GrafTech International(EAF) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents GrafTech's unaudited condensed consolidated financial statements for Q1 2024, including core statements and detailed accounting notes Condensed Consolidated Balance Sheets | ASSETS (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------- | :------------- | :---------------- | | Cash and cash equivalents | $165,190 | $176,878 | | Total current assets | $620,030 | $674,793 | | Total assets | $1,215,874 | $1,288,889 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------------- | :------------- | :---------------- | | Total current liabilities | $166,431 | $190,543 | | Long-term debt | $926,779 | $925,511 | | Total stockholders' equity | $37,618 | $78,247 | | Total liabilities and stockholders' equity | $1,215,874 | $1,288,889 | - Total assets decreased from $1,288,889 thousand at December 31, 2023, to $1,215,874 thousand at March 31, 2024. Total stockholders' equity significantly decreased from $78,247 thousand to $37,618 thousand over the same period[16] Condensed Consolidated Statements of Operations and Comprehensive Loss | (Dollars in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $136,584 | $138,802 | | Gross (loss) profit | $(1,312) | $26,157 | | Operating (loss) income | $(21,361) | $2,814 | | Net loss | $(30,869) | $(7,369) | | Basic loss per common share | $(0.12) | $(0.03) | | Comprehensive loss | $(41,594) | $(5,323) | - The company reported a net loss of $30,869 thousand for Q1 2024, a significant increase from $7,369 thousand in Q1 2023. Basic loss per common share also increased from $(0.03) to $(0.12)[18] Condensed Consolidated Statements of Cash Flows | (Dollars in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(530) | $24,798 | | Net cash used in investing activities | $(10,508) | $(25,179) | | Net cash (used in) provided by financing activities | $(98) | $807 | | Net change in cash and cash equivalents | $(11,136) | $426 | | Cash and cash equivalents at end of period | $165,190 | $135,440 | - Operating activities shifted from providing $24,798 thousand in Q1 2023 to using $530 thousand in Q1 2024. Investing activities used less cash, decreasing from $25,179 thousand to $10,508 thousand, primarily due to reduced capital expenditures[21][171] Condensed Consolidated Statements of Stockholders' Equity | (Dollars in thousands) | Balance as of December 31, 2023 | Balance as of March 31, 2024 | | :--------------------- | :------------------------------ | :--------------------------- | | Total Stockholders' Equity | $78,247 | $37,618 | | Net loss | $(30,869) | $(30,869) | | Total other comprehensive loss | $(10,725) | $(10,725) | | Stock-based compensation | $1,047 | $1,047 | | Payments for taxes related to net share settlement of equity awards | $(82) | $(82) | - Total stockholders' equity decreased from $78,247 thousand at December 31, 2023, to $37,618 thousand at March 31, 2024, primarily due to a net loss of $30,869 thousand and total other comprehensive loss of $10,725 thousand[23] Notes to the Condensed Consolidated Financial Statements Note 1. Organization and Summary of Significant Accounting Policies - GrafTech International Ltd. is a leading manufacturer of high-quality graphite electrode products, essential for electric arc furnace (EAF) steel production, and is vertically integrated into petroleum needle coke, its key raw material[24] - The interim condensed consolidated financial statements are unaudited and prepared in accordance with Rule 10-01 of Regulation S-X and GAAP, reflecting all necessary adjustments for fair presentation[25][26] - The company is evaluating the impact of recently issued accounting pronouncements, ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Taxes), which are effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[27][28] Note 2. Revenue from Contracts with Customers | Disaggregated Revenue (Dollars in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------- | :-------------------------------- | :-------------------------------- | | Graphite Electrodes - LTAs | $36,094 | $69,866 | | Graphite Electrodes - Non-LTAs | $87,893 | $56,960 | | By-products and other | $12,597 | $11,976 | | Total Revenues | $136,584 | $138,802 | - LTA revenue decreased significantly from $69,866 thousand in Q1 2023 to $36,094 thousand in Q1 2024, while non-LTA revenue increased from $56,960 thousand to $87,893 thousand, indicating a shift in revenue mix[29] | Contract Liability Balances (Dollars in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------------------- | :------------- | :---------------- | | Current deferred revenue | $23,695 | $31,583 | - The company expects LTA revenue for the full year 2024 to be between $100 million and $135 million, including potential termination fees. Approximately $64.0 million to $99.0 million of this is expected for the remainder of 2024[33][34] Note 3. Intangible Assets | Intangible Assets (Dollars in thousands) | March 31, 2024 Net Carrying Amount | December 31, 2023 Net Carrying Amount | | :--------------------------------------- | :--------------------------------- | :------------------------------------ | | Trade names | $4,903 | $5,121 | | Technology and know-how | $8,789 | $9,554 | | Customer-related intangibles | $26,630 | $27,698 | | Total finite-lived intangible assets | $40,322 | $42,373 | - Amortization expense for intangible assets was $2.1 million in Q1 2024, down from $2.4 million in Q1 2023. Expected amortization for the remainder of 2024 is approximately $5.9 million[36] Note 4. Debt and Liquidity | Long-term Debt (Dollars in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------ | :------------- | :---------------- | | 2020 Senior Secured Notes | $500,000 | $500,000 | | 2023 Senior Secured Notes | $450,000 | $450,000 | | Total debt | $926,911 | $925,645 | | Long-term debt | $926,779 | $925,511 | - The company's total debt remained stable at approximately $926.9 million as of March 31, 2024. The fair value of debt decreased from $676.6 million to $655.6 million[37] - Availability under the 2018 Revolving Credit Facility was $110.0 million as of March 31, 2024, reduced due to operating performance and compliance with financial covenants. No borrowings were outstanding, but $5.5 million in letters of credit were drawn[38][42] - The company was in compliance with all debt covenants for the 2018 Revolving Credit Facility, 2020 Senior Secured Notes, and 2023 Senior Secured Notes as of March 31, 2024, and December 31, 2023[42][46][51] Note 5. Inventories | Inventories (Dollars in thousands) | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Raw materials and supplies | $86,004 | $109,084 | | Work in process | $181,977 | $186,473 | | Finished goods | $34,892 | $34,589 | | Total | $302,873 | $330,146 | - Total inventories decreased from $330,146 thousand at December 31, 2023, to $302,873 thousand at March 31, 2024. A lower of cost or market (LCM) inventory valuation adjustment of $2.7 million was recorded in Q1 2024[52] Note 6. Interest Expense | Components of Interest Expense (Dollars in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest incurred on debt | $17,095 | $10,622 | | Total interest expense | $15,626 | $12,806 | - Total interest expense increased by $2.8 million, or 22%, to $15,626 thousand in Q1 2024 compared to Q1 2023, primarily due to higher interest incurred on debt, particularly from the 2023 Senior Secured Notes (9.875% fixed rate)[53][134] Note 7. Commitments and Contingencies - The company is involved in various legal proceedings, but does not believe their ultimate disposition will have a material adverse effect on its financial position, results of operations, or cash flows[55][216] - In an arbitration case, the sole arbitrator dismissed all claims against the company's subsidiaries and ordered claimants to pay approximately $9.2 million in legal fees to the company, while the company was ordered to pay $60,000 to claimants[56][217] - The total Tax Receivable Agreement liability decreased from $11.1 million at December 31, 2023, to $5.7 million at March 31, 2024[61] - A Mexican court ruled in GrafTech Commercial Mexico's favor on January 8, 2024, annulling a $30.4 million VAT tax assessment for Jan-Apr 2019. The MTA has appealed this decision. For a separate 2018 VAT audit with a proposed $51.0 million assessment, GrafTech Commercial Mexico plans to challenge it, believing its VAT exemption application is appropriate[62][63][64][221][222][224][225] Note 8. Income Taxes | Income Taxes (Dollars in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Benefit for income taxes | $(4,201) | $(2,904) | | Pre-tax loss | $(35,070) | $(10,273) | | Effective tax rate | 12.0 % | 28.3 % | - The effective tax rate for Q1 2024 was 12.0%, lower than the U.S. statutory rate of 21%, primarily due to the mix of U.S. and foreign earnings, tax incentives, and provisions of the Tax Cuts and Jobs Act of 2017[66] - The company continues to assess the realization of deferred tax assets and has established valuation allowances where significant positive evidence does not outweigh negative evidence[68] Note 9. Fair Value Measurements and Derivative Instruments - The company uses foreign currency derivatives, commodity derivative contracts, and interest rate swaps to manage risks from fluctuations in currency exchange rates, commodity prices, and interest rates[69] | Notional Amounts of Outstanding Derivative Instruments (Dollars in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------------------------------------------------------- | :------------- | :---------------- | | Derivative instruments designated as hedges: Foreign currency derivatives | $0 | $10,684 | | Derivative instruments not designated as hedges: Foreign currency derivatives | $21,953 | $41,863 | - All interest rate swap contracts were terminated in Q2 2023, resulting in a net cash receipt of $20.4 million and a $23.1 million gain on embedded derivatives. The remaining balance of the embedded derivative gain in AOCL is $5.8 million as of March 31, 2024[79][80] | Pre-tax Realized (Gains) Losses on Designated Cash Flow Hedges (Dollars in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Foreign currency derivatives (Cost of goods sold) | $(68) | $2,040 | | Commodity derivative contracts (Cost of goods sold) | $(2,462) | $(2,817) | | Interest rate swap contracts (Interest expense) | $(2,737) | $(2,445) | Note 10. Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss (Dollars in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------------------------------------- | :------------- | :---------------- | | Foreign currency translation adjustments, net of tax | $(25,660) | $(19,188) | | Commodity, interest rate, and foreign currency derivatives, net of tax | $3,477 | $7,730 | | Total accumulated other comprehensive loss | $(22,183) | $(11,458) | - Total accumulated other comprehensive loss increased from $(11,458) thousand at December 31, 2023, to $(22,183) thousand at March 31, 2024, primarily due to foreign currency translation adjustments[86] Note 11. Loss per Share | Loss per Share (Dollars in thousands, except per share amounts) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(30,869) | $(7,369) | | Basic loss per share | $(0.12) | $(0.03) | | Diluted loss per share | $(0.12) | $(0.03) | | Weighted average common shares outstanding (basic and diluted) | 257,399,365 | 256,974,904 | - Basic and diluted loss per common share increased to $(0.12) in Q1 2024 from $(0.03) in Q1 2023, reflecting the higher net loss[87] - No shares were excluded from the diluted loss per share calculation in Q1 2024 due to anti-dilution, compared to approximately 790 shares in Q1 2023[88] Note 12. Stock-Based Compensation - In Q1 2024, the company granted 3,114,328 RSUs and 1,353,661 PSUs to employees, and 66,188 DSUs to non-employee directors[90] - Stock-based compensation expense recognized was $1.0 million in Q1 2024, up from $0.8 million in Q1 2023, primarily recorded in selling and administrative expenses[93] - As of March 31, 2024, unrecognized compensation cost for unvested awards was approximately $14.7 million, to be recognized over the remaining vesting period[94] Note 13. Supplementary Balance Sheet Detail - GrafTech Mexico participates in a Supplier Finance Program (SFP), with $6.1 million in SFP obligations included in accounts payable as of March 31, 2024, up from $4.6 million at December 31, 2023[95][96] Note 14. Rationalization Expenses - In Q1 2024, the company announced a cost rationalization plan, indefinitely suspending production at its St. Marys, Pennsylvania facility (except for machining) and idling other assets, reducing graphite electrode production capacity to approximately 178 thousand MT[97] - These initiatives led to a reduction of approximately 130 employees (10% of the workforce) and resulted in $3.1 million in rationalization charges (severance and contract terminations) and $2.7 million in non-cash write-offs of inventory and fixed assets[97][98] | Rationalization Costs (Dollars in thousands) | Three Months Ended March 31, 2024 | | :------------------------------------------- | :-------------------------------- | | Inventory write-offs | $2,202 | | Fixed asset write-offs | $453 | | Severance and related costs | $2,878 | | Contract terminations | $267 | | Total rationalization-related expenses | $2,655 | | Total rationalization expenses | $3,145 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of GrafTech's Q1 2024 financial condition, operational results, strategic initiatives, outlook, and liquidity The Company - GrafTech is a leading manufacturer of high-quality graphite electrode products, crucial for EAF steel production, and is substantially vertically integrated into petroleum needle coke[101] - The company believes the environmental and economic advantages of EAF steel production, combined with its leadership and vertical integration, position it for continued long-term growth[102] Operational and Commercial Update | Metric | Q1 2024 | Q1 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | Sales volume (MT) | 24.1 thousand | 16.9 thousand | +43% | | Production volume (MT) | 26.0 thousand | 15.8 thousand | +65% | - Sales volume increased by 43% to 24.1 thousand MT in Q1 2024 compared to Q1 2023, largely due to the prior year's temporary suspension of operations in Monterrey, Mexico[103] - The weighted-average realized price for non-LTA volume decreased by 27% to approximately $4,400 per MT in Q1 2024, reflecting persistent challenges in the commercial environment. LTA volume had a weighted-average realized price of approximately $8,700 per MT[104] Management Changes - Timothy K. Flanagan was appointed Chief Executive Officer and President, and also joined the Board of Directors, effective March 26, 2024[106] Cost Rationalization and Footprint Optimization Plan Announced in February 2024 - The company indefinitely suspended production activities at its St. Marys, Pennsylvania facility (except for machining) and idled certain assets, reducing graphite electrode production capacity to approximately 178 thousand MT in 2024[107] - These initiatives led to a global headcount reduction of approximately 130 employees (10% of the workforce) and are expected to result in annualized cost savings of approximately $25.0 million, with $15.0 million in cost of goods sold and the remainder in selling and administrative expenses[107] - Rationalization charges of $3.1 million for severance and contract terminations (cash) and $2.7 million for non-cash inventory and fixed asset write-offs were recorded in Q1 2024[108] Outlook - Near-term demand for graphite electrodes is expected to remain weak due to global economic uncertainty and challenging pricing dynamics. Q2 2024 sales volume is anticipated to be in line with Q1 2024, with a modest year-over-year improvement for the full year[110] - The company now expects a mid-teen percentage point year-over-year decline in full-year 2024 cash cost of goods sold per MT, exceeding previous guidance, driven by strategic cost reductions and anticipated volume improvements[111] | Estimated LTA Outlook | 2024 Outlook | | :-------------------- | :----------- | | Estimated LTA volume (in thousands of MT) | 13-16 | | Estimated LTA revenue (in millions) | $100-$135 | - Longer term, the company is confident in demand growth for graphite electrodes due to steel industry decarbonization efforts and increased adoption of EAF steelmaking, as well as accelerating demand for petroleum needle coke in lithium-ion batteries[112] Capital Structure and Liquidity | Liquidity (in millions) | March 31, 2024 | | :---------------------- | :------------- | | Cash and cash equivalents | $165.2 | | 2018 Revolving Credit Facility availability | $110.0 | | Total liquidity | $275.2 | - As of March 31, 2024, the company had $275.2 million in liquidity, consisting of $165.2 million in cash and cash equivalents and $110.0 million in available revolving credit. Gross debt was $950.1 million[115] Key metrics used by management to measure performance - Management uses non-GAAP financial measures like EBITDA, adjusted EBITDA, adjusted net loss, and adjusted loss per share, along with operating metrics such as sales volume, production volume, production capacity, and capacity utilization, to evaluate performance[116][121][122][123] | Key Financial Measures (in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $136,584 | $138,802 | | Net loss | $(30,869) | $(7,369) | | Loss per share | $(0.12) | $(0.03) | | Adjusted EBITDA | $194 | $15,115 | | Key Operating Measures (in thousands, except utilization) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Sales volume (MT) | 24.1 | 16.9 | | Production volume (MT) | 26.0 | 15.8 | | Production capacity (MT) | 45.0 | 51.0 | | Capacity utilization | 58 % | 31 % | Results of Operations (Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023) | (Dollars in thousands) | Q1 2024 | Q1 2023 | Increase/Decrease | % Change | | :--------------------- | :----------- | :----------- | :---------------- | :------- | | Net sales | $136,584 | $138,802 | $(2,218) | (2)% | | Cost of goods sold | $135,204 | $112,645 | $22,559 | 20 % | | Gross (loss) profit | $(1,312) | $26,157 | $(27,469) | (105)% | | Operating (loss) income | $(21,361) | $2,814 | $(24,175) | (859)% | | Net loss | $(30,869) | $(7,369) | $(23,500) | 319 % | - Net sales decreased by 2% due to lower non-LTA realized prices and a shift from LTA to non-LTA volume, partially offset by a 43% increase in sales volume[128] - Cost of goods sold increased by 20%, primarily due to higher sales volume and $2.7 million in rationalization-related charges. Gross profit turned into a loss of $1,312 thousand from a profit of $26,157 thousand[129] - Selling and administrative expenses decreased by 31% ($6.9 million) due to reduced selling and variable compensation-related expenses[131] Effects of Changes in Currency Exchange Rates - Changes in currency exchange rates decreased net sales by $0.2 million and cost of goods sold by $2.1 million in Q1 2024 compared to Q1 2023[137] - Fluctuations in foreign currency exchange rates can impact net sales, cost of goods sold, and net loss, and the company uses financial instruments to manage these exposures[135][136][138] Liquidity and Capital Resources - As of March 31, 2024, the company had $275.2 million in liquidity, comprising $165.2 million in cash and cash equivalents and $110.0 million in availability under its 2018 Revolving Credit Facility[140] - The company believes it has adequate liquidity for the next twelve months, despite a reduction in revolving credit facility availability due to operating performance[140] - Capital expenditures totaled $10.5 million in Q1 2024, and are expected to be in the range of $35.0 million to $40.0 million for the full year 2024[168] - The company's ability to pay dividends is currently suspended and depends on financial position, results of operations, legal requirements, and debt obligations[163] Debt Structure - The 2018 Revolving Credit Facility, maturing May 31, 2027, had $110.0 million availability as of March 31, 2024, with no outstanding borrowings but $5.5 million in letters of credit[145] - The 2020 Senior Secured Notes ($500 million, 4.625% due 2028) and 2023 Senior Secured Notes ($450 million, 9.875% due 2028) are secured on a pari passu basis by collateral and contain customary covenants and events of default[151][153][156][159] - The company was in compliance with all debt covenants for its credit facilities and senior secured notes as of March 31, 2024, and December 31, 2023[150][155][161] Uses of Liquidity - The Board of Directors authorized a stock repurchase program of up to $250.0 million, with $99.0 million remaining as of March 31, 2024. No shares were repurchased in Q1 2024[162] - The quarterly cash dividend of $0.01 per share was suspended on August 2, 2023, and there is no assurance of future dividend payments[163] - Potential uses of liquidity include capital expenditures, debt repayments, dividends, share repurchases, and other general purposes, which may be funded by existing liquidity or new financing[164] Cash Flow | Cash Flow Activities (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(530) | $24,798 | | Net cash used in investing activities | $(10,508) | $(25,179) | | Net cash (used in) provided by financing activities | $(98) | $807 | | Net change in cash and cash equivalents | $(11,136) | $426 | - Operating cash flow shifted from a $24.8 million source in Q1 2023 to a $0.5 million use in Q1 2024, primarily due to an increased net loss and a decrease in cash provided by working capital[170] - Investing activities used less cash ($10.5 million vs. $25.2 million) due to reduced capital expenditures. Financing activities used $0.1 million in Q1 2024, compared to providing $0.8 million in Q1 2023[171][172] Description of Our Financing Structure - The company's financing structure is detailed in Note 4, 'Debt and Liquidity,' of the Condensed Consolidated Financial Statements[174] Non-GAAP financial measures - The company uses non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net loss, adjusted loss per share, free cash flow, adjusted free cash flow, and cash cost of goods sold per MT to evaluate performance and liquidity[175][176][178][180][181] | Reconciliation of Net Loss to Adjusted Net Loss (Dollars in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(30,869) | $(7,369) | | Total non-GAAP adjustments pre-tax | $7,279 | $2,177 | | Income tax impact on non-GAAP adjustments | $1,571 | $357 | | Adjusted net loss | $(25,161) | $(5,549) | | Reconciliation of Net Loss to Adjusted EBITDA (Dollars in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(30,869) | $(7,369) | | EBITDA | $(7,085) | $12,938 | | Adjusted EBITDA | $194 | $15,115 | | Reconciliation of Net Cash (Used in) Provided by Operating Activities to Free Cash Flow and Adjusted Free Cash Flow (Dollars in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(530) | $24,798 | | Capital expenditures | $(10,511) | $(25,271) | | Free cash flow | $(11,041) | $(473) | | Adjusted free cash flow | $(11,041) | $3,157 | | Reconciliation of Cost of Goods Sold to Cash Cost of Goods Sold per MT (Dollars in thousands, except per MT amounts) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of goods sold | $135,204 | $112,645 | | Cash cost of goods sold | $110,742 | $95,248 | | Sales volume (in thousands of MT) | 24.1 | 16.9 | | Cash cost of goods sold per MT | $4,595 | $5,636 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Outlines GrafTech's exposure to market risks from interest rates, currency, and commodity prices, managed through derivative instruments and sensitivity analyses - GrafTech is exposed to market risks from changes in interest rates, currency exchange rates, energy commodity prices, and commercial energy rates, and uses derivative financial instruments to manage these risks[203][205] - The company's 2018 Revolving Credit Facility exposes it to variable interest rates (Adjusted Term SOFR Rate, Adjusted EURIBOR Rate, or ABR Rate)[204] - Foreign currency derivatives are used to hedge global currency exposures. As of March 31, 2024, outstanding foreign currency derivatives represented a $0.1 million unrealized pre-tax net gain[206][207] - A 10% appreciation or depreciation in the U.S. dollar against foreign currencies would result in a corresponding $0.5 million decrease or increase, respectively, in the fair value of the foreign currency hedge portfolio[209] Item 4. Controls and Procedures Confirms management's evaluation of disclosure controls and procedures as effective for Q1 2024, with no material changes in internal control over financial reporting - Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[212][213] - There were no material changes in internal control over financial reporting during the three months ended March 31, 2024[214] PART II. OTHER INFORMATION Item 1. Legal Proceedings Details GrafTech's legal proceedings, including arbitration, Monterrey facility suspension, Brazil labor dispute, and a stockholder class action, generally not expecting material adverse effects Arbitration - In an arbitration case initiated by customers failing to perform under Long-Term Agreements (LTAs), the sole arbitrator dismissed all claims against GrafTech's subsidiaries and ordered claimants to pay approximately $9.2 million in legal fees to the company[217] Monterrey, Mexico Suspension of Operations - GrafTech Mexico's Monterrey facility experienced a temporary suspension in late 2022 due to environmental permit issues. The suspension was conditionally lifted in November 2022, allowing operations to resume, but related legal proceedings are ongoing[218] - An administrative proceeding was opened against GrafTech Mexico for lacking environmental impact authorization and risk study. The company submitted the required studies and is vigorously defending its position[219] Brazil Clause IV - Ongoing litigation in Brazil involves employees seeking additional wage amounts from 1989-1990. While lower courts have ruled in GrafTech Brazil's favor, employees have filed further appeals. The potential loss cannot be assessed as claims do not specify damages[220] Mexico VAT - A Mexican court ruled in GrafTech Commercial Mexico's favor on January 8, 2024, annulling a $30.4 million VAT tax assessment for Jan-Apr 2019. The MTA has appealed this decision[221] - For a separate 2018 VAT audit, the MTA intends to assess approximately $51.0 million. GrafTech Commercial Mexico plans to challenge this assessment, believing its VAT exemption application is appropriate and a loss is not probable[222][224][225] Stockholder Class Action - A stockholder class action complaint was filed on January 25, 2024, alleging material misrepresentations or omissions related to the Monterrey facility suspension. It is too early to determine if this will have a material adverse effect[226] - The company is involved in various legal proceedings, but does not believe their ultimate disposition will have a material adverse effect on its financial position, results of operations, or cash flows[216] Item 1A. Risk Factors States no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K filed on February 14, 2024 - No material changes have occurred to the Risk Factors disclosed in the Annual Report on Form 10-K filed on February 14, 2024[228] Item 5. Other Information Confirms no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 31, 2024[230] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including corporate governance documents, stock unit agreements, CEO/CFO certifications, and Inline XBRL financial information - Exhibits include the Amended and Restated Certificate of Incorporation and By-Laws, forms of Performance Stock Unit Agreements, and certifications from the Chief Executive Officer and Interim Chief Financial Officer[233] - The financial information from the Quarterly Report on Form 10-Q is formatted in Inline XBRL (Extensible Business Reporting Language) as Exhibit 101[233][234] SIGNATURE Contains the signature of Catherine Hedoux-Delgado, Interim CFO, certifying the filing of the Report on behalf of GrafTech International Ltd. on April 26, 2024 - The Report was signed on April 26, 2024, by Catherine Hedoux-Delgado, Interim Chief Financial Officer and Treasurer, on behalf of GrafTech International Ltd[237][238]