# Graftech International Ltd: Form 10-Q for the period ended Sep 30, 2022

- Company: [Graftech International Ltd](/companies/eaf.md) (CIK 931148)
- Form: 10-Q
- Filed: 2022-11-04
- Accepted by EDGAR: Nov 4, 2022, 16:13 ET
- Period: 2022-09-30
- Accession: 0000931148-22-000143
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/931148/000093114822000143/gti-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/931148/000093114822000143/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $303.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $1.03bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $170.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $562.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $133.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $470.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $1.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $2.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $18.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $57.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $114.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $410.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $6.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $25.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $15.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $56.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $93.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $332.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.36 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $1.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.36 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $1.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 256,853,454 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 259,424,885 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $274.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $45.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2022-07-01 to 2022-09-30 | $1.9m | us-gaap:PaymentsOfDividends |
| Dividends paid | 9 months, 2022-01-01 to 2022-09-30 | $5.8m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $60.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $109.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $801.7m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $1.57bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $250.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2022-09-30 | $921.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $113.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-30 | $271.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 59,118 characters.

### The Company

We are a leading manufacturer of high-quality graphite electrode products essential to the production of EAF steel and other ferrous and non‑ferrous metals. We believe that we have the most competitive portfolio of low cost ultra-high power graphite electrode manufacturing facilities in the industry, including three of the highest capacity facilities in the world. We are the only large scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke, a key raw material for graphite electrode manufacturing.

The environmental and economic advantages of electric arc furnace steel production positions both that industry and the graphite electrode industry for continued long-term growth.

We believe GrafTech's leadership position, strong cash flows, advantaged low cost structure and vertical integration are sustainable competitive advantages. The services and solutions we provide will position our customers and us for a better future.

### Commercial Update

In the third quarter of 2022, we reported sales volume of 36 thousand metric tons ("MT"), consisting of LTA volume of 23 thousand MT at a weighted-average realized price of $9,400 per MT and non-LTA volume of 13 thousand MT at a weighted-average realized price of $6,000 per MT.

Consistent with our expectations, the non-LTA prices for graphite electrodes delivered and recognized in revenue in the third quarter of 2022 were comparable with our second quarter 2022 average. Year over year, the non-LTA weighted-average realized price increased approximately 30% compared to the weighted-average realized price for the third quarter of 2021.

In addition, our costs in the third quarter of 2022 increased 24% compared to the third quarter of 2021, driven by recent global inflationary pressures, particularly for third party needle coke, energy and freight. Sequentially, our costs increased 5% compared to the second quarter of 2022.

Production volume in the third quarter of 2022 decreased 5% compared to the third quarter of 2021. Annual planned maintenance work at our two European facilities occurred in the third quarter of both years.

### Update on Operations in Monterrey, Mexico

On September 15, 2022, inspectors from the State Attorney’s Office for the Secretary of Environment of the State of Nuevo León, Mexico issued a temporary suspension notice for our operations located in Monterrey, Mexico, as described in our Current Report on Form 8-K furnished on September 16, 2022. Currently, production operations in Monterrey remain shut down while certain activities, including movement of existing inventory, are permitted to continue.

While we are complying with the suspension notice, we strongly disagree with the course of action taken by the state authorities and will continue to seek resolution, including a restart of our Monterrey production operations. To that end, we are pursuing all available legal remedies, as well as engaging in dialogue with the respective state and local authorities involved in these matters. However, at this time, we are not able to assess how long production operations at our Monterrey facility will remain suspended.

Our facility in Monterrey has been operating since 1959, has over 550 employees and represents approximately 60 thousand MT of annual production capacity, or 30% of our total annual production capacity excluding St. Marys. Monterrey's operations can produce a broad portfolio of products, including various sizes of graphite electrodes and pins, and is currently our only site that produces the pin stock utilized for all of our graphite electrodes. As a result of the suspension, during the third quarter of 2022, approximately four thousand MT of predominately non-LTA customer orders could not be shipped. We estimate that adjusted EBITDA was negatively impacted by approximately $13 million during the third quarter of 2022, primarily reflecting the foregone sales volume.

As such, we are pursuing several alternatives with respect to production and sourcing of pin stock as well as other mitigation activities to minimize the impact on our business and our customers if the Monterrey suspension continues for the foreseeable future. These include a potential restart of our St. Marys, Pennsylvania facility, where the scope of production is currently limited to graphitizing and machining of electrodes and pins. We are actively pursuing approvals for operating permits for a restart of the facility for pin production. With these permits, and an incremental investment of approximately $8 million in capital expenditures, St Marys will be able to resume operations, supplying 100% of our pin requirements. We expect that these mitigation activities will take the first half of 2023 to fully implement, and we cannot provide any assurance that such measures will be effective in limiting the impact of the suspension.

Until operations in Monterrey are resumed or mitigation activities are successfully implemented, our ability to fulfill customer orders will be significantly impacted. Specific to the fourth quarter of 2022, after considering current pin stock inventory, we estimate the suspension will impact approximately 10 thousand MT to 12 thousand MT of such customer orders. Reflecting this impact, we anticipate sales volume of 25 thousand MT to 28 thousand MT in the fourth quarter of 2022.

Beyond the fourth quarter of 2022, if Monterrey remains suspended, the impact on the Company's results in the first half of 2023 will be significant, with sales volume reduced by 50% or more, compared to sales volume in the first half of 2022, before recovering in the back half of the year.

We anticipate being able to meet our LTA commitments throughout 2023.

### Outlook

Steel market capacity utilization rates have been as follows:

|  | Q3 2022 | Q2 2022 | Q3 2021 |
| --- | ---: | ---: | ---: |
| Global (ex-China) capacity utilization rate(1) | 64% | 69% | 71% |
| U.S. steel market capacity utilization rate(2) | 78% | 81% | 84% |

(1) Source: World Steel Association, Metal Expert and GrafTech analysis, as of October 2022

(2) Source: American Iron and Steel Institute, as of October 2022

The operating environment for the steel industry remains volatile with decreasing utilization rates. Thus, we expect graphite electrode demand to remain soft for the fourth quarter of 2022 and into 2023 reflecting market dynamics, which continue to be dictated by geopolitical conflict and economic uncertainty.

As we proceed through the remainder of the year, we expect our weighted-average non-LTA pricing for the fourth quarter to be comparable to the pricing realized in the third quarter of 2022.

We anticipate sequential cost inflation to continue in the fourth quarter of 2022 as higher priced inventory is sold and the fixed costs of the Monterrey facility are expensed.

For 2023, if Monterrey remains suspended, we anticipate further significant cost increases for at least the first half of the year, primarily reflecting costs to execute the mitigation strategies related to producing pin stock, as well as incremental absorption of certain fixed costs due to the anticipated decline in 2023 sales volume.

The table of estimated shipments of graphite electrodes under existing LTAs has been updated as follows to reflect our current expectations:

|  |  |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2023 | 2024 |
| Estimated LTA volume(1) | 88-92(3) | 26-33(3) | 12-15 |
| Estimated LTA revenue(2) | $830-$870(3) | $225-$285(3) | $130-$165(4) |

(1) In thousands of MT

(2) In millions

(3) The estimates set forth in this table reflect our current expectations regarding the shift of LTA revenue out of 2022 into 2023, primarily due to the suspension of our operations in Monterrey, Mexico

(4) Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs

The majority of the LTAs are defined as pre-determined fixed annual volume contracts while a small portion are defined with a specified volume range. For the years 2023 and through 2024, the contractual revenue amounts above are based upon the minimum volume for those contracts with specified ranges. The actual revenue realized from these contracted volumes may vary in timing and total due to contract non-performance, force majeure notices, arbitrations, credit risk associated with certain customers facing financial challenges and customer demand related to contracted volume ranges. As it relates to the conflict between Ukraine and Russia, we have provided force majeure notices with respect to certain impacted LTAs. Certain of our LTA counterparties have challenged the force majeure notices, but we will continue to enforce our contractual rights. In the event of a force majeure, the LTAs provide our counterparties with the right to terminate the LTA if the force majeure event continues for more than six months after the delivery of the force majeure notice, with no continuing obligations of either party. The estimates of LTA revenue as set forth above in the immediately preceding table reflects (i) our current view of the validity of such force majeure notices and (ii) our current expectations of termination fees from our customers who have failed to meet certain obligations under their LTAs.

### Capital Structure and Capital Allocation

As of September 30, 2022, GrafTech had cash and cash equivalents of $109.4 million and total debt of approximately $921.2 million. With the increase of $53.6 million in our cash and cash equivalents as compared to the second quarter of 2022, our net debt position was reduced to $824.7 million as of September 30, 2022. In the third quarter of 2022, due to the suspension of our operations in Monterrey, Mexico, we retained all of our free cash flow and did not make a voluntary prepayment under our 2018 Term Loan Facility. Once operations resume in Monterrey, we continue to expect our primary use of cash to be debt repayment. We also have $99.0 million available under our stock repurchase authorization.

We continue to expect full-year capital expenditures to be in the range of $70.0 million to $80.0 million for 2022.

### Key metrics used by management to measure performance

In addition to measures of financial performance presented in our Condensed Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States ("GAAP"), we use certain other financial measures and operating metrics to analyze the performance of our Company. Our “non-GAAP” financial measures consist of EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share, which help us evaluate growth trends, establish budgets, assess operational efficiencies and evaluate our overall financial performance. Our key operating metrics consist of sales volume, production volume, production capacity and capacity utilization.

### Key financial measures

*(in thousands, except per share data)*

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $303,840 | $347,348 | $1,033,731 | $982,495 |
| Net income | 93,451 | 119,886 | 332,631 | 246,850 |
| Earnings per share(1) | 0.36 | 0.45 | 1.28 | 0.92 |
| EBITDA(2) | 127,937 | 173,021 | 453,437 | 394,763 |
| Adjusted net income(2) | 93,883 | 119,038 | 334,905 | 333,405 |
| Adjusted earnings per share(1)(2) | 0.37 | 0.45 | 1.29 | 1.25 |
| Adjusted EBITDA(2) | 128,567 | 172,175 | 456,363 | 487,123 |

(1) Earnings per share represents diluted earnings per share. Adjusted earnings per share represents adjusted diluted earnings per share.

(2) Non-GAAP financial measure; see below for information and reconciliations of EBITDA, adjusted EBITDA and adjusted net income to net income and adjusted EPS to EPS, the most directly comparable financial measures calculated and presented in accordance with GAAP.

### Key operating measures

In addition to measures of financial performance presented in accordance with GAAP, we use certain operating metrics to analyze the performance of our Company. The key operating metrics consist of sales volume, production volume, production capacity and capacity utilization. These metrics align with management's assessment of our revenue performance and profit margin, and will help investors understand the factors that drive our profitability.

Sales volume reflects the total volume of graphite electrodes sold for which revenue has been recognized during the period. For a discussion of our revenue recognition policy, see “—Critical accounting policies—Revenue recognition” in our Annual Report on Form 10-K. Sales volume helps investors understand the factors that drive our net sales.

Production volume reflects graphite electrodes produced during the period. Production capacity reflects expected maximum production volume during the period depending on product mix and expected maintenance outage. Actual production may vary. Capacity utilization reflects production volume as a percentage of production capacity. Production volume, production capacity and capacity utilization help us understand the efficiency of our production, evaluate cost of sales and consider how to approach our contract initiative.

*(in thousands, except utilization)*

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Sales volume (MT)(1) | 35.7 | 43.4 | 121.3 | 123.1 |
| Production volume (MT)(2) | 37.7 | 39.5 | 127.7 | 119.0 |
| Total production capacity (MT)(3)(4) | 55.0 | 55.0 | 171.0 | 171.0 |
| Total capacity utilization(4)(5) | 69% | 72% | 75% | 70% |
| Production capacity excluding St. Marys (MT)(3)(6) | 48.0 | 48.0 | 150.0 | 150.0 |
| Capacity utilization excluding St. Marys(5)(6) | 79% | 82% | 85% | 79% |

(1) Sales volume reflects only graphite electrodes manufactured by us.

(2) Production volume reflects graphite electrodes we produced during the period.

(3) Production capacity reflects expected maximum production volume during the period depending on product mix and expected maintenance outage. Actual production may vary.

(4) Includes graphite electrode facilities in Calais, France; Monterrey, Mexico; Pamplona, Spain; and St. Marys, Pennsylvania.

(5) Capacity utilization reflects production volume as a percentage of production capacity.

(6) Our St. Marys, Pennsylvania facility graphitizes a limited number of electrodes and pins sourced from our Monterrey, Mexico facility.

### Non-GAAP financial measures

In addition to providing results that are determined in accordance with GAAP, we have provided certain financial measures that are not in accordance with GAAP. EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS and net debt are non-GAAP financial measures. We define EBITDA, a non‑GAAP financial measure, as net income or loss plus interest expense, minus interest income, plus income taxes and depreciation and amortization. We define adjusted EBITDA as EBITDA plus any pension and other post-employment benefit ("OPEB") plan expenses, adjustments for public offerings and related expenses, non‑cash gains or losses from foreign currency remeasurement of non‑operating assets and liabilities in our foreign subsidiaries where the functional currency is the U.S. dollar, stock-based compensation expense, non-cash fixed asset write-offs, related party payable - Tax Receivable Agreement adjustments and Change in Control charges that were triggered as a result of the ownership of our largest stockholder falling below 30% of our total outstanding shares. Adjusted EBITDA is the primary metric used by our management and our Board of Directors to establish budgets and operational goals for managing our business and evaluating our performance.

We monitor adjusted EBITDA as a supplement to our GAAP measures, and believe it is useful to present to investors, because we believe that it facilitates evaluation of our period‑to‑period operating performance by eliminating items that are not operational in nature, allowing comparison of our recurring core business operating results over multiple periods unaffected by differences in capital structure, capital investment cycles and fixed asset base. In addition, we believe adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance and debt‑service capabilities.

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

- adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
- adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments, including any capital expenditure requirements to augment or replace our capital assets;
- adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;
- adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
- adjusted EBITDA does not reflect expenses relating to our pension and OPEB plans;
- adjusted EBITDA does not reflect public offerings and related expenses;
- adjusted EBITDA does not reflect the non‑cash gains or losses from foreign currency remeasurement of non‑operating assets and liabilities in our foreign subsidiaries where the functional currency is the U.S. dollar;
- adjusted EBITDA does not reflect stock-based compensation expense;
- adjusted EBITDA does not reflect the non-cash write-off of fixed assets;
- adjusted EBITDA does not reflect related party payable - Tax Receivable Agreement adjustments;
- adjusted EBITDA does not reflect Change in Control charges; and
- other companies, including companies in our industry, may calculate EBITDA and adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

We define adjusted net income, a non‑GAAP financial measure, as net income or loss and exclude the items used to calculate adjusted EBITDA, less the tax effect of those adjustments. We define adjusted EPS, a non‑GAAP financial measure, as adjusted net income divided by the weighted average diluted common shares outstanding during the period. We believe adjusted net income and adjusted EPS are useful to present to investors because we believe that they assist investors’ understanding of the underlying operational profitability of the Company.

We define net debt as gross debt (the most directly comparable GAAP measure) minus cash and cash equivalents. We believe net debt is an important measurement as it is an indicator of our ability to obtain additional capital resources for our future cash needs and is more representative of our financial position and ability to reduce debt if needed.

In evaluating EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS, you should be aware that in the future, we will incur expenses similar to the adjustments in the reconciliations presented below other than the Change in Control charges. Our presentations of EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS, should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non‑recurring items.

When evaluating our performance, you should consider EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS, alongside other measures of financial performance and liquidity, including our net income and EPS, respectively, and other GAAP measures.

The following tables reconcile our non-GAAP key financial measures to the most directly comparable GAAP measures:

*(Dollars in thousands, except per share data)*

| Reconciliation of Net Income to Adjusted Net Income | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| **Net income** | $93,451 | $119,886 | $332,631 | $246,850 |
| **Diluted income per common share:** |  |  |  |  |
| Net income per share | $0.36 | $0.45 | $1.28 | $0.92 |
| Weighted average shares outstanding | 256,853,454 | 267,178,963 | 259,424,885 | 267,441,394 |
| Adjustments, pre-tax: |  |  |  |  |
| Pension and OPEB plan expenses(1) | 534 | 434 | 1,638 | 1,295 |
| Public offerings and related expenses(2) | — | — | 100 | 663 |
| Non-cash (gains) losses on foreign currency remeasurement(3) | (532) | (1,542) | (298) | 365 |
| Stock-based compensation expense(4) | 628 | 262 | 1,666 | 1,580 |
| Non-cash fixed asset write-off (5) | — | — | — | 313 |
| Related party payable - Tax Receivable Agreement adjustment(6) | — | — | (180) | 47 |
| Change in Control LTIP award(7) | — | — | — | 73,384 |
| Change in Control stock-based compensation acceleration(7) | — | — | — | 14,713 |
| Total non-GAAP adjustments pre-tax | 630 | (846) | 2,926 | 92,360 |
| Income tax impact on non-GAAP adjustments(8) | 198 | 2 | 652 | 5,805 |
| **Adjusted net income** | $93,883 | $119,038 | $334,905 | $333,405 |

(1) Net periodic benefit cost for our pension and OPEB plans.

(2) Legal, accounting, printing and registration fees associated with public offerings and related expenses.

(3) Non-cash (gains) losses from foreign currency remeasurement of non-operating assets and liabilities of our non-U.S. subsidiaries where the functional currency is the U.S. dollar.

(4) Non-cash expense for stock-based compensation grants.

(5) Non-cash write-off of fixed assets.

(6) Non-cash expense adjustment for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.

(7) In the second quarter of 2021, we incurred Change in Control charges as a result of the ownership of our largest shareholder, Brookfield, moving below 30% of our shares outstanding.

(8) The tax impact on the non-GAAP adjustments is affected by their tax deductibility and the applicable jurisdictional tax rates.

### GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

| Reconciliation of EPS to Adjusted EPS | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| **EPS** | $0.36 | $0.45 | $1.28 | $0.92 |
| Adjustments per share: |  |  |  |  |
| Pension and OPEB plan expenses(1) | — | — | — | — |
| Public offerings and related expenses(2) | — | — | — | — |
| Non-cash (gains) losses on foreign currency remeasurement(3) | — | — | — | — |
| Stock-based compensation expense(4) | 0.01 | — | 0.01 | 0.02 |
| Non-cash fixed asset write-off (5) | — | — | — | — |
| Related party payable - Tax Receivable Agreement adjustment(6) | — | — | — | — |
| Change in control LTIP award(7) | — | — | — | 0.27 |
| Change in control stock-based compensation acceleration(7) | — | — | — | 0.06 |
| **Total non-GAAP adjustments pre-tax per share** | 0.01 | — | 0.01 | 0.35 |
| Income tax impact on non-GAAP adjustments per share(8) | — | — | — | 0.02 |
| **Adjusted EPS** | $0.37 | $0.45 | $1.29 | $1.25 |

(1) Net periodic benefit cost for our pension and OPEB plans.

(2) Legal, accounting, printing and registration fees associated with public offerings and related expenses.

(3) Non-cash (gains) losses from foreign currency remeasurement of non-operating assets and liabilities of our non-U.S. subsidiaries where the functional currency is the U.S. dollar.

(4) Non-cash expense for stock-based compensation grants.

(5) Non-cash write-off of fixed assets.

(6) Non-cash expense adjustment for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.

(7) In the second quarter of 2021, we incurred Change in Control charges as a result of the ownership of our largest shareholder, Brookfield, moving below 30% of our shares outstanding.

(8) The tax impact on the non-GAAP adjustments is affected by their tax deductibility and the applicable jurisdictional tax rates.

### GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

*(Dollars in thousands)*

| Reconciliation of Net Income to Adjusted EBITDA | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| **Net income** | $93,451 | $119,886 | $332,631 | $246,850 |
| Add: |  |  |  |  |
| Depreciation and amortization | 13,262 | 15,584 | 41,708 | 48,415 |
| Interest expense | 6,424 | 16,048 | 25,035 | 54,209 |
| Interest income | (241) | (417) | (2,197) | (653) |
| Income taxes | 15,041 | 21,920 | 56,260 | 45,942 |
| **EBITDA** | 127,937 | 173,021 | 453,437 | 394,763 |
| Adjustments: |  |  |  |  |
| Pension and OPEB plan expenses(1) | 534 | 434 | 1,638 | 1,295 |
| Public offerings and related expenses(2) | — | — | 100 | 663 |
| Non-cash (gains) losses on foreign currency remeasurement(3) | (532) | (1,542) | (298) | 365 |
| Stock-based compensation expense(4) | 628 | 262 | 1,666 | 1,580 |
| Non-cash fixed asset write-off (5) | — | — | — | 313 |
| Related party payable - Tax Receivable Agreement adjustment(6) | — | — | (180) | 47 |
| Change in Control LTIP award(7) | — | — | — | 73,384 |
| Change in Control stock-based compensation acceleration(7) | — | — | — | 14,713 |
| **Adjusted EBITDA** | $128,567 | $172,175 | $456,363 | $487,123 |

(1) Net periodic benefit cost for our pension and OPEB plans.

(2) Legal, accounting, printing and registration fees associated with the public offerings and related expenses.

(3) Non-cash losses (gains) from foreign currency remeasurement of non-operating assets and liabilities of our non-U.S. subsidiaries where the functional currency is the U.S. dollar.

(4) Non-cash expense for stock-based compensation grants.

(5) Non-cash write-off of fixed assets.

(6) Non-cash expense adjustment for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.

(7) In the second quarter of 2021, we incurred Change in Control charges as a result of the ownership of our largest shareholder, Brookfield, moving below 30% of our shares outstanding.

*(Dollars in thousands)*

| Reconciliation of Gross Debt to Net Debt | September 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Long-term debt | $921,090 | $1,029,561 |
| Long-term debt, current maturities | 113 | 127 |
| Add: Unamortized debt discount and issuance costs | (12,874) | (14,449) |
| Total gross debt | $934,077 | $1,044,137 |
| Less: Cash and cash equivalents | 109,394 | 57,514 |
| Net debt | $824,683 | $986,623 |

31

### Results of Operations

### The Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

The tables presented in our period-over-period comparisons summarize our Condensed Consolidated Statements of Operations and illustrate key financial indicators used to assess the consolidated financial results. Throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Report ("MD&A"), insignificant changes may be deemed not meaningful and are generally excluded from the discussion.

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Increase/ Decrease | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $303,840 | $347,348 | $(43,508) | (13)% |
| Cost of sales | 170,171 | 170,286 | (115) | —% |
| Gross profit | 133,669 | 177,062 | (43,393) | (25)% |
| Research and development | 1,014 | 983 | 31 | 3% |
| Selling and administrative expenses | 18,578 | 19,006 | (428) | (2)% |
| Operating income | 114,077 | 157,073 | (42,996) | (27)% |
| Other (income), net | (598) | (364) | (234) | 64% |
| Interest expense | 6,424 | 16,048 | (9,624) | (60)% |
| Interest income | (241) | (417) | 176 | (42)% |
| Income before provision for income taxes | 108,492 | 141,806 | (33,314) | (23)% |
| Provision for income taxes | 15,041 | 21,920 | (6,879) | (31)% |
| Net income | $93,451 | $119,886 | $(26,435) | (22)% |

*Net sales.* Net sales of $303.8 million in the third quarter of 2022 decreased $43.5 million, or 13%, compared to the third quarter of 2021. The decrease primarily reflected lower sales volume, including the impact of approximately four thousand MT of predominately non-LTA customer orders that could not be shipped due to the suspension of our operations in Monterrey, Mexico. A shift in the mix of our business to volume derived from non-LTA sales from volume derived from LTA sales also contributed to the decline in net sales. These factors were partially offset by improved pricing on volume derived from non-LTA sales. Prices for non-LTA business reset on January 1, 2022 and our weighted-average realized price increased approximately 30% compared to the weighted-average realized price for the third quarter of 2021.

*Cost of sales.* Cost of sales decreased $0.1 million from $170.3 million in the three months ended September 30, 2021 to $170.2 million in the three months ended September 30, 2022. A 24% increase in recognized cost of sales per metric ton, excluding depreciation and amortization, driven by recent global inflationary pressures, particularly for carbon-based inputs, energy and freight was more than offset by a 18% decrease in sales volume of manufactured electrodes.

*Selling and administrative expenses.* Selling and administrative expenses decreased $0.4 million, or 2%, from $19.0 million in the three months ended September 30, 2021 to $18.6 million in the three months ended September 30, 2022.

*Interest expense*. Interest expense decreased $9.6 million, or 60%, from $16.0 million in the three months ended September 30, 2021 to $6.4 million in the three months ended September 30, 2022 primarily due to reductions to our variable-rate debt since the beginning of 2021, as well as a $4.6 million gain realized upon the early redemption of $67.0 million of our $250.0 million de-designated interest rate swap. In addition, interest expense for the third quarter of 2022 includes $0.2 million of mark-to-market gains related to the remaining $183.0 million notional amount of our de-designated interest rate swap.

*Provision for income taxes.* The following table summarizes the provision for income taxes:

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Provision for income taxes | $15,041 | $21,920 |
| Pre-tax income | 108,492 | 141,806 |
| Effective tax rate | 13.9% | 15.5% |

The effective tax rates for the three months ended September 30, 2022 and 2021 were 13.9% and 15.5%, respectively. The rate for each period was lower than the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates, which was partially offset by the net combined impact related to the U.S. taxation of GILTI and FTCs.

The provision for income taxes decreased from $21.9 million for the three months ended September 30, 2021 to $15.0 million for the three months ended September 30, 2022. This change is primarily due to a decrease in pre-tax income and a decrease in the effective tax rate.

### The Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

The tables presented in our period-over-period comparisons summarize our Consolidated Statements of Operations and illustrate key financial indicators used to assess the consolidated financial results. Throughout our MD&A, insignificant changes may be deemed not meaningful and are generally excluded from the discussion.

*(Dollars in thousands)*

|  | Nine Months Ended September 30, 2022 | 2021 | Increase/ Decrease | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $1,033,731 | $982,495 | $51,236 | 5% |
| Cost of sales | 562,881 | 518,549 | 44,332 | 9% |
| Gross profit | 470,850 | 463,946 | 6,904 | 1% |
| Research and development | 2,617 | 2,970 | (353) | (12)% |
| Selling and administrative expenses | 57,862 | 114,942 | (57,080) | (50)% |
| Operating income | 410,371 | 346,034 | 64,337 | 19% |
| Other (income), net | (1,358) | (314) | (1,044) | (332)% |
| Interest expense | 25,035 | 54,209 | (29,174) | (54)% |
| Interest income | (2,197) | (653) | 1,544 | (236)% |
| Income before provision for income taxes | 388,891 | 292,792 | 96,099 | 33% |
| Provision for income taxes | 56,260 | 45,942 | 10,318 | 22% |
| Net income | $332,631 | $246,850 | $85,781 | 35% |

*Net sales.* Net sales were $1.0 billion in the nine months ended September 30, 2022, an increase of $51.2 million, or 5%, compared to $982.5 million in the nine months ended September 30, 2021, driven primarily by an increase in our non-LTA prices partially offset by a 1% reduction in sales volume of manufactured electrodes. Prices for non-LTA business reset on January 1, 2022 and our weighted-average realized price for the first nine months of 2022 increased 40% compared to the weighted-average realized price for the same period of 2021.

*Cost of sales.* Cost of sales increased $44.3 million, or 9%, from $518.5 million in the nine months ended September 30, 2021 to $562.9 million in the nine months ended September 30, 2022. Cost of sales for the first nine months of 2021 included $30.7 million of one-time Long-term Incentive Plan ("LTIP") charges resulting from a Change in Control after our largest stockholder's ownership of our common stock was reduced below 30% of our outstanding common stock. Excluding this Change in Control charge, cost of sales increased $75.1 million, or 15%. This increase was primarily due to a 20% increase in our recognized cost of sales per metric ton, excluding depreciation and amortization, driven by recent global inflationary pressures, particularly for carbon-based inputs, energy and freight. This was partially offset by a 1% decrease in sales volume of manufactured electrodes.

*Selling and administrative expenses.* Selling and administrative expenses decreased from $114.9 million in the nine months ended September 30, 2021 to $57.9 million in the nine months ended September 30, 2022 primarily due to the aforementioned one-time Change in Control charges recorded in the first nine months of 2021 of $42.6 million of LTIP expense and $12.9 million of accelerated stock-based compensation expense. Absent these charges, selling and administrative expenses would have decreased slightly compared to the first nine months of 2021.

*Interest expense.* Interest expense decreased $29.2 million from $54.2 million in the nine months ended September 30, 2021 to $25.0 million in the same period of 2022, primarily due to reductions to our variable-rate debt since the beginning of 2021, as well as a $4.6 million gain realized upon the early redemption of $67.0 million of our $250.0 million de-designated interest rate swap. In addition, interest expense for the first nine months of 2022 includes $7.0 million of mark-to-market gains related to the remaining $183.0 million notional amount of our de-designated interest rate swap.

*Provision for income taxes.* The following table summarizes the provision for income taxes:

*(Dollars in thousands)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Provision for income taxes | $56,260 | $45,942 |
| Income before provision for income taxes | 388,891 | 292,792 |
| Effective tax rate | 14.5% | 15.7% |

The effective tax rates for the nine months ended September 30, 2022 and 2021 were 14.5% and 15.7%, respectively. The rate for each period was lower than the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates, partially offset by the net combined impact related to the U.S. taxation of GILTI and FTCs.

The provision for income taxes increased from $45.9 million for the nine months ended September 30, 2021 to $56.3 million for the nine months ended September 30, 2022. This change is primarily related to an increase in pre-tax income, partially offset by a decrease in the effective tax rate.

### Effects of Changes in Currency Exchange Rates

When the currencies of non-U.S. countries in which we have a manufacturing facility decline (or increase) in value relative to the U.S. dollar, this has the effect of reducing (or increasing) the U.S. dollar equivalent cost of sales and other expenses with respect to those facilities. In certain countries in which we have manufacturing facilities, and in certain export markets, we sell in currencies other than the U.S. dollar. Accordingly, when these currencies increase (or decline) in value relative to the U.S. dollar, this has the effect of increasing (or reducing) net sales. The result of these effects is to increase (or decrease) operating and net income.

Many of the non-U.S. countries in which we have a manufacturing facility have been subject to significant economic and political changes, which have significantly impacted currency exchange rates. We cannot predict changes in currency exchange rates in the future or whether those changes will have net positive or negative impacts on our net sales, cost of sales or net income.

The impact of these changes in the average exchange rates of other currencies against the U.S. dollar on our net sales were decreases of $4.1 million and $9.6 million for the third quarter and nine months ended September 30, 2022, respectively, compared to the same periods of 2021. The impact of these changes on our cost of sales were decreases of $6.9 million and $18.9 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods of 2021.

We have in the past and may in the future use various financial instruments to manage certain exposures to risks caused by currency exchange rate changes, as described under “Part I, Item 3–Quantitative and Qualitative Disclosures about Market Risk.”

### Liquidity and Capital Resources

Our sources of funds have consisted principally of cash flow from operations and debt, including our credit facilities (subject to continued compliance with the financial covenants and representations). Our uses of those funds (other than for operations) have consisted principally of dividends, capital expenditures, scheduled debt repayments, optional debt repayments, share repurchases and other obligations. Disruptions in the U.S. and international financial markets could adversely affect our liquidity and the cost and availability of financing to us in the future.

We believe that we have adequate liquidity to meet our operating needs and fund our capital expenditures, including in the event of a potential restart of the St. Marys facility, for at least the next twelve months and for the foreseeable future thereafter. As of September 30, 2022, we had liquidity of $435.2 million, consisting of $325.8 million of availability under our 2018 Revolving Credit Facility (subject to continued compliance with the financial covenants and representations) and cash and cash equivalents of $109.4 million. We had long-term debt of $921.1 million and short-term debt of $0.1 million as of September 30, 2022. As of December 31, 2021, we had liquidity of $304.2 million consisting of $246.7 million available under our 2018 Revolving Credit Facility (subject to continued compliance with the financial covenants and representations) and cash and cash equivalents of $57.5 million. We had long-term debt of $1.0 billion and short-term debt of $0.1 million as of December 31, 2021.

As of September 30, 2022 and December 31, 2021, $75.5 million and $49.1 million, respectively, of our cash and cash equivalents were located outside of the U.S. We repatriate funds from our foreign subsidiaries through dividends. All of our subsidiaries face the customary statutory limitation that distributed dividends cannot exceed the amount of retained and current earnings. In addition, for our subsidiary in South Africa, the South Africa Central Bank imposes that certain solvency and liquidity ratios remain above defined levels after the dividend distribution, which historically has not materially affected our ability to repatriate cash from this jurisdiction. The cash and cash equivalents balances in South Africa were $1.0 million and $0.5 million as of September 30, 2022 and December 31, 2021, respectively. Upon repatriation to the U.S., the foreign source portion of dividends we receive from our foreign subsidiaries are not subject to U.S. federal income tax because the amounts were either previously taxed or are exempted from tax by Section 245A of the Internal Revenue Service Code (the "Code").

***Cash flow and plans to manage liquidity.*** Our cash flow typically fluctuates significantly between quarters due to various factors. These factors include customer order patterns, fluctuations in working capital requirements, timing of tax and interest payments and other factors.

#### Debt Structure

We had total availability under the 2018 Revolving Credit Facility of $325.8 million as of September 30, 2022 and $246.7 million as of December 31, 2021. The September 30, 2022 balance consisted of the $330.0 million limit reduced by $4.2 million of outstanding letters of credit and the December 31, 2021 balance consisted of the $250.0 million limit reduced by $3.3 million of outstanding letters of credit.

#### 2018 Term Loan and 2018 Revolving Credit Facility

In February 2018, the Company entered into the 2018 Credit Agreement, which provides for (i) the $2.3 billion 2018 Term Loan Facility after giving effect to the June 2018 amendment (the “First Amendment”) that increased the aggregate principal amount of the 2018 Term Loan Facility from $1.5 billion to $2.3 billion and (ii) the $330 million 2018 Revolving Credit Facility after giving effect to the May 2022 amendment that increased the revolving commitments under the 2018 Credit Agreement by $80.0 million from $250.0 million. GrafTech Finance is the sole borrower under the 2018 Term Loan Facility while GrafTech Finance, GrafTech Switzerland SA (“Swissco”) and GrafTech Luxembourg II S.à r.l. (“Luxembourg Holdco” and, together with GrafTech Finance and Swissco, the “Co-Borrowers”) are co-borrowers under the 2018 Revolving Credit Facility. The 2018 Term Loan Facility and the 2018 Revolving Credit Facility mature on February 12, 2025 and May 31, 2027, respectively.

The 2018 Term Loan Facility bears interest, at our option, at a rate equal to either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement), plus an applicable margin equal to 3.00% per annum following an amendment in February 2021 (the “Second Amendment”) that decreased the Applicable Rate (as defined in the 2018 Credit Agreement) by 0.50% for each pricing level or (ii) the ABR Rate (as defined in the 2018 Credit Agreement), plus an applicable margin equal to

2.00% per annum following the Second Amendment, in each case with one step down of 25 basis points based on achievement of certain public ratings of the 2018 Term Loan Facility. The Second Amendment also decreased the interest rate floor from 1.0% to 0.50% for the 2018 Term Loan Facility.

The 2018 Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) the Adjusted Term SOFR Rate and Adjusted EURIBOR Rate (each, as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 3.00% per annum or (ii) the ABR Rate, plus an applicable margin initially equal to 2.00% per annum, in each case with two 25 basis point step downs based on achievement of certain senior secured first lien net leverage ratios. In addition, we are required to pay a quarterly commitment fee on the unused commitments under the 2018 Revolving Credit Facility in an amount equal to 0.25% per annum.

The Senior Secured Credit Facilities are guaranteed by each of our domestic subsidiaries, subject to certain customary exceptions, and by GrafTech Luxembourg I S.à r.l., a Luxembourg *société à responsabilité limitée* and an indirect wholly owned subsidiary of GrafTech, Luxembourg HoldCo, and Swissco (collectively, the “Guarantors”) with respect to all obligations under the 2018 Credit Agreement of each of our foreign subsidiaries that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code).

All obligations under the 2018 Credit Agreement are secured, subject to certain exceptions, by: (i) a pledge of all of the equity securities of each domestic Guarantor and of each other direct, wholly owned domestic subsidiary of GrafTech and any Guarantor, (ii) a pledge on no more than 65% of the equity interests of each subsidiary that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code), and (iii) security interests in, and mortgages on, personal property and material real property of each domestic Guarantor, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement. The obligations of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation under the 2018 Revolving Credit Facility are secured by (i) a pledge of all of the equity securities of each Guarantor that is a Controlled Foreign Corporation and of each direct, wholly owned subsidiary of any Guarantor that is a Controlled Foreign Corporation, and (ii) security interests in certain receivables and personal property of each Guarantor that is a Controlled Foreign Corporation, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement.

The 2018 Term Loan Facility amortizes at a rate of $112.5 million a year payable in equal quarterly installments, with the remainder due at maturity. The Co-Borrowers are permitted to make voluntary prepayments at any time without premium or penalty. GrafTech Finance is required to make prepayments under the 2018 Term Loan Facility (without payment of a premium) with (i) net cash proceeds from non-ordinary course asset sales (subject to customary reinvestment rights and other customary exceptions and exclusions), and (ii) commencing with the Company’s fiscal year ended December 31, 2019, 75% of Excess Cash Flow (as defined in the 2018 Credit Agreement), subject to step-downs to 50% and 0% of Excess Cash Flow based on achievement of a senior secured first lien net leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00 and less than or equal to 1.25 to 1.00, respectively. Scheduled quarterly amortization payments of the 2018 Term Loan Facility during any calendar year reduce, on a dollar-for-dollar basis, the amount of the required Excess Cash Flow prepayment for such calendar year, and the aggregate amount of Excess Cash Flow prepayments for any calendar year reduce subsequent quarterly amortization payments of the 2018 Term Loan Facility as directed by GrafTech Finance. As of September 30, 2022, we have satisfied all required amortization installments through the maturity date.

The 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to GrafTech and restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The 2018 Credit Agreement contains a financial covenant that requires GrafTech to maintain a senior secured first lien net leverage ratio not greater than 4.00 to 1.00 when the aggregate principal amount of borrowings under the 2018 Revolving Credit Facility and outstanding letters of credit issued under the 2018 Revolving Credit Facility (except for undrawn letters of credit in an aggregate amount equal to or less than $35.0 million), taken together, exceed 35% of the total amount of commitments under the 2018 Revolving Credit Facility. The 2018 Credit Agreement also contains customary events of default. We were in compliance with all of our debt covenants as of September 30, 2022 and December 31, 2021.

#### 2020 Senior Secured Notes

In December 2020, GrafTech Finance issued $500 million aggregate principal amount of the 2020 Senior Secured Notes at an issue price of 100% of the principal amount thereof in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933 (the "Securities Act") and to non-U.S. persons outside the United States under Regulation S under the Securities Act.

The 2020 Senior Secured Notes were issued pursuant to the Indenture among GrafTech Finance, as issuer, the Company, as a guarantor, the other subsidiaries of the Company named therein as guarantors and U.S. Bank National Association, as trustee and notes collateral agent.

The 2020 Senior Secured Notes are guaranteed on a senior secured basis by the Company and all of its existing and future direct and indirect U.S. subsidiaries that guarantee, or borrow under, the credit facilities under its 2018 Credit Agreement. The 2020 Senior Secured Notes are secured on a pari passu basis by the collateral securing the term loans under the 2018 Credit Agreement. GrafTech Finance, the Company and the other guarantors granted a security interest in such collateral, consisting of substantially all of their respective assets, as security for the obligations of GrafTech Finance, the Company and the other guarantors under the 2020 Senior Secured Notes and the Indenture pursuant to a collateral agreement, dated as of December 22, 2020 (the “Collateral Agreement”), among GrafTech Finance, the Company, the other subsidiaries of the Company named therein as grantors and U.S. Bank National Association, as collateral agent.

The 2020 Senior Secured Notes bear interest at the rate of 4.625% per annum, which accrues from December 22, 2020 and is payable in arrears on June 15 and December 15 of each year, commencing on June 15, 2021. The 2020 Senior Secured Notes will mature on December 15, 2028, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the Indenture.

GrafTech Finance may redeem some or all of the 2020 Senior Secured Notes at the redemption prices and on the terms specified in the Indenture. If the Company or GrafTech Finance experiences specific kinds of changes in control or the Company or any of its restricted subsidiaries sells certain of its assets, then GrafTech Finance must offer to repurchase the 2020 Senior Secured Notes on the terms set forth in the Indenture.

The Indenture contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of its subsidiaries, to incur or guarantee additional indebtedness or issue preferred stock, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, incur or suffer to exist liens securing indebtedness, make certain investments, engage in certain transactions with affiliates, consummate certain asset sales and effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all assets. The Indenture contains events of default customary for agreements of its type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company or GrafTech Finance, all outstanding 2020 Senior Secured Notes will become due and payable immediately without further action or notice. If any other type of event of default occurs and is continuing, then the trustee or the holders of at least 30% in principal amount of the then outstanding 2020 Senior Secured Notes may declare all of the 2020 Senior Secured Notes to be due and payable immediately.

The entirety of the 2020 Senior Secured Notes proceeds was used to pay down a portion of our 2018 Term Loan Facility.

#### Uses of Liquidity

In July 2019, our Board of Directors authorized a program to repurchase up to $100.0 million of our outstanding common stock. In November 2021, our Board of Directors authorized the repurchase of an additional $150.0 million of stock repurchases under this program. We may purchase shares from time to time on the open market, including under Rule 10b5-1 and/or Rule 10b-18 plans. The amount and timing of repurchases are subject to a variety of factors including liquidity, stock price, applicable legal requirements, other business objectives and market conditions. In the first nine months of 2022, we repurchased 6.7 million shares of our common stock for an aggregate of $60.0 million. We did not repurchase any shares of our common stock during the third quarter of 2022. As of September 30, 2022, we had $99.0 million remaining under our stock repurchase authorization.

We currently pay a quarterly dividend of $0.01 per share, or $0.04 on an annualized basis. There can be no assurance that we will pay dividends in the future in these amounts or at all. Our Board of Directors may change the timing and amount of any future dividend payments or eliminate the payment of future dividends in its sole discretion, without any prior notice to our stockholders. Our ability to pay dividends will depend upon many factors, including our financial position and liquidity, results of operations, legal requirements, restrictions that may be imposed by the terms of our current and future credit facilities and other debt obligations and other factors deemed relevant by our Board of Directors.

During 2021, we reduced our long-term debt principal by $400.0 million. During the first nine months of 2022, we repaid an additional $110.0 million of principal of our 2018 Term Loan Facility. We also have $99.0 million available under our stock repurchase authorization. Due to the suspension of our operations in Monterrey, Mexico, we chose to preserve our cash and not make any voluntary debt prepayments during the third quarter of 2022. Once operations resume in Mexico or the suspension is otherwise mitigated, we continue to expect our primary use of cash to be debt repayment.

Potential uses of our liquidity include dividends, share repurchases, capital expenditures, scheduled debt repayments, optional debt repayments, and other general purposes. An improving economy, while resulting in improved results of operations, could increase our cash requirements to purchase inventories, make capital expenditures and fund payables and other obligations until increased accounts receivable are converted into cash. A downturn, including any recession or potential resurgence of the COVID-19 pandemic, could significantly and negatively impact our results of operations and cash flows, which, coupled with increased borrowings, could negatively impact our credit ratings, our ability to comply with debt covenants, our ability to secure additional financing and the cost of such financing, if available.

In order to seek to minimize our credit risks, we may reduce our sales of, or refuse to sell (except for prepayment, cash on delivery or under letters of credit or parent guarantees), our products to some customers and potential customers. Our unrecovered trade receivables worldwide have not been material during the last two years individually or in the aggregate.

We manage our capital expenditures by taking into account quality, plant reliability, safety, environmental and regulatory requirements, prudent or essential maintenance requirements, global economic conditions, available capital resources, liquidity, long-term business strategy and return on invested capital for the relevant expenditures, cost of capital and return on invested capital of the Company as a whole and other factors. Capital expenditures totaled $45.3 million in the nine months ended September 30, 2022. We continue to expect full-year capital expenditures to be in the range of $70.0 million to $80.0 million for 2022.

In the event that operating cash flows fail to provide sufficient liquidity to meet our business needs, including capital expenditures, any such shortfall would need to be made up by increased borrowings under our 2018 Revolving Credit Facility, to the extent available.

### Cash Flows

The following table summarizes our cash flow activities:

*(in thousands)*

| Cash flow provided by (used in): | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Operating activities | $274,605 | $343,011 |
| Investing activities | (45,120) | (40,070) |
| Financing activities | (176,237) | (360,838) |
| Net change in cash and cash equivalents | $53,248 | $(57,897) |

#### Operating Activities

Cash provided by operating activities totaled $274.6 million in the first nine months of 2022 compared to $343.0 million in the prior-year period. The decrease in operating cash flow was primarily due to an increase in cash used for working capital and decreased adjusted EBITDA. Cash flow used for inventories was $146.5 million in the first nine months of 2022 compared to $7.2 million in the first nine months of 2021, driven by increases in both costs and quantities in the first nine months of 2022. Cash flow provided by accounts payable and accruals decreased $36.4 million. In addition, cash provided by accounts receivable increased $25.7 million versus the prior-year period due to increased sales in the first nine months of 2022. Partially offsetting the negative impact of the increase in cash used for working capital and lower adjusted EBITDA was the non-recurrence of cash outflows of $66.0 million for Change in Control payments made in the nine months ended September 30, 2021 and reductions of $17.0 million for the combined impact of cash paid for interest and taxes and Tax Receivable Agreement payments.

#### Investing Activities

Net cash used in investing activities was $45.1 million in the nine months ended September 30, 2022 compared to $40.1 million in the nine months ended September 30, 2021. The increase is primarily due to increased capital expenditures.

#### Financing Activities

Net cash used in financing activities was $176.2 million for the nine months ended September 30, 2022 compared to $360.8 million in the first nine months of 2021. The decrease was primarily due to $190.0 million of less debt repayments in the first nine months of 2022 compared to the first nine months of 2021, partially offset by an increase in stock repurchases of $17.6 million in the first nine months of 2022 compared to the same period of 2021.

### Related Party Transactions

We have engaged in transactions with affiliates or related parties in the nine months ended September 30, 2022 and we expect to continue to do so in the future. These transactions include ongoing obligations under the Tax Receivable Agreement, Stockholders Rights Agreement and Registration Rights Agreement, each with Brookfield.

### Description of Our Financing Structure

We discuss our financing structure in more detail in Note 4, "Debt and Liquidity" in the Notes to the Condensed Consolidated Financial Statements.

## Market risk

As filed, 4,542 characters.

We are exposed to market risks, primarily from changes in interest rates, currency exchange rates, energy commodity prices and commercial energy rates. From time to time, we enter into transactions that have been authorized according to documented policies and procedures in order to manage these risks. These transactions primarily relate to financial instruments described below. Since the counterparties to these financial instruments are large commercial banks and similar financial institutions, we do not believe that we are exposed to material counterparty credit risk. We do not use financial instruments for trading purposes.

Our exposure to changes in interest rates results primarily from floating rate long-term debt tied to the LIBO Rate, SOFR Rate or EURIBOR Rate.

Our exposure to changes in currency exchange rates results primarily from:

- sales made by our subsidiaries in currencies other than local currencies;
- raw material purchases made by our foreign subsidiaries in currencies other than local currencies; and
- investments in and intercompany loans to our foreign subsidiaries and our share of the earnings of those subsidiaries, to the extent denominated in currencies other than the U.S. dollar.

Our exposure to changes in energy commodity prices and commercial energy rates results primarily from the purchase or sale of refined oil products and the purchase of natural gas and electricity for use in our manufacturing operations.

*Interest rate risk management.* We periodically enter into agreements with financial institutions that are intended to limit our exposure to additional interest expense due to increases in variable interest rates. These instruments effectively cap our interest rate exposure. As of September 30, 2022 and December 31, 2021, we recorded unrealized pre-tax gains of $16.6 million and $5.9 million, respectively, on our interest rate swaps designated as hedges.

*Currency rate management.* We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency derivatives, which include, but are not limited to, forward exchange contracts and purchased currency options, attempt to hedge global currency exposures. Forward exchange contracts are agreements to exchange different currencies at a specified future date and at a specified rate. Purchased currency options are instruments which give the holder the right, but not the obligation, to exchange different currencies at a specified rate at a specified date or over a range of specified dates. Forward exchange contracts and purchased currency options are carried at fair value.

The outstanding foreign currency derivatives represented a $4.1 million unrealized pre-tax net loss as of September 30, 2022 and a net unrealized pre-tax loss of $0.4 million as of December 31, 2021.

*Energy commodity management.* We have entered into commodity derivative contracts to effectively fix some or all of our exposure to refined oil products. The outstanding commodity derivative contracts represented net unrealized gains of $8.5 million as of December 31, 2021. As of September 30, 2022, there were no commodity derivative contracts outstanding.

*Sensitivity analysis.* We use sensitivity analysis to quantify potential impacts that market rate changes may have on the underlying exposures as well as on the fair values of our derivatives. The sensitivity analysis for the derivatives represents the hypothetical changes in value of the hedge position and does not reflect the related gain or loss on the forecasted underlying transaction.

A hypothetical increase in interest rates of 100 basis points (1%) would have decreased our interest expense by $0.2 million, net of the impact of our interest rate swap, for the nine months ended September 30, 2022. The same 100 basis point increase would have resulted in an increase of $4.0 million in the fair value of our interest rate swap portfolio.

As of September 30, 2022, a 10% appreciation or depreciation in the value of the U.S. dollar against foreign currencies from the prevailing market rates would have resulted in a corresponding decrease of $4.4 million or a corresponding increase of $4.4 million, respectively, in the fair value of the foreign currency hedge portfolio.

For further information related to the financial instruments described above, see Note 9, "Fair Value Measurements and Derivative Instruments" in the Notes to the Condensed Consolidated Financial Statements.

## Controls and procedures

As filed, 1,774 characters.

*Evaluation of Disclosure Controls and Procedures.* Management is responsible for establishing and maintaining adequate disclosure controls and procedures at the reasonable assurance level. Disclosure controls and procedures are designed at the reasonable assurance level to ensure that information required to be disclosed by a reporting company in the reports that it files or submits under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by it in the reports that it files under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective at the reasonable assurance level as of September 30, 2022.

*Changes in Internal Control over Financial Reporting*. There have been no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2022 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

## Risk factors

As filed, 2,466 characters.

The information set forth in this quarterly report on Form 10-Q, including, without limitation, the risk factor presented below, updates and should be read in conjunction with, the risk factors and information disclosed in Part 1 - Item 1A., “Risk Factors,” in our 2021 Annual Report on Form 10-K filed February 22, 2022. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

***Our results of operations could deteriorate if our manufacturing operations were substantially disrupted for an extended period for any reason, including equipment failure, climate change, natural disasters, public health crises, political crises or other catastrophic events.***

Our manufacturing operations are subject to disruption due to equipment failure, extreme weather conditions, floods, hurricanes and tropical storms and similar events, major industrial accidents, including fires or explosions, cybersecurity attacks, strikes and lockouts, adoption of new laws or regulations, changes in interpretations of existing laws or regulations or changes in governmental enforcement policies, civil disruption, riots, terrorist attacks, war, public health crises, such as the COVID-19 pandemic, and other events. These events may also impact the operations of one or more of our suppliers. For example, the potential physical impacts of climate change on our operations are uncertain and will likely be particular to the geographic circumstances. These physical impacts may include changes in rainfall and storm patterns, shortages of water or other natural resources, changing sea levels, and changing global average temperatures. For instance, our Seadrift facility in Texas and our Calais facility in France are located in geographic areas less than 50 feet above sea level. As a result, any future rising sea levels could have an adverse impact on their operations and on their suppliers. In the event manufacturing operations are substantially disrupted at one of our primary operating facilities, such as the current suspension of our operations located in Monterrey, Mexico, we may not have the ability to increase production at our remaining operating facilities in order to compensate without considerable time and expense. To the extent any of these events occur, our business, financial condition and operating results could be materially and adversely affected.

Table of **PART II. OTHER INFORMATION (CONT'D)**

Filed Nov 4, 2022.
Source: SEC EDGAR, the filing index for accession 0000931148-22-000143. Last ingested by Listed: Nov 10, 2026, 00:15 ET. No prices; not investment advice.