In the Engineered Solutions segment, weak end-market consumer electronic product launches continue to negatively impact company profitability, as shipments in this business unit remain under significant pressure. In addition to this weakness, a negative shift in product mix has led the company to believe that its 2014 revenue and margin targets for this segment need to be revised. The company expects 2014 revenue for the Engineered Solutions segment to be flat, as compared to 2013, with breakeven operating income margins due to pricing pressures driven by oversupply in the consumer electronics supply chain.
 
The Industrial Materials segment has seen increased demand in the United States, but that has not been able to offset the weakening of demand in other regions, resulting in approximately five to ten percent of graphite electrode shipments for the remainder of the year being delayed into 2015. The company plans to reduce graphite electrode production rates due to the decrease in shipments, which is expected to negatively affect operating margins.
 
Joel Hawthorne, chief executive officer of GrafTech, commented, “We continue to face a challenging and volatile operating environment in both our Engineered Solutions and Industrial Materials segments. As a result of the uncertainly that exists in our end markets today, we will be re-evaluating our guidance practice going forward.”

2014 Outlook
Based upon the current industry environment, the company is revising its guidance for 2014 as follows:

• Full year 2014 EBITDA* target of US$105 million to US$115 million (a change from US$135 million to US$150 million);
  • Approximately US$25 million of the reduction is related to the Engineered Solutions segment;
  • Approximately US$5 million of the reduction is related to lower graphite electrodes sales volume;
• Operating cash flow in 2014 of approximately US$95 million to US$110 million (a change from US$125 million to US$140 million);
• Working capital reduction in 2014 of approximately US$70 million (a change from US$90 million); and
• Capital expenditures in 2014 of approximately US$80 million to US$90 million (a change from US$85 million to US$95 million).

Mr. Hawthorne concluded, “Even at these operating income levels, as a result of our prior initiatives, we have adequate liquidity and we enter 2015 with planned and scheduled actions to generate additional liquidity through our previously announced working capital initiatives. We will continue to focus on taking further aggressive cost reduction actions to position the company to be profitable at this low point of the cycle and strategically positioned to capitalize on the eventual recovery in end market demand.”
 
*Non-GAAP Reconciliation: Using the mid-point of the guidance range, EBITDA excludes depreciation and amortization of US$90 million, rationalization-related depreciation of US$36 million, rationalizations of US$15 million, rationalization-related other of US$22 million, impairment charges of US$122 million, proxy contest charges of US$2 million, other expense, net, of US$2 million, interest expense of US$36 million and income tax expense of US$3 million to arrive at a targeted net loss of US$218 million.