Mr. Kelly Taylor reports
GRAFTECH REPORTS THIRD QUARTER 2015 RESULTS
Brookfield Asset Management Inc.'s GrafTech International Ltd. has released financial results for the
third quarter ended Sept. 30, 2015.
On Aug. 17, 2015, GrafTech became an indirect wholly owned subsidiary
of Brookfield Asset Management. In accordance with generally accepted accounting principles and using business combination
accounting guidelines, results for the third quarter of 2015 are
presented in two distinct periods labelled 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.
Third quarter 2015 review:
- Net sales (on a combined basis) were $160-million, a
decrease of 38 per cent, compared with 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 with 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 charges, 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 with adjusted net loss
of ($13-million) in the third quarter of 2014.
- Earnings before interest, taxes, depreciation and amortization (on a combined basis), which exclude special
charges, were $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 with $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 with $209-million in the third quarter
of 2014. The industrial materials segment reported essentially break-even
operating income (on a combined basis), compared with $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 with $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.
Engineered solutions
Net sales for engineered solutions (on a combined basis)
decreased to $34-million, compared with $52-million in the third quarter
of 2014. Operating loss (on a combined basis) for the engineered
solutions segment was ($8-million), compared with ($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 with adjusted operating income of
$1-million in the third quarter of 2014 and break-even 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.
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 with $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 with special charges of $1-million in the prior-year quarter.
Excluding special charges in both periods, overhead declined $9-million,
or 31 per cent, 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 with $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 Sept. 28, 2015, report, the International Monetary Fund
reduced its global growth rate for 2015 to 3.1 per cent, 0.3 percentage
point lower than in 2014, and 0.2 percentage point 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 Oct. 12, 2015, the World Steel
Association (WSA) forecast that global steel demand will decrease by 1.7
per cent to 1,513 million tons in 2015, following growth of 0.7 per cent
in 2014. In 2016, WSA forecast that world steel demand will show growth
of 0.7 per cent 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. It offers innovative graphite
material solutions for its 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 the GrafTech website.
GRAFTECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS:
THREE-MONTH RESULTS
(dollars in thousands, except per-share amounts)
Predecessor Successor
For the three months For the period from For the period from
ended Sept. 30, 2014 July 1, 2015, Aug. 15, 2015,
through Aug. 14, 2015 through Sept. 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
Diluted (loss) per common share
Net (loss) per share $ (0.26) $ (0.31) n/a
GRAFTECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS:
NINE-MONTH RESULTS
(dollars in thousands, except per-share amounts)
Predecessor Successor
For the nine months For the period For the period
ended Sept. 30, 2014 from Jan. 1, 2015, from Aug. 15, 2015,
through Aug. 14, 2015 through Sept. 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
Diluted (loss) per common share
Net (loss) per share $ (1.48) $ (0.88) n/a
We seek Safe Harbor.
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