# Graftech International Ltd: Form 10-Q for the period ended Sep 30, 2023

- Company: [Graftech International Ltd](/companies/eaf.md) (CIK 931148)
- Form: 10-Q
- Filed: 2023-11-03
- Accepted by EDGAR: Nov 3, 2023, 12:19 ET
- Period: 2023-09-30
- Accession: 0000931148-23-000158
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/931148/000093114823000158/gti-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/931148/000093114823000158/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $159.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $483.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $157.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $427.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $1.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $55.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $1.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $3.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $18.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $58.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$18.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$6.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $15.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $42.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$10.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | −$10.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$22.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$37.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.15 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 257,090,113 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 256,987,778 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $67.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $48.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $3.9m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $172.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $713.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.48bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $169.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $924.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $127.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $288.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 59,397 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, our key raw material for graphite electrode manufacturing.

The environmental and economic advantages of EAF steel production position both that industry and the graphite electrode industry for continued long-term growth.

We believe GrafTech's leadership position and vertical integration are sustainable competitive advantages. The services and solutions we provide will position our customers and us for a better future.

### Operational and Commercial Update

Sales volume for the third quarter of 2023 was 24.2 thousand metric tons (“MT”), consisting of 7.7 thousand MT of LTA volume and 16.5 thousand MT of non-LTA volume, and decreased 32% compared to the third quarter of 2022.

For the third quarter of 2023, the weighted-average realized price for our LTA volume was $8,650 per MT. For our non-LTA volume, the weighted-average realized price for graphite electrodes delivered and recognized in revenue in the third quarter of 2023 was approximately $5,400 per MT, compared to a weighted-average realized price of approximately $6,000 per MT in the third quarter of 2022, with the decline reflecting the soft commercial environment.

Production volume was 22.7 thousand MT in the third quarter of 2023, a decrease of 40% compared to the third quarter of 2022, as we proactively reduced our graphite electrode production volume to align with our evolving demand outlook and to manage our working capital levels. We also temporarily idled needle coke production at our Seadrift facility throughout the third quarter of 2023 to align our needle coke inventory with our graphite electrode production needs.

### Management Changes

As previously reported in our Current Report on Form 8-K filed on September 25, 2023, effective November 15, 2023, it is expected that (i) Marcel Kessler will resign as Chief Executive Officer and President due to family reasons, (ii) Timothy K. Flanagan will become Interim Chief Executive Officer and President and (iii) Catherine Hedoux-Delgado will become Interim Chief Financial Officer and Treasurer. Mr. Kessler will continue to serve on our Board of Directors.

### Outlook

We expect demand for graphite electrodes in the near term will remain weak, reflecting persistent softness in the commercial environment as steel industry production remains constrained by global economic uncertainty. As a result, sales volume in the fourth quarter of 2023 is expected to decline modestly compared to sales volume in the third quarter of 2023.

We expect our cash cost of goods sold per MT in the fourth quarter of 2023 will be below the level recognized in the third quarter of 2023, but will be higher compared to the fourth quarter of 2022. As a result, for the full year of 2023, we continue to expect a significant year-over-year increase in our cash cost of goods sold per MT as (1) fixed costs are recognized over a smaller volume base, (2) excess fixed costs that would have otherwise been inventoried are recognized when incurred due to reduced production levels and (3) reflecting the full-year impact of higher raw material costs that increased throughout 2022. We continue to closely manage our operating costs and capital expenditures, as well as our working capital levels.

Looking ahead, we remain confident in our ability to overcome near-term challenges and are optimistic about the long-term outlook for our business. We anticipate the steel industry’s accelerating efforts to decarbonize will lead to increased adoption of the EAF method of steelmaking, driving long-term demand growth for graphite electrodes. We also anticipate the demand for petroleum needle coke, the key raw material we use to produce graphite electrodes, to accelerate driven by its utilization in producing synthetic graphite for use in lithium-ion batteries for the growing electric vehicle market. We believe that the actions we are taking, supported by a distinct set of capabilities, including our substantial vertical integration into petroleum needle coke via our Seadrift facility, will optimally position GrafTech to benefit from these sustainable industry tailwinds.

Steel market capacity utilization rates have been as follows:

|  | Q3 2023 | Q2 2023 | Q3 2022 |
| --- | ---: | ---: | ---: |
| Global (ex-China) capacity utilization rate(1) | 65% | 68% | 65% |
| U.S. steel market capacity utilization rate(2) | 76% | 77% | 78% |

(1) Source: World Steel Association, Metal Expert and GrafTech analysis, as of October 2023

(2) Source: American Iron and Steel Institute, as of October 2023

The table of estimated shipments of graphite electrodes under existing LTAs was updated as follows, reflecting our current expectations for the full years of 2023 and 2024:

|  |  |  |
| --- | --- | --- |
|  | 2023 Outlook | 2024 Outlook |
| Estimated LTA volume(1) | 28-29 | 13-16 |
| Estimated LTA revenue(2) | $245-$255 | $100-$135(3) |

(1) In thousands of MT

(2) In millions

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

We recorded 23.5 thousand MT of LTA volume and $212.6 million of LTA revenue in the nine months ended September 30, 2023, and we expect to record five thousand to six thousand MT of LTA volume and approximately $32.0 million to $42.0 million of LTA revenue for the remainder of 2023.

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.

### Capital Structure and Capital Allocation

As of September 30, 2023, we had liquidity of $285.1 million, consisting of $112.3 million of availability under our 2018 Revolving Credit Facility and cash and cash equivalents of $172.8 million, and we had gross debt of $950.3 million. The Company's current capital allocation approach is focused on maintaining sufficient liquidity as we navigate the persistent softness in the commercial environment. In addition, we are making targeted investments to further improve our operational flexibility and support long-term growth. We continue to anticipate our full year capital expenditures will be in the range of $55.0 million to $60.0 million for 2023.

### 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 (loss) income and adjusted (loss) 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, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $158,992 | $303,840 | $483,355 | $1,033,731 |
| Net (loss) income | (22,621) | 93,451 | (37,841) | 332,631 |
| (Loss) earnings per share(1) | (0.09) | 0.36 | (0.15) | 1.28 |
| EBITDA(2) | (1,336) | 127,937 | 35,067 | 453,437 |
| Adjusted net (loss) income(2) | (20,866) | 93,883 | (32,183) | 334,905 |
| Adjusted (loss) earnings per share(1)(2) | (0.08) | 0.37 | (0.13) | 1.29 |
| Adjusted EBITDA(2) | 919 | 128,567 | 42,056 | 456,363 |

(1) (Loss) earnings per share represents diluted (loss) earnings per share. Adjusted (loss) earnings per share represents adjusted diluted (loss) earnings per share.

(2) Non-GAAP financial measure; see below for information and reconciliations of EBITDA, adjusted EBITDA and adjusted net (loss) income to net (loss) income and adjusted (loss) earnings per share to (loss) earnings per share, 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. 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, production capacity and capacity utilization help us understand the efficiency of our production, evaluate cost of goods sold and consider how to approach our sales contract initiative.

*(in thousands, except utilization)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Sales volume (MT) | 24.2 | 35.7 | 67.5 | 121.3 |
| Production volume (MT)(1) | 22.7 | 37.7 | 63.7 | 127.7 |
| Total production capacity (MT)(2)(3) | 55.0 | 55.0 | 171.0 | 171.0 |
| Total capacity utilization(3)(4) | 41% | 69% | 37% | 75% |
| Production capacity excluding St. Marys (MT)(2)(5) | 48.0 | 48.0 | 150.0 | 150.0 |
| Capacity utilization excluding St. Marys(4)(5) | 47% | 79% | 42% | 85% |

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

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

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

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

(5) Our St. Marys, Pennsylvania facility graphitizes a limited number of electrodes and pins sourced from our Monterrey, Mexico facility. The remaining production processes at St. Marys were restarted in the second quarter of 2023, with activities expected to ramp up over time to support future demand.

### Results of Operations

### The Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

The table presented in our period-over-period comparisons summarizes our Condensed Consolidated Statements of Operations and illustrates 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, 2023 | 2022 | Increase/ Decrease | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $158,992 | $303,840 | $(144,848) | (48)% |
| Cost of goods sold | 157,603 | 170,171 | (12,568) | (7)% |
| Gross profit | 1,389 | 133,669 | (132,280) | (99)% |
| Research and development | 1,295 | 1,014 | 281 | 28% |
| Selling and administrative expenses | 18,231 | 18,578 | (347) | (2)% |
| Operating (loss) income | (18,137) | 114,077 | (132,214) | (116)% |
| Other expense (income), net | 153 | (598) | 751 | (126)% |
| Interest expense | 15,719 | 6,424 | 9,295 | 145% |
| Interest income | (1,144) | (241) | (903) | 375% |
| (Loss) income before (benefit) provision for income taxes | (32,865) | 108,492 | (141,357) | (130)% |
| (Benefit) provision for income taxes | (10,244) | 15,041 | (25,285) | (168)% |
| Net (loss) income | $(22,621) | $93,451 | $(116,072) | (124)% |

***Net sales*** decreased $144.8 million, or 48%, compared to the third quarter of 2022. The decline reflected industry-wide softness in demand for graphite electrodes, a shift in the mix of our business from volume derived from LTAs to volume derived from non-LTAs and a decrease in the weighted average realized price for both non-LTA and LTA volume.

***Cost of goods sold*** decreased $12.6 million, or 7%, compared to the third quarter of 2022, primarily reflecting lower sales volume, partially offset by excess fixed manufacturing costs of approximately $23.3 million, including $5.3 million of depreciation, recorded during the third quarter of 2023 that would have otherwise been inventoried driven by the reduced production levels. In addition, higher priced inventory was sold during the third quarter of 2023, reflecting the full-year impact of raw material, energy and freight cost increases that occurred throughout 2022.

***Interest expense*** increased $9.3 million, or 145%, compared to the third quarter of 2022 primarily due to a $2.2 million reduction of gains recognized related to interest rate swap activity, as well as higher interest incurred on debt associated with our 2023 Senior Secured Notes that carry a fixed interest rate of 9.875%. See Note 6, “Interest Expense” in the Notes to the Condensed Consolidated Financial Statements for further discussion.

The following table summarizes the (benefit) provision for income taxes:

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| (Benefit) provision for income taxes | $(10,244) | $15,041 |
| Pre-tax (loss) income | (32,865) | 108,492 |
| Effective tax rate | 31.2% | 13.9% |

30

The provision for income taxes represented a benefit in the third quarter of 2023 compared to an expense in the third quarter of 2022 due to total pre-tax earnings shifting from a profit position to a loss. The effective tax rate increased primarily due to a shift in the jurisdictional mix of earnings.

The effective tax rate for the third quarter of 2023 was higher than the U.S. statutory rate of 21% primarily due to the mix of worldwide earnings from various countries taxed at different rates and due to a tax benefit from the postponement of the effective date of the U.S. foreign tax credit regulations from 2022 to 2024. The effective tax rate for the third quarter of 2022 was lower than the U.S. statutory rate of 21% primarily due to the mix of 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 Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

The table 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 this MD&A, insignificant changes may be deemed not meaningful and are generally excluded from the discussion.

*(Dollars in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Increase/ Decrease | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $483,355 | $1,033,731 | $(550,376) | (53)% |
| Cost of goods sold | 427,464 | 562,881 | (135,417) | (24)% |
| Gross profit | 55,891 | 470,850 | (414,959) | (88)% |
| Research and development | 3,683 | 2,617 | 1,066 | 41% |
| Selling and administrative expenses | 58,933 | 57,862 | 1,071 | 2% |
| Operating (loss) income | (6,725) | 410,371 | (417,096) | (102)% |
| Other expense (income), net | 1,261 | (1,358) | 2,619 | 193% |
| Interest expense | 42,432 | 25,035 | 17,397 | 69% |
| Interest income | (1,758) | (2,197) | (439) | 20% |
| (Loss) Income before (benefit) provision for income taxes | (48,660) | 388,891 | (437,551) | (113)% |
| (Benefit) provision for income taxes | (10,819) | 56,260 | (67,079) | (119)% |
| Net (loss) income | $(37,841) | $332,631 | $(370,472) | (111)% |

***Net sales*** decreased $550.4 million, or 53%, compared to the first nine months of 2022, primarily reflecting lower sales volume driven by the residual impact of the suspension of our operations in Monterrey, Mexico that began near the end of the third quarter of 2022. In addition, the lower sales volume was also attributable to industry-wide softness in graphite electrode demand and a shift in the mix of our business from volume derived from LTAs to volume derived from non-LTAs.

***Cost of goods sold*** decreased $135.4 million, or 24%, compared to the first nine months of 2022, primarily reflecting lower sales volume, partially offset by an increase in our costs as higher priced inventory was sold during the first nine months of 2023, reflecting the full-year impact of raw material, energy and freight cost increases that occurred throughout 2022. In addition, due to the reduced production levels in the first nine months of 2023, we recorded excess fixed manufacturing costs of $48.7 million, including $10.6 million of depreciation, that would have otherwise been inventoried.

***Selling and administrative expenses*** increased $1.1 million, or 2%, compared to the first nine months of 2022, primarily due to increased administrative expenses, partially offset by reduced selling expenses driven by reduced sales volume.

***Interest expense*** increased $17.4 million, or 69%, compared to the first nine months of 2022 primarily due to the recognition of $2.5 million of net gains in the first nine months of 2023, compared to $11.6 million of net gains in the first nine months of 2022 related to interest rate swap activity, as well as higher interest incurred on debt associated with our 2023 Senior Secured Notes that carry a fixed interest rate of 9.875%. See Note 6, “Interest Expense” in the Notes to the Condensed Consolidated Financial Statements for further discussion.

The following table summarizes the (benefit) provision for income taxes:

*(Dollars in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| (Benefit) provision for income taxes | $(10,819) | $56,260 |
| Pre-tax (loss) income | (48,660) | 388,891 |
| Effective tax rate | 22.2% | 14.5% |

The provision for income taxes represented a benefit in the first nine months of 2023 compared to an expense in the first nine months of 2022 due to total pre-tax earnings shifting from a profit position to a loss. The effective tax rate increased due to a shift in the jurisdictional mix of earnings.

The effective tax rate for the first nine months of 2023 was higher than the U.S. statutory rate of 21% primarily due to the mix of worldwide earnings from various countries taxed at different rates and due to a tax benefit from the postponement of of the effective date of the U.S. foreign tax credit regulations from 2022 to 2024. The effective tax rate for the first nine months of 2022 was lower than the U.S. statutory rate of 21% primarily due to the mix of 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.

### 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 goods sold 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 (loss) 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 goods sold or net (loss) income.

The impact of these changes in the average exchange rates of other currencies against the U.S. dollar on our net sales were increases of $1.2 million and $0.5 million for the third quarter and nine months ended September 30, 2023, respectively, compared to the same periods of 2022. The impact of these changes on our cost of goods sold were increases of $8.5 million and $14.2 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022.

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, stock repurchases and general purposes. 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 needs for at least the next twelve months and for the foreseeable future thereafter. As of September 30, 2023, we had liquidity of $285.1 million, consisting of $112.3 million of availability under our 2018 Revolving Credit Facility and cash and cash equivalents of $172.8 million. As any borrowings under the 2018 Revolving Credit Facility remain subject to compliance with the financial covenant thereunder (see below and Note 4, "Debt and Liquidity"), our operating performance as of September 30, 2023 resulted in a reduction of the availability under the facility. We expect our operating cash flow and our adjusted free cash flow to be positive for 2023 and do not anticipate the need to borrow against our 2018 Revolving Credit Facility for the remainder of 2023. We had gross long-term debt of $950.2 million and gross short-term debt of $0.1 million as of September 30, 2023. As of December 31, 2022, we had liquidity of $461.6 million consisting of $327.0 million available under our 2018 Revolving Credit Facility and cash and cash equivalents of $134.6 million. We had gross long-term debt of $933.9 million and gross short-term debt of $0.1 million as of December 31, 2022.

As of September 30, 2023 and December 31, 2022, $80.9 million and $92.3 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. 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. During the second quarter of 2023, we issued $450 million of 2023 Senior Secured Notes. This transaction extended our debt maturities to 2028 as the net proceeds from this offering were used to repay the debt outstanding under the 2018 Term Loan Facility that was scheduled to mature in 2025 under our credit agreement.

#### Debt Structure

### 2018 Term Loan and 2018 Revolving Credit Facility

In February 2018, the Company entered into the 2018 Credit Agreement, which provided for (i) the $2.3 billion 2018 Term Loan Facility after giving effect to 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, 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 Revolving Credit Facility matures on May 31, 2027. The net proceeds from the 2023 Senior Secured Notes were used to repay outstanding borrowings under our 2018 Term Loan Facility. As of September 30, 2023 and December 31, 2022, there were no borrowings outstanding on the 2018 Revolving Credit Facility and there was $3.2 million and $3.0 million of letters of credit drawn against the 2018 Revolving Credit Facility as of each date, respectively.

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 2018 Revolving Credit Facility is 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 Revolving Credit Facility of each of our foreign subsidiaries that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code).

Any obligations under the 2018 Revolving Credit Facility 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 Revolving Credit Facility. 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 no more than 65% 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 Revolving Credit Facility.

The 2018 Revolving Credit Facility 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 Revolving Credit Facility 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 Revolving Credit Facility also contains customary events of default. We were in compliance with all of our debt covenants as of September 30, 2023 and December 31, 2022.

### 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 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 2018 Revolving Credit Facility, other than GrafTech Finance. The 2020 Senior Secured Notes are secured on a pari passu basis by the collateral securing the term loans under the 2018 Credit Agreement and the 2023 Senior Secured Notes. 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 accrued 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. We were in compliance with all of our debt covenants as of September 30, 2023 and December 31, 2022.

### 2023 Senior Secured Notes

In June 2023, GrafTech Global Enterprises Inc. issued $450 million aggregate principal amount of 2023 Senior Secured Notes, including $11.4 million of original issue discount. The 2023 Senior Secured Notes were issued at an issue price of 97.456% of the principal amount thereof in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to non-U.S. persons outside the United States under Regulation S under the Securities Act.

The 2023 Senior Secured Notes are or will be, as applicable, guaranteed on a senior secured basis by (i) GrafTech Finance, (ii) the Company and all of its direct and indirect U.S. subsidiaries that, as of the date of the 2023 Senior Secured Notes, guarantee (or are borrowers of) the debt under the 2018 Term Loan Facility and the 2018 Revolving Credit Facility, other than GrafTech Global Enterprises Inc., and (iii) all of the Company’s future direct and indirect subsidiaries that guarantee (or are borrowers of) debt under the 2018 Term Loan Facility and the 2018 Revolving Credit Facility, the 2020 Senior Secured Notes and certain other future indebtedness, in each case, other than certain excluded foreign subsidiaries and GrafTech Global Enterprises Inc. The 2023 Senior Secured Notes and the note guarantees are secured on a first-priority basis by liens on the collateral of GrafTech Global Enterprises Inc. and the guarantors securing the debt under the 2018 Revolving Credit Facility and the 2020 Senior Secured Notes, on an equal and ratable basis with the debt under the 2018 Revolving Credit Facility and 2020 Senior Secured Notes, in each case subject to permitted liens and certain exceptions, pursuant to a collateral agreement, dated as of June 26, 2023 among GrafTech Global Enterprises Inc., the Company, the other subsidiaries of the Company named therein as grantors and U.S. Bank Trust Company, National Association, as collateral agent.

The 2023 Senior Secured Notes bear interest at a rate of 9.875% per annum which accrued from June 26, 2023 and is payable in arrears on June 15 and December 15 of each year, commencing on December 15, 2023. The 2023 Senior Secured Notes will mature on December 15, 2028, unless earlier redeemed or repurchased, and are subject to the terms of the indenture governing the 2023 Senior Secured Notes (the “2023 Indenture”).

GrafTech Global Enterprises Inc. may redeem some or all of the 2023 Senior Secured Notes at the redemption prices and on the terms specified in the 2023 Indenture. If the Company or GrafTech Global Enterprises experiences specific kinds of changes in control or the Company or any of its restricted subsidiaries sells certain of its assets, then GrafTech Global Enterprises Inc. must offer to repurchase the 2023 Senior Secured Notes on the terms set forth in the 2023 Indenture.

The 2023 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 2023 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 Global Enterprises Inc., all outstanding 2023 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 2023 Senior Secured Notes may declare all of the 2023 Senior Secured Notes to be due and payable immediately. We were in compliance with all of our debt covenants as of September 30, 2023.

#### 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 2023, we did not repurchase any shares of our common stock. As of September 30, 2023, we had $99.0 million remaining under our stock repurchase authorization.

Throughout 2022 and through the second quarter of 2023, we paid a quarterly dividend of $0.01 per share. On August 2, 2023, the Company’s Board of Directors elected to suspend the quarterly cash dividend of $0.01 per share. There can be no assurance that we will resume paying 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, if reinstated, 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.

In June 2023, GrafTech Global Enterprises Inc. issued $450 million aggregate principal amount of 2023 Senior Secured Notes. The net proceeds from the 2023 Senior Secured Notes were used to repay borrowings under our 2018 Term Loan Facility.

Potential uses of our liquidity (other than operations) include capital expenditures, debt repayments, dividends, share repurchases, and other general purposes. Any such potential uses of our liquidity may be funded by existing available liquidity, the incurrence of new secured or unsecured loans or capital market issuances. 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 and availability of such financing.

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 $48.3 million in the nine months ended September 30, 2023. We continue to expect full-year capital expenditures to be in the range of $55.0 million to $60.0 million for 2023.

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. The Company also maintains access to capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity.

### Cash Flow

The following table summarizes our cash flow activities:

*(in thousands)*

| Net cash provided by (used in): | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $67,269 | $274,605 |
| Investing activities | (48,067) | (45,120) |
| Financing activities | 18,881 | (176,237) |
| Net change in cash and cash equivalents | $38,083 | $53,248 |

***Net cash provided by operating activities*** totaled $67.3 million in the first nine months of 2023 compared to $274.6 million in the prior-year period. The decrease in operating cash flow was primarily due to the $370.5 million reduction in net income in the first nine months of 2023 versus the first nine months of 2022. Partially offsetting reduced net income was an increase in cash provided by working capital of $166.5 million. Cash flow provided by inventories increased $215.8 million, compared to the first nine months of 2022, primarily driven by reduced quantities on hand. Cash flow provided by accounts receivable increased $25.8 million, compared to the first nine months of 2022, primarily due to reduced sales volume. Cash flow used for accounts payable and accruals was $43.4 million in the first nine months of 2023 compared to a source of cash of $35.4 million in the first nine months of 2022 primarily due to a reduced amount of purchases in the first nine months of 2023 versus the first nine months of 2022, as well as fewer customer pre-payments in the first nine months of 2023 versus the first nine months of 2022.

***Net cash used in investing activities*** was $48.1 million in the nine months ended September 30, 2023 compared to $45.1 million in the nine months ended September 30, 2022. The increase is primarily due to increased capital expenditures.

***Net cash provided by financing activities*** was $18.9 million for the nine months ended September 30, 2023 compared to $176.2 million of net cash used in financing activities in the first nine months of 2022. The change was primarily due to the issuance of $450.0 million of 2023 Senior Secured Notes net of an $11.4 million original issue discount, the absence of $60.0 million of stock repurchases in the first nine months of 2023 compared to the first nine months of 2022 and $23.7 million of increased cash received from the settlement of interest rate swaps, partially offset by a $323.7 million increase in cash used to repay the 2018 Term Loan Facility.

### Related Party Transactions

We have engaged in transactions with affiliates or related parties in the three months ended September 30, 2023 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.

### 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 (loss) income, adjusted (loss) earnings per share, free cash flow, adjusted free cash flow and cash cost of goods sold per MT 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, a non-GAAP financial measure, as EBITDA adjusted by any pension and other post-employment benefit ("OPEB") plan expenses or benefits, 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 and related party payable - Tax Receivable Agreement adjustments. 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 or benefits 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 related party payable - Tax Receivable Agreement adjustments; 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 (loss) income, a non‑GAAP financial measure, as net (loss) income, excluding the items used to calculate adjusted EBITDA, less the tax effect of those adjustments. We define adjusted (loss) earnings per share, a non‑GAAP financial measure, as adjusted net (loss) income divided by the weighted average diluted common shares outstanding during the period. We believe adjusted net (loss) income and adjusted (loss) earnings per share are useful to present to investors because we believe that they assist investors’ understanding of the underlying operational profitability of the Company.

We define free cash flow, a non-GAAP financial measure, as net cash provided by operating activities less capital expenditures. We define adjusted free cash flow, a non-GAAP financial measure, as free cash flow adjusted by payments made or received from the settlement of interest rate swap contracts and payments of the 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. We use free cash flow and adjusted free cash flow as critical measures in the evaluation of liquidity in conjunction with related GAAP amounts. We also use these measures when considering available cash, including for decision-making purposes related to dividends and discretionary investments. Further, these measures help management, the audit committee, and investors evaluate the Company's ability to generate liquidity from operating activities. For the purpose of this measure, a Change in Control occurred when Brookfield and any affiliates thereof ceased to own stock of the Company that constitutes at least thirty percent (30%) or thirty-five percent (35%), as applicable, of the total fair market value or total voting power of the stock of the Company (the "Change in Control").

We define cash cost of goods sold per MT, a non-GAAP financial measure, as cost of goods sold less depreciation and amortization and less cost of goods sold associated with the portion of our sales that consists of deliveries of by-products of the manufacturing processes, with this total divided by our sales volume measured in MT. We believe this is an important measure as it is used by our management and Board of Directors to evaluate our costs on a per MT basis.

In evaluating EBITDA, adjusted EBITDA, adjusted net (loss) income, adjusted (loss) earnings per share, free cash flow and adjusted free cash flow, you should be aware that in the future, we will incur expenses similar to the adjustments in the reconciliations presented below. Our presentations of EBITDA, adjusted EBITDA, adjusted net (loss) income and adjusted (loss) earnings per share, 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 (loss) income, adjusted (loss) earnings per share, free cash flow and adjusted free cash flow alongside other measures of financial performance and liquidity, including our net (loss) income, (loss) earnings per share and cash flow from operating activities, respectively, and other GAAP measures.

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

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

| Reconciliation of Net (Loss) Income to Adjusted Net (Loss) Income | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net (loss) income** | $(22,621) | $93,451 | $(37,841) | $332,631 |
| **Diluted (loss) income per common share:** |  |  |  |  |
| Net (loss) income per share | $(0.09) | $0.36 | $(0.15) | $1.28 |
| Weighted average shares outstanding | 257,090,113 | 256,853,454 | 256,987,778 | 259,424,885 |
| Adjustments, pre-tax: |  |  |  |  |
| Pension and OPEB plan expenses(1) | 914 | 534 | 2,731 | 1,638 |
| Public offerings and related expenses(2) | — | — | — | 100 |
| Non-cash (gains) losses on foreign currency remeasurement(3) | (287) | (532) | 433 | (298) |
| Stock-based compensation expense(4) | 1,628 | 628 | 3,809 | 1,666 |
| Related party payable - Tax Receivable Agreement adjustment(5) | — | — | 16 | (180) |
| Total non-GAAP adjustments pre-tax | 2,255 | 630 | 6,989 | 2,926 |
| Income tax impact on non-GAAP adjustments(6) | 500 | 198 | 1,331 | 652 |
| **Adjusted net (loss) income** | $(20,866) | $93,883 | $(32,183) | $334,905 |

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

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

| Reconciliation of (Loss) Earnings per share to Adjusted (Loss) Earnings per share | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **(Loss) Earnings per share** | $(0.09) | $0.36 | $(0.15) | $1.28 |
| Adjustments per share: |  |  |  |  |
| Pension and OPEB plan expenses(1) | — | — | 0.01 | — |
| 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 | 0.01 |
| Related party payable - Tax Receivable Agreement adjustment(5) | — | — | — | — |
| **Total non-GAAP adjustments pre-tax per share** | 0.01 | 0.01 | 0.03 | 0.01 |
| Income tax impact on non-GAAP adjustments per share(6) | — | — | 0.01 | — |
| **Adjusted (loss) earnings per share** | $(0.08) | $0.37 | $(0.13) | $1.29 |

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

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

*(Dollars in thousands)*

| Reconciliation of Net (Loss) Income to Adjusted EBITDA | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net (loss) income** | $(22,621) | $93,451 | $(37,841) | $332,631 |
| Add: |  |  |  |  |
| Depreciation and amortization | 16,954 | 13,262 | 43,053 | 41,708 |
| Interest expense | 15,719 | 6,424 | 42,432 | 25,035 |
| Interest income | (1,144) | (241) | (1,758) | (2,197) |
| Income taxes | (10,244) | 15,041 | (10,819) | 56,260 |
| **EBITDA** | (1,336) | 127,937 | 35,067 | 453,437 |
| Adjustments: |  |  |  |  |
| Pension and OPEB plan expenses(1) | 914 | 534 | 2,731 | 1,638 |
| Public offerings and related expenses(2) | — | — | — | 100 |
| Non-cash (gains) losses on foreign currency remeasurement(3) | (287) | (532) | 433 | (298) |
| Stock-based compensation expense(4) | 1,628 | 628 | 3,809 | 1,666 |
| Related party payable - Tax Receivable Agreement adjustment(5) | — | — | 16 | (180) |
| **Adjusted EBITDA** | $919 | $128,567 | $42,056 | $456,363 |

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

*Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow and Adjusted Free Cash Flow*

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net cash provided by operating activities** | $51,495 | $68,166 | $67,269 | $274,605 |
| Capital expenditures | (8,498) | (15,933) | (48,287) | (45,281) |
| **Free cash flow** | 42,997 | 52,233 | 18,982 | 229,324 |
| Interest rate swap settlements(1)(2) | — | 5,195 | 27,453 | 3,762 |
| Change in Control payment(3) | — | — | — | 443 |
| **Adjusted free cash flow** | $42,997 | $57,428 | $46,435 | $233,529 |

(1) Receipt of cash related to the monthly settlement of our outstanding interest rate swap contracts.

(2) The nine months ended September 30, 2023 include cash received from the termination of our interest rate swap contracts.

(3) In the second quarter of 2021, we incurred pre-tax Change in Control charges of $88 million as a result of the ownership of our largest stockholder, Brookfield, moving below 30% of our total shares outstanding. Of the $88 million in pre-tax Change in Control charges, $73 million were cash and $15 million were non-cash. An aggregate of $72 million of the cash charges have been paid through the third quarter of 2023 and an additional $1 million will be paid in subsequent quarters, as a result of the timing of related payroll tax payments.

### GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

*(Dollars in thousands, except per MT amounts)*

| Reconciliation of Cost of Goods Sold to Cash Cost of Goods Sold per MT | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Cost of goods sold** | $157,603 | $170,171 | $427,464 | $562,881 |
| Less: |  |  |  |  |
| Depreciation and amortization(1) | 15,291 | 11,566 | 37,961 | 36,602 |
| Cost of goods sold - by-products and other(2) | 430 | 5,452 | 13,720 | 33,895 |
| Cash cost of goods sold | 141,882 | 153,153 | 375,783 | 492,384 |
| Sales volume (in thousands of MT) | 24.2 | 35.7 | 67.5 | 121.3 |
| **Cash cost of goods sold per MT** | $5,863 | $4,290 | $5,567 | $4,059 |

(1) Reflects the portion of depreciation and amortization that is recognized in cost of goods sold.

(2) Primarily reflects cost of goods sold associated with the portion of our sales that consists of deliveries of by-products of the manufacturing processes.

## Market risk

As filed, 4,817 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.

If we utilized our 2018 Revolving Credit Facility, we would be exposed to changes in interest rates. Our 2018 Revolving Credit Facility bears interest, at our option, at a rate 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.

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 have previously entered 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 December 31, 2022, we recorded unrealized pre-tax gains of $27.4 million on our interest rate swaps. As of September 30, 2023, we did not have any outstanding interest rate swaps. As of September 30, 2023, we no longer had any variable rate debt outstanding and therefore no exposure to variability in interest rates. See Note 9, “Fair Value Measurements and Derivative Instruments” in the Notes to the Condensed Consolidated Financial Statements for further discussion.

*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 $0.1 million unrealized pre-tax net loss as of September 30, 2023 and a net unrealized pre-tax loss of $0.2 million as of December 31, 2022.

*Energy commodity management.* We have previously entered into commodity derivative contracts to effectively fix some or all of our exposure to refined oil products. As of September 30, 2023 and December 31, 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.

As of September 30, 2023, 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 $2.9 million or a corresponding increase of $2.9 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, 1,674 characters.

*Evaluation of Disclosure Controls and Procedures.* Management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures are designed 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, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective as of September 30, 2023.

*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, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 6,312 characters.

The information set forth in this quarterly report on Form 10-Q, including, without limitation, the risk factors 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 2022 Annual Report on Form 10-K filed February 14, 2023. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

***Our indebtedness could limit our financial and operating activities and adversely affect our ability to incur additional debt to fund future needs and our ability to fulfill our obligations under our existing and future indebtedness.***

Our 2018 Credit Agreement currently provides for the 2018 Revolving Credit Facility in the amount of $330 million after giving effect to the May 2022 amendment that increased the revolving commitments under the 2018 Credit Agreement by $80 million from $250 million. As any borrowings under the 2018 Revolving Credit Facility remain subject to compliance with the financial covenant in our 2018 Revolving Credit Facility, our operating performance resulted in reduction of the availability under our 2018 Revolving Credit Facility.

As of September 30, 2023, we had approximately $924.5 million of secured indebtedness outstanding including borrowings under our 2020 Senior Secured Notes and 2023 Senior Secured Notes. As of September 30, 2023, we had $112.3 million available for borrowing under the 2018 Revolving Credit Facility.

Interest expense for the nine months ended September 30, 2023 and September 30, 2022 was $42.4 million and $25.0 million, respectively.

Our indebtedness could:

- require us to dedicate a substantial portion of our cash flow to the payment of principal and interest, thereby reducing the funds available for operations and future business opportunities;
- make it more difficult for us to satisfy our obligations;
- limit our ability to borrow additional money if needed for other purposes, including working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all;
- limit our ability to adjust to changing economic, business and competitive conditions;
- place us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing;
- require us to reduce or delay capital expenditures or sell assets or operations to meet our scheduled debt service obligations;
- make us more vulnerable to a downturn in our operating performance or a decline in general economic conditions; and

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

- make us more susceptible to changes in credit ratings, which could impact our ability to obtain financing in the future and increase the cost of such financing.

Compliance with our debt obligations under the 2018 Revolving Credit Facility, 2020 Senior Secured Notes and 2023 Senior Secured Notes could materially limit our financial or operating activities, or hinder our ability to adapt to changing industry conditions, which could result in our losing market share, a decline in our revenue or a negative impact on our operating results.

***The 2018 Revolving Credit Facility and the indentures governing the 2020 Senior Secured Notes and 2023 Senior Secured Notes include covenants that could restrict or limit our financial and business operations.***

The 2018 Revolving Credit Facility and the indentures governing the 2020 Senior Secured Notes and the 2023 Senior Secured Notes contain a number of restrictive covenants that, subject to certain exceptions and qualifications, restrict or limit our ability and the ability of our subsidiaries to, among other things:

- incur, repay or refinance indebtedness;
- create liens on or sell our assets;
- engage in certain fundamental corporate changes or changes to our business activities;
- make investments or engage in mergers or acquisitions;
- pay dividends or repurchase stock;
- engage in certain affiliate transactions;
- enter into agreements or otherwise restrict our subsidiaries from making distributions or paying dividends to the borrowers under the 2018 Revolving Credit Facility or to us or certain of our subsidiaries, as applicable; and
- repay intercompany indebtedness or make intercompany distributions or pay intercompany dividends.

The 2018 Revolving Credit Facility also contains certain affirmative covenants and contains a financial covenant that requires us to maintain a senior secured first lien net leverage ratio not greater than 4.00:1.00 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 million), taken together, exceed 35% of the total amount of commitments under the 2018 Revolving Credit Facility.

These covenants and restrictions could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise. Additionally, our ability to comply with these covenants may be affected by events beyond our control, including general economic and credit conditions and industry downturns.

If we fail to comply with the covenants in the 2018 Revolving Credit Facility and the indentures governing the 2020 Senior Secured Notes and the 2023 Senior Secured Notes, and are unable to obtain a waiver or amendment, an event of default would result, and the lenders and noteholders could, among other things, declare outstanding amounts due and payable or, with respect to the 2018 Revolving Credit Facility, refuse to lend additional amounts to us or require deposit of cash collateral in respect of outstanding letters of credit. If we were unable to repay or pay the amounts due, the lenders under the 2018 Revolving Credit Facility and the noteholders could, among other things, proceed against the collateral granted to them to secure the indebtedness, which includes substantially all of our and our U.S. subsidiaries’ assets and, with respect to the 2018 Revolving Credit Facility, certain assets of certain of our non-U.S. subsidiaries.

Filed Nov 3, 2023.
Source: SEC EDGAR, the filing index for accession 0000931148-23-000158. Last ingested by Listed: Nov 10, 2026, 00:15 ET. No prices; not investment advice.