Fourth Quarter Results and 2023 Outlook Reflect
Near-term Challenges in the Operating Environment
Taking Actions to Optimally Position GrafTech
to Benefit from Long-term Industry Growth
Restarted Operations at Monterrey, Mexico
Facility in Fourth Quarter
GrafTech International Ltd. (NYSE: EAF) ("GrafTech" or the
"Company") today announced unaudited financial results for the
quarter and year ended December 31, 2022.
Fourth Quarter 2022 Highlights
- Net income of $50 million, for a 20% net income margin
- Earnings per share ("EPS")(1) of $0.20 and adjusted EPS(1)(2)
of $0.17
- Adjusted EBITDA(2) of $80 million, for a 32% adjusted EBITDA
margin(3)
- Sales volume of 28 thousand metric tons ("MT")
- Production volume of 29 thousand MT
- Cash flow from operating activities of $50 million
Full Year 2022 Highlights
- Net income of $383 million, for a 30% net income margin
- EPS(1) of $1.48 per share and adjusted EPS(1)(2) of $1.47
- Adjusted EBITDA(2) of $536 million, for a 42% adjusted EBITDA
margin(3)
- Sales volume of 149 thousand MT
- Production volume of 157 thousand MT
- Cash flow from operating activities of $325 million
- Reduced debt by $110 million
- Repurchased an aggregate of $60 million of our common
stock
CEO Comments
"Our year-over-year performance for the fourth quarter was
impacted by higher costs, softer industry demand and the impact of
the temporary suspension of our operations in Mexico," said Marcel
Kessler, Chief Executive Officer and President. “As we announced in
November, we are pleased to have reached an agreement that allowed
for the restart of our Monterrey, Mexico facility. While our
activities to ramp back up are proceeding according to plan, we
expect the negative impact of the suspension, ongoing inflationary
pressures and the effects of slowing global economic growth on our
operating performance in 2023 will be significant, particularly in
the first half of the year."
"We remain disciplined in our approach to managing costs and
allocating capital," said Mr. Kessler. "We are aligning our
production to reflect current market demand while remaining focused
on delivering excellent customer service and being highly
responsive to customers' needs. As we look ahead, we have
identified opportunities to make targeted investments to strengthen
our strategic position, commercial capabilities and product
offerings. Through execution of these cost actions and investments,
we are confident GrafTech will successfully navigate the near-term
environment and emerge well positioned to benefit from the
anticipated long-term demand growth for graphite electrodes."
Fourth Quarter and Full Year 2022 Financial
Performance
(dollars in thousands, except per share
amounts)
Year Ended December
31,
Q4 2022
Q3 2022
Q4 2021
2022
2021
Net sales
$
247,519
$
303,840
$
363,293
$
1,281,250
$
1,345,788
Net income
$
50,331
$
93,451
$
141,480
$
382,962
$
388,330
EPS(1)
$
0.20
$
0.36
$
0.54
$
1.48
$
1.46
Cash flow from operating activities
$
50,023
$
68,166
$
100,029
$
324,628
$
443,040
Adjusted net income(2)
$
44,761
$
93,883
$
131,180
$
379,666
$
464,585
Adjusted EPS(1)(2)
$
0.17
$
0.37
$
0.50
$
1.47
$
1.74
Adjusted EBITDA(2)
$
80,101
$
128,567
$
182,817
$
536,464
$
669,940
Adjusted free cash flow(2)
$
23,139
$
52,233
$
86,857
$
252,906
$
456,160
Net sales for the fourth quarter of 2022 were $248 million, a
decrease of 32% compared to $363 million in the fourth quarter of
2021. The decrease was primarily driven by lower sales volume,
reflecting the impact of the temporary suspension of our operations
in Monterrey, Mexico, and softness in graphite electrode demand.
The lower volume was partially offset by improved pricing on volume
derived from short-term agreements and spot sales ("non-LTA").
Net income for the fourth quarter of 2022 was $50 million, or
$0.20 per share, compared to $141 million, or $0.54 per share, in
the fourth quarter of 2021. Adjusted EBITDA(2) was $80 million in
the fourth quarter of 2022, compared to $183 million in the fourth
quarter of 2021, with the decline primarily reflecting lower sales
volume and higher costs. Adjusted EBITDA margin(3) was 32% for the
fourth quarter of 2022.
For the fourth quarter of 2022, cash flow from operating
activities was $50 million and adjusted free cash flow(2) was $23
million, with both measures decreasing compared to the same period
in 2021 primarily driven by lower net income partially offset by a
reduction in net cash used for working capital.
For the year ended December 31, 2022, net sales decreased 5%
compared to the prior year, reflecting lower sales volume and a
shift in the mix of our business from volume derived from our
take-or-pay agreements that had initial terms of three-to-five
years ("LTA") to non-LTA volume, partially offset by improved
pricing on non-LTA volume. Net income for 2022 was $383 million, or
$1.48 per share, compared to $388 million, or $1.46 per share, in
the prior year. Adjusted EBITDA(2) for 2022 was $536 million,
compared to $670 million in the prior year, with the decline
primarily reflecting higher costs and lower sales volume. Cash flow
from operating activities for 2022 was $325 million, compared to
$443 million in the prior year, with the decline primarily due to
an increase in cash used for working capital.
Operational and Commercial Update
Key Operating Metrics
Year Ended December
31,
(in thousands, except
percentages)
Q4 2022
Q3 2022
Q4 2021
2022
2021
Sales volume (MT)(4)
27.8
35.7
44.2
149.1
167.4
Production volume (MT)(5)
29.4
37.7
46.2
157.1
165.2
Total production capacity (MT)(6)(7)
59.0
55.0
59.0
230.0
230.0
Total capacity utilization(7)(8)
50
%
69
%
78
%
68
%
72
%
Production capacity excluding St. Marys
(MT)(6)(9)
52.0
48.0
52.0
202.0
202.0
Capacity utilization excluding St.
Marys(8)(9)
57
%
79
%
88
%
78
%
82
%
Sales volume for the fourth quarter of 2022 was 28 thousand MT,
a decrease of 37% compared to the fourth quarter of 2021,
consisting of 19 thousand MT of LTA volume and 9 thousand MT of
non-LTA volume.
For the fourth quarter of 2022, the weighted-average realized
price for our LTA volume was $9,400 per MT. For our non-LTA volume,
the weighted-average realized price for graphite electrodes
delivered and recognized in revenue in the fourth quarter of 2022
was $6,100 per MT, an increase of 22% compared to the fourth
quarter of 2021.
Production volume for the fourth quarter of 2022 was 29 thousand
MT, a decrease of 36% compared to the fourth quarter of 2021,
primarily reflecting the impact of the temporary suspension of our
operations in Monterrey, Mexico.
For the year ended December 31, 2022, sales volume decreased 11%
and production volume decreased 5% compared to the prior year.
Steel market capacity utilization rates have been as
follows:
Q4 2022
Q3 2022
Q4 2021
Global (ex-China) capacity utilization
rate(10)
61
%
64
%
72
%
U.S. capacity utilization rate(11)
73
%
78
%
82
%
The table of estimated shipments of graphite electrodes under
existing LTAs has been updated as follows to reflect our current
expectations(12):
2023
2024
Estimated LTA volume (in thousands of
MT)
27-32
13-16
Estimated LTA revenue (in millions)
$235-$275
$100-$135(13)
Capital Structure and Capital Allocation
As of December 31, 2022, GrafTech had cash and cash equivalents
of $135 million and total debt of approximately $922 million. The
Company is focused on maintaining a disciplined capital allocation
strategy as we recover from the Monterrey suspension while making
targeted investments to support long-term growth. In the second
half of 2022, we retained nearly all of our free cash flow to
increase the Company's liquidity position by approximately $80
million since the end of the second quarter of 2022. In the first
half of the year, we repaid $110 million of our long-term debt and
repurchased 6.7 million shares of our common stock for an aggregate
of $60 million. For the year ended December 31, 2022, our capital
expenditures were $72 million. Our capital expenditures in 2023 are
expected to be in the range of $55 million to $60 million.
Outlook
As we enter 2023, we anticipate continued soft demand for
graphite electrodes due to ongoing economic uncertainty and
geopolitical conflict. In addition, we expect the suspension of our
operations in Monterrey, Mexico in late 2022 will have a
significant impact on our sales volume for the first half of 2023.
Although the facility has resumed production, the suspension
resulted in uncertainty during a key commitment window for customer
purchases covering the first six months of 2023.
Reflecting these factors, we estimate our sales volume for the
first six months of 2023 will be approximately half of the level
reported in the same period of 2022, with the largest impact
occurring in the first quarter. As we proceed into the second half
of the year, we expect sales volume levels to recover, as we move
past Monterrey suspension-driven uncertainty and anticipate that a
gradual improvement in market conditions will strengthen demand for
graphite electrodes.
In 2023, we expect a significant year-over-year increase in our
cost of goods sold per metric ton as fixed costs will be recognized
over a smaller volume base and reflecting the full year impact of
higher raw material costs that increased throughout 2022. In
response, we are closely managing all of our operating costs and
capital expenditures, as well as our working capital levels.
Towards the end of the fourth quarter of 2022, we began proactively
reducing production at our European graphite electrode
manufacturing facilities, to align our production volume with our
current demand outlook.
Longer term, we remain confident that the steel industry’s
accelerating efforts to decarbonize will lead to increased adoption
of the electric arc furnace method of steelmaking, driving
long-term demand growth for graphite electrodes. We believe that
the near-term actions we are taking, supported by an
industry-leading position and our sustainable competitive
advantages, will optimally position GrafTech to benefit from that
long-term growth.
Conference Call Information
In connection with this earnings release, you are invited to
listen to our earnings conference call being held on February 3,
2023 at 10:00 a.m. (EST). The webcast and accompanying slide
presentation will be available on our investor relations website
at: http://ir.graftech.com. The conference call dial-in number is
+1 (888) 886-7786 toll-free in North America or +1 (416) 764-8658
for overseas calls, conference ID: 39692735. Archived replays of
the conference call and webcast will be made available on our
investor relations website at: http://ir.graftech.com. GrafTech
also makes its complete financial reports that have been filed with
the Securities and Exchange Commission ("SEC") and other
information available at www.GrafTech.com. The information on our
website is not part of this release or any report we file with or
furnish to the SEC.
About GrafTech
GrafTech International Ltd. is a leading manufacturer of
high-quality graphite electrode products essential to the
production of electric arc furnace steel and other ferrous and
non-ferrous metals. The Company has a competitive portfolio of
low-cost, ultra-high power graphite electrode manufacturing
facilities, 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. This
unique position provides us with competitive advantages in product
quality and cost.
________________________
(1)
EPS represents diluted earnings
per share. Adjusted EPS represents diluted adjusted earnings per
share.
(2)
A non-GAAP financial measure, see
below for more information and reconciliations to the most directly
comparable financial measures calculated and presented in
accordance with accounting principles generally accepted in the
United States of America ("GAAP").
(3)
Adjusted EBITDA margin is
calculated as adjusted EBITDA divided by net sales (Q4 2022
adjusted EBITDA of $80 million/Q4 2022 net sales of $248 million
and 2022 adjusted EBITDA of $536 million/2022 net sales of $1,281
million).
(4)
Sales volume reflects only
graphite electrodes manufactured by us.
(5)
Production volume reflects
graphite electrodes we produced during the period.
(6)
Production capacity reflects
expected maximum production volume during the period depending on
product mix and expected maintenance outage. Actual production may
vary.
(7)
Includes graphite electrode
facilities in Calais, France; Monterrey, Mexico; Pamplona, Spain;
and St. Marys, Pennsylvania.
(8)
Capacity utilization reflects
production volume as a percentage of production capacity.
(9)
Our St. Marys, Pennsylvania
facility graphitizes a limited number of electrodes and pins
sourced from our Monterrey, Mexico facility.
(10)
Source: World Steel Association,
Metal Expert and GrafTech analysis, as of January 2023.
(11)
Source: American Iron and Steel
Institute, as of January 2023.
(12)
As it relates to the conflict
between Ukraine and Russia, we have provided force majeure notices
with respect to certain impacted LTAs. 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. Certain of our LTA
counterparties have challenged the force majeure notices, but we
will continue to enforce our contractual rights, while other LTAs
have been terminated as a result of the force majeure period
elapsing. The estimates of LTA volume and revenue as set forth in
the table includes (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.
(13)
Includes expected termination
fees from a few customers that have failed to meet certain
obligations under their LTAs.
Cautionary Note Regarding Forward‑Looking Statements
This press release and related discussions may contain
forward-looking statements within the meaning of the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of
1995. Forward-looking statements reflect our current views with
respect to, among other things, financial projections, plans and
objectives of management for future operations, and future economic
performance. Examples of forward-looking statements include, among
others, statements we make regarding future estimated revenues and
volumes derived from our LTAs, future pricing of non-LTAs,
anticipated levels of capital expenditures, and guidance relating
to earnings per share and adjusted EBITDA. You can identify these
forward-looking statements by the use of forward-looking words such
as “will,” “may,” “plan,” “estimate,” “project,” “believe,”
“anticipate,” “expect,” “foresee,” “intend,” “should,” “would,”
“could,” “target,” “goal,” “continue to,” “positioned to,” “are
confident,” or the negative versions of those words or other
comparable words. Any forward-looking statements contained in this
press release are based upon our historical performance and on our
current plans, estimates and expectations considering information
currently available to us. The inclusion of this forward-looking
information should not be regarded as a representation by us that
the future plans, estimates, or expectations contemplated by us
will be achieved. Our expectations and targets are not predictions
of actual performance and historically our performance has
deviated, often significantly, from our expectations and targets.
These forward-looking statements are subject to various risks and
uncertainties and assumptions relating to our operations, financial
results, financial condition, business, prospects, growth strategy
and liquidity. Accordingly, there are or will be important factors
that could cause our actual results to differ materially from those
indicated in these statements. We believe that these factors
include, but are not limited to: the impact of macroeconomic and
geopolitical events, including developments arising from the
COVID-19 pandemic and the conflict between Russia and Ukraine, on
our business, results of operations, financial condition and cash
flows, and the disruptions and inefficiencies in our supply chain
that may occur as a result of such events; the possibility that we
may be unable to implement our business strategies in an effective
manner; the cyclical nature of our business and the selling prices
of our products, which may decline in the future, may lead to
periods of reduced profitability and net losses in the future; the
impact of inflation and our ability to mitigate the effect on our
costs; the risks and uncertainties associated with litigation,
arbitration, and like disputes, including disputes related to
contractual commitments; the possibility that global graphite
electrode overcapacity may adversely affect graphite electrode
prices; our dependence on the global steel industry generally and
the electric arc furnace steel industry in particular; the
sensitivity of our business and operating results to economic
conditions, including any recession, and the possibility others may
not be able to fulfill their obligations to us in a timely fashion
or at all; the competitiveness of the graphite electrode industry;
our dependence on the supply of raw materials, including decant oil
and petroleum needle coke, and disruptions in supply chains for
these materials; the availability and cost of electric power and
natural gas, particularly in Europe; our manufacturing operations
are subject to hazards; changes in, or more stringent enforcement
of, health, safety and environmental regulations applicable to our
manufacturing operations and facilities; the legal, compliance,
economic, social and political risks associated with our
substantial operations in multiple countries; the possibility that
fluctuation of foreign currency exchange rates could materially
harm our financial results; the possibility that our results of
operations could deteriorate if our manufacturing operations were
substantially disrupted for an extended period, including as a
result of equipment failure, climate change, regulatory issues,
natural disasters, public health crises, such as the COVID-19
pandemic, political crises or other catastrophic events; our
dependence on third parties for certain construction, maintenance,
engineering, transportation, warehousing and logistics services;
the possibility that we are unable to recruit or retain key
management and plant operating personnel or successfully negotiate
with the representatives of our employees, including labor unions;
the sensitivity of goodwill on our balance sheet to changes in the
market; the possibility that we are subject to information
technology systems failures, cybersecurity attacks, network
disruptions and breaches of data security; our dependence on
protecting our intellectual property and the possibility that third
parties may claim that our products or processes infringe their
intellectual property rights; the possibility that our indebtedness
could limit our financial and operating activities or that our cash
flows may not be sufficient to service our indebtedness; the
possibility that restrictive covenants in our financing agreements
could restrict or limit our operations; recent increases in
benchmark interest rates and the fact that borrowings under certain
of our existing financing agreements subject us to interest rate
risk; the possibility that disruptions in the capital and credit
markets could adversely affect our results of operations, cash
flows and financial condition, or those of our customers and
suppliers; the possibility that the market price of our common
stock could be negatively affected by sales of substantial amounts
of our common stock in the public markets, including by Brookfield
Asset Management Inc. and its affiliates (together, "Brookfield");
the possibility that we may not pay cash dividends on our common
stock in the future; and the fact that our stockholders have the
right to engage or invest in the same or similar businesses as
us.
These factors should not be construed as exhaustive and should
be read in conjunction with the Risk Factors and other cautionary
statements that are included in our most recent Annual Report on
Form 10-K and other filings with the SEC. The forward-looking
statements made in this press release relate only to events as of
the date on which the statements are made. Except as required by
law, we do not undertake any obligation to publicly update or
review any forward-looking statement, whether as a result of new
information, future developments or otherwise.
If one or more of these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be
incorrect, our actual results may vary materially from what we may
have expressed or implied by these forward-looking statements. We
caution that you should not place undue reliance on any of our
forward-looking statements. You should specifically consider the
factors identified in this press release that could cause actual
results to differ before making an investment decision to purchase
our common stock. Furthermore, new risks and uncertainties arise
from time to time, and it is impossible for us to predict those
events or how they may affect us.
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 EBITDA margin, adjusted net income, adjusted EPS, free
cash flow and adjusted free cash flow 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, 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 and gains from the settlement
of a value-added tax matter in Brazil. 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. For purposes of this release, 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 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. Adjusted EBITDA margin is also a non-GAAP financial measure
used by our management and our Board of Directors as supplemental
information to assess the Company’s operational performance and is
calculated as adjusted EBITDA divided by net sales. In addition, we
believe adjusted EBITDA, adjusted EBITDA margin 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. We also monitor the ratio of total debt to trailing
twelve month adjusted EBITDA because we believe it is a useful and
widely used way to assess our leverage.
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;
- adjusted EBITDA does not reflect gains from the settlement of a
value-added tax matter in Brazil; and
- other companies, including companies in our industry, may
calculate EBITDA, adjusted EBITDA and adjusted EBITDA margin
differently, which reduces its usefulness as a comparative
measure.
We define adjusted net income, a non‑GAAP financial measure, as
net income or loss, excluding 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.
Free cash flow and adjusted free cash flow, non-GAAP financial
measures, are metrics used by our management and our Board of
Directors to analyze cash flows generated from operations. We
define free cash flow as net cash provided by operating activities
less capital expenditures. We define adjusted free cash flow as
free cash flow adjusted by 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 believe these free cash flow metrics are useful to
present to investors because we believe that they facilitate
comparison of the Company’s performance with its competitors.
In evaluating EBITDA, adjusted EBITDA, adjusted EBITDA margin,
adjusted net income, adjusted EPS, 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, other than the Change in Control charges. Our
presentations of EBITDA, adjusted EBITDA, adjusted EBITDA margin,
adjusted net income, adjusted EPS, free cash flow and adjusted free
cash flow 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 EBITDA margin, adjusted
net income, adjusted EPS, free cash flow and adjusted free cash
flow alongside other measures of financial performance and
liquidity, including our net income, EPS and cash flow from
operating activities, respectively, and other GAAP measures.
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(Dollars in thousands, except per
share data)
(Unaudited)
December 31, 2022
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
134,641
$
57,514
Accounts and notes receivable, net of
allowance for doubtful accounts of $8,019 as of December 31, 2022
and $6,835 as of December 31, 2021
145,574
207,547
Inventories
447,741
289,432
Prepaid expenses and other current
assets
87,272
73,364
Total current assets
815,228
627,857
Property, plant and equipment
869,168
815,298
Less: accumulated depreciation
350,022
313,825
Net property, plant and equipment
519,146
501,473
Deferred income taxes
11,960
26,187
Goodwill
171,117
171,117
Other assets
86,727
85,684
Total assets
$
1,604,178
$
1,412,318
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
103,156
$
117,112
Long-term debt, current maturities
124
127
Accrued income and other taxes
40,592
57,097
Other accrued liabilities
89,349
56,405
Related party payable - Tax Receivable
Agreement
4,631
3,828
Total current liabilities
237,852
234,569
Long-term debt
921,803
1,029,561
Other long-term obligations
50,822
68,657
Deferred income taxes
45,065
40,674
Related party payable - Tax Receivable
Agreement long-term
10,921
15,455
Stockholders’ equity:
Preferred stock, par value $0.01,
300,000,000 shares authorized, none issued
—
—
Common stock, par value $0.01,
3,000,000,000 shares authorized, 256,597,342 shares issued and
outstanding as of December 31, 2022 and 263,255,708 as of December
31, 2021
2,566
2,633
Additional paid-in capital
745,164
761,412
Accumulated other comprehensive loss
(8,070
)
(7,444
)
Accumulated deficit
(401,945
)
(733,199
)
Total stockholders’ equity
337,715
23,402
Total liabilities and stockholders’
equity
$
1,604,178
$
1,412,318
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Dollars in thousands, except per
share data)
(Unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2022
2021
2022
2021
Net sales
$
247,519
$
363,293
$
1,281,250
$
1,345,788
Cost of sales
163,492
182,786
726,373
701,335
Gross profit
84,027
180,507
554,877
644,453
Research and development
1,024
801
3,641
3,771
Selling and administrative expenses
19,115
17,666
76,977
132,608
Operating income
63,888
162,040
474,259
508,074
Other (income) expense, net
(8,886
)
(16,090
)
(10,064
)
(16,451
)
Related party Tax Receivable Agreement
expense (benefit)
97
184
(83
)
231
Interest expense
11,533
14,551
36,568
68,760
Interest income
(2,283
)
(219
)
(4,480
)
(872
)
Income before provision for income
taxes
63,427
163,614
452,318
456,406
Provision for income taxes
13,096
22,134
69,356
68,076
Net income
$
50,331
$
141,480
$
382,962
$
388,330
Basic income per common share:
Net income per share
$
0.20
$
0.54
$
1.48
$
1.46
Weighted average common shares
outstanding
256,900,707
263,424,743
258,781,843
266,251,097
Diluted income per common share:
Net income per share
$
0.20
$
0.54
$
1.48
$
1.46
Weighted average common shares
outstanding
256,902,385
263,516,311
258,791,228
266,317,194
GRAFTECH INTERNATIONAL LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
December 31,
Year Ended December
31,
2022
2021
2022
2021
Cash flow from operating activities:
Net income
$
50,331
$
141,480
$
382,962
$
388,330
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization
13,788
17,301
55,496
65,716
Related party Tax Receivable Agreement
expense (benefit)
(83
)
184
(83
)
231
Deferred income tax provision
5,806
2,523
17,022
(3,657
)
Non-cash stock-based compensation
expense
645
338
2,311
16,631
Non-cash interest expense (benefit)
675
2,301
(2,428
)
12,051
Other adjustments
(8,253
)
323
(8,023
)
7,107
Net change in working capital*
2,047
(63,551
)
(99,575
)
(16,377
)
Change in related-party Tax Receivable
Agreement
83
—
(3,745
)
(21,799
)
Change in long-term assets and
liabilities
(15,016
)
(870
)
(19,309
)
(5,193
)
Net cash provided by operating
activities
50,023
100,029
324,628
443,040
Cash flow from investing activities:
Capital expenditures
(26,884
)
(17,831
)
(72,165
)
(58,257
)
Proceeds from the sale of assets
34
41
195
397
Net cash used in investing activities
(26,850
)
(17,790
)
(71,970
)
(57,860
)
Cash flow from financing activities:
Debt issuance and modification costs
—
—
(2,232
)
(3,109
)
Principal payments on long-term debt
(124
)
(100,142
)
(110,124
)
(400,142
)
Repurchase of common stock
—
(7,622
)
(60,000
)
(50,000
)
Payments for taxes related to net share
settlement of equity awards
—
(3
)
(230
)
(4,077
)
Proceeds from exercise of stock
options
—
350
225
351
Dividends paid to non-related party
(1,927
)
(1,993
)
(7,770
)
(7,439
)
Dividends paid to related party
(640
)
(639
)
(2,559
)
(3,206
)
Interest rate swap settlements
2,661
(905
)
6,423
(4,170
)
Net cash used in financing activities
(30
)
(110,954
)
(176,267
)
(471,792
)
Net change in cash and cash
equivalents
23,143
(28,715
)
76,391
(86,612
)
Effect of exchange rate changes on cash
and cash equivalents
2,104
(427
)
736
(1,316
)
Cash and cash equivalents at beginning of
period
109,394
86,656
57,514
145,442
Cash and cash equivalents at end of
period
$
134,641
$
57,514
$
134,641
$
57,514
* Net change in working capital due to
changes in the following components:
Accounts and notes receivable, net
$
38,278
$
(25,472
)
$
60,507
$
(28,927
)
Inventories
(7,078
)
(20,919
)
(153,579
)
(28,165
)
Prepaid expenses and other current
assets
(1,097
)
(14,257
)
593
(31,921
)
Income taxes payable
5,197
8,045
(15,029
)
5,674
Accounts payable and accruals
(27,625
)
(5,157
)
7,748
66,591
Interest payable
(5,628
)
(5,791
)
185
371
Net change in working capital
$
2,047
$
(63,551
)
$
(99,575
)
$
(16,377
)
NON-GAAP
RECONCILIATIONS
(Dollars in thousands, except per
share data)
(Unaudited)
The following tables reconcile our
non-GAAP key financial measures to the most directly comparable
GAAP measures:
Reconciliation of
Net Income to Adjusted Net Income
Year Ended December
31,
Q4 2022
Q3 2022
Q4 2021
2022
2021
Net income
$
50,331
$
93,451
$
141,480
$
382,962
$
388,330
Diluted income
per common share:
Net income per share
$
0.20
$
0.36
$
0.54
$
1.48
$
1.46
Weighted average shares outstanding
256,902,385
256,853,454
263,516,311
258,791,228
266,317,194
Adjustments, pre-tax:
Pension and OPEB plan (benefits)
expenses(1)
(8,993
)
534
(3,840
)
(7,355
)
(2,545
)
Public offerings and related
expenses(2)
—
—
—
100
663
Non-cash losses (gains) on foreign
currency remeasurement(3)
819
(532
)
(484
)
521
(119
)
Stock-based compensation expense(4)
645
628
337
2,311
1,917
Non-cash fixed asset write-off(5)
1,068
—
2,884
1,068
3,197
Related party payable - Tax Receivable
Agreement adjustment(6)
97
—
184
(83
)
231
Change in Control LTIP award(7)
—
—
—
—
73,384
Change in Control stock-based compensation
acceleration(7)
—
—
—
—
14,713
Brazil value-added tax credit(8)
—
—
(11,511
)
—
(11,511
)
Total non-GAAP adjustments pre-tax
(6,364
)
630
(12,430
)
(3,438
)
79,930
Income tax impact on non-GAAP
adjustments(9)
(794
)
198
(2,130
)
(142
)
3,675
Adjusted net income
$
44,761
$
93,883
$
131,180
$
379,666
$
464,585
(1)
Net periodic benefit (credit)
cost for our pension and OPEB plans, including a mark-to-market
(gain) loss, representing actuarial gains and losses that result
from the remeasurement of plan assets and obligations due to
changes in assumptions or experience. We recognize the actuarial
gains and losses in connection with the annual remeasurement in
earnings in the fourth quarter of each year.
(2)
Legal, accounting, printing and
registration fees associated with 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 fixed asset write-off
recorded for obsolete assets.
(6)
Non-cash expense adjustment for
future payment to our sole pre-initial public offering ("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 stockholder, Brookfield, moving below 30% of our total
shares outstanding.
(8)
Gain from the settlement of a
value-added tax matter in Brazil.
(9)
The tax impact on the non-GAAP
adjustments is affected by their tax deductibility and the
applicable jurisdictional tax rates.
Reconciliation of
EPS to Adjusted EPS
Year Ended December
31,
Q4 2022
Q3 2022
Q4 2021
2022
2021
EPS
$
0.20
$
0.36
$
0.54
$
1.48
$
1.46
Adjustments per share:
Pension and OPEB plan (benefits)
expenses(1)
(0.04
)
—
(0.02
)
(0.03
)
(0.01
)
Public offerings and related
expenses(2)
—
—
—
—
—
Non-cash losses (gains) on foreign
currency remeasurement(3)
—
—
—
—
—
Stock-based compensation expense(4)
—
0.01
—
0.01
—
Non-cash fixed asset write-off(5)
0.01
—
0.01
0.01
0.01
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
Brazil value-added tax credit(8)
—
—
(0.04
)
—
(0.04
)
Total non-GAAP adjustments pre-tax per
share
(0.03
)
0.01
(0.05
)
(0.01
)
0.29
Income tax impact on non-GAAP adjustments
per share(9)
—
—
(0.01
)
—
0.01
Adjusted EPS
$
0.17
$
0.37
$
0.50
$
1.47
$
1.74
(1)
Net periodic benefit (credit)
cost for our pension and OPEB plans, including a mark-to-market
(gain) loss, representing actuarial gains and losses that result
from the remeasurement of plan assets and obligations due to
changes in assumptions or experience. We recognize the actuarial
gains and losses in connection with the annual remeasurement in
earnings in the fourth quarter of each year.
(2)
Legal, accounting, printing and
registration fees associated with 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 fixed asset write-off
recorded for obsolete 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 stockholder, Brookfield, moving below 30% of our total
shares outstanding.
(8)
Gain from the settlement of a
value-added tax matter in Brazil.
(9)
The tax impact on the non-GAAP
adjustments is affected by their tax deductibility and the
applicable jurisdictional tax rates.
Reconciliation of
Net Income to EBITDA and Adjusted EBITDA
Year Ended December
31,
Q4 2022
Q3 2022
Q4 2021
2022
2021
Net income
$
50,331
$
93,451
$
141,480
$
382,962
$
388,330
Add:
Depreciation and amortization
13,788
13,262
17,301
55,496
65,716
Interest expense
11,533
6,424
14,551
36,568
68,760
Interest income
(2,283
)
(241
)
(219
)
(4,480
)
(872
)
Income taxes
13,096
15,041
22,134
69,356
68,076
EBITDA
86,465
127,937
195,247
539,902
590,010
Adjustments:
Pension and OPEB plan (benefits)
expenses(1)
(8,993
)
534
(3,840
)
(7,355
)
(2,545
)
Public offerings and related
expenses(2)
—
—
—
100
663
Non-cash losses (gains) on foreign
currency remeasurement(3)
819
(532
)
(484
)
521
(119
)
Stock-based compensation expense(4)
645
628
337
2,311
1,917
Non-cash fixed asset write-off(5)
1,068
—
2,884
1,068
3,197
Related party payable - Tax Receivable
Agreement adjustment(6)
97
—
184
(83
)
231
Change in Control LTIP award(7)
—
—
—
—
73,384
Change in Control stock-based compensation
acceleration(7)
—
—
—
—
14,713
Brazil value-added tax credit(8)
—
—
(11,511
)
—
(11,511
)
Adjusted EBITDA
$
80,101
$
128,567
$
182,817
$
536,464
$
669,940
(1)
Net periodic benefit (credit)
cost for our pension and OPEB plans, including a mark-to-market
(gain) loss, representing actuarial gains and losses that result
from the remeasurement of plan assets and obligations due to
changes in assumptions or experience. We recognize the actuarial
gains and losses in connection with the annual remeasurement in
earnings in the fourth quarter of each year.
(2)
Legal, accounting, printing and
registration fees associated with 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 fixed asset write-off
recorded for obsolete 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 stockholder, Brookfield, moving below 30% of our total
shares outstanding.
(8)
Gain from the settlement of a
value-added tax matter in Brazil.
Reconciliation of
Net Cash Provided by Operating Activities to Free Cash Flow and
Adjusted Free Cash Flow
Year Ended December
31,
Q4 2022
Q3 2022
Q4 2021
2022
2021
Net cash provided by operating
activities
$
50,023
$
68,166
$
100,029
$
324,628
$
443,040
Capital expenditures
(26,884
)
(15,933
)
(17,831
)
(72,165
)
(58,257
)
Free cash flow
23,139
52,233
82,198
252,463
384,783
Change in Control payment(1)
—
—
4,659
443
71,377
Adjusted free cash flow
$
23,139
$
52,233
$
86,857
$
252,906
$
456,160
(1)
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 fourth quarter of 2022 and
an additional $1 million will be paid in subsequent quarters, as a
result of the timing of related payroll tax payments.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230202005800/en/
Michael Dillon 216-676-2000 investor.relations@graftech.com
GrafTech (NYSE:EAF)
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