0000931148-22-000070.txt : 20220506 0000931148-22-000070.hdr.sgml : 20220506 20220506164014 ACCESSION NUMBER: 0000931148-22-000070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 78 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220506 DATE AS OF CHANGE: 20220506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAFTECH INTERNATIONAL LTD CENTRAL INDEX KEY: 0000931148 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 272496053 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13888 FILM NUMBER: 22901886 BUSINESS ADDRESS: STREET 1: 982 KEYNOTE CIRCLE CITY: BROOKLYN HEIGHTS STATE: OH ZIP: 44131 BUSINESS PHONE: 2166762000 MAIL ADDRESS: STREET 1: 982 KEYNOTE CIRCLE CITY: BROOKLYN HEIGHTS STATE: OH ZIP: 44131 FORMER COMPANY: FORMER CONFORMED NAME: UCAR INTERNATIONAL INC DATE OF NAME CHANGE: 19941011 10-Q 1 gti-20220331.htm 10-Q gti-20220331
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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 March 31, 2022
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-20220331_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 April 29, 2022, 260,223,933 shares of common stock outstanding.


TABLE OF CONTENTS
 

Presentation of Financial, Market and Industry Data
We present our financial information on a consolidated basis. Unless otherwise noted, when we refer to dollars, we mean U.S. dollars.
Certain market and industry data included in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (the "Report") has been obtained from third-party sources that we believe to be reliable. Market estimates are calculated by using independent industry publications, government publications and third-party forecasts in conjunction with our assumptions about our markets. We cannot guarantee the accuracy or completeness of this market and market share data and have not independently verified it. None of the sources consented to the disclosure or use of data in this Report. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings “Cautionary Note Regarding Forward-Looking Statements” in this Report and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 ("Annual Report on Form 10-K") filed on February 22, 2022.
Cautionary Note Regarding Forward-Looking Statements
This Report may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our current views with respect to, among other things, financial projections, plans and objectives of management for future operations, and future economic performance. Examples of forward-looking statements include, among others, statements we make regarding future estimated revenues and volumes derived from our take-or-pay agreements that had initial terms of three-to-five years ("LTA"), future pricing of short-term agreements and spot sales ("Non-LTA"), anticipated levels of capital expenditures, and guidance relating to earnings per share and adjusted EBITDA. 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
2

strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:
the ultimate impact the COVID-19 pandemic has on our business, results of operations, financial condition and cash flows, including the duration and spread of any variants, the duration and scope of related government orders and restrictions, the impact on our employees, and the disruptions and inefficiencies in our supply chain;
the ultimate impact the conflict between Russia and Ukraine has on our business, results of operations, financial condition and cash flows, including the duration and scope of such conflict, its impact on disruptions and inefficiencies in our supply chain and our ability to procure certain raw materials;
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 cyclical nature of our business and the selling prices of our products, which may decline in the future, may lead to periods of reduced profitability and net losses in the future;
the impact of inflation and our ability to mitigate the effect on our costs;
the risks and uncertainties associated with litigation, arbitration, and like disputes, including disputes related to contractual commitments;
the possibility that global graphite electrode overcapacity may adversely affect graphite electrode prices;
our dependence on the global steel industry generally and the electric arc furnace steel industry in particular;
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;
the competitiveness of the graphite electrode industry;
our dependence on the supply of raw materials, including decant oil, petroleum needle coke, and energy, and disruptions in supply chains for these materials;
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 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 and the possibility that third parties may claim that our products or processes infringe their intellectual property rights;
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 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 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 (together, “Brookfield”);
the possibility that we may not pay cash dividends on our common stock in the future; and
the fact that our stockholders have the right to engage or invest in the same or similar businesses as us.
These factors should not be construed as exhaustive and should be read in conjunction with the Risk Factors and other cautionary statements 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. Except as required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, 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, except per share data)
(Unaudited)
As of
March 31,
2022
As of
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$85,053 $57,514 
Accounts and notes receivable, net of allowance for doubtful accounts of
$8,018 as of March 31, 2022 and $6,835 as of December 31, 2021
213,280 207,547 
Inventories318,058 289,432 
Prepaid expenses and other current assets86,538 73,364 
Total current assets702,929 627,857 
Property, plant and equipment819,163 815,298 
Less: accumulated depreciation323,801 313,825 
Net property, plant and equipment495,362 501,473 
Deferred income taxes23,464 26,187 
Goodwill171,117 171,117 
Other assets90,932 85,684 
Total assets$1,483,804 $1,412,318 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$123,381 $117,112 
Short-term debt125 127 
Accrued income and other taxes42,029 57,097 
Other accrued liabilities97,456 56,405 
Related party payable - Tax Receivable Agreement4,481 3,828 
Total current liabilities267,472 234,569 
Long-term debt961,324 1,029,561 
Other long-term obligations66,296 68,657 
Deferred income taxes42,334 40,674 
Related party payable - Tax Receivable Agreement long-term10,973 15,455 
Commitments and 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, 260,222,585 and 263,255,708 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
2,602 2,633 
Additional paid-in capital753,509 761,412 
Accumulated other comprehensive income (loss)12,541 (7,444)
Accumulated deficit(633,247)(733,199)
Total stockholders’ equity135,405 23,402 
Total liabilities and stockholders’ equity$1,483,804 $1,412,318 
See accompanying Notes to the Condensed Consolidated Financial Statements
5


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
(Unaudited)
For the Three Months
Ended March 31,
 20222021
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales$366,245 $304,397 
Cost of sales191,214 146,396 
Gross profit175,031 158,001 
Research and development880 969 
Selling and administrative expenses21,254 20,153 
Operating income152,897 136,879 
Other income, net(197)(307)
Interest expense9,212 22,167 
Interest income(98)(37)
Income before provision for income taxes143,980 115,056 
Provision for income taxes19,797 16,257 
Net income$124,183 $98,799 
Basic income per common share:
Net income per share$0.47 $0.37 
Weighted average common shares outstanding262,592,029 267,318,860 
Diluted income per common share:
Net income per share$0.47 $0.37 
Weighted average common shares outstanding262,657,799 267,465,319 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income$124,183 $98,799 
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of
  $1 and $0 respectively
7,022 (13,431)
Commodities, interest rate and foreign currency derivatives, net of tax of $(3,662) and $(3,332), respectively
12,963 12,355 
Other comprehensive income (loss), net of tax:19,985 (1,076)
Comprehensive income$144,168 $97,723 


See accompanying Notes to the Condensed Consolidated Financial Statements
6

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the Three Months
Ended March 31,
 20222021
Cash flow from operating activities:
Net income$124,183 $98,799 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization14,434 16,539 
Deferred income tax provision1,395 (2,840)
Non-cash stock-based compensation expense465 767 
Non-cash interest expense(2,146)5,309 
Other adjustments403 1,582 
Net change in working capital*12,590 25,187 
Change in related party Tax Receivable Agreement(3,828)(21,752)
Change in long-term assets and liabilities(1,180)(1,166)
Net cash provided by operating activities146,316 122,425 
Cash flow from investing activities:
Capital expenditures(16,855)(14,174)
Proceeds from the sale of fixed assets73 151 
Net cash used in investing activities(16,782)(14,023)
Cash flow from financing activities:
Debt issuance and modification costs (2,971)
Principal payments on long-term debt(70,000)(150,000)
Repurchase of common stock - non-related party (30,000) 
Payments for taxes related to net share settlement of equity awards(230)(273)
Proceeds from exercise of stock options225  
Dividends paid to non-related party(1,985)(1,394)
Dividends paid to related party(640)(1,277)
Interest rate swap settlements(887)(847)
Net cash used in financing activities(103,517)(156,762)
Net change in cash and cash equivalents26,017 (48,360)
Effect of exchange rate changes on cash and cash equivalents1,522 (636)
Cash and cash equivalents at beginning of period57,514 145,442 
Cash and cash equivalents at end of period$85,053 $96,446 
* Net change in working capital due to changes in the following components:
Accounts and notes receivable, net$(1,221)$(16,643)
Inventories(24,215)11,648 
Prepaid expenses and other current assets(5,298)(1,510)
Income taxes payable(19,419)(18,368)
Accounts payable and accruals56,958 44,333 
Interest payable5,785 5,727 
Net change in working capital$12,590 $25,187 
Net cash paid during the periods for:
Interest $22,591 $25,305 
Income taxes $37,733 $35,796 

See accompanying Notes to the Condensed Consolidated Financial Statements
7


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except per 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, 2021263,255,708 $2,633 $761,412 $(7,444)$(733,199)$23,402 
Net income— — — — 124,183 124,183 
Other comprehensive income (loss):
Commodity, interest rate and foreign currency derivatives income, net of tax of $(4,181)
— — — 14,800 — 14,800 
Commodity, interest rate and foreign currency derivatives reclassification adjustments, net of tax of $519
— — — (1,837)— (1,837)
Foreign currency translation adjustments, net of tax of $1
— — — 7,022 — 7,022 
   Total other comprehensive income— — — 19,985 — 19,985 
Repurchase of common stock - non-related party(3,035,830)(31)(8,530)— (21,439)(30,000)
Stock-based compensation— — 465 — — 465 
Options exercised 25,000 — 225 — — 225 
Payments for taxes related to net share settlement of equity awards(22,293)— (63)— (167)(230)
Dividends paid to related party ($0.01 per share)
— — — — (640)(640)
Dividends paid to non-related party ($0.01 per share)
— — — — (1,985)(1,985)
Balance as of March 31, 2022260,222,585 $2,602 $753,509 $12,541 $(633,247)$135,405 
Balance as of December 31, 2020267,188,547 $2,672 $758,354 $(19,641)$(1,070,770)$(329,385)
Net income— — — — 98,799 98,799 
Other comprehensive income (loss):
Commodity, interest rate and foreign currency derivatives income, net of tax of $(3,144)
— — — 11,660 — 11,660 
Commodity, interest rate and foreign currency derivatives reclassification adjustments, net of tax of $(187)
— — — 695 — 695 
Foreign currency translation adjustments, net of tax $0
— — — (13,431)— (13,431)
   Total other comprehensive loss— — — (1,076)— (1,076)
Repurchase of common stock - non-related party— — — — — — 
Stock-based compensation92,135 1 766 — — 767 
Payments for taxes related to net share settlement of equity awards(23,090)— (65)— (210)(275)
Dividends paid to related party ($0.01 per share)
— — — — (1,277)(1,277)
Dividends paid to non-related party ($0.01 per share)
— — — — (1,394)(1,394)
Balance as of March 31, 2021267,257,592 $2,673 $759,055 $(20,717)$(974,852)$(233,841)

See accompanying Notes to the Condensed Consolidated Financial Statements

8

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE 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 ("EAF") steel and other ferrous and non-ferrous metals. References herein to “GTI,” “we,” “our,” or “us” refer collectively to the Company and its subsidiaries. On August 15, 2015, GTI became an indirect wholly owned subsidiary of 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 New York Stock Exchange 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 a reduction of Brookfield's ownership of outstanding shares of GrafTech common stock to 24.3% as of December 31, 2021 and 24.6% as of March 31, 2022.
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 products, services and solutions 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, 2021 Consolidated Balance Sheet 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, 2021, filed on February 22, 2022, 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 presentation of our financial statements 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.
Certain items previously reported in specific financial statement captions within the Condensed Consolidated Statements of Cash Flows have been reclassified between lines within cash flow from operations and between lines within financing activities to conform to the current presentation. In addition, items previously presented under Related party Tax Receivable Agreement expense (benefit) on the Condensed Consolidated Statement of Operations have been collapsed into "Other income, net" to conform to the current year presentation.
C. New Accounting Standards
Recently Adopted Accounting Standards
In January 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-01, Reference Rate Reform (Topic 848): Scope, which amended Topic 848 reference rate reform to clarify the scope and availability of expedients for certain derivative instruments affected by reference rate reform. We have elected various optional expedients in Topic 848 related to hedging relationships and expect to make future elections related to contract modifications and other hedging relationships. The future election and application of these expedients are not expected to have a material impact on our financial position, results of operations and cash flows.


9

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

(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 Months
Ended March 31,
20222021
(Dollars in thousands)
Graphite Electrodes - LTAs$242,481 $245,565 
Graphite Electrodes - Non-LTAs108,050 47,255 
By-products and other15,714 11,577 
Total Revenues$366,245 $304,397 
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 which are included in "Prepaid expenses and other current assets," on the Condensed Consolidated Balance Sheets were $0.8 million as of March 31, 2022 and $1.2 million as of December 31, 2021.
10

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

The following table provides information about deferred revenue from contracts with customers. 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, 2021
$9,840 $4,303 
Revenue recognized(1,549) 
Increases due to net cash received 37,429  
Reclassifications between long-term and current143 (143)
Balance as of March 31, 2022
$45,863 $4,160 
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. The revenue associated with our LTAs is expected to be approximately as follows:
20222023 through 2024
(Dollars in millions)
Estimated LTA revenue
$860-$960
$400-$500(1)
(1) Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs.
We recorded $242 million of LTA revenue in the three months ended March 31, 2022, and we expect to record approximately $618 million to $718 million of LTA revenue for the remainder of 2022.
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 years 2023 and through 2024, 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, arbitrations, credit risk associated with certain customers facing financial challenges and customer demand related to contracted volume ranges. As it relates to the conflict between Ukraine and Russia, we have provided force majeure notices with respect to certain LTAs serving customers in Russia. The estimates of graphite electrodes under our LTAs as set forth in the immediately preceding table take into account such force majeure notices.
(3)Goodwill and Other Intangible Assets
The goodwill balance was $171.1 million as of both March 31, 2022 and December 31, 2021.
11

PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE 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 March 31, 2022As of December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(Dollars in thousands)
Trade names$22,500 $(14,425)$8,075 $22,500 $(13,935)$8,565 
Technology and know-how55,300 (39,505)15,795 55,300 (38,486)16,814 
Customer-related intangibles64,500 (29,277)35,223 64,500 (28,195)36,305 
Total finite-lived intangible assets$142,300 $(83,207)$59,093 $142,300 $(80,616)$61,684 
Amortization expense of intangible assets was $2.6 million and $2.7 million in the three months ended March 31, 2022 and 2021, respectively. Estimated amortization expense will be approximately $7.5 million for the remainder of 2022, $9.2 million in 2023, $8.0 million in 2024, $7.3 million in 2025 and $6.7 million in 2026. Amortization expense is included in Cost of sales on the Condensed Consolidated Statement of Operations.
(4)Debt and Liquidity
The following table presents our long-term debt: 
As of
March 31, 2022
As of
December 31, 2021
 (Dollars in thousands)
2018 Term Loan Facility$473,708 $543,708 
2020 Senior Secured Notes500,000 500,000 
Other debt419 429 
Unamortized debt discount and issuance costs(12,678)(14,449)
Total debt961,449 1,029,688 
Less: Short-term debt(125)(127)
Long-term debt$961,324 $1,029,561 

In the three months ended March 31, 2022, we repaid $70.0 million of principal of our 2018 Term Loan Facility (as defined below). The fair value of our debt was approximately $933.1 million and $1,051.6 million as of March 31, 2022 and December 31, 2021, respectively. The fair value of our 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. As of March 31, 2022 and December 31, 2021, there was no debt outstanding on the 2018 Revolving Credit Facility and there was $4.3 million and $3.3 million of letters of credit drawn against the 2018 Revolving Credit Facility, 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
12

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

0.50% for each pricing level or (ii) the ABR Rate (as defined in the 2018 Credit Agreement), plus an applicable margin equal to 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 1.00% 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 March 31, 2022, we have satisfied all required amortization installments 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 Secured Notes
In December 2020, GrafTech Finance issued $500 million aggregate principal amount of 4.625% senior secured notes due 2028 (the “2020 Senior Secured Notes”) in a private offering. The 2020 Senior Secured 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 Secured Notes were used to partially repay borrowings under our 2018 Term Loan Facility.
The 2020 Senior Secured 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 Secured 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
13

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

with accrued and unpaid interest, if any. The 2020 Senior Secured 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, if any, to, but not including, the redemption date. Thereafter, the 2020 Senior Secured Notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
The indenture governing the 2020 Senior Secured 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 Secured 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 Secured Notes may declare all of the 2020 Senior Secured Notes to be due and payable immediately.

(5)Inventories
Inventories are comprised of the following: 
As of
March 31, 2022
As of
December 31, 2021
 (Dollars in thousands)
Inventories:
Raw materials and supplies$143,967 $132,113 
Work in process129,859 127,127 
Finished goods44,232 30,192 
         Total$318,058 $289,432 
(6)Interest Expense
The following table presents the components of interest expense: 
For the Three Months
Ended March 31,
20222021
 (Dollars in thousands)
Interest incurred on debt$11,358 $16,865 
Accretion of original issue discount on 2018 Term Loan Facility527 1,271 
Amortization of debt issuance and modification costs1,244 4,031 
Mark-to-market gain on de-designated interest rate swap(3,917) 
Total interest expense$9,212 $22,167 
14

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

Interest Rates
The 2020 Senior Secured Notes carry a fixed interest rate of 4.625%. The 2018 Term Loan Facility had an effective interest rate of 3.50% as of March 31, 2022 and December 31, 2021. See Note 4, "Debt and Liquidity" for details of these transactions.
During the three months ended March 31, 2022 we made prepayments for a total of $70.0 million, under our 2018 Term Loan Facility. In connection with this, we recorded $0.3 million of accelerated accretion of the original issue discount and we recorded $0.5 million of accelerated amortization of the debt issuance costs.
During the three months ended March 31, 2021 we made prepayments for a total of $150.0 million under our 2018 Term Loan Facility. In connection with this, we recorded $0.9 million of accelerated accretion of the original issue discount and $1.5 million accelerated amortization of the debt issuance cost. We also recorded $1.6 million of modification costs related to the 2018 Term Loan Facility repricing in the first quarter of 2021. See Note 4, "Debt and Liquidity" for details of the Second Amendment.
The Company has several interest rate swap contracts to fix the cash flows associated with the risk in variability in the one-month USD London Interbank Offered Rate for the 2018 Term Loan Facility. See Note 9, "Fair Value Measurements and Derivative Instruments" for details of these transactions.

(7) Commitments and Contingencies
Legal Proceedings
We are involved in various investigations, lawsuits, claims, demands, environmental compliance programs and other legal proceedings arising out of or incidental to the conduct of our business. While it is not possible to determine the ultimate disposition of each of these matters, we do not believe that their ultimate disposition will have a material adverse effect on our financial position, results of operations or cash flows. Additionally, we are involved in the following legal proceedings described below.
We are involved in various arbitrations, sometimes as claimants and other times as respondents/counterclaimants, pending before the International Chamber of Commerce with several customers who, among other things, have failed to perform under their LTAs and in certain instances are seeking to modify or frustrate their contractual commitments to us. In particular, Aperam South America LTDA, Aperam Sourcing S.C.A., ArcelorMittal Sourcing S.C.A., and ArcelorMittal Brasil S.A. (collectively, the “Claimants”) initiated a single arbitration proceeding against two of the Company’s subsidiaries in the International Chamber of Commerce in June 2020. In June 2021, the Claimants filed their statement of claim, seeking approximately $61 million plus interest in monetary relief and/or reimbursement in respect of several fixed price LTAs that were executed between such subsidiaries and the Claimants in 2017 and 2018. The Claimants argue, among other things, that they should no longer be required to comply with the terms of the LTAs that they signed due to an alleged drop in market prices for graphite electrodes in January 2020. Alternatively, the Claimants argue that they should not be required to comply with the LTAs that they signed due to alleged market circumstances at the time of execution. We believe we have valid defenses to these claims. We intend to vigorously defend them and enforce our rights under the LTAs.
Pending litigation in Brazil has been brought by employees seeking to recover additional amounts and interest thereon under certain wage increase provisions applicable in 1989 and 1990 under collective bargaining agreements to which employers in the Bahia region of Brazil were a party (including our subsidiary in Brazil). Companies in Brazil have settled claims arising out of these provisions and, in May 2015, the litigation was remanded by the Brazilian Supreme Court in favor of the employees union. After denying an interim appeal by the Bahia region employers on June 26, 2019, the Brazilian Supreme Court finally ruled in favor of the employees union on September 26, 2019. The employers union has determined not to seek annulment of such decision. Separately, on October 1, 2015, a related action was filed by current and former employees against our subsidiary in Brazil to recover amounts under such provisions, plus interest thereon, which amounts together with interest could be material to us. If the Brazilian Supreme Court proceeding above had been determined in favor of the employers union, it would also have resolved this proceeding in our favor. In the first quarter of 2017, the state court initially ruled in favor of the employees. We appealed this state court ruling, and the appellate court issued a decision in our favor on May 19, 2020. The employees have further appealed and, on December 16, 2020, the court upheld the decision in favor of GrafTech Brazil. On February 22, 2021, the employees filed a further appeal and, on April 28, 2021, the court rejected the employees' appeal in favor of GrafTech Brazil. The employees filed a further appeal and we intend to vigorously defend our position. As of March
15

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

31, 2022, we are unable to assess the potential loss associated with these proceedings as the claims do not currently specify the number of employees seeking damages or the amount of damages being sought.
Product Warranties
We generally sell products with a limited warranty. We accrue for known warranty claims if a loss is probable and can be reasonably estimated. We also accrue for estimated warranty claims incurred based on a historical claims charge analysis. Claims accrued but not yet paid and the related activity within the accrual for the three months ended March 31, 2022, are presented below: 
(Dollars in thousands)
Balance as of December 31, 2021$1,088 
Product warranty charges/ adjustments205 
Payments and settlements(162)
Balance as of March 31, 2022$1,131 
Related Party Tax Receivable Agreement
On April 23, 2018, the Company entered into the tax receivable agreement ("Tax Receivable Agreement") that provides Brookfield, as the sole pre-IPO stockholder, the right to receive future payments from us for 85% of the amount of cash savings, if any, in U.S. federal income tax and Swiss tax that we and our subsidiaries realize as a result of the utilization of the pre-IPO tax assets. In addition, we will pay interest on the payments we will make to Brookfield with respect to the amount of these cash savings from the due date (without extensions) of our tax return where we realize these savings to the payment date at a rate equal to the London Interbank Offered Rate ("LIBOR") plus 1.00% per annum. The term of the Tax Receivable Agreement commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments.
As of March 31, 2022, the total Tax Receivable Agreement liability was $15.5 million, of which $4.5 million was classified as current liability "Related party payable - Tax Receivable Agreement" on the Condensed Consolidated Balance Sheets, as we expect this portion to be settled within 12 months, and $11.0 million of the liability remained as a long-term liability in "Related party payable - Tax Receivable Agreement long-term" on the Condensed Consolidated Balance Sheets. As of December 31, 2021, the total Tax Receivable Agreement liability was $19.3 million, of which $3.8 million was classified as a current liability "Related party payable - Tax Receivable Agreement" on the Condensed Consolidated Balance Sheets, and $15.5 million of the liability was classified as a long-term liability in "Related party payable - Tax Receivable Agreement long-term" on the Condensed Consolidated Balance Sheets. The 2021 current liability was settled in the first quarter of 2022.

(8) Income Taxes
We compute and apply to ordinary income an estimated annual effective tax rate on a quarterly basis based on current and forecasted business levels and activities, including the mix of domestic and foreign results and enacted tax laws. The estimated annual effective tax rate is updated quarterly based on actual results and updated operating forecasts. Ordinary income refers to income before the provision for income taxes excluding significant, unusual or infrequently occurring items. The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs as a discrete item of tax.

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PART I (CONT'D)
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes the provision for income taxes:
For the Three Months Ended March 31,
20222021
(Dollars in thousands)
Provision for income taxes$19,797 $16,257 
Pre-tax income143,980 115,056 
Effective tax rates13.7 %14.1 %
The effective tax rate for the three months ended March 31, 2022 was 13.7%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates, which is partially offset by the net combined impact related to the U.S. taxation of global intangible low taxed income ("GILTI") and Foreign Tax Credits ("FTCs").
The effective tax rate for the three months ended March 31, 2021 was 14.1%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at lower rates, the Section 250 Deduction and FTCs offset by the net increase related to GILTI.
The provision for income tax increased from $16.3 million for the three months ended March 31, 2021 to $19.8 million for the three months ended March 31, 2022. This change is primarily related to an increase in pre-tax income, partially offset by a decrease in the effective tax rate due to the mix of worldwide earnings from various countries taxed at different rates and U.S. taxation of GILTI.
As of March 31, 2022, we had unrecognized tax positions of $0.1 million, which, if recognized, would have an immaterial, favorable, impact on our effective tax rate.
We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. All U.S. federal tax years prior to 2018 are generally closed by statute or have been audited and settled with the applicable domestic tax authorities. Other jurisdictions are generally closed for years prior to 2016.
We continue to assess the realization of our deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. Examples of positive evidence would include a strong earnings history, an event or events that would increase our taxable income through a continued reduction of expenses, and tax planning strategies that would indicate an ability to realize deferred tax assets. In circumstances where the significant positive evidence does not outweigh the negative evidence in regards to whether or not a valuation allowance is required, we have established and maintained valuation allowances on those net deferred tax assets.
(9) Fair Value Measurements and Derivative Instruments
In the normal course of business, we are exposed to certain risks related to fluctuations in currency exchange rates, commodity prices and interest rates. We use various derivative financial instruments, primarily foreign currency derivatives, commodity derivative contracts, and interest rate swaps as part of our overall strategy to manage risks from these market fluctuations.
Certain of our derivative contracts contain provisions that require us to provide collateral. Since the counterparties to these financial instruments are large commercial banks and similar financial institutions, we do not believe that we are exposed to material counterparty credit risk. We do not anticipate nonperformance by any of the counterparties to our instruments.
Foreign currency derivatives
We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, are used to hedge global currency exposures such as foreign currency denominated debt, receivables, payables, sales and purchases.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Foreign currency forward and swap contracts are used to mitigate the foreign exchange risk of balance sheet items. These derivatives are fair value hedges. Gains and losses from these derivatives are recorded in cost of sales and they are largely offset by the financial impact of translating foreign currency-denominated payables and receivables.
In the first quarter of 2022, we entered into foreign currency derivatives with maturities of one to 12 months in order to protect against the risk that cash flows associated with certain sales and purchases denominated in a currency other than the U.S. dollar will be adversely affected by future changes in foreign exchange rates. These derivatives are designated as cash flow hedges. The resulting unrealized gains or losses from these derivatives are recorded in accumulated other comprehensive income ("AOCI") and subsequently, when realized, are reclassified to net sales or cost of sales in the Condensed Consolidated Statement of Operations when the hedged exposures affect earnings.
Commodity derivative contracts
We enter into commodity derivative contracts for refined oil products. These contracts are entered into to protect against the risk that eventual cash flows related to these products will be adversely affected by future changes in prices. In the fourth quarter of 2017, we began to enter into LTAs, with many of our customers and began to hedge the cash flows related to these contracts. The unrealized gains or losses related to commodity derivative contracts designated as cash flow hedges are recorded in AOCI and subsequently, when realized, are reclassified to the Condensed Consolidated Statement of Operations when the hedged item impacts earnings, which is when the finished product is sold.
Interest rate swap contracts
We utilize interest rate swaps to limit exposure to market fluctuations on our variable-rate debt. Each derivative agreement's unrealized gain or loss is recorded in AOCI and, when realized, is recorded to interest expense.
We entered into interest rate swap contracts that are "pay fixed, receive variable." Our risk management objective was to fix our cash flows associated with the risk in variability in the one-month USD LIBOR for a portion of our outstanding debt. It was expected that the swaps would fix the cash flows associated with the forecasted interest payments on our debt to an effective fixed interest rate of 4.2%, which could be lowered to 3.95% depending on credit ratings. Since their modification concurrent with the 2018 Term Loan Facility modification in the first quarter of 2021, the swaps contain an other-than-insignificant financing element. As such, they are considered hybrid instruments composed of a debt host and an embedded derivative and the associated cash (outflows)/inflows are classified as financing (use)/source of cash.
The debt host portion amounted to a liability of $6.4 million as of March 31, 2022 with $2.6 million included in "Other accrued liabilities" and $3.8 million in "Other long-term obligations" on the Condensed Consolidated Balance Sheets. As of December 31, 2021, the debt host portion amounted to a liability of $7.0 million, with $2.6 million included in "Other accrued liabilities" and $4.4 million included in "Other long-term obligations" on the Condensed Consolidated Balance Sheets. The corresponding loss is accounted for in AOCI and is being amortized over the remaining life of the swaps. The embedded derivative is treated as a cash flow hedge.
In the first quarter of 2022, in connection with the $70.0 million principal repayment of the 2018 Term Loan Facility discussed in Note 4, "Debt and Liquidity," and our probability assessment of the variable-rate debt remaining outstanding through the term of the swaps, we de-designated one interest rate swap contract with a $250.0 million notional amount, maturing in the third quarter of 2024. The fair value of the embedded derivative at the de-designation date was $6.6 million and was recorded in AOCI and will be amortized into interest expense over the remaining life of the swap. The change in fair value of the embedded derivative from the de-designation date to March 31, 2022 was a gain of $3.9 million and was recorded in interest expense in the Condensed Consolidated Statement of Operations.
All derivatives are recorded on the balance sheet at fair value. If the derivative is designated and effective as a cash flow hedge, changes in the fair value of the derivative are recognized in AOCI until the hedged item is recognized in earnings. The ineffective portion of a derivative's fair value, if any, is recognized in earnings immediately. If a derivative is not a hedge, changes in the fair value are adjusted through earnings. The fair values of the outstanding derivatives are recorded on the balance sheet as assets (if the derivatives are in a gain position) or liabilities (if the derivatives are in a loss position). The fair values will also be classified as short-term or long-term depending upon their maturity dates. The fair value of all of our derivatives was determined using Level 2 inputs.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The notional amounts of our outstanding derivative instruments as of March 31, 2022 and December 31, 2021 were as follows:
As of March 31, 2022As of December 31, 2021
 Notional AmountNotional Amount
(Dollars in thousands)
Derivative instruments designated as hedges:
Foreign currency derivatives$85,664 $ 
Commodity derivative contracts9,737 19,474 
Interest rate swap contracts250,000 500,000 
Derivative instruments not designated as hedges:
Foreign currency derivatives$69,184 $99,260 
Interest rate swap contracts250,000  
The following table summarizes the fair value of our outstanding derivatives designated as hedges (on a gross basis) and balance sheet classification as of March 31, 2022 and December 31, 2021:
As of March 31, 2022As of December 31, 2021
    Fair Value   Fair Value
(Dollars in thousands)
Prepaid and other current assets
Commodity derivative contracts$9,509 $8,469 
Interest rate swap contracts2,740  
Total$12,249 $8,469 
Other assets
Interest rate swap contracts$7,649 $6,060 
Total$7,649 $6,060 
Other accrued liabilities
Foreign currency derivatives$(963)$ 
Interest rate swap contracts (140)
Total$(963)$(140)
Net asset (liability)$18,935 $14,389 

As a result of the settlement of commodity derivative contracts, as of March 31, 2022 and 2021, net realized pre-tax gains of $16.5 million and net realized pre-tax losses of $5.0 million, respectively, were reported in AOCI and will be (were) released to earnings within the following 12 months. See the table below for amounts recognized in the Statement of Operations.
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PART I (CONT'D)
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The realized (gains) losses on cash flow hedges are recognized in the Statements of Operations when the hedged item impacts earnings and are as follows for the periods ended March 31, 2022 and 2021:
  Amount of (Gain)/Loss
Recognized
Location of Realized (Gain)/Loss Recognized in the Condensed Consolidated Statement of OperationsFor the Three Months Ended March 31,
20222021
Derivatives designated as cash flow hedges:(Dollars in thousands)
Commodity derivative contractsCost of sales$(2,978)$549 
Interest rate swap contractsInterest expense421 1,330 
The following table summarizes the fair value of our outstanding derivatives not designated as hedging instruments (on a gross basis) and balance sheet classification as of March 31, 2022 and December 31, 2021:
As of March 31, 2022As of December 31, 2021
    Fair Value   Fair Value
(Dollars in thousands)
Prepaid and other current assets
Interest rate swap contracts$2,735 $ 
Foreign currency derivatives474 388 
Other assets
Interest rate swap contracts7,605  
Other accrued liabilities
Foreign currency derivatives(154)(2)
Net asset (liability)$10,660 $386 

(10) Accumulated Other Comprehensive Income (Loss)
The balance in our Accumulated other comprehensive income (loss) is set forth in the following table:
 As of
March 31, 2022
As of
December 31, 2021
 (Dollars in thousands)
Foreign currency translation adjustments, net of tax$(15,308)$(22,330)
Commodity, interest rate, and foreign currency derivatives, net of tax27,849 14,886 
Total accumulated other comprehensive income (loss)$12,541 $(7,444)
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PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(11) Earnings per Share (EPS)
During the first quarter of 2022, we repurchased and subsequently retired 3,035,830 shares of our common stock for $30.0 million under our common stock repurchase program. We did not repurchase any shares of our common stock under this program during the first quarter of 2021.
The following table presents a reconciliation of the numerator and denominator of basic and diluted EPS for the three months ended March 31, 2022 and 2021:
For the Three Months
Ended March 31,
20222021
(Dollars in thousands, except per share amounts)
Numerator for basic and diluted EPS:
Net income$124,183 $98,799 
Denominator:
Weighted average common shares outstanding for basic calculation262,592,029 267,318,860 
Add: Effect of equity awards65,770 146,459 
Weighted average common shares outstanding for diluted calculation262,657,799 267,465,319 
Basic EPS$0.47 $0.37 
Diluted EPS$0.47 $0.37 
Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding, which included 172,010 and 110,647 shares of participating securities in the three months ended March 31, 2022 and 2021 respectively. Diluted EPS is calculated by dividing net income by the sum of the weighted average number of common shares outstanding plus the additional common shares that would have been outstanding if potentially dilutive securities had been issued.
The weighted average common shares outstanding for the diluted EPS calculation excludes consideration of 1,479,638 and 1,106,823 equivalent shares for the three months ended March 31, 2022 and 2021, respectively, as their effect would have been anti-dilutive.
(12) Stock-Based Compensation
Our Compensation Committee of our Board of Directors granted 385,688 stock options and 489,252 restricted stock units ("RSUs"), and our electing non-employee directors received 25,682 deferred share units ("DSUs") during the three months ended March 31, 2022 under our Omnibus Equity Incentive Plan. The weighted average exercise price per share and weighted average fair value per share of the stock options granted during the three months ended March 31, 2022 and 2021, was $10.08 and $5.55, respectively. We estimated the fair value of the stock options using the following assumptions in our Black-Scholes model:
Dividend yield
0.40%
Expected volatility
58.28%
Risk-free interest rate
1.93%
Expected term (in years)
6.5 years

We measure the fair value of grants of RSUs and DSUs based on the closing market price of a share of our common stock on the date of the grant. The weighted average fair value per share was $10.08 for RSUs and $9.63 for DSUs granted during the three months ended March 31, 2022.

In the three months ended March 31, 2022 and 2021, we recognized $0.5 million and $0.8 million, respectively, of stock-based compensation expense. The majority of the expense, $0.4 million and $0.7 million, respectively, was recorded in selling and administrative expense in the Condensed Consolidated Statement of Operations, with the remaining expense recorded in cost of sales.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


As of March 31, 2022, the unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $7.4 million and is expected to be recognized over the remaining vesting period of the respective grants.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company
We are a leading manufacturer of high-quality graphite electrode products essential to the production of EAF steel and other ferrous and non‑ferrous metals. We believe that we have the most competitive portfolio of low‑cost ultra-high power graphite electrode manufacturing facilities in the industry, including three of the highest capacity facilities in the world. We are the only large scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke, a key raw material for graphite electrode manufacturing. This vertical integration allows GrafTech to enter into longer term agreements with its customers. These agreements have a duration of more than 12 months and include pre-determined ranges of volumes and prices. This provides greater earnings stability and visibility for GrafTech and a committed, secure source of supply for our customers.
The environmental and economic advantages of electric arc furnace steel production positions both that industry and the graphite electrode industry for continued long-term growth.
We believe GrafTech's leadership position, strong cash flows, advantaged low cost structure and vertical integration are sustainable competitive advantages. The services and solutions we provide will position our customers and us for a better future.
Commercial Update and Outlook
GrafTech reported solid results in the first quarter of 2022 with sales volume of 43 thousand metric tons ("MT"), consisting of LTA volume of 25 thousand MT at an average realized price of $9,600 per MT and non-LTA volume of 18 thousand MT at an average realized price of $6,000 per MT.
Consistent with our expectations, the non-LTA prices for graphite electrodes delivered and recognized in revenue in the first quarter of 2022 increased 19% compared to the average non-LTA price for the fourth quarter of 2021 as prices for virtually all of our non-LTA business were reset on January 1, 2022. We expect our average non-LTA pricing for the second quarter of 2022 to be consistent with our first quarter 2022 average.
In parallel, our costs in the first quarter of 2022 increased, driven by recent global inflationary pressures, particularly for third party needle coke, energy and freight. We expect further increases throughout the remainder of 2022 to be lower in magnitude as we continue to take steps to mitigate these cost increases.
Production volume in the first quarter of 2022 increased 28% compared to the first quarter of 2021.
Globally, steel market capacity utilization rates continue to be strong:
Q1 2022Q4 2021Q1 2021
Global (ex-China) capacity utilization rate(1)
72%75%73%
U.S. steel market capacity utilization rate(2)
81%83%77%
(1) Source: World Steel Association, Metal Expert, Organisation for Economic Co-operation and Development and GrafTech analysis
(2) Source: American Iron and Steel Institute

The estimated shipments of graphite electrodes under our LTAs for 2022 through 2024 have been updated as follows:
20222023 through 2024
Estimated LTA volume(1)
90-10040-50
Estimated LTA revenue(2)
$860-$960
$400-$500(3)
(1) In thousands of MT
(2) In millions
(3) Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs

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As it relates to the conflict between Ukraine and Russia, we have provided force majeure notices with respect to certain LTAs serving customers in Russia. The estimates of graphite electrodes under our LTAs as set forth in the immediately preceding table take into account such force majeure notices.
Capital Structure and Capital Allocation
As of March 31, 2022, GrafTech had cash and cash equivalents of $85.1 million and total debt of approximately $961.4 million. We continue to make progress in reducing our long-term debt, repaying $70.0 million in the first quarter of 2022. We continue to expect our primary use of cash to be debt repayment. We also have $129.0 million available under our stock repurchase authorization.
We repurchased 3.0 million shares of our common stock in the first quarter of 2022 at an average price of $9.88 per share, for an aggregate of $30.0 million under our common stock repurchase authorization.
We continue to expect full-year capital expenditures to be in the range of $70 to $80 million for 2022.
Key metrics used by management to measure performance
In addition to measures of financial performance presented in our Condensed Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States ("GAAP"), we use certain other financial measures and operating metrics to analyze the performance of our Company. Our “non-GAAP” financial measures consist of EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share, which help us evaluate growth trends, establish budgets, assess operational efficiencies and evaluate our overall financial performance. Our key operating metrics consist of sales volume, production volume, production capacity and capacity utilization.
Key financial measures
For the Three Months Ended March 31,
(in thousands, except per share data)20222021
Net sales$366,245 $304,397 
Net income124,183 98,799 
Earnings per share(1)
0.47 0.37 
EBITDA(2)
167,528 153,725 
Adjusted net income(2)
125,920 99,880 
Adjusted earnings per share(1)(2)
0.48 0.37 
Adjusted EBITDA(2)
169,600 155,045 
(1) Earnings per share represents diluted earnings per share. Adjusted earnings per share represents adjusted diluted earnings per share.
(2) Non-GAAP financial measure; see below for information and reconciliations of EBITDA, adjusted EBITDA and adjusted net income to net income and adjusted EPS to EPS, the most directly comparable financial measures calculated and presented in accordance with GAAP.
Key operating measures
In addition to measures of financial performance presented in accordance with GAAP, we use certain operating metrics to analyze the performance of our Company. The key operating metrics consist of sales volume, production volume, production capacity and capacity utilization. These metrics align with management's assessment of our revenue performance and profit margin, and will help investors understand the factors that drive our profitability.
Sales volume reflects the total volume of graphite electrodes sold for which revenue has been recognized during the period. For a discussion of our revenue recognition policy, see “—Critical accounting policies—Revenue recognition” in our Annual Report on Form 10-K. Sales volume helps investors understand the factors that drive our net sales.
Production volume reflects graphite electrodes produced during the period. Production capacity reflects expected maximum production volume during the period depending on product mix and expected maintenance outage. Actual production may vary. Capacity utilization reflects production volume as a percentage of production capacity. Production volume,
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production capacity and capacity utilization help us understand the efficiency of our production, evaluate cost of sales and consider how to approach our contract initiative.
For the Three Months
Ended March 31,
(in thousands, except utilization)20222021
Sales volume (MT)(1)
43 37 
Production volume (MT)(2)
46 36 
Total production capacity (MT)(3)(4)
58 58 
Total capacity utilization(4)(5)
79 %62 %
Production capacity excluding St. Marys (MT)(3)(6)
51 51 
Capacity utilization excluding St. Marys(5)(6)
90 %71 %
(1) Sales volume reflects only graphite electrodes manufactured by us.
(2) Production volume reflects graphite electrodes we produced during the period.
(3) Production capacity reflects expected maximum production volume during the period depending on product mix and expected maintenance outage. Actual production may vary.
(4) Includes graphite electrode facilities in Calais, France; Monterrey, Mexico; Pamplona, Spain; and St. Marys, Pennsylvania.
(5) Capacity utilization reflects production volume as a percentage of production capacity.
(6) In the first quarter of 2018, our St. Marys, Pennsylvania facility began graphitizing a limited amount of electrodes sourced from our Monterrey, Mexico facility.
Non-GAAP financial measures
In addition to providing results that are determined in accordance with GAAP, we have provided certain financial measures that are not in accordance with GAAP. EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS are non-GAAP financial measures. We define EBITDA, a non‑GAAP financial measure, as net income or loss plus interest expense, minus interest income, plus income taxes and depreciation and amortization. We define adjusted EBITDA as EBITDA plus any pension and other post-employment benefit ("OPEB") plan expenses, adjustments for public offerings and related expenses, non‑cash gains or losses from foreign currency remeasurement of non‑operating assets and liabilities in our foreign subsidiaries where the functional currency is the U.S. dollar, stock-based compensation expense and related party payable - Tax Receivable Agreement adjustments. Adjusted EBITDA is the primary metric used by our management and our Board of Directors to establish budgets and operational goals for managing our business and evaluating our performance.    
We monitor adjusted EBITDA as a supplement to our GAAP measures, and believe it is useful to present to investors, because we believe that it facilitates evaluation of our period‑to‑period operating performance by eliminating items that are not operational in nature, allowing comparison of our recurring core business operating results over multiple periods unaffected by differences in capital structure, capital investment cycles and fixed asset base. In addition, we believe adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance and debt‑service capabilities.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments, including any capital expenditure requirements to augment or replace our capital assets;
adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;
adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
adjusted EBITDA does not reflect expenses relating to our pension and OPEB plans;
adjusted EBITDA does not reflect the non‑cash gains or losses from foreign currency remeasurement of non‑operating assets and liabilities in our foreign subsidiaries where the functional currency is the U.S. dollar;
adjusted EBITDA does not reflect public offerings and related expenses;
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adjusted EBITDA does not reflect related party payable - Tax Receivable Agreement adjustments;
adjusted EBITDA does not reflect stock-based compensation expense; and
other companies, including companies in our industry, may calculate EBITDA and adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

We define adjusted net income, a non‑GAAP financial measure, as net income or loss and exclude the items used to calculate adjusted EBITDA, less the tax effect of those adjustments. We define adjusted EPS, a non‑GAAP financial measure, as adjusted net income divided by the weighted average diluted common shares outstanding during the period. We believe adjusted net income and adjusted EPS are useful to present to investors because we believe that they assist investors’ understanding of the underlying operational profitability of the Company.
In evaluating EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS, you should be aware that in the future, we will incur expenses similar to the adjustments in the reconciliations presented below. Our presentations of EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS, should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non‑recurring items. When evaluating our performance, you should consider EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS, alongside other measures of financial performance and liquidity, including our net income and EPS, respectively, and other GAAP measures.
The following tables reconcile our non-GAAP key financial measures to the most directly comparable GAAP measures:
Reconciliation of Net Income to Adjusted Net Income
For the Three Months
Ended March 31,
20222021
(Dollars in thousands, except per share data)
Net income$124,183 $98,799 
Diluted income per common share:
Net income per share$0.47 $0.37 
Weighted average shares outstanding262,657,799 267,465,319 
Adjustments, pre-tax:
Pension and OPEB plan expenses(1)
551 431 
Public offerings and related expenses(2)
— 422 
Non-cash losses (gains) on foreign currency remeasurement(3)
1,236 (348)
Stock-based compensation expense(4)
465 768 
Related party payable - Tax Receivable Agreement adjustment(5)
(180)47 
Total non-GAAP adjustments pre-tax2,072 1,320 
Income tax impact on non-GAAP adjustments(6)
335 239 
Adjusted net income$125,920 $99,880 
(1)Net periodic benefit cost for our pension and OPEB plans.
(2)Legal, accounting, printing and registration fees associated with the public offerings and related expenses.
(3)Non-cash losses (gains) from foreign currency remeasurement of non-operating assets and liabilities of our non-U.S. subsidiaries where the functional currency is the U.S. dollar.
(4)Non-cash expense for stock-based compensation grants.
(5)Non-cash expense adjustment for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.
(6)The tax impact on the non-GAAP adjustments is affected by their tax deductibility and the applicable jurisdictional tax rates.

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Reconciliation of EPS to Adjusted EPS
For the Three Months
Ended March 31,
20222021
EPS$0.47 $0.37 
Adjustments per share:
Pension and OPEB plan expenses(1)
— — 
Public offerings and related expenses(2)
— — 
Non-cash losses (gains) on foreign currency remeasurement(3)
0.01 — 
Stock-based compensation expense(4)
— — 
Related party payable - Tax Receivable Agreement adjustment(5)
— — 
Total non-GAAP adjustments pre-tax per share0.01 — 
Income tax impact on non-GAAP adjustments per share(6)
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Adjusted EPS