Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended SeptemberJune 30, 20172021
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from from______ to
______
Commission file number: 1-13888
graftechinternationala03.jpggti-20210630_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, OHOH(Zip code)
(Address of principal executive offices)
Registrant’s telephone number, including area code: (216) 676-2000
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  oý    No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ý    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filero
☐
Accelerated Filero
☒
Emerging Growth Companyo☐
Non-Accelerated Filer☐Smaller Reporting Company☐
Non-Accelerated Filer o
Smaller Reporting Company  o
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 Rule 12b-2)Act).    Yes  ¨☐    No  ý☒
As of October 14, 2017, 100July 31, 2021, 267,880,752 shares of common stock, par value $.01$0.01 per share, were outstanding.
(Explanatory Note: The registrant is a voluntary filer and not subject to the filing requirements

Table of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the registrant been subject to such requirements.)Contents

TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets as of December 31, 2016 and September 30, 2017 (unaudited)
35
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2016 and 2017 (unaudited)
46
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2017 (unaudited)
57
Condensed Consolidated Statements of Stockholders' Equity (Deficit) (unaudited)
8
Notes to Condensed Consolidated Financial Statements (unaudited)
610
25
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
3025
39
40
41
Item 1A. Risk Factors
41
Item 2. Unregistered SalesSale of Equity Securities and Use of Proceeds
4142
41
Item 4. Mine Safety Disclosures
41
Item 5. Other Information
41
Item 6. Exhibits
4243
4344


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 June 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:
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•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 continue to decline in the future;
•the sensitivity of our business and operating results to economic conditions and the possibility others may not be able to fulfill their obligations to us in a timely fashion or at all;
•our dependence on the global steel industry generally and the electric arc furnace steel industry in particular;
•the competitiveness of the graphite electrode industry;
•our dependence on the supply of petroleum needle coke;
•our dependence on supplies of raw materials (in addition to petroleum needle coke) and energy;
•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;
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•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 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 conjunction 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.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Unuaudited
(Unaudited)
As of December 31, 2016 As of
September 30,
2017		As of
June 30,
2021		As of
December 31, 2020
ASSETS   ASSETS
Current assets:   Current assets:
Cash and cash equivalents$11,610
 $16,376
Cash and cash equivalents$114,131 $145,442 
Accounts and notes receivable, net of allowance for doubtful accounts of
$326 as of December 31, 2016 and $387 as of September 30, 2017		80,568
 80,132
Accounts and notes receivable, net of allowance for doubtful accounts of
$8,177 as of June 30, 2021 and $8,243 as of December 31, 2020
Accounts and notes receivable, net of allowance for doubtful accounts of
$8,177 as of June 30, 2021 and $8,243 as of December 31, 2020
173,409 182,647 
Inventories156,111
 164,568
Inventories257,338 265,964 
Prepaid expenses and other current assets21,665
 19,978
Prepaid expenses and other current assets59,462 35,114 
Current assets of discontinued operations60,979
 15,375
Total current assets330,933
 296,429
Total current assets604,340 629,167 
Property, plant and equipment585,704
 627,582
Property, plant and equipment800,973 784,902 
Less: accumulated depreciation76,849
 118,118
Less: accumulated depreciation299,212 278,685 
Net property, plant and equipment508,855
 509,464
Net property, plant and equipment501,761 506,217 
Deferred income taxes19,803
 19,220
Deferred income taxes32,495 32,551 
Goodwill171,117
 171,117
Goodwill171,117 171,117 
Other assets141,568
 123,778
Other assets87,427 93,660 
Total assets$1,172,276
 $1,120,008
Total assets$1,397,140 $1,432,712 
LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:   Current liabilities:
Accounts payable$47,663
 $58,376
Accounts payable$89,192 $70,989 
Short-term debt8,852
 13,282
Short-term debt129 131 
Accrued income and other taxes5,256
 8,131
Accrued income and other taxes38,480 48,720 
Other accrued liabilities30,594
 34,027
Other accrued liabilities83,706 56,501 
Current liabilities of discontinued operations20,042
 11,957
Related party payable - tax receivable agreementRelated party payable - tax receivable agreement3,922 21,752 
Total current liabilities112,407
 125,773
Total current liabilities215,429 198,093 
Long-term debt356,580
 320,430
Long-term debt1,224,897 1,420,000 
Other long-term obligations82,148
 78,976
Other long-term obligations72,975 81,478 
Deferred income taxes42,906
 43,368
Deferred income taxes45,223 43,428 
Long-term liabilities of discontinued operations850
 581
Contingencies – Note 9—
 —
Related party payable - tax receivable agreementRelated party payable - tax receivable agreement15,176 19,098 
Contingencies - Note 7Contingencies - Note 7
Stockholders’ equity:   Stockholders’ equity:
Common stock, par value $.01, 1,000 shares authorized, 100 shares
issued as of December 31, 2016 and September 30, 2017		—
 —
Preferred stock, par value $0.01, 300,000,000 shares authorized, NaN issuedPreferred stock, par value $0.01, 300,000,000 shares authorized, NaN issued0 0 
Common stock, par value $0.01, 3,000,000,000 shares authorized, 267,880,752
shares issued and outstanding as of June 30, 2021 and 267,188,547
as of December 31, 2020
Common stock, par value $0.01, 3,000,000,000 shares authorized, 267,880,752
shares issued and outstanding as of June 30, 2021 and 267,188,547
as of December 31, 2020
2,679 2,672 
Additional paid-in capital854,337
 854,337
Additional paid-in capital773,552 758,354 
Accumulated other comprehensive (loss) income(7,558) 13,583
Accumulated other comprehensive lossAccumulated other comprehensive loss(391)(19,641)
Accumulated deficit(269,394) (317,040)Accumulated deficit(952,400)(1,070,770)
Total stockholders’ equity577,385
 550,880
Total stockholders’ deficitTotal stockholders’ deficit(176,560)(329,385)
   
Total liabilities and stockholders’ equity$1,172,276
 $1,120,008
Total liabilities and stockholders’ equity$1,397,140 $1,432,712 
See accompanying Notes to Condensed Consolidated Financial Statements

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GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)thousands, except share data)
(Unaudited)
For the Three Months Ended June 30,For the Six Months
Ended June 30,
 2021202020212020
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales$330,750 $280,718 $635,147 $599,364 
Cost of sales201,867 130,600 348,263 269,517 
Gross profit128,883 150,118 286,884 329,847 
Research and development1,018 710 1,987 1,422 
Selling and administrative expenses75,783 16,001 95,936 30,933 
Operating profit52,082 133,407 188,961 297,492 
Other expense (income), net357 311 3 (3,003)
Related party Tax Receivable Agreement expense (benefit)0 0 47 (3,346)
Interest expense15,994 20,880 38,161 46,552 
Interest income(199)(348)(236)(1,489)
Income before provision for income taxes35,930 112,564 150,986 258,778 
Provision for income taxes7,765 19,788 24,022 43,734 
Net income$28,165 $92,776 $126,964 $215,044 
Basic income per common share*:
Net income per share$0.11 $0.35 $0.47 $0.80 
Weighted average common shares outstanding267,560,712 267,249,580 267,440,501 268,233,233 
Diluted income per common share*:
Income per share$0.11 $0.35 $0.47 $0.80 
Weighted average common shares outstanding267,807,944 267,260,395 267,765,378 268,243,997 
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income$28,165 $92,776 $126,964 $215,044 
Other comprehensive income:
Foreign currency translation adjustments, net of tax of
  $0, $1, $0 and $(162) respectively
8,854 3,630 (4,577)(13,538)
Commodity and interest rate derivatives, net of tax of $(3,079), $(2,963), $(6,411), and $7,964 respectively11,472 11,238 23,827 (28,543)
Other comprehensive income (loss), net of tax:20,326 14,868 19,250 (42,081)
Comprehensive income$48,491 $107,644 $146,214 $172,963 
 
For the Three
Months Ended September 30,
 
For the Nine
Months Ended September 30,
 2016 2017 2016 2017
CONSOLIDATED STATEMENTS OF OPERATIONS       
Net sales$111,590
 $137,245
 $322,530
 $358,298
Cost of sales113,602
 120,420
 331,297
 329,200
Additions to lower of cost or
market inventory reserve		4,898
 264
 19,523
 1,773
Gross (loss) profit(6,910) 16,561
 (28,290) 27,325
Research and development526
 1,338
 1,964
 3,110
Selling and administrative expenses12,215
 13,322
 39,430
 37,200
Operating (loss) profit(19,651) 1,901
 (69,684) (12,985)
        
Other (income) expense, net(567) (643) (1,528) 3,610
Interest expense6,964
 7,792
 19,860
 23,240
Interest income(158) (58) (169) (320)
Loss from continuing operations before
provision for income taxes		(25,890) (5,190) (87,847) (39,515)
        
(Benefit from) provision for income taxes(1,789) 1,963
 (7,675) 3,249
Net loss from continuing operations(24,101) (7,153) (80,172) (42,764)
        
    Income (loss) from discontinued operations, net of tax1,134
 3,234
 (107,568) (4,882)
        
Net loss$(22,967) $(3,919) $(187,740) $(47,646)
        
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)      
Net loss$(22,967) $(3,919) $(187,740) $(47,646)
Other comprehensive (loss) income:       
Foreign currency translation adjustments2,300
 7,546
 13,974
 21,141
Commodities and foreign currency
    derivatives and other
118
 —
 145
 —
Other comprehensive income, net of tax:2,418
 7,546
 14,119
 21,141
Comprehensive (loss) income$(20,549) $3,627
 $(173,621) $(26,505)

*See Note 11
See accompanying Notes to Condensed Consolidated Financial Statements

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GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, unaudited)thousands)
(Unaudited)
For the Six Months
Ended June 30,
For the Nine Months Ended September 30, 2016 For the Nine Months Ended September 30, 2017 20212020
Cash flow from operating activities:   Cash flow from operating activities:
Net loss$(187,740) $(47,646)
Adjustments to reconcile net loss to
cash provided by operations:		   
Net incomeNet income$126,964 $215,044 
Adjustments to reconcile net income to cash provided by operations:Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization62,775
 50,982
Depreciation and amortization32,831 28,833 
Impairments105,623
 5,300
Gain on sale of assets—
 (3,676)
Change in inventory lower-of-cost-or-market reserve
net of depreciation		6,000
 (1,578)
Related party Tax Receivable Agreement expense (benefit)Related party Tax Receivable Agreement expense (benefit)47 (3,346)
Deferred income tax provision(11,738) (3,049)Deferred income tax provision(4,195)13,990 
Post-retirement and pension plan changes3,164
 2,226
Stock- based compensationStock- based compensation16,031 1,124 
Interest expense4,872
 5,089
Interest expense7,199 3,181 
Other charges, net(2,042) 4,877
Other charges, net3,354 (1,284)
Net change in working capital*54,005
 22,197
Net change in working capital*50,434 61,943 
Change in related-party Tax Receivable AgreementChange in related-party Tax Receivable Agreement(21,799)(27,857)
Change in long-term assets and liabilities(6,188) (1,141)Change in long-term assets and liabilities(2,111)(3,972)
Net cash provided by operating activities28,731
 33,581
Net cash provided by operating activities208,755 287,656 
Cash flow from investing activities:   Cash flow from investing activities:
Capital expenditures(22,257) (23,028)Capital expenditures(26,052)(24,355)
Proceeds from the sale of assets685
 4,038
Proceeds from the sale of assets219 65 
Proceeds from divestitures—
 26,818
Net cash used in investing activitiesNet cash used in investing activities(25,833)(24,290)
Cash flow from financing activities:Cash flow from financing activities:
Debt issuance and modification costsDebt issuance and modification costs(3,084)0 
Repurchase of common stock-non-related partyRepurchase of common stock-non-related party0 (30,099)
Payment of tax withholdings related to net share settlement of equity awardsPayment of tax withholdings related to net share settlement of equity awards(4,074)(71)
Principal repayments on long-term debtPrincipal repayments on long-term debt(200,000)(100,028)
Dividends paid to non-related-partyDividends paid to non-related-party(3,418)(6,605)
Dividends paid to related-partyDividends paid to related-party(1,927)(18,926)
Other(1,171) —
Other(2,109)0 
Net cash (used in) provided by investing activities(22,743) 7,828
Cash flow from financing activities:   
Short-term debt, net503
 5,945
Revolving Facility borrowings40,000
 35,000
Revolving Facility reductions(41,000) (77,755)
Revolving Facility refinancing fees(922) —
Principal payments on long-term debt(104) (107)
Net cash used in financing activities(1,523) (36,917)Net cash used in financing activities(214,612)(155,729)
Net change in cash and cash equivalents4,465
 4,492
Net change in cash and cash equivalents(31,690)107,637 
Effect of exchange rate changes on cash and cash equivalents755
 274
Effect of exchange rate changes on cash and cash equivalents379 (916)
Cash and cash equivalents at beginning of period6,927
 11,610
Cash and cash equivalents at beginning of period145,442 80,935 
Cash and cash equivalents at end of period$12,147
 $16,376
Cash and cash equivalents at end of period$114,131 $187,656 
* Net change in working capital due to the following components:   
* Net change in working capital due to changes in the following components:* Net change in working capital due to changes in the following components:
Accounts and notes receivable, net$9,685
 $1,961
Accounts and notes receivable, net$9,305 $58,713 
Inventories41,399
 8,588
Inventories7,823 (2,924)
Prepaid expenses and other current assets(1,170) (187)Prepaid expenses and other current assets(12,071)6,132 
Change in accounts payable and accruals(770) 7,135
Increase in interest payable4,861
 4,700
Income taxes payableIncome taxes payable(17,761)25,095 
Accounts payable and accrualsAccounts payable and accruals62,748 (25,019)
Interest payableInterest payable390 (54)
Net change in working capital$54,005
 $22,197
Net change in working capital$50,434 $61,943 

Note: The Statements of Cash Flows include both continuing and discontinued operations



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 repurchased and retired (from non-related party)— — — — — 0 
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 repurchased and retired (from non-related party)— — — — — 0 
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)
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)

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
(1)Organization and Summary of Significant Accounting Policies
A. Organization
GrafTech International Ltd. (the "Company"“Company”) is one of the world’s largest manufacturers and providersa leading manufacturer of high quality graphite electrodeselectrode products essential to the production of electric arc furnace steel and needle coke.other ferrous and non-ferrous metals. References herein to “GTI,“GrafTech,” the “Company,” “we,” “our,” or “us” refer collectively to GrafTech International Ltd. and its subsidiaries.
On August 15, 2015, GTIwe 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 ("Brookfield"IPO") throughof 38,097,525 shares of our common stock held by Brookfield at a tender offerprice of $15.00 per share. We did not receive any proceeds related to our former shareholdersthe 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 subsequent merger transaction.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 23.9% as of June 30, 2021.
The Company'sCompany’s only reportable segment, Industrial Materials, is comprised of our two2 major product categories: graphite electrodes and petroleum needle coke products. NeedlePetroleum needle coke is thea key raw material to producingused in the production of graphite electrodes. The Industrial Materials business segment focuses on providing the highest qualityCompany's vision is to provide highly engineered graphite electrodeselectrode services, solutions and providing the best customer service all while strivingproducts to be the lowest cost producer.
We previously operated an Engineered Solutions business segment. See Note 2 "Discontinued Operations and Assets Held for Sale" for further information. All results from the Engineered Solutions business have been excluded from continuing operations, unless otherwise indicated.electric arc furnace operators.
B. Basis of Presentation
The interim Consolidated Financial Statementscondensed 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, 20162020 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, 2016 (the “Annual Report”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 theour Annual Report.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 May 2014,December 2019, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application of Topic 740 and simplify the accounting for income taxes. This pronouncement removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605—Revenue Recognition and most industry-specific guidance throughout the Codification. This ASU requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU was expected to be2019-12 is effective for fiscal yearsannual and interim reporting periods beginning after December 15, 2016,2020, 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 for interim periods within those fiscal years. On July 9, 2015,cash flows.
Accounting Standards Not Yet Adopted
In March 2020, the FASB deferred the effective date to fiscal years beginning after December 15, 2017. During the fourth quarter of 2016, we completed the initial evaluationissued ASU No. 2020-04, Facilitation of the new standardEffects 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 related assessmentLondon 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 review of a representative sample of existing revenue contracts with our customers.annual periods from March 12, 2020 through December 31, 2022. We determined, on a preliminary basis, that although the timing and pattern of revenue recognition may change, the amount of revenue recognized during the year should remain substantially the same. We intendplan to adopt this standard using the modified retrospective method. We have begun an initiativeASU 2020-04 as of January 1, 2023. The adoption of ASU 2020-04 is not expected to offer three to five year supply contracts to our strategic customers. ASU No. 2014-09 could have a material impact on the way in which we would recognize revenue under these contracts. We will continue to evaluate revenue recognition of these contracts as they are entered into.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under this new guidance, a company will now recognize most leases on its balance sheet as lease liabilities with corresponding right-of-use assets. This ASU is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of this standard on itsour financial position, results of operations orand cash flows.
10
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




In January 2017,
(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 FASB issued ASU No. 2017-04 Intangibles-Goodwillthree and Other (Topic 350). This guidance was issuedsix months ended June 30, 2021 and 2020:
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2021202020212020
(Dollars in thousands)
Graphite Electrodes - Three-to-five-year take-or-pay contracts$253,589 $245,010 $499,154 $521,389 
Graphite Electrodes - Short-term agreements and spot sales65,204 30,111 112,459 60,929 
By-products and other11,957 5,597 23,534 17,046 
Total Revenues$330,750 $280,718��$635,147 $599,364 
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 simplify the accounting for goodwill impairment. The guidance removes the second stepour profitability.
Contract Balances
Substantially all of the goodwill impairment test,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 requires that a hypothetical purchasewe 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 allocation be performed to determine the amountperformance obligations based on their relative stand-alone selling prices results in the timing of impairment, if any. Underrevenue recognition being different from the timing of the invoicing. In this new guidance, a goodwill impairment charge will becase, deferred revenue is amortized into revenue based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will become effective on a prospective basis for the Company on January 1, 2020 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the adoption of this standard on its results of operations.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715). This standard requires an entity to report the service cost component in the same line item as other compensation costs. The other components of net (benefit) cost including our annual mark-to-market re-measurement, will be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This standard is effective for interim and annual reporting periods beginning after December 15, 2017. The components of the net (benefit) cost are shown in Note 4, "Benefit Plans."
(2)Discontinued Operations and Related Assets Held for Sale
On February 26, 2016, the Company announced that it had initiated a strategic review of its Engineered Solutions business segment to better direct its resources and simplify its operations. Any potential sale of assets was prohibited by the Revolving Facility without approval of the requisite lenders thereunder. On April 27, 2016, GrafTech and certain of its subsidiaries entered into an amendmenttransaction price allocated to the Revolving Facility (see Note 6 "Debtremaining performance obligations and Liquidity") which, among other things, permitscontract assets are realized through the sale ofcontract invoicing.
Contract assets with the restriction that the proceeds be utilized to pay down revolver borrowings. Asas of June 30, 2016, the Engineered Solutions segment qualified for reporting as discontinued operations as its divestiture represents a strategic shift for the Company.
During 2016, we evaluated the fair value2021 were $2.1 million, of the Engineered Solutions business segment utilizing the market approach (Level 3 measure). As a result, we incurred an impairment charge to our Engineered Solutions business segment of $120 million to align the carrying value with estimated fair value. We continued to update this estimate and during the nine months ended September 30, 2017, we further reduced the estimated fair value by $5.3 million based upon current information.
On November 30, 2016, we completed the sale of our Fiber Materials Inc. business, which was a business line within our former Engineered Solutions business. The sale resulted in cash proceeds of $15.9$1.8 million and a loss$0.3 million are included in "Prepaid expenses and other current assets" and "Other long-term assets," respectively, on the Condensed Consolidated Balance Sheets. Contract assets as of $0.2 million. We have the ability to realize up to $8.5December 31, 2020 were $2.7 million, of additional proceeds basedwhich $1.5 million and $1.2 million are included in "Prepaid expenses and other current assets" and "Other long-term assets," respectively, on the earnings of the Fiber Materials business over the 24 months following the transaction. We have elected to record this contingent consideration as itCondensed Consolidated Balance Sheets.
Current deferred revenue is realizedincluded in "Other accrued liabilities" and as such, itlong-term deferred revenue is not recognized thus farincluded in "Other long-term obligations" on the transaction.Condensed Consolidated Balance Sheets.
On July 3, 2017 we completed the sale of our Advanced Energy Technologies (AET) business. AET was a product line within our Engineered Solutions business which had been classified as held for sale since the second quarter of 2016. The sale resulted in cash proceeds of $28.5 million.
11
On September 30, 2017, we completed the sale of the majority of the U.S. assets of our GrafTech Advanced Graphite Materials (GAGM) business, which was a component of our Engineered Solutions business. The sale of the Italian GAGM assets closed on October 5, 2017. In the jurisdictions where the GAGM assets were not acquired, we initiated the wind-down of the business which we expect to be substantially completed by year-end. The sale was structured as a non-cash transaction with the buyer assuming certain liabilities associated with the assets acquired. In addition, GrafTech retained certain current assets of GAGM, mostly receivables, which will be substantially realized in the course of the 4th quarter of 2017. As such, the disposition of the GAGM assets did not result in any cash proceeds in the third quarter of 2017.
As a result of the sales described above, we recorded a gain of $3.7 million in the third quarter of 2017. The disposition of the Engineered Solutions business is now substantially complete, with only the wind-down in the fourth quarter of 2017 remaining.
In accordance with our Credit Facility, all cash proceeds from these sales were used to pay down our Revolving Facility and Term Loan.
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The following tables summarizetable provides information about deferred revenue from contracts with customers (in thousands):
Current Deferred RevenueLong-Term Deferred Revenue
(Dollars in thousands)
Balance as of December 31, 2020$13,056 $5,662 
Increases due to cash received32,099 0 
Revenue recognized(14,783)0 
Reclassifications between long-term and current4,404 (4,404)
Foreign currency impact10 0 
Balance as of June 30, 2021$34,786 $1,258 
Transaction Price Allocated to the resultsRemaining 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 Engineered Solutions business segment, reclassified as discontinued operationschallenging 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 $499 million of LTA revenue in the first six months of 2021, and we expect to record approximately $425 million to $525 million of LTA revenue for the three and nine months ended September 30, 2016 and 2017.
 For the Three Months Ended September 30, For the Nine Months
Ended September 30,
 2016 2017 2016 2017
 (Dollars in thousands)
        
Net sales$30,165
 $14,528
 $89,184
 $78,721
Cost of sales23,497
 14,574
 74,051
 71,596
    Gross profit (loss)6,668
 (46) 15,133
 7,125
Research and development707
 106
 2,398
 1,387
Selling and administrative expenses3,983
 3,561
 13,474
 11,360
Gain on sale of assets—
 (3,676) —
 (3,676)
Impairments—
 —
 105,623
 5,300
    Operating income (loss)1,978
 (37) (106,362) (7,246)
Other income(3) (56) (75) (71)
Interest expense783
 —
 2,452
 1,131
Income (loss) from discontinued operations
    before income taxes
1,198
 19
 (108,739) (8,306)
Provision for (benefit from) income taxes
    on discontinued operations
64
 (3,215) (1,171) (3,424)
Income (loss) from discontinued operations$1,134
 $3,234
 $(107,568) $(4,882)
remainder of 2021. The significant components ofremaining revenue associated with our Statements of Cash Flows for the Engineered Solutions business segment held for sale areLTAs is expected to be approximately as follows:
 For the Nine Months
Ended September 30,
 2016 2017
 (Dollars in thousands)
    
Depreciation and amortization$3,849
 $2,418
Impairment105,623
 5,300
Gain on sale of assets—
 (3,676)
Inventory(217) 13,804
Deferred income taxes(1,172) (3,068)
Capital expenditures3,621
 528
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following table summarizes the carrying value of the assets and liabilities of discontinued operations as of December 31, 2016 and September 30, 2017.
 
As of
December 31, 2016
 As of
September 30, 2017
 (Dollars in thousands)
Assets of discontinued operations:   
  Accounts receivable$17,094
 $10,004
  Inventories71,816
 8,092
  Prepaid expenses and other current assets320
 2,173
  Net property plant and equipment79,048
 8,892
  Other assets12,608
 746
     Total assets of discontinued operations prior to impairment180,886
 29,907
    
  Impairment(119,907) (14,532)
    
         Total assets of discontinued operations$60,979
 $15,375
    
Liabilities of discontinued operations:   
  Accounts payable$7,253
 $1,270
  Accrued income and other taxes2,326
 238
  Other accrued liabilities10,463
 10,449
     Total current liabilities of discontinued operations20,042
 11,957
    
  Other long-term obligations850
 581
    
          Total liabilities of discontinued operations$20,892
 $12,538
(3)Segment Reporting20222023 through 2024
(Dollars in millions)
Estimated LTA revenue$910-$1,010
$350-$450(1)

We previously operated two reportable business segments, Industrial Materials and Engineered Solutions. During 2016 the Company decided(1) Includes expected termination fees from a few customers that have failed to sell the businesses that comprised our Engineered Solutions segment to focus on our Industrial Materials segment. During the second quarter of 2016 the Engineered Solutions segment qualified as held for sale status and as such the related results have been excluded from continuing operations. See Note 2 "Discontinued Operations and Assets Held for Sale" for significant componentsmeet certain obligations under their LTAs.
The majority of the results of our Engineered Solutions segment.LTAs are defined as pre-determined fixed annual volume contracts while a small portion are defined with a specified volume range. For the year 2021 and beyond, the contractual revenue amounts above are based upon the minimum volume for those contracts with specified ranges. The actual revenue realized from these contracted volumes may vary in timing and total due to contract non-performance, contract arbitrations, credit risk associated with certain customers facing financial challenges and customer demand related to contracted volume ranges.
Our Industrial Materials segment manufactures
(3)Goodwill and delivers high quality graphite electrodes and needle coke products. Electrodes are key components of the conductive power systems used to produce steel and other non-ferrous metals. Needle coke, a crystalline form of carbon derived from decant oil, is the key ingredient in, and is used primarily in, the production of graphite electrodes.Other Intangible Assets
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Information concerning our reportable segment is as follows:
 For the Three Months Ended September 30, For the Nine Months
Ended September 30,
 2016 2017 2016 2017
 (Dollars in thousands)
Net sales to external customers:       
Industrial Materials$111,590
 $137,245
 $322,530
 $358,298
        
Operating (loss) income:       
Industrial Materials(14,238) 8,308
 (50,776) 4,218
Corporate, R&D and Other expenses(5,413) (6,407) (18,908) (17,203)
Total operating (loss) income$(19,651) $1,901
 $(69,684) $(12,985)
        
Reconciliation of segment operating loss to
    loss before provision for income taxes
       
Other expense (income), net$(567) $(643) $(1,528) $3,610
Interest expense6,964
 7,792
 19,860
 23,240
Interest income(158) (58) (169) (320)
Loss from continuing operations before
   provision for income taxes
$(25,890) $(5,190) $(87,847) $(39,515)
(4)Benefit Plans
The components of our consolidated net pension costs are set forth in the following table:
 For the Three Months Ended September 30, For the Nine Months
Ended September 30,
 2016 2017 2016 2017
 (Dollars in thousands)
Service cost$506
 $496
 $1,517
 $1,487
Interest cost1,498
 1,385
 4,494
 4,154
Expected return on plan assets(1,307) (1,389) (3,922) (4,166)
Net cost$697
 $492
 $2,089
 $1,475
The components of our consolidated net postretirement costs are set forth in the following table: 
 For the Three Months Ended September 30, For the Nine Months
Ended September 30,
 2016 2017 2016 2017
 (Dollars in thousands)
Service cost$1
 $1
 $3
 $1
Interest cost272
 241
 815
 724
Net cost$273
 $242
 $818
 $725
(5)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 graphite electrodes 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 June 30, 2021 and December 31, 2020.
The following tables represent the changes in the carrying value of goodwill and intangibles for the nine months ended September 30, 2017:
12
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 June 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 $(12,946)$9,554 $22,500 $(11,932)$10,568 
Technological know-how55,300 (36,384)18,916 55,300 (34,091)21,209 
Customer–related intangible64,500 (26,027)38,473 64,500 (23,848)40,652 
Total finite-lived intangible assets$142,300 $(75,357)$66,943 $142,300 $(69,871)$72,429 
Goodwill
Balance as of December 31, 2016$171,117
   Adjustments—
Balance as of September 30, 2017$171,117
Intangible Assets
 As of December 31, 2016 As of September 30, 2017
 
Gross
Carrying
Amount
 Accumulated
Amortization & Impairment		 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization & Impairment
 
Net
Carrying
Amount
 (Dollars in Thousands)
Trade name$22,500
 $(3,235) $19,265
 $22,500
 $(4,954) $17,546
Technological know-how55,300
 (10,397) 44,903
 55,300
 (15,646) 39,654
Customer –related
    intangible
64,500
 (6,177) 58,323
 64,500
 (9,527) 54,973
Total finite-lived
    intangible assets
$142,300
 $(19,809) $122,491
 $142,300
 $(30,127) $112,173
Amortization expense of acquired intangible assets was $3.5$2.7 millionand $10.7$2.9 million in the three and nine months ended SeptemberJune 30, 20162021 and $3.42020, respectively and $5.5 million and $10.3$5.8 million in the three and ninesix months ended SeptemberJune 30, 2017.2021 and 2020, respectively. Estimated amortization expense will approximate $3.3be approximately $5.3 million infor the remainder of 2017, $12.92021, $10.1 million in 2018, $12.22022, $9.2 million in 2019, $11.42023, $8.0 million in 20202024 and $10.7$7.3 million in 2021.2025.
(6)Debt and Liquidity
(4)Debt and Liquidity
The following table presents our long-term debt: 
As of
June 30, 2021		As of
December 31, 2020
 (Dollars in thousands)
2018 Credit Facility (2018 Term Loan and 2018 Revolving Credit Facility)$743,708 $943,708 
2020 Senior Notes500,000 500,000 
Other debt596 615 
Unamortized debt discount and issuance costs(19,278)(24,192)
Total debt1,225,026 1,420,131 
Less: Short-term debt(129)(131)
Long-term debt$1,224,897 $1,420,000 
 
As of
December 31, 2016
 As of
September 30, 2017
 (Dollars in thousands)
Credit Facility (Revolving Facility and Term Loan Facility)$90,731
 $54,076
Senior Notes274,132
 278,959
Other Debt569
 677
Total Debt365,432
 333,712
Less: Short-term Debt(8,852) (13,282)
Long-term Debt$356,580
 $320,430

In the first half of 2021, we repaid $200 million of principal of our 2018 Term Loan Facility (as defined below). The fair value of our debt which was determined using Level 2 inputs, was $347.4approximately $1,260 million versus a book value of $333.7and $1,453 million as of SeptemberJune 30, 2017. As a result of our acquisition by Brookfield2021 and the resulting purchase price accounting adjustments, our Senior Notes were adjusted to their fair market value as of August 15, 2015.December 31, 2020, respectively. The discount to fair value will be accreted over the remaining term of the Notes.debt is measured using level 3 inputs.

2018 Term Loan and 2018 Revolving Credit Facility
On April 23, 2014,
In February 2018, the Company and certain of its subsidiaries entered into an Amended and Restated Credit Agreement with a borrowing capacity of $400 million and a maturity date of April 2019 (the "Revolving Facility"). On February 27, 2015, GrafTech and certain of its subsidiaries entered into a further Amended and Restatedcredit agreement (the “2018 Credit Agreement thatAgreement”), which provides for among other things, greater financial flexibility and(i) a $40$2,250 million senior secured delayed draw term loan facility (the "Term“2018 Term Loan Facility"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.
On July 28, 2015, GrafTech and certain of its subsidiaries entered intoThe 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 toin February 2021 (the “Second Amendment”) that decreased the Amended and RestatedApplicable Rate (as defined in the 2018 Credit AgreementAgreement) 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 change the terms regarding the occurrence of a default upon a change in control (which is defined thereunder to include the acquisition by any person of more than 25 percent of GrafTech’s outstanding shares) to exclude the acquisition of shares by Brookfield.  In addition, effective upon such acquisition, the financial
13
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.
covenants were eased, resultingThe 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 increased availabilityeach 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 Facility. Credit Facility in an amount equal to 0.25% per annum.
The sizeSenior 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 Revolving Facility was also reducedInternal Revenue Code of 1986, as amended from $400 milliontime to $375 million. The sizetime (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 remainedamortizes at $40 million.
On April 27, 2016, GrafTech and certaina rate of its subsidiaries entered into an amendment to$112.5 million a year payable in equal quarterly installments, with the Revolving Facility.remainder due at maturity. The size of the Revolving Facility was permanently reduced from $375 million to $225 million. New covenants were also added to the Revolving Facility, including a requirementCo-Borrowers are permitted to make mandatory repayments of outstanding amountsvoluntary prepayments at any time without premium or penalty. GrafTech Finance is required to make prepayments under the Revolving Facility and the2018 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 proceeds of any sale of all or any substantial part of the assets included in the Engineered Solutions segment and a requirement to maintain minimum liquidity (consisting of domestic cash, cash equivalents and availability under the Revolving Facility) in excess of $25 million. The covenants were also modified to provide for: the elimination of certain exceptions to the Company’s negative covenants limiting the Company’s ability to make certain investments, sell assets, make restricted payments, incur liens, incur debt and prepay or redeem other indebtedness; a restriction on the amount of cash and cash equivalents permitted to be held on the balance sheet at any one time without paying down the Revolving Facility and the Term Loan Facility; and changes to the Company’s financial covenants so that until the earlier of Marchfiscal year ended December 31, 2019, or the Company has $75 million in trailing twelve month EBITDA75% of Excess Cash Flow (as defined in the Revolving Facility)2018 Credit Agreement), the Company is required to maintain trailing twelve month EBITDA above certain minimums ranging from ($40 million) to $35 million after which the Company’s existing financial covenants under the Revolving Facility will apply.
With this amendment, the Company has full access to the $225 million Revolving Facility, 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 $25 million minimum liquidity requirement. As of September 30, 2017, the Company had $35.3 million of borrowings on the Revolving Facility and $11.6 million of letters of credit drawn against the Revolving Facility.
The $40 million2018 Term Loan Facility was fully drawnduring any calendar year reduce, on August 11, 2015, in connection witha dollar-for-dollar basis, the repaymentamount of the Senior Subordinated Notes. The balancerequired 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 was $18.8 million as directed by GrafTech Finance. As of SeptemberJune 30, 2017.2021, we have satisfied all amortization requirements through prepayments through the maturity date.
The interest rate2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Revolving FacilityGrafTech and Term Loan Facility is LIBOR plusrestricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The 2018 Credit Agreement contains a margin ranging from 2.25%financial covenant that requires GrafTech to 4.75% (depending on our totalmaintain a senior secured first lien net leverage ratio). The borrowers pay a per annum fee ranging from 0.35% to 0.70% (depending on our senior secured leverage ratio) on the undrawn portion of the commitments under the Revolving Facility.
Senior Notes
On November 20, 2012, the Company issued $300 million principal amount of 6.375% Senior Notes due 2020 (the "Senior Notes"). The Senior Notes are the Company's senior unsecured obligations and rank pari passu with all of the Company's existing and future senior unsecured indebtedness. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company's existing and future subsidiaries that guarantee certain other indebtedness of the Company or another guarantor.
The Senior Notes bear interest at a rate of 6.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The Senior Notes mature on November 15, 2020.
The Company is entitled to redeem some or all of the Senior Notes at any time on or after November 15, 2016, at the redemption prices set forth in the indenture.

The indenture for the Senior Notes states that if, prior to maturity, a change in control (as defined in the indenture) of the Company occurs and thereafter certain downgrades of the ratings of the Senior Notes as specified in the indenture occur, the Company will be required to offer to repurchase any or all of the Senior Notes at a repurchase price equal to 101% ofratio 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 plus anywere 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. On August 17, 2015,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 change in control occurred dueprice equal to the Merger. However, the downgrade100% of the ratingsprincipal amount of the Senior Notes, as specified in the indenture, did not occur. Therefore, the Company was not required to offer to repurchase the Senior Notes asnotes redeemed plus a result of the Merger.premium together with accrued and unpaid interest,

14
The indenture for the Senior Notes also contains covenants that, among other things, limit the ability of the Company and certain of its subsidiaries to: (i) create liens or use assets as security in other transactions; (ii) engage in certain sale/leaseback transactions; and (iii) merge, consolidate or sell, transfer, lease or dispose of substantially all of their assets.

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 forgoverning the 2020 Senior Notes also(the “Indenture”) contains customarycertain 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 including (i) failure to pay principal or interest on the Senior Notes when due and payable, (ii) failure to comply with covenants orcustomary for agreements in the indenture or the Senior Notes which failures are not cured or waived as provided in the indenture, (iii) failure to pay indebtedness of the Company, any Subsidiary Guarantor or Significant Subsidiary (each, as defined in the indenture) within any applicable grace period after maturity or acceleration and the total amount of such indebtedness unpaid or accelerated exceeds $50.0 million, (iv) certain events of bankruptcy, insolvency, or reorganization, (v) failure to pay any judgment or decree for an amount in excess of $50.0 million against the Company, any Subsidiary Guarantor or any Significant Subsidiary that is not discharged, waived or stayed as provided in the indenture, (vi) cessation of any Subsidiary Guarantee (as defined in the indenture) to be in full force and effect or denial or disaffirmance by any subsidiary guarantor of its obligations under its subsidiary guarantee,type (with customary grace periods, as applicable) and (vii) a default underprovides that, upon the Company's Senior Subordinated Notes. In the caseoccurrence 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 plus accruedmay declare all of the 2020 Senior Notes to be due and unpaid interest may be accelerated.payable immediately.
(7)Inventories
(5)Inventories
Inventories are comprised of the following: 
As of
June 30, 2021		As of
December 31, 2020
 (Dollars in thousands)
Inventories:
Raw materials$98,691 $101,098 
Work in process119,171 110,331 
Finished goods39,476 54,535 
         Total$257,338 $265,964 
 
As of
December 31, 2016
 As of
September 30, 2017
 (Dollars in thousands)
Inventories:   
Raw materials and supplies$54,469
 $55,492
Work in process52,379
 65,349
Finished goods49,263
 43,727
         Total$156,111
 $164,568
We recorded lower of cost or market inventory adjustments of $19.5 million and $1.8 million in the nine months ended September 30, 2016 and September 30, 2017, respectively. The decrease is attributable to the reduction in product costs and increases in prices.
(8)(6)Interest Expense
The following tables present the components of interest expense: 
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2021202020212020
 (Dollars in thousands)
Interest incurred on debt$14,085 $19,300 $30,950 $43,392 
Accretion of original issue discount on 2018 Term Loans572 549 1,843 1,098 
Amortization of debt issuance and modification costs1,337 1,031 5,368 2,062 
Total interest expense$15,994 $20,880 $38,161 $46,552 
15
 For the Three Months Ended September 30, For the Nine Months
Ended September 30,
 2016 2017 2016 2017
 (Dollars in thousands)
Interest incurred on debt$5,306
 $6,097
 $15,020
 $18,183
Accretion of fair value adjustment on
   Senior Notes
1,581
 1,618
 4,715
 4,826
Amortization of debt issuance costs77
 77
 125
 231
Total interest expense$6,964
 $7,792
 $19,860
 $23,240
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Interest Rates
The Revolving Facility and Term Loan Facility2020 Senior Notes carry a fixed interest rate of 4.625%. The 2018 Credit Agreement had an effective interest rate of 5.52% and 5.99%3.50% as of June 30, 2021 and 4.50% as of December 31, 20162020. See Note 4 "Debt and SeptemberLiquidity" for details of these transactions.
During the three months ended June 30, 2017, respectively. 2021, we made a prepayment of $50.0 million under our 2018 Term Loan Facility. In connection with this, we recorded $0.4 million of accelerated amortization of the debt issuance costs and $0.3 million of accelerated accretion of the original issue discount.
During the six months ended June 30, 2021, we made prepayments for a total of $200.0 million under our 2018 Term Loan Facility. In connection with this, we recorded $2.0 million of accelerated amortization of the debt issuance costs and $1.2 million of accelerated accretion of the original issue discount. We also recorded $1.6 million of modification costs related to the term loan repricing in the first quarter of 2021. See Note 4 "Debt and Liquidity" for details of these transactions.
The Senior Notes have a fixedCompany 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 ("USD LIBOR") for the 2018 Credit Agreement debt. See Note 9 "Derivative Instruments" for details of 6.375%. these transactions.
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(9)Contingencies
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(7) 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
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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.
LitigationPending litigation in Brazil has been pending in Brazil 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), plus interest thereon. Prior to October 1, 2015, we were not party to such litigation.. Companies in Brazil have recently 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 BrazilBahia region employers on June 26, 2019, the Brazilian Supreme Court to the lower courts for further proceedings which included procedural aspectsfinally ruled in favor of the case, such as admissibility of instruments filed by the parties. We cannot predict the outcomeemployees union on September 26, 2019. The employers union has determined not to seek annulment of such litigation. Ondecision. Separately, on October 1, 2015, ana 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 1stfirst quarter of 2017, this case wasthe state court initially ruled in favor of the employees at theemployees. We appealed this state court level.ruling, and the appellate court issued a decision in our favor on May 19, 2020. The Company hasemployees have further appealed and, intends to vigorously defend itself. The claims specify neitheron December 16, 2020, the court upheld the decision in favor of GrafTech Brazil. On February 22, 2021, the employees covered norfiled 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. As of June 30, 2021, 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 therefore a range of potential losses cannot be estimated..
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 ninesix months ended SeptemberJune 30, 2017,2021, are presented below: 
 (Dollars in thousands)
Balance as of December 31, 2016$969
Product warranty adjustments(210)
Accruals and Payments(290)
Balance as of September 30, 2017$469
(10)Income Taxes(Dollars in thousands)
Balance as of December 31, 2020$1,997 
Product warranty accruals and adjustments722 
Settlements(793)
Balance as of June 30, 2021$1,926 
Tax Receivable Agreement
On April 23, 2018, the Company entered into the tax receivable agreement (“TRA”) 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 LIBOR plus 1.00% per annum. The term of the TRA commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments.
As of June 30, 2021, the total TRA liability was $19.1 million, of which $3.9 million was classified as a current liability in "Related party payable-tax receivable agreement" and $15.2 million remained as a long-term liability in "Related party payable-tax receivable agreement" on the balance sheet. As of December 31, 2020, the total TRA liability was $40.9 million, of which $21.8 million was classified as a current liability in "Related party payable - tax receivable agreement" on the balance sheet, as we expected this portion to be settled within twelve months, and $19.1 million of the liability remained as a long-term liability in "Related party payable - tax receivable agreement" on the balance sheet.
17
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Long-term Incentive Plan
The long-term incentive plan ("LTIP") was adopted by the Company in August 2015 and amended and restated in March 2018. The purpose of the plan was to retain senior management of the Company, to incentivize them to make decisions with a long-term view and to influence behavior in a way that is consistent with maximizing value for the pre-IPO stockholder of the Company in a prudent manner. Each participant was allocated a number of profit units, with a maximum of 30,000 profit units ("Profit Units") available under the plan. Awards of Profit Units generally vested in equal increments over a five-year period beginning on the first anniversary of the grant date of the Profit Units, subject to continued employment with the Company through each vesting date. If a participant ceased to provide services prior to any applicable vesting date for any reason, other than a termination for cause, then the participant forfeited all unvested Profit Units and any vested Profit Units remained outstanding. If a Participant had been terminated for cause, both vested and unvested Profit Units would have been forfeited. Upon a "Change in Control" (as defined in the LTIP), the Profit Units entitled the participant to a payment based on a percentage of the sum of (i) all net "Sale Proceeds" (as defined in the LTIP) received by Brookfield Capital IV L.P. and its affiliates ("Brookfield Capital IV") less (ii) the "Threshold Value" (as defined in the LTIP), with such payment amount being determined by the Company's Board of Directors in its sole discretion. In the event that, in connection with a Change in Control, Brookfield Capital IV disposes of less than 100% of its ownership interest in the Company, the amount of the Sale Proceeds in excess of the Threshold Value shall be determined on a pro-rata basis by reference to the percentage of ownership interest disposed, as determined by the Board of Directors of the Company.
The May 2021 secondary offering of our common stock by Brookfield Capital IV constituted a "Change in Control" under the LTIP. A "Change in Control" under the LTIP is defined as, among other things, a transaction or series of transactions (including, without limitation, the consummation of a combination, share purchases, recapitalization, redemption, issuance of capital stock, consolidation, reorganization or otherwise) pursuant to which following a public offering of the Company’s stock, Brookfield Capital IV ceases to have a beneficial ownership interest in at least 30% of the Company’s outstanding voting securities (effective on the first of such date). Upon completion of the May 2021 secondary offering, Brookfield beneficially owned approximately 24% of the Company's outstanding voting securities. Accordingly, the Company settled the vested Profit Units in lump sum payment within 30 days following a Change in Control. The settlement of the Profit Units consisted of a pre-tax charge of $73.4 million, of which $30.7 million was recorded in cost of sales and $42.7 million was recorded in selling and administrative expense. As of June 30, 2021, $61.5 million of the charges have been settled in cash by the Company while the remainder of the liability, related to payroll taxes, is expected to be paid in the third quarter of 2021, which will satisfy all obligations under the LTIP.
18
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(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 (loss) before income tax expense 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.

The following tables summarizetable summarizes the provision for income taxes for the three and ninesix months ended SeptemberJune 30, 20162021 and September 30, 2017:2020:
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2021202020212020
(Dollars in thousands)
Tax expense$7,765 $19,788 $24,022 $43,734 
Pretax income35,930 112,564 150,986 258,778 
Effective tax rates21.6 %17.6 %15.9 %16.9 %
 For the Three Months Ended September 30, For the Nine Months
Ended September 30,
 2016 2017 2016 2017
 (Dollars in thousands)
      
Tax (benefit) expense$(1,789) $1,963
 $(7,675) $3,249
Pretax loss(25,890) (5,190) (87,847) (39,515)
Effective tax rates6.9% (37.8)% 8.7% (8.2)%
ForThe effective tax rate for the three and nine months ended SeptemberJune 30, 2016 and 2017 the effective tax2021 was 21.6%. This rate differs from the U.S. statutory rate of 35%21% primarily due to recent losses in the U.S. and Switzerland where we receive no tax benefit due to a full valuation allowance and worldwide earnings from various countries taxed at different rates. The recognitionrates, 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"). A portion of the valuation allowance does not resultone-time Change in or limit the Company's ability to utilize these tax assetsControl charges recorded in the future.three months ended June 30, 2021 was not deductible and contributed to the increase in the effective rate. We expect the full year effective tax rate to be approximately 16% to 17%.
PART I (CONT'D)The effective tax rate for the three months ended June 30, 2020 was 17.6%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates.
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIESThe tax expense decreased from $19.8 million for the three months ended June 30, 2020 to $7.8 million for the three months June 30, 2021. This change is primarily related to a reduction in pretax income, worldwide earnings from various countries taxed at different rates and U.S. taxation of GILTI.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFor the six months ended June 30, 2021, the effective tax rate of 15.9% 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 GILTI and FTCs.
(Unaudited)For the six months ended June 30, 2020, the effective tax rate of 16.9% differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates.


The tax expense decreased from $43.7 million for the six months ended June 30, 2020 to $24.0 million for the six months ended June 30, 2021. This change is primarily related to the reduction in pretax income, worldwide earnings from various countries taxed at different rates and the U.S. taxation of GILTI.
As of SeptemberJune 30, 2017,2021, we had unrecognized tax benefits of $2.6$0.1 million, $2.3 million of which, if recognized, would have a 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 20142017 are generally closed by statute or have been audited and settled with the applicable domestic tax authorities. All otherOther jurisdictions are still open to examination beginning after 2010.

2014.
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
19
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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.
(11)Derivative Instruments
(9) Derivative Instruments
We use derivative instruments as part of our overall foreign currency, interest rate and commodity risk management strategies to manage the risk of exchange rate movements that would reduce the value of our foreign cash flows, manage the risk associated with fluctuations in interest rate indices and to minimize commodity price volatility. Foreign currency exchange rate movements create a degree of risk by affecting the value of sales made and costs incurred in currencies other than the U.S. dollar.
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 counter-partiescounterparties to our instruments. Our derivative risk management strategy has not resulted in a material impact to our financial results in 2016 or 2017. Our derivative assets and liabilities are included within "Prepaid expenses and other current assets" and "Other current liabilities" on the Condensed Consolidated Balance Sheets and effects of these derivatives are recorded in revenue, cost of goods sold and other expense (income) on the Condensed Consolidated Statements of Operations.
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, attemptare used to hedge global currency exposures such as foreign currency denominated debt, sales, receivables, payables and purchases. Forward exchange contracts are agreements to exchange different currencies at a specified future date and at a specified rate. There was
We have no ineffectiveness on these contracts designated as hedging instruments during the nine months ended September 30, 2016 and 2017, respectively.
In 2016 and 2017, we entered into foreign currency derivatives denominated in the Mexican peso, South African rand, Brazilian real, eurocash flow hedges outstanding as of June 30, 2021 and Japanese yen. These derivatives were entered into to protect the risk that the eventual cash flows resulting from commercialDecember 31, 2020 and, business transactions may be adversely affected by changes in exchange rates between the U.S. dollar and the Mexican peso, euro, South African rand and Japanese yen. therefore, no unrealized gains or losses reported under accumulated other comprehensive income (loss).
As of SeptemberJune 30, 2017,2021, we had outstanding Mexican peso, euro, Swiss franc, South African rand and Japanese yen currency contracts with an aggregate notional amount of $18.8$80.5 million. As of December 31, 2020, we had outstanding Mexican peso, South African rand, euro, Swiss franc and Japanese yen currency contracts, with an aggregate notional amount of $71.0 million. The foreign currency derivatives outstanding as of SeptemberJune 30, 2017,2021 have maturities through December 29, 2017.31, 2021, and were not designated as hedging instruments.
Commodity derivative contracts
We periodically enterhave entered into commodity derivative contracts for certain refined oil products and natural gas.products. These contracts are entered into to protect against the risk that eventual cash flows related to these products maywill be adversely affected by future changes in prices. AsWe had outstanding commodity derivative contracts as of SeptemberJune 30, 2017,2021 with a notional amount of $38.4 million and maturities from July 2021 to June 2022. The outstanding commodity derivative contracts represented a pre-tax net unrealized gain within "Accumulated Other Comprehensive Income" of $12.8 million as of June 30, 2021. We had outstanding commodity derivative contracts as of December 31, 2020 with a notional amount of $61.3 million representing a pre-tax net unrealized loss of $2.2 million.
In connection with de-designated commodity derivative contracts, we had no outstandingrecognized in cost of sales $0.9 million unrealized gain as of June 30, 2021 as a result of the variation in fair value from the de-designation date. This resulted from a small portion of our commodity derivative contracts that ceased to qualify for hedge accounting in the second quarter of 2021.
Interest rate swap contracts
During the third quarter of 2019, the Company entered into four interest rate swap contracts. The contracts are "pay fixed, receive variable" with notional amounts of $500 million due to mature in August 2021 and another $500 million due to mature in August 2024. The Company’s risk management objective was to fix its cash flows associated with the risk in variability in the one-month USD LIBOR for refined oil products or natural gas.a portion of our outstanding debt. It is expected that these swaps will fix the cash flows associated with the forecasted interest payments on this notional amount of debt to an effective fixed interest rate of 5.1%, which could be lowered to 4.85% depending on credit ratings. In December 2020, in connection with the $500 million principal repayment of the 2018 Term Loan Facility, we de-designated one interest rate swap contract of $250 million notional maturing in the third quarter of 2021 and in February 2021 we closed it and recorded a $0.9 million charge in interest expense.
Additionally, in February 2021, the Company modified the three remaining swaps with notional amounts of $250 million maturing in the third quarter 2021 and $500 million maturing in the third quarter 2024 in order to align their terms
20
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Net Investment Hedges
We use certain intercompanyto the amended 2018 Term Loan Facility (see Note 4 "Debt and Liquidity" for details of the February 2021 repricing of the 2018 Term Loan Facility). It is expected that these swaps will fix the cash flows associated with the forecasted interest payments on this notional amount of debt to hedgean effective fixed interest rate of 4.2%, which could be lowered to 3.95% depending on credit ratings. The modification triggered the de-designation and re-designation of the swaps. Because the modified swaps contained an other-than-insignificant financing element at re-designation date, they are considered hybrid instruments composed of a debt host and an embedded derivative. The debt host portion amounted to a liability of our net investment in our foreign operations against currency exposure (net investment hedge). Intercompany debt denominated in foreign currency and designated as a non-derivative net investment hedging instrument was $13.3 million and $13.5$8.5 million as of December 31, 2016June 30, 2021 with $2.8 million included in "Other accrued liabilities" and September 30, 2017, respectively. $5.7 million in "Other long-term obligations". The corresponding loss is accounted for in "Accumulated Other Comprehensive income" and is amortized over the remaining life of the swaps. The embedded derivative is treated as a cash-flow hedge.
Within "Accumulated Other Comprehensive Income", the currency translation adjustment portion of other comprehensive income, we recorded losses of $0.9 million and $1.5 million for the three and nine months ended September 30, 2016, respectively. We incurredinterest rate swaps qualifying as a cash flow hedge represented a net unrealized pre-tax gain of $0.5$1.9 million and a net unrealized pre-tax loss of $0.2$11.0 million as of June 30, 2021 and December 31, 2020, respectively. The fair value of these contracts was determined using Level 2 inputs.
The fair value of all derivatives is recorded as assets or liabilities on a gross basis in our Condensed Consolidated Balance Sheets. As of June 30, 2021 and December 31, 2020, the fair value of our derivatives and their respective balance sheet locations are presented in the three and nine months ended September 30, 2017, respectively, resulting from these net investment hedges.following tables:
(12)Guarantor Information

On November 20, 2012, GrafTech International Ltd. (the “Parent”) issued $300 million aggregate principal amount of Senior Notes. The Senior Notes mature on November 15, 2020 and bear interest at a rate of 6.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The Senior Notes are guaranteed on a senior basis by the following wholly-owned direct and indirect subsidiaries of the Parent: GrafTech Finance Inc., GrafTech Holdings Inc., GrafTech USA LLC, Seadrift Coke LP, GrafTech Global Enterprises Inc., GrafTech International Holdings Inc., GrafTech DE LLC, GrafTech Seadrift Holding Corp, GrafTech Technology LLC, GrafTech NY Inc., and Graphite Electrode Network LLC.
The guarantors of the Senior Notes, solely in their respective capacities as such, are collectively called the “Guarantors.” Our other subsidiaries, which are not guarantors of the Senior Notes, are called the “Non-Guarantors.”
Asset DerivativesLiability Derivatives
 Location   Fair  ValueLocation   Fair  Value
As of June 30, 2021(Dollars in thousands)
Derivatives designated as cash flow hedges:
Commodity derivative contractsPrepaid and other current assets$12,791 Other accrued liabilities$0 
Other long-term assets0 Other long-term obligations0 
Interest rate swap contractsPrepaid and other current assets0 Other accrued liabilities844 
Other long-term assets2,775 Other long-term obligations0 
Total fair value$15,566 $844 
As of December 31, 2020
Derivatives designated as cash flow hedges:
Commodity derivative contractsPrepaid and other current assets$518 Other accrued liabilities$888 
Other long-term assets63 Other long-term obligations1,898 
Interest rate swap contractsPrepaid and other current assets0 Other accrued liabilities4,080 
Other long-term assets0 Other long-term obligations6,903 
Total fair value$581 $13,769 
    All of the guarantees are unsecured. All of the guarantees are full, unconditional (subject to limited exceptions described below) and joint and several. Each of the Guarantors are 100% owned, directly or indirectly, by the Parent. All of the guarantees of the Senior Notes continue until the Senior Notes have been paid in full, and payment under such guarantees could be required immediately upon the occurrence of an event of default under the Senior Notes. If a Guarantor makes a payment under its guarantee of the Senior Notes, it would have the right under certain circumstances to seek contribution from the other Guarantors.
The Guarantors will be released from the guarantees upon the occurrence of certain events, including the following:  the unconditional release or discharge of any guarantee or indebtedness that resulted in the creation of the guarantee of the Senior Notes by such Guarantor; the sale or other disposition, including by way of merger or consolidation or the sale of its capital stock, following which such Guarantor is no longer a subsidiary of the Parent; or the Parent's exercise of its legal defeasance option or its covenant defeasance option as described in the indenture applicable to the Senior Notes.  If any Guarantor is released, no holder of the Senior Notes will have a claim as a creditor against such Guarantor. The indebtedness and other liabilities, including trade payables and preferred stock, if any, of each Guarantor are effectively senior to the claim of any holders of the Senior Notes.
 Asset DerivativesLiability Derivatives
 Location   Fair  ValueLocation   Fair  Value
As of June 30, 2021(Dollars in thousands)
Derivatives not designated as hedges:
Foreign currency derivativesPrepaid and other current assets$137 Other accrued liabilities$272 
Total fair value$137 $272 
As of December 31, 2020
Derivatives not designated as hedges:
Foreign currency derivativesPrepaid and other current assets$6 Other accrued liabilities$111 
Interest rate swap contractsPrepaid and other current assets0 Other accrued liabilities952 
Total fair value$6 $1,063 
Investments in subsidiaries are recorded on the equity basis.
21
    The following tables set forth condensed consolidating balance sheets as of December 31, 2016 and September 30, 2017, condensed consolidating statements of operations and comprehensive income for the three and nine months ended September 30, 2016 and 2017 and the condensed consolidating statements of cashflows for the nine months ended September 30, 2016 and 2017.
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The realized (gains) losses resulting from the settlement of commodity derivative contracts designated as hedges remain in "Accumulated Other Comprehensive Income" until they are recognized in the Statement of Operations when the hedged item impacts earnings, which is when the finished product is sold. As of June 30, 2021 and 2020, net realized pre-tax gains of $2.4 million and net realized pre-tax losses of $5.7 million, respectively, were reported under "Accumulated Other Comprehensive Income" and will be and were, respectively, released to earnings within the following 12 months. See the table below for amounts recognized in the Statement of Operations.
The location and amount of realized (gains) losses on derivatives are recognized in the Statements of Operations as follows for the periods ended June 30, 2021 and 2020:
  Amount of (Gain)/Loss
Recognized
Location of Realized (Gain)/Loss Recognized in the Consolidated Statement of OperationsFor the Three Months Ended June 30,
20212020
Derivatives designated as cash flow hedges:(Dollars in thousands)
Commodity derivative contractsCost of sales$4,498 $(1,130)
Interest rate swap contractsInterest expense289 1,521 
Derivatives not designated as hedges:
Foreign currency derivativesCost of sales, Other expense (income)$264 $(217)
Commodity derivative contractsCost of sales(242)25 
  Amount of (Gain)/Loss
Recognized
Location of (Gain)/Loss Recognized in the Consolidated Statement of OperationsFor the Six Months
Ended June 30,
20212020
Derivatives designated as cash flow hedges:(Dollars in thousands)
Commodity contract hedgesCost of sales$5,047 $(3,939)
Interest rate swap contractsInterest expense1,285 1,315 
Derivatives not designated as hedges:
Foreign currency derivativesCost of sales, Other expense (income)$1,893 $(716)
Commodity derivative contractsCost of sales(242)(114)
Interest rate swap contractsInterest expense866 0 
(10) Accumulated Other Comprehensive Income (Loss)
The balance in our accumulated other comprehensive income (loss) is set forth in the following table:
 As of
June 30, 2021		As of
December 31, 2020
 (Dollars in thousands)
Foreign currency translation adjustments, net of tax$(7,302)$(2,725)
Commodity and interest rate derivatives, net of tax6,911 (16,916)
Total accumulated comprehensive (loss)$(391)$(19,641)
22
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2016
(in thousands)
        Consolidating  
      Non- Entries and  
  Parent Guarantors Guarantors Eliminations Consolidated
 ASSETS          
 Current Assets:          
    Cash and cash equivalents $—
 $636
 $10,974
 $—
 $11,610
    Accounts receivable - affiliates 51,592
 3,624
 19,643
 (74,859) —
    Accounts receivable - trade —
 7,518
 73,050
 —
 80,568
    Inventories —
 44,563
 111,548
 —
 156,111
    Prepaid and other current assets 1,350
 4,853
 15,462
 —
 21,665
    Current assets of discontinued operations —
 51,160
 14,296
 (4,477) 60,979
      Total current assets 52,942
 112,354
 244,973
 (79,336) 330,933
           
 Investment in affiliates 844,379
 601,597
 —
 (1,445,976) —
 Property, plant and equipment —
 191,503
 317,352
 —
 508,855
 Deferred income taxes —
 —
 19,803
 —
 19,803
 Goodwill —
 70,399
 100,718
 —
 171,117
 Notes receivable - affiliate —
 49,003
 —
 (49,003) —
 Other assets —
 70,767
 70,801
 —
 141,568
      Total Assets $897,321
 $1,095,623
 $753,647
 $(1,574,315) $1,172,276
           
 LIABILITIES AND
STOCKHOLDERS' EQUITY
          
 Current Liabilities:          
    Accounts payable - affiliate $806
 $71,243
 $2,810
 $(74,859) $—
    Accounts payable - trade 964
 8,033
 38,666
 —
 47,663
    Short-term debt —
 3,062
 5,790
 —
 8,852
    Accrued income and other taxes —
 2,095
 3,161
 —
 5,256
    Other accrued liabilities 2,444
 12,205
 15,945
 —
 30,594
    Short-term liabilities of discontinued operations —
 20,381
 4,138
 (4,477) 20,042
         Total current liabilities 4,214
 117,019
 70,510
 (79,336) 112,407
           
 Long-term debt - affiliate 41,590
 —
 7,413
 (49,003) —
 Long-term debt - third party 274,132
 81,695
 753
 —
 356,580
 Other long-term obligations —
 50,943
 31,205
 —
 82,148
 Deferred income taxes —
 909
 41,997
 —
 42,906
 Long-term liabilities of discontinued operations —
 678
 172
 —
 850
 Stockholders' equity 577,385
 844,379
 601,597
 (1,445,976) 577,385
   Total Liabilities and Stockholders' Equity $897,321
 $1,095,623
 $753,647
 $(1,574,315) $1,172,276
           
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



(11) Earnings per Share
During the six months ended June 30, 2020, we repurchased 3,328,574 shares of our common stock under the repurchase program that was approved on July 30, 2019. These shares were subsequently retired. There were 0 shares repurchased under this program during the six months ended June 30, 2021.
The following table shows the information used in the calculation of our basic and diluted earnings per share calculation for the six months ended June 30, 2021 and 2020:
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2021202020212020
Weighted average common shares outstanding for basic calculation267,560,712 267,249,580 267,440,501 268,233,233 
Add: Effect of stock options, deferred share units and restricted stock units247,232 10,815 324,877 10,764 
Weighted average common shares outstanding for diluted calculation267,807,944 267,260,395 267,765,378 268,243,997 
Basic earnings per common share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding, which includes 122,455 and 116,631 shares of participating securities in the three and six months ended June 30, 2021, respectively, and 65,062 and 59,166 shares of participating securities in the three and six months ended June 30, 2020, respectively. Diluted earnings per share are calculated by dividing net income (loss) 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 earnings per share calculation excludes consideration of 1,358,696 and 1,250,722 equivalent shares in the three and six months ended June 30, 2021, respectively, and 1,734,610 and 1,603,198 in the three and six months ended June 30, 2020, respectively, as these shares are anti-dilutive.
(12) Stock-Based Compensation
Stock-based compensation awards granted by our Board of Directors for the three and six months ended June 30, 2021 and 2020 were as follows:
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2021202020212020
Award type:
Stock options2,000 2,000 479,500 300,000 
Deferred share units13,861 12,091 25,672 24,643 
Restricted stock units1,500 2,602 515,960 311,991 

In the three months ended June 30, 2021 and 2020, we recognized $15.3 million and $0.7 million, respectively, in stock-based compensation expense. A majority of the expense, $13.4 million and $0.6 million, respectively, was recorded as selling and administrative expense in the Consolidated Statement of Operations, with the remaining expenses incurred as cost of sales.
In the six months ended June 30, 2021 and 2020, we recognized $16.0 million and $1.1 million, respectively, in stock - based compensation expense. A majority of expense, $14.1 million and $1.0 million, respectively, was recorded as selling and administrative expense in the Consolidated Statement of Operations, with the remaining expenses incurred as cost of sales.
In the three and six months ended June 30, 2021, the expense includes $14.7 million due to the "Change in Control" accelerated vesting provisions of certain of our awards. For the purpose of these grants, a “Change in Control” occurred when Brookfield and any affiliates thereof (collectively, the “Majority Stockholder”) ceased to own stock of the Company that constitutes at least thirty percent (30%) or thirty-five percent (35%), as applicable, of the total fair market value or total voting
23
CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 30, 2017
(in thousands)
        Consolidating  
      Non- Entries and  
  Parent Guarantors Guarantors Eliminations Consolidated
 ASSETS          
 Current Assets:          
    Cash and cash equivalents $—
 $1,117
 $15,259
 $—
 $16,376
    Accounts receivable - affiliates 51,592
 9,022
 25,510
 (86,124) —
    Accounts receivable - trade —
 9,262
 70,870
 —
 80,132
    Inventories —
 41,118
 123,450
 

 164,568
    Prepaid and other current assets 555
 3,641
 15,782
 —
 19,978
    Current assets of discontinued operations —
 10,083
 5,447
 (155) 15,375
      Total current assets 52,147
 74,243
 256,318
 (86,279) 296,429
           
 Investment in affiliates 839,335
 592,304
 —
 (1,431,639) —
 Property, plant and equipment —
 179,635
 329,829
 —
 509,464
 Deferred income taxes —
 —
 19,220
 —
 19,220
 Goodwill —
 70,399
 100,718
 —
 171,117
 Notes receivable - affiliate 

 61,006
 —
 (61,006) —
 Other assets —
 61,554
 62,224
 —
 123,778
      Total Assets $891,482
 $1,039,141
 $768,309
 $(1,578,924) $1,120,008
           
 LIABILITIES AND
STOCKHOLDERS' EQUITY
          
 Current Liabilities:          
    Accounts payable - affiliate $825
 $77,103
 $8,196
 $(86,124) $—
    Accounts payable - trade —
 10,392
 47,984
 —
 58,376
    Short-term debt —
 4,334
 8,948
 —
 13,282
    Accrued income and other taxes —
 1,686
 6,445
 —
 8,131
    Other accrued liabilities 7,225
 9,350
 17,452
 —
 34,027
    Liabilities of discontinued operations —
 8,805
 3,307
 (155) 11,957
         Total current liabilities 8,050
 111,670
 92,332
 (86,279) 125,773
           
 Long-term debt - affiliate 53,593
 —
 7,413
 (61,006) —
 Long-term debt - third party 278,959
 40,595
 876
 —
 320,430
 Other long-term obligations —
 45,882
 33,094
 —
 78,976
 Deferred income taxes —
 1,283
 42,085
 —
 43,368
 Long-term liabilities of discontinued operations —
 376
 205
—
—
—
581
 Stockholders' equity 550,880
 839,335
 592,304
 (1,431,639) 550,880
   Total Liabilities and Stockholders' Equity $891,482
 $1,039,141
 $768,309
 $(1,578,924) $1,120,008
           


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



power of the stock of the Company. Out of the $14.7 million recorded with the Change in Control, $0.9 million accelerated at the 35% ownership level and the remaining $13.8 million accelerated at the 30% ownership level.
As of June 30, 2021, unrecognized compensation cost related to non-vested stock options, deferred share units and restricted stock units was $0.8 million, which will be recognized over the remaining weighted average life of 1.9 years.
Stock option, deferred share unit and restricted stock unit award activity under the Company's Omnibus Equity Incentive Plan for the six months ended June 30, 2021 was as follows:

Stock Options
Number
of Shares		Weighted-
Average
Exercise
Price
Outstanding unvested as of December 31, 2020906,361 $13.01 
    Granted479,500 11.49 
    Vested(1,214,192)11.96 
    Forfeited(42,349)13.36 
Outstanding unvested as of June 30, 2021129,320 $17.17 

Deferred Share Unit and Restricted Stock Unit awards
Number
of Shares		Weighted-
Average
Grant Date
Fair Value
Outstanding unvested as of December 31, 2020524,488 $10.41 
    Granted541,632 11.51 
    Vested(1,046,631)10.96 
     Forfeited(16,793)10.78 
Outstanding unvested as of June 30, 20212,696 $13.96 
(13) Subsequent Events
On August 4, 2021, our Board of Directors declared a quarterly dividend of $0.01 per share to stockholders of record as of the close of business on August 31, 2021, to be paid on September 30, 2021.
24
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three months ended September 30, 2016
(in thousands)
        Consolidating  
      Non- Entries and  
  Parent Guarantors Guarantors Eliminations Consolidated
           
 Sales - affiliates $—
 $16,334
 $10,078
 $(26,412) $—
 Sales - third party —
 21,891
 89,699
 —
 111,590
    Net sales —
 38,225
 99,777
 (26,412) 111,590
 Cost of sales —
 36,886
 103,128
 (26,412) 113,602
Additions to lower cost or market inventory reserve —
 1,915
 2,983
 —
 4,898
      Gross loss —
 (576) (6,334) —
 (6,910)
           
 Research and development —
 526
 —
 —
 526
 Selling and administrative expenses —
 3,906
 8,309
 —
 12,215
      Operating loss —
 (5,008) (14,643) —
 (19,651)
           
 Other expense (income), net —
 287
 (854) —
 (567)
 Interest expense - affiliate 268
 —
 —
 (268) —
 Interest expense - third party 6,362
 473
 129
 —
 6,964
 Interest income - affiliate —
 (268) —
 268
 —
 Interest income - third party —
 —
 (158) —
 (158)
 Loss from continuing operations
  before provision for income taxes
 (6,630) (5,500) (13,760) —
 `(25,890)
           
 Provision for income taxes —
 123
 (1,912) —
 (1,789)
 Equity in loss from continuing
operations of subsidiary		 (17,471) (11,848) —
 29,319
 —
      Net loss from
continuing operations		 (24,101) (17,471) (11,848) 29,319
 (24,101)
           
Income from discontinued
     operations, net of tax
 —
 958
 176
 —
 1,134
Equity in income from
   discontinued operations
 1,134
 176
 —
 (1,310) —
      Net income from
discontinued operations		 1,134
 1,134
 176
 (1,310) 1,134
           
      Net loss $(22,967) $(16,337) $(11,672) $28,009
 $(22,967)
           
           
 Statements of
Comprehensive Income (Loss)
          
           
Net loss $(22,967) $(16,337) $(11,672) $28,009
 $(22,967)
Other comprehensive income 2,418
 2,418
 2,418
 (4,836) 2,418
Comprehensive loss $(20,549) $(13,919) $(9,254) $23,173
 $(20,549)
           

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


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three months ended September 30, 2017
(in thousands)
        Consolidating  
      Non- Entries and  
  Parent Guarantors Guarantors Eliminations Consolidated
           
 Sales - affiliates $—
 $23,063
 $22,665
 $(45,728) $—
 Sales - third party —
 32,617
 104,628
 —
 137,245
    Net sales —
 55,680
 127,293
 (45,728) 137,245
 Cost of sales —
 58,380
 107,768
 (45,728) 120,420
Additions to lower of cost or
market inventory reserve		 —
 —
 264
 —
 264
      Gross (loss) profit —
 (2,700) 19,261
 —
 16,561
           
 Research and development —
 1,338
 —
 —
 1,338
 Selling and administrative expenses —
 3,471
 9,851
 —
 13,322
      Operating (loss) income —
 (7,509) 9,410
 —
 1,901
           
 Other expense (income), net 1
 229
 (873) —
 (643)
 Interest expense - affiliate 916
 —
 —
 (916) —
 Interest expense - third party 6,399
 1,264
 129
 —
 7,792
 Interest income - affiliate —
 (916) 

 916
 —
 Interest income - third party —
 —
 (58) —
 (58)
 (Loss) income from continuing
   operations before provision for
     income taxes
 (7,316) (8,086) 10,212
 —
 `(5,190)
           
 (Benefit from) provision
    for income taxes
 —
 (524) 2,487
 —
 1,963
 Equity in income from continuing
    operations of subsidiary
 163
 7,725
 —
 (7,888) —
      Net (loss) income from
continuing operations		 (7,153) 163
 7,725
 (7,888) (7,153)
           
Income (loss) income from
  discontinued operations, net of tax
 —
 7,637
 (4,403) —
 3,234
Equity in income (loss) from
  discontinued operations
 3,234
 (4,403) —
 1,169
 —
      Net income (loss)
        from discontinued operations
 3,234
 3,234
 (4,403) 1,169
 3,234
           
      Net (loss) income $(3,919) $3,397
 $3,322
 $(6,719) $(3,919)
           
           
 Statements of
Comprehensive Income (Loss)
          
           
Net (loss) income $(3,919) $3,397
 $3,322
 $(6,719) $(3,919)
Other comprehensive income 7,546
 7,546
 7,546
 (15,092) 7,546
Comprehensive income $3,627
 $10,943
 $10,868
 $(21,811) $3,627
           
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Nine Months Ended September 30, 2016
(in thousands)
        Consolidating  
      Non- Entries and  
  Parent Guarantors Guarantors Eliminations Consolidated
           
 Sales - affiliates $—
 $95,471
 $45,802
 $(141,273) $—
 Sales - third party —
 64,534
 257,996
 —
 322,530
    Net sales —
 160,005
 303,798
 (141,273) 322,530
 Cost of sales —
 142,299
 330,271
 (141,273) 331,297
 Additions to lower cost or market
   inventory reserve
 —
 5,697
 13,826
 —
 19,523
      Gross profit (loss) —
 12,009
 (40,299) —
 (28,290)
  

 

 

 

 

 Research and development —
 1,964
 —
 —
 1,964
 Selling and administrative expenses —
 13,695
 25,735
 —
 39,430
      Operating (loss) income —
 (3,650) (66,034) —
 (69,684)
  
 
 
 
 
 Other expense (income), net 6
 1,029
 (2,563) —
 (1,528)
 Interest expense - affiliate 702
 —
 —
 (702) —
 Interest expense - third party 19,059
 527
 274
 —
 19,860
 Interest income - affiliate —
 (702) —
 702
 —
 Interest income - third party —
 —
 (169) —
 (169)
 Income (Loss) from
  continuing operations before
   provision for income taxes
 (19,767) (4,504) (63,576) —
 `(87,847)
  
 
 
 
 
 Provision for (benefit from)
  income taxes
 —
 378
 (8,053) —
 (7,675)
 Equity in loss from
continuing operations of subsidiary		 (60,405) (55,523) —
 115,928
 —
      Net loss from
continuing operations		 (80,172) (60,405) (55,523) 115,928
 (80,172)
  
 
 
 
 
Loss from discontinued
     operations, net of tax
 —
 (104,372) (3,196) —
 (107,568)
Equity in loss from
   discontinued operations

 (107,568) (3,196) —
 110,764
 —
      Net loss from
discontinued operations		 (107,568) (107,568) (3,196) 110,764
 (107,568)
  

 

 

 

 

      Net loss $(187,740) $(167,973) $(58,719) $226,692
 $(187,740)
  
 
 
 
 
           
 Statements of
Comprehensive Income (Loss)
          
           
Net loss $(187,740) $(167,973) $(58,719) $226,692
 $(187,740)
Other comprehensive income 14,119
 14,119
 14,119
 (28,238) 14,119
Comprehensive loss $(173,621) $(153,854) $(44,600) $198,454
 $(173,621)
  

 

 

 

 


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


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Nine Months Ended September 30, 2017
(in thousands)
        Consolidating  
      Non- Entries and  
  Parent Guarantors Guarantors Eliminations Consolidated
           
 Sales - affiliates $—
 $69,860
 $47,373
 $(117,233) $—
 Sales - third party —
 76,980
 281,318
 —
 358,298
    Net sales —
 146,840
 328,691
 (117,233) 358,298
 Cost of sales —
 150,164
 296,269
 (117,233) 329,200
Additions to lower of cost or
market inventory reserve		 —
 934
 839
 —
 1,773
      Gross (loss) profit —
 (4,258) 31,583
 —
 27,325
           
 Research and development —
 3,110
 —
 —
 3,110
 Selling and administrative expenses —
 10,740
 26,460
 —
 37,200
      Operating (loss) profit —
 (18,108) 5,123
 —
 (12,985)
           
 Other expense (income), net 7
 665
 2,938
 —
 3,610
 Interest expense - affiliate 2,363
 —
 —
 (2,363) —
 Interest expense - third party 19,170
 3,739
 331
 —
 23,240
 Interest income - affiliate —
 (2,363) —
 2,363
 —
 Interest income - third party —
 —
 (320) —
 (320)
 (Loss) income from continuing
   operations before provision
     for income taxes
 (21,540) (20,149) 2,174
 —
 `(39,515)
           
 (Benefit from) provision for
   income taxes
 —
 (270) 3,519
 —
 3,249
 Equity in loss from continuing
    operations of subsidiary
 (21,224) (1,345) —
 22,569
 —
      Net loss from
continuing operations		 (42,764) (21,224) (1,345) 22,569
 (42,764)
           
Income (loss) from discontinued
   operations, net of tax
 77
 (143) (4,816) —
 (4,882)
Equity in loss from
  discontinued operations
 (4,959) (4,816) —
 9,775
 —
      Net loss from
        discontinued operations
 (4,882) (4,959) (4,816) 9,775
 (4,882)
           
      Net loss $(47,646) $(26,183) $(6,161) $32,344
 $(47,646)
           
           
 Statements of
Comprehensive Income (Loss)
          
           
Net loss $(47,646) $(26,183) $(6,161) $32,344
 $(47,646)
Other comprehensive income 21,141
 21,141
 21,141
 (42,282) 21,141
Comprehensive (loss) income $(26,505) $(5,042) $14,980
 $(9,938) $(26,505)
           
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2016
(in thousands)
       Consolidating  
     Non- Entries and  
 Parent Guarantors Guarantors Eliminations Consolidated
Net cash (used in) provided by operating activities:$(9,568) $19,207
 $19,092
 $—
 $28,731
          
Cash flow from investing activities:         
   (Loans to) repayments from affiliates—
 (9,568) —
 9,568
 —
  Capital expenditures—
 (7,453) (14,804) —
 (22,257)
  Other—
 —
 (1,171) —
 (1,171)
  Proceeds from sale of fixed assets—
 458
 227
 —
 685
    Net cash (used in) provided by
       investing activities
—
 (16,563) (15,748) 9,568
 (22,743)
          
Cash flow from financing activities:         
  Loans from (Repayments to) affiliates9,568
 —
 —
 (9,568) —
  Short-term debt, net—
 3
 500
 —
 503
  Revolving Facility borrowings—
 35,000
 5,000
 —
 40,000
  Revolving Facility reductions—
 (36,000) (5,000) —
 (41,000)
  Principal payments on long term debt—
 (104) —
 —
 (104)
  Revolver facility refinancing—
 (922) —
 —
 (922)
    Net cash provided by (used in)
         financing activities
9,568
 (2,023) 500
 (9,568) (1,523)
          
Net change in cash and
   cash equivalents
—
 621
 3,844
 —
 4,465
Effect of exchange rate changes
   on cash and cash equivalents
—
 —
 755
 —
 755
Cash and cash equivalents at
   beginning of period
—
 646
 6,281
 —
 6,927
Cash and cash equivalents
   at end of period
$—
 $1,267
 $10,880
 $—
 $12,147

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


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017
(in thousands)
       Consolidating  
     Non- Entries and  
 Parent Guarantors Guarantors Eliminations Consolidated
Net cash (used in) provided by operating activities:$(9,660) $25,784
 $42,076
 $(24,619) $33,581
          
Cash flow from investing activities:         
  Loans to affiliates—
 (9,660) —
 9,660
 —
  Capital expenditures—
 (2,835) (20,193) —
 (23,028)
  Proceeds from sale of assets—
 433
 3,605
 —
 4,038
  Proceeds from divestitures—
 26,818
 —
 —
 26,818
    Net cash provided by (used in)
         investing activities
—
 14,756
 (16,588) 9,660
 7,828
          
Cash flow from financing activities:         
  Loans from affiliates9,660
 —
 —
 (9,660) —
  Dividends to affiliates—
 —
 (24,619) 24,619
 —
  Short-term debt, net—
 2,803
 3,142
 —
 5,945
  Revolving Facility borrowings—
 35,000
 —
 —
 35,000
  Revolving Facility reductions—
 (77,755) —
 —
 (77,755)
  Principal payments on long term debt—
 (107) —
 —
 (107)
    Net cash provided by (used in)
         financing activities
9,660
 (40,059) (21,477) 14,959
 (36,917)
         

Net change in cash and
   cash equivalents
—
 481
 4,011
 —
 4,492
Effect of exchange rate changes
   on cash and cash equivalents
—
 —
 274
 —
 274
Cash and cash equivalents at
   beginning of period
—
 636
 10,974
 —
 11,610
Cash and cash equivalents
   at end of period
$—
 $1,117
 $15,259
 $—
 $16,376

Table of Contents    
PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Unaudited)

Introduction to Part I, Item 2, and Part II, Item 1 and Item 1A
Important Terms. We define various terms to simplify the presentation of information in this Report. These terms, which definitions are incorporated herein by reference, are defined in “Part I – Preliminary Notes – Important Terms” of the Annual Report.
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 Report are our own estimates or derived from sources described in “Part I – Preliminary Notes – Presentation of Financial, Market and Legal Data” in the Annual Report, which description is incorporated herein by reference. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Forward Looking Statements and Risks” in this Report and “Forward Looking Statements” and “Risk Factors” in the Annual Report. We cannot guarantee the accuracy or completeness of this market and market share data and have not independently verified it. None of the sources has consented to the disclosure or use of data in this Report.
Reference is made to the Annual Report for background information on various risks and contingencies and other matters related to circumstances affecting us and our industry.
Neither any statement made in this Report nor any charge taken by us relating to any legal proceedings constitutes an admission as to any wrongdoing.
Forward Looking Statements
Forward Looking Statements and Risks. This Report contains forward looking statements. In addition, we or our representatives have made or may make forward looking statements on telephone or conference calls, by webcasts or emails, in person, in presentations or written materials, or otherwise. These include statements about such matters as future, targeted or expected (or the impact of current, future, expected or targeted): outlook for 2017 or beyond; operational and financial performance; growth prospects and rates; future or targeted profitability, cash flow, liquidity and capital resources, production rates, inventory levels and EBITDA; the impact of rationalization, product line change, cost and liquidity initiatives; changes in the operating rates or efficiency in our operations or our competitors' or customers' operations; product quality; diversification, new products, and product improvements and their impact on our business; the integration or impact of acquired businesses; divestitures, asset sales, investments and acquisitions that we may make in the future; possible debt or equity financing or refinancing (including factoring and supply chain financing) activities; the impact of customer bankruptcies; conditions and changes in the global financial and credit markets; possible changes in control of the Company and the impacts thereof; the impact of accounting changes; and currency exchange and interest rates and changes therein; changes in production capacity in our operations and our competitors' or customers' operations and the utilization rates of that capacity; growth rates for, prices and sales of, and demand for, our products and our customers' products; costs of materials and production, including increases or decreases therein, our ability to pass on any such increases in our product prices or impose surcharges thereon, or customer or market demand to reduce our prices due to such decreases; changes in customer order patterns due to changes in economic conditions; productivity, business process and operational initiatives; the markets we serve and our position in those markets; financing and refinancing activities; investments and acquisitions and the performance of the businesses underlying such acquisitions and investments; employment and contributions of key personnel; employee relations and collective bargaining agreements covering many of our operations; tax rates and the effects of jurisdictional mix; capital expenditures and changes therein; nature and timing of restructuring and rationalization charges and payments; inventory and supply chain management; customer and supplier contractual provisions and related opportunities and issues; competitive activities; strategic plans, initiatives and business projects; regional and global economic and industry market conditions, the timing and magnitude of changes in such conditions; interest rate management activities; currency rate management activities; deleveraging activities; rationalization, restructuring, realignment, strategic alliance, raw material and supply chain, technology development and collaboration, investment, acquisition, venture, operational, tax, financial and capital projects; legal proceedings, investigations, contingencies, and environmental compliance including any regulatory initiatives with respect to greenhouse gas emissions; consulting projects; and costs, working capital, revenues, business opportunities, debt levels, cash flows, cost savings and reductions, margins, earnings and growth. The words “will,”“may,”“plan,”“estimate,”“project,”“believe,”
Table of Contents
PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Unaudited)

“anticipate,”“expect,”“intend,”“should,”“would,”“could,”“target,”“goal,”“continue to,”“positioned to” and similar expressions, or the negatives thereof, identify some of these statements.
Our expectations and targets are not predictors of actual performance and historically our performance has deviated, often significantly, from our expectations and targets. Actual future events and circumstances (including future results and trends) could differ materially, positively or negatively, from those set forth in these statements due to various factors. These factors include:
the possibility that additions to capacity for producing electric arc furnace ("EAF") steel, increases in overall EAF steel production capacity, and increases or other changes in steel production may not occur or may not occur at the rates that we anticipate or may not be as geographically distributed as we anticipate;
the possibility that increases or decreases in graphite electrode manufacturing capacity (including growth by producers in developing countries), competitive pressures (including changes in, and the mix, distribution, and pricing of, competitive products), reduction in specific consumption rates, increases or decreases in customer inventory levels, or other changes in the graphite electrode markets may occur, which may impact demand for, prices or unit and dollar volume sales of graphite electrodes and growth or profitability of our graphite electrodes business;
the possible failure of changes in EAF steel production or graphite electrode production to result in stable or increased, or offset decreases in, graphite electrode demand, prices, or sales volume;
the possibility that a determination that we have failed to comply with one or more export controls or trade sanctions to which we are subject with respect to products or technology exported from the United States or other jurisdictions could result in civil or criminal penalties, denial of export privileges and loss of revenues from certain customers;
the possibility that, for all of our product lines, capital improvement and expansion in our customers' operations or increases in demand for their products may not occur or may not occur at the rates that we anticipate or the demand for their products may decline, which may affect their demand for the products we sell to them, which could affect our profitability and cash flows as well as the recoverability of our assets;
the possibility that assumptions related to future expectations of financial performance materially change and impact our goodwill and long-lived asset carrying values;
the possibility that our financial assumptions and expectations materially change as a result of government or state-owned government subsidies, incentives and trade barriers;
the possibility that current economic disruptions or other conditions may result in idling or permanent closing of blast furnace capacity or delay of blast furnace capacity additions or replacements which may affect demand and prices for our refractory products;
the possibility that continued global consolidation of the world's largest steel producers could impact our business or industry;
the possibility that average graphite electrode revenue per metric ton in the future may be different than current spot or market prices due to changes in product mix, changes in currency exchange rates, changes in competitive market conditions or other factors;
the possibility that price increases, adjustments or surcharges may not be realized or that price decreases may occur;
the possibility that current challenging economic conditions and economic demand reduction may continue to impact our revenues and costs;
the possibility that U.S., European, Chinese, or other governmental monetary or fiscal policy may adversely affect global economic activity and demand for our products;
Table of Contents
PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Unaudited)

the possibility that potential future cuts in defense spending by the United States government as a part of efforts to reduce federal budget deficits could reduce demand for certain of our products and associated revenue;
the possibility that decreases in prices for energy and raw materials may lead to downward pressure on prices for our products and delays in customer orders for our products as customers anticipate possible future lower prices;
the possibility that customers may delay or cancel orders;
the possibility that we may not be able to reduce production costs or delay or cancel raw material purchase commitments;
the possibility that economic, political and other risks associated with operating globally, including national and international conflicts, terrorist acts, political and economic instability, civil unrest, community activism and natural or nuclear calamities might interfere with our supply chains, customers or activities in a particular location;
the possibility that reductions in customers' production, increases in competitors' capacity, competitive pressures, or other changes in other markets we serve may occur, which may impact demand for, prices of or unit and dollar volume sales of, our other products, or growth or profitability of our other product lines, or change our position in such markets;
the possibility that we will not be able to hire and retain key personnel, maintain appropriate relations with unions, associations and employees or to renew or extend our collective bargaining or similar agreements on reasonable terms as they expire or do so without a work stoppage or strike;
the possibility that there will be an adverse determination in litigation pending in Brazil involving disputes related to the proper interpretation of certain collectively bargained wage increase provisions applicable to both us and other employers in the Bahia region;
the possibility that our manufacturing capabilities may not be sufficient or that we may experience delays in expanding or fail to expand our manufacturing capacity to meet demand for existing, new or improved products;
the possibility that we may propose acquisitions or divestitures in the future, that we may not complete the acquisitions or divestitures, and that investments and acquisitions that we may make in the future may not be successfully integrated into our business or provide the performance or returns expected or that divestitures may not generate the proceeds anticipated;
the possibility that challenging conditions or changes in the capital markets will limit our ability to undertake refinancing activities or obtain financing for growth and other initiatives, on acceptable terms or at all;
the possibility that conditions or changes in the global equity markets may have a material impact on our future pension funding obligations and liabilities on our balance sheet;
the possibility that the amount or timing of our anticipated capital expenditures may be limited by our financial resources or financing arrangements or that our ability to complete capital projects may not occur timely enough to adapt to changes in market conditions or changes in regulatory requirements;
the possibility that the actual outcome of uncertainties associated with assumptions and estimates using judgment when applying critical accounting policies and preparing financial statements may have a material impact on our results of operations or financial position;
the possibility that we may be unable to protect our intellectual property or may infringe the intellectual property rights of others, resulting in damages, limitations on our ability to produce or sell products or limitations on our ability to prevent others from using that intellectual property to produce or sell products;
the occurrence of unanticipated events or circumstances or changing interpretations and enforcement agendas relating to legal proceedings or compliance programs;
Table of Contents
PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Unaudited)

the occurrence of unanticipated events or circumstances or changing interpretations and enforcement agendas relating to health, safety or environmental compliance or remediation obligations or liabilities to third parties or relating to labor relations;
the possibility that new or expanded regulatory initiatives with respect to greenhouse gas emissions could increase the capital intensive nature of our business and add to our costs of production;
the possibility that our provision for income taxes and effective income tax rate or cash tax rate may fluctuate significantly due to (i) changes in applicable tax rates or laws, (ii) changes in the sources of our income, (iii) changes in tax planning, (iv) new or changing interpretations of applicable regulations, (v) changes in profitability, (vi) changes in our estimate of our future ability to use foreign tax credits or other tax attributes, and (vii) other factors;
the possibility of changes in interest or currency exchange rates or in inflation or deflation;
the possibility that our outlook could be significantly impacted by, among other things, developments in North Africa, the Middle East, North Korea, and other areas of concern, the occurrence of further terrorist acts and developments resulting from the war on terrorism;
the possibility that interruption in our major raw material, energy or utility supplies due to, among other things, natural or nuclear disasters, process interruptions, actions by producers and capacity limitations, may adversely affect our ability to manufacture and supply our products or result in higher costs;
the possibility that the magnitude of changes in the cost of major raw materials, energy or utility suppliers by reason of shortages, changes in market pricing, pricing terms in applicable supply contracts, or other events may adversely affect our ability to manufacture and supply our products or result in higher costs;
the possibility of interruptions in production at our facilities due to, among other things, critical equipment failure, which may adversely affect our ability to manufacture and supply our products or result in higher costs;
the possibility that we may not achieve the earnings or other financial or operational metrics that we provide as guidance from time to time;
the possibility that the anticipated benefits from rationalizations and other cost savings initiatives may be delayed or may not occur, may vary in cost or may result in unanticipated disruptions;
the possibility of security breaches affecting our information technology systems;
the possibility that our disclosure or internal controls may become inadequate because of changes in conditions or personnel or that those controls may not operate effectively and may not prevent or detect misstatements or errors;
the possibility that severe economic conditions may adversely affect our business, liquidity or capital resources;
the possibility that delays may occur in the financial statement closing process;
the possibility of changes in performance that may affect financial covenant compliance or funds available for borrowing; and
other risks and uncertainties, including those described elsewhere in this Report or our other SEC filings, as well as future decisions by us.
Occurrence of any of the events or circumstance described above could also have a material adverse effect on our business, financial condition, results of operations or cash flows or the market price of our securities.
No assurance can be given that any future transaction about which forward looking statements may be made will be completed or as to the timing or terms of any such transaction.
Table of Contents
PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Unaudited)

All subsequent written and oral forward looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC's rules, we have no duty to update these statements.
For a more complete discussion of these and other factors, see “Risk Factors,” in Part I, Item 1A of our 2016 Annual Report on Form 10-K.
Table of Contents
PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Global Economic Conditions, Outlook and Business Overview

Outlook. We are impacted in varying degrees, both positively and negatively, as global, regional or country conditions fluctuate. Our discussions about market data and global economic conditions below are based on or derived from published industry accounts and statistics.
In its July, 2017 report, the International Monetary Fund (IMF) confirmed its April estimated global growth rate of 3.5 percent for 2017 and 3.6 percent for 2018. The IMF noted that the unchanged global growth projections mask somewhat different contributions at a country level. U.S. growth projections are lower than in April reflecting the assumption that fiscal policy will be less expansionary going forward than previously anticipated. Growth estimated for Japan and the Euro area have increased due to "positive surprises to activity in late 2016 and early 2017". The IMF estimates for China have also been revised upwards since April 2017 due to a strong first quarter of 2017.
In its short range outlook released on October 16, 2017, the World Steel Association (WSA) forecasts that global steel demand will increase to 1,622 million tons in 2017 and 1,648 in 2018. Additionally, WSA estimates global steel production outside of China will grow 2.8% in 2017 and 3.0% in 2018. WSA noted that both advanced and developing economies are exhibiting stronger economic momentum this year. Confidence and investment sentiments are improving in a large part of the world despite some financial market volatility and growing concern of stock market overvaluation.
The Company
GrafTech is a leading manufacturer of graphite electrode industry has historically followedelectrodes, the growth ofcritical consumable for the electric arc furnace ("EAF") steel producing industry and toindustry. We are the only graphite electrode producer that is substantially vertically integrated into petroleum needle coke, a lesser extent, the steel industry as a whole. Recent macroeconomic and industry-specific conditions have created significant increases in demandkey raw material for graphite electrodes. First, Chinese steel exports have been reducedVertical integration has allowed us to adopt a commercial strategy with long-term, fixed price, fixed volume, take-or-pay contracts ("LTAs") providing earnings stability and visibility. These contracts define volumes and prices, along with price-escalation mechanisms for inflation, and include significant termination payments (typically, 50% to 70% of remaining contracted revenue) and, in 2017, leadingcertain cases, parent guarantees and collateral arrangements to increasedmanage our customer credit risk.
The environmental and economic advantages of electric arc furnace steel production outsidepositions both that industry and the graphite electrode industry for continued long-term growth.
We believe GrafTech's leadership position, strong cash flows, and 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 strong sales volumes of China which are43 thousand metric tons ("MT") in the markets that we serve. The sharesecond quarter of steel produced by EAF as2021, consisting of LTA volumes of 27 thousand MT, at an average approximate price of $9,500 per MT, and non-LTA volumes of 16 thousand MT, at an average approximate price of $4,100 per MT. Sales volumes increased 16% and 39% compared to blast furnaces is significantly higher outsidethe first quarter of China resulting2021 and second quarter of 2020, respectively.
As previously reported, spot prices negotiated during the first quarter of 2021 reached a recent low and have steadily improved since that time. Accordingly, non-LTA prices for our graphite electrodes to be delivered and realized in increased overall EAF production and increased demand for electrodes. Additionally, economic advantages that traditional blast furnace steel shops were experiencingincome in the recent past due to lower raw material costs have subsided, allowing EAF production and blast furnace production economics to be more in line with their historical balance. Finally, recent environmental restrictions imposed on Chinese manufacturing facilities has decreased graphite electrode production in China. Prior tosecond half of 2021 are improving. We expect this improvement in demandnon-LTA pricing to continue into 2022. In the electrode industry experienced a five year extended downturn resultingthird quarter of 2021, we expect realized prices for non-LTA volumes to be up approximately 10%-12% compared to the second quarter.
Production volume of 44 thousand MT in a reductionthe second quarter of electrode capacity2021 represented an increase of approximately 200,000 metric tons (or approximately 20%) outside22% and 33% compared to the first quarter of China.2021 and the second quarter of 2020, respectively.
The culmination of these factors has led to considerable concern over the graphite electrode industry's ability to meet customers' demand in 2018. As a result, there has been a significant increase in the current spot market price of graphite electrodes. There are indications that this demand and supply imbalance could be an issue that persists for some time. As a result, we have begun an initiative to offer three to five year supply contracts to our strategic customers. We believe that these contracts will benefit our customers by providing them with long-term security of supply. This would also give us greater certainty to invest in our facilities to continue to provide the level of service, quality, and reliability that our customers expect and value.
Since our acquisition by Brookfield two years ago, we have improved our operating performance by refocusing on our core electrode business, divesting of non-core segments, optimizing production and improving productivity at our low-cost plants, improving electrode performance, enhancing commercial strategy and reducing corporate overhead.  These actions have resulted in over $100 million of sustainable operating improvements.  This, along with the benefit of vertical integration in needle coke, positions us to be one of the most reliable, lowest cost, highest quality producersestimated shipments of graphite electrodes for the final two years of the initial term under our LTAs and for the years 2023 through 2024 remain unchanged from our prior estimate as follows:
202120222023 through 2024
Estimated LTA volume (thousands of metric tons)
98-10895-10535-45
Estimated LTA revenue (in millions)
$925-$1,025$910-$1,010
$350-$450(1)
(1) Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs
Global steel market capacity utilization rates have continued to improve sequentially:
Q2 2021Q1 2021Q2 2020
Global steel market (ex-China) capacity utilization rates (1)
75%73%56%
U.S. steel market capacity utilization rates (2)
80%77%56%
1 Source: World Steel Association and Metal Expert
2 Source: American Iron and Steel Institute
Capital Structure and Capital Allocation
As of June 30, 2021, GrafTech had cash and cash equivalents of $114 million and total debt of approximately $1.2 billion. We continue to make progress in reducing our industry.long-term debt, repaying $50 million in the second quarter, for a total

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debt repayment of $200 million in the first half of 2021. We continue to expect our primary use of cash for the balance of this year to be debt repayment.

Our full year 2021 capital expenditure range expectations are unchanged, between $55 and $65 million.
Key metrics used by management to measure performance
In addition to measures of financial performance presented in our Consolidated Financial Statements in accordance with GAAP, we use certain other financial measures and operating metrics to analyze the performance of our company. The “non-GAAP” financial measures consist of EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS. which help us evaluate growth trends, establish budgets, assess operational efficiencies and evaluate our overall financial performance. The key operating metrics consist of sales volume, production volume, production capacity and capacity utilization.
Key financial measures
For the Three Months Ended June 30,For the Six Months
Ended June 30,
(in thousands), except per share data2021202020212020
Net sales$330,750 $280,718 $635,147 $599,364 
Net income$28,165 $92,776 $126,964 $215,044 
Earnings per share(1)
$0.11 $0.35 $0.47 $0.80 
EBITDA(2)
$68,017 $147,645 $221,742 $332,674 
Adjusted net income(2)
$114,487 $96,005 $214,367 $212,235 
Adjusted earnings per share(1)(2)
$0.43 $0.36 $0.80 $0.79 
Adjusted EBITDA (2)
$159,903 $151,125 $314,948 $330,303 
(1) Earnings per share represents diluted earnings per share. Adjusted earnings per share represents adjusted diluted earnings per share.
(2) Non-GAAP financial measures; see below for information and reconciliations of EBITDA, adjusted EBITDA, adjusted net income, and adjusted EPS to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.


Key operating metrics
For the Three Months Ended June 30,For the Six Months
Ended June 30,
(in thousands, except utilization)2021202020212020
Sales volume (MT)(1)
43 31 80 65 
Production volume (MT)(2)
44 33 80 66 
Production capacity excluding St. Marys (MT)(3)(4)
51 51 102 102 
Capacity utilization excluding St. Marys (3)(5)
86 %65 %78 %65 %
Total production capacity (MT)(4)(6)
58 58 116 116 
Total capacity utilization(5)(6)
76 %57 %69 %57 %
(1) Sales volume reflects only graphite electrodes manufactured by GrafTech.
(2) Production volume reflects graphite electrodes we produced during the period.
(3) In the first quarter of 2018, our St. Marys facility began graphitizing a limited amount of electrodes sourced from our Monterrey, Mexico facility.
(4) Production capacity reflects expected maximum production volume during the period under normal operating conditions, standard product mix and expected maintenance outage. Actual production may vary.
(5) Capacity utilization reflects production volume as a percentage of production capacity.
(6) Includes graphite electrode facilities in Calais, France; Monterrey, Mexico; Pamplona, Spain and St. Marys, Pennsylvania.
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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 adjusted for any pension and other post employment benefit ("OPEB") plan expenses or gains, initial and follow-on public offering 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, related party Tax Receivable Agreement (as defined below) adjustments, stock-based compensation, non‑cash fixed asset write‑offs and Change in Control charges that were triggered as a result of the ownership of our largest stockholder falling below 30% of our total outstanding shares. 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 initial and follow-on public offering and related expenses;
•adjusted EBITDA does not reflect related party Tax Receivable Agreement adjustments;
•adjusted EBITDA does not reflect stock-based compensation or the non‑cash write‑off of fixed assets;
•adjusted EBITDA does not reflect the Change in Control charges; 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 excluding 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 of 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, adjusted EPS, you should be aware that in the future, we will incur expenses similar to the adjustments in the reconciliation below, other than change in control charges. 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 financial performance measures, including our net income, EPS and other GAAP measures.
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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 June 30,For the Six Months
Ended June 30,
2021202020212020
(in thousands, except per share data)
Net income$28,165 $92,776 $126,964 $215,044 
Adjustments, pre-tax:
Pension and OPEB plan expenses (1)
430 541 861 1,083 
Initial and follow-on public offering and related expenses (2)
241 — 663 4 
Non-cash loss (gain) on foreign currency remeasurement (3)
2,255 2,222 1,907 (1,239)
Stock-based compensation (4)
550 717 1,318 1,127 
Non-cash fixed asset write-off (5)
313 — 313 — 
Related party Tax Receivable Agreement adjustment (6)
— — 47 (3,346)
Change in Control LTIP award (7)
73,384 — 73,384 — 
Change in control stock-based compensation acceleration (7)
14,713 — 14,713 — 
Total non-GAAP adjustments pre-tax91,886 3,480 93,206 (2,371)
Income tax impact on non-GAAP adjustments5,564 251 5,803 438 
Adjusted net income$114,487 $96,005 $214,367 $212,235 
(1)Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.
(2)Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.
(3)Non-cash gains and losses from foreign currency remeasurement of non-operating 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 write-off of fixed assets.
(6)Non-cash expense adjustment for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.
(7)In the second quarter of 2021, we incurred change in control charges as a result of the ownership of our largest stockholder, Brookfield, moving below 30% of our shares outstanding.
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Reconciliation of EPS to Adjusted EPS
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
EPS$0.11 $0.35 $0.47 $0.80 
Adjustments per share:
Pension and OPEB plan expenses (1)
— — — — 
Initial and follow-on public offering and related expenses (2)
— — — — 
Non-cash gains and losses on foreign currency remeasurement (3)
0.01 0.01 0.01 — 
Stock-based compensation (4)
— — 0.01 — 
Non-cash fixed asset write-off (5)
— — — — 
Related party Tax Receivable Agreement adjustment (6)
— — — (0.01)
Change in control LTIP award (7)
0.27 — 0.27 — 
Change in control stock-based compensation acceleration (7)
0.06 — 0.06 — 
Total non-GAAP adjustments pre-tax per share0.34 0.01 0.35 (0.01)
Income tax impact on non-GAAP adjustments per share0.02 — 0.02 — 
Adjusted EPS$0.43 $0.36 $0.80 $0.79 
(1)Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.
(2)Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.
(3)Non-cash gains and losses from foreign currency remeasurement of non-operating 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 fixed asset write-off recorded for obsolete assets.
(6)Non-cash expense adjustment for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.
(7)In the second quarter of 2021, we incurred Change in Control charges as a result of the ownership of our largest shareholder, Brookfield, moving below 30% of our total shares outstanding.
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For the Three Months Ended June 30,For the Six Months
Ended June 30,
2021202020212020
(in thousands)
Net income$28,165 $92,776 $126,964 $215,044 
Add:
Depreciation and amortization16,292 14,549 32,831 28,833 
Interest expense15,994 20,880 38,161 46,552 
Interest income(199)(348)(236)(1,489)
Income taxes7,765 19,788 24,022 43,734 
EBITDA68,017 147,645 221,742 332,674 
Adjustments:
Pension and OPEB plan expenses (1)
430 541 861 1,083 
Initial and follow-on public offering and related expenses (2)
241 — 663 4 
Non-cash loss (gain) on foreign currency remeasurement (3)
2,255 2,222 1,907 (1,239)
Stock-based compensation (4)
550 717 1,318 1,127 
Non-cash fixed asset write-off (5)
313 — 313 — 
Related party Tax Receivable Agreement adjustment (6)
— — 47 (3,346)
Change in Control LTIP award (7)
73,384 — 73,384 — 
Change in control stock-based compensation acceleration (7)
14,713 — 14,713 — 
Adjusted EBITDA$159,903 $151,125 $314,948 $330,303 
(1)Service and interest cost of our OPEB plans. Also includes a mark-to-market loss (gain) for plan assets as of December of each year.
(2)Legal, accounting, printing and registration fees associated with the initial and follow-on public offering and related expenses.
(3)Non-cash gains and losses from foreign currency remeasurement of non-operating 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 write-off of fixed assets.
(6)Non-cash expense adjustment for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.
(7)In the second quarter of 2021, we incurred change in control charges as a result of the ownership of our largest shareholder, Brookfield, moving below 30% of our shares outstanding.
Key operating metrics
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 only graphite electrodes manufactured by GrafTech. For a discussion of our revenue recognition policy, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-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 under normal operating conditions, standard product mix and expected maintenance downtime. Capacity utilization reflects production volume as a percentage of production capacity. Production volume, 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.
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Results of Operations and Segment Review
The Three Months Ended SeptemberJune 30, 20162021 Compared to the Three Months Ended SeptemberJune 30, 20172020
The tables presented in our period-over-period comparisons summarize our Condensed Consolidated Statements of Operations and illustrate key financial indicators used to assess the consolidated financial results. Throughout our Management's Discussion and Analysis ("MD&A"), insignificant changes may be deemed not meaningful and are generally excluded from the discussion.
For the Three Months Ended June 30,Increase/ Decrease% Change
20212020
(Dollars in thousands)
Net sales$330,750 $280,718 $50,032 18 %
Cost of sales201,867 130,600 71,267 55 %
     Gross profit128,883 150,118 (21,235)(14)%
Research and development1,018 710 308 43 %
Selling and administrative expenses75,783 16,001 59,782 374 %
     Operating income52,082 133,407 (81,325)(61)%
Other expense (income), net357 311 46 15 %
Interest expense15,994 20,880 (4,886)(23)%
Interest income(199)(348)149 (43)%
Income before provision for income taxes35,930 112,564 (76,634)(68)%
Provision for income taxes7,765 19,788 (12,023)(61)%
Net income$28,165 $92,776 $(64,611)(70)%
Net sales. Net sales increased from $280.7 million in the three months ended June 30, 2020 to $330.8 million in the three months ended June 30, 2021. The second quarter of 2020 was impacted by market conditions, including COVID-19. Stronger demand for our products in the second quarter of 2021 resulted in a 39% increase in sales volume compared to the same period of 2020. Partially offsetting the increased volume was a decrease in non-LTA sales prices, as the sales prices we realized in the second quarter of 2021 were primarily negotiated late in the fourth quarter of 2020 as well as in the first quarter of 2021. The sales price of graphite electrodes have increased since the first quarter of 2021 and we expect this to positively impact our second half 2021 results.
Cost of sales. We experienced an increase in cost of sales from $130.6 million in the three months ended June 30, 2020 to $201.9 million in the three months ended June 30, 2021, primarily due to the 39% increase in sales volume of manufactured electrodes. Additionally, cost of sales in the second quarter of 2021 was impacted by a one-time Long-term Incentive Plan ("LTIP") charge of $30.7 million resulting from a Change in Control after our largest stockholder's ownership of our common stock was reduced below 30% of our outstanding common stock.
Selling and administrative expenses. Selling and administrative expenses increased from $16.0 million in the three months ended June 30, 2020 to $75.8 million in the three months ended June 30, 2021 primarily due to the aforementioned Change in Control resulting in $42.6 million of one-time LTIP expense within selling and administrative expense. Additionally, the Change in Control resulted in $12.9 million of one-time accelerated stock based compensation expense.
Interest expense. Interest expense decreased from $20.9 million in the three months ended June 30, 2020 to $16.0 million in the three months ended June 30, 2021, primarily due to lower interest rates and lower average borrowings. Partially offsetting these decreases was the absence of a $3.3 million benefit in 2020 resulting from discounts on debt repurchases.
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Provision for income taxes. The following table summarizes the expense for income taxes:  
For the Three months ended June 30,
 20212020
(Dollars in thousands)
Tax expense$7,765 $19,788 
Pretax income35,930 112,564 
Effective tax rates21.6 %17.6 %
The effective tax rate for the three months ended June 30, 2021 was 21.6%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates, which was 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”). A portion of the one-time Change in Control charges recorded in the quarter was not deductible and contributed to the increase in the effective rate. We expect the full year effective tax rate to be approximately 16% to 17%.
The effective tax rate for the three months ended June 30, 2020 was 17.6%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates.
Tax expense decreased from $19.8 million for the three months ended June 30, 2020 to $7.8 million for the three months ended June 30, 2021. This change is primarily related to a reduction in pretax income, worldwide earnings from various countries taxed at different rates and the U.S. taxation of GILTI.
The Six Months Ended June 30, 2021 Compared to the Six Months EndedJune 30, 2020
The tables presented in our period-over-period comparisons summarize our Condensed Consolidated Statements of Operations and illustrate key financial indicators used to assess the consolidated financial results. Throughout our MD&A, insignificant changes may be deemed not meaningful and are generally excluded from the discussion.
For the Six Months
Ended June 30,		Increase/ Decrease% Change
20212020
(Dollars in thousands)
Net sales$635,147 $599,364 $35,783 6 %
Cost of sales348,263 269,517 78,746 29 %
     Gross profit286,884 329,847 (42,963)(13)%
Research and development1,987 1,422 565 40 %
Selling and administrative expenses95,936 30,933 65,003 210 %
     Operating income188,961 297,492 (108,531)(36)%
Other (income) expense3 (3,003)3,006 (100)%
Related party Tax Receivable Agreement expense (benefit)47 (3,346)3,393 N/A
Interest expense38,161 46,552 (8,391)(18)%
Interest income(236)(1,489)1,253 (84)%
Income before provision for income taxes150,986 258,778 (107,792)(42)%
Provision for income taxes24,022 43,734 (19,712)(45)%
Net income from continuing operations126,964 215,044 (88,080)(41)%
Net income$126,964 $215,044 $(88,080)(41)%

 Three Months Ended September 30,
  2016 2017
  (Dollars in thousands)
     
Net sales $111,590
 $137,245
Cost of sales 113,602
 120,420
Additions to lower of cost or
market inventory reserve		 4,898
 264
     Gross (loss) profit (6,910) 16,561
Research and development 526
 1,338
Selling and administrative expenses 12,215
 13,322
     Operating (loss) income (19,651) 1,901
Other expense (income), net (567) (643)
Interest expense 6,964
 7,792
Interest income (158) (58)
Loss from continuing operations before
provision for income taxes		 (25,890) (5,190)
 (Benefit from) provision for income taxes (1,789) 1,963
Net loss from continuing operations (24,101) (7,153)
Income from discontinued
    operations, net of tax
 1,134
 3,234
Net loss $(22,967) $(3,919)
Net sales. Net sales increased by $35.8 million, or 6%, from $111.6$599.4 million in the threesix months ended SeptemberJune 30, 20162020 to $137.2 millionin the three months ended September 30, 2017. The increase was primarily driven by an 18% increase in the weighted average sales price of graphite electrodes. Additionally, increased graphite electrode volumes contributed $6.2 million of additional revenue and we benefited from $2.1 million of advantageous foreign currency impacts.
Cost of sales. We experienced increases in cost of sales from $113.6$635.1 million in the threesix months ended SeptemberJune 30, 2016 to $120.4 million2021. Higher net sales reflect a 23% increase in the three months ended September 30, 2017. This increase was primarily the result of increased graphite electrode volumes increasing costs by $4.4 million. Additionally, costs were negatively impacted by $3.0 million of foreign currency impact and $2.1 million of cost resulting from damage to our Seadrift facility from Hurricane Harvey. Partially offsetting these increases were lower depreciation expense and lower per-unit cost. Depreciation decreased as a result of purchase price adjustments that have fully depreciated and per-unit cost decreases weresales volume driven primarily by our rationalization initiatives over the last three years, continued cost control initiatives and optimization of our graphite electrode plant capacity.
Lower of cost or market inventory adjustment. In the three months ended September 30, 2016, we incurred a lower of cost or market adjustment of $4.9 million in certain product lines within our graphite electrode business reflecting decreased pricing. This adjustment totaled $0.3 million in theimproved customer demand. The same period of 2017. The decrease is attributable to2020 was impacted by market conditions, including COVID-19. Lower realized prices for the reduction in product costs and improvement in sales prices in the threesix months ended SeptemberJune 30, 2017 as compared to2021 partially offset the same period of 2016.

increased volume. Spot prices for graphite electrodes
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declined throughout 2020 and did not begin to increase until the first quarter of 2021. We expect this increase in the price of electrodes to favorably impact our results in the second half of 2021.
Interest Expense. Interest expenseCost of sales. Cost of sales increased by $78.7 million, or 29%, from $7.0$269.5 million in the threesix months ended SeptemberJune 30, 2016,2020 to $7.8$348.3 million in the threesix months ended SeptemberJune 30, 20172021. This increase was primarily due to anthe 23% increase in sales volume of manufactured electrodes. Additionally, cost of sales for the variable interest rate onsix months ended June 30, 2021 was impacted by a one-time LTIP charge of $30.7 million resulting from a Change in Control after our Revolving Credit Facility.largest stockholder's ownership of our common stock was reduced below 30% of our outstanding common stock.
Income from Discontinued Operations. Our income from discontinued operationsSelling and administrative expenses. Selling and administrative expenses increased from $1.1 million for the three months ended September 30, 2016 to $3.2$30.9 million in the threesix months ended SeptemberJune 30, 2017. The 2016 results included three months of results from our AET business that was sold on July 3, 2017.
Segment operating income (loss). The following table represents a reconciliation of our segment operating income (loss)2020 to total operating income (loss):
 Three Months Ended September 30,
 2016 2017
 (Dollars in thousands)
    
Industrial Materials$(14,238) $8,308
Corporate, R&D and Other Expenses(5,413) (6,407)
Total operating (loss) income$(19,651) $1,901
Provision for income taxes. The following table summarizes$95.9 million in the expense/(benefit) for income taxes:  
 Three Months Ended September 30,
 2016 2017
 (Dollars in thousands)
    
Tax (benefit) expense$(1,789) $1,963
Pretax loss(25,890) (5,190)
Effective tax rates6.9% (37.8)%
For the threesix months ended SeptemberJune 30, 2016 and 2017, the effective tax rate differs from the U.S. statutory rate of 35% 2021 primarily due to recent lossesthe aforementioned Change in Control resulting in $42.6 million of one-time LTIP expense. Additionally, the U.S. and Switzerland where we receive no tax benefit due to a full valuation allowance and worldwide earnings from various countries taxed at different rates. The recognitionChange in Control resulted in $12.9 million of the valuation allowance does not result in or limit the Company's ability to utilize these tax assets in the future.
Table of Contentsone-time accelerated stock based compensation expense.
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The Nine Months Ended September 30, 2016 Compared to the Nine Months Ended September 30, 2017
The tables presented in our period-over-period comparisons summarize our Consolidated Statements of Operations and illustrate key financial indicators used to assess the consolidated financial results. Throughout our MD&A, insignificant changes may be deemed not meaningful and are generally excluded from the discussion.
 For the Nine Months Ended September 30,
 2016 2017
 (Dollars in thousands)
    
Net sales$322,530
 $358,298
Cost of sales331,297
 329,200
Additions to lower of cost or
market inventory reserve		19,523
 1,773
     Gross (loss) profit(28,290) 27,325
Research and development1,964
 3,110
Selling and administrative expenses39,430
 37,200
     Operating loss(69,684) (12,985)
Other expense (income), net(1,528) 3,610
Interest expense19,860
 23,240
Interest income(169) (320)
Loss from continuing operations before
provision for income taxes		(87,847) (39,515)
(Benefit from) provision for income taxes(7,675) 3,249
Net loss from continuing operations(80,172) (42,764)
Loss from discontinued operations, net of tax(107,568) (4,882)
Net loss$(187,740) $(47,646)
Net sales. Net sales increased from $322.5 million in the nine months ended September 30, 2016 to $358.3 millionin the nine months endedSeptember 30, 2017. Graphite electrode sales volume increased 10% in the nine months endedSeptember 30, 2017 compared to the same period of 2016 driving the sales increase.
Cost of sales. Cost of sales decreased from $331.3 million in the nine months ended September 30, 2016to $329.2 million in the nine months ended September 30, 2017. Although greater sales volume of graphite electrodes increased total cost of sales by $19.2 million, this was more than offset by lower manufacturing costs and lower depreciationOther (income) expense. Manufacturing costs were $12.5 million lower driven by lower raw materials cost and lower fixed costs from our rationalization initiatives and the optimization of our production platform. Depreciation expense was $9.2 million lower which was the result of purchase price adjustments that have fully depreciated.
Lower of cost or market inventory adjustment. We incurred a lower of cost or market adjustment of $19.5 million in the nine months ended September 30, 2016 and $1.8 million in the nine months ended September 30, 2017 for certain product lines within our graphite electrode business. The year over year decrease is attributable to the reduction in product costs and improved pricing in the nine months ended September 30, 2017 as compared to the same period of 2016.
Selling and general administrative. Selling and general administrative expenses decreased from $39.4 million in the nine months endedSeptember 30, 2016 compared to $37.2 million in the nine months ended September 30, 2017 driven primarily by continued cost reduction efforts.
Other (Income) Expense. Other expenseincome decreased from income of $1.5$3.0 million in the ninesix months endedSeptember June 30, 2016,2020 to expenseincome of $3.6 millionzero in the ninesix months ended SeptemberJune 30, 20172021. This change was primarily due to 2020 advantageous non-cash foreign currency impacts on non-operating assets and liabilities partially offset by interest income received as partin the six months ended June 30, 2020 that did not recur in the same period of 2021.
Related party Tax Receivable Agreement expense (benefit). During the resolutionfirst quarter of a value added tax dispute2020, the Company recorded an adjustment to our related-party payable-Tax Receivable Agreement liability resulting in a foreign jurisdiction.benefit of $3.3 million due to the revised profit expectation for the year 2020, primarily caused by market conditions and the COVID-19 pandemic.
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Interest Expense.expense. Interest expense increaseddecreased by $8.4 million from $19.9$46.6 million in the ninesix months endedSeptember June 30, 20162020 to $23.2$38.2 million in the nine months ended September 30, 2017same period of 2021, primarily due to increased borrowing costslower interest rates and lower average borrowings. Partially offsetting these decreases was $2.0 million of accelerated amortization of deferred financing fees and original issue discounts in the six months ended June 30, 2021 resulting from prepayments on our Revolving Credit Facility.term loan and the the absence of a $3.3 million benefit in 2020 resulting from discounts on debt repurchases.
Loss from Discontinued Operations. Results from our discontinued operations represented a loss of $107.6 million in the nine months ended September 30, 2016 and a loss of $4.9 million in the nine months ended September 30, 2017. The decrease in loss was primarily due to a $105.6 million impairment charge to align the carrying value of assets held for sale to their estimated fair value in the nine months endedSeptember 30, 2016 compared to an impairment of $5.3 million in the nine months ended September 30, 2017.
Segment operating income (loss). The following table represents a reconciliation of our segment operating income (loss) to total operating income (loss): 
 For the Nine Months Ended September 30,
 2016 2017
 (Dollars in thousands)
    
Industrial Materials$(50,776) $4,218
Corporate, R&D and Other Expenses(18,908) (17,203)
Total operating loss$(69,684) $(12,985)
Provision for income taxes. The following table summarizes the expense/(benefit)expense for income taxes:
 For the Six Months Ended June 30,
20212020
(Dollars in thousands)
Tax expense$24,022 $43,734 
Pre-tax income150,986 258,778 
Effective tax rates15.9 %16.9 %
 For the Nine Months Ended September 30,
 2016 2017
 (Dollars in thousands)
  
Tax (benefit) expense$(7,675) $3,249
Pretax loss(87,847) (39,515)
Effective tax rates8.7% (8.2)%
ForThe effective tax rate for the ninesix months ended SeptemberJune 30, 2017 and 2016, the effective tax2021 was 15.9%. This rate differs from the U.S. statutory rate of 35%21% primarily due to losses in the U.S. and Switzerland where we receive no tax benefit due to a full valuation allowance and worldwide earnings from various countries taxed at different rates, partially offset by the net combined impact related to the U.S. taxation of GILTI and FTCs.
For the six months ended June 30, 2020, the effective tax rate of 16.9% differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates.
The recognitiontax expense decreased from $43.7 million for the six months ended June 30, 2020 to $24.0 million for the six months ended June 30, 2021. This change is primarily related to the reduction in pretax income, worldwide earnings from
various countries taxed at different rates and the U.S. taxation of GILTI.
GrafTech has considered the valuation allowance does not result in or limittax impact of COVID-19 legislation, including the Company's abilityU.S. Coronavirus Aid, Relief and Economic Security (CARES) Act and has concluded that there is no material tax impact. The Company continues to utilize thesemonitor the tax assets in the future.effects of any legislative changes.
Effects of Changes in Currency Exchange Rates
When the currencies of non-U.S. countries in which we have a manufacturing facility decline (or increase) in value relative to the U.S. dollar, this has the effect of reducing (or increasing) the U.S. dollar equivalent cost of sales and other
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expenses with respect to those facilities. In certain countries wherein which we have manufacturing facilities, and in certain export markets, we sell in currencies other than the U.S. dollar. Accordingly, when these currencies increase (or decline) in value relative to the U.S. dollar, this has the effect of increasing (or reducing) net sales. The result of these effects is to increase (or decrease) operating profit and net income.
Many of the non-U.S. countries in which we have a manufacturing facility have been subject to significant economic and political changes, which have significantly impacted currency exchange rates. We cannot predict changes in currency exchange rates in the future or whether those changes will have net positive or negative impacts on our net sales, cost of sales or net income.
For net salesThe impact of Industrial Materials, the impact ofthese changes in the average exchange rates of other currencies against the U.S. dollar on our net sales was an increase of $4.3 million and $9.0 million for the ninethree and six months ended SeptemberJune 30, 2017 was a increase of $0.3 million2021, respectively, compared to the same period of 2016.2020. The impact of the exchange ratethese changes on our cost of sales was an increase of Industrial Materials$8.1 million and $11.5 million for the ninethree and six months ended SeptemberJune 30, 2017 was a decrease of $0.4 million2021, respectively, compared to the same period of 2016.
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As part of our cash management, we also have intercompany loans between our subsidiaries. These loans are deemed to be temporary and, as a result, remeasurement gains and losses on these loans are recorded as currency gains / losses in other income (expense), net, on the Consolidated Statements of Operations.
The remeasurement of intercompany loans and the effect of transaction gains and losses on intercompany activities resulted in a loss of $0.9 million in the nine months ended September 30, 2016 compared to a loss of $1.5 million in the nine months ended September 30, 2017.2020.
We have in the past and may in the future use various financial instruments to manage certain exposures to specific financial market risks caused by currency exchange rate changes, as described under “Part I, Item 3–Quantitative and Qualitative Disclosures about Market Risk”.Risk.”
Liquidity and Capital Resources
Our sources of funds have consisted principally of cash flow from operations and debt, including our credit facilities (subject to continued compliance with the financial covenants and representations). Our uses of those funds (other than for operations) have consisted principally of dividends, capital expenditures, scheduled debt repayments, optional debt repayments, share repurchases and other obligations. Disruptions in the U.S. and international financial markets could adversely affect our liquidity and the cost and availability of financing to us in the future.
We believe that we have adequate liquidity to meet our needs. As of SeptemberJune 30, 2017,2021, we had cash and cash equivalentsliquidity of $16.4$360.5 million,, long-term debt consisting of $320.4$246.4 million, short-term debt of$13.3 million and stockholder’s equity of $551 million.
On April 27, 2016, GrafTech and certain of its subsidiaries entered into an amendment to the Revolving Facility. As a result of the amendment, the size of the Revolving Facility was permanently reduced from $375 million to $225 million. New covenants were also added to the Revolving Facility, including a requirement to make mandatory repayments of outstanding amounts under the Revolving Facility and the Term Loan Facility with the proceeds of any sale of all or any substantial part of the assets included in the Engineered Solutions segment and a requirement to maintain minimum liquidity (consisting of domestic cash, cash equivalents and availability under theour 2018 Revolving Facility) in excess of $25 million. The covenants were also modified to provide for: the elimination of certain exceptions to the Company’s negative covenants limiting the Company’s ability to make certain investments, sell assets, make restricted payments, incur liens and incur debt; a restriction on the amount of cash and cash equivalents permitted to be held on the balance sheet at any one time without paying down the Revolving Facility; and changes to the Company’s financial covenants so that, until the earlier of March 31, 2019 or the Company has $75 million in trailing twelve month EBITDA, the Company is required to maintain trailing twelve month EBITDA above certain minimums ranging from ($40 million) to $35 million after which the Company’s existing financial covenants under the Revolving Facility will apply.
With this amendment, the Company has full access to the $225 million Revolving Facility, subject to the $25 million minimum liquidity requirement. As of September 30, 2017, the Company had $35.3 million of borrowings on the Revolving Facility and $11.6 million of letters of credit drawn against the Revolving Facility. In addition to the Revolving Facility, the Company has $18.8 million outstanding on its Term Loan Facility.
We use cash flow from operations and funds available under the RevolvingCredit Facility (subject to continued compliance with the financial covenants and representations under the Revolving Facility)representations) and cash and cash equivalents of $114.1 million. We had long-term debt of $1,224.9 million and short-term debt of $0.1 million as well as cash on hand as our primary sources of liquidity. The Revolving Facility and the Term Loan Facility both mature in April 2019. Under the Revolving Facility, we have additional flexibility for investments, capital expenditures and acquisitions and we can issue letters of credit under the Revolving Facility in an amount not to exceed $35 million.
The interest rate applicable to the Revolving Facility and the Term Loan Facility is LIBOR plus a margin ranging from 2.25% to 4.75% (depending on our total senior secured leverage ratio). The borrowers pay a per annum fee ranging from 0.35% to 0.70% (depending on our senior secured leverage ratio) on the undrawn portion of the commitments under the Revolving Facility.

Senior Notes
On November 20, 2012, the Company issued $300 million principal amount of 6.375% Senior Notes due 2020 (the "Senior Notes"). The Senior Notes are the Company's senior unsecured obligations and rank pari passu with all of the Company's existing and future senior unsecured indebtedness. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company's existing and future subsidiaries that guarantee certain other indebtedness of the Company or another guarantor. The Senior Notes bear interest at a rate of 6.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The Senior Notes mature on November 15, 2020.

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If, prior to maturity, a change in control (as defined in the indenture) of the Company occurs and thereafter certain downgrades of the ratings of the Senior Notes as specified in the indenture occur, the Company will be required to offer to repurchase any or all of the Senior Notes at a repurchase price equal to 101% of the aggregate principal amount of the Senior Notes, plus any accrued and unpaid interest.
June 30, 2021. As of December 31, 20162020, we had liquidity of $391.8 million consisting of $246.4 million available on our 2018 Revolving Credit Facility (subject to continued compliance with the financial covenants and Septemberrepresentations) and cash and cash equivalents of $145.4 million. We had long-term debt of $1,420.0 million and short-term debt of $0.1 million as of December 31, 2020.
As of June 30, 2017, approximately 75%2021 and 84%December 31, 2020, $84.1 million and $114.6 million, respectively, of our debt, respectfully, consistedcash and cash equivalents were located outside of fixed rate or zero interest rate obligations.the U.S. We repatriate funds from our foreign subsidiaries through dividends. All of our subsidiaries face the customary statutory limitation that distributed dividends cannot exceed the amount of retained and current earnings. In addition, for our subsidiary in South Africa, the South Africa Central Bank requires that certain solvency and liquidity ratios remain above defined levels after the dividend distribution, which historically has not materially affected our ability to repatriate cash from this jurisdiction. The cash and cash equivalents balances in South Africa were $2.6 million and $1.6 million as of June 30, 2021 and December 31, 2020, respectively. Upon repatriation to the U.S., the foreign source portion of dividends we receive from our foreign subsidiaries is no longer subject to U.S. federal income tax as a result of The Tax Cuts and Jobs Act of 2017.
Cash Flowflow and Plansplans to Manage Liquidity.manage liquidity. Our cash flow typically fluctuates significantly between quarters due to various factors. These factors include customer order patterns, fluctuations in working capital requirements, timing of tax payments, timing of capital expenditures, acquisitions, divestitures and other factors. Cash flow from operations is expected to remain at positive sustained levels due to the predictable earnings generated by our LTAs with our customers.
Debt Structure
We had availability under the 2018 Revolving Credit Facility of $246.4 million as of June 30, 2021 and December 31, 2020, which consisted of the $250 million limit reduced by $3.6 million of outstanding letters of credit.
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,
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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 Company has access2018 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 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 $225rate 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 Revolvinga 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 $25 million minimum liquidity requirement).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 SeptemberJune 30, 2017,2021, we have satisfied all amortization requirements through prepayments through the Company had $35.3 millionmaturity 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 $11.6 million ofoutstanding 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.
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2020 Senior Notes
On December 22, 2020, GrafTech Finance issued $500 million aggregate principal amount of the 2020 Senior Notes at an issue price of 100% of the principal amount thereof in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to non-U.S. persons outside the United States under Regulation S under the Securities Act.
The 2020 Senior Notes were issued pursuant to the indenture among GrafTech Finance, as issuer, the Company, as a guarantor, the other subsidiaries of the Company named therein as guarantors and U.S. Bank National Association, as trustee and notes collateral agent.
The 2020 Senior Notes are guaranteed on a senior secured basis by the Company and all of its existing and future direct and indirect U.S. subsidiaries that guarantee, or borrow under, the credit facilities under its 2018 Credit Agreement. The 2020 Senior Notes are secured on a pari passu basis by the collateral securing the term loans under the 2018 Credit Agreement. GrafTech Finance, the Company and the other guarantors granted a security interest in such collateral, consisting of substantially all of their respective assets, as security for the obligations of GrafTech Finance, the Company and the other guarantors under the 2020 Senior Notes and the Indenture pursuant to a collateral agreement, dated as of December 22, 2020 (the “Collateral Agreement”), among GrafTech Finance, the Company, the other subsidiaries of the Company named therein as grantors and U.S. Bank National Association, as collateral agent.
The 2020 Senior Notes bear interest at the rate of 4.625% per annum, which accrues from December 22, 2020 and is payable in arrears on June 15 and December 15 of each year, commencing on June 15, 2021. The 2020 Senior Notes will mature on December 15, 2028, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the Indenture.
GrafTech Finance may redeem some or all of the 2020 Senior Notes at the redemption prices and on the terms specified in the Indenture. If the Company or GrafTech Finance experiences specific kinds of changes in control or the Company or any of its restricted subsidiaries sells certain of its assets, then GrafTech Finance must offer to repurchase the 2020 Senior Notes on the terms set forth in the Indenture.
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. 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 Senior Notes to be due and payable immediately.
The entirety of the 2020 Senior Notes proceeds was used to pay down a portion of our 2018 Term Loans.    
Uses of Liquidity
On July 30, 2019, our Board of Directors authorized a program to repurchase up to $100 million of our outstanding common stock. We may purchase shares from time to time on the open market, including under Rule 10b5-1 and/or Rule 10b-18 plans. The amount and timing of repurchases are subject to a variety of factors including liquidity, stock price, applicable legal requirements, other business objectives and market conditions. We have repurchased 4,333,259 shares of common stock for a total purchase price of $46.9$41.0 million drawn againstunder this program since inception. There were no shares repurchased under this program during the Revolving Facility.six months ended June 30, 2021.
We currently pay a quarterly dividend of $0.01 per share, or $0.04 on an annualized basis. We review our capital structure with the Board of Directors on an ongoing basis. There can be no assurance that we will pay dividends in the future in these amounts or at all. Our Board of Directors may change the timing and amount of any future dividend payments or eliminate the payment of future dividends in its sole discretion, without any prior notice to our stockholders. Our ability to pay dividends will depend upon many factors, including our financial position and liquidity, results of operations, legal requirements, restrictions that may be imposed by the terms of our current and future credit facilities and other debt obligations and other factors deemed relevant by our Board of Directors.
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During 2020, we reduced our long-term debt principal by $400 million. During the six months ended June 30, 2021, we repaid an additional $200 million of principal of our 2018 Term Loans. We continue to prioritize balance sheet flexibility and debt repayment. We anticipate using a majority of the cash flow that we generate in 2021 to repay debt, but we will continue to examine opportunities to repurchase our common stock.
Potential uses of our liquidity include dividends, share repurchases, capital expenditures, acquisitions, scheduled debt repayments, optional debt repayments, and other general purposes, including cash outflows related to rationalization activities. Continued volatility in the global economy may require additional borrowings under the Revolving Facility.purposes. An improving economy, while resulting in improved results of operations, could increase our cash requirements to purchase inventories, make capital expenditures and fund payables and other obligations until increased accounts receivable are converted into cash. A downturn, including any potential resurgence of the COVID-19 pandemic, could significantly and negatively impact our results of operations and cash flows, which, coupled with increased borrowings, could negatively impact our credit ratings, our ability to comply with debt covenants, our ability to secure additional financing and the cost of such financing, if available.
In the event that operating cash flows fail to provide sufficient liquidity to meet our business needs, including capital expenditures, any such shortfall would need to be made up by increased borrowings under our Revolving Facility, to the extent available. We have sold all of our Engineered Solutions businesses within the past twelve months in accordance with our plan to divest businesses that are not core to our graphite electrode business. The cash proceeds from the sales were used to repay borrowings outstanding under the Revolving Facility and Term Loan Facility in accordance with our Credit Facility.
As of September 30, 2017, we were in compliance with all financial and other covenants contained in the Revolving Facility, as applicable.
In order to seek to minimize our credit risks, we may reduce our sales of, or refuse to sell (except for prepayment, cash on delivery or under letters of credit)credit or parent guarantees), our products to some customers and potential customers. In the current economic environment, our customers may experience liquidity shortages or difficulties in obtaining credit, including letters of credit. Our unrecovered trade receivables worldwide have not been material during the last threetwo years individually or in the aggregate. We cannot assure you that we will not be materially adversely affected by accounts receivable losses
During the second quarter of 2021, the Company paid out $61.5 million under its LTIP resulting from a Change in Control provision upon Brookfield's ownership of the Company's common stock falling below 30% of our total outstanding shares, which occurred in the future.second quarter of 2021. The remaining $11.9 million related to payroll taxes will be paid out in the third quarter of 2021. For details of the LTIP, see Note 7 "Contingencies" to the Notes to Condensed Consolidated Financial Statements.
We manage our capital expenditures by taking into account quality, plant reliability, safety, environmental and regulatory requirements, prudent or essential maintenance requirements, global economic conditions, available capital resources, liquidity, long-term business strategy and return on invested capital for the relevant expenditures, cost of capital and return on invested capital of the relevant segment and GrafTechCompany as a whole and other factors.
Capital expenditures totaled $26.1 million in the six months ended June 30, 2021. We had positive cash flow from operating activities during 2013, 2014, 2015, 2016 and through September 30, 2017. Althoughare managing inventory levels to match demand.
In the global economic environment experienced significant swings in these periods, our working capital management and cost-control initiatives allowed us to remainevent that operating cash flow positive in both times of declining and improving operating results.flows fail to provide sufficient liquidity to meet our business needs, including capital expenditures, any such shortfall would need to be made up by increased borrowings under our 2018 Revolving Credit Facility, to the extent available.
Related Party Transactions. We have not engaged in or been a party to any other material transactions with affiliates or related parties except for reimbursement of certain costs incurred by Brookfield as required under the Investment Agreement, transactions with our current or former subsidiaries, compensatory transactions with directors and officers including employee benefits (including reimbursement to Brookfield for compensation costs incurred by it for certain personnel who devote substantially all of their working time to us), stock option and restricted stock grants, compensation deferral, stock purchases, and customary indemnification and expense advancement arrangements.
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(Unaudited)

Cash Flows.Flows
The following table summarizes our cash flow activities:
For the Six Months
Ended June 30,
For the Nine
Months Ended
September 30, 2016
 
For the Nine
Months Ended
September 30, 2017
 20212020
in millions (in millions)
Cash flow provided by (used in):   Cash flow provided by (used in):
Operating activities$28.7
 $33.6
Operating activities$208.8 $287.7 
Investing activities$(22.7) $7.8
Investing activities$(25.8)$(24.3)
Financing activities$(1.5) $(36.9)Financing activities$(214.6)$(155.7)
Operating Activities
Cash flow from operating activities represents cash receipts and cash disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting net income (loss) for:
•Non-cash items such as depreciation and amortization;amortization, impairment, post retirement obligations, and severance and pension plan changes;
•Gains and losses attributed to investing and financing activities such as gains and losses on the sale of assets, loan modification charges and unrealized currency transaction gains and losses; and
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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

•Changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations.
The net impact of the changes in working capital (operating assets and liabilities), which are discussed in more detail below, include the impact of changes in: receivables, inventories, prepaid expenses, accounts payable, accrued liabilities, accrued taxes, interest payable and payments of other current liabilities.
During the ninesix months ended SeptemberJune 30, 2016,2021, changes in working capital resulted in a net source of funds of $54.0$50.4 million, which was impacted by:
•net cash inflows in accounts receivable of $9.7$9.3 million from the decrease in accounts receivable due to the collectiontiming of customer sales;
net cash inflows from decreases in inventory of $41.4 million, due primarily to inventory management initiatives;
net cash outflows from increased prepaid expense of $1.2 million due to value added tax payments; and
•net cash inflows due to increasedecreased inventory of $7.8 million resulting from lower costs and quantities on hand;
•net cash outflows from decreased income taxes payable of $17.8 million resulting from tax payments, partially offset by 2021 income tax accruals;
•net cash inflows from increases in accounts payable and accruals of $1.8$62.7 million, primarily resulting fromdue to increased raw material purchases, increased deferred revenue liabilities related to customer prepayments, and timing of payments.payments of payroll taxes; and
Other usesUses of cash in the ninesix months ended SeptemberJune 30, 20162021 included payments under our LTIP of $61.5 million, payments under our tax receivable agreement, dated April 23, 2018 ("TRA"), cash taxes paid of $44.6 million, cash paid for interest of $30.5 million, and contributions to pension and other benefit plans of $8.8$2.3 million.
During the ninesix months ended SeptemberJune 30, 2017,2020, changes in working capital resulted in a net source of funds of $22.2$61.9 million, which was impacted by:
•net cash inflows in accounts receivable of $2.0$58.7 million from the decrease in accounts receivable due to lower sales;
•net cash inflows of $6.1 million from the collection of customer sales;decrease in other current assets primarily due to value-added tax refunds received from foreign governments;
•net cash inflows from decreasesincreased income taxes payable of $25.1 million resulting from our ability to defer a $50.0 million tax payment in inventory of $8.6 million,a foreign jurisdiction resulting from government enacted COVID-19 relief, partially offset by lower required tax payments due primarily to inventory management initiatives;lower profitability; and
•net cash outflows from increased prepaid expense of $0.2 million due to advanced payments; and
net cash inflows due to decreasedecreases in accounts payable and accruals of $7.1$25.0 million, primarily resulting fromdue to lower purchases of third-party needle coke and timing of payments.
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(Unaudited)

Other usesUses of cash in the ninesix months ended SeptemberJune 30, 20172020 included payments under the TRA of $27.9 million, cash paid for interest of $46.1 million and taxes paid of $4.9 million, and contributions to pension and other benefit plans of $6.7$1.8 million.
Investing Activities
Net cash used in investing activities was $22.7$25.8 million during the ninesix months ended SeptemberJune 30, 2016 and included2021, resulting from capital expenditures of $22.3 million and $1.2 million related to cash settlements of derivative instruments.expenditures.
Net cash provided byused in investing activities was $7.8$24.3 million during the ninesix months ended SeptemberJune 30, 20172020, resulting from proceeds from divestitures and fixed asset sales totaling $30.8 million, partially offset by capital expenditures of $23.0 million.expenditures.
Financing Activities
Net cash inflow from financing activities was $1.5 million during the nine months ended September 30, 2016, resulting from net borrowings $0.5 million under our Revolving Facility and fees paid for the refinancing of our revolving credit facility totaling $0.9 million.
Net cash outflow from financing activities was $36.9$214.6 million during the ninesix months ended SeptemberJune 30, 2017, resulting from net payments2021, which was the result of the repayment of $200.0 million of principal on our Revolving Facility.2018 Term Loan Facility, taxes paid related to stock awards vesting of $4.1 million, $2.1 million of interest rate swap settlements, $1.6 million of debt modification costs from our term loan repricing, $1.4 million of debt issuance costs from our 2020 Senior Note Issuance and $5.3 million of total dividends to stockholders.
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RestrictionsPART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Net cash outflow from financing activities was $155.7 million during the six months ended June 30, 2020, which was the result of the repayment of $100.0 million on Dividendsour 2018 Term Loan Facility, $25.5 million of total dividends to stockholders and Stock Repurchases$30.1 million of stock repurchases.
It has generally been
Related Party Transactions
We have engaged in transactions with affiliates or related parties during 2021 and we expect to continue to do so in the policy of our Board of Directors to retain earnings to finance strategic and other plans and programs, conduct business operations, fund acquisitions, meetfuture. These transactions include ongoing obligations and repay debt. We did not pay any cash dividends in 2014, 2015 or 2016. We periodically review our dividend policy.  We amended our Credit Facility on April 27, 2016 and, under the terms of the amendment, we are restricted from paying dividends.TRA, Stockholders Rights Agreement and Registration Rights Agreement, each with Brookfield.
Recent Accounting Pronouncements
We discuss recently adopted accounting standards in Note 1, “Organization"Organization and Summary of Significant Accounting Policies”Policies" of the Notes to Condensed Consolidated Financial Statements.
Description of Our Financing Structure
We discuss our financing structure in more detail in Note 6, “Debt4, "Debt and Liquidity”Liquidity" of the Notes to Condensed Consolidated Financial Statements.
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(Unaudited)

Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk
We are exposed to market risks, primarily from changes in interest rates, currency exchange rates, energy commodity prices and commercial energy rates. We, fromFrom time to time, routinelywe enter into various transactions that have been authorized according to documented policies and procedures in order to manage these well-defined risks. These transactions primarily relate primarily to financial instruments described below. 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 use financial instruments for trading purposes.
Our exposure to changes in interest rates results primarily from floating rate long-term debt tied to LIBORLIBO Rate or Euro LIBOR. LIBO Rate.
Our exposure to changes in currency exchange rates results primarily from:
•sales made by our subsidiaries in currencies other than local currencies;
•raw material purchases made by our foreign subsidiaries in currencies other than local currencies; and
•investments in and intercompany loans to our foreign subsidiaries and our share of the earnings of those subsidiaries, to the extent denominated in currencies other than the U.S. dollar.
Our exposure to changes in energy commodity prices and commercial energy rates results primarily from the purchase or sale of refined oil products and the purchase of natural gas and electricity for use in our manufacturing operations.
Interest rate risk management. We periodically enter into agreements with financial institutions that are intended to limit our exposure to additional interest expense due to increases in variable interest rates. These instruments effectively cap our interest rate exposure. In 2019, we entered into four interest rate swap contracts, and in 2021, we modified three contracts and closed one contract. As of June 30, 2021, we recorded an unrealized pre-tax gain of $1.9 million and a net unrealized pre-tax loss of $11.9 million as of December 31, 2020. Additionally, as a result of the February 2021 modification, the modified swaps are considered hybrid instruments composed of a debt host and an embedded derivative. As of June 30, 2021, the debt host portion amounted to a pre-tax loss of $8.5 million, which is amortized over the remaining life of the swaps.
Currency Rate Management.rate management. We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency derivatives, which include, but are not limited to, forward exchange contracts and purchased currency options, attempt to hedge global currency exposures. Forward exchange contracts are agreements to exchange different currencies at a specified future date and at a specified rate. Purchased foreign currency options are instruments which give the holder the right, but not the obligation, to exchange different currencies at a specified rate at a specified date or over a range of specified dates. Forward exchange contracts and purchased currency options are carried at marketfair value.
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PART I (CONT’D)
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The outstanding foreign currency derivatives represented $0.1 million pre-tax net loss as of December 31, 2016 representedJune 30, 2021 and a net unrealized loss of $0.2 million and apre-tax loss of $0.1 million as of September 30, 2017.December 31, 2020.
Energy Commodity Management.commodity management. We periodically enterhave entered into commodity derivative contracts and short duration fixed rate purchase contracts to effectively fix some or all of our natural gas andexposure to refined oil product exposure. We had noproducts. The outstanding commodity derivative contracts represented a net unrealized gain of $12.8 million and a net unrealized loss of $2.2 million as of SeptemberJune 30, 2017.2021 and December 31, 2020, respectively.
Interest Rate Risk Management. We periodically implement interest rate management initiatives to seek to minimize our interest expense and the risk in our portfolio of fixed and variable interest rate obligations.
We periodically enter into agreements with financial institutions that are intended to limit, or cap, our exposure to incurrence of additional interest expense due to increases in variable interest rates. These instruments effectively cap our interest rate exposure. We currently do not have any such instruments outstanding.
Sensitivity Analysis.analysis. We use sensitivity analysis to quantify potential impacts that market rate changes may have on the underlying exposures as well as on the fair values of our foreign currency derivatives and our commodity derivatives. The sensitivity analysis for the derivatives represents the hypothetical changes in value of the hedge position and does not reflect the related gain or loss on the forecasted underlying transaction.
A hypothetical increase in interest rates of 100 basis points (1%) would have increased our interest expense by $0.1 million, net of the impact of our interest rate swap, for the six months ended June 30, 2021. The same 100 basis point increase would have resulted in an increase of $12.4 million in the fair value of our interest rate swap portfolio.
As of SeptemberJune 30, 2017,2021, a 10% appreciation or depreciation in the value of the U.S. dollar against foreign currencies from the prevailing market rates would resulthave resulted in a corresponding decrease of $0.7$6.8 million or a corresponding increase of $0.7$6.8 million, respectively, in the fair value of the foreign currency hedge portfolio.
A 10% increase or decrease in the value of the underlying commodity prices that we hedge would have resulted in a corresponding increase or decrease of $3.8 million in the fair value of the commodity hedge portfolio as of June 30, 2021. Because of the high correlation between the hedging instrument and the underlying exposure, fluctuations in the value of the instruments are generally offset by reciprocal changes in the value of the underlying exposure.
We had no interest rate derivativeFor further information related to the financial instruments outstanding as of September 30, 2017. A hypothetical increase in interest rates of 100 basis points (1%)would have increased our interest expense by $0.7 million fordescribed above, see Note 9 "Derivative Instruments" to the nine months endedSeptember 30, 2017.
Table of ContentsNotes to Condensed Consolidated Financial Statements.
PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
(Unaudited)

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Management is responsible for establishing and maintaining adequate disclosure controls and procedures at the reasonable assurance level. Disclosure controls and procedures are designed at the reasonable assurance level to ensure that information required to be disclosed by a reporting company in the reports that it files or submits under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by it in the reports that it files under the Exchange Act is accumulated and communicated to management, including the chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of SeptemberJune 30, 2017.2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures arewere effective at the reasonable assurance level as of SeptemberJune 30, 2017.2021.
Changes in Internal ControlsControl over Financial Reporting. There have been no changes in our internal controlscontrol over financial reporting that occurred during the three months ended SeptemberJune 30, 20172021 that materially affected or are reasonably likely to materially affect our internal controlscontrol over financial reporting.

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PART II. OTHER INFORMATION
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES



Item 1. Legal Proceedings
Additional information required by this ItemWe are involved in various investigations, lawsuits, claims, demands, labor disputes and other legal proceedings, including with respect to environmental and human exposure or other personal injury matters, arising out of or incidental to the conduct of our business. While it is set forthnot possible to determine the ultimate disposition of each of these matters and proceedings, 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 Note 10, “Contingencies”the following legal proceedings.
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. (the “Claimants”) initiated a single arbitration proceeding against two of the NotesCompany’s subsidiaries in the International Chamber of Commerce in June 2020. In June 2021, the Claimants filed their statement of claim, seeking approximately $61.0 million 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 Consolidated Financial Statementscomply 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. As of June 30, 2021, 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.
On September 30, 2020, a stockholder of the Company filed a lawsuit in the Delaware Court of Chancery. The stockholder filed an amended complaint on February 5, 2021, in response to the defendants' motion to dismiss. The amended complaint challenges the fairness of the Company’s repurchase of shares of its common stock from Brookfield for $250 million pursuant to a December 3, 2019 share repurchase agreement and also a related block trade by Brookfield of shares of the Company’s common stock. The stockholder, on behalf of an alleged class of holders of shares of the Company’s common stock as of December 3, 2019 and also purportedly on behalf of the Company, asserts claims for breach of fiduciary duty against certain members of the Company’s Board of Directors and Brookfield. The stockholder also challenges the appointment of the newest independent director to the Company’s Board of Directors, as allegedly in violation of the Company’s Amended and Restated Certificate of Incorporation and the Stockholder Rights Agreement with certain Brookfield entities and affiliates. The stockholder seeks, among other things, an award of monetary relief to the Company and a declaration that the appointment of the newest independent director to the Board of Directors is incorporated herein by reference.
invalid. On March 22, 2021, the defendants filed a motion to dismiss the amended complaint.
Item 1A. Risk Factors
There have been no material changes to the Risk Factors disclosed in Part I-Item IAI- Item 1A of our Annual Report on Form 10-K filed February 23, 2021. You should not interpret the Annual Report.disclosure of any risk factor to imply that the risk has not already materialized.
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Table of PART II. OTHER INFORMATION (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES


Item 2. Unregistered SalesSale of Equity Securities and Use of Proceeds
Not Applicable.The table below sets forth the information on a monthly basis regarding GrafTech's purchases of its common stock, par value $0.01 per share, during the second quarter of 2021.
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1 through April 30, 2021— $— — $59,030,305 
May 1 through May 31, 2021— $— — $59,030,305 
June 1 through June 30, 2021— $— — $59,030,305 
Total— — $59,030,305 
Item 3. Defaults Upon Senior Securities(1) Authorization remaining pursuant to our previously announced program to repurchase, which was authorized by our Board of Directors on July 30, 2019 (the “Share Repurchase Program”). The Share Repurchase Program was announced on July 31, 2019 and allows for the purchase of up to $100 million of outstanding shares of our common stock from time to time on the open market, including under Rule 10b5-1 and/or Rule 10b-18 plans. The Share Repurchase Program has no expiration date.
Not Applicable.
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Item 4. Mine Safety Disclosures
Not Applicable.
Table of
Item 5. Other Information.
Not Applicable


PART II. OTHER INFORMATION (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Item 6. Exhibits
The exhibits listed in the following table have been filed as part of this Report.
Exhibit
Number
Description of Exhibit
3.1
3.2
31.1*
31.2
31.2*
32.1
32.1**
32.2
32.2**
101.INS101The following financial information from GrafTech International Ltd.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 formatted in Inline XBRL Instance Document(Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Stockholders' Equity (Deficit), and (v) Notes to the Condensed Consolidated Financial Statements.
101.SCH104Cover Page Interactive Data file (formatted as Inline XBRL Taxonomy Extension Schema Documentand contained in Exhibit 101).
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

____________________________

*    Filed herewith
**    Furnished herewith



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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
 
GRAFTECH INTERNATIONAL LTD.
Date:October 25, 2017August 6, 2021By:/s/ Quinn J. Coburn
Quinn J. Coburn
Chief Financial Officer, Vice President Finance and Chief Financial
OfficerTreasurer (Principal Financial Officer)



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