gti-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from______ to ______

Commission file number: 1-13888

GRAFTECH INTERNATIONAL LTD.

(Exact name of registrant as specified in its charter)


Delaware			27-2496053
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)


982 Keynote Circle		44131
Brooklyn Heights,	OH	(Zip code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (216) 676-2000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	EAF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Emerging Growth Company

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2021, 267,258,940 shares of common stock, par value $0.01 per share, were outstanding.

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PART I. FINANCIAL INFORMATION:

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (unaudited)			5

Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited)			6

Condensed Consolidated Statements of Cash Flows (unaudited)			7

Condensed Consolidated Statements of Stockholders' Equity (Deficit) (unaudited)			8

Notes to Condensed Consolidated Financial Statements (unaudited)			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24

Item 3. Quantitative and Qualitative Disclosures About Market Risk			34

Item 4. Controls and Procedures			35

PART II. OTHER INFORMATION:

Item 1. Legal Proceedings			36

Item 1A. Risk Factors			36

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds			37

Item 6. Exhibits			38

SIGNATURE			39

Presentation of Financial, Market and Legal Data

We present our financial information on a consolidated basis. Unless otherwise noted, when we refer to dollars, we mean U.S. dollars.

Unless otherwise specifically noted, market and market share data in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 (the "Report") are our own estimates or derived from sources described in our Annual Report on Form 10-K for the year ended December 31, 2020 ("Annual Report on Form 10-K") filed on February 23, 2021. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Forward-Looking Statements” and “Risk Factors” in this Report and in our Annual Report on Form 10-K. We cannot guarantee the accuracy or completeness of this market and market share data and have not independently verified it. None of the sources have consented to the disclosure or use of data in this Report.

Forward-Looking Statements

Some of the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Report 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,” “foresee,” “intend,” “should,” “would,” “could,” “target,” “goal,” “continue to,” “positioned to,” “are confident”, or the negative versions of those words or other comparable words. Any forward-looking statements contained in this Report are based upon our historical performance and on our current plans, estimates and expectations considering 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:

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•the ultimate impact that the COVID-19 pandemic has on our business, results of operations, financial condition and cash flows;

•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 ability to secure and maintain longer-term customer contracts, in an effective manner;

•the risks and uncertainties associated with litigation, arbitration, and like disputes, including the current stockholder litigation and disputes related to contractual commitments;

•the possibility that global graphite electrode overcapacity may adversely affect graphite electrode prices;

•pricing for graphite electrodes has historically been cyclical and the price of graphite electrodes may continue to decline in the future;

•the sensitivity of our business and operating results to economic conditions and the possibility others may not be able to fulfill their obligations to us in a timely fashion or at all;

•our dependence on the global steel industry generally and the electric arc furnace steel industry in particular;

•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;

•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, compliance, 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, such as the COVID-19 pandemic, 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;

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•the fact that borrowings under certain of our existing financing agreements subject 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 our stockholders have the right to engage or invest in the same or similar businesses as us;

•the possibility that the market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets, including by Brookfield Asset Management Inc. and its affiliates;

•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

•the loss of our status as a “controlled company” within the meaning of the New York Stock Exchange corporate governance standards, which will result in us no longer qualifying 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 sections, that are included in our Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission ("SEC"). The forward-looking statements made in this Report 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.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this Report that could cause actual results to differ before making an investment decision to purchase our common stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)


	As of March 31, 2021		As of December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	96,446	$	145,442
Accounts and notes receivable, net of allowance for doubtful accounts of $9,065 as of March 31, 2021 and $8,243 as of December 31, 2020	195,930		182,647
Inventories	250,810		265,964
Prepaid expenses and other current assets	40,544		35,114

Total current assets	583,730		629,167
Property, plant and equipment	786,124		784,902
Less: accumulated depreciation	287,666		278,685
Net property, plant and equipment	498,458		506,217
Deferred income taxes	32,446		32,551
Goodwill	171,117		171,117
Other assets	92,370		93,660
Total assets	$	1,378,121	$	1,432,712
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	82,594	$	70,989
Short-term debt	127		131
Accrued income and other taxes	33,198		48,720
Other accrued liabilities	83,679		56,501
Related party payable - tax receivable agreement	3,922		21,752
Total current liabilities	203,520		198,093
Long-term debt	1,272,996		1,420,000
Other long-term obligations	77,284		81,478
Deferred income taxes	42,986		43,428
Related party payable - tax receivable agreement	15,176		19,098

Contingencies - Note 7
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, 267,257,592 shares issued and outstanding as of March 31, 2021 and 267,188,547 as of December 31, 2020	2,673		2,672
Additional paid-in capital	759,055		758,354
Accumulated other comprehensive loss	(20,717)		(19,641)
Accumulated deficit	(974,852)		(1,070,770)
Total stockholders’ deficit	(233,841)		(329,385)

Total liabilities and stockholders’ equity	$	1,378,121	$	1,432,712

See accompanying Notes to Condensed Consolidated Financial Statements

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GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in thousands, except share data)

(Unaudited)


	For the Three Months Ended March 31,
	2021		2020
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales	$	304,397	$	318,646
Cost of sales	146,396		138,917
Gross profit	158,001		179,729
Research and development	969		712
Selling and administrative expenses	20,153		14,932
Operating profit	136,879		164,085

Other income	(354)		(3,314)
Related party Tax Receivable Agreement expense (benefit)	47		(3,346)
Interest expense	22,167		25,672
Interest income	(37)		(1,141)
Income before provision for income taxes	115,056		146,214
Provision for income taxes	16,257		23,946




Net income	$	98,799	$	122,268

Basic income per common share*:
Net income per share	$	0.37	$	0.45

Weighted average common shares outstanding	267,318,860		269,216,820
Diluted income per common share*:
Income per share	$	0.37	$	0.45

Weighted average common shares outstanding	267,465,319		269,236,562

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income	$	98,799	$	122,268
Other comprehensive income:
Foreign currency translation adjustments, net of tax of $0 and $(163), respectively	(13,431)		(17,168)
Commodity and interest rate derivatives, net of tax of $(3,332) and $10,927, respectively	12,355		(39,781)

SEC Form 10-Q filed by GrafTech International Ltd.