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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended SeptemberJune 30, 20202021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from______ to ______
Commission file number: 1-13888
gti-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,OH(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  ý    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerEmerging Growth Company
Non-Accelerated FilerSmaller Reporting Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act Rule 12b-2)Act).    Yes      No 
As of OctoberJuly 31, 2020, 267,188,5472021, 267,880,752 shares of common stock, par value $0.01 per share, were outstanding.


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TABLE OF CONTENTS
 
Item 1A. Risk Factors

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 SeptemberJune 30, 20202021 (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, 20192020 ("Annual Report on Form 10-K") filed on February 21, 2020.23, 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 hashave 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,"“foresee,” “intend,” “should,” “would,” “could,” “target,” “goal,” “continue to,” “positioned to”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 in light ofconsidering 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 recently filedcurrent stockholder litigation and disputes related to contractual commitments;
the possibility that global graphite electrode overcapacity may adversely affect graphite electrode prices;
pricing for graphite electrodes has historically been cyclical and the price of graphite electrodes may continue to decline in the future;
the sensitivity of our business and operating results to economic conditions and the possibility others may not be able to fulfill their obligations to us in a timely fashion or at all;
our dependence on the global steel industry generally and the electric arc furnace steel industry in particular;
the competitiveness of the graphite electrode industry;
our dependence on the supply of petroleum needle coke;
our dependence on supplies of raw materials (in addition to petroleum needle coke) and energy;
the possibility that our manufacturing operations are subject to hazards;
changes in, or more stringent enforcement of, health, safety and environmental regulations applicable to our manufacturing operations and facilities;
the legal, compliance, economic, social and political risks associated with our substantial operations in multiple countries;
the possibility that fluctuation of foreign currency exchange rates could materially harm our financial results;
the possibility that our results of operations could deteriorate if our manufacturing operations were substantially disrupted for an extended period, including as a result of equipment failure, climate change, regulatory issues, natural disasters, public health crises, such as the COVID-19 pandemic, political crises or other catastrophic events;
our dependence on third parties for certain construction, maintenance, engineering, transportation, warehousing and logistics services;
the possibility that we are unable to recruit or retain key management and plant operating personnel or successfully negotiate with the representatives of our employees, including labor unions;
the possibility that we may divest or acquire businesses, which could require significant management attention or disrupt our business;
the sensitivity of goodwill on our balance sheet to changes in the market;
the possibility that we are subject to information technology systems failures, cybersecurity attacks, network disruptions and breaches of data security;
our dependence on protecting our intellectual property;
the possibility that third parties may claim that our products or processes infringe their intellectual property rights;
the possibility that significant changes in our jurisdictional earnings mix or in the tax laws of those jurisdictions could adversely affect our business;
the possibility that our indebtedness could limit our financial and operating activities or that our cash flows may not be sufficient to service our indebtedness;
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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 highly concentrated ownership of our common stock may prevent minority stockholders from influencing significant corporate decisions;
the possibility that we may not pay cash dividends on our common stock in the future;
the fact that certain of our stockholders have the right to engage or invest in the same or similar businesses as us;
the possibility that the market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets, including by Brookfield (as defined below);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"“controlled company” within the meaning of the New York Stock Exchange corporate governance standards, which allowswill result in us to qualifyno 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, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020, and other filings with the Securities and Exchange Commission ("SEC"). The forward-looking statements made in this Report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this Report that could cause actual results to differ before making an investment decision to purchase our common stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
As of
September 30,
2020
As of
December 31, 2019
As of
June 30,
2021
As of
December 31, 2020
ASSETSASSETSASSETS
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$158,841 $80,935 Cash and cash equivalents$114,131 $145,442 
Accounts and notes receivable, net of allowance for doubtful accounts of
$8,973 as of September 30, 2020 and $5,474 as of December 31, 2019
164,195 247,051 
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 
InventoriesInventories299,236 313,648 Inventories257,338 265,964 
Prepaid expenses and other current assetsPrepaid expenses and other current assets35,299 40,946 Prepaid expenses and other current assets59,462 35,114 
Total current assetsTotal current assets657,571 682,580 Total current assets604,340 629,167 
Property, plant and equipmentProperty, plant and equipment765,822 733,417 Property, plant and equipment800,973 784,902 
Less: accumulated depreciationLess: accumulated depreciation264,304 220,397 Less: accumulated depreciation299,212 278,685 
Net property, plant and equipmentNet property, plant and equipment501,518 513,020 Net property, plant and equipment501,761 506,217 
Deferred income taxesDeferred income taxes40,767 55,217 Deferred income taxes32,495 32,551 
GoodwillGoodwill171,117 171,117 Goodwill171,117 171,117 
Other assetsOther assets96,616 104,230 Other assets87,427 93,660 
Total assetsTotal assets$1,467,589 $1,526,164 Total assets$1,397,140 $1,432,712 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$49,056 $78,697 Accounts payable$89,192 $70,989 
Short-term debtShort-term debt147 141 Short-term debt129 131 
Accrued income and other taxesAccrued income and other taxes81,756 65,176 Accrued income and other taxes38,480 48,720 
Other accrued liabilitiesOther accrued liabilities65,058 48,335 Other accrued liabilities83,706 56,501 
Related party payable - tax receivable agreementRelated party payable - tax receivable agreement16,115 27,857 Related party payable - tax receivable agreement3,922 21,752 
Total current liabilitiesTotal current liabilities212,132 220,206 Total current liabilities215,429 198,093 
Long-term debtLong-term debt1,564,431 1,812,682 Long-term debt1,224,897 1,420,000 
Other long-term obligationsOther long-term obligations76,403 72,562 Other long-term obligations72,975 81,478 
Deferred income taxesDeferred income taxes44,251 49,773 Deferred income taxes45,223 43,428 
Related party payable - tax receivable agreement long-term42,479 62,014 
Related party payable - tax receivable agreementRelated party payable - tax receivable agreement15,176 19,098 
Contingencies - Note 8
Contingencies - Note 7Contingencies - Note 7
Stockholders’ equity:Stockholders’ equity:Stockholders’ equity:
Preferred stock, par value $0.01, 300,000,000 shares authorized, NaN issuedPreferred stock, par value $0.01, 300,000,000 shares authorized, NaN issuedPreferred stock, par value $0.01, 300,000,000 shares authorized, NaN issued
Common stock, par value $0.01, 3,000,000,000 shares authorized, 267,188,547
shares issued and outstanding as of September 30, 2020 and 270,485,308
as of December 31, 2019
2,672 2,705 
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 capitalAdditional paid-in capital757,576 765,419 Additional paid-in capital773,552 758,354 
Accumulated other comprehensive lossAccumulated other comprehensive loss(39,161)(7,361)Accumulated other comprehensive loss(391)(19,641)
Accumulated deficitAccumulated deficit(1,193,194)(1,451,836)Accumulated deficit(952,400)(1,070,770)
Total stockholders’ deficitTotal stockholders’ deficit(472,107)(691,073)Total stockholders’ deficit(176,560)(329,385)
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$1,467,589 $1,526,164 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
(Dollars in thousands, except share data)
(Unaudited)
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2020201920202019 2021202020212020
CONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF OPERATIONS
Net salesNet sales$286,987 $420,797 $886,351 $1,376,181 Net sales$330,750 $280,718 $635,147 $599,364 
Cost of salesCost of sales131,862 178,497 401,379 571,068 Cost of sales201,867 130,600 348,263 269,517 
Gross profitGross profit155,125 242,300 484,972 805,113 Gross profit128,883 150,118 286,884 329,847 
Research and developmentResearch and development650 611 2,072 1,961 Research and development1,018 710 1,987 1,422 
Selling and administrative expensesSelling and administrative expenses19,062 15,708 49,995 46,328 Selling and administrative expenses75,783 16,001 95,936 30,933 
Operating profitOperating profit135,413 225,981 432,905 756,824 Operating profit52,082 133,407 188,961 297,492 
Other expense (income), netOther expense (income), net694 (688)(2,309)642 Other expense (income), net357 311 (3,003)
Related party Tax Receivable Agreement benefit(3,346)
Related party Tax Receivable Agreement expense (benefit)Related party Tax Receivable Agreement expense (benefit)47 (3,346)
Interest expenseInterest expense22,474 31,803 69,026 98,472 Interest expense15,994 20,880 38,161 46,552 
Interest incomeInterest income(93)(1,765)(1,582)(2,910)Interest income(199)(348)(236)(1,489)
Income before provision for income taxesIncome before provision for income taxes112,338 196,631 371,116 660,620 Income before provision for income taxes35,930 112,564 150,986 258,778 
Provision for income taxesProvision for income taxes18,104 20,755 61,838 90,940 Provision for income taxes7,765 19,788 24,022 43,734 
Net incomeNet income$94,234 $175,876 $309,278 $569,680 Net income$28,165 $92,776 $126,964 $215,044 
Basic income per common share*:Basic income per common share*:Basic income per common share*:
Net income per shareNet income per share$0.35 $0.61 $1.15 $1.96 Net income per share$0.11 $0.35 $0.47 $0.80 
Weighted average common shares outstandingWeighted average common shares outstanding267,265,705 290,112,233 267,908,427 290,410,859 Weighted average common shares outstanding267,560,712 267,249,580 267,440,501 268,233,233 
Diluted income per common share*:Diluted income per common share*:Diluted income per common share*:
Income per shareIncome per share$0.35 $0.61 $1.15 $1.96 Income per share$0.11 $0.35 $0.47 $0.80 
Weighted average common shares outstandingWeighted average common shares outstanding267,279,555 290,127,296 267,920,890 290,422,351 Weighted average common shares outstanding267,807,944 267,260,395 267,765,378 268,243,997 
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)STATEMENTS OF COMPREHENSIVE INCOME (LOSS)STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net incomeNet income$94,234 $175,876 $309,278 $569,680 Net income$28,165 $92,776 $126,964 $215,044 
Other comprehensive income:Other comprehensive income:Other comprehensive income:
Foreign currency translation adjustments, net of tax of
$0, $(92), $(162) and $(128), respectively
7,455 (13,597)(6,083)(13,519)
Commodity and interest rate derivatives, net of tax of $(740), $6,972, $7,224 and $1,065, respectively2,826 (25,934)(25,717)(4,358)
Foreign currency translation adjustments, net of tax of
$0, $1, $0 and $(162) respectively
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 respectivelyCommodity 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:Other comprehensive income (loss), net of tax:10,281 (39,531)(31,800)(17,877)Other comprehensive income (loss), net of tax:20,326 14,868 19,250 (42,081)
Comprehensive incomeComprehensive income$104,515 $136,345 $277,478 $551,803 Comprehensive income$48,491 $107,644 $146,214 $172,963 
*See Notes 1 and 12Note 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)
For the Nine Months
Ended September 30,
For the Six Months
Ended June 30,
20202019 20212020
Cash flow from operating activities:Cash flow from operating activities:Cash flow from operating activities:
Net incomeNet income$309,278 $569,680 Net 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:Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortizationDepreciation and amortization45,074 46,387 Depreciation and amortization32,831 28,833 
Related party Tax Receivable Agreement benefit(3,346)
Related party Tax Receivable Agreement expense (benefit)Related party Tax Receivable Agreement expense (benefit)47 (3,346)
Deferred income tax provisionDeferred income tax provision16,237 28,696 Deferred income tax provision(4,195)13,990 
Stock- based compensationStock- based compensation16,031 1,124 
Interest expenseInterest expense4,768 4,764 Interest expense7,199 3,181 
Other charges, netOther charges, net2,335 17,689 Other charges, net3,354 (1,284)
Net change in working capital*Net change in working capital*85,098 (80,311)Net change in working capital*50,434 61,943 
Change in related party Tax Receivable Agreement(27,857)
Change in related-party Tax Receivable AgreementChange in related-party Tax Receivable Agreement(21,799)(27,857)
Change in long-term assets and liabilitiesChange in long-term assets and liabilities(14,922)(2,133)Change in long-term assets and liabilities(2,111)(3,972)
Net cash provided by operating activitiesNet cash provided by operating activities416,665 584,772 Net cash provided by operating activities208,755 287,656 
Cash flow from investing activities:Cash flow from investing activities:Cash flow from investing activities:
Capital expendituresCapital expenditures(30,688)(44,053)Capital expenditures(26,052)(24,355)
Proceeds from the sale of assetsProceeds from the sale of assets78 98 Proceeds from the sale of assets219 65 
Net cash used in investing activitiesNet cash used in investing activities(30,610)(43,955)Net cash used in investing activities(25,833)(24,290)
Cash flow from financing activities:Cash flow from financing activities:Cash flow from financing activities:
Debt issuance and modification costsDebt issuance and modification costs(3,084)
Repurchase of common stock-non-related partyRepurchase of common stock-non-related party(30,099)(9,484)Repurchase of common stock-non-related party(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(71)Payment 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(249,214)(125,000)Principal repayments on long-term debt(200,000)(100,028)
Dividends paid to non-related-partyDividends paid to non-related-party(7,553)(15,505)Dividends paid to non-related-party(3,418)(6,605)
Dividends paid to related-partyDividends paid to related-party(20,650)(58,507)Dividends paid to related-party(1,927)(18,926)
OtherOther(2,109)
Net cash used in financing activitiesNet cash used in financing activities(307,587)(208,496)Net cash used in financing activities(214,612)(155,729)
Net change in cash and cash equivalentsNet change in cash and cash equivalents78,468 332,321 Net change in cash and cash equivalents(31,690)107,637 
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents(562)(1,037)Effect of exchange rate changes on cash and cash equivalents379 (916)
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period80,935 49,880 Cash and cash equivalents at beginning of period145,442 80,935 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$158,841 $381,164 Cash and cash equivalents at end of period$114,131 $187,656 
* Net change in working capital due to changes in 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, netAccounts and notes receivable, net$78,408 $(20,727)Accounts and notes receivable, net$9,305 $58,713 
InventoriesInventories10,371 (19,908)Inventories7,823 (2,924)
Prepaid expenses and other current assetsPrepaid expenses and other current assets5,437 5,703 Prepaid expenses and other current assets(12,071)6,132 
Income taxes payableIncome taxes payable16,032 (28,152)Income taxes payable(17,761)25,095 
Accounts payable and accrualsAccounts payable and accruals(25,078)(17,336)Accounts payable and accruals62,748 (25,019)
Interest payableInterest payable(72)109 Interest payable390 (54)
Net change in working capitalNet change in working capital$85,098 $(80,311)Net change in working capital$50,434 $61,943 

See accompanying Notes to Condensed Consolidated Financial Statements
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GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except share data)
(Unaudited)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except share data)
(Unaudited)
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)
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)
Balance as of December 31, 2020Balance as of December 31, 2020267,188,547 $2,672 $758,354 $(19,641)$(1,070,770)$(329,385)
Comprehensive income (loss):Comprehensive income (loss):Comprehensive income (loss):
Net incomeNet income— — — — 122,268 122,268 Net income— — — — 98,799 98,799 
Other comprehensive income (loss):Other comprehensive income (loss):Other comprehensive income (loss):
Commodity and interest rate derivatives income (loss), net of tax of $10,322— — — (37,577)— (37,577)
Commodity derivatives reclassification adjustments, net of tax of $605— — — (2,204)— (2,204)
Foreign currency translation adjustments, net of tax of $(163)— — — (17,168)— (17,168)
Commodity and interest rate derivatives income (loss), net of tax of $(3,144)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)Commodity and interest rate derivatives reclassification adjustments, net of tax of $(187)— — — 695 — 695 
Foreign currency translation adjustments, net of tax of $0Foreign currency translation adjustments, net of tax of $0— — — (13,431)— (13,431)
Total other comprehensive loss Total other comprehensive loss— — — (56,949)— (56,949) Total other comprehensive loss— — — (1,076)— (1,076)
Stock-based compensationStock-based compensation29,394 — 405 — — 405 Stock-based compensation92,135 766 — — 767 
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)
Dividends paid to related party stockholder ($0.01 per share)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)Dividends paid to non-related party stockholders ($0.01 per share)— — — — (1,394)(1,394)
Common stock repurchased and retired (from non-related party)Common stock repurchased and retired (from non-related party)(3,328,574)(33)(9,700)— (20,366)(30,099)Common stock repurchased and retired (from non-related party)— — — — — 
Common stock withheld for taxes on equity award settlementCommon stock withheld for taxes on equity award settlement(7,465)— (21)— (25)(46)Common stock withheld for taxes on equity award settlement(23,090)— (65)— (210)(275)
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)
Balance as of March 31, 2021Balance as of March 31, 2021267,257,592 $2,673 $759,055 $(20,717)$(974,852)$(233,841)
Comprehensive income (loss):Comprehensive income (loss):Comprehensive income (loss):
Net incomeNet income— — — — 92,776 92,776 Net income— — — — 28,165 28,165 
Other comprehensive income (loss):Other comprehensive income (loss):Other comprehensive income (loss):
Commodity and interest rate derivatives income (loss), net of tax of $(3,199)— — — 12,132 — 12,132 
Commodity derivatives reclassification adjustments, net of tax of $236— — — (894)— (894)
Foreign currency translation adjustments, net of tax of $1— — — 3,630 — 3,630 
Total other comprehensive income— — — 14,868 — 14,868 
Stock-based compensation13,017 — 718 — — 718 
Dividends paid to related party stockholder ($0.01 per share)— — — — (1,993)(1,993)
Dividends paid to non-related party stockholders ($0.01 per share)— — — — (679)(679)
Common stock withheld for taxes on equity award settlement(3,133)— (9)— (16)(25)
Balance as of June 30, 2020267,188,547 $2,672 $756,812 $(49,442)$(1,284,756)$(574,714)
Comprehensive income (loss):
Net income— — — — 94,234 94,234 
Other comprehensive income (loss):
Commodity and interest rate derivative income (loss), net of tax of $(1,009)— — — 3,852 — 3,852 
Commodity derivatives reclassification adjustments, net of tax of $269— — — (1,026)— (1,026)
Commodity and interest rate derivatives income (loss), net of tax of $(1,921)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)Commodity derivatives reclassification adjustments, net of tax of $(1,158)— — — 4,314 — 4,314 
Foreign currency translation adjustments, net of tax of $0Foreign currency translation adjustments, net of tax of $0— — — 7,455 — 7,455 Foreign currency translation adjustments, net of tax of $0— — — 8,854 — 8,854 
Total other comprehensive income Total other comprehensive income— — — 10,281 — 10,281  Total other comprehensive income— — — 20,326 — 20,326 
Stock-based compensationStock-based compensation— 764 — — 764 Stock-based compensation917,410 15,254 — — 15,263 
Dividends paid to related party stockholder ($0.01 per share)Dividends paid to related party stockholder ($0.01 per share)— — — — (1,724)(1,724)Dividends paid to related party stockholder ($0.01 per share)— — — — (650)(650)
Dividends paid to non-related party stockholders ($0.01 per share)Dividends paid to non-related party stockholders ($0.01 per share)— — — — (948)(948)Dividends paid to non-related party stockholders ($0.01 per share)— — — — (2,024)(2,024)
Balance as of September 30, 2020267,188,547 $2,672 $757,576 $(39,161)$(1,193,194)$(472,107)
Common stock repurchased and retired (from non-related party)Common stock repurchased and retired (from non-related party)— — — — — 
Common stock withheld for taxes on equity award settlementCommon stock withheld for taxes on equity award settlement(294,250)(3)(757)— (3,039)(3,799)
Balance as of June 30, 2021Balance as of June 30, 2021267,880,752 $2,679 $773,552 $(391)$(952,400)$(176,560)
8

Table of Contents
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except share data)
(Unaudited)
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)
Issued
Shares of
Common
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income(Loss)
Retained Earnings (Accumulated
Deficit)
Total
Stockholders’
Equity (Deficit)
Balance as of December 31, 2018290,537,612 $2,905 $819,622 $(5,800)$(1,893,496)$(1,076,769)
Balance as of December 31, 2019Balance as of December 31, 2019270,485,308 $2,705 $765,419 $(7,361)$(1,451,836)$(691,073)
Comprehensive income (loss):Comprehensive income (loss):Comprehensive income (loss):
Net incomeNet income— — — — 197,436 197,436 Net income— — — — 122,268 122,268 
Other comprehensive income (loss):Other comprehensive income (loss):Other comprehensive income (loss):
Commodity derivatives foreign currency derivatives income (loss), net of tax of $(7,295)— — — 27,113 — 27,113 
Commodity derivatives reclassification adjustments, net of tax of $392— — — (1,456)— (1,456)
Foreign currency translation adjustments, net of tax $(3)— — — (3,539)— (3,539)
Total other comprehensive income— — — 22,118 — 22,118 
Commodity derivatives foreign currency derivatives income (loss), net of tax of $10,322Commodity derivatives foreign currency derivatives income (loss), net of tax of $10,322— — — (37,577)— (37,577)
Commodity derivatives reclassification adjustments, net of tax of $605Commodity derivatives reclassification adjustments, net of tax of $605— — — (2,204)— (2,204)
Foreign currency translation adjustments, net of tax $(163)Foreign currency translation adjustments, net of tax $(163)— — — (17,168)— (17,168)
Total other comprehensive loss Total other comprehensive loss— — — (56,949)— (56,949)
Stock-based compensationStock-based compensation293 293 Stock-based compensation29,394 — 405 — — 405 
Dividends paid to related party stockholder ($0.085 per share)Dividends paid to related party stockholder ($0.085 per share)— — — — (19,502)(19,502)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)Dividends paid to non-related party stockholders ($0.085 per share)— — — — (5,194)(5,194)Dividends paid to non-related party stockholders ($0.085 per share)— — — — (5,926)(5,926)
Balance as of March 31, 2019290,537,612 $2,905 $819,915 $16,318 $(1,720,756)$(881,618)
Common Stock Repurchased and Retired (from non-related party)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 settlementCommon stock repurchased and retired for equity award settlement(7,465)— (21)— (25)(46)
Adoption of ASC 326Adoption of ASC 326— — — — (2,026)(2,026)
Balance as of March 31, 2020Balance as of March 31, 2020267,178,663 $2,672 $756,103 $(64,310)$(1,374,844)$(680,379)
Comprehensive income (loss):Comprehensive income (loss):Comprehensive income (loss):
Net incomeNet income— — — — 196,368 196,368 Net income— — — — 92,776 92,776 
Other comprehensive income (loss):Other comprehensive income (loss):Other comprehensive income (loss):
Commodity derivatives income (loss), net of tax of $603— — — (2,472)— (2,472)
Commodity derivatives reclassification adjustments, net of tax of $393— — — (1,609)— (1,609)
Foreign currency translation adjustments, net of tax of $(33)— — — 3,617 — 3,617 
Total other comprehensive (loss)— — — (464)— (464)
Stock-based compensation570 570 
Dividends paid to related party stockholder ($0.085 per share)— — — — (19,503)(19,503)
Dividends paid to non-related party stockholders ($0.085 per share)— — — — (5,191)(5,191)
Balance as of June 30, 2019290,537,612 $2,905 $820,485 $15,854 $(1,549,082)$(709,838)
Comprehensive income (loss):
Net income— — — — 175,876 175,876 
Other comprehensive income (loss):
Commodity and foreign currency derivatives loss, net of tax of $6,306— — — (23,456)— (23,456)
Commodity derivatives reclassification adjustments, net of tax of $666— — — (2,478)— (2,478)
Foreign currency translation adjustments of $(92)— — — (13,597)— (13,597)
Commodity derivatives income (loss), net of tax of $(3,199)Commodity derivatives income (loss), net of tax of $(3,199)— — — 12,132 — 12,132 
Commodity derivatives reclassification adjustments, net of tax of $236Commodity derivatives reclassification adjustments, net of tax of $236— — — (894)— (894)
Foreign currency translation adjustments, net of tax of $1Foreign currency translation adjustments, net of tax of $1— — — 3,630 — 3,630 
Total other comprehensive income Total other comprehensive income— — — (39,531)— (39,531) Total other comprehensive income— — — 14,868 — 14,868 
Stock-based compensationStock-based compensation— — 705 — — 705 Stock-based compensation13,017 718 718 
Dividends paid to related party stockholder ($0.085 per share)— — — — (19,502)(19,502)
Dividends paid to non-related party stockholders ($0.085 per share)— — — — (5,118)(5,118)
Common stock repurchases and retirement(879,134)(8)(2,470)— (7,006)(9,484)
Balance as of September 30, 2019289,658,478 $2,897 $818,720 $(23,677)$(1,404,832)$(606,892)
Dividends paid to related party stockholder ($0.01 per share)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)Dividends paid to non-related party stockholders ($0.01 per share)— — — — (679)(679)
Common stock repurchased and retired for equity award settlementCommon stock repurchased and retired for equity award settlement(3,133)(9)(16)(25)
Balance as of June 30, 2020Balance 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
A. Organization
GrafTech International Ltd. (the “Company”) is a leading manufacturer of high quality graphite electrode products essential to the production of electric arc furnace steel and other ferrous and non-ferrous metals. References herein to "GrafTech,"“GrafTech,” the “Company,” “we,” “our,” or “us” refer collectively to GrafTech International Ltd. and its subsidiaries.
On August 15, 2015, we became an indirect wholly owned subsidiary of Brookfield Asset Management Inc. (together with its affiliates, "Brookfield"“Brookfield”). In April 2018, we completed our initial public offering ("IPO") of 38,097,525 shares of our common stock held by Brookfield at a price of $15.00 per share. We did not receive any proceeds related to the IPO. Our common stock is listed on the NYSE under the symbol “EAF.” On July 22, 2020, Brookfield has since distributed a portion of its GrafTech common stock to the owners in the Brookfield consortium resultingand sold shares of GrafTech common stock in the reductionpublic and private transactions, resulting in Brookfield's ownership of outstanding shares of GrafTech common stock decreasing to 65%. Brookfield owned approximately 65% of our outstanding common stock55.3% as of SeptemberDecember 31, 2020 and 23.9% as of June 30, 2020.2021.
The Company’s only reportable segment, Industrial Materials, is comprised of our 2 major product categories: graphite electrodes and petroleum needle coke products. Petroleum needle coke is a key raw material used in the production of graphite electrodes. The Company's vision is to provide highly engineered graphite electrode services, solutions and products to electric arc furnace operators.
B. Basis of Presentation
The interim condensed consolidated financial statements are unaudited; however, in the opinion of management, they have been prepared in accordance with Rule 10-01 of Regulation S-X and in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The December 31, 20192020 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, 20192020 ("Annual Report on Form 10-K"), filed on February 21, 2020,23, 2021, but does not include all disclosures required by GAAP in audited financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the accompanying notes, contained in our Annual Report on Form 10-K.
The unaudited condensed consolidated financial statements reflect all adjustments (all of which are of a normal, recurring nature) which management considers necessary for a fair statement of financial position, results of operations, comprehensive income and cash flows for the interim periods presented. The results for the interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.
C. New Accounting Standards
Recently Adopted Accounting Standards
In January 2017,December 2019, the Financial Accounting Standards Board ("FASB")FASB issued ASU No. 2017-04,2019-12, Intangibles-GoodwillIncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application of Topic 740 and Other (Topic 350). This guidance was issued to simplify the accounting for goodwill impairment. The guidanceincome taxes. This pronouncement removes certain exceptions to the second step of the goodwill impairment test, which requires that a hypothetical purchase price allocation be performed to determine the amount of impairment, if any. Under this new guidance, a goodwill impairment charge will be based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Thisgeneral principles in Topic 740 and clarifies and amends existing guidance. ASU No. 2017-042019-12 is effective for annual and interim reporting periods beginning January 1, 2020.after December 15, 2020, with early adoption permitted. The Company adopted ASU No. 2017-042019-12 on January 1, 2020,2021, with no impact toan immaterial effect on our financial position, results of operations orand cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments–Credit Losses (Topic 326), which introduces the Current Expected Credit Losses ("CECL") accounting model. CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. ASU No. 2016-13 was effective for the Company on January 1, 2020. The adoption of ASU No. 2016-13 resulted in a cumulative-effect adjustment of $2.0 million included as an adjustment to our accounts receivable reserve and to retained earnings on January 1, 2020.

10

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

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This pronouncement contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. ASU 2020-04 is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 can be elected for both interim and annual periods from March 12, 2020 through December 31, 2022. We plan to adopt ASU 2020-04 as of January 1, 2021.2023. The adoption of ASU 2020-04 is not expected to have a material impact on our 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 December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to improve consistent application of Topic 740 and simplify the accounting for income taxes. This pronouncement removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. ASU 2019-12 is effective for annual and interim reporting periods beginning after December 12, 2020, with early adoption permitted. The Company is currently evaluating the effects of this on our financial position, results of operations or cash flows.

(2)Revenue from Contracts with Customers
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of product and contract for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
For the Three Months Ended June 30,For the Six Months
Ended June 30,
20202019202020192021202020212020
(Dollars in thousands)(Dollars in thousands)
Graphite Electrodes - Three-to-five-year take-or-pay contractsGraphite Electrodes - Three-to-five-year take-or-pay contracts$250,011 $334,097 $771,400 $1,107,742 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 salesGraphite Electrodes - Short-term agreements and spot sales32,303 67,704 93,232 191,249 Graphite Electrodes - Short-term agreements and spot sales65,204 30,111 112,459 60,929 
By-products and otherBy-products and other4,673 18,996 21,719 77,190 By-products and other11,957 5,597 23,534 17,046 
Total RevenuesTotal Revenues$286,987 $420,797 $886,351 $1,376,181 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 our profitability.
Contract Balances
Receivables, netSubstantially all of allowances for doubtful accounts, were $164.2 million as of September 30, 2020 and $247.1 million as of December 31, 2019.the Company's receivables relate to contracts with customers. Accounts receivables are recorded when the right to consideration becomes unconditional. Payment terms on invoices range from 30 to 120 days depending on the customary business practices of the jurisdictions in which we operate.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, under ASC 606, Revenue from Contracts with Customers, deferred revenue or contract assets originate from contracts where the allocation of the transaction price to the performance obligations based on their relative stand-alone selling prices results in the timing of revenue recognition being different from the timing of the invoicing. In this case, deferred revenue is amortized into revenue based on the transaction price allocated to the remaining performance obligations and contract assets are realized through the contract invoicing.
Contract assets as of SeptemberJune 30, 20202021 were $0.8$2.1 million, of which $1.8 million and $0.3 million are included in "Prepaid expenses and other current assets" and "Other long-term assets," respectively, on the Condensed Consolidated Balance Sheets. There were 0 contractContract assets as of December 31, 2019.2020 were $2.7 million, of which $1.5 million and $1.2 million are included in "Prepaid expenses and other current assets" and "Other long-term assets," respectively, on the Condensed Consolidated Balance Sheets.
Current deferred revenue is included in "Other accrued liabilities" and long-term deferred revenue is included in "Other long-term obligations" on the Condensed Consolidated Balance Sheets.
11

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

The following table provides information about deferred revenue from contracts with customers (in thousands):
Current Deferred RevenueLong-Term Deferred RevenueCurrent Deferred RevenueLong-Term Deferred Revenue
(Dollars in thousands)(Dollars in thousands)
Balance as of December 31, 2019$11,776 $3,858 
Balance as of December 31, 2020Balance as of December 31, 2020$13,056 $5,662 
Increases due to cash receivedIncreases due to cash received10,535 Increases due to cash received32,099 
Revenue recognizedRevenue recognized(3,684)Revenue recognized(14,783)
Reclassifications between long-term and currentReclassifications between long-term and current4,404 (4,404)
Foreign currency impactForeign currency impact(924)Foreign currency impact10 
Balance as of September 30, 2020$17,703 $3,858 
Balance as of June 30, 2021Balance as of June 30, 2021$34,786 $1,258 
Transaction Price Allocated to the Remaining Performance Obligations

We estimateThe following table presents estimated revenues expected to be recognized in the future related to performance obligations that our long-term contract revenueare unsatisfied (or partially unsatisfied) at the end of reporting period. The estimated revenues do not include contracts with original duration of one year or less. During the challenging market conditions in 2020, will bewe 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 range of $1,000 million to $1,080 million. year.

We recorded $771$499 million of LTA revenue in the first ninesix months of 2020,2021, and we expect to record approximately $230$425 million to $310$525 million of LTA revenue for the remainder of 2020. As a result of recent contract modifications, as well as on-going discussions with many of our customers, the2021. The remaining revenue associated with our long-term sales agreementsLTAs is expected to be approximately as follows:
202120222023 through 2024
(Dollars in millions)
Estimated LTA revenue$925-$1,025$910-$1,010
$350-$450(1)
20222023 through 2024
(Dollars in millions)
Estimated LTA revenue$910-$1,010
$350-$450(1)
(1) Includes expected termination fees from a few customers that have failed to meet certain obligations under their long-term agreements ("LTAs").LTAs.
The majority of the long-term take-or-pay contractsLTAs 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 thecontract non-performance, contract arbitrations, credit risk associated with certain customers facing financial challenges and non-performance on contracts, as well as customer demand related to contracted volume ranges. Some of our customers are struggling to take their committed volumes. This is causing some non-performance and disputes including a few arbitrations associated with, among other things, efforts to modify existing contracts.
(3)Retirement Plans and Postretirement Benefits
The components of our consolidated net pension costs are set forth in the following table:
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
 (Dollars in thousands)
Service cost$623 $574 $1,863 $1,724 
Interest cost1,033 1,316 3,098 3,948 
Expected return on plan assets(1,283)(1,339)(3,849)(4,015)
Net cost$373 $551 $1,112 $1,657 
The components of our consolidated net postretirement costs are set forth in the following table: 
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2020201920202019
 (Dollars in thousands)
Interest cost$180 $236 545 717 
Net cost$180 $236 $545 $717 
12

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

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

During 2019, we repaid a total of $350 million under our 2018 Term Loan Facility (as defined below). These payments satisfied our then-current obligations relative to the minimum quarterly installments. During the nine months ended September 30, 2020, we executed several transactions to repurchase a total of $80 million of principal of our 2018 Term Loan facility. Additionally, during the nine months ended September 30, 2020, we repaid a total of $173 million of principal of our 2018 Term Loan Facility. The fair value of the 2018 Term Loan Facility was approximately $1,576 million and $1,813$171.1 million as of SeptemberJune 30, 20202021 and December 31, 2019, respectively. The fair value of the debt is measured using level 3 inputs.2020.
1312

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 
Amortization expense of intangible assets was $2.7 million and $2.9 million in the three months ended June 30, 2021 and 2020, respectively and $5.5 million and $5.8 million in the six months ended June 30, 2021 and 2020, respectively. Estimated amortization expense will be approximately $5.3 million for the remainder of 2021, $10.1 million in 2022, $9.2 million in 2023, $8.0 million in 2024 and $7.3 million in 2025.
(4)Debt and Liquidity
The following table presents our long-term debt: 
As of
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 

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 was approximately $1,260 million and $1,453 million as of June 30, 2021 and December 31, 2020, respectively. The fair value of the debt is measured using level 3 inputs.

2018 Term Loan and 2018 Revolving Credit AgreementFacility
On
In February 12, 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”) among the Company, GrafTech Finance Inc. (“GrafTech Finance”), GrafTech Switzerland SA (“Swissco”), GrafTech Luxembourg II S.à.r.l.(“Luxembourg Holdco” and, together with GrafTech Finance and Swissco, the “Co-Borrowers”), the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A. as administrative agent (the "Administrative Agent") and as collateral agent, which provides for (i) a $1,500$2,250 million senior secured term facility (the “2018 Term Loan Facility”) after giving effect to the June 2018 amendment (the “First Amendment”) that increased the aggregate principal amount of the 2018 Term Loan Facility from $1,500 million to $2,250 million and (ii) a $250 million senior secured revolving credit facility (the “2018 Revolving Credit Facility” and, together with the 2018 Term Loan Facility, the “Senior Secured Credit Facilities”), which may be used from time to time for revolving credit borrowings denominated in dollars or Euro, the issuance of one or more letters of credit denominated in dollars, euro, pounds sterling or Swiss francs and one or more swing line loans denominated in dollars.. GrafTech Finance 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, and Lux Holdcothe “Co-Borrowers”) are Co-Borrowersco-borrowers under the 2018 Revolving Credit Facility. On February 12, 2018, GrafTech Finance borrowed $1,500 million under theThe 2018 Term Loan Facility (the "2018 Term Loans"). The 2018 Term Loans mature on February 12, 2025. The maturity date forand the 2018 Revolving Credit Facility ismature on February 12, 2023.2025 and February 12, 2023, respectively.
The proceeds of the 2018 Term Loans were used to (i) repay in full all outstanding indebtedness of the Co-Borrowers under our previous credit agreement and terminate all commitments thereunder, (ii) redeem in full our previously held senior notes at a redemption price of 101.594% of the principal amount thereof plus accrued and unpaid interest to the date of redemption, (iii) pay fees and expenses incurred in connection with (i) and (ii) above and the Senior Secured Credit Facilities and related expenses, and (iv) declare and pay a dividend to the sole pre-IPO stockholder, with any remainder to be used for general corporate purposes. See Note 7 "Interest Expense" for a breakdown of expenses associated with these repayments. In connection with the repayment of our previous credit agreement and redemption of our previously held senior notes, all guarantees of obligations under the previous credit agreement, the senior notes and related indenture were terminated, all mortgages and other security interests securing obligations under the previous credit agreement were released and the indenture was terminated.
Borrowings under the 2018 Term Loan Facility bearbears interest, at GrafTech Finance’sour option, at a rate equal to either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 3.50%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 initially equal to 2.50%
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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 Loans.Loan Facility. The Second Amendment also decreased the interest rate floor from 1.0% to 0.50% for the 2018 Term Loan Facility.
Borrowings under theThe 2018 Revolving Credit Facility bearbears interest, at the applicable Co-Borrower’sour option, at a rate equal to either (i) the Adjusted LIBO Rate, plus an applicable margin initially equal to 3.75% per annum or (ii) the ABR Rate, plus an applicable margin initially equal to 2.75% per annum, in each case with two 25 basis point step downs based on achievement of certain senior secured first lien net leverage ratios. In addition, the Co-Borrowers will bewe 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.
For borrowings under both the 2018 Term Loan Facility and the 2018 RevolvingThe Senior Secured Credit Facility, if the Administrative Agent determines that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate and such circumstances are unlikely to be temporary or the relevant authority has made a public statement identifying a date after which the LIBO Rate shall no longer be used for determining interest rates for loans, then the Administrative Agent and the Co-Borrowers shall endeavor to establish an alternate rate of interest, which shall be effective so long as the majority in interest of the lenders for each Class (as defined in the 2018 Credit Agreement) of loans under the 2018 Credit Agreement do not notify the Administrative Agent otherwise. Until such an alternate rate of interest is determined, (a) any request for a borrowing denominated in dollars based on the Adjusted LIBO Rate will be deemed to be a request for a borrowing at the ABR Rate plus the applicable margin for an ABR Rate borrowing of such loan while any request for a borrowing denominated in any other currency will be ineffective and (b) any outstanding borrowings based on the Adjusted LIBO Rate denominated in dollars will be converted to a borrowing at the ABR Rate plus the applicable margin for an ABR Rate borrowing of such loan while any outstanding borrowings denominated in any other currency will be repaid.
All obligations under the 2018 Credit AgreementFacilities are guaranteed by GrafTech Finance and each of our domestic subsidiary of GrafTech,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 subsidiary of GrafTechsubsidiaries 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"“Code”)) are guaranteed by GrafTech Luxembourg I S.à.r.l., a Luxembourg
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

société à responsabilité limitée and an indirect wholly owned subsidiary of GrafTech, Luxembourg Holdco and Swissco (collectively, the "Guarantors").
All obligations under the 2018 Credit Agreement are secured, subject to certain exceptions, and Excluded Assets (as defined in the 2018 Credit Agreement), by: (i) a pledge of all of the equity securities of GrafTech Finance and each domestic Guarantor (other than GrafTech) and of each other direct, wholly owned domestic subsidiary of GrafTech and any Guarantor, (ii) a pledge on no more than 65% of the equity interests of each subsidiary that is a Controlled Foreign Corporation (within the meaning of Section 956 of ("the Code"))Code), and (iii) security interests in, and mortgages on, personal property and material real property of GrafTech Finance and each domestic Guarantor, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement. The obligations of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation under the 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 Loans amortizeLoan Facility amortizes at a rate equal to 5% per annum of the original principal amount of the 2018 Term Loans$112.5 million a year payable in equal quarterly installments, with the remainder due at maturity. The Co-Borrowers are permitted to make voluntary prepayments at any time without premium or penalty. GrafTech Finance is required to make prepayments under the 2018 Term LoansLoan Facility (without payment of a premium) with (i) net cash proceeds from non-ordinary course asset sales (subject to customary reinvestment rights and other customary exceptions and exclusions), and (ii) commencing with the Company’s fiscal year ended December 31, 2019, 75% of Excess Cash Flow (as defined in the 2018 Credit Agreement), subject to step-downs to 50% and 0% of Excess Cash Flow based on achievement of a senior secured first lien net leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00 and less than or equal to 1.25 to 1.00, respectively. Scheduled quarterly amortization payments of the 2018 Term LoansLoan 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 LoansLoan Facility as directed by GrafTech Finance. As of June 30, 2021, we have satisfied all amortization requirements through prepayments through the maturity date.
The 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to GrafTech and restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The 2018 Credit Agreement contains a financial covenant that requires GrafTech to maintain a senior secured first lien net leverage ratio not greater than 4.00:1.00 when the aggregate principal amount of borrowings under the 2018 Revolving Credit Facility and outstanding letters of credit issued under the 2018 Revolving Credit Facility (except for undrawn letters of credit in an aggregate amount equal to or less than $35 million), taken together, exceed 35% of the total amount of commitments under the 2018 Revolving Credit Facility. The 2018 Credit Agreement also contains customary events of default.
2020 Senior Notes
In December 2020, GrafTech Finance issued $500 million aggregate principal amount of 4.625% senior secured notes due 2028 (the “2020 Senior Notes”) in a private offering. The 2020 Senior Notes and related guarantees are secured on a pari passu basis by the collateral securing the Senior Secured Credit Facilities. All of the proceeds from the 2020 Senior Notes were used to partially repay borrowings under our 2018 Term Loan Facility.
The 2020 Senior Notes pay interest in arrears on June 15 and December 15 of each year, with the principal due in full on December 15, 2028. Prior to December 15, 2023, up to 40% of the 2020 Senior Notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 104.625% of the principal amount thereof, together with accrued and unpaid interest, if any. The 2020 Senior Notes may be redeemed, in whole or in part, at any time prior to December 15, 2023 at a price equal to 100% of the principal amount of the notes redeemed plus a premium together with accrued and unpaid interest,
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

if any, to, but not including, the redemption date. Thereafter, the 2020 Senior Notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
The indenture governing the 2020 Senior Notes (the “Indenture”) contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of its subsidiaries, to incur or guarantee additional indebtedness or issue preferred stock, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, incur or suffer to exist liens securing indebtedness, make certain investments, engage in certain transactions with affiliates, consummate certain asset sales and effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all assets. Pursuant to the Indenture, if our pro forma consolidated first lien net leverage ratio is no greater than 2.00 to 1.00, we can make restricted payments so long as no default or event of default has occurred and is continuing. If our pro forma consolidated first lien net leverage ratio is greater than 2.00 to 1.00, we can make restricted payments pursuant to certain baskets.
The Indenture contains events of default customary for agreements of its type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company or GrafTech Finance, all outstanding 2020 Senior Notes will become due and payable immediately without further action or notice. If any other type of event of default occurs and is continuing, then the trustee or the holders of at least 30% in principal amount of the then outstanding 2020 Senior Notes may declare all of the 2020 Senior Notes to be due and payable immediately.
(5)Inventories
First Amendment toInventories 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 
(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 
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PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Interest Rates
The 2020 Senior Notes carry a fixed interest rate of 4.625%. The 2018 Credit Agreement had an effective interest rate of 3.50% as of June 30, 2021 and 4.50% as of December 31, 2020. See Note 4 "Debt and Liquidity" for details of these transactions.
OnDuring the three months ended June 15,30, 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 Company entered into a first amendment (the “First Amendment”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") to its 2018 Credit Agreement. The First Amendment amendedfor the 2018 Credit Agreement to providedebt. See Note 9 "Derivative Instruments" for an additional $750 million in aggregate principal amountdetails of incremental term loans (the “Incremental Term Loans”) to GrafTech Finance. The Incremental Term Loans increased the aggregate principal amount of term loans incurred by GrafTech Finance under the 2018 Credit Agreement from $1,500 million to $2,250 million. The Incremental Term Loans have the same terms as those applicable to the 2018 Term Loans, including interest rate, payment and prepayment terms, representations and warranties and covenants. The Incremental Term Loans mature on February 12, 2025, the same date as the 2018 Term Loans. GrafTech paid an upfront fee of 1.00% of the aggregate principal amount of the Incremental Term Loans on the effective date of the First Amendment.
The proceeds of the Incremental Term Loans were used to repay, in full, the $750 million of principal outstanding on a promissory note to the Company's sole pre-IPO stockholder.these transactions.
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PART I (CONT'D)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(6)Inventories
Inventories are comprised of the following: 
As of
September 30, 2020
As of
December 31, 2019
 (Dollars in thousands)
Inventories:
Raw materials$95,136 $104,820 
Work in process126,673 137,230 
Finished goods77,427 71,598 
         Total$299,236 $313,648 
(7)Interest Expense
The following tables present the components of interest expense: 
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
2020201920202019
 (Dollars in thousands)
Interest incurred on debt$20,893 $30,222 $64,285 $93,731 
Accretion of original issue discount on 2018 Term Loans549 549 1,647 1,647 
Amortization of debt issuance costs1,032 1,032 3,094 3,094 
Total interest expense$22,474 $31,803 $69,026 $98,472 
Interest Rates
The 2018 Credit Agreement had an effective interest rate of 4.50% as of September 30, 2020 and 5.30% as of December 31, 2019. During the third quarter of 2019, the Company entered into four interest rate swap contracts to fix our cash flows associated with the risk in variability in the one-month U.S. London Interbank Offered Rate ("US LIBOR") for a portion of our outstanding debt. See Note 10 "Derivative Instruments" for details of these transactions.
(8) Contingencies
Legal Proceedings
We are involved in various investigations, lawsuits, claims, demands, environmental compliance programs and other legal proceedings arising out of or incidental to the conduct of our business. While it is not possible to determine the ultimate disposition of each of these matters, we do not believe that their ultimate disposition will have a material adverse effect on our financial position, results of operations or cash flows. Additionally, we are involved in the following legal proceedings described below.
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, we intend to vigorously defend it.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 SeptemberJune 30, 2020,2021, we are unable to assess the
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PART I (CONT'D)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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.sought.
Product Warranties
We generally sell products with a limited warranty. We accrue for known warranty claims if a loss is probable and can be reasonably estimated. We also accrue for estimated warranty claims incurred based on a historical claims charge analysis. Claims accrued but not yet paid and the related activity within the accrual for the ninesix months ended SeptemberJune 30, 2020,2021, are presented below: 
(Dollars in thousands)
Balance as of December 31, 20192020$1,8351,997 
Product warranty accruals and adjustments920722 
Settlements(613)(793)
Balance as of SeptemberJune 30, 20202021$2,1421,926 
Tax Receivable Agreement
On April 23, 2018, the Company entered into athe tax receivable agreement (the "TRA"(“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 certainthe pre-IPO tax assets attributable to periods prior to our IPO, including certain federal net operating losses ("NOLs"), previously taxed income under Section 959 of the Code, foreign tax credits, and certain NOLs in GrafTech Switzerland SA.assets. In addition, we will pay interest on the payments we will make to Brookfield with respect to the amount of these cash savings from the due date (without extensions) of our tax return where we realize these savings to the payment date at a rate equal to the LIBO RateLIBOR 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.
There was no liability recognized on the date we entered into the TRA as there was a full valuation allowance recorded against our deferred tax assets. During the second quarter of 2018, it was determined that the conditions were appropriate for the Company to release a valuation allowance of certain tax assets as we exited our three year cumulative loss position. This release resulted in the recording of a $86.5 million liability related to the TRA on the Consolidated Statements of Operationsas "Related Party Tax Receivable Agreement Expense."
As of December 31, 2019,June 30, 2021, the total TRA liability was $89.9$19.1 million, of which $27.9$3.9 million was classified as a current liability in "Related party payable-tax receivable agreement" on the balance sheet, and $62.0$15.2 million of the liability remained as a long-term liability in "Related party payable-tax receivable agreement" on the balance sheet. The 2019 current liability was settled in the first quarter of 2020. In the first quarter of 2020, the TRA liability was reduced by $3.3 million due to the revised profit expectation for 2020, caused by the COVID-19 pandemic. The reduction was recorded as a "Related Party Tax Receivable Agreement Benefit" on the Consolidated Statement of Operations. As of September 30,December 31, 2020, the total TRA liability was $58.6$40.9 million, of which $16.1$21.8 million was classified as a current liability in "Related party payable-taxpayable - tax receivable agreement" on the balance sheet, as we expected this portion to be settled within twelve months, and $42.5$19.1 million of the liability remained as a long-term liability in "Related party payable-taxpayable - tax receivable agreement" on the balance sheet.
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PART I (CONT'D)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Long-term Incentive Plan
The long-term incentive plan ("LTIP") was adopted by the Company effective as ofin August 17, 2015 asand amended and restated as ofin March 15, 2018. The purpose of the plan iswas 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 iswas 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 vestvested in equal increments over a five-year period beginning on the first anniversary of the grant date andof the Profit Units, subject to continued employment with the Company through each vesting date. AnyIf 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 thatand any vested Profit Units remained outstanding. If a Participant had been terminated for cause, both vested and unvested Profit Units would have not been previously forfeited will accelerate and become fully vested uponforfeited. Upon a ‘‘Change"Change in Control’’Control" (as defined below).
in the LTIP), the Profit Units will generally be settledentitled the participant to a payment based on a percentage of the sum of (i) all net "Sale Proceeds" (as defined in a lump sumthe 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 within 30 days followingamount being determined by the Company's Board of Directors in its sole discretion. In the event that, in connection with a Change in Control, basedBrookfield 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 ‘‘Sales Proceeds’’ (as defined below) receivedpercentage 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 Partners IV L.P. (together with its affiliates, "Brookfield Capital IV")constituted a "Change in connection withControl" under the ChangeLTIP. A "Change in Control. TheControl" under the LTIP defines ‘‘Change in Control’’is defined as, anyamong other things, a transaction
17

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

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 (a) a Person not affiliated with Brookfield Capital IV acquires securities representing more than seventy percent (70%) of the combined voting power of the outstanding voting securities of the Company or the entity surviving or resulting from such transaction, (b) following a public offering of the Company’s stock, Brookfield Capital IV has ceasedceases to have a beneficial ownership interest in at least 30% of the Company’s outstanding voting securities (effective on the first of such date), or (c). Upon completion of the May 2021 secondary offering, Brookfield beneficially owned approximately 24% of the Company's outstanding voting securities. Accordingly, the Company sells all or substantially all ofsettled the assets of the Company and its subsidiaries on a consolidated basis. It is intended that the occurrence ofvested Profit Units in lump sum payment within 30 days following a Change in Control in which Sales Proceeds exceed the Threshold Value would constitute a ‘‘substantial risk of forfeiture’’ within the meaning of Section 409AControl. The settlement of the Code. The LTIP defines ‘‘Threshold Value’’ as, asProfit Units consisted of any datea pre-tax charge of determination, an amount equal to $855,000,000 (which represents the amount$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 total invested capitalcharges have been settled in cash by the Company while the remainder of Brookfield Capital IV as of August 17, 2015), plus the dollar value of any cash or other consideration contributedliability, related to or investedpayroll taxes, is expected to be paid in the Company by Brookfield Capital IV after August 17, 2015. The Threshold Value shall be determined by the Company's Board of Directors in its sole discretion. The LTIP defines ‘‘Sales Proceeds’’ as, as of any date of determination, the sum of all proceeds actually received by the Brookfield Capital IV, net of all Sales Costs (as defined below), (i) as consideration (whether cash or equity) upon the Change in Control and (ii) as distributions, dividends, repurchases, redemptions or otherwise as a holder of such equity interests in the Company. Proceeds that are not paid upon or prior to or in connection with the Change in Control, including earn-outs, escrows and other contingent or deferred consideration shall become ‘‘Sale Proceeds’’ only as and when such proceeds are received by Brookfield Capital IV. ‘‘Sales Costs’’ means any costs or expenses (including legal or other advisory costs), fees (including investment banking fees), commissions or discounts payable directly by Brookfield Capital IV in connection with, arising out of or relating to a Change in Control, as determined by the Company's Board of Directors in its sole discretion.
Given the successful completion of the IPO in the secondthird quarter of 2018, it is reasonably possible that a Change in Control, as defined above, may ultimately happen and that2021, which will satisfy all obligations under the awarded Profit Units will be subsequently paid out to the participants. Depending on Brookfield’s sales proceeds, the potential liability triggered by a Change in Control is estimated to be in the range of $55 million to $70 million. As of September 30, 2020, the Profit Unit awards are 100% vested.LTIP.
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PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(9)
(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 table summarizes the provision for income taxes for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
For the Three Months Ended June 30,For the Six Months
Ended June 30,
20202019202020192021202020212020
(Dollars in thousands)(Dollars in thousands)
Tax expenseTax expense$18,104 $20,755 $61,838 $90,940 Tax expense$7,765 $19,788 $24,022 $43,734 
Pretax incomePretax income112,338 196,631 371,116 660,620 Pretax income35,930 112,564 150,986 258,778 
Effective tax ratesEffective tax rates16.1 %10.6 %16.7 %13.8 %Effective tax rates21.6 %17.6 %15.9 %16.9 %
The effective tax rate for the three months ended SeptemberJune 30, 20202021 was 16.1%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 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 one-time Change in Control charges recorded in the 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%.
The effective tax rate for the three months ended SeptemberJune 30, 20192020 was 10.6%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.

The tax expense decreased from $20.8$19.8 million for the three months ended SeptemberJune 30, 20192020 to $18.1$7.8 million for the three months SeptemberJune 30, 2020.2021. This decreasechange is primarily related to thea reduction in pretax income, and worldwide earnings from various countries taxed at different rates partially offset by a higher relative combined impactand U.S. taxation of GILTI and FTCs.
18

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


GILTI.
For the ninesix months ended SeptemberJune 30, 2020,2021, the effective tax rate of 16.7%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.

For the ninesix months ended SeptemberJune 30, 2019,2020, the effective tax rate of 13.8%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 $90.9$43.7 million for the ninesix months ended SeptemberJune 30, 20192020 to $61.8$24.0 million for the ninesix months ended SeptemberJune 30, 2020.2021. This decreasechange is primarily related to the reduction in pretax income, and worldwide earnings from various countries taxed at different rates partially offset by a higher relative combined impactand the U.S. taxation ofGILTI and FTCs.

GILTI.
As of SeptemberJune 30, 2020,2021, we had unrecognized tax benefits of $0.1 million, 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 20152017 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 2012.

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.
(10)(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 counterparties to our instruments.
Foreign currency derivatives
We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, are used to hedge global currency exposures such as foreign currency denominated debt, sales, receivables, payables and purchases. 
We have no foreign currency cash flow hedges outstanding as of SeptemberJune 30, 20202021 and December 31, 20192020 and, therefore, no unrealized gains or losses reported under accumulated other comprehensive income (loss).
As of SeptemberJune 30, 2020,2021, we had outstanding Mexican peso, euro, Swiss franc, South African rand and Japanese yen currency contracts with an aggregate notional amount of $63.5$80.5 million. As of December 31, 2019,2020, we had outstanding Mexican peso, South African rand, euro, Swiss franc and Japanese yen currency contracts, with an aggregate notional amount of $78.8$71.0 million. The foreign currency derivatives outstanding as of SeptemberJune 30, 20202021 have maturities through December 31, 2020,2021, and were not designated as hedging instruments.
19

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

Commodity derivative contracts
We have entered into commodity derivative contracts for refined oil products. These contracts are entered into to protect against the risk that eventual cash flows related to these products will be adversely affected by future changes in prices. We had outstanding commodity derivative contracts as of SeptemberJune 30, 20202021 with a notional amount of $67.2$38.4 million withand maturities from October 2020July 2021 to June 2022. The outstanding commodity derivative contracts represented a pre-tax net unrealized lossgain within "Accumulated Other Comprehensive Income" of $8.9$12.8 million as of SeptemberJune 30, 2020.2021. We had outstanding commodity derivative contracts as of December 31, 20192020 with a notional amount of $99.5$61.3 million representing a pre-tax net unrealized loss of $3.7$2.2 million.
In connection with de-designated commodity derivative contracts, we recognized 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 maturingdue to mature in two yearsAugust 2021 and another $500 million maturingdue to mature in five years.August 2024. The Company’s risk management objective was to fix its cash flows associated with the risk in variability in the one-month U.S. LIBO RateUSD LIBOR for 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. Within "Other Comprehensive Income",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 net unrealized pre-tax loss$0.9 million charge in interest expense.
Additionally, in February 2021, the Company modified the three remaining swaps with notional amounts of $16.2$250 million for the nine months ended September 30, 2020. The fair value of these contracts was determined using Level 2 inputs.
Net investment hedges
We use certain intercompany debt to hedge a portion of our net investment in our foreign operations against currency exposure (net investment hedge). In the second quarter of 2020, we discontinued our net investment hedge following a reductionmaturing in the investment that materially decreased the currency exposure. As of December 31, 2019, intercompany debt denominated in foreign currencythird quarter 2021 and designated as a non-derivative net investment hedging instrument was $5.5 million. Within the currency translation adjustment portion of "Other Comprehensive Income", we recorded 0 pre-tax gains or losses and $1.2$500 million pre-tax gains for the three and nine months ended September 30, 2020, respectively. Within the currency translation adjustment portion of "Other Comprehensive Income", we recorded pre-tax loss of $0.7 million and $0.5 million for the three and nine months ended September 30, 2019.
The fair value of all derivatives is recorded as assets or liabilities on a gross basis in our Condensed Consolidated Balance Sheets. As of September 30, 2020 and December 31, 2019, the fair value of our derivatives and their respective balance sheet locations are presentedmaturing in the following tables:
Asset DerivativesLiability Derivatives
 Location   Fair  ValueLocation   Fair  Value
As of September 30, 2020(Dollars in thousands)
Derivatives designated as cash flow hedges:
Commodity derivative contractsPrepaid and other current assets$Other accrued liabilities$4,653 
Other long-term assetsOther long-term obligations4,261 
Interest rate swap contractsPrepaid and other current assetsOther accrued liabilities5,730 
Other long-term assetsOther long-term obligations7,609 
Total fair value$$22,253 
As of December 31, 2019
Derivatives designated as cash flow hedges:
Commodity derivative contractsPrepaid and other current assets$104 Other accrued liabilities$1,872 
Other long-term assets369 Other long-term obligations2,255 
Interest rate swap contractsPrepaid and other current assets253 Other accrued liabilities
Other long-term assets2,684 Other long-term obligations72 
Total fair value$3,410 $4,199 
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)

to 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 an 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 $8.5 million as of June 30, 2021 with $2.8 million included in "Other accrued liabilities" and $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.
 Asset DerivativesLiability Derivatives
 Location   Fair  ValueLocation   Fair  Value
As of September 30, 2020(Dollars in thousands)
Derivatives not designated as hedges:
Foreign currency derivativesPrepaid and other current assets$817 Other current liabilities$161 
Commodity derivatives contractsPrepaid and other current assets165 Other accrued liabilities
$982 $161 
As of December 31, 2019
Derivatives not designated as hedges:
Foreign currency derivativesPrepaid and other current assets$239 Other current liabilities$81 
Commodity derivatives contractsPrepaid and other current assets376 Other accrued liabilities
$615 $81 
Within "Accumulated Other Comprehensive Income", the portion of the interest rate swaps qualifying as a cash flow hedge represented a net unrealized pre-tax gain of $1.9 million and a net unrealized pre-tax loss of $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 following tables:
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$12,791 Other accrued liabilities$
Other long-term assetsOther long-term obligations
Interest rate swap contractsPrepaid and other current assetsOther accrued liabilities844 
Other long-term assets2,775 Other long-term obligations
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 assetsOther accrued liabilities4,080 
Other long-term assetsOther long-term obligations6,903 
Total fair value$581 $13,769 
 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 $272 
As of December 31, 2020
Derivatives not designated as hedges:
Foreign currency derivativesPrepaid and other current assets$Other accrued liabilities$111 
Interest rate swap contractsPrepaid and other current assetsOther accrued liabilities952 
Total fair value$$1,063 
21

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 SeptemberJune 30, 2021 and 2020, net realized pre-tax gains of $2.4 million and 2019, net realized pre-tax losses of $8.0 million and pre-tax gains of $7.3$5.7 million, respectively, were reported under "Accumulated Other Comprehensive Income" and will be and were, respectively, released to earnings within the following 12 months. See the table below for amounts recognized in the Statement of Operations.
The location and amount of realized (gains) losses on derivatives are recognized in the Statements of Operations as follows for the periods ended SeptemberJune 30, 20202021 and 2019:2020:
 Amount of (Gain)/Loss
Recognized
 Amount of (Gain)/Loss
Recognized
Location of (Gain)/Loss Recognized in the Consolidated Statement of OperationsFor the Three Months Ended September 30,Location of Realized (Gain)/Loss Recognized in the Consolidated Statement of OperationsFor the Three Months Ended June 30,
2020201920212020
Derivatives designated as cash flow hedges:Derivatives designated as cash flow hedges:(Dollars in thousands)Derivatives designated as cash flow hedges:(Dollars in thousands)
Commodity derivative contractsCommodity derivative contractsCost of sales$(1,295)$(3,145)Commodity derivative contractsCost of sales$4,498 $(1,130)
Interest rate swapInterest expense1,537 (323)
Interest rate swap contractsInterest rate swap contractsInterest expense289 1,521 
Derivatives not designated as hedges:Derivatives not designated as hedges:Derivatives not designated as hedges:
Foreign currency derivativesForeign currency derivativesCost of sales, Other (income) expense$(243)$173 Foreign currency derivativesCost of sales, Other expense (income)$264 $(217)
Commodity derivative contractsCommodity derivative contractsCost of sales(207)Commodity derivative contractsCost of sales(242)25 
 Amount of (Gain)/Loss
Recognized
 Amount of (Gain)/Loss
Recognized
Location of (Gain)/Loss Recognized in the Consolidated Statement of OperationsFor the Nine Months Ended September 30,Location of (Gain)/Loss Recognized in the Consolidated Statement of OperationsFor the Six Months
Ended June 30,
2020201920212020
Derivatives designated as cash flow hedges:Derivatives designated as cash flow hedges:(Dollars in thousands)Derivatives designated as cash flow hedges:(Dollars in thousands)
Commodity contract hedgesCommodity contract hedgesCost of sales$(5,234)$(6,994)Commodity contract hedgesCost of sales$5,047 $(3,939)
Interest rate swap contractsInterest rate swap contractsInterest expense2,852 (323)Interest rate swap contractsInterest expense1,285 1,315 
Derivatives not designated as hedges:Derivatives not designated as hedges:Derivatives not designated as hedges:
Foreign currency derivativesForeign currency derivativesCost of sales, Other (income) expense$(959)$(648)Foreign currency derivativesCost of sales, Other expense (income)$1,893 $(716)
Commodity derivative contractsCommodity derivative contractsCost of sales(321)Commodity derivative contractsCost of sales(242)(114)
Interest rate swap contractsInterest rate swap contractsInterest expense866 
(10) Accumulated Other Comprehensive Income (Loss)
The balance in our accumulated other comprehensive income (loss) is set forth in the following table:
 As of
June 30, 2021
As of
December 31, 2020
 (Dollars in thousands)
Foreign currency translation adjustments, net of tax$(7,302)$(2,725)
Commodity and interest rate derivatives, net of tax6,911 (16,916)
Total accumulated comprehensive (loss)$(391)$(19,641)
2122

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

(11) Accumulated Other Comprehensive Income (Loss)
The balance in our accumulated other comprehensive income (loss) is set forth in the following table:
 As of
September 30, 2020
As of
December 31, 2019
 (Dollars in thousands)
Foreign currency translation adjustments, net of tax$(15,376)$(9,293)
Commodity and interest rate derivatives, net of tax(23,785)1,932 
Total accumulated comprehensive income (loss)$(39,161)$(7,361)
(12)Earnings per Share
During the ninesix months ended SeptemberJune 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 threesix months ended SeptemberJune 30, 2020.2021.
The following table shows the information used in the calculation of our basic and diluted earnings per share calculation for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
For the Three Months Ended June 30,For the Six Months
Ended June 30,
20202019202020192021202020212020
Weighted average common shares outstanding for basic calculationWeighted average common shares outstanding for basic calculation267,265,705 290,112,233 267,908,427 290,410,859 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 unitsAdd: Effect of stock options, deferred share units and restricted stock units13,850 15,063 12,463 11,492 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 calculationWeighted average common shares outstanding for diluted calculation267,279,555 290,127,296 267,920,890 290,422,351 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 77,157122,455 and 65,264116,631 shares of participating securities in the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and 36,54665,062 and 28,91459,166 shares of participating securities in the three and ninesix months ended SeptemberJune 30, 2019.2020, 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 1,730,9601,358,696 and 1,644,0021,250,722 equivalent shares in the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and 1,303,8541,734,610 and 1,203,220 equivalent shares1,603,198 in the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, as these shares are anti-dilutive.
(13)(12) Stock-Based Compensation
Stock-based compensation awards granted by our Board of Directors for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 were as follows:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2020201920202019
Award type:
Stock options4,000 304,000 207,000 
Deferred share units20,027 16,176 44,670 23,121 
Restricted stock units16,729 1,551 328,720 235,170 
22

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

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 SeptemberJune 30, 20202021 and 2019,2020, we recognized $0.8$15.3 million and $0.7 million, respectively, in stock-based compensation expense. A majority of the expense, $0.7$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 ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, we recognized $1.9$16.0 million and $1.6$1.1 million, respectively, in stock-basedstock - based compensation expense. A majority of the expense, $1.6$14.1 million and $1.4$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

PART I (CONT'D)
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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 SeptemberJune 30, 2020,2021, unrecognized compensation cost related to non-vested stock options, deferred share units and restricted stock units was $8.4$0.8 million, which will be recognized over the remaining weighted average life of 3.61.9 years.
Stock Option, Deferred Share Unitoption, deferred share unit and Restricted Stock Unit awardsrestricted stock unit award activity under the Company's Omnibus Equity Incentive Plan for the ninesix months ended SeptemberJune 30, 20202021 was as follows:

Stock Options
Number
of Shares
Weighted-
Average
Exercise
Price
Number
of Shares
Weighted-
Average
Exercise
Price
Outstanding unvested as of December 31, 2019931,658 $15.06 
Outstanding unvested as of December 31, 2020Outstanding unvested as of December 31, 2020906,361 $13.01 
Granted Granted304,000 8.99  Granted479,500 11.49 
Vested Vested(186,162)15.20  Vested(1,214,192)11.96 
Forfeited Forfeited(143,960)14.82  Forfeited(42,349)13.36 
Outstanding unvested as of September 30, 2020905,536 $13.03 
Outstanding unvested as of June 30, 2021Outstanding 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
Number
of Shares
Weighted-
Average
Grant Date
Fair Value
Outstanding unvested as of December 31, 2019282,716 $12.83 
Outstanding unvested as of December 31, 2020Outstanding unvested as of December 31, 2020524,488 $10.41 
Granted Granted373,390 8.77  Granted541,632 11.51 
Vested Vested(87,112)10.18  Vested(1,046,631)10.96 
Forfeited Forfeited(45,760)12.24  Forfeited(16,793)10.78 
Outstanding unvested as of September 30, 2020523,234 $10.43 
Outstanding unvested as of June 30, 2021Outstanding unvested as of June 30, 20212,696 $13.96 
(14)(13) Subsequent Events
In October 2020, we repaid an additional $60 million under our term loan. We will continue to prioritize balance sheet flexibility and expect to use the majority of fourth quarter incremental free cash flow to further repay debt.    
On November 2, 2020,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 November 30, 2020,August 31, 2021, to be paid on December 31, 2020.
September 30, 2021.
2324

    
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GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company
GrafTech is a leading manufacturer of graphite electrodes, the critical consumable for the electric arc furnace industry. We are the only graphite electrode producer that is substantially vertically integrated into petroleum needle coke, a key raw material for graphite electrodes. Vertical 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 certain cases, parent guarantees and collateral arrangements to manage our customer credit risk.
The environmental and economic advantages of electric arc furnace steel production positions both that industry and the graphite electrode industry for continued long-term growth.
We believe GrafTech's leadership position, strong cash flows, and advantaged low cost structure and vertical integration are sustainable competitive advantages. OurThe services and solutions we provide will position our customers and us for a better future.
COVID-19Commercial Update and Operational UpdateOutlook
GrafTech continues to proactively manage through the COVID-19 crisis. Our executive-led COVID-19 response team meets three times per week to monitor the ongoing situation and respond as needed.
Our plants have remained operational through the current pandemic and maintained a 98% on-time delivery rate. Our global footprint gives us the flexibility to move or adjust production if needed.
We continue to focus on containing our costs and aligning production to current sales levels for the remainder of the year. We expect to meet our reduced full year capital expenditure estimate of approximately $35 million.
Commercial Update
GrafTech services customers at over 300 locations across the globe, all of which have been impacted by COVID-19. We are seeing a measured recovery in the global steel markets compared to the second quarter, with each region recovering at different rates, and anticipate this will have a positive influence on graphite electrode demand. In the third quarter, the global (ex-China) steel market capacity utilization rate improved to over 60%. In the U.S., the third quarter capacity utilization rate was approximately 64%. By late October, the capacity utilization rate in the U.S. steel market approached 70%.
The commercial team has worked diligently to achieve solid results in the current environment. Year-to-datereported strong sales volumes through the third quarter were 98of 43 thousand metric tons ("MT"), in the second quarter of 2021, consisting of LTA volumes of 8227 thousand MT, at an average approximate price of $9,500 per MT, and non-LTA volumes of 16 thousand MT.
During the third quarter, ourMT, at an average approximate price from LTAs declined slightly to approximately $9,300 per MT, reflecting the impacts of product mix, LTA modifications and other adjustments. Due to favorable mix in the quarter, the average price for our non-LTA business increased slightly to approximately $5,700$4,100 per MT. However, as anticipated, we believeSales volumes increased 16% and 39% compared to the generalfirst quarter of 2021 and second quarter of 2020, respectively.
As previously reported, spot price of graphite electrodes continued to trend lowerprices negotiated during the third quarter. Given the continuing uncertainty caused by the pandemicfirst quarter of 2021 reached a recent low and the macro-economic headwinds we and our customers face, we expect overall demand and pricinghave steadily improved since that time. Accordingly, non-LTA prices for our graphite electrodes to remain low forbe delivered and realized in income in the remaindersecond half of 2020 as our customers continue to work through their existing graphite electrode inventories.
The current market conditions2021 are challenging for our customers, including those with LTAs, and we have some customers that are continuing to struggle to take their committed volumes. This is causing some non-performance and disputes, including a few arbitrations associated with, among other things, efforts to modify existing contracts. As such, we will continue to work to preserve our rights under the LTAs.
We are working hard with our valued customers to develop mutually beneficial solutions and have successfully negotiated LTA modifications with several of these customers during the third quarter. We are able to provide near-term relief in exchange for additional contractual commitments going forward.improving. We expect this improvement in non-LTA pricing to continue to finalize more of these beneficial negotiations in the coming months.
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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Capital Structure and Capital Allocation
Duringinto 2022. In the third quarter of 2021, we reduced our debt by approximately $150 million. After the quarter end, we further reduced our debt by an additional $60 million, bringing 2020 debt reduction to $313 million through the end of October. We will continue to prioritize balance sheet flexibility and expect to use the majority of fourth quarter incremental free cash flow to reduce debt.
Outlook
For the remainder of 2020, we anticipate our full year LTA salesrealized prices for non-LTA volumes to be aboveup approximately 10%-12% compared to the midpointsecond quarter.
Production volume of 44 thousand MT in the expected rangesecond quarter of 100 thousand - 115 thousand MT. We now expect our full year LTA revenue will be between $1,000 million2021 represented an increase of 22% and $1,080 million in 2020.33% compared to the first quarter of 2021 and the second quarter of 2020, respectively.
With the LTA modifications and ongoing customer discussions, we are able to provideThe estimated 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(1)
98-10895-10535-45
Estimated LTA revenue(2)
$925-$1,025$910-$1,010
$350-$450(3)
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)
(1) In thousands of metric tons
(2) In millions
(3) 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 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 U.S. generally accepted accounting principles ("GAAP"),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 EBITDA,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 September 30,For the Nine Months
Ended September 30,
(in thousands)2020201920202019
Net sales$286,987 $420,797 $886,351 $1,376,181 
Net income94,234 175,876 309,278 569,680 
EBITDA (1)
150,960 242,026 483,634 802,569 
Adjusted EBITDA (1)
153,105 245,454 483,408 813,673 
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 a reconciliationreconciliations of EBITDA, adjusted EBITDA, adjusted net income, and adjusted EBITDAEPS to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.


Key operating metrics
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
(in thousands, except price data)2020201920202019
Sales volume (MT)(1)
33 40 98 130 
Production volume (MT)(2)
32 40 98 136 
Production capacity excluding St. Marys (MT)(3)(4)
48 48 150 150 
Capacity utilization excluding St. Marys (3)(5)
67 %83 %65 %91 %
Total production capacity (MT)(4)(6)
55 55 171 171 
Total capacity utilization(5)(6)
58 %73 %57 %80 %
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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 EBITDAEPS are non-GAAPnon‑GAAP financial measures. We define EBITDA, a non-GAAPnon‑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 plusadjusted for any pension and other post-employmentpost employment benefit ("OPEB") plan expenses or gains, initial and follow-on public offering and related expenses, non-cashnon‑cash gains or losses from foreign currency remeasurement of non-operatingnon‑operating assets and liabilities in our foreign subsidiaries where the functional currency is the U.S. dollar, related party Tax Receivable Agreement adjustment,(as defined below) adjustments, stock-based compensation, and non-cashnon‑cash fixed asset write-offs.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-periodperiod‑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-servicedebt‑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-cashnon‑cash gains or losses from foreign currency remeasurement of non-operatingnon‑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-offnon‑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, and adjusted EBITDA, adjusted net income, adjusted EPS, you should be aware that in the future, we will incur expenses similar to the adjustments in this presentation.the reconciliation below, other than change in control charges. Our presentations of EBITDA, adjusted EBITDA, adjusted net income and adjusted EBITDAEPS should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non-recurringnon‑recurring items. When evaluating our performance, you should consider EBITDA, adjusted EBITDA, adjusted net income, and adjusted EBITDAEPS alongside other financial performance measures, including our net income, (loss)EPS and other GAAP measures.
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The following table reconcilestables reconcile our non-GAAP key financial measures to the most directly comparable GAAP measures:
For the Three Months Ended September 30,For the Nine Months
Ended September 30,
2020201920202019
(in thousands)
Net income$94,234 $175,876 $309,278 $569,680 
Add:
Depreciation and amortization16,241 15,357 45,074 46,387 
Interest expense22,474 31,803 69,026 98,472 
Interest income(93)(1,765)(1,582)(2,910)
Income taxes18,104 20,755 61,838 90,940 
EBITDA150,960 242,026 483,634 802,569 
Adjustments:
Pension and OPEB plan expenses (1)
583 800 1,666 2,397 
Initial and follow-on public offering and related expenses (2)
— 160 1,409 
Non-cash loss (gain) on foreign currency remeasurement (3)
798 (185)(441)842 
Stock-based compensation (4)
764 706 1,891 1,568 
Non-cash fixed asset write-off (5)
— 1,947 — 4,888 
Related party Tax Receivable Agreement adjustment(6)
— — (3,346)— 
Adjusted EBITDA$153,105 $245,454 $483,408 $813,673 
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 
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 
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 Metricsoperating 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
The Three Months Ended SeptemberJune 30, 20202021 Compared to the Three Months Ended SeptemberJune 30, 20192020
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 September 30,Increase/ Decrease% ChangeFor the Three Months Ended June 30,Increase/ Decrease% Change
2020201920212020
(Dollars in thousands)(Dollars in thousands)
Net salesNet sales$286,987 $420,797 $(133,810)(32)%Net sales$330,750 $280,718 $50,032 18 %
Cost of salesCost of sales131,862 178,497 (46,635)(26)%Cost of sales201,867 130,600 71,267 55 %
Gross profit Gross profit155,125 242,300 (87,175)(36)% Gross profit128,883 150,118 (21,235)(14)%
Research and developmentResearch and development650 611 39 %Research and development1,018 710 308 43 %
Selling and administrative expensesSelling and administrative expenses19,062 15,708 3,354 21 %Selling and administrative expenses75,783 16,001 59,782 374 %
Operating income Operating income135,413 225,981 (90,568)(40)% Operating income52,082 133,407 (81,325)(61)%
Other expense (income), netOther expense (income), net694 (688)1,382 (201)%Other expense (income), net357 311 46 15 %
Interest expenseInterest expense22,474 31,803 (9,329)(29)%Interest expense15,994 20,880 (4,886)(23)%
Interest incomeInterest income(93)(1,765)1,672 (95)%Interest income(199)(348)149 (43)%
Income before provision for income taxesIncome before provision for income taxes112,338 196,631 (84,293)(43)%Income before provision for income taxes35,930 112,564 (76,634)(68)%
Provision for income taxesProvision for income taxes18,104 20,755 (2,651)(13)%Provision for income taxes7,765 19,788 (12,023)(61)%
Net incomeNet income$94,234 $175,876 $(81,642)(46)%Net income$28,165 $92,776 $(64,611)(70)%
Net sales. Net sales decreasedincreased from $420.8$280.7 million in the three months ended SeptemberJune 30, 20192020 to $287.0$330.8 million in the three months ended SeptemberJune 30, 2020. Lower net sales reflect an 18% decrease2021. 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 driven primarily by the impact of COVID-19 on steel production levels and continued customer inventory destocking. We realized lower average spot prices resulting from this lower demand. Prices achieved from our long-term agreements ("LTAs") were also lower in the three months ended September 30, 2020 as compared to the same period of 2019 due2020. 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 mix, LTA modifications and other adjustments.positively impact our second half 2021 results.
Cost of sales. We experienced a decreasean increase in cost of sales from $178.5$130.6 million in the three months ended SeptemberJune 30, 20192020 to $131.9$201.9 million in the three months ended SeptemberJune 30, 2020,2021, primarily due to the 18% decrease39% increase in sales volume of manufactured electrodes. Additionally, cost of sales in the second quarter of 2021 was lower due to less usageimpacted by a one-time Long-term Incentive Plan ("LTIP") charge of third-party needle coke.$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 $15.7$16.0 million in the three months ended SeptemberJune 30, 20192020 to $19.1$75.8 million in the three months ended SeptemberJune 30, 20202021 primarily due to higher legal costs.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 $31.8$20.9 million in the three months ended SeptemberJune 30, 20192020 to $22.5$16.0 million in the three months ended SeptemberJune 30, 2020,2021, primarily due to lower interest rates and lower average borrowings. DuringPartially offsetting these decreases was the three months ended September 30, 2020, we reduced our term loan by $150.0 million. We realizedabsence of a $0.8$3.3 million benefit to interest expensein 2020 resulting from gainsdiscounts on certain of these transactions in the three months ended September 30, 2020.debt repurchases.
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Provision for income taxes. The following table summarizes the expense for income taxes:  
For the Three Months Ended September 30,For the Three months ended June 30,
20202019 20212020
(Dollars in thousands)(Dollars in thousands)
Tax expenseTax expense$18,104 $20,755 Tax expense$7,765 $19,788 
Pretax incomePretax income112,338 196,631 Pretax income35,930 112,564 
Effective tax ratesEffective tax rates16.1 %10.6 %Effective tax rates21.6 %17.6 %
    
The effective tax rate for the three months ended SeptemberJune 30, 20202021 was 16.1%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 arewas partially offset by the net increasecombined impact related to the U.S. taxation of global intangible low taxed income ("GILTI"(“GILTI”) and the Section 250 Deduction and Foreign Tax Credits ("FTC"(“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 SeptemberJune 30, 20192020 was 10.6%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 $20.8$19.8 million for the three months ended SeptemberJune 30, 20192020 to $18.1$7.8 million for the three months ended SeptemberJune 30, 2020.2021. This change is primarily related to thea reduction in profits.pretax income, worldwide earnings from various countries taxed at different rates and the U.S. taxation of GILTI.
The NineSix Months Ended SeptemberJune 30, 20202021 Compared to the NineSix Months Ended SeptemberJune 30, 20192020
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 Nine Months
Ended September 30,
Increase/ Decrease% ChangeFor the Six Months
Ended June 30,
Increase/ Decrease% Change
2020201920212020
(Dollars in thousands)(Dollars in thousands)
Net salesNet sales$886,351 $1,376,181 $(489,830)(36)%Net sales$635,147 $599,364 $35,783 %
Cost of salesCost of sales401,379 571,068 (169,689)(30)%Cost of sales348,263 269,517 78,746 29 %
Gross profit Gross profit484,972 805,113 (320,141)(40)% Gross profit286,884 329,847 (42,963)(13)%
Research and developmentResearch and development2,072 1,961 111 %Research and development1,987 1,422 565 40 %
Selling and administrative expensesSelling and administrative expenses49,995 46,328 3,667 %Selling and administrative expenses95,936 30,933 65,003 210 %
Operating income Operating income432,905 756,824 (323,919)(43)% Operating income188,961 297,492 (108,531)(36)%
Other (income) expenseOther (income) expense(2,309)642 (2,951)(460)%Other (income) expense(3,003)3,006 (100)%
Related party Tax Receivable Agreement benefit(3,346)— (3,346)N/A
Related party Tax Receivable Agreement expense (benefit)Related party Tax Receivable Agreement expense (benefit)47 (3,346)3,393 N/A
Interest expenseInterest expense69,026 98,472 (29,446)(30)%Interest expense38,161 46,552 (8,391)(18)%
Interest incomeInterest income(1,582)(2,910)1,328 (46)%Interest income(236)(1,489)1,253 (84)%
Income before provision for income taxesIncome before provision for income taxes371,116 660,620 (289,504)(44)%Income before provision for income taxes150,986 258,778 (107,792)(42)%
Provision for income taxesProvision for income taxes61,838 90,940 (29,102)(32)%Provision for income taxes24,022 43,734 (19,712)(45)%
Net income from continuing operationsNet income from continuing operations126,964 215,044 (88,080)(41)%
Net incomeNet income$309,278 $569,680 $(260,402)(46)%Net income$126,964 $215,044 $(88,080)(41)%
Net sales. Net sales decreasedincreased by $489.8$35.8 million, or 36%6%, from $1,376.2$599.4 million in the ninesix months ended SeptemberJune 30, 20192020 to $886.4$635.1 million in the ninesix months ended SeptemberJune 30, 2020. Lower2021. Higher net sales reflect a 25% decrease23% increase in sales volume driven primarily by the impact of COVID-19 on steel production levels and continuedimproved customer inventory destocking. Additionally, during thedemand. The same period spotof 2020 was impacted by market conditions, including COVID-19. Lower realized prices declined significantly and we experienced a reduction infor the resale of purchased electrodes.
Cost of sales. Cost of sales decreased by $169.7 million, or 30%, from $571.1 million in the ninesix months ended SeptemberJune 30, 2019 to $401.4 million in2021 partially offset the nine months ended September 30, 2020. This decrease was primarily due to theincreased volume. Spot prices for graphite electrodes
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25% decreasedeclined 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.
Cost of sales. Cost of sales increased by $78.7 million, or 29%, from $269.5 million in the six months ended June 30, 2020 to $348.3 million in the six months ended June 30, 2021. This increase was primarily due to the 23% increase in sales volume of manufactured electrodes, as well as less usage of third-party needle coke. electrodes. Additionally, cost of sales for the six months ended June 30, 2021was lower due toimpacted by a reductionone-time LTIP charge of $30.7 million resulting from a Change in the resaleControl after our largest stockholder's ownership of purchased electrodes.our common stock was reduced below 30% of our outstanding common stock.
Selling and administrative expenses. Selling and administrative expenses increased from $46.3$30.9 million in the ninesix months ended SeptemberJune 30, 20192020 to $50.0$95.9 million in the ninesix months ended SeptemberJune 30, 2020 2021 primarily due to increased legal costs.the aforementioned Change in Control resulting in $42.6 million of one-time LTIP expense. Additionally, the Change in Control resulted in $12.9 million of one-time accelerated stock based compensation expense.
Other (income) expense. Other expense changed byincome decreased from income of $3.0 million, from an expense of $0.6 million in the ninesix months ended SeptemberJune 30, 20192020 to income of $2.3 millionzero in the ninesix months ended SeptemberJune 30, 2020.2021. This change was primarily due to 2020 advantageous non-cash foreign currency impacts on non-operating assets and liabilities.liabilities in the six months ended June 30, 2020 that did not recur in the same period of 2021.
Related party Tax Receivable Agreement benefit.expense (benefit). During the first quarter of 2020, the Company recorded an adjustment to our Related-partyrelated-party payable-Tax Receivable Agreement liability resulting in a 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.
Interest expense. Interest expense decreased by $29.4$8.4 million from $98.5$46.6 million in the ninesix months ended SeptemberJune 30, 20192020 to $69.0$38.2 million in the same period of 2020,2021, primarily due to lower interest rates and lower average borrowings. We made repaymentsPartially offsetting these decreases was $2.0 million of $125 millionaccelerated amortization of deferred financing fees and original issue discounts in the six months ended June 30, 2021 resulting from prepayments on our term loans inloan and the first quarterthe absence of 2019 and $225 million in the fourth quarter of 2019. During the nine months ended September 30, 2020, we reduced our term loan by $253 million. We realized a $3.8$3.3 million benefit to interest expensein 2020 resulting from gainsdiscounts on certain of these transactions in the nine months ended September 30, 2020.debt repurchases.
Provision for income taxes. The following table summarizes the expense for income taxes:
For the Nine Months Ended September 30,
20202019 For the Six Months Ended June 30,
(Dollars in thousands)20212020
(Dollars in thousands)
Tax expenseTax expense$61,838 $90,940 Tax expense$24,022 $43,734 
Pre-tax incomePre-tax income371,116 660,620 Pre-tax income150,986 258,778 
Effective tax ratesEffective tax rates16.7 %13.8 %Effective tax rates15.9 %16.9 %
The effective tax rate for the ninesix months ended SeptemberJune 30, 20202021 was 16.7%15.9%. 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 athe net increasecombined impact related to the U.S. taxation of GILTI and FTC.FTCs.
The tax expense decreased from $90.9 million forFor the ninesix months ended September 30, 2019 to $61.8 million for the nine months ended SeptemberJune 30, 2020, primarily from the decrease in earnings.
The effective tax rate for the nine months ended September 30, 2019 was 13.8%.This rate differedof 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.
GrafTech has considered the tax impact of COVID-19 legislation, including the U.S. Coronavirus Aid, Relief and Economic Security (CARES) Act and has concluded that there is no material tax impact. The Company continues to monitor the tax 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 in 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
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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.
The impact of these changes in the average exchange rates of other currencies against the U.S. dollar on our net sales was an increase of $2.5$4.3 million and $0.5$9.0 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same period of 2019.2020. The impact of these changes on our cost of sales was a decreasean increase of $0.7$8.1 million and $5.0$11.5 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same period of 2019.2020.
We have in the past and may in the future use various financial instruments to manage certain exposures to risks caused by currency exchange rate changes, as described under “Part I, Item 3–Quantitative and Qualitative Disclosures about Market 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, 2020,2021, we had liquidity of $405.7$360.5 million, consisting of $246.9$246.4 million of availability under our 2018 Revolving Credit Facility (subject to continued compliance with the financial covenants and representations) and cash and cash equivalents of $158.8$114.1 million. We had long-term debt of $1,564.4$1,224.9 million and short-term debt of $0.1 million as of SeptemberJune 30, 2020.2021. As of December 31, 2019,2020, we had liquidity of $327.8$391.8 million consisting of $246.9$246.4 million available on our 2018 Revolving Credit Facility (subject to continued compliance with the financial covenants and representations) and cash and cash equivalents of $80.9$145.4 million. We had long-term debt of $1,812.7$1,420.0 million and short-term debt of $0.1 million as of December 31, 2019.2020.
As of SeptemberJune 30, 20202021 and December 31, 2019, $130.32020, $84.1 million and $41.4$114.6 million, respectively, of our cash and cash equivalents were located outside of the U.S. We repatriate funds from our foreign subsidiaries through dividends. All of our subsidiaries face the customary statutory limitation that distributed dividends do notcannot 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 $0.6$2.6 million and $0.8$1.6 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, 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 (the "Tax Act").of 2017.
Cash flow and plans to 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 three-to-five-year sales contractsLTAs with our customers.
Debt Structure
We had availability under the 2018 Revolving Credit Facility of $246.9$246.4 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, which consisted of the $250 million limit reduced by $3.1$3.6 million of outstanding letters of credit.
OnIn February 12, 2018, wethe Company entered into the 2018a credit agreement (the “2018 Credit Agreement,Agreement”), which provides for the 2018 Revolving Facility and the 2018(i) a $2,250 million senior secured term facility (the “2018 Term Loan Facility. On February 12,Facility”) after giving effect to the June 2018 our wholly owned subsidiary, GrafTech Finance, borrowed $1,500 million underamendment (the “First Amendment”) that increased the 2018 Term Loan Facility. The funds received were used to pay off our outstanding debt, including borrowings under our prior credit facility and the previously outstanding senior notes and accrued interest relating to those borrowings and the senior notes, declare and pay a dividend of $1,112 million to our sole pre-IPO stockholder, pay fees and expenses incurred in connection therewith and for other general corporate purposes.
On June 15, 2018, GrafTech entered into the First Amendment to its 2018 Credit Agreement. The First Amendment amends the 2018 Credit Agreement to provide for an additional $750 million in aggregate principal amount of the Incremental2018 Term Loans to GrafTech Finance. The Incremental Term Loans increase the aggregate principal amount of term loans incurred by GrafTech Finance under the 2018 Credit AgreementLoan Facility from $1,500 million to $2,250 million. The Incremental Term Loans have the same terms as those applicable to the existing term loans under the 2018million and (ii) a $250 million senior secured revolving credit facility (the “2018 Revolving Credit Agreement, including interest rate,Facility” and,
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paymenttogether 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 prepayment terms, representationsGrafTech Luxembourg II S.à.r.l. (“Luxembourg Holdco” and, warrantiestogether with GrafTech Finance and covenants.Swissco, the “Co-Borrowers”) are co-borrowers under the 2018 Revolving Credit Facility. The Incremental2018 Term LoansLoan Facility and the 2018 Revolving Credit Facility mature on February 12, 2025 and February 12, 2023, respectively.
The 2018 Term Loan Facility bears interest, at our option, at a rate equal to either (i) the same dateAdjusted 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 rate equal to either (i) the Adjusted LIBO Rate, plus an applicable margin initially equal to 3.75% per annum or (ii) the ABR Rate, plus an applicable margin initially equal to 2.75% per annum, in each case with two 25 basis point step downs based on achievement of certain senior secured first lien net leverage ratios. In addition, we are required to pay a quarterly commitment fee on the unused commitments under the 2018 Revolving Credit Facility in an amount equal to 0.25% per annum.
The Senior Secured Credit Facilities are guaranteed by each of our domestic subsidiaries, subject to certain customary exceptions, and by GrafTech Luxembourg I S.à.r.l., a Luxembourg société à responsabilité limitée and an indirect wholly owned subsidiary of GrafTech, Luxembourg HoldCo, and Swissco (collectively, the “Guarantors”) with respect to all obligations under the 2018 Credit Agreement of each of our foreign subsidiaries that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Internal Revenue Code of 1986, as amended from time to time (the “Code”)).
All obligations under the existing term loans.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 paid an upfront feeand any Guarantor, (ii) a pledge on no more than 65% of 1.00%the equity interests of each subsidiary that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code), and (iii) security interests in, and mortgages on, personal property and material real property of each domestic Guarantor, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement. The obligations of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation under the 2018 Revolving Credit Facility are secured by (i) a pledge of all of the equity securities of each Guarantor that is a Controlled Foreign Corporation and of each direct, wholly owned subsidiary of any Guarantor that is a Controlled Foreign Corporation, and (ii) security interests in certain receivables and personal property of each Guarantor that is a Controlled Foreign Corporation, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement.
The 2018 Term Loan Facility amortizes at a rate of $112.5 million a year payable in equal quarterly installments, with the remainder due at maturity. The Co-Borrowers are permitted to make voluntary prepayments at any time without premium or penalty. GrafTech Finance is required to make prepayments under the 2018 Term Loan Facility (without payment of a premium) with (i) net cash proceeds from non-ordinary course asset sales (subject to customary reinvestment rights and other customary exceptions and exclusions), and (ii) commencing with the Company’s fiscal year ended December 31, 2019, 75% of Excess Cash Flow (as defined in the 2018 Credit Agreement), subject to step-downs to 50% and 0% of Excess Cash Flow based on achievement of a senior secured first lien net leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00 and less than or equal to 1.25 to 1.00, respectively. Scheduled quarterly amortization payments of the 2018 Term Loan Facility during any calendar year reduce, on a dollar-for-dollar basis, the amount of the required Excess Cash Flow prepayment for such calendar year, and the aggregate amount of Excess Cash Flow prepayments for any calendar year reduce subsequent quarterly amortization payments of the 2018 Term Loan Facility as directed by GrafTech Finance. As of June 30, 2021, we have satisfied all amortization requirements through prepayments through the maturity date.
The 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to GrafTech and restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The 2018 Credit Agreement contains a financial covenant that requires GrafTech to maintain a senior secured first lien net leverage ratio not greater than 4.00:1.00 when the aggregate principal amount of borrowings under the Incremental Term Loans2018 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.
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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 effective dateterms 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 First Amendment. The proceedsthen outstanding 2020 Senior Notes may declare all of the Incremental Term Loans wereSenior Notes to be due and payable immediately.
The entirety of the 2020 Senior Notes proceeds was used to repay, in full, the $750 millionpay down a portion of our existing debt to our sole pre-IPO stockholder.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 $40.9$41.0 million under this program since inception. There were no shares repurchased under this program during the threesix months ended SeptemberJune 30, 2020.2021.
In April 2020, asWe currently pay a resultquarterly dividend of the deteriorating economic environment, our Board of Directors reduced our dividend rate to $0.01 per share, or $0.04 on an annualized basis. We expectreview our capital structure with the Board of Directors to revisit the dividend level when economic conditions improve.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.
We repaid $350 million on
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During 2020, we reduced our 2018 Term Loan Facility in 2019.long-term debt principal by $400 million. During the three and ninesix months ended SeptemberJune 30, 2020,2021, we retired $149.7 million and $253.0repaid an additional $200 million of principal of our term loans, respectively. Subsequent2018 Term Loans. We continue to September 30, 2020, we repaid an additional $60.0 million of our term loans. In light of the recent economic downturn, we are now prioritizingprioritize 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. As a result of government enacted COVID-19 relief in a foreign jurisdiction, we were able to defer a tax payment of approximately $50 million that was scheduled to be made in the first quarter of 2020 until the fourth quarter of 2020. During the nine months ended September 30, 2020, we paid $31.9 million to various tax collecting agencies worldwide.
Potential uses of our liquidity include dividends, share repurchases, capital expenditures, acquisitions, scheduled debt repayments, optional debt repaymentsrepayments, and other general 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 the current downturn caused byany 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 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 or parent guarantees), our products to some customers and potential customers. Our unrecovered trade receivables worldwide have not been material during the last two years individually or in the aggregate.
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 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 Company as a whole and other factors.
    Capital expenditures totaled $30.7$26.1 million in the ninesix months ended SeptemberJune 30, 2020. We previously reduced our planned capital expenditures for the full year by approximately one-half to a level of approximately $35 million and we remain committed to this goal.2021. We are managing inventory levels to match demand. Due to timing of purchases, inventory levels increased during the first quarter of 2020. We expect overall inventory levels to decrease over the remainder of 2020.
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 2018 Revolving Credit Facility, to the extent available.
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    Cash Flows
The following table summarizes our cash flow activities:
For the Nine Months
Ended September 30,
For the Six Months
Ended June 30,
20202019 20212020
(in millions) (in millions)
Cash flow provided by (used in):Cash flow provided by (used in):Cash flow provided by (used in):
Operating activitiesOperating activities$416.7 $584.8 Operating activities$208.8 $287.7 
Investing activitiesInvesting activities$(30.6)$(44.0)Investing activities$(25.8)$(24.3)
Financing activitiesFinancing activities$(307.6)$(208.5)Financing activities$(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, 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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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, 2021, changes in working capital resulted in a net source of funds of $50.4 million, which was impacted by:
net cash inflows in accounts receivable of $9.3 million from the decrease in accounts receivable due to the timing of sales;
net cash inflows due to decreased 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 $62.7 million, due to increased raw material purchases, increased deferred revenue liabilities related to customer prepayments, and timing of payments of payroll taxes; and
Uses of cash in the six months ended June 30, 2021 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 $2.3 million.
During the six months ended June 30, 2020, changes in working capital resulted in a net source of funds of $85.1$61.9 million, which was impacted by:
net cash inflows in accounts receivable of $78.4$58.7 million from the decrease in accounts receivable due to lower sales;
net cash inflows in inventory of $10.4 million from our efforts to reduce inventory levels and lower production levels;
net cash inflows of $5.4$6.1 million from the decrease in other current assets primarily due to value-added tax refunds received from foreign governments;
net cash inflows from increased income taxes payable of $16.0$25.1 million resulting from our ability to defer approximatelya $50.0 million of tax payment in a foreign jurisdiction resulting from government enacted COVID-19 relief, partially offset by lower required tax payments due to lower profitability; and
net cash outflows from decreases in accounts payable and accruals of $25.1$25.0 million, due to lower purchases of third-party needle coke and timing of payments.
Uses of cash in the ninesix months ended SeptemberJune 30, 2020 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 $1.8 million.
Investing Activities
Net cash used in investing activities was $25.8 million during the six months ended June 30, 2021, resulting from capital expenditures.
Net cash used in investing activities was $24.3 million during the six months ended June 30, 2020, resulting from capital expenditures.
Financing Activities
Net cash outflow from financing activities was $214.6 million during the six months ended June 30, 2021, which was the result of the repayment of $200.0 million of principal on our 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 cash paid for interest of $68.0 million, payments under our Tax Receivable Agreement of $27.9 million and taxes paid of $31.9 million.
During the nine months ended September 30, 2019, changes in working capital resulted in a net use of funds of $80.3 million, which was impacted by:
net cash outflows in accounts receivable of $20.7 million from the increase in accounts receivable duetotal dividends to the timing of sales and collections;
net cash outflows from increases in inventory of $19.9 million, due primarily to higher priced raw materials;stockholders.
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net cash inflows from the utilization of prepaid assets of $5.7 million;
net cash outflows from decreased income taxes payable of $28.2 million, resulting from required tax payments as our profitability has increased; and
net cash inflows from increases in accounts payable and accruals of $17.3 million, due to the timing of payments.
Uses of cash in the six months ended September 30, 2019 included contributions to pension and other benefit plans of $2.3 million, cash paid for interest of $93.6 million and taxes paid of $87.0 million.
Investing Activities
Net cash used in investing activities was $30.6 million during the nine months ended September 30, 2020, resulting from capital expenditures.
Net cash used in investing activities was $44.0 million during the nine months ended September 30, 2019, resulting from capital expenditures.
Financing Activities
Net cash outflow from financing activities was $307.6$155.7 million during the ninesix months ended SeptemberJune 30, 2020, which was the result of the repayment of $249.2$100.0 million on our 2018 Term Loans, $28.2Loan Facility, $25.5 million of total dividends to stockholders and $30.1 million of stock repurchases.
Net cash outflow from financing activities was $208.5 million during the nine months ended September 30, 2019, which was the result of our $125.0 million payment on our Term Loan debt, $74.0 million of total dividends to stockholders and $9.5 million of stock repurchases.
Related Party Transactions
We have engaged in transactions with affiliates or related parties during 20202021 and we expect to continue to do so in the future. These transactions include ongoing obligations under the Tax Receivable Agreement,TRA, Stockholders Rights Agreement and Registration Rights Agreement, each with Brookfield.
Recent Accounting Pronouncements
We discuss recently adopted accounting standards in Note 1, "Organization and Summary of Significant Accounting Policies" of the Notes to Condensed Consolidated Financial Statements.
Description of Our Financing Structure
We discuss our financing structure in more detail in Note 5,4, "Debt and Liquidity" of the Notes to Condensed Consolidated Financial Statements.
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. From time to time, we enter into transactions that have been authorized according to documented policies and procedures in order to manage these risks. These transactions primarily relate 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 LIBO Rate or Euro LIBO Rate.
Our exposure to changes in currency exchange rates results primarily from:
sales made by our subsidiaries in currencies other than local currencies;
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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. During the third quarter ofIn 2019, we entered into four interest rate swaps resultingswap 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 $13.3 million as of September 30, 2020 and net unrealized pre-tax gain of $2.9$11.9 million as of December 31, 2019.2020. 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. 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 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 fair value.
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The outstanding foreign currency derivatives represented $0.7$0.1 million pre-tax net gainloss as of SeptemberJune 30, 20202021 and a net pre-tax gainloss of $0.2$0.1 million as of December 31, 2019.2020.
Energy commodity management. We have entered into commodity derivative contracts to effectively fix some or all of our exposure to refined oil products. The outstanding commodity derivative contracts represented a net unrealized pre-taxgain of $12.8 million and a net unrealized loss of $8.9 million and $3.7$2.2 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
Sensitivity 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 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 $3.5$0.1 million, net of the impact of our interest rate swap, for the ninesix months ended SeptemberJune 30, 2020.2021. The same 100 basis pointspoint increase would have resulted in an increase of $13.7$12.4 million in the fair value of our interest rate swap portfolio.
As of SeptemberJune 30, 2020,2021, a 10% appreciation or depreciation in the value of the U.S. dollar against foreign currencies from the prevailing market rates would have resulted in a corresponding decrease of $5.3$6.8 million or a corresponding increase of $5.3$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 $6.7$3.8 million in the fair value of the commodity hedge portfolio as of SeptemberJune 30, 2020.2021. 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.
For further information related to the financial instruments described above, see Note 109 "Derivative Instruments" to the Notes to Condensed Consolidated Financial Statements.
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 Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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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, 2020.2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures were effective at the reasonable assurance level as of SeptemberJune 30, 2020.2021.
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during the three months ended SeptemberJune 30, 20202021 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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PART II. OTHER INFORMATION
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES

Item 1. Legal Proceedings
We 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 not 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 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 Company’s subsidiaries in the International Chamber of Commerce in June 2020. In June 2021, the Claimants filed their statement of claim, seeking approximately $61.0 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 comply with the terms of the LTAs that they signed due to an alleged drop in market prices for graphite electrodes in January 2020. Alternatively, the Claimants argue that they should not be required to comply with the LTAs that they signed due to alleged market circumstances at the time of execution. We believe we have valid defenses to these claims. We intend to vigorously defend them and enforce our rights under these agreements.

On September 30, 2020, a stockholder of the Company filed a lawsuit in the Delaware Court of Chancery. The stockholder challenges the fairness of the Company's repurchase of shares of its common stock from Brookfield Asset Management Inc. (“Brookfield”), for $250 million pursuant to a December 3, 2019 share repurchase agreement and also a related block trade by Brookfield of GrafTech shares of common stock. The stockholder, on behalf of an alleged class of holders of GrafTech shares of 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 invalid.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, we intend to vigorously defend it.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 SeptemberJune 30, 2020,2021, 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.sought.
On September 30, 2020, a stockholder of the Company filed a lawsuit in the Delaware Court of Chancery. The National Water Commissionstockholder filed an amended complaint on February 5, 2021, in Mexico ("CONAGUA"), initiated an administrative proceeding with respectresponse to water usage atthe defendants' motion to dismiss. The amended complaint challenges the fairness of the Company’s Monterrey facilityrepurchase 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 November 26, 2018.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 inquiry relatesstockholder 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 auditaward of historical water usage feesmonetary relief to the Company and related assessments fora declaration that the facility. The Companyappointment of the newest independent director to the Board of Directors is cooperating with CONAGUA with respectinvalid. On March 22, 2021, the defendants filed a motion to this matter.dismiss the amended complaint.
Item 1A. Risk Factors
The following disclosure modifiesThere have been no material changes to the discussion of certain risks and uncertainties previouslyRisk Factors disclosed in Part I -I- Item 1A.1A of our Annual Report on Form 10-K. These risks and uncertainties, along with those previously disclosed, could materially adversely affect our business or financial results. Additional risks and uncertainties10-K filed February 23, 2021. You should not interpret the disclosure of any risk factor to imply that arethe risk has not presently known to us or that we deem immaterial may also impact our business or financial results.
The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our business, results of operations, financial position and cash flows. 
In December 2019, there was an outbreak of a novel strain of coronavirus ("COVID-19") identified in China that has since spread to nearly all regions of the world.  The outbreak was subsequently declared a pandemic by the World Health Organization in March 2020.  To date, the COVID-19 outbreak and preventative measures taken to contain or mitigate the outbreak have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas and significant disruption in the financial markets and economy both globally and in the U.S. already materialized.
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In response to the pandemic and related mitigation measures, we began implementing changes in our business in February 2020 to protect our employees and customers, and to support appropriate health and safety protocols, which included: (i) canceling travel and eliminating in-person meetings, (ii) working from home where possible, and (iii) establishing a "Safe-Work Playbook" for our sites. Our plant procedures include temperature measurements where permitted, personal protective equipment, mandatory use of gloves, social distancing, frequent cleaning and disinfecting and the use of daily check sheets to keep team members highly focused on these new procedures.  As the pandemic continues, we continue to limit travel and have certain employees working from home on rotations so that all employees are not in our offices at the same time. While all of these measures have been necessary and appropriate, they have resulted in additional costs and have adversely impacted our business and financial performance.
While the outbreak had begun to subside in certain areas of the world where we operate and serve our customers, the infection rates in some of these areas have experienced a resurgence in the spread of COVID-19 and the infection rates in other areas continue to escalate.As a result, we are unable to predict the ultimate impact of the COVID-19 outbreak at this time.The pandemic has adversely affected, and is expected to continue to adversely affect, our business, results of operations, financial position and cash flows. Such effects may be material and the potential impacts include, but are not limited to:
adverse impact on our customers, and resultant impact on demand for our products;
disruptions at our facilities, including  reductions in operating hours, labor shortages and changes in operating procedures, including for additional cleaning and disinfecting procedures;
disruptions in our supply chain due to transportation delays, travel restrictions, raw material cost increases and shortages, and closures of businesses or facilities;
reductions in our operating effectiveness due to workforce disruptions from COVID-19 restrictions and social distancing resulting from, among other things, “shelter in place” and “stay at home” orders, and the unavailability of key personnel necessary to conduct our business activities; and
volatility in the global financial markets, which could have a negative impact on our ability to access capital and additional sources of financing in the future. 
In addition, we cannot predict the impact that the COVID-19 pandemic will have on our customers, employees, suppliers and distributors, and any adverse impacts on these parties may have a material adverse impact on our business. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in Item 1A, “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, any of which could have a material effect on us. This situation is continues to change rapidly and additional impacts may arise that we are not aware of currently.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
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 thirdsecond quarter of 2020.2021.
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)
JulyApril 1 through July 31, 2020April 30, 2021— $— — $59,030,305 
AugustMay 1 through AugustMay 31, 20202021— $— — $59,030,305 
SeptemberJune 1 through SeptemberJune 30, 20202021— $— — $59,030,305 
Total— — $59,030,305 
(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.

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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*
32.1**
32.2**
101The following financial information from GrafTech International Ltd.'s Quarterly Report on Form 10-Q for the quarterly period ended SeptemberJune 30, 20202021 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income, (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, (v)(iv) the Condensed Consolidated Statements of Stockholders' Equity (Deficit), and (vi)(v) Notes to the Condensed Consolidated Financial Statements.
104Cover Page Interactive Data file (formatted as Inline XBRL and contained in Exhibit 101).
____________________________
*    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:November 3, 2020August 6, 2021By:/s/ Quinn J. Coburn
Quinn J. Coburn
Chief Financial Officer, Vice President Finance and Treasurer (Principal Financial Officer)

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