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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, 2021
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-20210930_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, a smaller reporting company, or an emerging growth 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 Rule 12b-2 of the Exchange Act).    Yes      No 
As of October 14, 2021, 263,222,208 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, 2021 (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, 2020 ("Annual Report on Form 10-K") filed on February 23, 2021. 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 have 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,” “are confident,” 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 considering information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates, or expectations contemplated by us will be achieved. Our expectations and targets are not predictions of actual performance and historically our performance has deviated, often significantly, from our expectations and targets. These forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:
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 current stockholder litigation and disputes related to contractual commitments;
the possibility that global graphite electrode overcapacity may adversely affect graphite electrode prices;
pricing for graphite electrodes has historically been cyclical and the price of graphite electrodes may 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;
our manufacturing operations are subject to hazards;
changes in, or more stringent enforcement of, health, safety and environmental regulations applicable to our manufacturing operations and facilities;
the legal, compliance, economic, social and political risks associated with our substantial operations in multiple countries;
the possibility that fluctuation of foreign currency exchange rates could materially harm our financial results;
the possibility that our results of operations could deteriorate if our manufacturing operations were substantially disrupted for an extended period, including as a result of equipment failure, climate change, regulatory issues, natural disasters, public health crises, such as the COVID-19 pandemic, political crises or other catastrophic events;
our dependence on third parties for certain construction, maintenance, engineering, transportation, warehousing and logistics services;
the possibility that we are unable to recruit or retain key management and plant operating personnel or successfully negotiate with the representatives of our employees, including labor unions;
the possibility that we may divest or acquire businesses, which could require significant management attention or disrupt our business;
the sensitivity of goodwill on our balance sheet to changes in the market;
the possibility that we are subject to information technology systems failures, cybersecurity attacks, network disruptions and breaches of data security;
our dependence on protecting our intellectual property;
the possibility that third parties may claim that our products or processes infringe their intellectual property rights;
the possibility that significant changes in our jurisdictional earnings mix or in the tax laws of those jurisdictions could adversely affect our business;
the possibility that our indebtedness could limit our financial and operating activities or that our cash flows may not be sufficient to service our indebtedness;
the possibility that restrictive covenants in our financing agreements could restrict or limit our operations;
3

the fact that borrowings under certain of our existing financing agreements subject us to interest rate risk;
the possibility of a lowering or withdrawal of the ratings assigned to our debt;
the possibility that disruptions in the capital and credit markets could adversely affect our results of operations, cash flows and financial condition, or those of our customers and suppliers;
the possibility that concentrated ownership of our common stock may prevent minority stockholders from influencing significant corporate decisions;
the possibility that we may not pay cash dividends on our common stock in the future;
the fact that our stockholders have the right to engage or invest in the same or similar businesses as us;
the possibility that the market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets, including by Brookfield Asset Management Inc. and its affiliates;
the fact that certain provisions of our Amended and Restated Certificate of Incorporation and our Amended and Restated By-Laws could hinder, delay or prevent a change of control;
the fact that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders; and
the loss of our status as a “controlled company” within the meaning of the New York Stock Exchange ("NYSE") corporate governance standards, which will result in us no longer qualifying for exemptions from certain corporate governance requirements.

These factors should not be construed as exhaustive and should be read in connection with the other cautionary statements, including the Risk Factors sections that are included in our Annual Report on Form 10-K, 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,
2021
As of
December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$86,656 $145,442 
Accounts and notes receivable, net of allowance for doubtful accounts of
$8,024 as of September 30, 2021 and $8,243 as of December 31, 2020
183,562 182,647 
Inventories269,709 265,964 
Prepaid expenses and other current assets64,595 35,114 
Total current assets604,522 629,167 
Property, plant and equipment807,532 784,902 
Less: accumulated depreciation308,029 278,685 
Net property, plant and equipment499,503 506,217 
Deferred income taxes32,944 32,551 
Goodwill171,117 171,117 
Other assets85,060 93,660 
Total assets$1,393,146 $1,432,712 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$105,177 $70,989 
Short-term debt128 131 
Accrued income and other taxes54,503 48,720 
Other accrued liabilities81,661 56,501 
Related party payable - tax receivable agreement3,922 21,752 
Total current liabilities245,391 198,093 
Long-term debt1,127,412 1,420,000 
Other long-term obligations71,552 81,478 
Deferred income taxes44,316 43,428 
Related party payable - tax receivable agreement15,176 19,098 
Contingencies - Note 7
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, 263,586,828
shares issued and outstanding as of September 30, 2021 and 267,188,547
as of December 31, 2020
2,636 2,672 
Additional paid-in capital761,748 758,354 
Accumulated other comprehensive loss(5,774)(19,641)
Accumulated deficit(869,311)(1,070,770)
Total stockholders’ deficit(110,701)(329,385)
Total liabilities and stockholders’ equity$1,393,146 $1,432,712 
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,
 2021202020212020
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales$347,348 $286,987 $982,495 $886,351 
Cost of sales170,286 131,862 518,549 401,379 
Gross profit177,062 155,125 463,946 484,972 
Research and development983 650 2,970 2,072 
Selling and administrative expenses19,006 19,062 114,942 49,995 
Operating profit157,073 135,413 346,034 432,905 
Other (income) expense, net(364)694 (361)(2,309)
Related party Tax Receivable Agreement expense (benefit)  47 (3,346)
Interest expense16,048 22,474 54,209 69,026 
Interest income(417)(93)(653)(1,582)
Income before provision for income taxes141,806 112,338 292,792 371,116 
Provision for income taxes21,920 18,104 45,942 61,838 
Net income$119,886 $94,234 $246,850 $309,278 
Basic income per common share*:
Net income per share$0.45 $0.35 $0.92 $1.15 
Weighted average common shares outstanding267,106,109 267,265,705 267,327,888 267,908,427 
Diluted income per common share*:
Income per share$0.45 $0.35 $0.92 $1.15 
Weighted average common shares outstanding267,178,963 267,279,555 267,441,394 267,920,890 
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income$119,886 $94,234 $246,850 $309,278 
Other comprehensive income:
Foreign currency translation adjustments, net of tax of
  $0, $0, $0 and $(162) respectively
(9,112)7,455 (13,689)(6,083)
Commodity and interest rate derivatives, net of tax of $(1,024), $(740), $(7,435), and $7,224 respectively
3,729 2,826 27,556 (25,717)
Other comprehensive (loss) income, net of tax:(5,383)10,281 13,867 (31,800)
Comprehensive income$114,503 $104,515 $260,717 $277,478 
*See Note 11 "Earnings per Share"

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,
 20212020
Cash flow from operating activities:
Net income$246,850 $309,278 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization48,415 45,074 
Related party Tax Receivable Agreement expense (benefit)47 (3,346)
Deferred income tax provision(6,180)16,237 
Stock-based compensation 16,293 1,887 
Interest expense9,750 4,768 
Other charges, net6,784 448 
Net change in working capital*47,174 85,098 
Change in related-party Tax Receivable Agreement(21,799)(27,857)
Change in long-term assets and liabilities(4,323)(14,922)
Net cash provided by operating activities343,011 416,665 
Cash flow from investing activities:
Capital expenditures(40,426)(30,688)
Proceeds from the sale of assets356 78 
Net cash used in investing activities(40,070)(30,610)
Cash flow from financing activities:
Debt issuance and modification costs(3,109) 
Repurchase of common stock-non-related party (42,378)(30,099)
Payment of tax withholdings related to net share settlement of equity awards(4,074)(71)
Principal repayments on long-term debt(300,000)(249,214)
Dividends paid to non-related-party(5,446)(7,553)
Dividends paid to related-party(2,567)(20,650)
Other(3,264) 
Net cash used in financing activities(360,838)(307,587)
Net change in cash and cash equivalents(57,897)78,468 
Effect of exchange rate changes on cash and cash equivalents(889)(562)
Cash and cash equivalents at beginning of period145,442 80,935 
Cash and cash equivalents at end of period$86,656 $158,841 
* Net change in working capital due to changes in the following components:
Accounts and notes receivable, net$(3,455)$78,408 
Inventories(7,246)10,371 
Prepaid expenses and other current assets(17,664)5,437 
Income taxes payable(2,371)16,032 
Accounts payable and accruals71,748 (25,078)
Interest payable6,162 (72)
Net change in working capital$47,174 $85,098 

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, 2020267,188,547 $2,672 $758,354 $(19,641)$(1,070,770)$(329,385)
Comprehensive income (loss):
Net income— — — — 98,799 98,799 
Other comprehensive income (loss):
Commodity and interest rate derivatives income (loss), net of tax of $(3,144)
— — — 11,660 — 11,660 
Commodity and interest rate derivatives reclassification adjustments, net of tax of $(187)
— — — 695 — 695 
Foreign currency translation adjustments, net of tax of $0
— — — (13,431)— (13,431)
   Total other comprehensive loss— — — (1,076)— (1,076)
Stock-based compensation92,135 1 766 — — 767 
Dividends paid to related party stockholder ($0.01 per share)
— — — — (1,277)(1,277)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (1,394)(1,394)
Common stock withheld for taxes on equity award settlement (23,090)— (65)— (210)(275)
Balance as of March 31, 2021267,257,592 $2,673 $759,055 $(20,717)$(974,852)$(233,841)
Comprehensive income (loss):
Net income— — — — 28,165 28,165 
Other comprehensive income (loss):
Commodity and interest rate derivatives income (loss), net of tax of $(1,921)
— — — 7,158 — 7,158 
Commodity derivatives reclassification adjustments, net of tax of $(1,158)
— — — 4,314 — 4,314 
Foreign currency translation adjustments, net of tax of $0
— — — 8,854 — 8,854 
   Total other comprehensive income— — — 20,326 — 20,326 
Stock-based compensation917,410 9 15,254 — — 15,263 
Dividends paid to related party stockholder ($0.01 per share)
— — — — (650)(650)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (2,024)(2,024)
Common stock withheld for taxes on equity award settlement(294,250)(3)(757)— (3,039)(3,799)
Balance as of June 30, 2021267,880,752 $2,679 $773,552 $(391)$(952,400)$(176,560)
Comprehensive income (loss):
Net income— — — — 119,886 119,886 
Other comprehensive income (loss):
Commodity and interest rate derivative income (loss), net of tax of $(581)
— — — 2,111 — 2,111 
Commodity derivatives reclassification adjustments, net of tax of $(443)
— — — 1,618 — 1,618 
Foreign currency translation adjustments, net of tax of $0
— — — (9,112)— (9,112)
   Total other comprehensive income— — — (5,383)— (5,383)
Stock-based compensation  263 — — 263 
Dividends paid to related party stockholder ($0.01 per share)
— — — — (640)(640)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (2,028)(2,028)
Common Stock Repurchased (from non-related party)* (4,293,924)(43)(12,067)— (34,129)(46,239)
Balance as of September 30, 2021263,586,828 $2,636 $761,748 $(5,774)$(869,311)$(110,701)
*In the third quarter 2021, stock repurchases of 363,616 shares totaling $3.9 million were pending settlement as of September 30, 2021. This is included in "Accounts payable" on the Condensed Consolidated Balance Sheet. See Note 11 "Earnings per Share" for details.
8


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 derivatives foreign currency 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 $(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 repurchased and retired for 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 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 repurchased and retired for 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 foreign currency derivatives 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 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)

See accompanying Notes to Condensed Consolidated Financial Statements

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,” the “Company,” “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.” Brookfield has since distributed a portion of its GrafTech common stock to the owners in the Brookfield consortium and sold shares of GrafTech common stock in public and private transactions, resulting in Brookfield's ownership of outstanding shares of GrafTech common stock decreasing to 55.3% as of December 31, 2020 and 24.2% as of September 30, 2021.
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, 2020 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, 2020 ("Annual Report on Form 10-K"), filed on February 23, 2021, 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 December 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. Accounting Standards Update ("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 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2021, with an immaterial effect on our financial position, results of operations and cash flows.
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
10

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

plan to adopt ASU 2020-04 as of January 1, 2023. The adoption of ASU 2020-04 is not expected to have a material impact on our financial position, results of operations and 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, 2021 and 2020:
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
2021202020212020
(Dollars in thousands)
Graphite Electrodes - Three-to-five-year take-or-pay contracts ("LTA")$267,349 $250,011 $766,503 $771,400 
Graphite Electrodes - Short-term agreements and spot sales ("Non-LTA")69,295 32,303 181,754 93,232 
By-products and other10,704 4,673 34,238 21,719 
Total Revenues$347,348 $286,987 $982,495 $886,351 
The Graphite Electrodes revenue categories include only graphite electrodes manufactured by GrafTech. The revenue category “By-products and Other” also includes resales of low-grade electrodes purchased from third-party suppliers, which represent a minimal contribution to our profitability.
Contract Balances
Substantially all of the Company's receivables relate to contracts with customers. 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 do business.
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, 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, 2021 were $1.7 million, which are included in "Prepaid expenses and other current assets," on the Condensed Consolidated Balance Sheets. Contract assets as of December 31, 2020 were $2.7 million, of which $1.5 million and $1.2 million are included in "Prepaid expenses and other current assets" and "Other long-term assets," respectively, on the Condensed Consolidated Balance Sheets.

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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 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:
Current Deferred RevenueLong-Term Deferred Revenue
(Dollars in thousands)
Balance as of December 31, 2020
$13,056 $5,662 
Increases due to cash received 31,543  
Revenue recognized(22,696) 
Reclassifications between long-term and current4,928 (4,928)
Foreign currency impact(7)(1)
Balance as of September 30, 2021
$26,824 $733 
Transaction Price Allocated to the Remaining Performance Obligations

The following table presents estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of reporting period. The estimated revenues do not include contracts with original duration of one year or less. During the challenging market conditions in 2020, we were able to work with our customers to develop mutually beneficial solutions to their challenges, including volume commitments. We have negotiated long-term sales agreement ("LTA") modifications with many of these customers. We also worked to preserve our rights under the LTAs in a few arbitrations that arose from some non-performance and other disputes during the year.

We recorded $767 million of LTA revenue in the nine months ended September 30, 2021, and we expect to record approximately $233 million to $278 million of LTA revenue for the remainder of 2021. The remaining revenue associated with our LTAs is expected to be approximately as follows:
20222023 through 2024
(Dollars in millions)
Estimated LTA revenue
$910-$1,010
$350-$450(1)
(1) Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs.
The majority of the LTAs are defined as pre-determined fixed annual volume contracts while a small portion are defined with a specified volume range. For the year 2022 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 contract non-performance, contract arbitrations, credit risk associated with certain customers facing financial challenges and customer demand related to contracted volume ranges.
(3)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 goodwill balance was $171.1 million as of September 30, 2021 and December 31, 2020.
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PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes intangible assets with determinable useful lives by major category which are included in "Other Assets" on our Condensed Consolidated Balance Sheets:
Intangible Assets
 As of September 30, 2021As of December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(Dollars in thousands)
Trade name$22,500 $(13,445)$9,055 $22,500 $(11,932)$10,568 
Technological know-how55,300 (37,467)17,833 55,300 (34,091)21,209 
Customer–related intangible64,500 (27,112)37,388 64,500 (23,848)40,652 
Total finite-lived intangible assets$142,300 $(78,024)$64,276 $142,300 $(69,871)$72,429 
Amortization expense of intangible assets was $2.7 million and $2.8 million in the three months ended September 30, 2021 and 2020, respectively, and $8.2 million and $8.7 million in the nine months ended September 30, 2021 and 2020, respectively. Estimated amortization expense will be approximately $2.6 million for the remainder of 2021, $10.1 million in 2022, $9.2 million in 2023, $8.0 million in 2024 and $7.3 million in 2025.
(4)Debt and Liquidity
The following table presents our long-term debt: 
As of
September 30, 2021
As of
December 31, 2020
 (Dollars in thousands)
2018 Credit Facility (2018 Term Loan and 2018 Revolving Credit Facility)$643,708 $943,708 
2020 Senior Notes500,000 500,000 
Other debt583 615 
Unamortized debt discount and issuance costs(16,751)(24,192)
Total debt1,127,540 1,420,131 
Less: Short-term debt(128)(131)
Long-term debt$1,127,412 $1,420,000 

In the nine months ended September 30, 2021, we repaid $300 million of principal of our 2018 Term Loan Facility (as defined below). The fair value of our debt was approximately $1,160 million and $1,453 million as of September 30, 2021 and December 31, 2020, respectively. The fair value of the debt is measured using level 3 inputs.

2018 Term Loan and 2018 Revolving Credit Facility

In February 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”), which provides for (i) a $2,250 million senior secured term facility (the “2018 Term Loan Facility”) after giving effect to the June 2018 amendment (the “First Amendment”) that increased the aggregate principal amount of the 2018 Term Loan Facility from $1,500 million to $2,250 million 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”). GrafTech Finance Inc. (“GrafTech Finance”) is the sole borrower under the 2018 Term Loan Facility while GrafTech Finance, GrafTech Switzerland SA (“Swissco”) and GrafTech Luxembourg II S.à.r.l. (“Luxembourg Holdco” and, together with GrafTech Finance and Swissco, the “Co-Borrowers”) are co-borrowers under the 2018 Revolving Credit Facility. The 2018 Term Loan Facility and the 2018 Revolving Credit Facility mature on February 12, 2025 and February 12, 2023, respectively.
The 2018 Term Loan Facility bears interest, at our option, at a rate equal to either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement), plus an applicable margin equal to 3.00% per annum following an amendment in February 2021 (the “Second Amendment”) that decreased the Applicable Rate (as defined in the 2018 Credit Agreement) by 0.50% for each pricing level or (ii) the ABR Rate (as defined in the 2018 Credit Agreement), plus an applicable margin equal to
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PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.00% per annum following the Second Amendment, in each case with one step down of 25 basis points based on achievement of certain public ratings of the 2018 Term Loan Facility. The Second Amendment also decreased the interest rate floor from 1.0% to 0.50% for the 2018 Term Loan Facility.
The 2018 Revolving Credit Facility bears interest, at our 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, we are 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.
The Senior Secured Credit Facilities are guaranteed by each of our domestic subsidiaries, subject to certain customary exceptions, and by GrafTech Luxembourg I S.à.r.l., a Luxembourg société à responsabilité limitée and an indirect wholly owned subsidiary of GrafTech, Luxembourg HoldCo, and Swissco (collectively, the “Guarantors”) with respect to all obligations under the 2018 Credit Agreement of each of our foreign subsidiaries 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”)).
All obligations under the 2018 Credit Agreement are secured, subject to certain exceptions, by: (i) a pledge of all of the equity securities of each domestic Guarantor 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 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 2018 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 Loan Facility amortizes at a rate of $112.5 million a year 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 Loan Facility (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 Loan Facility 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 Loan Facility as directed by GrafTech Finance. As of September 30, 2021, we have satisfied all amortization requirements through prepayments through the maturity date.
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.
2020 Senior Notes
In December 2020, GrafTech Finance issued $500 million aggregate principal amount of 4.625% senior secured notes due 2028 (the “2020 Senior Notes”) in a private offering. The 2020 Senior Notes and related guarantees are secured on a pari passu basis by the collateral securing the Senior Secured Credit Facilities. All of the proceeds from the 2020 Senior Notes were used to partially repay borrowings under our 2018 Term Loan Facility.
The 2020 Senior Notes pay interest in arrears on June 15 and December 15 of each year, with the principal due in full on December 15, 2028. Prior to December 15, 2023, up to 40% of the 2020 Senior Notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 104.625% of the principal amount thereof, together with accrued and unpaid interest, if any. The 2020 Senior Notes may be redeemed, in whole or in part, at any time prior to December 15, 2023 at a price equal to 100% of the principal amount of the notes redeemed plus a premium together with accrued and unpaid interest,
14

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

if any, to, but not including, the redemption date. Thereafter, the 2020 Senior Notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
The indenture governing the 2020 Senior Notes (the “Indenture”) contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of its subsidiaries, to incur or guarantee additional indebtedness or issue preferred stock, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, incur or suffer to exist liens securing indebtedness, make certain investments, engage in certain transactions with affiliates, consummate certain asset sales and effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all assets. Pursuant to the Indenture, if our pro forma consolidated first lien net leverage ratio is no greater than 2.00 to 1.00, we can make restricted payments so long as no default or event of default has occurred and is continuing. If our pro forma consolidated first lien net leverage ratio is greater than 2.00 to 1.00, we can make restricted payments pursuant to certain baskets.
The Indenture contains events of default customary for agreements of its type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company or GrafTech Finance, all outstanding 2020 Senior Notes will become due and payable immediately without further action or notice. If any other type of event of default occurs and is continuing, then the trustee or the holders of at least 30% in principal amount of the then outstanding 2020 Senior Notes may declare all of the 2020 Senior Notes to be due and payable immediately.
(5)Inventories
Inventories are comprised of the following: 
As of
September 30, 2021
As of
December 31, 2020
 (Dollars in thousands)
Inventories:
Raw materials$121,872 $101,098 
Work in process114,332 110,331 
Finished goods33,505 54,535 
         Total$269,709 $265,964 
(6)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,
2021202020212020
 (Dollars in thousands)
Interest incurred on debt$13,526 $20,893 $44,476 $64,285 
Accretion of original issue discount on 2018 Term Loans815 549 2,658 1,647 
Amortization of debt issuance and modification costs1,707 1,032 7,075 3,094 
Total interest expense$16,048 $22,474 $54,209 $69,026 
15

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

Interest Rates
The 2020 Senior Notes carry a fixed interest rate of 4.625%. The 2018 Credit Agreement had an effective interest rate of 3.50% as of September 30, 2021 and 4.50% as of December 31, 2020. See Note 4 "Debt and Liquidity" for details of these transactions.
During the three months ended September 30, 2021, we made prepayments for a total of $100.0 million under our 2018 Term Loan Facility. In connection with this, we recorded $0.5 million of accelerated accretion of the original issue discount and we recorded $0.9 million of accelerated amortization of the debt issuance costs.
During the nine months ended September 30, 2021, we made prepayments for a total of $300.0 million under our 2018 Term Loan Facility. In connection with this, we recorded $1.8 million of accelerated accretion of the original issue discount and $2.9 million of accelerated amortization of the debt issuance costs. We also recorded $