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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from______ to ______
Commission file number: 1-13888
gti-20200930_g1.jpg
GRAFTECH INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
Delaware27-2496053
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
982 Keynote Circle44131
Brooklyn Heights,OH(Zip code)
(Address of principal executive offices)
Registrant’s telephone number, including area code: (216676-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value per shareEAFNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerEmerging Growth Company
Non-Accelerated FilerSmaller Reporting Company
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
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes      No 
As of October 31, 2020, 267,188,547 shares of common stock, par value $0.01 per share, were outstanding.


TABLE OF CONTENTS
 

Presentation of Financial, Market and Legal Data
    We present our financial information on a consolidated basis. Unless otherwise noted, when we refer to dollars, we mean U.S. dollars.
Unless otherwise specifically noted, market and market share data in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 (the "Report") are our own estimates or derived from sources described in our Annual Report on Form 10-K for the year ended December 31, 2019 ("Annual Report on Form 10-K") filed on February 21, 2020. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Forward-Looking Statements” and “Risk Factors” in this Report and in our Annual Report on Form 10-K. We cannot guarantee the accuracy or completeness of this market and market share data and have not independently verified it. None of the sources has consented to the disclosure or use of data in this Report.
Forward-Looking Statements
Some of the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Report 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” or the negative versions of those words or other comparable words. Any forward-looking statements contained in this Report are based upon our historical performance and on our current plans, estimates and expectations in light of 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. 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:
2

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 recently filed 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;
3

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 highly 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 (as defined below);
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
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.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements, including the Risk Factors sections, that are included in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020, and other filings with the Securities and Exchange Commission ("SEC"). The forward-looking statements made in this Report 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.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this Report that could cause actual results to differ before making an investment decision to purchase our common stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.
4

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
As of
September 30,
2020
As of
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$158,841 $80,935 
Accounts and notes receivable, net of allowance for doubtful accounts of
$8,973 as of September 30, 2020 and $5,474 as of December 31, 2019
164,195 247,051 
Inventories299,236 313,648 
Prepaid expenses and other current assets35,299 40,946 
Total current assets657,571 682,580 
Property, plant and equipment765,822 733,417 
Less: accumulated depreciation264,304 220,397 
Net property, plant and equipment501,518 513,020 
Deferred income taxes40,767 55,217 
Goodwill171,117 171,117 
Other assets96,616 104,230 
Total assets$1,467,589 $1,526,164 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$49,056 $78,697 
Short-term debt147 141 
Accrued income and other taxes81,756 65,176 
Other accrued liabilities65,058 48,335 
Related party payable - tax receivable agreement16,115 27,857 
Total current liabilities212,132 220,206 
Long-term debt1,564,431 1,812,682 
Other long-term obligations76,403 72,562 
Deferred income taxes44,251 49,773 
Related party payable - tax receivable agreement long-term42,479 62,014 
Contingencies - Note 8
Stockholders’ equity:
Preferred stock, par value $0.01, 300,000,000 shares authorized, none issued
  
Common stock, par value $0.01, 3,000,000,000 shares authorized, 267,188,547
shares issued and outstanding as of September 30, 2020 and 270,485,308
as of December 31, 2019
2,672 2,705 
Additional paid-in capital757,576 765,419 
Accumulated other comprehensive loss(39,161)(7,361)
Accumulated deficit(1,193,194)(1,451,836)
Total stockholders’ deficit(472,107)(691,073)
Total liabilities and stockholders’ equity$1,467,589 $1,526,164 
See accompanying Notes to Condensed Consolidated Financial Statements
5


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except share data)
(Unaudited)
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
 2020201920202019
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales$286,987 $420,797 $886,351 $1,376,181 
Cost of sales131,862 178,497 401,379 571,068 
Gross profit155,125 242,300 484,972 805,113 
Research and development650 611 2,072 1,961 
Selling and administrative expenses19,062 15,708 49,995 46,328 
Operating profit135,413 225,981 432,905 756,824 
Other expense (income), net694 (688)(2,309)642 
Related party Tax Receivable Agreement benefit  (3,346) 
Interest expense22,474 31,803 69,026 98,472 
Interest income(93)(1,765)(1,582)(2,910)
Income before provision for income taxes112,338 196,631 371,116 660,620 
Provision for income taxes18,104 20,755 61,838 90,940 
Net income$94,234 $175,876 $309,278 $569,680 
Basic income per common share*:
Net income per share$0.35 $0.61 $1.15 $1.96 
Weighted average common shares outstanding267,265,705 290,112,233 267,908,427 290,410,859 
Diluted income per common share*:
Income per share$0.35 $0.61 $1.15 $1.96 
Weighted average common shares outstanding267,279,555 290,127,296 267,920,890 290,422,351 
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income$94,234 $175,876 $309,278 $569,680 
Other comprehensive income:
Foreign currency translation adjustments, net of tax of
  $0, $(92), $(162) and $(128), respectively
7,455 (13,597)(6,083)(13,519)
Commodity and interest rate derivatives, net of tax of $(740), $6,972, $7,224 and $1,065, respectively
2,826 (25,934)(25,717)(4,358)
Other comprehensive income (loss), net of tax:10,281 (39,531)(31,800)(17,877)
Comprehensive income$104,515 $136,345 $277,478 $551,803 
*See Notes 1 and 12
See accompanying Notes to Condensed Consolidated Financial Statements
6

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the Nine Months
Ended September 30,
 20202019
Cash flow from operating activities:
Net income$309,278 $569,680 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization45,074 46,387 
Related party Tax Receivable Agreement benefit(3,346) 
Deferred income tax provision16,237 28,696 
Interest expense4,768 4,764 
Other charges, net2,335 17,689 
Net change in working capital*85,098 (80,311)
Change in related party Tax Receivable Agreement(27,857) 
Change in long-term assets and liabilities(14,922)(2,133)
Net cash provided by operating activities416,665 584,772 
Cash flow from investing activities:
Capital expenditures(30,688)(44,053)
Proceeds from the sale of assets78 98 
Net cash used in investing activities(30,610)(43,955)
Cash flow from financing activities:
Repurchase of common stock-non-related party (30,099)(9,484)
Payment of tax withholdings related to net share settlement of equity awards(71) 
Principal repayments on long-term debt(249,214)(125,000)
Dividends paid to non-related-party(7,553)(15,505)
Dividends paid to related-party(20,650)(58,507)
Net cash used in financing activities(307,587)(208,496)
Net change in cash and cash equivalents78,468 332,321 
Effect of exchange rate changes on cash and cash equivalents(562)(1,037)
Cash and cash equivalents at beginning of period80,935 49,880 
Cash and cash equivalents at end of period$158,841 $381,164 
* Net change in working capital due to changes in the following components:
Accounts and notes receivable, net$78,408 $(20,727)
Inventories10,371 (19,908)
Prepaid expenses and other current assets5,437 5,703 
Income taxes payable16,032 (28,152)
Accounts payable and accruals(25,078)(17,336)
Interest payable(72)109 
Net change in working capital$85,098 $(80,311)

See accompanying Notes to Condensed Consolidated Financial Statements
7

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except share data)
(Unaudited)
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, 2019270,485,308 $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 loss— — — (56,949)— (56,949)
Stock-based compensation29,394 — 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, 2020267,178,663 $2,672 $756,103 $(64,310)$(1,374,844)$(680,379)
Comprehensive income (loss):
Net income— — — — 92,776 92,776 
Other comprehensive income (loss):
Commodity and interest rate derivatives income (loss), net of tax of $(3,199)
— — — 12,132 — 12,132 
Commodity derivatives reclassification adjustments, net of tax of $236
— — — (894)— (894)
Foreign currency translation adjustments, net of tax of $1
— — — 3,630 — 3,630 
   Total other comprehensive income— — — 14,868 — 14,868 
Stock-based compensation13,017 — 718 — — 718 
Dividends paid to related party stockholder ($0.01 per share)
— — — — (1,993)(1,993)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (679)(679)
Common stock withheld for taxes on equity award settlement(3,133)— (9)— (16)(25)
Balance as of June 30, 2020267,188,547 $2,672 $756,812 $(49,442)$(1,284,756)$(574,714)
Comprehensive income (loss):
Net income— — — — 94,234 94,234 
Other comprehensive income (loss):
Commodity and interest rate derivative income (loss), net of tax of $(1,009)
— — — 3,852 — 3,852 
Commodity derivatives reclassification adjustments, net of tax of $269
— — — (1,026)— (1,026)
Foreign currency translation adjustments, net of tax of $0
— — — 7,455 — 7,455 
   Total other comprehensive income— — — 10,281 — 10,281 
Stock-based compensation — 764 — — 764 
Dividends paid to related party stockholder ($0.01 per share)
— — — — (1,724)(1,724)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (948)(948)
Balance as of September 30, 2020267,188,547 $2,672 $757,576 $(39,161)$(1,193,194)$(472,107)
8

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, 2018290,537,612 $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 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 income— — — 22,118 — 22,118 
Stock-based compensation293 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, 2019290,537,612 $2,905 $819,915 $16,318 $(1,720,756)$(881,618)
Comprehensive income (loss):
Net income— — — — 196,368 196,368 
Other comprehensive income (loss):
Commodity derivatives income (loss), net of tax of $603
— — — (2,472)— (2,472)
Commodity derivatives reclassification adjustments, net of tax of $393
— — — (1,609)— (1,609)
Foreign currency translation adjustments, net of tax of $(33)
— — — 3,617 — 3,617 
   Total other comprehensive (loss)— — — (464)— (464)
Stock-based compensation570 570 
Dividends paid to related party stockholder ($0.085 per share)
— — — — (19,503)(19,503)
Dividends paid to non-related party stockholders ($0.085 per share)
— — — — (5,191)(5,191)
Balance as of June 30, 2019290,537,612 $2,905 $820,485 $15,854 $(1,549,082)$(709,838)
Comprehensive income (loss):
Net income— — — — 175,876 175,876 
Other comprehensive income (loss):
Commodity and foreign currency derivatives loss, net of tax of $6,306
— — — (23,456)— (23,456)
Commodity derivatives reclassification adjustments, net of tax of $666
— — — (2,478)— (2,478)
Foreign currency translation adjustments of $(92)
— — — (13,597)— (13,597)
   Total other comprehensive income— — — (39,531)— (39,531)
Stock-based compensation— — 705 — — 705 
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)
— — — — (5,118)(5,118)
Common stock repurchases and retirement(879,134)(8)(2,470)— (7,006)(9,484)
Balance as of September 30, 2019289,658,478 $2,897 $818,720 $(23,677)$(1,404,832)$(606,892)

9

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(1)Organization and Summary of Significant Accounting Policies
A. Organization
GrafTech International Ltd. (the “Company”) 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. References herein to "GrafTech," “we,” “our,” or “us” refer collectively to GrafTech International Ltd. and its subsidiaries.
On August 15, 2015, we became an indirect wholly owned subsidiary of Brookfield Asset Management Inc. (together with its affiliates, "Brookfield"). In April 2018, we completed our initial public offering ("IPO") of 38,097,525 shares of our common stock held by Brookfield at a price of $15.00 per share. We did not receive any proceeds related to the IPO. Our common stock is listed on the NYSE under the symbol “EAF.” On July 22, 2020, Brookfield distributed a portion of its GrafTech common stock to the owners in the Brookfield consortium, resulting in the reduction in Brookfield's ownership of outstanding shares of GrafTech common stock to 65%. Brookfield owned approximately 65% of our outstanding common stock as of September 30, 2020.
The Company’s only reportable segment, Industrial Materials, is comprised of our two major product categories: graphite electrodes and petroleum needle coke products. Petroleum needle coke is a key raw material used in the production of graphite electrodes. The Company's vision is to provide highly engineered graphite electrode services, solutions and products to electric arc furnace operators.
B. Basis of Presentation
The interim condensed consolidated financial statements are unaudited; however, in the opinion of management, they have been prepared in accordance with Rule 10-01 of Regulation S-X and in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The December 31, 2019 financial position data included herein was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 ("Annual Report on Form 10-K"), filed on February 21, 2020, but does not include all disclosures required by GAAP in audited financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the accompanying notes, contained in our Annual Report on Form 10-K.
The unaudited condensed consolidated financial statements reflect all adjustments (all of which are of a normal, recurring nature) which management considers necessary for a fair statement of financial position, results of operations, comprehensive income and cash flows for the interim periods presented. The results for the interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.
C. New Accounting Standards
Recently Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). This guidance was issued to simplify the accounting for goodwill impairment. The guidance removes the second step of the goodwill impairment test, which requires that a hypothetical purchase price allocation be performed to determine the amount of impairment, if any. Under this new guidance, a goodwill impairment charge will be based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU No. 2017-04 is effective beginning January 1, 2020. The Company adopted ASU No. 2017-04 on January 1, 2020, with no impact to our financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments–Credit Losses (Topic 326), which introduces the Current Expected Credit Losses ("CECL") accounting model. CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. ASU No. 2016-13 was effective for the Company on January 1, 2020. The adoption of ASU No. 2016-13 resulted in a cumulative-effect adjustment of $2.0 million included as an adjustment to our accounts receivable reserve and to retained earnings on January 1, 2020.

10

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This pronouncement contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. ASU 2020-04 is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 can be elected for both interim and annual periods from March 12, 2020 through December 31, 2022. We plan to adopt ASU 2020-04 as of January 1, 2021. The adoption of ASU 2020-04 is not expected to have a material impact on our financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application of Topic 740 and simplify the accounting for income taxes. This pronouncement removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim reporting periods beginning after December 12, 2020, with early adoption permitted. The Company is currently evaluating the effects of this on our financial position, results of operations or cash flows.

(2)Revenue from Contracts with Customers
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of product and contract for the three and nine months ended September 30, 2020 and 2019:
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
2020201920202019
(Dollars in thousands)
Graphite Electrodes - Three-to-five-year take-or-pay contracts$250,011 $334,097 $771,400 $1,107,742 
Graphite Electrodes - Short-term agreements and spot sales32,303 67,704 93,232 191,249 
By-products and other4,673 18,996 21,719 77,190 
Total Revenues$286,987 $420,797 $886,351 $1,376,181 
The Graphite Electrodes revenue categories include only graphite electrodes manufactured by GrafTech. The revenue category “By-products and Other” includes resales of low-grade electrodes purchased from third-party suppliers, which represent a minimal contribution to our profitability.
Contract Balances
Receivables, net of allowances for doubtful accounts, were $164.2 million as of September 30, 2020 and $247.1 million as of December 31, 2019. Accounts receivables are recorded when the right to consideration becomes unconditional. Payment terms on invoices range from 30 to 120 days depending on the customary business practices of the jurisdictions in which we operate.
Certain short-term and longer-term sales contracts require up-front payments prior to the Company’s fulfillment of any performance obligation. These contract liabilities are recorded as current or long-term deferred revenue, depending on the lag between the pre-payment and the expected delivery of the related products. Additionally, under ASC 606, Revenue from Contracts with Customers, deferred revenue or contract assets originate from contracts where the allocation of the transaction price to the performance obligations based on their relative stand-alone selling prices results in the timing of revenue recognition being different from the timing of the invoicing. In this case, deferred revenue is amortized into revenue based on the transaction price allocated to the remaining performance obligations and contract assets are realized through the contract invoicing.
Contract assets as of September 30, 2020 were $0.8 million and are included in "Prepaid expenses and other current assets" on the Condensed Consolidated Balance Sheets. There were no contract assets as of December 31, 2019.
Current deferred revenue is included in "Other accrued liabilities" and long-term deferred revenue is included in "Other long-term obligations" on the Condensed Consolidated Balance Sheets.
11

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table provides information about deferred revenue from contracts with customers (in thousands):
Current Deferred RevenueLong-Term Deferred Revenue
(Dollars in thousands)
Balance as of December 31, 2019$11,776 $3,858 
Increases due to cash received 10,535  
Revenue recognized (3,684) 
Foreign currency impact(924) 
Balance as of September 30, 2020$17,703 $3,858 
Transaction Price Allocated to the Remaining Performance Obligations

We estimate that our long-term contract revenue in 2020 will be in the range of $1,000 million to $1,080 million. We recorded $771 million of revenue in the first nine months of 2020, and we expect to record approximately $230 million to $310 million of revenue for the remainder of 2020. As a result of recent contract modifications, as well as on-going discussions with many of our customers, the remaining revenue associated with our long-term sales agreements is expected to be approximately as follows:
202120222023 through 2024
(Dollars in millions)
Estimated LTA revenue
$925-$1,025
$910-$1,010
$350-$450(1)
(1) Includes expected termination fees from a few customers that have failed to meet certain obligations under their long-term agreements ("LTAs").
The majority of the long-term take-or-pay contracts are defined as pre-determined fixed annual volume contracts while a small portion are defined with a specified volume range. For the year 2021 and beyond, the contractual revenue amounts above are based upon the minimum volume for those contracts with specified ranges. The actual revenue realized from these contracted volumes may vary in timing and total due to the credit risk associated with certain customers facing financial challenges and non-performance on contracts, as well as customer demand related to contracted volume ranges. Some of our customers are struggling to take their committed volumes. This is causing some non-performance and disputes including a few arbitrations associated with, among other things, efforts to modify existing contracts.
(3)Retirement Plans and Postretirement Benefits
The components of our consolidated net pension costs are set forth in the following table:
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
 (Dollars in thousands)
Service cost$623 $574 $1,863 $1,724 
Interest cost1,033 1,316 3,098 3,948 
Expected return on plan assets(1,283)(1,339)(3,849)(4,015)
Net cost$373 $551 $1,112 $1,657 
The components of our consolidated net postretirement costs are set forth in the following table: 
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
 (Dollars in thousands)
Interest cost$180 $236 545 717 
Net cost$180 $236 $545 $717 
12

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(4)Goodwill and Other Intangible Assets
We are required to review goodwill and indefinite-lived intangible assets annually for impairment. Goodwill impairment is tested at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
The following tables represent the carrying value of goodwill and intangibles for the nine months ended September 30, 2020, which are reported in "Other assets" on the balance sheets:
Goodwill
(Dollars in thousands)
Balance as of December 31, 2019$171,117 
   Adjustments 
Balance as of September 30, 2020$171,117 
Intangible Assets
 As of September 30, 2020As 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 $(11,425)$11,075 $22,500 $(9,861)$12,639 
Technological know-how55,300 (32,945)22,355 55,300 (29,112)26,188 
Customer–related
intangible
64,500 (22,759)41,741 64,500 (19,473)45,027 
Total finite-lived
intangible assets
$142,300 $(67,129)$75,171 $142,300 $(58,446)$83,854 
Amortization expense of acquired intangible assets was $2.8 million and $3.0 million in the three months ended September 30, 2020 and 2019, respectively, and $8.7 million and $9.2 million in the nine months ended September 30, 2020 and 2019, respectively. Estimated amortization expense will be approximately $2.7 million for the remainder of 2020, $10.7 million in 2021, $10.1 million in 2022, $9.2 million in 2023 and $8.0 million in 2024.
(5)Debt and Liquidity
The following table presents our long-term debt: 
As of
September 30, 2020
As of
December 31, 2019
 (Dollars in thousands)
2018 Credit Facility (2018 Term Loan and 2018 Revolving Credit Facility)$1,563,903 $1,812,204 
Other debt675 619 
Total debt1,564,578 1,812,823 
Less: Short-term debt
(147)(141)
Long-term debt$1,564,431 $1,812,682 

During 2019, we repaid a total of $350 million under our 2018 Term Loan Facility (as defined below). These payments satisfied our then-current obligations relative to the minimum quarterly installments. During the nine months ended September 30, 2020, we executed several transactions to repurchase a total of $80 million of principal of our 2018 Term Loan facility. Additionally, during the nine months ended September 30, 2020, we repaid a total of $173 million of principal of our 2018 Term Loan Facility. The fair value of the 2018 Term Loan Facility was approximately $1,576 million and $1,813 million as of September 30, 2020 and December 31, 2019, respectively. The fair value of the debt is measured using level 3 inputs.
13

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2018 Credit Agreement
On February 12, 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”) among the Company, GrafTech Finance Inc. (“GrafTech Finance”), GrafTech Switzerland SA (“Swissco”), GrafTech Luxembourg II S.à.r.l.(“Luxembourg Holdco” and, together with GrafTech Finance and Swissco, the “Co-Borrowers”), the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A. as administrative agent (the "Administrative Agent") and as collateral agent, which provides for (i) a $1,500 million senior secured term facility (the “2018 Term Loan Facility”) and (ii) a $250 million senior secured revolving credit facility (the “2018 Revolving Credit Facility” and, together with the 2018 Term Loan Facility, the “Senior Secured Credit Facilities”), which may be used from time to time for revolving credit borrowings denominated in dollars or Euro, the issuance of one or more letters of credit denominated in dollars, euro, pounds sterling or Swiss francs and one or more swing line loans denominated in dollars. GrafTech Finance is the sole borrower under the 2018 Term Loan Facility, while GrafTech Finance, Swissco and Lux Holdco are Co-Borrowers under the 2018 Revolving Credit Facility. On February 12, 2018, GrafTech Finance borrowed $1,500 million under the 2018 Term Loan Facility (the "2018 Term Loans"). The 2018 Term Loans mature on February 12, 2025. The maturity date for the 2018 Revolving Credit Facility is February 12, 2023.
The proceeds of the 2018 Term Loans were used to (i) repay in full all outstanding indebtedness of the Co-Borrowers under our previous credit agreement and terminate all commitments thereunder, (ii) redeem in full our previously held senior notes at a redemption price of 101.594% of the principal amount thereof plus accrued and unpaid interest to the date of redemption, (iii) pay fees and expenses incurred in connection with (i) and (ii) above and the Senior Secured Credit Facilities and related expenses, and (iv) declare and pay a dividend to the sole pre-IPO stockholder, with any remainder to be used for general corporate purposes. See Note 7 "Interest Expense" for a breakdown of expenses associated with these repayments. In connection with the repayment of our previous credit agreement and redemption of our previously held senior notes, all guarantees of obligations under the previous credit agreement, the senior notes and related indenture were terminated, all mortgages and other security interests securing obligations under the previous credit agreement were released and the indenture was terminated.
Borrowings under the 2018 Term Loan Facility bear interest, at GrafTech Finance’s option, at a rate equal to either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 3.50% per annum or (ii) the ABR Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 2.50% per annum, in each case with one step down of 25 basis points based on achievement of certain public ratings of the 2018 Term Loans.
Borrowings under the 2018 Revolving Credit Facility bear interest, at the applicable Co-Borrower’s option, at a rate equal to either (i) the Adjusted LIBO Rate, plus an applicable margin initially equal to 3.75% per annum or (ii) the ABR Rate, plus an applicable margin initially equal to 2.75% per annum, in each case with two 25 basis point step downs based on achievement of certain senior secured first lien net leverage ratios. In addition, the Co-Borrowers will be required to pay a quarterly commitment fee on the unused commitments under the 2018 Revolving Credit Facility in an amount equal to 0.25% per annum.
For borrowings under both the 2018 Term Loan Facility and the 2018 Revolving Credit Facility, if the Administrative Agent determines that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate and such circumstances are unlikely to be temporary or the relevant authority has made a public statement identifying a date after which the LIBO Rate shall no longer be used for determining interest rates for loans, then the Administrative Agent and the Co-Borrowers shall endeavor to establish an alternate rate of interest, which shall be effective so long as the majority in interest of the lenders for each Class (as defined in the 2018 Credit Agreement) of loans under the 2018 Credit Agreement do not notify the Administrative Agent otherwise. Until such an alternate rate of interest is determined, (a) any request for a borrowing denominated in dollars based on the Adjusted LIBO Rate will be deemed to be a request for a borrowing at the ABR Rate plus the applicable margin for an ABR Rate borrowing of such loan while any request for a borrowing denominated in any other currency will be ineffective and (b) any outstanding borrowings based on the Adjusted LIBO Rate denominated in dollars will be converted to a borrowing at the ABR Rate plus the applicable margin for an ABR Rate borrowing of such loan while any outstanding borrowings denominated in any other currency will be repaid.
All obligations under the 2018 Credit Agreement are guaranteed by GrafTech Finance and each domestic subsidiary of GrafTech, subject to certain customary exceptions, and all obligations under the 2018 Credit Agreement of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Internal Revenue Code of 1986, as amended from time to time (the "Code")) are guaranteed by GrafTech Luxembourg I S.à.r.l., a Luxembourg
14

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

société à responsabilité limitée and an indirect wholly owned subsidiary of GrafTech, Luxembourg Holdco and Swissco (collectively, the "Guarantors").
All obligations under the 2018 Credit Agreement are secured, subject to certain exceptions and Excluded Assets (as defined in the 2018 Credit Agreement), by: (i) a pledge of all of the equity securities of GrafTech Finance and each domestic Guarantor (other than GrafTech) and of each other direct, wholly owned domestic subsidiary of GrafTech and any Guarantor, (ii) a pledge on no more than 65% of the equity interests of each subsidiary that is a Controlled Foreign Corporation (within the meaning of Section 956 of ("the Code")), and (iii) security interests in, and mortgages on, personal property and material real property of GrafTech Finance and each domestic Guarantor, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement. The obligations of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation under the Revolving Credit Facility are secured by (i) a pledge of all of the equity securities of each Guarantor that is a Controlled Foreign Corporation and of each direct, wholly owned subsidiary of any Guarantor that is a Controlled Foreign Corporation, and (ii) security interests in certain receivables and personal property of each Guarantor that is a Controlled Foreign Corporation, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement.
The 2018 Term Loans amortize at a rate equal to 5% per annum of the original principal amount of the 2018 Term Loans payable in equal quarterly installments, with the remainder due at maturity. The Co-Borrowers are permitted to make voluntary prepayments at any time without premium or penalty. GrafTech Finance is required to make prepayments under the 2018 Term Loans (without payment of a premium) with (i) net cash proceeds from non-ordinary course asset sales (subject to customary reinvestment rights and other customary exceptions and exclusions), and (ii) commencing with the Company’s fiscal year ended December 31, 2019, 75% of Excess Cash Flow (as defined in the 2018 Credit Agreement), subject to step-downs to 50% and 0% of Excess Cash Flow based on achievement of a senior secured first lien net leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00 and less than or equal to 1.25 to 1.00, respectively. Scheduled quarterly amortization payments of the 2018 Term Loans during any calendar year reduce, on a dollar-for-dollar basis, the amount of the required Excess Cash Flow prepayment for such calendar year, and the aggregate amount of Excess Cash Flow prepayments for any calendar year reduce subsequent quarterly amortization payments of the 2018 Term Loans as directed by GrafTech Finance.
The 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to GrafTech and restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The 2018 Credit Agreement contains a financial covenant that requires GrafTech to maintain a senior secured first lien net leverage ratio not greater than 4.00:1.00 when the aggregate principal amount of borrowings under the 2018 Revolving Credit Facility and outstanding letters of credit issued under the 2018 Revolving Credit Facility (except for undrawn letters of credit in an aggregate amount equal to or less than $35 million), taken together, exceed 35% of the total amount of commitments under the 2018 Revolving Credit Facility. The 2018 Credit Agreement also contains customary events of default.
First Amendment to 2018 Credit Agreement
On June 15, 2018, the Company entered into a first amendment (the “First Amendment”) to its 2018 Credit Agreement. The First Amendment amended the 2018 Credit Agreement to provide for an additional $750 million in aggregate principal amount of incremental term loans (the “Incremental Term Loans”) to GrafTech Finance. The Incremental Term Loans increased the aggregate principal amount of term loans incurred by GrafTech Finance under the 2018 Credit Agreement from $1,500 million to $2,250 million. The Incremental Term Loans have the same terms as those applicable to the 2018 Term Loans, including interest rate, payment and prepayment terms, representations and warranties and covenants. The Incremental Term Loans mature on February 12, 2025, the same date as the 2018 Term Loans. GrafTech paid an upfront fee of 1.00% of the aggregate principal amount of the Incremental Term Loans on the effective date of the First Amendment.
The proceeds of the Incremental Term Loans were used to repay, in full, the $750 million of principal outstanding on a promissory note to the Company's sole pre-IPO stockholder.
15

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(6)Inventories
Inventories are comprised of the following: 
As of
September 30, 2020
As of
December 31, 2019
 (Dollars in thousands)
Inventories:
Raw materials$95,136 $104,820 
Work in process126,673 137,230 
Finished goods77,427 71,598 
         Total$299,236 $313,648 
(7)Interest Expense
The following tables present the components of interest expense: 
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
2020201920202019
 (Dollars in thousands)
Interest incurred on debt$20,893 $30,222 $64,285 $93,731 
Accretion of original issue discount on 2018 Term Loans549 549 1,647 1,647 
Amortization of debt issuance costs1,032 1,032 3,094 3,094 
Total interest expense$22,474 $31,803 $69,026 $