Business Wire | Aug 6, 2021 06:45AM EDT

GrafTech Reports Second Quarter 2021 Results

Aug. 06, 2021

BROOKLYN HEIGHTS, Ohio--(BUSINESS WIRE)--Aug. 06, 2021--GrafTech International Ltd. (NYSE: EAF) (GrafTech or the Company) today announced financial results for the quarter ended June 30, 2021.

Second Quarter 2021 Highlights

* Net income of $28 million, or $0.11 per share, including one-time Change in Control1 charges of $88 million * Adjusted net income2 of $114 million, or $0.43 per share * Adjusted EBITDA2 of $160 million * Sales volume increased 16% sequentially over first quarter 2021 and 39% year over year * Production volume increased 22% sequentially over first quarter 2021 and 33% year over year

CEO Comments

President and Chief Executive Officer David Rintoul commented, "During the second quarter, we continued to see improvement in the global steel market, resulting in strong sequential and year over year performance across key metrics for GrafTech. We are pleased to report that our sales and production volumes steadily improved through the quarter. We are encouraged by the industry's continued recovery for the remainder of the year and the positive expected impact on our business going forward.

"In the quarter, we accelerated our production capabilities to meet increasing customer demand, driven by the growth in the graphite electrode market. Graphite electrode market prices for delivery in the second half of 2021 increased during the second quarter, and we continue to expect to see improvement in our reported non-LTA pricing in the second half of 2021 and into 2022. We believe we are well positioned for success in this improving market."

Second Quarter 2021 Financial Performance



For the Six Months(dollars in Endedthousands, except per June 30,share amounts) Q2 2021 Q1 2021 Q2 2020 2021 2020

Net sales $ 330,750 $ 304,397 $ 280,718 $ 635,147 $ 599,364

Net income $ 28,165 $ 98,799 92,776 126,964 215,044

Earnings per share^3 $ 0.11 $ 0.37 $ 0.35 $ 0.47 $ 0.80

Cash flow from $ 86,330 $ 122,425 $ 148,373 208,755 $ 287,656operations



Adjusted net income^2 $ 114,487 $ 99,879 $ 96,006 214,366 $ 212,235

Adjusted earnings per $ 0.43 $ 0.37 $ 0.36 0.80 $ 0.79share^2, 3

Adjusted EBITDA^2 $ 159,901 $ 155,045 $ 151,126 314,946 $ 330,303

Adjusted free cash $ 135,907 $ 108,251 $ 137,919 $ 244,158 $ 263,301flow^4

Net income in the second quarter of 2021 was $28 million, or $0.11 per share, with a net income margin of 9%. This includes one-time Change in Control1 charges (pre-tax) of $88 million, as a result of the ownership of our largest stockholder, Brookfield, moving below 30% of our total shares outstanding. These charges consisted of a long-term incentive compensation (LTIP) cash charge of $73 million, and a non-cash accelerated equity compensation expense for certain awards of approximately $15 million. After adjusting for these charges and other pre-tax quarterly adjustments of $4 million, described in our non-GAAP financial measures below, second quarter adjusted EPS2, 3 was $0.43 per share, an increase of $0.07 per share or 19% compared to the prior year period. Adjusted EBITDA2 increased $9 million, or 6% year over year, to $160 million and adjusted EBITDA margin5 was 48%.

Cash flow from operations was $86 million in the second quarter, free cash flow4 was $74 million and adjusted free cash flow4 was $136 million. 85% of adjusted EBITDA converted to adjusted free cash flow6 in the second quarter.

Operational and Commercial Update



Key operating metrics For the Six Months Ended June 30,

(in thousands, except percentages) Q2 Q1 Q2 2021 2020 2021 2021 2020

Sales volume (MT) ^7 43 37 31 80 65

Production volume (MT) ^8 44 36 33 80 66

Production capacity excluding St. Marys 51 51 51 102 102 (MT) ^9, 10

Capacity utilization excluding St. 86 % 71 % 65 % 78 % 65 %Marys ^9, 11

Total production capacity (MT) ^10, 12 58 58 58 116 116

Total capacity utilization ^10, 11 76 % 62 % 57 % 69 % 57 %

GrafTech reported strong sales volumes of 43 thousand MT in the second quarter of 2021, consisting of long-term agreement (LTA) volumes of 27 thousand MT, at an average approximate price of $9,500 per MT, and non-LTA volumes of 16 thousand MT, at an average approximate price of $4,100 per MT. Sales volumes increased 16% and 39% compared to the first quarter of 2021 and second quarter of 2020, respectively.

As previously reported, spot prices negotiated during the first quarter of 2021 reached a low and have steadily improved since that time. Accordingly, non-LTA prices for our graphite electrodes to be delivered and realized in income in the second half of 2021 are improving. We expect this improvement in non-LTA pricing to continue into 2022.

Production volume of 44 thousand MT in the second quarter of 2021 represented an increase of 22% and 33% compared to the first quarter of 2021 and the second quarter of 2020, respectively.

The estimated shipments of graphite electrodes for the final two years of the initial term under our LTAs and for the years 2023 through 2024 remain unchanged from our prior estimate as follows:

2021 2022 2023 through 2024

Estimated LTA volume (in thousands 98-108 95-105 35-45of MT)

Estimated LTA revenue (in millions) $925-$1,025 $910-$1,010 $350-$450^13

Global steel market capacity utilization rates have continued to improve sequentially:

Q2 2021

Q1 2021

Q2 2020

Global (ex-China) steel market capacity utilization rate14

75%

73%

56%

U.S. steel market capacity utilization rate15

80%

77%

56%

Capital Structure and Capital Allocation

As of June 30, 2021, GrafTech had cash and cash equivalents of $114 million and total debt of approximately $1.2 billion. We continue to make progress in reducing our long-term debt, repaying $50 million in the second quarter, for a total debt repayment of $200 million in the first half of 2021. We continue to expect our primary use of cash for the balance of this year to be debt repayment.

Our full year 2021 capital expenditure range expectations are unchanged, between $55 and $65 million.

Conference Call Information

In connection with this earnings release, you are invited to listen to our earnings call being held on August 6, 2021 at 10:00 a.m. Eastern Time. The webcast and accompanying slide presentation will be available at www.GrafTech.com, in the Investors section. The earnings call dial-in number is +1 (866) 521-4909 toll-free in the U.S. and Canada or +1 (647) 427-2311 for overseas calls, conference ID: 2891618. A replay of the conference call will be available until November 4, 2021 by dialing +1 (800) 585-8367 toll-free in the U.S. and Canada or +1 (416) 621-4642 for overseas calls, conference ID: 2891618. A replay of the webcast will also be available on our website until November 4, 2021, at www.GrafTech.com, in the Investors section. 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 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.

Global steel market capacity utilization rates have continued to improvesequentially:



Q2 Q1 Q2 2021 2021 2020

Global (ex-China) steel market capacity utilization 75% 73% 56%rate^14

U.S. steel market capacity utilization rate^15 80% 77% 56%

Capital Structure and Capital Allocation

As of June 30, 2021, GrafTech had cash and cash equivalents of $114 million and total debt of approximately $1.2 billion. We continue to make progress in reducing our long-term debt, repaying $50 million in the second quarter, for a total debt repayment of $200 million in the first half of 2021. We continue to expect our primary use of cash for the balance of this year to be debt repayment.

Our full year 2021 capital expenditure range expectations are unchanged, between $55 and $65 million.

Conference Call Information

In connection with this earnings release, you are invited to listen to our earnings call being held on August 6, 2021 at 10:00 a.m. Eastern Time. The webcast and accompanying slide presentation will be available at www.GrafTech.com, in the Investors section. The earnings call dial-in number is +1 (866) 521-4909 toll-free in the U.S. and Canada or +1 (647) 427-2311 for overseas calls, conference ID: 2891618. A replay of the conference call will be available until November 4, 2021 by dialing +1 (800) 585-8367 toll-free in the U.S. and Canada or +1 (416) 621-4642 for overseas calls, conference ID: 2891618. A replay of the webcast will also be available on our website until November 4, 2021, at www.GrafTech.com, in the Investors section. 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 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 In the second quarter of 2021, we incurred one-time Change in Controlcharges of $88 million (pre-tax), as a result of the ownership of our largeststockholder, Brookfield, moving below 30% of our total shares outstanding.These charges consisted of an LTIP cash charge of $73 million, and non-cashaccelerated equity compensation expense for certain awards of approximately $15million.

^2 A non-GAAP financial measure, see below for more information and areconciliation of EBITDA, adjusted EBITDA, adjusted net income, and adjustedEPS, to net income, the most directly comparable financial measure calculatedand presented in accordance with GAAP.

^3 Earnings per share represents diluted earnings per share. Adjusted earningsper share represents diluted adjusted earnings per share.

^4 A non-GAAP financial measure, see below for more information and areconciliation of adjusted free cash flow and free cash flow to cash flow fromoperating activities, the most directly comparable financial measure calculatedand presented in accordance with GAAP.

^5 Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net sales(Q2 2021 adjusted EBITDA of $160 million/Q2 2021 net sales of $331 million).

^6 Free cash flow conversion is calculated as free cash flow divided byadjusted EBITDA (Q2 2021 free cash flow of $74 million/Q2 2021 adjusted EBITDAof $160 million). Adjusted free cash flow conversion is calculated as adjustedfree cash flow divided by adjusted EBITDA (Q2 2021 adjusted free cash flow of$136 million/Q2 2021 adjusted EBITDA of $160 million).

^7 Sales volume reflects only graphite electrodes manufactured by GrafTech.

^8 Production volume reflects graphite electrodes we produced during theperiod.

^9 In the first quarter of 2018, our St. Marys, Pennsylvania facility begangraphitizing a limited number of electrodes sourced from our Monterrey, Mexicofacility.

^10 Production capacity reflects expected maximum production volume during theperiod under normal operating conditions, standard product mix and expectedmaintenance outage. Actual production may vary.

^11 Capacity utilization reflects production volume as a percentage ofproduction capacity.

^12 Includes graphite electrode facilities in Calais, France; Monterrey,Mexico; Pamplona, Spain; and St. Marys, Pennsylvania.

^13 Includes expected termination fees from a few customers that have failed tomeet certain obligations under their LTAs.

^14 Source: World Steel Association and Metal Expert.

^15 Source: American Iron and Steel Institute.

Special note regarding forward-looking statements

This news release and related discussions may contain forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as "will," "may," "plan," "estimate," "project," "believe," "anticipate," "expect," "foresee," "intend," "should," "would," "could," "target," "goal," "continue to," "positioned to," "are confident," or the negative versions of those words or other comparable words. Any forward-looking statements contained in this 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 ultimate impact that the COVID-19 pandemic has on our business, results of operations, financial condition and cash flows; the cyclical nature of our business and the selling prices of our products may lead to periods of reduced profitability and net losses in the future; the possibility that we may be unable to implement our business strategies, including our ability to secure and maintain longer-term customer contracts, in an effective manner; the risks and uncertainties associated with litigation, arbitration, and like disputes, including the current stockholder litigation and disputes related to contractual commitments; the possibility that global graphite electrode overcapacity may adversely affect graphite electrode prices; pricing for graphite electrodes has historically been cyclical and the price of graphite electrodes may continue to decline in the future; the sensitivity of our business and operating results to economic conditions and the possibility others may not be able to fulfill their obligations to us in a timely fashion or at all; our dependence on the global steel industry generally and the electric arc furnace steel industry in particular; the competitiveness of the graphite electrode industry; our dependence on the supply of petroleum needle coke; our dependence on supplies of raw materials (in addition to petroleum needle coke) and energy; the possibility that our manufacturing operations are subject to hazards; changes in, or more stringent enforcement of, health, safety and environmental regulations applicable to our manufacturing operations and facilities; the legal, compliance, economic, social and political risks associated with our substantial operations in multiple countries; the possibility that fluctuation of foreign currency exchange rates could materially harm our financial results; the possibility that our results of operations could deteriorate if our manufacturing operations were substantially disrupted for an extended period, including as a result of equipment failure, climate change, regulatory issues, natural disasters, public health crises, such as the COVID-19 pandemic, political crises or other catastrophic events; our dependence on third parties for certain construction, maintenance, engineering, transportation, warehousing and logistics services; the possibility that we are unable to recruit or retain key management and plant operating personnel or successfully negotiate with the representatives of our employees, including labor unions; the possibility that we may divest or acquire businesses, which could require significant management attention or disrupt our business; the sensitivity of goodwill on our balance sheet to changes in the market; the possibility that we are subject to information technology systems failures, cybersecurity attacks, network disruptions and breaches of data security; our dependence on protecting our intellectual property; the possibility that third parties may claim that our products or processes infringe their intellectual property rights; the possibility that significant changes in our jurisdictional earnings mix or in the tax laws of those jurisdictions could adversely affect our business; the possibility that our indebtedness could limit our financial and operating activities or that our cash flows may not be sufficient to service our indebtedness; the possibility that restrictive covenants in our financing agreements could restrict or limit our operations; the fact that borrowings under certain of our existing financing agreements subject us to interest rate risk; the possibility of a lowering or withdrawal of the ratings assigned to our debt; the possibility that disruptions in the capital and credit markets could adversely affect our results of operations, cash flows and financial condition, or those of our customers and suppliers; the possibility that concentrated ownership of our common stock may prevent minority stockholders from influencing significant corporate decisions; the possibility that we may not pay cash dividends on our common stock in the future; the fact that certain of our stockholders have the right to engage or invest in the same or similar businesses as us; the possibility that the market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets, including by Brookfield Asset Management Inc. and its affiliates; the fact that certain provisions of our Amended and Restated Certificate of Incorporation and our Amended and Restated By-Laws could hinder, delay or prevent a change of control; the fact that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders; and the loss of our status as a "controlled company" within the meaning of the New York Stock Exchange corporate governance standards, which will result in us no longer qualifying for exemptions from certain corporate governance requirements.

These factors should not be construed as exhaustive and should be read in connection with our other cautionary statements, including the Risk Factors sections 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. We do not undertake any obligation to publicly update or review any forward-looking statement, except as required by law, whether as a result of new information, future developments or otherwise.

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, adjusted free cash flow, free cash flow conversion and adjusted free cash flow conversion 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, initial and follow-on public offering 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, related party Tax Receivable Agreement adjustments, stock-based compensation, non-cash fixed asset write-offs and Change in Control1 charges that were triggered as a result of the ownership of our largest stockholder falling below 30% of our total outstanding shares. Adjusted EBITDA is the primary metric used by our management and our board of directors to establish budgets and operational goals for managing our business and evaluating our performance.

We monitor adjusted EBITDA as a supplement to our GAAP measures, and believe it is useful to present to investors, because we believe that it facilitates evaluation of our period-to-period operating performance by eliminating items that are not operational in nature, allowing comparison of our recurring core business operating results over multiple periods unaffected by differences in capital structure, capital investment cycles and fixed asset base. 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 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 initial and follow-on public offering and related expenses; * adjusted EBITDA does not reflect related party Tax Receivable Agreement adjustments; * adjusted EBITDA does not reflect stock-based compensation or the non-cash write-off of fixed assets; * adjusted EBITDA does not reflect the Change in Control1 charges; 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 and 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 of 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 the Change in Control1 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. Free cash flow conversion and adjusted free cash flow conversion are also non-GAAP financial measures used by our management and our board of directors as supplemental information to evaluate the Company's ability to convert earnings from our operational performance to cash. We calculate free cash flow conversion as free cash flow divided by adjusted EBITDA and adjusted free cash flow conversion as adjusted free cash flow divided by adjusted EBITDA.

In evaluating EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS, free cash flow, adjusted free cash flow, free cash flow conversion and adjusted free cash flow conversion, you should be aware that in the future, we will incur expenses similar to the adjustments in the reconciliation presented below, other than the Change in Control1 charges. Our presentations of EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS, free cash flow, adjusted free cash flow, free cash flow conversion and adjusted free cash flow conversion 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, adjusted free cash flow, free cash flow conversion and adjusted free cash flow conversion alongside other financial performance measures, including our net income (loss), EPS and cash flow from operating activities, respectively, and other GAAP measures.

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

Unaudited



As of As of June 30, December 31, 2021 2020

ASSETS

Current assets:

Cash and cash equivalents $ 114,131 $ 145,442

Accounts and notes receivable, net of allowancefor doubtful accounts of $8,177 as of June 30, 173,409 182,647 2021 and $8,243 as of December 31, 2020

Inventories 257,338 265,964

Prepaid expenses and other current assets 59,462 35,114

Total current assets 604,340 629,167

Property, plant and equipment 800,973 784,902

Less: accumulated depreciation 299,212 278,685

Net property, plant and equipment 501,761 506,217

Deferred income taxes 32,495 32,551

Goodwill 171,117 171,117

Other assets 87,427 93,660

Total assets $ 1,397,140 $ 1,432,712

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 89,192 $ 70,989

Short-term debt 129 131

Accrued income and other taxes 38,480 48,720

Other accrued liabilities 83,706 56,501

Related party payable - tax receivable 3,922 21,752 agreement

Total current liabilities 215,429 198,093



Long-term debt 1,224,897 1,420,000

Other long-term obligations 72,975 81,478

Deferred income taxes 45,223 43,428

Related party payable - tax receivable 15,176 19,098 agreement long-term

Stockholders' equity:

Preferred stock, par value $0.01, 300,000,000 - - shares authorized, none issued

Common stock, par value $0.01, 3,000,000,000shares authorized, 267,880,752 shares issued 2,679 2,672 and outstanding as of June 30, 2021 and267,188,547 as of December 31, 2020

Additional paid-in capital 773,552 758,354

Accumulated other comprehensive loss (391 ) (19,641 )

Accumulated deficit (952,400 ) (1,070,770 )

Total stockholders' deficit (176,560 ) (329,385 )



Total liabilities and stockholders' equity $ 1,397,140 $ 1,432,712

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

Unaudited

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2021

2020

2021

2020

CONSOLIDATED STATEMENTS OF OPERATIONS

Net sales

$

330,750

$

280,718

$

635,147

$

599,364

Cost of sales

201,867

130,600

348,263

269,517

Gross profit

128,883

150,118

286,884

329,847

Research and development

1,018

710

1,987

1,422

Selling and administrative expenses

75,783

16,001

95,936

30,933

Operating profit

52,082

133,407

188,961

297,492

Other expense (income), net

357

311

3

(3,003

)

Related party Tax Receivable Agreement expense (benefit)

-

-

47

(3,346

)

Interest expense

15,994

20,880

38,161

46,552

Interest income

(199

)

(348

)

(236

)

(1,489

)

Income before provision for income taxes

35,930

112,564

150,986

258,778

Provision for income taxes

7,765

19,788

24,022

43,734

Net income

$

28,165

$

92,776

$

126,964

$

215,044

Basic income per common share:

Net income per share

$

0.11

$

0.35

$

0.47

$

0.80

Weighted average common shares outstanding

267,560,712

267,249,580

267,440,501

268,233,233

Diluted income per common share:

Income per share

$

0.11

$

0.35

$

0.47

$

0.80

Weighted average common shares outstanding

267,807,944

267,260,395

267,765,378

268,243,997

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

Unaudited



For the Three Months For the Six Months Ended June 30, Ended June 30,

2021 2020 2021 2020

CONSOLIDATEDSTATEMENTS OF OPERATIONS

Net sales $ 330,750 $ 280,718 $ 635,147 $ 599,364

Cost of sales 201,867 130,600 348,263 269,517

Gross profit 128,883 150,118 286,884 329,847

Research and 1,018 710 1,987 1,422 development

Selling andadministrative 75,783 16,001 95,936 30,933 expenses

Operating 52,082 133,407 188,961 297,492 profit



Other expense 357 311 3 (3,003 )(income), net

Related partyTax ReceivableAgreement - - 47 (3,346 )expense(benefit)

Interest 15,994 20,880 38,161 46,552 expense

Interest (199 ) (348 ) (236 ) (1,489 )income

Income beforeprovision for 35,930 112,564 150,986 258,778 income taxes

Provision for 7,765 19,788 24,022 43,734 income taxes

Net income $ 28,165 $ 92,776 $ 126,964 $ 215,044



Basic incomeper common share:

Net income per $ 0.11 $ 0.35 $ 0.47 $ 0.80 share

Weightedaverage common 267,560,712 267,249,580 267,440,501 268,233,233 sharesoutstanding

Diluted incomeper common share:

Income per $ 0.11 $ 0.35 $ 0.47 $ 0.80 share

Weightedaverage common 267,807,944 267,260,395 267,765,378 268,243,997 sharesoutstanding

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Unaudited

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2021

2020

2021

2020

Cash flow from operating activities:

Net income

$

28,165

$

92,776

$

126,964

$

215,044

Adjustments to reconcile net income to cash

provided by operations:

Depreciation and amortization

16,292

14,549

32,831

28,833

Related party Tax Receivable Agreement expense (benefit)

-

-

47

(3,346

)

Deferred income tax provision

(1,355

)

7,642

(4,195

)

13,990

Stock- based compensation

15,266

718

16,031

1,124

Interest expense

1,890

1,587

7,199

3,181

Other charges, net

1,770

(40

)

3,354

(1,284

)

Net change in working capital*

25,247

34,216

50,434

61,943

Change in related-party Tax Receivable Agreement

-

-

(21,799

)

(27,857

)

Change in long-term assets and liabilities

(945

)

(3,075

)

(2,111

)

(3,972

)

Net cash provided by operating activities

86,330

148,373

208,755

287,656

Cash flow from investing activities:

Capital expenditures

(11,878

)

(10,454

)

(26,052

)

(24,355

)

Proceeds from the sale of assets

68

3

219

65

Net cash used in investing activities

(11,810

)

(10,451

)

(25,833

)

(24,290

)

Cash flow from financing activities:

Debt issuance and modification costs

(113

)

-

(3,084

)

-

Repurchase of common stock - non-related party

-

-

-

(30,099

)

Payment of tax withholdings related to net share settlement of equity awards

(3,801

)

(25

)

(4,074

)

(71

)

Principal repayments on long-term debt

(50,000

)

(100,028

)

(200,000

)

(100,028

)

Dividends paid to non-related party

(2,024

)

(679

)

(3,418

)

(6,605

)

Dividends paid to related party

(650

)

(1,993

)

(1,927

)

(18,926

)

Other

(1,262

)

-

(2,109

)

-

Net cash used in financing activities

(57,850

)

(102,725

)

(214,612

)

(155,729

)

Net change in cash and cash equivalents

16,670

35,197

(31,690

)

107,637

Effect of exchange rate changes on cash and cash equivalents

1,015

350

379

(916

)

Cash and cash equivalents at beginning of period

96,446

152,109

145,442

80,935

Cash and cash equivalents at end of period

$

114,131

$

187,656

$

114,131

$

187,656

* Net change in working capital due to changes in the following components:

Accounts and notes receivable, net

$

25,948

$

17,970

$

9,305

$

58,713

Inventories

(3,825

)

14,312

7,823

(2,924

)

Prepaid expenses and other current assets

(10,561

)

(1,279

)

(12,071

)

6,132

Income taxes payable

607

10,857

(17,761

)

25,095

Accounts payable and accruals

18,415

(7,631

)

62,748

(25,019

)

Interest payable

(5,337

)

(13

)

390

(54

)

Net change in working capital

$

25,247

$

34,216

$

50,434

$

61,943

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Unaudited



For the Three Months For the Six Months Ended June 30, Ended June 30,

2021 2020 2021 2020

Cash flow fromoperating activities:

Net income $ 28,165 $ 92,776 $ 126,964 $ 215,044

Adjustments toreconcile net incometo cash

provided byoperations:

Depreciation and 16,292 14,549 32,831 28,833 amortization

Related party TaxReceivable Agreement - - 47 (3,346 )expense (benefit)

Deferred income tax (1,355 ) 7,642 (4,195 ) 13,990 provision

Stock- based 15,266 718 16,031 1,124 compensation

Interest expense 1,890 1,587 7,199 3,181

Other charges, net 1,770 (40 ) 3,354 (1,284 )

Net change in 25,247 34,216 50,434 61,943 working capital*

Change inrelated-party Tax - - (21,799 ) (27,857 )Receivable Agreement

Change in long-termassets and (945 ) (3,075 ) (2,111 ) (3,972 )liabilities

Net cash provided by 86,330 148,373 208,755 287,656 operating activities

Cash flow frominvesting activities:

Capital expenditures (11,878 ) (10,454 ) (26,052 ) (24,355 )

Proceeds from the 68 3 219 65 sale of assets

Net cash used in (11,810 ) (10,451 ) (25,833 ) (24,290 )investing activities

Cash flow fromfinancing activities:

Debt issuance and (113 ) - (3,084 ) - modification costs

Repurchase of commonstock - non-related - - - (30,099 )party

Payment of taxwithholdings relatedto net share (3,801 ) (25 ) (4,074 ) (71 )settlement of equityawards

Principal repayments (50,000 ) (100,028 ) (200,000 ) (100,028 )on long-term debt

Dividends paid to (2,024 ) (679 ) (3,418 ) (6,605 )non-related party

Dividends paid to (650 ) (1,993 ) (1,927 ) (18,926 )related party

Other (1,262 ) - (2,109 ) -

Net cash used in (57,850 ) (102,725 ) (214,612 ) (155,729 )financing activities

Net change in cash 16,670 35,197 (31,690 ) 107,637 and cash equivalents

Effect of exchangerate changes on cash 1,015 350 379 (916 )and cash equivalents

Cash and cashequivalents at 96,446 152,109 145,442 80,935 beginning of period

Cash and cashequivalents at end $ 114,131 $ 187,656 $ 114,131 $ 187,656 of period



* Net change inworking capital dueto changes in the followingcomponents:

Accounts and notes $ 25,948 $ 17,970 $ 9,305 $ 58,713 receivable, net

Inventories (3,825 ) 14,312 7,823 (2,924 )

Prepaid expenses and (10,561 ) (1,279 ) (12,071 ) 6,132 other current assets

Income taxes payable 607 10,857 (17,761 ) 25,095

Accounts payable and 18,415 (7,631 ) 62,748 (25,019 )accruals

Interest payable (5,337 ) (13 ) 390 (54 )

Net change in $ 25,247 $ 34,216 $ 50,434 $ 61,943 working capital

NON-GAAP RECONCILIATION

(Dollars in thousands)

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:

Reconciliation to Adjusted net income

For the Six Months Ended June 30,

Q2 2021

Q1 2021

Q2 2020

2021

2020

Net income

$

28,165

$

98,799

$

92,776

$

126,964

$

215,044

Adjustments, pre-tax:

Pension and OPEB plan expenses (1)

430

431

541

861

1,083

Initial and follow-on public offering and related expenses (2)

241

422

-

663

4

Non-cash gains and losses on foreign currency remeasurement (3)

2,255

(348

)

2,222

1,907

(1,239

)

Stock-based compensation (4)

550

768

717

1,318

1,127

Non-cash fixed asset write-off (5)

313

-

-

313

-

Related party Tax Receivable Agreement adjustment (6)

-

47

-

47

(3,346

)

Change in control LTIP award (7)

73,384

-

-

73,384

-

Change in control stock-based compensation acceleration (7)

14,713

-

-

14,713

-

Total non-GAAP adjustments pre-tax

91,886

1,320

3,480

93,206

(2,371

)

Income tax impact on non-GAAP adjustments

5,564

239

251

5,803

438

Adjusted net income

$

114,487

$

99,880

$

96,005

$

214,367

$

212,235

NON-GAAP RECONCILIATION

(Dollars in thousands)



The following table reconciles our non-GAAP key financial measures to the mostdirectly comparable GAAP measures:



Reconciliation toAdjusted net income

For the Six Months Ended June 30,

Q2 2021 Q1 2021 Q2 2020 2021 2020



Net income $ 28,165 $ 98,799 $ 92,776 $ 126,964 $ 215,044

Adjustments, pre-tax:

Pension and OPEB 430 431 541 861 1,083 plan expenses ^(1)

Initial andfollow-on publicoffering and 241 422 - 663 4 related expenses ^(2)

Non-cash gains andlosses on foreign 2,255 (348 ) 2,222 1,907 (1,239 )currencyremeasurement ^(3)

Stock-based 550 768 717 1,318 1,127 compensation ^(4)

Non-cash fixedasset write-off ^ 313 - - 313 - (5)

Related party TaxReceivable - 47 - 47 (3,346 )Agreementadjustment ^(6)

Change in control 73,384 - - 73,384 - LTIP award ^(7)

Change in controlstock-based 14,713 - - 14,713 - compensationacceleration ^(7)

Total non-GAAPadjustments 91,886 1,320 3,480 93,206 (2,371 )pre-tax

Income tax impacton non-GAAP 5,564 239 251 5,803 438 adjustments

Adjusted net $ 114,487 $ 99,880 $ 96,005 $ 214,367 $ 212,235 income

(1)

Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.

(2)

Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.

(3)

Non-cash gains and 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 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.

(1) Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.

(2) Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.

Non-cash gains and losses from foreign currency remeasurement of(3) 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.

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

NON-GAAP RECONCILIATION

(Dollars in thousands)

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:

Reconciliation to Adjusted EPS

For the Six Months Ended June 30,

Q2 2021

Q1 2021

Q2 2020

2021

2020

EPS

$

0.11

$

0.37

$

0.35

$

0.47

$

0.80

Adjustments per share:

Pension and OPEB plan expenses (1)

-

-

-

-

-

Initial and follow-on public offering and related expenses (2)

-

-

-

-

-

Non-cash gains and losses on foreign currency remeasurement (3)

0.01

-

0.01

0.01

-

Stock-based compensation (4)

-

-

-

0.01

-

Non-cash fixed asset write-off (5)

-

-

-

-

-

Related party Tax Receivable Agreement adjustment (6)

-

-

-

-

(0.01

)

Change in control LTIP award (7)

0.27

-

-

0.27

-

Change in control stock-based compensation acceleration (7)

0.06

-

-

0.06

-

Total non-GAAP adjustments pre-tax per share

0.34

-

0.01

0.35

(0.01

)

Income tax impact on non-GAAP adjustments per share

0.02

-

-

0.02

-

Adjusted EPS

$

0.43

$

0.37

$

0.36

$

0.80

$

0.79

NON-GAAP RECONCILIATION

(Dollars in thousands)



The following table reconciles our non-GAAP key financial measures to the mostdirectly comparable GAAP measures:



Reconciliation to Adjusted EPS

For the Six Months Ended June 30,

Q2 Q1 Q2 2021 2020 2021 2021 2020



EPS $ 0.11 $ 0.37 $ 0.35 $ 0.47 $ 0.80

Adjustments per share:

Pension and OPEB plan expenses ^ - - - - - (1)

Initial and follow-on publicoffering and related expenses ^ - - - - - (2)

Non-cash gains and losses onforeign currency remeasurement ^ 0.01 - 0.01 0.01 - (3)

Stock-based compensation ^(4) - - - 0.01 -

Non-cash fixed asset write-off ^ - - - - - (5)

Related party Tax Receivable - - - - (0.01 )Agreement adjustment ^(6)

Change in control LTIP award ^ 0.27 - - 0.27 - (7)

Change in control stock-based 0.06 - - 0.06 - compensation acceleration ^(7)

Total non-GAAP adjustments 0.34 - 0.01 0.35 (0.01 )pre-tax per share

Income tax impact on non-GAAP 0.02 - - 0.02 - adjustments per share

Adjusted EPS $ 0.43 $ 0.37 $ 0.36 $ 0.80 $ 0.79

(1)

Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.

(2)

Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.

(3)

Non-cash gains and 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 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 shareholder, Brookfield, moving below 30% of our total shares outstanding.

(1) Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.

(2) Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.

Non-cash gains and losses from foreign currency remeasurement of(3) 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.

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

NON-GAAP RECONCILIATION

(Dollars in thousands)

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:

Reconciliation to Adjusted EBITDA

For the Six Months Ended June 30,

Q2 2021

Q1 2021

Q2 2020

2021

2020

Net income

$

28,165

$

98,799

$

92,776

$

126,964

$

215,044

Add:

Depreciation and amortization

16,292

16,539

14,549

32,831

28,833

Interest expense

15,994

22,167

20,880

38,161

46,552

Interest income

(199

)

(37

)

(348

)

(236

)

(1,489

)

Income taxes

7,765

16,257

19,788

24,022

43,734

EBITDA

$

68,017

$

153,725

$

147,645

$

221,742

$

332,674

Adjustments:

Pension and OPEB plan expenses (1)

430

431

541

861

1,083

Initial and follow-on public offering and related expenses (2)

241

422

-

663

4

Non-cash gains and losses on foreign currency remeasurement (3)

2,255

(348

)

2,222

1,907

(1,239

)

Stock-based compensation (4)

550

768

717

1,318

1,127

Non-cash fixed asset write-off (5)

313

-

-

313

-

Related party Tax Receivable Agreement adjustment (6)

-

47

-

47

(3,346

)

Change in control LTIP award (7)

73,384

-

-

73,384

-

Change in control stock-based compensation acceleration (7)

14,713

-

-

14,713

-

Adjusted EBITDA

$

159,903

$

155,045

$

151,125

$

314,948

$

330,303

NON-GAAP RECONCILIATION

(Dollars in thousands)



The following table reconciles our non-GAAP key financial measures to the mostdirectly comparable GAAP measures:



Reconciliationto Adjusted EBITDA

For the Six Months Ended June 30,

Q2 2021 Q1 2021 Q2 2020 2021 2020



Net income $ 28,165 $ 98,799 $ 92,776 $ 126,964 $ 215,044

Add:

Depreciationand 16,292 16,539 14,549 32,831 28,833 amortization

Interest 15,994 22,167 20,880 38,161 46,552 expense

Interest (199 ) (37 ) (348 ) (236 ) (1,489 )income

Income taxes 7,765 16,257 19,788 24,022 43,734

EBITDA $ 68,017 $ 153,725 $ 147,645 $ 221,742 $ 332,674

Adjustments:

Pension andOPEB plan 430 431 541 861 1,083 expenses ^(1)

Initial andfollow-onpublic 241 422 - 663 4 offering andrelatedexpenses ^(2)

Non-cash gainsand losses onforeign 2,255 (348 ) 2,222 1,907 (1,239 )currencyremeasurement^(3)

Stock-basedcompensation ^ 550 768 717 1,318 1,127 (4)

Non-cash fixedasset 313 - - 313 - write-off ^(5)

Related partyTax ReceivableAgreement - 47 - 47 (3,346 )adjustment ^(6)

Change incontrol LTIP 73,384 - - 73,384 - award ^(7)

Change incontrolstock-based 14,713 - - 14,713 - compensationacceleration ^(7)

Adjusted $ 159,903 $ 155,045 $ 151,125 $ 314,948 $ 330,303 EBITDA

(1)

Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.

(2)

Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.

(3)

Non-cash gains and 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 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 shareholder, Brookfield, moving below 30% of our total shares outstanding.

(1) Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.

(2) Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.

Non-cash gains and losses from foreign currency remeasurement of(3) 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.

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

NON-GAAP RECONCILIATION

(Dollars in thousands)

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:

Reconciliation to Free Cash Flow and Adjusted Free Cash Flow

For the Six Months Ended June 30,

(in thousands)

Q2 2021

Q1 2021

Q2 2020

2021

2020

Net cash provided by operating activities

$

86,330

$

122,425

$

148,373

$

208,755

$

287,656

Capital expenditures

(11,878

)

(14,174

)

(10,454

)

(26,052

)

(24,355

)

Free cash flow

74,452

108,251

137,919

182,703

263,301

Change in control payment (1)

61,455

-

-

61,455

-

Adjusted free cash flow

$

135,907

$

108,251

$

137,919

$

244,158

$

263,301

NON-GAAP RECONCILIATION

(Dollars in thousands)



The following table reconciles our non-GAAP key financial measures to the mostdirectly comparable GAAP measures:



Reconciliation to Free Cash Flow and Adjusted Free Cash Flow

For the Six Months Ended June 30,

(in Q2 2021 Q1 2021 Q2 2020 2021 2020thousands)



Net cashprovided by $ 86,330 $ 122,425 $ 148,373 $ 208,755 $ 287,656 operatingactivities

Capital (11,878 ) (14,174 ) (10,454 ) (26,052 ) (24,355 )expenditures

Free cash 74,452 108,251 137,919 182,703 263,301 flow



Change incontrol 61,455 - - 61,455 - payment ^(1)

Adjustedfree cash $ 135,907 $ 108,251 $ 137,919 $ 244,158 $ 263,301flow

(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 are cash and $15 million are non-cash. $61 million of the cash charges were paid in the second quarter of 2021; the additional $12 million will be paid in the third quarter of 2021, as a result of the timing of related payroll tax payments.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210806005074/en/

CONTACT: Wendy Watson 216-676-2600