reduced its global growth rate for 2015 to 3.1 percent, 0.3 percentage points lower than in 2014, and 0.2 percentage points below its July forecast. The report stated that the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for the fifth year in a row. The IMF also indicated that downside risks to the outlook have risen, particularly for emerging market and developing economies.

In its Short Range Outlook released on October 12, 2015, the World Steel Association (WSA) forecast that global steel demand will decrease by 1.7 percent to 1,513 million tons in 2015, following growth of 0.7 percent in 2014. In 2016, WSA forecast that world steel demand will show growth of 0.7 percent and will reach 1,523 million tons.

Joel Hawthorne, Chief Executive Officer of GrafTech, commented, “We continue to manage through a very challenging operating environment in our end markets and will continue to aggressively reduce costs to improve our competitive position. With the benefits of the investment made by Brookfield Asset Management, we remain focused on leveraging our core competencies that GrafTech has built over the past 129 years. We will continue executing our strategy and positioning the company for success as the cycle improves.”

About GrafTech

GrafTech International, an indirect wholly-owned subsidiary of Brookfield Asset Management, is a global company that has been redefining limits for more than 125 years. We offer innovative graphite material solutions for our customers in a wide range of industries and end markets, including steel manufacturing, advanced energy applications and latest generation electronics. GrafTech operates 18 principal manufacturing facilities on four continents and sells products in over 70 countries. Headquartered in Independence, Ohio, GrafTech employs approximately 2,400 people. For more information, call 216-676-2000 or visit www.GrafTech.com.

NOTE ON FORWARD-LOOKING STATEMENTS:This news release and related discussions may contain forward-looking statements about such matters as: outlook for 2015 or beyond; future or targeted operational and financial performance; growth prospects and rates; the markets we serve and our position in those markets; future or targeted profitability, cash flow, liquidity, sales, costs and expenses, tax rates, working capital, production rates, inventory levels, debt levels, capital expenditures, EBITDA, cost savings and business opportunities and positioning; strategic plans; inventory and supply chain management; rationalization and related activities; the impact of rationalization, product line change, cost and liquidity initiatives; expected or targeted changes in production capacity or levels, operating rates or efficiency in our operations or our competitors’ or customers’ operations; future prices and demand for our products; product quality; diversification, new products, and product improvements and their impact on our business; the integration or impact of acquired businesses; divestitures, asset sales, investments and acquisitions that we may make in the future; possible debt or equity financing or refinancing (including factoring and supply chain financing) activities; our customers’ operations, order patterns and demand for their products; the impact of customer bankruptcies; regional and global economic and industry market conditions, including our expectations concerning their impact on us and our customers and suppliers; conditions and changes in the global financial and credit markets; legal proceedings and antitrust investigations; our liquidity and capital resources; possible changes in control of the Company and the impacts thereof; tax rates and the effects of jurisdictional mix; the impact of accounting changes; and currency exchange and interest rates and changes therein.

We have no duty to update these statements.Our expectations and targets are not predictions of actual performance and historically our performance has deviated, often significantly, from our expectations and targets. Actual future events, circumstances, performance and trends could differ materially, positively or negatively, due to various factors, including: litigation in relation to the recently consummated tender offer and merger transactions; failure to achieve production rate, inventory level, product development, capital expenditure level, cost savings, EBITDA or other targets or estimates; actual outcome of uncertainties associated with assumptions and estimates used when applying critical accounting policies and preparing financial statements; failure to successfully develop and commercialize new or improved products; adverse changes in cost, inventory or supply chain management; limitations or delays on capital expenditures; business interruptions, including those caused by weather, natural disaster, or other causes; delays or changes in, or non-consummation of, proposed asset sales, divestitures, investments or acquisitions; failure to successfully integrate or achieve expected savings, synergies, performance or returns expected from any completed asset sales, divestitures, investments or acquisitions; inability to protect our intellectual property rights or infringement of intellectual property rights of others; changes in market prices of our securities; changes in our ability to obtain new or refinance existing financing on acceptable terms; adverse changes in labor relations; adverse developments in legal proceedings or investigations; non-realization of anticipated benefits from, or variances in the cost or timing of, organizational changes, rationalizations and restructurings; loss of market share or sales due to rationalization, product line changes, or pricing activities; negative developments relating to health, safety or environmental compliance, remediation or liabilities; downturns, production reductions or suspensions, or other changes in steel, electronics and other markets we or our customers serve; customer or supplier bankruptcy or insolvency events; political unrest that adversely impacts us or our customers’ businesses; declines in demand; intensified competition and price or margin decreases; graphite electrode and needle coke manufacturing capacity increases; fluctuating market prices for our products, including adverse differences between actual graphite electrode prices and spot or announced prices; consolidation of steel producers; mismatches between manufacturing capacity and demand; significant changes in our provision for income taxes and effective income tax rate; changes in the availability or cost of key inputs, including petroleum, petroleum-based coke or energy; changes in interest or currency exchange rates; inflation or deflation; changes in Board composition or control of the Company or changes in capital structure or share ownership; failure to satisfy conditions to government grants; continuing uncertainty over fiscal or monetary policies or conditions in the U.S., Europe, China or elsewhere; changes in fiscal and monetary policy; a protracted regional or global financial or economic crisis; and other risks and uncertainties, including those detailed in our SEC filings, as well as future decisions by us. This news release does not constitute an offer or solicitation as to any securities. References to street or analyst earnings estimates mean those published by First Call.

1 Special charges include rationalization and rationalization-related charges, impairment charges, valuation allowance, AGM customer bankruptcy, and proxy contest and transaction expenses.

*Non-GAAP financial measures.See attached reconciliations.

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
Unuaudited

   
PredecessorSuccessor

As of
December 31,
2014

As of
September 30,
2015
ASSETS
Current assets:
Cash and cash equivalents $ 17,550 $ 13,461

Accounts and notes receivable, net of allowance for doubtful accounts of $7,471 as of December 31, 2014 and $6,422 as of September 30, 2015

162,919 111,024
Inventories 382,903 322,268
Prepaid expenses and other current assets 81,623   66,562  
Total current assets 644,995   513,315  
Property, plant and equipment 1,500,821 657,247
Less: accumulated depreciation 846,781   6,899  
Net property, plant and equipment 654,040 650,348
Deferred income taxes 16,819 55,011
Goodwill 420,129 170,021
Other assets 97,822   162,474  
Total assets $ 1,833,805   $ 1,551,169  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 86,409 $ 61,987
Short-term debt 188,104 9,600
Accrued income and other taxes 24,506 17,750
Rationalizations 9,563 5,263
Other accrued liabilities 43,319   37,072  
Total current liabilities 351,901 131,672
Long-term debt 341,615 368,589
Other long-term obligations 107,566 89,643
Deferred income taxes 28,197 120,434
Stockholders’ equity:
Preferred stock, par value $.01, 10,000,000 shares authorized, none issued

Common stock, par value $.01, 225,000,000 shares authorized, 152,821,011 shares issued as of December 31, 2014 and 1,000 shares authorized and 1,000 issued as of September 30, 2015

1,528
Additional paid-in capital 1,825,880 854,337
Accumulated other comprehensive loss (336,524 ) (6,203 )
Accumulated deficit (245,751 ) (7,303 )

Less: cost of common stock held in treasury, 15,922,729 shares as of December 31, 2014 and 0 shares as of September 30, 2015

(239,811 )

Less: common stock held in employee benefit and compensation trusts, 80,967 shares as of December 31, 2014 and 0 shares as of September 30, 2015

(796 )  
Total stockholders’ equity 1,004,526   840,831  
Total liabilities and stockholders’ equity $ 1,833,805   $ 1,551,169  
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

   
PredecessorSuccessor

For the Three
Months Ended
September 30,
2014

 

For the Period
July 1, 2015
Through August
14, 2015

For the Period
August 15, 2015
Through
September 30,
2015

 
Net sales $ 260,458 $ 65,598 $ 94,591
Cost of sales 242,814   64,187   85,600  
Gross profit 17,644 1,411 8,991
Research and development 2,871 1,211 660
Selling and administrative expenses 26,980 29,604 9,806
Rationalizations 10,844   244   637  
Operating loss (23,051 ) (29,648 ) (2,112 )
 
Other expense (income), net 1,149 243 678
Interest expense 9,069 9,002 3,701
Interest income (144 ) (22 ) (21 )
Loss before provision for income taxes (33,125 ) (38,871 ) (6,470 )
 
Provision for income taxes 1,818   3,353   833  
Net loss $ (34,943 ) $ (42,224 ) $ (7,303 )
 
Basic loss per common share:
Net loss per share $ (0.26 ) $ (0.31 ) N/A  
Weighted average common shares outstanding 136,375 137,433 N/A
 
Diluted loss per common share:
Net loss per share $ (0.26 ) $ (0.31 ) N/A  
Weighted average common shares outstanding 136,375 137,433 N/A
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

   
PredecessorSuccessor

For the Nine
Months Ended
September 30,
2014

 

For the Period
January 1, 2015
Through August
14, 2015

For the Period

August 15, 2015

Through
September 30,
2015

 
Net sales $ 825,433 $ 437,931 $ 94,591
Cost of sales 764,142   399,817   85,600  
Gross profit 61,291 38,114 8,991
Research and development 8,544 5,556 660
Selling and administrative expenses 89,024 81,147 9,806
Rationalizations 11,761 4,507 637
Impairments 121,570   35,381    
Operating loss (169,608 ) (88,477 ) (2,112 )
 
Other expense (income), net 1,902 1,335 678
Interest expense 27,223 27,118 3,701
Interest income (257 ) (367 ) (21 )
Loss before provision for income taxes (198,476 ) (116,563 ) (6,470 )
 
Provision for income taxes 3,417   4,086   833  
Net loss $ (201,893 ) $ (120,649 ) $ (7,303 )
 
Basic loss per common share:
Net loss per share $ (1.48 ) $ (0.88 ) N/A  
Weighted average common shares outstanding 136,007 137,152 N/A
 
Diluted loss per common share:
Net loss per share $ (1.48 ) $ (0.88 ) N/A  
Weighted average common shares outstanding 136,007 137,152 N/A
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

   
PredecessorSuccessor

For the Three
Months Ended
September 30,
2014

 

For the Period
July 1, 2015
Through August
14, 2015

For the Period
August 15, 2015
Through
September 30,
2015

Cash flow from operating activities:
Net loss $ (34,943 ) $ (42,224 ) $ (7,303 )

Adjustments to reconcile net loss to cash provided by operations:

Depreciation and amortization 26,616 6,078 10,604
Inventory write-downs 8,100
Deferred income tax provision (3,219 ) 5,871 863
Post-retirement and pension plan changes 1,004 746 486
Stock-based compensation 1,257 12,729
Interest expense 3,634 6,481 786
Other charges, net 1,264 1,421 (492 )
Increase (decrease) in working capital* 28,861 15,199 (47 )
Increase in long-term assets and liabilities (5,585 ) (2,199 ) (985 )
Net cash provided by operating activities 26,989 4,102 3,912
Cash flow from investing activities:
Capital expenditures (22,850 ) (6,681 ) (5,239 )
Proceeds from the sale of assets 1,556 8 542
Proceeds from derivative instruments (379 ) (458 ) 84  
Net cash used in investing activities (21,673 ) (7,131 ) (4,613 )
Cash flow from financing activities:
Short-term debt, net 1,002 14,005 (10,180 )
Revolving Facility borrowings 20,000 86,000 22,000
Revolving Facility reductions (35,000 ) (33,000 ) (21,000 )
Repayment of Senior Subordinated Notes (200,000 )
Issuance of Preferred Shares 150,000
Principal payments on long-term debt (32 ) (22 ) (12 )
Proceeds from exercise of stock options 32
Purchase of treasury shares (185 )
Revolving Facility refinancing fees (105 ) (2,346 )
Other 93   (649 ) (1,385 )
Net cash (used in) provided by financing activities (14,227 ) 14,020 (10,577 )
Net increase (decrease) in cash and cash equivalents (8,911 ) 10,991 (11,278 )
Effect of exchange rate changes on cash and cash equivalents (939 ) (463 ) (294 )
Cash and cash equivalents at beginning of period 20,728   14,505   25,033  
Cash and cash equivalents at end of period $ 10,878   $ 25,033   $ 13,461  
* Net change in working capital due to the following components:
Accounts and notes receivable, net $ 7,535 $ 26,150 $ (16,927 )
Inventories 14,826 (2,110 ) 18,436
Prepaid expenses and other current assets 3,100 (3,688 ) 3,375
Decrease in accounts payable and accruals (10,788 ) (6,921 ) (5,822 )
Rationalizations 9,405 (494 ) (1,642 )
Increase in interest payable 4,783   2,262   2,533  
Change in working capital $ 28,861   $ 15,199   $ (47 )
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

     
PredecessorSuccessorCombined

For the Period
July 1, 2015
Through August
14, 2015

For the Period
August 15, 2015
Through
September 30,
2015

Three Months
Ended
September 30,
2015

 
Net sales $ 65,598 $ 94,591 $ 160,189
Cost of sales 64,187   85,600   149,787  
Gross profit 1,411 8,991 10,402
Research and development 1,211 660 1,871
Selling and administrative expenses 29,604 9,806 39,410
Rationalizations 244   637   881  
Operating loss (29,648 ) (2,112 ) (31,760 )
 
Other expense (income), net 243 678 921
Interest expense 9,002 3,701 12,703
Interest income (22 ) (21 ) (43 )
Loss before provision for income taxes (38,871 ) (6,470 ) (45,341 )
 
Provision for income taxes 3,353   833   4,186  
Net loss $ (42,224 ) $ (7,303 ) $ (49,527 )
 
 Predecessor  Successor  Combined

For the Period
January 1, 2015
Through August
14, 2015

For the Period

August 15, 2015

Through
September 30,
2015

For the Nine
Months Ended
September 30,
2015

 
Net sales $ 437,931 $ 94,591 $ 532,522
Cost of sales 399,817   85,600   485,417  
Gross profit 38,114 8,991 47,105
Research and development 5,556 660 6,216
Selling and administrative expenses 81,147 9,806 90,953
Rationalizations 4,507 637 5,144
Impairments 35,381     35,381  
Operating loss (88,477 ) (2,112 ) (90,589 )
 
Other expense (income), net 1,335 678 2,013
Interest expense 27,118 3,701 30,819
Interest income (367 ) (21 ) (388 )
Loss before provision for income taxes (116,563 ) (6,470 ) (123,033 )
 
Provision for income taxes 4,086   833   4,919  
Net loss $ (120,649 ) $ (7,303 ) $ (127,952 )
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NON-GAAP STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

     
PredecessorSuccessorCombined

For the Period
July 1, 2015
Through August
14, 2015

For the Period
August 15, 2015
Through
September 30,
2015

For the Three
Months Ended
September 30,
2015

Cash flow from operating activities:
Net loss $ (42,224 ) $ (7,303 ) $ (49,527 )

Adjustments to reconcile net loss to cash provided by operations:

Depreciation and amortization 6,078 10,604 16,682
Impairments
Inventory write-downs
Deferred income tax provision 5,871 863 6,734
Post-retirement and pension plan changes 746 486 1,232
Stock-based compensation 12,729 12,729
Interest expense 6,481 786 7,267
Other charges, net 1,421 (492 ) 929
Increase (decrease) in working capital* 15,199 (47 ) 15,152
Increase in long-term assets and liabilities (2,199 ) (985 ) (3,184 )
Net cash provided by operating activities 4,102 3,912 8,014
Cash flow from investing activities:
Capital expenditures (6,681 ) (5,239 ) (11,920 )
Proceeds from the sale of assets 8 542 550
Proceeds from derivative instruments (458 ) 84   (374 )
Net cash used in investing activities (7,131 ) (4,613 ) (11,744 )
Cash flow from financing activities:
Short-term debt, net 14,005 (10,180 ) 3,825
Revolving Facility borrowings 86,000 22,000 108,000
Revolving Facility reductions (33,000 ) (21,000 ) (54,000 )
Repayment of Senior Subordinated Notes (200,000 ) (200,000 )
Issuance of Preferred Shares 150,000 150,000
Supply chain financing (22 ) (22 )
Proceeds from exercise of stock options 32 32
Purchase of treasury shares
Revolving Facility refinancing fees (2,346 ) (2,346 )
Other (649 ) (1,385 ) (2,034 )
Net cash provided by (used in) financing activities 14,020 (10,565 ) 3,455
Net increase (decrease) in cash and cash equivalents 10,991 (11,266 ) (275 )
Effect of exchange rate changes on cash and cash equivalents (463 ) (294 ) (757 )
Cash and cash equivalents at beginning of period 14,505   25,033   39,538  
Cash and cash equivalents at end of period $ 25,033   $ 13,473   $ 38,506  
 
Accounts and notes receivable, net $ 26,150 $ (16,927 ) $ 9,223
Inventories (2,110 ) 18,436 16,326
Prepaid expenses and other current assets (3,688 ) 3,375 (313 )
Decrease in accounts payable and accruals (6,921 ) (5,822 ) (12,743 )
Rationalizations (494 ) (1,642 ) (2,136 )
Increase in interest payable 2,262   2,533   4,795  
Increase (decrease) in working capital $ 15,199   $ (47 ) $ 15,152  
 
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

SEGMENT DATA SUMMARY AND RECONCILIATION

(Dollars in thousands)

(Unaudited)

         Combined      Combined

For the Three
Months
Ended
September
30, 2014

For the Three
Months
Ended

June 30,
2015

For the Three
Months
Ended
September
30, 2015

For the Nine
Months
Ended
September
30, 2014

 

For the Nine
Months
Ended
September
30, 2015

Net sales:  
Industrial Materials $ 208,573 $ 125,012 $ 126,004 $ 634,004 $ 416,052
Engineered Solutions 51,885   40,110   34,184   191,429   116,468  
Total net sales $ 260,458   $ 165,122   $ 160,188   $ 825,433   $ 532,520  
 
Segment operating income (loss):
Industrial Materials 5,082 3,094 (480 ) 7,742 (23,285 )
Engineered Solutions (12,445 ) (3,455 ) (8,070 ) (131,704 ) (15,918 )
Corporate, R&D, and Other (15,688 ) (12,636 ) (23,208 ) (45,646 ) (51,387 )
Total segment operating loss $ (23,051 ) $ (12,997 ) $ (31,758 ) $ (169,608 ) $ (90,590 )
 
Reconciling Items:
 

Rationalization and Rationalization Related and Impairment Charges

Industrial Materials 7,201 901 272 33,652 38,263
Engineered Solutions 8,841 3,317 2,040 142,387 8,465
Corporate, R&D, and Other 2,960 (86 ) 135 2,960 1,736
 
Proxy contest and transaction expenses
Industrial Materials 3,238 3,238
Engineered Solutions 4,829 2,521 4,829 2,521
Corporate, R&D, and Other   3,310   15,425   2,438   20,400  
Total Reconciling Items 23,831 7,442 23,631 186,266 74,623
                     
Segment adjusted operating income:
Industrial Materials 12,283 3,995 3,030 41,394 18,216
Engineered Solutions 1,225 (138 ) (3,509 ) 15,512 (4,932 )
Corporate, R&D, and Other (12,728 ) (9,412 ) (7,648 ) (40,248 ) (29,251 )
Total adjusted operating income $ 780 $ (5,555 ) $ (8,127 ) $ 16,658 $ (15,967 )
 
Adjusted operating income margin:
Industrial Materials 5.9 % 3.2

  %

2.4

  %

6.5 % 4.4

 %

Engineered Solutions 2.4 % (0.3

) %

(10.3

) %

8.1 % (4.2 )%
Total adjusted operating income margin   0.3 %   (3.4

) %

  (5.1

) %

  2.0 %   (3.0 )%
 
NOTE ON RECONCILIATION OF OPERATING INCOME DATA: Adjusted segment operating income is a non-GAAP financial measure that GrafTech calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GrafTech believes that the excluded items are not primarily related to core operational activities. GrafTech believes that adjusted segment operating income is generally viewed as providing useful information regarding a segment’s operating profitability. Management uses adjusted segment operating income as well as other financial measures in connection with its decision-making activities. Adjusted segment operating income should not be considered in isolation or as a substitute for segment operating income or other consolidated income data prepared in accordance with GAAP. GrafTech’s method for calculating adjusted segment operating income may not be comparable to methods used by other companies.
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
RECONCILIATION OF OTHER NON-GAAP FINANCIAL MEASURES
(Dollars in thousands)
(Unaudited)

       
 Combined  Combined

For the Three
Months
Ended
September
30, 2014

For the Three
Months
Ended
September
30, 2015

For the Nine
Months
Ended
September
30, 2014

For the Nine
Months
Ended
September
30, 2015

 
EBITDA$23,749$8,555$84,458$38,727

Adjustments

Depreciation and amortization

(22,971 ) (16,682 ) (67,799 ) (54,693 )

Rationalization related depreciation

(3,645 ) (25,324 ) (1,373 )
Rationalizations (10,843 ) (881 ) (11,761 ) (5,143 )
Impairments (121,570 ) (35,381 )
Rationalizations related charges (4,512 ) (1,568 ) (20,345 ) (6,567 )
Advanced graphite materials customer bad debt and inventory charge (4,829 ) (4,829 )
Proxy contest and transaction expenses   (21,184 ) (2,438 ) (26,159 )
Operating income (23,051 ) (31,760 ) (169,608 ) (90,589 )
Other (expense) income, net (1,149 ) (921 ) (1,902 ) (2,013 )
Interest expense (9,069 ) (12,703 ) (27,223 ) (30,819 )
Interest income 144 43 257 388
Income taxes (1,818 ) (4,186 ) (3,417 ) (4,919 )
Net loss$(34,943)$(49,527)$(201,893)$(127,952)
 
NOTE ON EBITDA RECONCILIATION: EBITDA is a non-GAAP financial measure that GrafTech currently calculates according to the schedule above, using historical or estimated target GAAP amounts as indicated above. GrafTech believes that EBITDA measures are generally accepted as providing useful information regarding a company’s ability to incur and service debt as well as productivity and cash generation. Management uses EBITDA measures as well as other financial measures in connection with its decision-making activities. EBITDA measures should not be considered in isolation or as a substitute for net income (loss), cash flows from operations or other consolidated income or cash flow data prepared in accordance with GAAP. GrafTech’s method for calculating EBITDA measures may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA measures under its senior secured revolving credit facility or other debt instruments.
 

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
RECONCILIATION OF OTHER NON-GAAP FINANCIAL MEASURES
(Dollars in thousands)
(Unaudited)

       

Adjusted Net Income and Earnings Per Share Reconciliation

     Combined

For the Three Months Ended
September 30, 2014

For the Three Months Ended
September 30, 2015

Income
(Loss)

EPS

Income
(Loss)

EPS
Total Company
Net loss $ (34,943 ) $ (0.26 ) $ (49,527 ) N/A
Rationalizations, net of tax 7,123 0.05 640 N/A
Rationalization related, net of tax 5,088 0.05 1,048 N/A
Valuation allowance 6,786 0.05 7,825 N/A

Advanced graphite materials customer bad debt and inventory charge, net of tax

3,062 0.02 N/A
Proxy contest and transaction expenses, net of tax     13,311   N/A
Adjusted net loss $ (12,884 ) $ (0.09 ) $ (26,703 ) N/A
 
     Combined
For the Nine Months Ended

September 30, 2014

For the Nine Months Ended
September 30, 2015

Income
(Loss)

EPS

Income
(Loss)

EPS
Total Company
Net loss $ (201,893 ) $ (1.48 ) $ (127,952 ) N/A
Rationalizations, net of tax 7,760 0.06 3,308 N/A
Impairment, net of tax 76,544 0.56 30,902 N/A
Rationalization related, net of tax 30,346 0.22 5,301 N/A
Valuation allowance 65,715 0.49 15,209 N/A

Advanced graphite materials customer bad debt and inventory charge, net of tax

3,062 0.02 N/A
Proxy contest and transaction expenses, net of tax 1,521   0.01   16,435   N/A
Adjusted net loss $ (16,945 ) $ (0.12 ) $ (56,797 ) N/A
 
NOTE ON RECONCILIATION OF EARNINGS DATA: Adjusted net income and adjusted earnings per share are non-GAAP financial measures that GrafTech calculates according to the schedule above, using GAAP amounts. GrafTech believes that the excluded items are not primarily related to core operational activities. GrafTech believes that adjusted net income and adjusted earnings per share are generally viewed as providing useful information regarding a company’s operating profitability. Management uses adjusted net income and adjusted earnings per share as well as other financial measures in connection with its decision-making activities. Adjusted net income and adjusted earnings per share should not be considered in isolation or as a substitute for net income or other consolidated income data prepared in accordance with GAAP. GrafTech’s method for calculating adjusted net income and adjusted earnings per share may not be comparable to methods used by other companies.

GTI-G

GrafTech International Ltd.
Kelly Taylor, 216-676-2000
Director, Investor Relations