customers. Nearly half of the DOE’s announced fleets under the Initiative will be Ford and DaimlerChrysler vehicles, all powered with Ballard® fuel cells and all utilizing GTI’s materials. Ballard fuel cell modules power approximately 85 percent of fuel cell vehicles announced in the marketplace. GTI is partnered with Ballard Power Systems under a long term, exclusive supply arrangement through 2016.
Selling, general and administrative and research and development expenses were $27 million in the 2004 third quarter as compared to $24 million in the 2003 third quarter. As previously disclosed, the increase primarily resulted from investments to improve global business processes, including new information systems and Sarbanes-Oxley compliance efforts, and from the acceleration of investments in growth businesses. Selling, general and administrative and research and development expenses in the 2004 fourth quarter are expected to be approximately $28 million to $29 million.
The changes in business processes, including Sarbanes-Oxley compliance efforts, are significant and have resulted in modifications to GTI’s implementation plans that result in higher estimated systems implementation costs of about $2 million to $3 million. In addition, the aggregate costs for internal and external services associated with Sarbanes-Oxley compliance efforts are expected to be approximately $4 million. These higher costs are expected to occur primarily from the third quarter of 2004 through the first quarter of 2005.
GTI continues to implement global business and work process transformations, including finance and accounting, procurement, order fulfillment, and corresponding enhancements in its internal control structure, including testing and remediation under Section 404 of the Sarbanes-Oxley Act. GTI is currently in the process of implementing an enterprise-wide information technology system. Implementation is being undertaken in phases, with completion scheduled for the end of 2005. During the 2004 third quarter, GTI completed implementation in France and Switzerland. During 2003 and the 2004 first half, implementation in Spain and the United States was completed. GTI also completed the implementation of global advanced planning and scheduling systems, global treasury and electronic banking systems and global shared service centers in Mexico and Canada. These events are changing how transactions are processed and the individuals or locations responsible for transaction processing. These programs are essential for supporting and accelerating planned growth, both in ETM and other global businesses, and are part of GTI’s global productivity improvement initiatives.
Other Income, net, was $2 million in the 2004 third quarter and consisted primarily of approximately $3 million of income from the impact of net changes in currency exchange rates, primarily due to non-cash gains from the impact of changes in currency exchange rates on euro-denominated intercompany loans, and a $3 million gain on the sale of assets, partially offset by a $2 million negative mark-to-market adjustment on interest rate caps and approximately $1 million of expense for certain property maintenance and environmental work at various facilities. Other Expense, net, was $1 million in the 2003 third quarter. Net
impacts of changes in currency exchange rates, including impacts on euro-dominated intercompany loans, were nominal in the 2003 third quarter.
GTI recorded a net restructuring benefit of $3 million in the 2004 third quarter, primarily due to a $4 million reduction in restructuring cost estimates associated with the closure of its graphite electrode operations in Italy, partially offset by $1 million of new restructuring charges relating to the exit from GTI’s UK location.
Under its asset sale program, GTI sold non-strategic assets at its UK location for approximately $4 million. As a result of the transaction, GTI recorded a gain on the sale of $3 million, included in Other Income, net, and a $1 million restructuring charge to exit activities at the location. GTI also sold $1 million of other assets in the 2004 third quarter.
Interest expense was $10 million in the 2004 third quarter. Interest expense is expected to be about $11 million in the 2004 fourth quarter due to rising interest rates.
As previously announced, the Company elected and implemented a tax planning strategy that, together with the recent enactment of the American Jobs Creation Act of 2004 and other planning efforts, accelerates the use of certain tax assets and reduces the expected cash tax rate in 2005. The strategy accelerates approximately $214 million of taxable income to the U.S. through a standard election (commonly referred to as “Check the Box”) that results in the utilization of approximately $30 million of deferred tax assets, of which approximately $23 million are foreign tax credits. This results in a non-cash tax charge of $25 million in the third quarter, lower than the previously announced estimate of $50 million primarily due to modifications in the plan resulting primarily from the new tax law and the finalization of the estimate. Excluding special charges, the effective income tax rate was approximately 33 percent for the nine months ended September 30, 2004. The effective future tax rate for accounting purposes is still anticipated to be approximately 35 percent.
Cash flow from operations increased to $10 million in the 2004 third quarter, including $19 million of bond interest payments and $3 million of antitrust payments. Cash flow from investing activities included a use of $10 million for capital expenditures and a source of $5 million from the successful completion of non-strategic asset sales. Net debt declined by $4 million from June 30, 2004 to $616 million at September 30, 2004. (See attached reconciliation.) Capital expenditures are expected to be approximately $55 million for the 2004 full year.
Outlook
Mr. Shular commented on the outlook, “The steel market remains strong and our 2004 graphite electrode order book is full. The outlook for 2005 is positive. We are actively building our 2005 order book for graphite electrodes and, based on the orders booked to date, estimate 2005 average contracted graphite electrode prices of $2,700 to $2,800 per metric ton. On the cost side, we continue to direct our efforts toward offsetting the escalation in our energy and raw material input costs. To date, we have secured approximately 95 percent of our 2005 needle coke volume requirements and locked in price on approximately 90 percent of that volume. The needle coke market remains tight and we have recently seen
spot coke price increases quoted in excess of 20 percent. We expect our average needle coke prices to increase 10 percent to 15 percent in 2005, depending on product mix. We continue to work on securing other key raw material input volumes and costs for 2005.”
Mr. Shular continued, “For the 2004 fourth quarter, graphite electrode sales volume is projected to be 56,000 to 58,000 metric tons. We expect earnings per diluted share, excluding restructuring charges and Other Income/Expense, net, to be between $0.11 and $0.13. Note that this earnings guidance excludes the future impact of 13.6 million shares underlying GTI’s contingent convertible debt which would reduce 2004 fourth quarter earnings per share guidance by $0.01 per share and 2004 diluted earnings per share guidance by approximately $0.04-$0.05, as previously disclosed.”
In conjunction with this earnings release, you are invited to listen to our earnings call being held today at 11:00 a.m. EDT. The dial-in number is 800-240-6709 for domestic and 303-262-2190 for international. The conference call will be recorded and replay will be available for 72 hours following the call by dialing 800-405-2236 for domestic and 303-590-3000 for international, pass code 11011318#. If you are unable to listen to the call or replay, the call will be archived and available for replay within one day of the original broadcast on our website at www.graftech.com under the Investor Relations section.
GrafTech International Ltd. is one of the world’s largest manufacturers and providers of high quality synthetic and natural graphite and carbon based products and technical and research and development services, with customers in about 60 countries engaged in the manufacture of steel, aluminum, silicon metal, automotive products and electronics. We manufacture graphite electrodes and cathodes, products essential to the production of electric arc furnace steel and aluminum. We also manufacture thermal management, fuel cell and other specialty graphite and carbon products for, and provide services to, the electronics, power generation, semiconductor, transportation, petrochemical and other metals markets. We are the leading manufacturer in all of our major product lines, with 13 state of the art manufacturing facilities strategically located on four continents. GRAFCELL®, GRAFOIL®, and eGRAF® are our registered trademarks. For additional information on GrafTech International, call 302-778-8227 or visit our website at www.graftech.com. For additional information on our subsidiary, Advanced Energy Technology Inc., call 216-529-3777.
NOTE ON FORWARD-LOOKING STATEMENTS: This release and any related discussions may contain forward-looking statements about such matters as: future production, prices and sales of and demand for various products; future operational and financial performance of various businesses; economic conditions; interest rate management activities; strategic and business plans; legal matters; consulting projects; potential actions regarding debt or equity securities; and future asset sales, costs, working capital, revenues, business opportunities, values, debt levels, cash flows, cost savings and reductions, margins, earnings and growth. We have no duty to update these statements. Actual future events, results and conditions could differ materially due to various factors, including: the possibility that global or regional economic conditions or end market conditions for our products may not improve or may worsen; the possibility that anticipated electric arc furnace (EAF) steel production capacity additions may not occur or that further graphite electrode (GE) manufacturing capacity additions may occur; the possibility that changes in EAF steel production or GE production may result in fluctuations in GE demand, prices or volumes; the possibility that quarterly or annual average GE prices may differ from current spot prices or that announced GE price increases may not be realized; the possibility that changes in GE product mix may impact average GE revenue per metric ton; the possibility that economic or technological developments may affect demand for the various types of cathodes used in aluminum smelting, that anticipated aluminum smelting capacity changes or additions using graphite cathodes may not occur or that increased production of graphite or other cathodes may occur; the possibility that changes in production of aluminum or various types of cathodes may not result in fluctuations in demand, prices or volumes of various types of cathodes; the possibility of delays in or failure to achieve widespread commercialization of fuel cells which use our products or that fuel cell manufacturers may obtain those products from other sources; the possibility of delays in or failure to achieve successful development and commercialization of electronic thermal management or other new or improved products; the possibility of delays in meeting or failure to meet contractual or other product development milestones or delays in expanding or failure to expand our manufacturing capacity to meet any growth in demand; the possibility that we may be unable to protect our intellectual property or may infringe the intellectual property rights of
others; unanticipated events or circumstances relating to antitrust or other lawsuits; the possibility that expected cost savings will not be fully realized or that anticipated asset sales may be delayed or may not occur or result in anticipated proceeds; the possibility that the anticipated benefits from organizational or systems changes may be delayed or may not occur; the possibility that our provision for income taxes and effective income tax rate or cash tax rate may fluctuate significantly due to changes in tax planning, tax laws, profitability and other factors; unanticipated events or circumstances relating to health, safety or environmental compliance or remediation obligations or liabilities to third parties or relating to labor relations; the possibility that financial information contained in this release can change upon final review or audit; the possibility that changes in market prices of our common stock or senior notes may affect our de-leveraging activities; changes in interest or currency exchange rates, in competitive conditions, in raw material or energy supplies or costs or in inflation; the possibility of failure to satisfy conditions to, or of breach of terms of, our strategic alliances; the possibility of changes in government funding of, or the failure to satisfy eligibility conditions to, government grants; the possibility that changes in financial performance may affect our compliance with financial covenants or the availability of funds under our revolving credit facility; the possibility of interruptions in production at our facilities due to, among other things, critical equipment failure or interruption in major raw material or energy supplies; changes in tax and fiscal policies; developments in the Middle East, the occurrence of terrorist acts and developments in the war on terrorism; the possibility that we may not achieve our earnings estimates; and other risks and uncertainties, including those detailed in our filings with the SEC, as well as future decisions by us. Except as otherwise specifically noted, references to spot prices and cost savings are based on and subject to the factors, assumptions and limitations detailed in our filings with the SEC. No statement in this release or any related discussions shall constitute an admission in connection with any lawsuit or claim. This release does not constitute an offer to sell or a solicitation of an offer to buy any securities. References to street or analyst earnings estimates mean those published by First Call, a service of the Thomson Financial Network.
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share and per share data)
(Unaudited)
| At December 31, | At September 30, |
|---|
| ASSETS | 2003 | 2004 |
|---|
| |
| Current Assets: | | | | | | | | |
| Cash and cash equivalents | | | $ | 34 | | $ | 61 | |
| Accounts and notes receivable, net of allowance for doubtful accounts of | | |
| $4 million at December 31, 2003 and September 30, 2004 | | | | 126 | | | 183 | |
| Inventories: | | |
| Raw materials and supplies | | | | 49 | | | 60 | |
| Work in process | | | | 121 | | | 123 | |
| Finished goods | | | | 34 | | | 29 | |
|
| |
| |
| | | | | 204 | | | 212 | |
| Prepaid expenses and other current assets | | | | 24 | | | 31 | |
|
| |
| |
| Total current assets | | | | 388 | | | 487 | |
Property, plant and equipment | | | | 1,031 | | | 1,054 | |
| Less: accumulated depreciation | | | | 691 | | | 711 | |
|
| |
| |
| Net property, plant and equipment | | | | 340 | | | 343 | |
| Deferred income taxes | | | | 176 | | | 142 | |
| Goodwill | | | | 20 | | | 20 | |
| Assets held for sale | | | | 1 | | | -- | |
| Other assets | | | | 42 | | | 44 | |
|
| |
| |
| Total assets | | | $ | 967 | | $ | 1,036 | |
|
| |
| |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | |
| |
| Current Liabilities: | | |
| Accounts payable | | | $ | 89 | | $ | 62 | |
| Short-term debt | | | | 1 | | | 1 | |
| Accrued income and other taxes | | | | 31 | | | 35 | |
| Other accrued liabilities | | | | 173 | | | 100 | |
|
| |
| |
| Total current liabilities | | | | 294 | | | 198 | |
|
| |
| |
| Long-term debt: | | |
| Principal value | | | | 516 | | | 676 | |
| Fair value adjustment for hedge instruments | | | | 14 | | | 17 | |
| Unamortized bond premium | | | | 4 | | | 2 | |
|
| |
| |
| Total long-term debt | | | | 534 | | | 695 | |
|
| |
| |
| Other long-term obligations | | | | 193 | | | 143 | |
| Deferred income taxes | | | | 43 | | | 44 | |
Minority stockholders' equity in consolidated entities | | | | 31 | | | 31 | |
| Commitments & contingencies | | | | -- | | | -- | |
| Stockholders' Deficit: | | |
| Preferred stock, par value $.01, 10,000,000 shares authorized, none | | |
| issued | | | | -- | | | -- | |
Common stock, par value $.01, 150,000,000 shares authorized, 96,402,287
& 100,451,301 shares issued at December 31, 2003 and
September 30, 2004, respectively | | | | 1 | | | 1 | |
| Additional paid-in capital | | | | 893 | | | 941 | |
| Accumulated other comprehensive loss | | | | (286 | ) | | (290 | ) |
| Accumulated deficit | | | | (644 | ) | | (635 | ) |
| Less: cost of common stock held in treasury, 2,451,035 shares at December | | |
| 31, 2003 and September 30, 2004 | | | | (86 | ) | | (86 | ) |
Less: cost of common stock held in employee benefit trusts, 514,532
shares at December 31, 2003 and September 30, 2004 | | | | (6 | ) | | (6 | ) |
|
| |
| |
| Total stockholders' deficit | | | | (128 | ) | | (75 | ) |
|
| |
| |
| Total liabilities and stockholders' deficit | | | $ | 967 | | $ | 1,036 | |
|
| |
| |
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except share and per share data)
(Unaudited)
| For the
Three Months Ended
September 30, | For the
Nine Months Ended
September 30, |
|---|
| 2003 | 2004 | 2003 | 2004 |
|---|
| |
|---|
| Net Sales | | | $ | 173 | | $ | 206 | | $ | 524 | | $ | 616 | |
| Cost of Sales | | | | 132 | | | 152 | | | 401 | | | 463 | |
|
| |
| |
| |
| |
| Gross Profit | | | | 41 | | | 54 | | | 123 | | | 153 | |
Research and development | | | | 3 | | | 2 | | | 8 | | | 6 | |
| Selling, administrative and other expenses | | | | 21 | | | 25 | | | 63 | | | 68 | |
| Other (income) expense, net | | | | 1 | | | (2 | ) | | (9 | ) | | 18 | |
| Restructuring Charges | | | | -- | | | (3 | ) | | 20 | | | 1 | |
| Antitrust investigations and related lawsuits and claims | | | | -- | | | -- | | | -- | | | (11 | ) |
| Interest expense | | | | 9 | | | 10 | | | 36 | | | 27 | |
| Interest income | | | | -- | | | -- | | | -- | | | (1 | ) |
|
| |
| |
| |
| |
| | | | | 34 | | | 32 | | | 118 | | | 108 | |
| Income (loss) from continuing operations before provision for | | |
| income tax and minority stockholders' share of income | | | | 7 | | | 22 | | | 5 | | | 45 | |
| Provision for income taxes | | | | 1 | | | 31 | | | 2 | | | 36 | |
|
| |
| |
| |
| |
| Net income (loss) of consolidated entities before minority | | |
| stockholders' share of income | | | | 6 | | | (9 | ) | | 3 | | | 9 | |
| Less: Minority stockholders' share of income | | | | -- | | | 1 | | | 1 | | | 1 | |
|
| |
| |
| |
| |
| Net income (loss) from continuing operations | | | | 6 | | | (10 | ) | | 2 | | | 8 | |
Discontinued operations: | | |
Income from discontinued operations (less applicable income
tax expense) | | | | -- | | | -- | | | 1 | | | -- | |
| Gain on sale of discontinued operations (less applicable | | |
| income tax expense) | | | | -- | | | -- | | | 1 | | | -- | |
|
| |
| |
| |
| |
| Net Income (loss) | | | $ | 6 | | $ | (10 | ) | $ | 4 | | $ | 8 | |
|
| |
| |
| |
| |
| Basic income (loss) per common share: | | |
| Net Income (loss) from continuing operations | | | $ | 0.09 | | $ | (0.10 | ) | $ | 0.04 | | $ | 0.08 | |
| Discontinued operations | | | | -- | | | -- | | | 0.02 | | | -- | |
|
| |
| |
| |
| |
| Net income (loss) per share | | | $ | 0.09 | | $ | (0.10 | ) | $ | 0.06 | | $ | 0.08 | |
|
| |
| |
| |
| |
| Weighted average common shares outstanding (in thousands) | | | | 65,576 | | | 97,428 | | | 59,723 | | | 96,223 | |
|
| |
| |
| |
| |
| Diluted income (loss) per common share: | | |
Income (loss) from continuing operations | | | $ | 0.09 | | $ | (0.10 | ) | $ | 0.04 | | $ | 0.08 | |
| Discontinued operations | | | | -- | | | -- | | | 0.02 | | | -- | |
|
| |
| |
| |
| |
| Net Income (loss) per share | | | $ | 0.09 | | $ | (0.10 | ) | $ | 0.06 | | $ | 0.08 | |
|
| |
| |
| |
| |
| Weighted average common shares outstanding (in thousands) | | | | 65,803 | | | 97,428 | | | 59,831 | | | 97,962 | |
|
| |
| |
| |
| |
NOTE: The consolidated statements of operations for the periods ended September 30, 2003 have been restated to conform with SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendments of FASB Statement No. 13, and Technical Corrections.” The effect of the adoption of SFAS No. 145 is to reclassify certain write-offs of capitalized bank charges for the nine months ended September 30, 2003 in the amount of $4 million from extraordinary items to other (income) expense, net. The corresponding provision for income taxes has been adjusted by $1 million for the nine months ended September 30, 2003.
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions, except per share data)
(Unaudited)
| Three Months Ended
September 30, | Nine Months Ended
September 30, |
|---|
| 2003 | 2004 | 2003 | 2004 |
|---|
| Cash flow from operating activities: | | | | | | | | | | | | | | |
| Net income (loss) | | | $ | 6 | | $ | (10 | ) | $ | 4 | | $ | 8 | |
| Income from discontinued operations | | | | -- | | | -- | | | 1 | | | -- | |
| Gain on sale of discontinued operation | | | | -- | | | -- | | | 1 | | | -- | |
|
| |
| |
| |
| |
| Income (loss) from continuing operations | | | | 6 | | | (10 | ) | | 2 | | | 8 | |
| Adjustments to reconcile net income (loss) to cash provided by operations: | | |
| Depreciation and amortization | | | | 7 | | | 9 | | | 22 | | | 26 | |
| Deferred income taxes | | | | 6 | | | 26 | | | (4 | ) | | 40 | |
| Antitrust investigations and related lawsuits and claims | | | | -- | | | -- | | | -- | | | 1 | |
| Restructuring charge | | | | -- | | | (3 | ) | | 20 | | | 1 | |
| Loss on exchange of common stock for senior notes | | | | -- | | | -- | | | -- | | | 5 | |
| Interest expense | | | | -- | | | -- | | | -- | | | (3 | ) |
| Post Retirement plan changes | | | | (3 | ) | | (3 | ) | | (6 | ) | | (8 | ) |
| Gain of sale of assets | | | | -- | | | (3 | ) | | -- | | | (3 | ) |
| Fair value adjustments on interest rate caps | | | | (1 | ) | | 2 | | | 1 | | | 4 | |
| Other (credits) charges, net | | | | (8 | ) | | (6 | ) | | (27 | ) | | 1 | |
| (Increase) decrease in working capital* | | | | (32 | ) | | 1 | | | (59 | ) | | (194 | ) |
| Long-term assets and liabilities | | | | (4 | ) | | (3 | ) | | (4 | ) | | (20 | ) |
|
| |
| |
| |
| |
| Net cash used in operating activities from continued operations | | | | (29 | ) | | 10 | | | (55 | ) | | (142 | ) |
| Net cash provided by operating activities from discontinued | | | | -- | | | -- | | | 1 | | | -- | |
|
| |
| |
| |
| |
| Net cash provided by (used in) operating activities | | | | (29 | ) | | 10 | | | (54 | ) | | (142 | ) |
|
| |
| |
| |
| |
Cash flow from investing activities: | | |
| Capital expenditures | | | | (9 | ) | | (10 | ) | | (29 | ) | | (31 | ) |
| Purchase of derivative investments | | | | 1 | | | -- | | | 1 | | | (1 | ) |
| Proceeds from sale of assets | | | | -- | | | 5 | | | -- | | | 5 | |
| Proceeds from sale of discontinued operations | | | | -- | | | -- | | | 15 | | | -- | |
|
| |
| |
| |
| |
| Net cash provided by (used in) investing activities | | | | (8 | ) | | (5 | ) | | (13 | ) | | (27 | ) |
|
| |
| |
| |
| |
| Cash flow from financing activities: | | |
| Short-term debt borrowings (reductions), net | | | | (9 | ) | | -- | | | (5 | ) | | (1 | ) |
| Revolving facility borrowings (reductions), net | | | | 45 | | | -- | | | 46 | | | -- | |
| Long-term debt borrowings | | | | -- | | | -- | | | -- | | | 225 | |
| Long-term debt reductions | | | | -- | | | -- | | | -- | | | (29 | ) |
| Proceeds from sale of interest rate swap, net | | | | (1 | ) | | -- | | | 30 | | | -- | |
| Purchase of interest rate caps | | | | -- | | | -- | | | (5 | ) | | -- | |
| Proceeds from exercise of stock options | | | | -- | | | -- | | | -- | | | 7 | |
| Financing costs | | | | (1 | ) | | -- | | | (1 | ) | | (7 | ) |
| Dividends paid to minority stockholders | | | | -- | | | -- | | | (4 | ) | | -- | |
|
| |
| |
| |
| |
| Net cash provided by (used in) financing activities | | | | 34 | | | -- | | | 61 | | | 195 | |
|
| |
| |
| |
| |
| Net increase (decrease) in cash and cash equivalents | | | | (3 | ) | | 5 | | | (6 | ) | | 26 | |
| Effect of exchange rate changes on cash and cash equivalents | | | | 1 | | | -- | | | 1 | | | 1 | |
| Cash and cash equivalents at beginning of period | | | | 8 | | | 56 | | | 11 | | | 34 | |
|
| |
| |
| |
| |
| Cash and cash equivalents at end of period | | | $ | 6 | | $ | 61 | | $ | 6 | | $ | 61 | |
|
| |
| |
| |
| |
| Supplemental disclosures of cash flow information: | | |
| Net cash paid during the periods for: | | |
| Interest expense | | | $ | 27 | | $ | 19 | | $ | 60 | | $ | 37 | |
|
| |
| |
| |
| |
| Income taxes | | | $ | 2 | | $ | 3 | | $ | 7 | | $ | 14 | |
|
| |
| |
| |
| |
| Non-cash operating, investing and financing activities: | | |
Exchanges of common stock for senior notes which decrease
long-term debt | | | $ | 35 | | $ | -- | | $ | 55 | | $ | 38 | |
*Net change in working capital due to the following components: | | |
| (Increase) decrease in current assets: | | |
| Accounts and notes receivable | | | $ | (5 | ) | $ | 4 | | $ | (11 | ) | $ | (11 | ) |
| Reduction in factoring of accounts receivable | | | | -- | | | -- | | | -- | | | (45 | ) |
| Inventories | | | | (2 | ) | | (1 | ) | | (11 | ) | | (7 | ) |
| Prepaid expenses and other current assets | | | | 2 | | | -- | | | (1 | ) | | (1 | ) |
| Payment for antitrust investigations and related lawsuits and claims | | | | -- | | | (3 | ) | | (4 | ) | | (80 | ) |
| Restructuring payments | | | | (1 | ) | | (1 | ) | | (4 | ) | | (15 | ) |
| Decrease in accounts payable and accruals | | | | (26 | ) | | 2 | | | (28 | ) | | (35 | ) |
|
| |
| |
| |
| |
| Increase in working capital | | | $ | (32 | ) | $ | 1 | | $ | (59 | ) | $ | (194 | ) |
|
| |
| |
| |
| |
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
SEGMENT DATA SUMMARY
(Dollars in millions)
(Unaudited)
|
|---|
| Q3
2003
| Y-T-D
2003
| Q1
2004
| Q2
2004
| Q3
2004
| Y-T-D
2004
|
|---|
| NET SALES: | | | | | | | | | | | | | | | | | | | | |
| Synthetic Graphite | | | $ | 155 | | $ | 466 | | $ | 174 | | $ | 187 | | $ | 184 | | $ | 545 | |
| Other | | | | 18 | | | 58 | | | 23 | | | 26 | | | 22 | | | 71 | |
|
|
|
|
|
|
| |
| Total | | | $ | 173 | | $ | 524 | | $ | 197 | | $ | 213 | | $ | 206 | | $ | 616 | |
|
|
|
|
|
|
| |
| COST OF SALES: | | |
| Synthetic Graphite | | | $ | 118 | | $ | 356 | | $ | 133 | | $ | 139 | | $ | 137 | | $ | 409 | |
| Other | | | | 14 | | | 45 | | | 19 | | | 20 | | | 15 | | | 54 | |
|
|
|
|
|
|
| |
| Total | | | $ | 132 | | $ | 401 | | $ | 152 | | $ | 159 | | $ | 152 | | $ | 463 | |
|
|
|
|
|
|
| |
| GROSS PROFIT: | | |
| Synthetic Graphite | | | $ | 37 | | $ | 110 | | $ | 41 | | $ | 48 | | $ | 47 | | $ | 136 | |
| Other | | | | 4 | | | 13 | | | 4 | | | 6 | | | 7 | | | 17 | |
|
|
|
|
|
|
| |
| Total | | | $ | 41 | | $ | 123 | | $ | 45 | | $ | 54 | | $ | 54 | | $ | 153 | |
| GROSS PROFIT MARGIN: | | |
| Synthetic Graphite | | | | 23.7 | % | | 23.4 | % | | 23.5 | % | | 25.6 | % | | 25.5 | % | | 24.9 | % |
| Other | | | | 23.5 | % | | 24.3 | % | | 17.6 | % | | 25.9 | % | | 29.2 | % | | 24.2 | % |
|
|
|
|
|
|
| |
| Total | | | | 23.7 | % | | 23.5 | % | | 22.8 | % | | 25.6 | % | | 25.9 | % | | 24.8 | % |
|
|
|
|
|
|
| |
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Dollars in millions, except per share data)
(Unaudited)
Net Income (Loss) and Earnings Per Share Reconciliation
| Three Months Ended September 30, 2003
| | Three Months Ended September 30, 2004
|
|---|
Net income (loss)[$0.09 per share and $(0.10) per share,
respectively] | $6 | | $(10) |
| Adjustments, net of tax: |
| Restructuring and impairment | - | | (2) |
| Gain on sale of discontinued operations | - | | - |
| Special, one time, non-cash tax charge | - | | 25 |
|
| |
|
Income (loss) after adjustments[$0.09 per share and $0.13
per share, respectively] | $6 | | $13 |
|
| |
|
| Plus: Other (Income) Expense, net, net of tax | 1 | | (1) |
|
| |
|
Income (loss) excluding restructuring, impairment, gain on sale of
discontinued operations, special tax charge and Other (Income)
Expense, net[$0.10 per share and $0.12 per
share, respectively] | $7 | | $12 |
|
| |
|
Less: Interest benefit from accelerated amortization of gains on
interest rate swaps, net of tax | (2) | | - |
|
| |
|
Less: Cumulative benefit due to reduction in
tax rate for 1Q03 and 2Q03 to 35% | (2) | | - |
|
| |
|
Income (loss) excluding restructuring, impairment, gain on sale
of discontinued operations, special tax charge, Other (Income)
Expense, net, interest benefit from accelerated
amortization, and cumulative benefit related to
reduction in tax rate[$0.04 per share and $0.12 per share,
respectively] | $3 | | $12 |
|
| |
|
Net Income (Loss) and Earnings Per Share Reconciliation
| Nine Months Ended Sept. 30, 2003
| | Nine Months Ended Sept. 30, 2004
|
|---|
Net income (loss)[$0.06 and $0.08 per share,
respectively] | $4 | | $8 |
| Adjustments, net of tax: |
| Restructuring and impairment | 13 | | 1 |
| Reduction of EU antitrust fine | - | | (11) |
| Gain on discontinued operations | (1) | | - |
| Special, tax charge | - | | 25 |
|
| |
|
Income (loss) after adjustments[$0.26 and $0.23
per diluted share, respectively] | $16 | | $23 |
|
| |
|
| Other (Income) Expense, net, net of tax | $(5) | | $12 |
|
| |
|
Income (loss) excluding restructuring, impairment, reduction of EU antitrust fine, gain on discontinued operations, special tax charge
and Other (Income) Expense, net[$0.17 and $0.36 per diluted
share, respectively] | $11 | | $35 |
|
| |
|
Less: Interest benefit from accelerated amortization of gains on
interest rate swaps, net of tax | (4) | | (2) |
|
| |
|
Income (loss) excluding restructuring, impairment, reduction
of EU antitrust fine, gain on discontinued operations, special
tax charge, Other (Income) Expense, net, and interest benefit
from accelerated amortization of gains from interest rate
swaps[$0.11 and $0.34 per share, respectively] | $7 | | $33 |
|
| |
|
NOTE ON RECONCILIATION OF EARNINGS DATA: Income (loss) excluding the items mentioned above is a non-GAAP financial measure that GTI calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GTI believes that the excluded items are not primarily related to core operational activities. GTI believes that income (loss) excluding items that are not primarily related to core operational activities is generally viewed as providing useful information regarding a company’s operating profitability. Management uses income (loss) excluding these items as well as other financial measures in connection with its decision-making activities. Income (loss) excluding these items should not be considered in isolation or as a substitute for net income (loss), income (loss) from continuing operations or other consolidated income data prepared in accordance with GAAP. GTI’s method for calculating income (loss) excluding these items may not be comparable to methods used by other companies.
NOTE ON RECONCILIATION OF EARNINGS, EBITDA AND NET DEBT GUIDANCE DATA: Earnings, EBITDA and net debt guidance is provided on a GAAP basis assuming that interest rates for the 2004 fourth quarter are approximately 25 basis points higher than 6-month LIBOR in September 2004,
assuming no change in currency exchange rates and excluding other (income) expense, net. GTI does not forecast changes currency exchange rates. Changes in these rates can affect such items as net sales and cost of sales (in each case as translated into dollars) and other (income) expense, net, due to translation of currency gains and losses on intercompany loans or mark-to-market adjustments on interest rate swaps and caps. GTI may record restructuring charges of about $6 million, before tax, over the next 12 months; however, it cannot forecast the amount for any specific quarter or year. To the extent that an item, that would be excluded, has been recorded in a prior period and that prior period is included in a forecast period, the recorded item is reflected for the entire forecast period at the same amount at which it was recorded in the prior period. In addition, earnings, EBITDA and net debt guidance is subject to the risks and uncertainties described under the Note on Forward-Looking Statements.
Earnings outlook for 2004 is based upon 98.2 million weighted average shares outstanding for the 2004 full year and 99 million weighted average shares outstanding for the 2004 fourth quarter. These shares are estimated based on 2004 third quarter diluted weighted average shares outstanding. GTI does not forecast the future impact of changes in stock options or other stock-based compensation or in convertible debentures on shares outstanding for the periods forecasted, which may change due to grant, exercise, conversion, cancellation, repurchase, redemption or other events or due to changes in share price or accounting principles.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Dollars in millions)
(Unaudited)
EBITDA Reconciliation
| Q3 2003
| 2003 YTD
| Q1 2004
| Q2 2004
| Q3 2004
| 2004 YTD
|
|---|
| Net income (loss) | | | $ | 6 | | $ | 4 | | $ | -- | | $ | 18 | | $ | (10 | ) | $ | 8 | |
Add back: | | |
| Minority stockholders' share of income | | | | -- | | | 1 | | | -- | | | -- | | | 1 | | | 1 | |
| Provision for (benefit from) income taxes | | | | 1 | | | 2 | | | 1 | | | 4 | | | 31 | | | 36 | |
| Depreciation and amortization | | | | 7 | | | 22 | | | 9 | | | 8 | | | 9 | | | 26 | |
| Interest expense | | | | 9 | | | 36 | | | 7 | | | 10 | | | 10 | | | 27 | |
| Interest income | | | | -- | | | -- | | | (1 | ) | | -- | | | -- | | | (1 | ) |
| Antitrust investigations and related lawsuits and | | |
| claims | | | | -- | | | -- | | | 1 | | | (12 | ) | | -- | | | (11 | ) |
| Restructuring & impairment losses on long lived | | |
| and other assets | | | | -- | | | 20 | | | 1 | | | 3 | | | (3 | ) | | 1 | |
| |
| EBITDA | | | $ | 23 | | $ | 85 | | $ | 18 | | $ | 31 | | $ | 38 | | $ | 87 | |
| Other (Income) Expense, net, included above | | | | 1 | | | (9 | ) | | 13 | | | 7 | | | (2 | ) | $ | 18 | |
| |
| EBITDA before Other (Income) Expense, net | | | $ | 24 | | $ | 76 | | $ | 31 | | $ | 38 | | $ | 36 | | $ | 105 | |
| |
| EBITDA before Other (Income) Expense, net as a percent of net sales | | | | 13.9 | % | | 14.5 | % | | 15.7 | % | | 17.8 | % | | 17.5 | % | | 17.0 | % |
| |
| MEMO : Income from discontinued operations | | | | -- | | $ | 1 | | | -- | | | -- | | | -- | | | -- | |
| MEMO : Gain on sale of discontinued operations | | | | -- | | $ | 1 | | | -- | | | -- | | | -- | | | -- | |
MEMO : Cash portion of restructuring and
impairment losses | | | | -- | | $ | 16 | | | -- | | $ | 3 | | $ | (3 | ) |
NOTE ON EBITDA RECONCILIATION: EBITDA is a non-GAAP financial measure that GTI currently calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GTI believes that EBITDA is generally accepted as providing useful information regarding a company’s ability to incur and service debt. GTI also believes that EBITDA provides useful information about the productivity and cash generation potential of its ongoing businesses. Management uses EBITDA as well as other financial measures in connection with its decision-making activities. EBITDA should not be considered in isolation or as a substitute for net income (loss), cash flows from continuing operations or other consolidated income or cash flow data prepared in accordance with GAAP. GTI’s method for calculating EBITDA may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA under its senior-secured bank credit facilities or its senior notes.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Dollars in millions)
(Unaudited)
Net Debt Reconciliation
|
| Jun-04 | Sept-04 |
|---|
| | |
|---|
| Long-term debt | | | $ | 680 | | $ | 695 | |
| Short-term debt | | | | - | | | 1 | |
|
| Total debt | | | $ | 680 | | $ | 696 | |
| Less: | | |
| Fair value adjustments for hedge instruments | | | | 2 | | | 17 | |
| Unamortized bond premium | | | | 2 | | | 2 | |
| Cash and cash equivalents | | | | 56 | | | 61 | |
|
| Net debt | | | $ | 620 | | $ | 616 | |
|
NOTE ON NET DEBT RECONCILIATION: Net debt is a non-GAAP financial measure that GTI calculates according to the schedule above, using GAAP amounts from the Consolidated Financial Statements. GTI excludes the unamortized bond premium from its sale of $150 million aggregate principal amount of additional senior notes in May 2002 at a price of 104.5% of principal amount. The premium received in excess of principal amount is amortized to reduce interest expense over the term of the senior notes. GTI also excludes the fair value adjustments for hedge instruments, which includes interest rate swaps that have been marked-to-market and realized gains or (losses) on interest rate swaps. Interest rate swaps (current hedge instruments) that have been marked-to-market currently represent a liability of $10 million with an offsetting non-cash adjustment recorded as a component of long-term debt on the Consolidated Balance Sheet. Realized gains on interest rates swaps (terminated hedge instruments) currently represent an increase to long-term debt on the Consolidated Balance Sheet of $27 million and will be amortized into the Consolidated Statement of Operations as a reduction to interest expense over the remaining life of the senior notes. GTI believes that net debt is generally accepted as providing useful information regarding a company’s indebtedness. Management believes net debt provides meaningful information to investors to assist them to analyze leverage. Management uses net debt as well as other financial measures in connection with its decision-making activities. Net debt should not be considered in isolation or as a substitute for total debt or total debt and other long term obligations calculated in accordance with GAAP. GTI’s method for calculating net debt may not be comparable to methods used by other companies and is not the same as the method for calculating net debt under its senior-secured bank credit facilities. GTI does not forecast the fair value adjustment for hedging instruments.
