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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from______ to ______
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Delaware
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27-2496053
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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982 Keynote Circle
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44131
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Brooklyn Heights,
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OH
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(Zip code)
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(Address of principal executive offices)
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Title of each class
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Trading
Symbol(s)
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Name of each exchange on which registered
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Common stock, $0.01 par value per share
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EAF
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New York Stock Exchange
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Large Accelerated Filer
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☒
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Accelerated Filer
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☐
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Emerging Growth Company
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☐
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Non-Accelerated Filer
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☐
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Smaller Reporting Company
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☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act. o
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•
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the ultimate impact that the COVID-19 pandemic has on our business, results of operations, financial condition and cash flows;
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•
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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;
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•
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the possibility that we may be unable to implement our business strategies, including our initiative to secure and maintain longer-term customer contracts, in an effective manner;
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•
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the possibility that global graphite electrode overcapacity may adversely affect graphite electrode prices;
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•
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pricing for graphite electrodes has historically been cyclical and the price of graphite electrodes may continue to decline in the future;
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•
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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;
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•
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our dependence on the global steel industry generally and the electric arc furnace ("EAF") steel industry in particular;
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•
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the competitiveness of the graphite electrode industry;
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•
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our dependence on the supply of petroleum needle coke;
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•
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our dependence on supplies of raw materials (in addition to petroleum needle coke) and energy;
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•
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the possibility that our manufacturing operations are subject to hazards;
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•
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changes in, or more stringent enforcement of, health, safety and environmental regulations applicable to our manufacturing operations and facilities;
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•
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the legal, compliance, economic, social and political risks associated with our substantial operations in multiple countries;
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•
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the possibility that fluctuation of foreign currency exchange rates could materially harm our financial results;
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•
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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;
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•
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our dependence on third parties for certain construction, maintenance, engineering, transportation, warehousing and logistics services;
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•
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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;
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•
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the possibility that we may divest or acquire businesses, which could require significant management attention or disrupt our business;
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•
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the sensitivity of goodwill on our balance sheet to changes in the market;
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•
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the possibility that we are subject to information technology systems failures, cybersecurity attacks, network disruptions and breaches of data security;
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•
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our dependence on protecting our intellectual property;
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•
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the possibility that third parties may claim that our products or processes infringe their intellectual property rights;
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•
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the possibility that significant changes in our jurisdictional earnings mix or in the tax laws of those jurisdictions could adversely affect our business;
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•
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the possibility that tax legislation could adversely affect us or our stockholders;
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•
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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;
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•
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the possibility that restrictive covenants in our financing agreements could restrict or limit our operations;
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•
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the fact that borrowings under certain of our existing financing agreements subject us to interest rate risk;
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•
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the possibility of a lowering or withdrawal of the ratings assigned to our debt;
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•
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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;
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•
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the possibility that highly concentrated ownership of our common stock may prevent minority stockholders from influencing significant corporate decisions;
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•
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the possibility that we may not pay cash dividends on our common stock in the future;
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•
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the fact that certain of our stockholders have the right to engage or invest in the same or similar businesses as us;
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•
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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 (as defined below);
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•
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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;
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•
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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
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•
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our status as a "controlled company" within the meaning of the New York Stock Exchange corporate governance standards, which allows us to qualify for exemptions from certain corporate governance requirements.
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As of
March 31, 2020 |
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As of
December 31, 2019 |
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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152,109
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$
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80,935
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Accounts and notes receivable, net of allowance for doubtful accounts of
$7,385 as of March 31, 2020 and $5,474 as of December 31, 2019
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198,943
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247,051
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Inventories
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322,623
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313,648
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Prepaid expenses and other current assets
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32,517
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40,946
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Total current assets
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706,192
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682,580
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Property, plant and equipment
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734,118
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733,417
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Less: accumulated depreciation
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231,244
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220,397
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Net property, plant and equipment
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502,874
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513,020
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Deferred income taxes
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56,900
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|
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55,217
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Goodwill
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171,117
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171,117
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Other assets
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97,133
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104,230
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Total assets
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$
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1,534,216
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$
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1,526,164
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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||||
Current liabilities:
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Accounts payable
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$
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52,067
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$
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78,697
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Short-term debt
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138
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141
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Accrued income and other taxes
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80,626
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65,176
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Other accrued liabilities
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73,597
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48,335
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Related party payable - tax receivable agreement
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16,115
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27,857
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Total current liabilities
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222,543
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220,206
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Long-term debt
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1,814,266
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1,812,682
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Other long-term obligations
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90,522
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72,562
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Deferred income taxes
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44,785
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49,773
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Related party payable - tax receivable agreement long-term
|
42,479
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62,014
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Contingencies – Note 8
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Stockholders’ equity:
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Preferred stock, par value $0.01, 300,000,000 shares authorized, none issued
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—
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—
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Common stock, par value $0.01, 3,000,000,000 shares authorized, 267,178,663
shares issued and outstanding as of March 31, 2020 and 270,485,308
as of December 31, 2019
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2,672
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2,705
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Additional paid-in capital
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756,103
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765,419
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Accumulated other comprehensive loss
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(64,310
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)
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(7,361
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)
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Accumulated deficit
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(1,374,844
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)
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(1,451,836
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)
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Total stockholders’ deficit
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(680,379
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)
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(691,073
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)
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Total liabilities and stockholders’ equity
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$
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1,534,216
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$
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1,526,164
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For the Three Months
Ended March 31, |
||||||
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2020
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2019
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||||
CONSOLIDATED STATEMENTS OF OPERATIONS
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Net sales
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$
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318,646
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$
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474,994
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Cost of sales
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138,917
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195,524
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Gross profit
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179,729
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|
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279,470
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Research and development
|
712
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|
637
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Selling and administrative expenses
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14,932
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15,226
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Operating profit
|
164,085
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263,607
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||
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Other (income) expense, net
|
(3,314
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)
|
|
467
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Related party Tax Receivable Agreement benefit
|
(3,346
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)
|
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—
|
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Interest expense
|
25,672
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|
|
33,700
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Interest income
|
(1,141
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)
|
|
(414
|
)
|
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Income before provision for income taxes
|
146,214
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|
|
229,854
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|
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Provision for income taxes
|
23,946
|
|
|
32,418
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|
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Net income
|
$
|
122,268
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|
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$
|
197,436
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||||
Basic income per common share*:
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|
|
|
||||
Net income per share
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$
|
0.45
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$
|
0.68
|
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Weighted average common shares outstanding
|
269,216,820
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|
|
290,559,025
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Diluted income per common share*:
|
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|
||||
Income per share
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$
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0.45
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$
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0.68
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Weighted average common shares outstanding
|
269,236,562
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290,566,163
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||||
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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|
||||
Net income
|
$
|
122,268
|
|
|
$
|
197,436
|
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Other comprehensive income:
|
|
|
|
||||
Foreign currency translation adjustments, net of tax of
($163) and $0, respectively
|
(17,168
|
)
|
|
(3,539
|
)
|
||
Commodity and interest rate derivatives, net of tax of $10,927 and ($6,903), respectively
|
(39,781
|
)
|
|
25,657
|
|
||
Other comprehensive (loss) income, net of tax:
|
(56,949
|
)
|
|
22,118
|
|
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Comprehensive income
|
$
|
65,319
|
|
|
$
|
219,554
|
|
|
For the Three Months
Ended March 31, |
||||||
|
2020
|
|
2019
|
||||
Cash flow from operating activities:
|
|
|
|
||||
Net income
|
$
|
122,268
|
|
|
$
|
197,436
|
|
Adjustments to reconcile net income to cash provided by operations:
|
|
|
|
||||
Depreciation and amortization
|
14,284
|
|
|
15,585
|
|
||
Related party Tax Receivable Agreement benefit
|
(3,346
|
)
|
|
—
|
|
||
Deferred income tax provision
|
6,348
|
|
|
6,427
|
|
||
Interest expense
|
1,594
|
|
|
1,588
|
|
||
Other charges, net
|
(838
|
)
|
|
3,268
|
|
||
Net change in working capital*
|
(130
|
)
|
|
(71,443
|
)
|
||
Change in long-term assets and liabilities
|
(897
|
)
|
|
3,956
|
|
||
Net cash provided by operating activities
|
139,283
|
|
|
156,817
|
|
||
Cash flow from investing activities:
|
|
|
|
||||
Capital expenditures
|
(13,901
|
)
|
|
(14,569
|
)
|
||
Proceeds from the sale of assets
|
62
|
|
|
74
|
|
||
Net cash used in investing activities
|
(13,839
|
)
|
|
(14,495
|
)
|
||
Cash flow from financing activities:
|
|
|
|
||||
Repurchase of common stock-non-related party
|
(30,099
|
)
|
|
—
|
|
||
Payment of tax withholdings related to net share settlement of equity awards
|
(46
|
)
|
|
—
|
|
||
Principal repayments on long-term debt
|
—
|
|
|
(125,000
|
)
|
||
Dividends paid to non-related-party
|
(5,926
|
)
|
|
(5,194
|
)
|
||
Dividends paid to related-party
|
(16,933
|
)
|
|
(19,502
|
)
|
||
Net cash used in financing activities
|
(53,004
|
)
|
|
(149,696
|
)
|
||
Net change in cash and cash equivalents
|
72,440
|
|
|
(7,374
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(1,266
|
)
|
|
(217
|
)
|
||
Cash and cash equivalents at beginning of period
|
80,935
|
|
|
49,880
|
|
||
Cash and cash equivalents at end of period
|
$
|
152,109
|
|
|
$
|
42,289
|
|
|
|
|
|
||||
* Net change in working capital due to changes in the following components:
|
|
|
|
||||
Accounts and notes receivable, net
|
$
|
40,743
|
|
|
$
|
(31,389
|
)
|
Inventories
|
(17,236
|
)
|
|
(4,705
|
)
|
||
Prepaid expenses and other current assets
|
7,411
|
|
|
7,425
|
|
||
Income taxes payable
|
14,238
|
|
|
(38,333
|
)
|
||
Accounts payable and accruals
|
(45,245
|
)
|
|
(5,305
|
)
|
||
Interest payable
|
(41
|
)
|
|
864
|
|
||
Net change in working capital
|
$
|
(130
|
)
|
|
$
|
(71,443
|
)
|
|
Issued
Shares of Common Stock |
|
Common
Stock |
|
Additional
Paid-in Capital |
|
Accumulated
Other Comprehensive Income(Loss) |
|
Retained Earnings (Accumulated
Deficit) |
|
Total
Stockholders’ Equity (Deficit) |
|||||||||||
Balance as of December 31, 2019
|
270,485,308
|
|
|
$
|
2,705
|
|
|
$
|
765,419
|
|
|
$
|
(7,361
|
)
|
|
$
|
(1,451,836
|
)
|
|
$
|
(691,073
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
122,268
|
|
|
122,268
|
|
|||||
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Commodity and interest rate derivatives income (loss), net of tax of $10,322
|
—
|
|
|
—
|
|
|
—
|
|
|
(37,577
|
)
|
|
—
|
|
|
(37,577
|
)
|
|||||
Commodity derivatives reclassification adjustments, net of tax of $605
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,204
|
)
|
|
—
|
|
|
(2,204
|
)
|
|||||
Foreign currency translation adjustments, net of tax of ($163)
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,168
|
)
|
|
—
|
|
|
(17,168
|
)
|
|||||
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
(56,949
|
)
|
|
—
|
|
|
(56,949
|
)
|
|||||
Stock-based compensation
|
29,394
|
|
|
—
|
|
|
405
|
|
|
—
|
|
|
—
|
|
|
405
|
|
|||||
Dividends paid to related party
stockholder ($0.085 per share) |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,933
|
)
|
|
(16,933
|
)
|
|||||
Dividends paid to non-related party
stockholders ($0.085 per share) |
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(5,926
|
)
|
|
(5,926
|
)
|
||||||
Common stock repurchased and retired (from non-related party)
|
(3,328,574
|
)
|
|
(33
|
)
|
|
(9,700
|
)
|
|
—
|
|
|
(20,366
|
)
|
|
(30,099
|
)
|
|||||
Common stock withheld for taxes on equity award settlement
|
(7,465
|
)
|
|
|
|
(21
|
)
|
|
|
|
(25
|
)
|
|
(46
|
)
|
|||||||
Adoption of ASC 326
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
(2,026
|
)
|
|
(2,026
|
)
|
|||||
Balance as of March 31, 2020
|
267,178,663
|
|
|
$
|
2,672
|
|
|
$
|
756,103
|
|
|
$
|
(64,310
|
)
|
|
$
|
(1,374,844
|
)
|
|
$
|
(680,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of December 31, 2018
|
290,537,612
|
|
|
$
|
2,905
|
|
|
$
|
819,622
|
|
|
$
|
(5,800
|
)
|
|
$
|
(1,893,496
|
)
|
|
$
|
(1,076,769
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
197,436
|
|
|
197,436
|
|
|||||
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commodity and interest rate derivatives foreign currency derivatives income (loss), net of tax of ($7,295)
|
—
|
|
|
—
|
|
|
—
|
|
|
27,113
|
|
|
—
|
|
|
27,113
|
|
|||||
Commodity derivatives reclassification adjustments, net of tax of $392
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,456
|
)
|
|
—
|
|
|
(1,456
|
)
|
|||||
Foreign currency translation adjustments, net of tax ($3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,539
|
)
|
|
—
|
|
|
(3,539
|
)
|
|||||
Total other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
22,118
|
|
|
—
|
|
|
22,118
|
|
|||||
Stock-based compensation
|
|
|
|
|
293
|
|
|
|
|
|
|
293
|
|
|||||||||
Dividends paid to related party
stockholder ($0.085 per share) |
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,502
|
)
|
|
(19,502
|
)
|
|||||
Dividends paid to non-related party stockholders ($0.085 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,194
|
)
|
|
(5,194
|
)
|
|||||
Balance as of March 31, 2019
|
290,537,612
|
|
|
$
|
2,905
|
|
|
$
|
819,915
|
|
|
$
|
16,318
|
|
|
$
|
(1,720,756
|
)
|
|
$
|
(881,618
|
)
|
(1)
|
Organization and Summary of Significant Accounting Policies
|
(2)
|
Revenue from Contracts with Customers
|
|
For the Three Months
Ended March 31, |
||||||
|
2020
|
|
2019
|
||||
|
(Dollars in thousands)
|
||||||
Graphite Electrodes - Three-to-five-year take-or-pay contracts
|
$
|
276,379
|
|
|
$
|
396,040
|
|
Graphite Electrodes - Short-term agreements and spot sales
|
30,818
|
|
|
47,296
|
|
||
By-products and other
|
11,449
|
|
|
31,658
|
|
||
Total Revenues
|
$
|
318,646
|
|
|
$
|
474,994
|
|
|
Current deferred revenue
|
|
Long-Term deferred revenue
|
||||
|
(Dollars in thousands)
|
||||||
Balance as of December 31, 2019
|
$
|
11,776
|
|
|
$
|
3,858
|
|
Increases due to cash received
|
9,189
|
|
|
—
|
|
||
Revenue recognized
|
(177
|
)
|
|
—
|
|
||
Revisions of estimates
|
—
|
|
|
—
|
|
||
Reclassifications between long-term and current
|
—
|
|
|
—
|
|
||
Foreign currency impact
|
(751
|
)
|
|
—
|
|
||
Balance as of March 31, 2020
|
$
|
20,037
|
|
|
$
|
3,858
|
|
(3)
|
Retirement Plans and Postretirement Benefits
|
|
For the Three Months
Ended March 31, |
||||||
|
2020
|
|
2019
|
||||
|
(Dollars in thousands)
|
||||||
Service cost
|
$
|
622
|
|
|
$
|
575
|
|
Interest cost
|
1,033
|
|
|
1,316
|
|
||
Expected return on plan assets
|
(1,284
|
)
|
|
(1,338
|
)
|
||
Net cost
|
$
|
371
|
|
|
$
|
553
|
|
|
For the Three Months
Ended March 31, |
||||||
|
2020
|
|
2019
|
||||
|
(Dollars in thousands)
|
||||||
Interest cost
|
$
|
191
|
|
|
$
|
242
|
|
Net cost
|
$
|
191
|
|
|
$
|
242
|
|
(4)
|
Goodwill and Other Intangible Assets
|
Goodwill
|
|||
(Dollars in thousands)
|
|||
Balance as of December 31, 2019
|
$
|
171,117
|
|
Adjustments
|
—
|
|
|
Balance as of March 31, 2020
|
$
|
171,117
|
|
Intangible Assets
|
|||||||||||||||||||||||
|
As of March 31, 2020
|
|
As of December 31, 2019
|
||||||||||||||||||||
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization |
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
||||||||||||
|
(Dollars in Thousands)
|
||||||||||||||||||||||
Trade name
|
$
|
22,500
|
|
|
$
|
(10,385
|
)
|
|
$
|
12,115
|
|
|
$
|
22,500
|
|
|
$
|
(9,861
|
)
|
|
$
|
12,639
|
|
Technological know-how
|
55,300
|
|
|
(30,416
|
)
|
|
24,884
|
|
|
55,300
|
|
|
(29,112
|
)
|
|
26,188
|
|
||||||
Customer–related
intangible
|
64,500
|
|
|
(20,570
|
)
|
|
43,930
|
|
|
64,500
|
|
|
(19,473
|
)
|
|
45,027
|
|
||||||
Total finite-lived
intangible assets
|
$
|
142,300
|
|
|
$
|
(61,371
|
)
|
|
$
|
80,929
|
|
|
$
|
142,300
|
|
|
$
|
(58,446
|
)
|
|
$
|
83,854
|
|
(5)
|
Debt and Liquidity
|
|
As of
March 31, 2020 |
|
As of
December 31, 2019 |
||||
|
(Dollars in thousands)
|
||||||
2018 Credit Facility (2018 Term Loan and 2018 Revolving Credit Facility)
|
$
|
1,813,785
|
|
|
$
|
1,812,204
|
|
Other debt
|
619
|
|
|
619
|
|
||
Total debt
|
1,814,404
|
|
|
1,812,823
|
|
||
Less: Short-term debt
|
(138
|
)
|
|
(141
|
)
|
||
Long-term debt
|
$
|
1,814,266
|
|
|
$
|
1,812,682
|
|
(6)
|
Inventories
|
|
As of
March 31, 2020 |
|
As of
December 31, 2019 |
||||
|
(Dollars in thousands)
|
||||||
Inventories:
|
|
|
|
||||
Raw materials
|
$
|
121,191
|
|
|
$
|
104,820
|
|
Work in process
|
124,944
|
|
|
137,230
|
|
||
Finished goods
|
76,488
|
|
|
71,598
|
|
||
Total
|
$
|
322,623
|
|
|
$
|
313,648
|
|
|
For the Three Months
Ended March 31, |
||||||
|
2020
|
|
2019
|
||||
|
(Dollars in thousands)
|
||||||
Interest incurred on debt
|
$
|
24,092
|
|
|
$
|
32,120
|
|
Accretion of fair value adjustment on Senior Notes
|
549
|
|
|
549
|
|
||
Amortization of debt issuance costs
|
1,031
|
|
|
1,031
|
|
||
Total interest expense
|
$
|
25,672
|
|
|
$
|
33,700
|
|
(8)
|
Contingencies
|
|
(Dollars in thousands)
|
||
Balance as of December 31, 2019
|
$
|
1,835
|
|
Product warranty accruals and adjustments
|
14
|
|
|
Settlements
|
(97
|
)
|
|
Balance as of March 31, 2020
|
$
|
1,752
|
|
(9)
|
Income Taxes
|
|
For the Three Months
Ended March 31, |
||||||
|
2020
|
|
2019
|
||||
|
(Dollars in thousands)
|
||||||
|
|
||||||
Tax expense
|
$
|
23,946
|
|
|
$
|
32,418
|
|
Pretax income
|
146,214
|
|
|
229,854
|
|
||
Effective tax rates
|
16.4
|
%
|
|
14.1
|
%
|
(10)
|
Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
||||||||
|
Location
|
|
Fair Value
|
|
Location
|
|
Fair Value
|
||||
As of March 31, 2020
|
(Dollars in thousands)
|
||||||||||
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|||||
Foreign currency derivatives
|
Prepaid and other current assets
|
|
$
|
90
|
|
|
Other current liabilities
|
|
$
|
135
|
|
Commodity derivatives contracts
|
Prepaid and other current assets
|
|
—
|
|
|
Other accrued liabilities
|
|
450
|
|
||
|
|
|
$
|
90
|
|
|
|
|
$
|
585
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
||||
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|||||
Foreign currency derivatives
|
Prepaid and other current assets
|
|
$
|
239
|
|
|
Other current liabilities
|
|
$
|
81
|
|
Commodity derivatives contracts
|
Prepaid and other current assets
|
|
376
|
|
|
Other accrued liabilities
|
|
—
|
|
||
|
|
|
$
|
615
|
|
|
|
|
$
|
81
|
|
|
|
|
|
Amount of (Gain)/Loss
Recognized
|
||||||
|
|
Location of (Gain)/Loss Recognized in the Consolidated Statement of Operations
|
|
For the Three Months Ended March 31,
|
||||||
|
|
|
2020
|
|
2019
|
|||||
Derivatives designated as cash flow hedges:
|
|
|
|
(Dollars in thousands)
|
||||||
Commodity derivative contracts
|
|
Cost of sales
|
|
$
|
(2,809
|
)
|
|
$
|
(1,848
|
)
|
Interest rate swap
|
|
Interest expense
|
|
(206
|
)
|
|
—
|
|
||
|
|
|
|
|
|
|
||||
Derivatives not designated as hedges:
|
|
|
|
|
|
|
||||
Foreign currency derivatives
|
|
Cost of sales, Other (income) expense
|
|
$
|
(499
|
)
|
|
(677
|
)
|
|
Commodity derivative contracts
|
|
Cost of sales
|
|
(139
|
)
|
|
—
|
|
(11)
|
Accumulated Other Comprehensive Income (Loss)
|
|
As of
March 31, 2020 |
|
As of
December 31, 2019 |
||||
|
(Dollars in thousands)
|
||||||
Foreign currency translation adjustments, net of tax
|
$
|
(26,461
|
)
|
|
$
|
(9,293
|
)
|
Commodity and interest rate derivatives, net of tax
|
(37,849
|
)
|
|
1,932
|
|
||
Total accumulated comprehensive income (loss)
|
$
|
(64,310
|
)
|
|
$
|
(7,361
|
)
|
(12)
|
Earnings per Share
|
|
For the Three Months
Ended March 31, |
||||
|
2020
|
|
2019
|
||
|
|
|
|
||
Weighted average common shares outstanding for basic calculation
|
269,216,820
|
|
|
290,559,025
|
|
Add: Effect of stock options, deferred share units and restricted stock units
|
19,742
|
|
|
7,138
|
|
Weighted average common shares outstanding for diluted calculation
|
269,236,562
|
|
|
290,566,163
|
|
|
For the Three Months Ended March 31,
|
||||
|
2020
|
|
2019
|
||
Award type:
|
|
|
|
||
Stock options
|
298,000
|
|
|
157,000
|
|
Deferred share units
|
12,552
|
|
|
280
|
|
Restricted stock units
|
309,389
|
|
|
181,905
|
|
|
Number
of Shares
|
|
Weighted-
Average
Exercise
Price
|
||
Outstanding unvested as of December 31, 2019
|
931,658
|
|
|
15.06
|
|
Granted
|
298,000
|
|
|
9.01
|
|
Vested
|
(23,800
|
)
|
|
13.73
|
|
Forfeited
|
(141,960
|
)
|
|
14.87
|
|
Outstanding unvested as of March 31, 2020
|
1,063,898
|
|
|
13.42
|
|
|
Number
of Shares
|
|
Weighted-
Average
Grant Date
Fair Value
|
||
Outstanding unvested as of December 31, 2019
|
282,716
|
|
|
12.83
|
|
Granted
|
321,941
|
|
|
9.02
|
|
Vested
|
(42,035
|
)
|
|
11.90
|
|
Forfeited
|
(43,734
|
)
|
|
12.27
|
|
Outstanding unvested as of March 31, 2020
|
518,888
|
|
|
10.59
|
|
|
For the Three Months
Ended March 31, |
|||
(in thousands, except price data)
|
2020
|
2019
|
||
Sales volume (MT)(1)
|
34
|
|
45
|
|
Production volume (MT)(2)
|
33
|
|
48
|
|
Production capacity excluding St. Marys (MT)(3)(4)
|
51
|
|
51
|
|
Capacity utilization excluding St. Marys (3)(5)
|
65
|
%
|
94
|
%
|
Total production capacity (MT)(4)(6)
|
58
|
|
58
|
|
Total capacity utilization(5)(6)
|
57
|
%
|
83
|
%
|
•
|
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 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 expense;
|
•
|
adjusted EBITDA does not reflect stock-based compensation or the non‑cash write‑off of fixed assets; and
|
•
|
other companies, including companies in our industry, may calculate EBITDA and adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
|
|
For the Three Months
Ended March 31, |
|||||
|
2020
|
2019
|
||||
|
(in thousands)
|
|||||
Net income
|
$
|
122,268
|
|
$
|
197,436
|
|
Add:
|
|
|
||||
Depreciation and amortization
|
14,284
|
|
15,585
|
|
||
Interest expense
|
25,672
|
|
33,700
|
|
||
Interest income
|
(1,141
|
)
|
(414
|
)
|
||
Income taxes
|
23,946
|
|
32,418
|
|
||
EBITDA
|
185,029
|
|
278,725
|
|
||
Adjustments:
|
|
|
||||
Pension and OPEB plan expenses (1)
|
542
|
|
770
|
|
||
Initial and follow-on public offering and related expenses (2)
|
4
|
|
685
|
|
||
Non‑cash (gain) loss on foreign currency remeasurement (3)
|
(3,461
|
)
|
411
|
|
||
Stock-based compensation (4)
|
410
|
|
292
|
|
||
Non‑cash fixed asset write-off (5)
|
—
|
|
2,932
|
|
||
Related party Tax Receivable Agreement benefit(6)
|
(3,346
|
)
|
—
|
|
||
Adjusted EBITDA
|
$
|
179,178
|
|
$
|
283,815
|
|
(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 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.
|
|
For the Three Months
Ended March 31, |
|
Increase/ Decrease
|
|
% Change
|
|||||||||
|
2020
|
|
2019
|
|
|
|||||||||
|
(Dollars in thousands)
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||
Net sales
|
$
|
318,646
|
|
|
$
|
474,994
|
|
|
$
|
(156,348
|
)
|
|
(33
|
)%
|
Cost of sales
|
138,917
|
|
|
195,524
|
|
|
(56,607
|
)
|
|
(29
|
)%
|
|||
Gross profit
|
179,729
|
|
|
279,470
|
|
|
(99,741
|
)
|
|
(36
|
)%
|
|||
Research and development
|
712
|
|
|
637
|
|
|
75
|
|
|
12
|
%
|
|||
Selling and administrative expenses
|
14,932
|
|
|
15,226
|
|
|
(294
|
)
|
|
(2
|
)%
|
|||
Operating income
|
164,085
|
|
|
263,607
|
|
|
(99,522
|
)
|
|
(38
|
)%
|
|||
Other (income) expense
|
(3,314
|
)
|
|
467
|
|
|
(3,781
|
)
|
|
(810
|
)%
|
|||
Related party Tax Receivable Agreement benefit
|
(3,346
|
)
|
|
—
|
|
|
(3,346
|
)
|
|
N/A
|
|
|||
Interest expense
|
25,672
|
|
|
33,700
|
|
|
(8,028
|
)
|
|
(24
|
)%
|
|||
Interest income
|
(1,141
|
)
|
|
(414
|
)
|
|
(727
|
)
|
|
176
|
%
|
|||
Income before
provision for income taxes |
146,214
|
|
|
229,854
|
|
|
(83,640
|
)
|
|
(36
|
)%
|
|||
Provision for income taxes
|
23,946
|
|
|
32,418
|
|
|
(8,472
|
)
|
|
(26
|
)%
|
|||
Net income
|
$
|
122,268
|
|
|
$
|
197,436
|
|
|
$
|
(75,168
|
)
|
|
(38
|
)%
|
|
For the Three Months Ended March 31,
|
||||||
|
2020
|
|
2019
|
||||
|
(Dollars in thousands)
|
||||||
|
|
||||||
Tax expense
|
$
|
23,946
|
|
|
$
|
32,418
|
|
Pre-tax income
|
146,214
|
|
|
229,854
|
|
||
Effective tax rates
|
16.4
|
%
|
|
14.1
|
%
|
•
|
Non-cash items such as depreciation and amortization, impairment, post retirement obligations, and severance and pension plan changes;
|
•
|
Gains and losses attributed to investing and financing activities such as gains and losses on the sale of assets and unrealized currency transaction gains and losses; and
|
•
|
Changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations.
|
•
|
net cash inflows in accounts receivable of $40.7 million from the decrease in accounts receivable due to lower sales;
|
•
|
net cash outflows from increases in inventory of $17.2 million, due primarily to higher quantities of decant oil on hand;
|
•
|
net cash inflows of $7.4 million from the decrease in other current assets primarily due to value-added tax refunds received from foreign governments;
|
•
|
net cash inflows from increased income taxes payable of $14.2 million resulting from our ability to defer a $50.0 million tax payment in a foreign jurisdiction resulting from government enacted COVID-19 relief, partially offset by lower required tax payments due to lower profitability; and
|
•
|
net cash outflows from decreases in accounts payable and accruals of $45.2 million, due to lower purchases of third-party needle coke and payments made to our related-party for our tax receivable agreement.
|
•
|
net cash outflows in accounts receivable of $31.4 million from the increase in accounts receivable due to the timing of sales;
|
•
|
net cash outflows from increases in inventory of $4.7 million, due primarily to higher priced raw materials;
|
•
|
net cash inflows from the utilization of prepaid assets of $7.4 million;
|
•
|
net cash outflows from decreases in accounts payable and accruals of $5.3 million, due to the timing of payments; and
|
•
|
net cash outflows from decreased income taxes payable of $38.3 million resulting from required tax payments as our profitability has increased.
|
•
|
sales made by our subsidiaries in currencies other than local currencies;
|
•
|
raw material purchases made by our foreign subsidiaries in currencies other than local currencies; and
|
•
|
investments in and intercompany loans to our foreign subsidiaries and our share of the earnings of those subsidiaries, to the extent denominated in currencies other than the U.S. dollar.
|
•
|
adverse impact on our customers, and resultant impact on demand for our products,
|
•
|
disruptions at our facilities, including reductions in operating hours, labor shortages, and changes in operating procedures, including for additional cleaning and disinfecting procedures;
|
•
|
disruptions in our supply chain due to transportation delays, travel restrictions, raw material cost increases and shortages, and closures of businesses or facilities;
|
•
|
reductions in our operating effectiveness due to workforce disruptions resulting from “shelter in place” and “stay at home” orders, and the unavailability of key personnel necessary to conduct our business activities; and
|
•
|
volatility in the global financial markets, which could have a negative impact on our ability to access capital and additional sources of financing in the future.
|
Period
|
Total Number of Shares Purchased (1)
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
|
||||||
|
|
|
|
|
|
|
|
||||||
January 1 through January 31, 2020
|
104,646
|
|
|
$
|
11.01
|
|
|
104,646
|
|
|
$
|
87,981,000
|
|
February 1 through February 29, 2020
|
1,449,675
|
|
|
$
|
10.80
|
|
|
1,449,675
|
|
|
$
|
72,325,000
|
|
March 1 through March 31, 2020
|
1,774,253
|
|
|
$
|
7.49
|
|
|
1,774,253
|
|
|
$
|
59,036,000
|
|
Total
|
3,328,574
|
|
|
|
|
3,328,574
|
|
|
|
Exhibit
Number
|
Description of Exhibit
|
3.1
|
|
|
|
3.2
|
|
|
|
10.1+
|
|
|
|
10.2+*
|
|
|
|
31.1*
|
|
|
|
31.2*
|
|
|
|
32.1*
|
|
|
|
32.2*
|
|
|
|
101
|
The following financial information from GrafTech International Ltd.'s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Stockholders' Equity (Deficit), and (vi) Notes to the Condensed Consolidated Financial Statements.
|
|
|
104
|
Cover Page Interactive Data file (formatted as Inline XBRL and contained in Exhibit 101).
|
|
|
*
|
Filed herewith
|
+
|
Indicates management contract or compensatory plan or arrangement
|
|
|
|
GRAFTECH INTERNATIONAL LTD.
|
Date:
|
May 6, 2020
|
By:
|
/s/ Quinn J. Coburn
|
|
|
|
Quinn J. Coburn
|
|
|
|
Chief Financial Officer, Vice President Finance and Treasurer (Principal Financial Officer)
|
(a)
|
The waiver is part of an agreement between him and GrafTech and it has been written so that he understands it;
|
(b)
|
The waiver specifically refers to rights or claims under the ADEA;
|
(c)
|
He does not waive any rights or claims that he may have after he executes this Agreement;
|
(d)
|
His waiver is in exchange for consideration that is more valuable than what he is already entitled to;
|
(e)
|
He has been and is hereby advised by GrafTech to consult with an attorney of his choice regarding the terms, meaning and impact of this Agreement so that he fully understands the matters addressed in this Agreement and if he thereafter choose to consent to this Agreement, his consent and the scope of his consent is knowingly given;
|
(f)
|
He may consider the terms and conditions of this Agreement for a period of up to twenty-one (21) days following the date this Agreement is presented to him for his review; and
|
(g)
|
He may revoke this Agreement by serving GrafTech with his written notice of revocation within seven (7) calendar days after he executes this Agreement. Such notice must be provided to Brian Blowes, Vice-President, Organizational Development & Administration, GrafTech International Holdings Inc., 932 Keynote Circle, Brooklyn Heights, Ohio 44131, or via email at Brian.Blowes@graftech.com.
|
5.
|
The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
|
By:
|
|
/s/ David J. Rintoul
|
|
|
David J. Rintoul
President and Chief Executive Officer,
(Principal Executive Officer)
|
|
|
May 6, 2020
|
5.
|
The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
|
By:
|
|
/s/ Quinn J. Coburn
|
|
|
Quinn J. Coburn
Chief Financial Officer, Vice President Finance and Treasurer
(Principal Financial and Accounting Officer)
|
|
|
May 6, 2020
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation.
|
By:
|
|
/s/ David J. Rintoul
|
|
|
David J. Rintoul
President and Chief Executive Officer,
(Principal Executive Officer)
|
|
|
May 6, 2020
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation.
|
By:
|
|
/s/ Quinn J. Coburn
|
|
|
Quinn J. Coburn
Chief Financial Officer, Vice President Finance and Treasurer
(Principal Financial and Accounting Officer)
|
|
|
May 6, 2020
|