What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-21 · 316 added, 304 removed, 323 unchanged (66% of the section changed)

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See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those forward-looking statements as a result of many factors, including those discussed in “Risk Factors” and elsewhere in this Form 10-K.

We are a leading manufacturer of high quality graphite electrode products essential to the production of electric arc furnace ("EAF") steel and other ferrous and non‑ferrous metals.

We believe that we have the most competitive portfolio of low‑cost graphite electrode manufacturing facilities in the industry, including three of the highest capacity facilities in the world.

We are a leading manufacturer of high quality graphite electrode products essential to the production of EAF steel and other ferrous and non‑ferrous metals.

We believe that we have the most competitive portfolio of low‑cost UHP graphite electrode manufacturing facilities in the industry, including three of the highest capacity facilities in the world.

We are the only large scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke, a key raw material for graphite electrode manufacturing.

Between 1984 and 2011, EAF steelmaking was the fastest‑growing segment of the steel sector, with production increasing at an average rate of 3.5% per year, based on World Steel Association ("WSA") data.

Between 1984 and 2011, EAF steelmaking was the fastest‑growing segment of the steel sector, with production increasing at an average rate of 3.5% per year, based on WSA data.

Historically, EAF steel production has grown faster than the overall steel market due to the greater resilience, more variable cost structure, lower capital intensity and more environmentally friendly nature of EAF steelmaking.

This trend was partially reversed between 2011 and 2015 due to global steel production overcapacity driven largely by Chinese blast furnace ("BOF") steel production.

This trend was partially reversed between 2011 and 2015 due to global steel production overcapacity driven largely by Chinese BOF steel production.

Beginning in 2016, efforts by the Chinese government to restructure China’s domestic steel industry have led to limits on BOF steel production and lower export levels, and developed economies, which typically have much larger EAF steel industries, have instituted a number of trade policies in support of domestic steel producers.

As a result, beginning in 2016, the EAF steel market rebounded strongly and resumed its long‑term growth trajectory.

This revival in EAF steel production resulted in increased demand for our graphite electrodes.

In response to this increased demand, we modified our commercial strategy and executed three‑ to five‑year take‑or‑pay contracts for approximately 60% to 65% of our cumulative expected production capacity from 2018 through 2022.

In 2018, we shipped approximately 133,000 MT under these contracts at prices averaging approximately $10,100 per MT.

In 2019, we shipped approximately 145,000 MT under these contracts at pricing averaging approximately $9,900 per MT.

We have contracted to sell approximately 142,000, 125,000 and 117,000 MT in 2020, 2021 and 2022, respectively.

Approximately 83% of these volumes are under pre‑determined fixed annual volume contracts, while approximately 17% of the volumes are under contracts with a specified volume range.

The aggregate difference between the midpoints above and the minimum or maximum volumes across our cumulative portfolio of take‑or‑pay contracts with specified volume ranges is approximately 5,000 MT per year in 2020, 2021 and 2022.

Contracted volumes may vary in timing and total due to the credit risk associated with certain customers facing financial challenges as well as customer demand related to contracted volume ranges.

In 2020, we expect to ship approximately 130,000 MT at prices averaging approximately $9,600 per MT .

The weighted average contract price for the contracted volumes over the next three years is approximately $9,600 per MT, with the weighted average contract prices for contracts with a specified volume range computed using the volume midpoint.

Global economic conditions and outlook

In response to this increased demand, we modified our commercial strategy and executed long-term take‑or‑pay contracts with our customers.

Since 2000, EAF production has grown at an average rate of 3.2%.

We service customers at over 300 locations across the globe, all of which have been impacted by the COVID-19 pandemic during 2020.

In the second half of 2020, we began to see a measured recovery in the global steel markets compared to the second quarter of 2020, with each region recovering at different rates, and anticipate this will have a positive influence on graphite electrode demand.

In the fourth quarter of 2020, both the global (ex-China) and U.S.

steel market capacity utilization rates improved to over 72%.

By late February 2021, the capacity utilization rate in the U.S.

steel market was approximately 77%.

The commercial team has worked diligently in 2020 to achieve solid results in the current environment.

Full year 2020 sales volumes were 135,000 MT, consisting of long-term agreement (“LTA”) volumes of 113,000 MT and non-LTA volumes of 22,000 MT.

During the fourth quarter of 2020, our average price from LTAs was approximately $9,600 per MT and our average price for non-LTA business was approximately $4,900 per MT.

Market prices for graphite electrodes declined throughout 2020, including through the fourth quarter and into the early part of the first quarter of 2021.

There is a lag between the time we negotiate price for non-LTA sales and when our electrodes are delivered and recognized in revenue.

We estimate that our non-LTA price for electrodes delivered and recognized in revenue for the first six weeks of 2021 averaged approximately $4,200 per MT.

Given this impact, for the first half of 2021 we anticipate earnings per share and adjusted EBITDA will decline by high single digits, on a percentage basis, compared to the first half of 2020.

We believe market prices for graphite electrodes are now improving and expect this to positively impact our financial results beginning in the second half of 2021.

During the challenging market conditions in 2020, we were able to work with our valued customers to develop mutually beneficial solutions to their challenges, including volume commitments.

We are pleased to have successfully negotiated LTA modifications with many of these customers.

We also continue to work to preserve our rights under the LTAs in a few arbitrations that arose from some LTA non-performance and other disputes during the year.

COVID-19 and operational update

We continue to proactively manage through the COVID-19 crisis to support the health and safety of our team.

Our plants have remained operational and maintained a 97% on-time delivery rate in the fourth quarter of 2020.

Our global footprint gives us the flexibility to move or adjust production if needed.

Capital structure and capital allocation

As of December 31, 2020, we had cash and cash equivalents of $145 million and total debt of approximately $1.4 billion.

During 2020, capital allocation included $400 million of debt repayment, $36 million of capital expenditures, $31 million of dividend payments, and $30 million for share repurchases.

In 2021, we expect our primary use of cash to continue to be debt repayment.

We expect 2021 full year capital expenditures to range between $55 and $65 million.

On December 22, 2020, we issued our $500 million aggregate principal amount of 2020 Senior Notes.

The proceeds of the 2020 Senior Notes were used to repay a portion of our secured 2018 Term Loans due February 2025 under the 2018 Credit Agreement .

Industry conditions

The graphite electrode industry has historically followed the growth of the EAF steel industry and, to a lesser extent, the steel industry as a whole, which has been highly cyclical and affected significantly by general economic conditions.

This growth trend has resumed after a decline in EAF steelmaking between 2011 and 2015, as Chinese steel production, which is predominantly BOF‑based, grew significantly, taking market share from EAF steel producers.

Beginning in 2016, efforts by the Chinese government to eliminate excess steelmaking production capacity and improve environmental and health conditions have led to limits on Chinese BOF steel production, including the closure of over 200 million MT of its steel production capacity, based on data from S&P Global Platts and the Ministry of Commerce of the People’s Republic of China.

In 2017, Chinese steel exports fell by more than 30% from 2016.

Chinese steel exports continued to decline an additional 8% in 2018 according to the

National Bureau of Statistics of China, reflecting the reduction in steel production capacity.

As a result, the historical growth trend of EAF steelmaking relative to the overall steel market resumed and has led to increased demand for our graphite electrodes.

Prior to this improvement in demand, the electrode industry experienced an extended, five‑year downturn.

At the same time, consolidation and rationalization of graphite electrode production capacity limited the ability of graphite electrode producers to meet this demand.

Demand for petroleum needle coke has outpaced supply due to increasing demand for petroleum needle coke in the production of lithium‑ion batteries used in electric vehicles.

Increased demand has led to pricing increases for petroleum needle coke over the last two years.

While prices have begun to retreat in the second half of 2019, they still remain at historical highs.

Increased demand for petroleum needle coke in 2018 and 2019 led to pricing increases in those years.

Needle coke prices began to retreat in the second half of 2019 and continued to decline over the course of 2020.

Graphite electrodes have typically been priced at a spread to petroleum needle coke.

We believe that our substantial vertical integration into petroleum needle coke through our ownership of Seadrift provides a significant cost advantage relative to our competitors in periods of tight petroleum needle coke supply and we currently anticipate utilizing all of our needle coke internally, minimizing the need for third-party purchases.

However, recent steel production and graphite electrode consumption has slowed in some regions, notably Europe and South America.

In its January 2020 report, the International Monetary Fund ("IMF") reported an estimated global growth rate for 2019 of 2.9%.

They estimated 2020 global growth rate at 3.3% and 2021 is estimated to be 3.4%.

The estimates for all three years were down slightly from their October 2019 report.

The downward revisions of 0.1% for 2019 and 2020 and 0.2% for 2021 were primarily driven by factors in emerging market economies, notably India.

The WSA's October 2019 Short Range Outlook estimated that global steel demand outside of China increased by 1.6% in 2018, which was reduced by 0.6% from their April 2019 estimate.

WSA also decreased their growth forecast for steel demand outside of China for 2019 from 1.7% in their April forecast to 0.2% as uncertainty, trade tensions and geopolitical issues have weighed on investment and trade.

WSA's growth forecast for steel demand outside of China for 2020 was reduced to 2.5% from their April estimate of 2.8%.

Overall, WSA estimates that total steel production outside of China decreased by approximately 2% in 2019.

The graphite electrode market began to soften in the second half of 2019.

We expect global graphite electrode production capacity to expand in 2020 as a result of additions in China.

Our graphite electrode sales volumes decreased significantly in the second half of 2019, as our customers began to de-stock their inventory of our products.

Graphite electrode inventories remain elevated for many customers, but we are seeing early evidence that de-stocking is running its course.

We continue to expect inventory de-stocking through the first half of 2020.

We expect inventories to decline and conditions to improve as we move into the second half of 2020.

We believe that our substantial vertical integration into petroleum needle coke through our ownership of Seadrift provides a significant cost advantage relative to our competitors.

We currently anticipate utilizing all of our needle coke internally, minimizing third-party purchases.

The impact of the COVID-19 pandemic on global steel production and corresponding graphite electrode demand, along with elevated graphite electrode inventories among EAF steel producers, caused market softness in 2020.

As a result, our graphite electrode sales volumes decreased in 2020.

We expect conditions to improve later in 2021.

Our estimated shipments of graphite electrodes for the final two years of the initial term under our LTAs and for the years 2023 through 2024 are as follows:

2021 2022 2023 through 2024

Estimated LTA volume (1)

98-108 95-105 35-45

Estimated LTA revenue (2)

$925-$1,025 $910-$1,010 $350-$450 (3)

(1) In thousands of MT

(2) In millions

(3) Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs

Components of results of operations

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The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods.

See Note 2 "Revenue from Contracts with Customers" to the Consolidated Financial Statements for more information.

See Note 2 "Revenue

from Contracts with Customers" to the Consolidated Financial Statements for more information.

Our first quarter is historically the weakest sales quarter.

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Inventories are stated at the lower of cost or market.

Cost is principally determined using the “first‑in, first‑out” (or FIFO) and average cost, which approximates FIFO, methods.

Cost is principally determined using the “first‑in, first‑out” (“FIFO”) and average cost, which approximates FIFO, methods.

Elements of cost in inventory include raw materials, energy costs, direct labor, manufacturing overhead and depreciation of the manufacturing fixed assets.

We allocate fixed production overheads to the

costs of conversion based on normal capacity of the production facilities.

We allocate fixed production overheads to the costs of conversion based on normal capacity of the production facilities.

We recognize abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) as current period charges.

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Research and development

We conduct our research and development both independently and in conjunction with our strategic suppliers, customers and others.

Expenditures relating to the development of new products and processes, including significant improvements to existing products, are expensed as incurred.

We conduct our R&D both independently and in conjunction with our strategic suppliers, customers and others.

Expenditures relating to the development of new products and processes, including improvements to existing products, are expensed as incurred.

Selling and administrative expenses

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Other expense (income) consists primarily of foreign currency impacts on non‑operating assets and liabilities and miscellaneous income and expense.

Related party Tax Receivable Agreement expense

Related party Tax Receivable Agreement expense represents the Company's expense associated with Brookfield's right, as sole pre-IPO stockholder, to receive future payments from us for 85% of the amount of cash savings, if any, in U.S.

Related party Tax Receivable Agreement (benefit) expense

Related party Tax Receivable Agreement (benefit) expense represents our expense associated with Brookfield's right, as sole pre-IPO stockholder, 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 certain tax assets attributable to periods prior to our IPO.

Interest expense

Interest expense consists primarily of interest expense on our 2018 Term Loans, 2018 Revolving Facility and the Senior Notes, accretion of the fair value adjustment on the Senior Notes and amortization of debt issuance costs.

Interest expense consists primarily of interest expense on our 2018 Term Loan Facility, 2018 Credit Revolving Facility, 2020 Senior Notes, accretion of the fair value adjustment, amortization of debt issuance costs and accretion of original issue discounts.

Income (loss) from discontinued operations

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The result of these effects is to increase (or decrease) operating profit and net income.

Some of the non‑U.S.

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.

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The impact of these changes in the average exchange rates of other currencies against the U.S.

dollar on our net sales was a decrease of $6.9 million for the year ended December 31, 2019 and an increase of $10.5 million and $4.5 million for the years ended December 31, 2018 and 2017, respectively.

dollar on our net sales was an increase of $3.6 million for the year ended December 31, 2020, a decrease of $6.9 million for the year ended December 31, 2019, and an increase of $10.5 million for the year ended December 31, 2018.

The impact of these changes in the average exchange rates of other currencies against the U.S.

dollar on our cost of sales was a decrease of $9.1 million for the year ended December 31, 2019 and increases of $3.6 million and $4.2 million in 2018 and 2017, respectively.

dollar on our cost of sales was decreases of $4.9 million and $9.1 million for the years ended December 31, 2020 and 2019, respectively, and an increase of $3.6 million for the year ended December 31, 2018.

As part of our cash management, we also have intercompany loans between our subsidiaries.

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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"), we use certain other financial measures and operating metrics to analyze the performance of our company.

In addition to measures of financial performance presented in our Consolidated Financial Statements in accordance with GAAP (as defined below), we use certain other financial measures and operating metrics to analyze the performance of our company.

The “non‑GAAP” financial measures consist of EBITDA from continuing operations and adjusted EBITDA from continuing operations, which help us evaluate growth trends, establish budgets, assess operational efficiencies and evaluate our overall financial performance.

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(in thousands) 2020 2019 2018

Net sales $ 1,224,361 $ 1,790,793 $ 1,895,910

Net income $ 434,374 $ 744,602 $ 854,219

EBITDA from continuing operations (1)

$ 669,332 $ 1,027,268 $ 1,102,625

Adjusted EBITDA from continuing operations (1)

$ 658,946 $ 1,048,259 $ 1,205,021

(1) See below for more information and a reconciliation of EBITDA from continuing operations and adjusted EBITDA from continuing operations to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

Key operating metrics

In addition to measures of financial performance presented in accordance with GAAP, we use certain operating metrics to analyze the performance of our company.

The key operating metrics consist of sales volume, production volume, production capacity and capacity utilization.

These metrics align with management's assessment of our revenue performance and profit margin, and will help investors understand the factors that drive our profitability.

Sales volume reflects the total volume of graphite electrodes sold for which revenue has been recognized during the period.

For a discussion of our revenue recognition policy, see “—Critical accounting policies—Revenue recognition” in this section.

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.

For the year ended December 31,

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Production capacity excluding St.

Marys during idle period (MT) (4)(5)

Marys (MT) (3)(4)

Capacity utilization excluding St.

Marys during idle period (4)(6)

66 % 88 % 99 %

Total production capacity (4)(6)

Total capacity utilization (5)(6)

See below for more information and a reconciliation of EBITDA and adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

Effective the first quarter of 2019, we have recast the sales volume above to include only graphite electrodes manufactured by GrafTech.

This better reflects management's assessment of our profitability and excludes resales of low grade graphite electrodes manufactured by third party suppliers.

For comparability purposes, the prior period has been recast to conform to this presentation.

Production volume reflects graphite electrodes produced during the period.

See below for more information on our key operating metrics.

Marys, Pennsylvania facility was temporarily idled effective the second quarter of 2016 except for the machining of semi‑finished products sourced from other plants.

58 % 77 % 86 %

(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.

Production capacity reflects expected maximum production volume during the period under normal operating conditions, standard product mix and expected maintenance downtime.

(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.

See below for more information on our key operating metrics.

(5) Capacity utilization reflects production volume as a percentage of production capacity.

See below for more information on our key operating metrics.

(6) Includes graphite electrode facilities in Calais, France;

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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.

In addition to providing results that are determined in accordance with generally accepted accounting principles in the United States (“GAAP”), we have provided certain financial measures that are not in accordance with GAAP.

EBITDA from continuing operations and adjusted EBITDA from continuing operations are non‑GAAP financial measures.

We define EBITDA from continuing operations, a non‑GAAP financial measure, as net income

or loss plus interest expense, minus interest income, plus income taxes, discontinued operations and depreciation and amortization from continuing operations.

We define adjusted EBITDA from continuing operations as EBITDA from continuing operations plus any pension and OPEB plan expenses, rationalization‑related charges, initial and follow-on public offering and related expenses, acquisition and proxy contest costs, non‑cash gains or losses from foreign currency remeasurement of non‑operating liabilities in our foreign subsidiaries where the functional currency is the U.S.

dollar, related party Tax Receivable Agreement expense, stock-based compensation and non‑cash fixed asset write‑offs.

We define EBITDA from continuing operations, a non‑GAAP financial measure, as net income or loss plus interest expense, minus interest income, plus income taxes, and depreciation and amortization.

We define adjusted EBITDA from continuing operations as EBITDA from continuing operations plus any pension and OPEB plan expenses, initial and follow-on public offering and related expenses, non‑cash gains or losses from foreign currency remeasurement of non‑operating assets and liabilities in our foreign subsidiaries where the functional currency is the U.S.

dollar, related party Tax Receivable Agreement (as defined below) adjustments, stock-based compensation, and non‑cash fixed asset write‑offs.

Adjusted EBITDA from continuing operations 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.

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In addition, we believe adjusted EBITDA from continuing operations and similar measures are widely used by investors, securities analysts, ratings agencies, and other parties in evaluating companies in our industry as a measure of financial performance and debt‑service capabilities.

We also monitor the ratio of total debt to adjusted EBITDA from continuing operations, because we believe it is a useful and widely used way to assess our leverage.

Our use of adjusted EBITDA from continuing operations 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.

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• adjusted EBITDA from continuing operations does not reflect expenses relating to our pension and OPEB plans;

adjusted EBITDA from continuing operations does not reflect the non‑cash gains or losses from foreign currency remeasurement of non‑operating liabilities in our foreign subsidiaries where the functional currency is the U.S.

• adjusted EBITDA from continuing operations does not reflect the non‑cash gains or losses from foreign currency remeasurement of non‑operating assets and liabilities in our foreign subsidiaries where the functional currency is the U.S.

• adjusted EBITDA from continuing operations does not reflect initial and follow-on public offering and related expenses;

adjusted EBITDA from continuing operations does not reflect acquisition and proxy costs;

adjusted EBITDA from continuing operations does not reflect related party Tax Receivable Agreement expense;

adjusted EBITDA from continuing operations does not reflect rationalization‑related charges, stock-based compensation or the non‑cash write‑off of fixed assets;

• adjusted EBITDA from continuing operations does not reflect related party Tax Receivable Agreement adjustments;

• adjusted EBITDA from continuing operations does not reflect stock-based compensation or the non‑cash write‑off of fixed assets;

• other companies, including companies in our industry, may calculate EBITDA from continuing operations and adjusted EBITDA from continuing operations differently, which reduces its usefulness as a comparative measure.

In evaluating EBITDA from continuing operations and adjusted EBITDA from continuing operations, you should be aware that in the future, we will incur expenses similar to the adjustments in this presentation.

Our presentations of EBITDA from continuing operations and adjusted EBITDA from continuing operations should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non‑recurring items.

When evaluating our performance, you should consider EBITDA from continuing operations and adjusted EBITDA from continuing operations alongside other financial performance measures, including our net income (loss) and other GAAP measures.

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measures:

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Interest income (1,750) (4,709) (1,657)

Income taxes 75,671 98,225 48,920

EBITDA from continuing operations $ 669,332 $ 1,027,268 $ 1,102,625

Pension and OPEB plan expenses (gain) (1)

Rationalization‑related gains (2)

Intial and follow-on public offerings and related expenses (3)

Acquisition and proxy contests costs (4)

Pension and OPEB plan expenses (1)

6,096 6,727 3,893

Initial and follow-on public offerings and related expenses (2)

264 2,056 5,173

Non‑cash loss on foreign currency remeasurement (3)

1,297 1,784 818

Stock-based compensation (4)

2,669 2,143 1,152

Non‑cash fixed asset write‑off (5)

Related party Tax Receivable Agreement expense (8)

378 4,888 4,882

Related party Tax Receivable Agreement (benefit) expense (6)

(21,090) 3,393 86,478

Adjusted EBITDA from continuing operations $ 658,946 $ 1,048,259 $ 1,205,021

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Also includes a mark-to-market loss (gain) for plan assets as of December of each year.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Components of Results of Operations - Selling and Administrative Expenses” for more information.

Costs associated with rationalizations in our graphite electrode manufacturing operations and in the corporate structure.

They include severance charges, contract termination charges, write‑off of equipment and (gain)/loss on sale of manufacturing sites.

Legal, accounting, printing and registration fees associated with initial and follow-on public offering and related expenses.

Costs associated with the merger transaction with Brookfield, resulting in change in control compensation expenses.

Non‑cash loss from foreign currency remeasurement of non‑operating liabilities of our non‑U.S.

(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.

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(5) Non-cash fixed asset write-off recorded for obsolete assets.

Non-cash expense for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.

Key Operating Metrics

In addition to measures of financial performance presented in accordance with GAAP, we use certain operating metrics to analyze the performance of our company.

The key operating metrics consist of sales volume, production volume, production capacity and capacity utilization.

These metrics align with management's assessment of our revenue performance and profit margin and will help investors understand the factors that drive our profitability.

Sales volume reflects the total volume of graphite electrodes sold for which revenue has been recognized during the period.

For a discussion of our revenue recognition policy, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies-Revenue Recognition.” 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.

(6) Non-cash expense adjustment for future payment to our sole pre-IPO stockholder for tax assets that are expected to be utilized.

Customer base

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Sales of these products to buyers outside the United States accounted for approximately 79%, 77% and 78% of our net sales in 2020, 2019 and 2018, respectively.

In 2019, six of our ten largest customers were based in Europe, two in the United States, and one in each of Brazil and Mexico.

In 2020, seven of our ten largest customers were based in Europe, two in the United States, and one in Brazil.

However, seven of our ten largest customers are multi-national operations.

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Americas (excluding the United States) 187,779 348,670 367,561

Asia Pacific 127,415 172,439 131,578

Europe, Middle East, Africa 648,300 865,768 967,172

In 2019, one customer accounted for 10% of our net sales.

We believe this customer does not pose a significant concentration of risk, as sales to this customer could be replaced by demand from other customers.

Total $ 1,224,361 $ 1,790,793 $ 1,895,910

In 2020 , no customer accounted for 10% of our net sales, nor do we believe any customer poses a significant concentration of risk, as sales to one customer could be replaced by demand from other customers.

Results of operations

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Throughout our Management Discussion and Analysis ("MD&A"), insignificant changes may be deemed not meaningful and are generally excluded from the discussion.

For the Year Ended December 31,

Increase/ Decrease

For the Year Ended December 31, Increase/ Decrease % Change

(in thousands) 2020 2019

Net sales $ 1,224,361 $ 1,790,793 $ (566,432) (32) %

Cost of sales 563,864 750,390 (186,526) (25) %

Gross profit 660,497 1,040,403 (379,906) (37) %

Research and development 3,975 2,684 1,291 48 %

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Other expense (income), net 3,330 5,203 (1,873) (36) %

Related party Tax Receivable Agreement expense

Related party Tax Receivable Agreement (benefit) expense (21,090) 3,393 (24,483) N/A

Interest expense 98,074 127,331 (29,257) (23) %

Interest income (1,750) (4,709) (2,959) 63 %

Income from continuing operations

before provision for income taxes

Income before provision for income taxes 510,045 842,827 (326,864) (39) %

Provision for income taxes 75,671 98,225 (22,554) (23) %

Net income from continuing operations

Income from discontinued operations, net of tax

Net income $ 434,374 $ 744,602 $ (310,228) (42) %

Net sales decreased by $566.4 million, or 32%, from $1.8 billion in 2019 to $1.2 billion in 2020.

This decrease was primarily driven by a 3% decrease in sales volume of GrafTech manufactured electrodes as well as a decrease in non-GrafTech manufactured electrodes sales.

Graphite electrode volumes decreased significantly in the second half of 2019, as our customers began to de-stock their inventory of our products.

Graphite electrode inventories remain elevated for many customers, but we are seeing early evidence that de-stocking is running its course.

We continue to expect inventory de-stocking through the first half of 2020.

We expect inventories to decline and conditions to improve as we move into the second half of 2020.

Approximately 80% of our 2019 revenues were derived from customers with long-term agreements.

Spot market prices for graphite electrodes declined approximately 25% in 2019.

We expect additional decreases in 2020.

This decrease was primarily driven by a 21% decrease in sales volume of GrafTech manufactured electrodes and decreased pricing for our products both driven by lower customer demand as a result of the COVID-19 pandemic and prolonged customer destocking taking place for the majority of 2020.

The current market for graphite electrodes continues to be competitive, as our industry lags behind the improving fundamentals in the steel industry.

If the strength in the steel industry continues, we would expect market conditions for our products to improve later in 2021.

Cost of sales.

Cost of sales increased by $44.7 million , or 6% , from $705.7 million in 2018 to $750.4 million in 2019 .

This increase was primarily the result of sales of inventory that was manufactured using higher priced third-party needle coke.

Cost of sales related to third-party needle coke peaked in 2019 and we expect modest declines in 2020.

Cost of sales decreased by $186.5 million, or 25%, from $750.4 million in 2019 to $563.9 million in 2020.

This decrease was primarily the result of the lower sales volume and decreased usage of third-party needle coke as we progressed through 2020.

Selling and administrative expenses.

Selling and administrative expenses remained relatively flat from 2018 to 2019 as increased stock-based compensation and bad debt expenses were mostly offset by lower initial and follow-on public offering and related expenses.

Selling and administrative expenses increased by $4.2 million, or 7%, from $63.7 million in 2019 to $67.9 million in 2020 due to increased legal expenses, partially offset by lower bad debt expense in 2020.

Other expense (income), net.

Other expense increased by $1.8 million , from $3.4 million in 2018 to $5.2 million in 2019 .

This increase was primarily due to a pension and OPEB mark-to-market charges of $4.1 million in 2019 versus $1.9 million in 2018 .

Other expense decreased by $1.9 million, from $5.2 million in 2019 to $3.3 million in 2020.

This decrease was primarily due to advantageous non-cash foreign currency impacts on non-operating assets and liabilities.

Related party Tax Receivable Agreement (benefit) expense.

Related party Tax Receivable Agreement (benefit) expense decreased from an expense of $3.4 million in 2019 to a benefit of $21.1 million in 2020 as a result of revised U.S.

income estimates affecting the future usage of our U.S.

tax attributes which are required to be reimbursed to Brookfield under the Tax Receivable Agreement.

Interest expense.

Interest expense decreased by $7.7 million , or 6% , from $135.1 million in 2018 to $127.3 million in 2019 , primarily due to a $24.2 million decrease in refinancing charges, partially offset by an increase in borrowings over the full period.

Interest expense decreased by $29.3 million, or 23%, from $127.3 million in 2019 to $98.1 million in 2020, primarily due to a decreased average term loan outstanding as we repaid $400.0 million of our term loan during 2020 as well as benefiting from lower interest rates.

Partially offsetting the increase were the impacts of $3.2 million of accelerated accretion of an original issue discount and $5.2 million of accelerated amortization of the debt issuance costs.

Provision for income taxes.

The following table summarizes the benefit for income taxes in 2019 and 2018 :

For the Year Ended December 31, 2019

For the Year Ended December 31, 2018

The following table summarizes the provision for income taxes in 2020 and 2019:

For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

Income tax expense $ 75,671 $ 98,225

Income from continuing operations

before provision for income taxes $ 510,045 $ 842,827

Effective tax rates

Effective income tax rates 14.8 % 11.7 %

The effective tax rate for the year ended December 31, 2020 was 14.8% and differs from the U.S.

statutory tax rate of 21% primarily due to worldwide earnings from various countries taxed at different rates, a portion of U.S.

statutory tax rate of 21% primarily due to worldwide earnings from various countries taxed at different rates and a portion of U.S.

income being exempt from U.S.

taxation as a result of the income qualifying for the foreign-derived intangible income deduction and a release of a valuation allowance recorded against the deferred tax asset related to U.S.

state and foreign tax attributes.

taxation as a result of the income qualifying for the foreign-derived intangible income deduction.

As of December 31, 2020, the balance of our valuation allowance against deferred tax assets was $12.8 million and does not result in, or limit the Company's ability to utilize these tax assets in the future.

We expect the tax rate in 2020 to be approximately 14-18%.

We expect the effective tax rate in 2021 to be approximately 14-18%.

The tax expense changed from $98.2 million, with an effective tax rate of 11.7% for the year ended December 31, 2019 to a $75.7 million with an 14.8% effective rate for the year ended December 31, 2020.

This increase in the effective tax rate is primarily due to the partial release of a valuation allowance recorded against the deferred tax asset related to U.S.

state and foreign tax attributes which was smaller in 2019 than the partial valuation allowance release recorded in 2018.

This increase in the effective tax rate is primarily due to enacted tax rate changes in European jurisdictions.

Effects of inflation

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Foreign currency translation adjustments are generally recorded as part of stockholders’ equity and identified as part of accumulated other comprehensive loss on the Consolidated Balance Sheets until such time as their operations are sold or substantially or completely liquidated.

We account for our Russian, Swiss, Luxembourg, United Kingdom and Mexican subsidiaries using the dollar as the functional currency, as sales and purchases are predominantly dollar‑denominated.

We account for our Russian, Swiss, Luxembourg, United Kingdom (the “U.K.”) and Mexican subsidiaries using the U.S.

dollar as the functional currency, as sales and purchases are predominantly U.S.

dollar‑denominated.

Our remaining subsidiaries use their local currency as their functional currency.

We also record foreign currency transaction gains and losses from non‑permanent intercompany balances as part of cost of sales and other (income) expense, net.

Significant changes in currency exchange rates impacting us are described under “Effects of Changes in Currency Exchange Rates” and “Results of Operations.”

Significant changes in currency exchange rates impacting us are described under “—Effects of changes in currency exchange rates” and “—Results of operations” in this section.

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 prepayments, share repurchases and other obligations.

Our sources of funds have consisted principally of cash flow from oper ations 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.

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We believe that we have adequate liquidity to meet our needs.

As of December 31, 2019 , we had liquidity of $327.8 million , consisting of $246.9 million of availability on our 2018 Revolving Facility (subject to continued compliance with the financial covenants and representations) and cash and cash equivalents of $80.9 million .

As of December 31, 2020, we had liquidity of $391.8 million, consisting of $246.4 million of availability under our 2018 Revolving Facility (subject to continued compliance with the financial covenants and representations) and cash and cash equivalents of $145.4 million.

We had long-term debt of $1,420.0 million and short-term debt of $0.1 million as of December 31, 2020.

As of December 31, 2018 , we had liquidity of $295.4 million consisting of $245.5 million available on our 2018 Revolving Facility and cash and cash equivalents of $49.9 million .

As of December 31, 2019, we had liquidity of $327.8 million, consisting of $246.9 million available under our 2018 Revolving Facility and cash and cash equivalents of $80.9 million.

We had long-term debt of $1,812.7 million and short-term debt of $0.1 million as of December 31, 2019.

As of December 31, 2019 and 2018 , $41.4 million and $38.4 million, respectively, of our cash and cash equivalents were located outside of the United States.

As of December 31, 2020 and 2019, $114.6 million and $41.4 million, respectively, of our cash and cash equivalents were located outside of the U.S.

We repatriate funds from our foreign subsidiaries through dividends.

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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 capital expenditures and other 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.

We had positive cash flow from operating activities during 2020, 2019 and 2018.

Although the global economic environment experienced significant swings in these periods, our working capital management and cost‑control initiatives allowed us to remain operating cash‑flow positive in both times of declining and improving operating results.

Cash from operations is expected to remain at positive sustained levels due to the predictable earnings generated by our three-to-five-year sales contracts with our customers.

As of December 31, 2019 , we had access to the $250 million 2018 Revolving Facility.

We had $3.1 million of letters of credit, for a total availability on the 2018 Revolving Facility of $246.9 million .

As of December 31, 2018 , we had $4.5 million of letters of credit, for a total availability of $245.5 million on the 2018 Revolving Facility.

On February 12, 2018, we entered into the 2018 Credit Agreement, which provides for the 2018 Revolving Facility and the 2018 Term Loan Facility.

On February 12, 2018, our wholly owned subsidiary, GrafTech Finance, borrowed $1,500 million under the 2018 Term Loan Facility.

The funds received were used to pay off our outstanding debt, including borrowings under our Old Credit Agreement and the Senior Notes and accrued interest relating to those borrowings and the Senior Notes, declare and pay a dividend of $1,112.0 million to our sole pre-IPO stockholder, pay fees and expenses incurred in connection therewith and for other general corporate purposes.

On April 19, 2018, we declared a dividend in the form of the Brookfield Promissory Note (as defined below) to the sole pre-IPO stockholder.

The $750 million Brookfield Promissory Note was conditioned upon (i) the Senior Secured First Lien Net Leverage Ratio (as defined in the 2018 Credit Agreement), as calculated based on our final financial results for the first quarter of 2018, being equal to or less than 1.75 to 1.00, (ii) no Default or Event of Default (each as defined in the 2018 Credit Agreement) having occurred and continuing or that would result from the $750 million Brookfield Promissory Note and (iii) the satisfaction of the conditions described in (i) and (ii) above occurring within 60 days from the dividend record date.

Upon publication of our first quarterly report on Form 10-Q, these conditions were met and, as a result, the Brookfield Promissory Note became payable.

The Brookfield Promissory Note had a maturity of eight years from the date of issuance and bore interest at a rate equal to the Adjusted LIBO Rate (as defined in the Brookfield Promissory Note) plus an applicable margin equal to 4.50% per annum, with an additional 2.00% per annum starting from the third anniversary from the date of issuance.

We were permitted to make voluntary prepayments at any time without premium or penalty.

All obligations under the Brookfield Promissory Note were unsecured and guaranteed by all of our existing and future domestic wholly owned subsidiaries that guarantee, or are borrowers under, the Senior Secured Credit Facilities.

No funds were lent or otherwise contributed to us by Brookfield in connection with the Brookfield Promissory Note.

Cash from operations is expected to remain at positive sustained levels due to the predictable earnings generated by our long-term take-or-pay contracts with our customers.

As of December 31, 2020, we had total availability under 2018 Revolving Facility of $246.4 million after giving effect to $3.6 million of letters of credit.

As of December 31, 2019, we had $3.1 million of letters of credit, for a total availability of $246.9 million under the 2018 Revolving Facility.

On February 12, 2018, we entered into the 2018 Credit Agreement, which provides for the 2018 Revolving Credit Facility and the 2018 Term Loan Facility.

On February 12, 2018, the Issuer borrowed $1,500 million under the 2018 Term Loan Facility.

The funds received were used to pay off our outstanding debt, including borrowings under our previous credit agreement and the previously outstanding senior notes and accrued interest relating to those borrowings and the senior notes, declare and pay a dividend of $1,112.0 million to Brookfield, pay fees and expenses incurred in connection therewith and for other general corporate purposes.

On April 19, 2018, we declared a dividend in the form of a promissory note in favor of Brookfield.

The $750 million promissory note was conditioned upon (i) the Senior Secured First Lien Net Leverage Ratio (as defined in the 2018 Credit Agreement), as calculated based on our final financial results for the first quarter of 2018, being equal to or less than 1.75 to 1.00, (ii) no Default or Event of Default (each as defined in the 2018 Credit Agreement) having occurred and continuing or that would result from the promissory note and (iii) the satisfaction of the conditions described in (i) and (ii) above occurring within 60 days from the dividend record date.

Upon publication of our first quarterly report on Form 10-Q, these conditions were met and, as a result, the promissory note became payable.

The promissory note had a maturity of eight years from the date of issuance and bore interest at a rate equal to the Adjusted LIBO Rate (as defined in the promissory note) plus an applicable margin equal to 4.50% per annum, with an additional 2.00% per annum starting from the third anniversary from the date of issuance.

We were permitted to make voluntary

prepayments at any time without premium or penalty.

All obligations under the promissory note were unsecured and guaranteed by all of our existing and future domestic wholly-owned subsidiaries that guarantee, or are borrowers under, the Senior Secured Credit Facilities.

No funds were lent or otherwise contributed to us by Brookfield in connection with the promissory note.

As a result, we received no consideration in connection with its issuance.

As described below, the Brookfield Promissory Note was repaid, in full, on June 15, 2018.

As described below, the promissory note was repaid, in full, on June 15, 2018.

On April 19, 2018, we declared a $160 million cash dividend payable to Brookfield, the sole pre-IPO stockholder.

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The conditions of this dividend were met upon filing of our first quarter report on Form 10-Q and the dividend was paid on May 8, 2018.

On June 15, 2018, GrafTech entered into the first amendment to its 2018 Credit Agreement ("First Amendment").

The First Amendment amends the 2018 Credit Agreement to provide for the additional $750 million in aggregate principal amount

of the incremental term loans ("Incremental 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 Agreement from $1,500 million to $2,250 million.

On June 15, 2018, GrafTech entered into the First Amendment to its 2018 Credit Agreement (the "First Amendment").

The First Amendment amends the 2018 Credit Agreement to provide for an additional $750 million in aggregate principal amount of incremental term loans (the "Incremental Term Loans") to the Issuer.

The Incremental Term Loans increase the aggregate principal amount of term loans incurred by the Issuer 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 existing term loans under the 2018 Credit Agreement, 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 existing 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 in principal outstanding on the Brookfield Promissory Note.

We 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 in principal outstanding under the promissory note.

On August 13, 2018, the Company repurchased 11,688,311 of our common stock directly from Brookfield.

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The price per share paid by the Company was equal to the price at which the underwriters purchased the shares from Brookfield in Brookfield’s August 2018 public secondary offering of 23,000,000 shares of our common stock, net of underwriting commissions and discounts.

GrafTech funded the share repurchase from cash on hand.

We funded the share repurchase from cash on hand.

On July 30, 2019, our Board of Directors authorized a program to repurchase up to $100 million of our outstanding common stock.

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As of December 31, 2019, we had repurchased 1,004,685 shares of common stock totaling $10.9 million under this program.

The Company had $89.1 million remaining under this program as of December 31, 2019 and $72.3 million remaining as of February 17, 2020.

The Company had $89.1 million remaining under this program as of December 31, 2019, and $59.0 million remaining as of December 31, 2020.

On December 5, 2019, the Company announced two separate transactions.

The first was a Rule 144 secondary block trade in which Brookfield sold 11,175,927 shares of GrafTech common stock at a price of $13.125 per share to a broker-dealer who placed the shares with institutional and other investors.

Separately, the Company entered into a share repurchase agreement with Brookfield to repurchase $250 million of stock from Brookfield at the arms length price of $13.125 set by the competitive bidding process of the secondary block trade.

As a result, the Company repurchased 19,047,619 shares of common stock, reducing total shares outstanding by approximately 7%.

We currently pay a quarterly cash dividend of $0.085 per share, or an aggregate of $0.34 per share on an annualized basis.

The first was a Rule 144 secondary block trade in which Brookfield sold 11,175,927 shares of GTI common stock at a price of $13.125 per share to a broker-dealer who placed the shares with institutional and other investors.

Separately, the Company entered into a share repurchase agreement with Brookfield to repurchase $250 million of stock from Brookfield at the arm’s-length price of $13.125 set by the competitive bidding process of the secondary block trade.

As a result, we repurchased 19,047,619 shares of common stock, reducing total shares outstanding by approximately 7%.

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 of 1933 (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 an indenture, dated as of December 22, 2020 (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 proceeds of the 2020 Senior Notes were used to pay down a portion of our 2018 Term Loans.

We repaid an additional $400 million on our 2018 Term Loan Facility in 2020 and $350 million in 2019.

Subsequent to December 31, 2020, we repaid an additional $150.0 million of 2018 Term Loans Facility.

We are now prioritizing balance sheet flexibility and debt repayment.

We anticipate using a majority of the cash flow that we generate to repay debt, but we will continue to examine opportunities to repurchase our common stock.

On February 17, 2021, the Company entered into a second amendment ("Second Amendment") to the 2018 Credit Agreement to, among other things, (a) decrease the Applicable Rate (as defined in the Credit Agreement) with respect to any Initial Term Loan (as defined in the Credit Agreement) by 0.50% for each pricing level, (b) decrease the interest rate floor for all Initial Term Loans to 0.50%, (c) add certain technical provisions with respect to the impact of European Union bail-in

banking legislation on liabilities of certain non-U.S.

financial institutions, and (d) add certain technical provisions in connection with future replacement of the LIBO Rate (as defined in the Credit Agreement).

As a result of the Second Amendment and the combined effect of the reduction in the interest rate margin and the reduction in the interest rate floor, the interest rate on the Initial Term Loan has been reduced by 1.0% per year.

Prior to April 2020, we had paid a quarterly cash dividend of $0.085 per share, or an aggregate of $0.34 per share on an annualized basis.

Additionally, on December 31, 2018, we paid a special dividend of $0.70 per share totaling $203.4 million.

In April 2020, as a result of the deteriorating economic environment, our Board of Directors reduced our dividend rate to $0.01 per share, or $0.04 per share on an annualized basis.

We expect our Board of Directors to revisit the dividend level when economic conditions improve.

There can be no assurance that we will pay dividends in the future in these amounts or at all.

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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.

Potential uses of our liquidity include dividends, share repurchases, capital expenditures, acquisitions, scheduled debt repayments, optional debt prepayments and other general purposes.

Continued volatility in the global economy may require additional borrowings under the 2018 Revolving Facility.

Potential uses of our liquidity include dividends, share repurchases, capital expenditures, acquisitions, scheduled debt repayments, optional debt repayments 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 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.

On February 13, 2019, we repaid $125 million on our 2018 Term Loan Facility.

On December 20, 2019, we repaid $225 million on our 2018 Term Loan Facility.

We plan to use approximately 50-60% of our cash for debt repayment in 2020 with the remainder for shareholder returns.

In order to seek to minimize our credit risks, we may reduce our sales of, or refuse to sell (except for cash on delivery or under letters of credit or parent guarantees), our products to some customers and potential customers.

A downturn, including the current downturn caused by 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.

As a part of our cash management activities, we manage accounts receivable credit risk, collections, and accounts payable vendor terms to maximize our free cash at any given time and minimize accounts receivable losses.

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.

We have announced a series of operational improvement projects at our Monterrey and St.

Marys facilities.

These projects are intended to help optimize our manufacturing footprint while improving environmental performance and increasing production flexibility.

We expect these projects to be completed in the first half of 2021, at which time we will be able to shift additional

graphitization and machining from Monterrey to St.

We estimate that capital spending would be approximately $60-70 million in 2020 which is consistent with 2019 capital expenditures.

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 Facility, to the extent available.

Capital expenditures totaled $36.1 million in 2020.

We anticipate capital expenditures between $55 and $65 million in 2021.

Related Party Transactions

We have engaged in transactions with affiliates or related parties during 2019.

We have engaged in transactions with affiliates or related parties during 2019 and 2020, and we expect to continue to do so in the future.

These transactions include ongoing obligations under the Tax Receivable Agreement, stockholders rights agreement and registration rights agreement, each with Brookfield.

In November 2019, we amended the stockholders rights agreement with Brookfield regarding compensation for the Brookfield designated directors.

In December 2019, in conjunction with a secondary block trade by Brookfield pursuant to Rule 144 under the Securities Act of 1933, we repurchased approximately $250 million of common stock directly from Brookfield at the arms length price determined by the competitive bidding process in the secondary block trade.

In December 2019, in conjunction with a secondary block trade by Brookfield pursuant to Rule 144 under the Securities Act, we repurchased approximately $250 million of common stock directly from Brookfield at the arm’s-length price determined by the competitive bidding process in the secondary block trade.

This resulted in 19,047,619 shares of common stock repurchased at a price of $13.125 per share, reducing total shares outstanding by approximately 7%.

Cash flows include cash flows from both continuing and discontinued operations.

The following table summarizes our cash flow activities:

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Financing activities (463.7) (709.6)

Net change in cash and cash equivalents 64,267 31,801

Operating activities

Cash flow provided by 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 pension plan changes;

Operating cash flow is derived by adjusting net income 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 and unrealized currency transaction gains and losses;

• 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) include the impact of changes in:

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.

In the year ended December 31, 2020, changes in working capital resulted in a net source of funds of $86.4 million which was impacted by:

• net cash inflows in accounts receivable of $63.6 million from the decrease in accounts receivable due to lower sales;

• source of funds from decreases in inventory of $44.6 million from our efforts to reduce inventory due to the lower demand environment;

• use of funds of $12.4 million resulting from a decrease in income taxes payable driven primarily by the timing of income tax payments in 2020 and lower tax liabilities as a result of lower profitability;

• use of funds of $12.8 million from decreases in accounts payable and other accruals primarily driven by decreased purchases of raw materials resulting from lower levels of production and timing of payments.

Other uses of cash in the year ended December 31, 2020 included cash paid for interest of $87.0 million, $74.0 million of cash paid for taxes and contributions to pension and other benefit plans of $6.6 million.

In the year ended December 31, 2019, changes in working capital resulted in a net use of funds of $47.7 million, which was impacted by:

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Other uses of cash in the year ended December 31, 2019 included cash paid for interest of $121.1 million, $99.3 million of cash paid for taxes and contributions to pension and other benefit plans of $3.2 million.

In the year ended December 31, 2018, changes in working capital resulted in a net use of funds of $177.8 million which was impacted by:

use of funds of $139.2 million from the increase in accounts receivable, which was due primarily to increased sales driven by higher sales prices, partially offset by improved collection terms;

use of funds from increases in inventory of $126.4 million due to the increased price of raw materials and higher production levels;

source of funds of $7.1 million from decreased prepaid and other current assets primarily resulting from commodity hedge collections and a reduction in advanced payments to suppliers;

source of funds of $67.1 million resulting from an increase in income taxes payable driven by higher profits in 2018;

source of funds of $15.7 million from increases in accounts payable and other accruals primarily driven by increased raw material costs.

Other uses of cash in the year ended December 31, 2018 included cash paid for interest of $108.0 million, $21.4 million of cash paid for taxes and contributions to pension and other benefit plans of $7.5 million.

Investing activities

Net cash used in investing activities was $35.7 million in the year ended December 31, 2020 comprised of capital expenditures of $36.1 million.

Net cash used in investing activities was $63.9 million in the year ended December 31, 2019 and included capital expenditures of $64.1 million.

Net cash used in investing activities was $67.3 million in the year ended December 31, 2018 and included capital expenditures of $68.2 million partially offset by proceeds from the sale of fixed assets of $0.9 million.

Financing activities

Net cash outflow from financing activities was $463.7 million during the year ended December 31, 2020, which was driven by $896.2 million of repayments of long-term debt, $30.1 million of repurchases of our common stock, $30.9 million of dividend payments and $6.3 million of debt issuance costs.

Partially offsetting these financing outflows was $500.0 million of proceeds from the issuance of our 2020 Senior Notes.

Net cash outflow from financing activities was $709.6 million during the year ended December 31, 2019, which was driven by $350.1 million of repayments of long-term debt, $260.9 million of repurchases of our common stock and $98.6 million of dividend payments.

Net cash outflow from financing activities was $731.0 million during the year ended December 31, 2018, which was the net impact of our February 12, 2018 refinancing and subsequent amendment, proceeds of which were used to repay outstanding debt, pay dividends of $1,112 million to Brookfield and repay the $750 million Brookfield Promissory Note to Brookfield.

We also repurchased $225 million of our common stock from Brookfield on August 13, 2018.

Since our IPO in 2018, we have paid a conditional dividend of $160 million to Brookfield, quarterly dividends on common stock of $68.9 million and a special dividend on common stock of $203.4 million.

Financing transactions

2018 Credit Agreement

On February 12, 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”) among the Company, GrafTech Finance Inc.

(“GrafTech Finance”), GrafTech Switzerland SA (“Swissco”), GrafTech Luxembourg II S.à.r.l.

(“Luxembourg Holdco” and, together with GrafTech Finance and Swissco, the “Co‑Borrowers”), the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A.

as administrative agent (the "Administrative Agent") and as collateral agent, which provides for (i) a $1,500 million senior secured term facility (the “2018 Term Loan Facility”) and (ii) a $250 million senior secured revolving credit facility (the “2018 Revolving Credit Facility” and, together with the 2018 Term Loan Facility, the “Senior Secured Credit Facilities”), which may be used from time to time for revolving credit borrowings denominated in dollars or Euro, the issuance of one or more letters of credit denominated in dollars, Euro, Pounds Sterling or Swiss Francs and one or more swing line loans denominated in dollars.

GrafTech Finance is the sole borrower under the 2018 Term Loan Facility while GrafTech

Finance, Swissco and Lux Holdco are Co‑Borrowers under the 2018 Revolving Credit Facility.

On February 12, 2018, GrafTech Finance borrowed $1,500 million under the 2018 Term Loan Facility (the "2018 Term Loans").

The 2018 Term Loans mature on February 12, 2025.

On February 12, 2018, we entered into the 2018 Credit Agreement, among GTI, the Issuer, Swissco, Lux Holdco (together with the Issuer and Swissco, the “Co-Borrowers”), the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A.

(the “Administrative Agent”), which provides for (i) the 2018 Term Loan Facility and (ii) the 2018 Revolving Credit Facility, 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.

The Issuer is the sole borrower under the 2018 Term Loan Facility, while the Issuer, Swissco and Lux Holdco are Co-Borrowers under the 2018 Revolving Credit Facility.

On February 12, 2018, the Issuer borrowed the term loans under the 2018 Term Loan Facility (the “2018 Term Loans”).

On June 15, 2018, we entered the First Amendment to the 2018 Credit Agreement.

The First Amendment amended the 2018 Credit Agreement to provide for the Incremental Term Loans to the Issuer.

The amount outstanding under the Senior Secured Credit Facilities as of December 31, 2020 and 2019 was comprised solely of term loan balances of $944 million and $1,564 million, respectively.

The 2018 Term Loans and the Incremental Term Loans mature on February 12, 2025.

The maturity date for the 2018 Revolving Credit Facility is February 12, 2023.

The proceeds of the 2018 Term Loans were used to (i) repay in full all outstanding indebtedness of the Co‑Borrowers under our previous Amended and Restated Credit Agreement ("Old 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 the Old Credit Agreement and redemption of the Senior Notes, all guarantees of obligations under the Old Credit Agreement, the Senior Notes and related indenture were terminated, all mortgages and other security interests securing obligations under the Old Credit Agreement were released and the Old Credit Agreement and the indenture were terminated.

Borrowings under the 2018 Term Loan Facility bear interest, at GrafTech Finance’s option, at a rate equal to either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 3.50% per annum or (ii) the ABR Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 2.50% per annum, in each case with one step down of 25 basis points based on achievement of certain public ratings of the 2018 Term Loans.

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 the previously outstanding 2012 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 Brookfield, with any remainder to be used for general corporate purposes.

In connection with the repayment of our previous credit agreement and redemption of our previously outstanding 2012 senior notes, all guarantees of obligations under the previous credit agreement and the 2012 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 were terminated.

Borrowings under the 2018 Term Loan Facility bear interest, at the Issuer’s option, at a rate equal to either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 3.50% per annum or (ii) the ABR Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 2.50% per annum, in each case with one step down of 25 basis points based on achievement of certain public ratings of the 2018 Term Loans.

The 2018 Term Loan Facility had an interest rate of 4.50% as of December 31, 2020 and 5.30% as of December 31, 2019.

Borrowings under the 2018 Revolving Credit Facility bear interest, at the applicable Co-Borrower’s option, at a rate equal to either (i) the Adjusted LIBO Rate, plus an applicable margin initially equal to 3.75% per annum or (ii) the ABR Rate, plus an applicable margin initially equal to 2.75% per annum, in each case with two 25 basis point step downs based on achievement of certain senior secured first lien net leverage ratios.

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Until such an alternate rate of interest is determined, (a) any request for a borrowing denominated in dollars based on the Adjusted LIBO Rate will be deemed to be a request for a borrowing at the ABR Rate plus the applicable margin for an ABR Rate borrowing of such loan while any request for a borrowing denominated in any other currency will be ineffective and (b) any outstanding borrowings based on the Adjusted LIBO Rate denominated in dollars will be converted to a borrowing at the ABR Rate plus the applicable margin for an ABR Rate borrowing of such loan while any outstanding borrowings denominated in any other currency will be repaid.

All obligations under the 2018 Credit Agreement are guaranteed by GrafTech, GrafTech Finance and each domestic subsidiary of GrafTech, subject to certain customary exceptions, and all obligations under the 2018 Credit Agreement of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code) are guaranteed by GrafTech Luxembourg I S.à.r.l., a Luxembourg société à responsabilité limitée and an indirect wholly owned subsidiary of GrafTech ("Luxembourg Parent"), Luxembourg Holdco and Swissco (collectively, the "Guarantors").

All obligations under the 2018 Credit Agreement are guaranteed by the Issuer and each domestic subsidiary of GTI, subject to certain customary exceptions, and all obligations under the 2018 Credit Agreement of each foreign subsidiary of GTI that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code) are guaranteed by the Credit Agreement Guarantors.

All obligations under the 2018 Credit Agreement are secured, subject to certain exceptions and Excluded Assets (as defined in the 2018 Credit Agreement), by:

(i) a pledge of all of the equity securities of GrafTech Finance and each domestic Guarantor (other than GrafTech) and of each other direct, wholly owned domestic subsidiary of GrafTech and any Guarantor, (ii) a pledge on no more than 65% of the equity interests of each subsidiary that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code), and (iii) security interests in, and mortgages on, personal property and material real property of GrafTech Finance and each domestic Guarantor, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement.

The obligations of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation under the 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.

(i) a pledge of all of the equity securities of the Issuer and each domestic Credit Agreement Guarantor (other than GTI) and of each other direct, wholly-owned domestic subsidiary of GTI and any Credit Agreement Guarantor, (ii) a pledge on no more than 65% of the equity interests of each subsidiary that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code), and (iii) security interests in, and mortgages on, personal property and material real property of the Issuer and each domestic Credit Agreement Guarantor, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement.

The obligations of each foreign subsidiary of GTI 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 Credit Agreement Guarantor that is a Controlled Foreign Corporation and of each direct, wholly-owned subsidiary of any Credit Agreement Guarantor that is a Controlled Foreign Corporation, and (ii) security interests in certain receivables and personal property of each Credit Agreement Guarantor that is a Controlled Foreign Corporation, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement.

The 2018 Term Loans amortize at a rate equal to 5% per annum of the original principal amount of the 2018 Term Loans payable in equal quarterly installments, with the remainder due at maturity.

The Co‑Borrowers are permitted to make voluntary prepayments at any time without premium or penalty, except in the case of prepayments made in connection with certain repricing

transactions with respect to the 2018 Term Loans effected within twelve months of the closing date of the 2018 Credit Agreement, to which a 1.00% prepayment premium applies.

GrafTech Finance is required to make prepayments under the 2018 Term Loans (without payment of a premium) with (i) net cash proceeds from non‑ordinary course asset sales (subject to customary reinvestment rights and other customary exceptions and exclusions), and (ii) commencing with the Company’s fiscal year ending December 31, 2019, 75% of Excess Cash Flow (as defined in the 2018 Credit Agreement), subject to step‑downs to 50% and 0% of Excess Cash Flow based on achievement of a senior secured first lien net leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00 and less than or equal to 1.25 to 1.00 , respectively.

Scheduled quarterly amortization payments of the 2018 Term Loans during any calendar year reduce, on a dollar‑for‑dollar basis, the amount of the required Excess Cash Flow prepayment for such calendar year, and the aggregate amount of Excess Cash Flow prepayments for any calendar year reduce subsequent quarterly amortization payments of the 2018 Term Loans as directed by GrafTech Finance.

The 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to GrafTech and restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions.

The 2018 Credit Agreement contains a financial covenant that requires GrafTech to maintain a senior secured first lien net leverage ratio not greater than 4.00 :

1.00 when the aggregate principal amount of borrowings under the 2018 Revolving Credit Facility and outstanding letters of credit issued under the 2018 Revolving Credit Facility (except for undrawn letters of credit in an aggregate amount equal to or less than $35 million ), taken together, exceed 35% of the total amount of commitments under the 2018 Revolving Credit Facility.

The Co-Borrowers are permitted to make voluntary prepayments at any time without premium or penalty.

The Issuer is required to make prepayments under the 2018 Term Loans (without payment of a premium) with (i) net cash proceeds from non-ordinary course asset sales (subject to customary reinvestment rights and other customary exceptions and exclusions), and (ii) commencing with the Company’s fiscal year ended December 31, 2019, 75% of Excess Cash Flow (as defined in the 2018 Credit Agreement), subject to step-downs to 50% and 0% of Excess Cash Flow based on achievement of a senior secured first lien net leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00 and less than or equal to 1.25 to 1.00, respectively.

Scheduled quarterly amortization payments of the 2018 Term Loans during any calendar year reduce, on a dollar-for-dollar basis, the amount of the required Excess Cash Flow prepayment for such calendar year, and the aggregate amount of Excess Cash Flow prepayments for any calendar year reduce subsequent quarterly amortization payments of the 2018 Term Loans as directed by the Issuer.

The 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to GTI 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 GTI 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.

Brookfield Promissory Note

On April 19, 2018, we declared a dividend in the form of a $750 million promissory note (the “Brookfield Promissory Note”) to the sole pre-IPO stockholder.

The $750 million Brookfield Promissory Note was conditioned upon (i) the Senior Secured First Lien Net Leverage Ratio (as defined in the 2018 Credit Agreement), as calculated based on our final financial results for the first quarter of 2018, being equal to or less than 1.75 to 1.00 , (ii) no Default or Event of Default (each as defined in the 2018 Credit Agreement) having occurred and continuing or that would result from the $750 million Brookfield Promissory Note and (iii) the satisfaction of the conditions occurring within 60 days from the dividend record date.

Upon publication of our first quarter report on Form 10-Q, these conditions were met and, as a result, the Brookfield Promissory Note became payable.

We were permitted to make voluntary prepayments at any time without premium or penalty.

No funds were lent or otherwise contributed to us by the pre-IPO stockholder in connection with the Brookfield Promissory Note.

As a result, we received no consideration in connection with its issuance.

As described below, the Promissory Note was repaid in full on June 15, 2018.

First Amendment to 2018 Credit Agreement

On June 15, 2018, the Company entered into the First Amendment.

The First Amendment amended the 2018 Credit Agreement to provide for 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 the Brookfield Promissory Note.

On February 13, 2019, we repaid $125 million on our 2018 Term Loan Facility.

On December 20, 2019, we repaid $225 million on our 2018 Term Loan Facility.

We plan to use approximately 50-60% of our cash for debt repayment in 2020 with the remainder for shareholder returns.

On June 15, 2018, we entered into the First Amendment, which provided for an additional $750 million in aggregate principal amount of Incremental Term Loans to the Issuer.

The Incremental Term Loans increased the aggregate principal amount of term loans incurred by the Issuer 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 maturity date, interest rate, payment and prepayment terms, representations and warranties and covenants.

We 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 of previously issued debt.

2020 Senior Notes

persons outside the United States under Regulation S under the Securities Act.

The 2020 Senior Notes were issued pursuant to the indenture among GrafTech Finance, as issuer, the Company, as a guarantor, the other subsidiaries of the Company named therein as guarantors and U.S.

Bank National Association, as trustee and notes collateral agent.

The 2020 Senior Notes are guaranteed on a senior secured basis by the Company and all of its existing and future direct and indirect U.S.

subsidiaries that guarantee, or borrow under, the credit facilities under its 2018 Credit Agreement .

The 2020 Senior Notes are secured on a pari passu basis by the collateral securing the term loans under the 2018 Credit Agreement.

GrafTech Finance, the Company and the other guarantors granted a security interest in such collateral, consisting of substantially all of their respective assets, as security for the obligations of GrafTech Finance, the Company and the other guarantors under the 2020 Senior Notes and the Indenture pursuant to a collateral agreement, dated as of December 22, 2020 (the “Collateral Agreement”), among GrafTech Finance, the Company, the other subsidiaries of the Company named therein as grantors and U.S.

Bank National Association, as collateral agent.

The 2020 Senior Notes bear interest at the rate of 4.625% per annum, which accrues from December 22, 2020 and is payable in arrears on June 15 and December 15 of each year, commencing on June 15, 2021.

The 2020 Senior Notes will mature on December 15, 2028, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the Indenture.

GrafTech Finance may redeem some or all of the 2020 Senior Notes at the redemption prices and on the terms specified in the Indenture.

If the Company or GrafTech Finance experiences specific kinds of changes in control or the Company or any of its restricted subsidiaries sells certain of its assets, then GrafTech Finance must offer to repurchase the 2020 Senior Notes on the terms set forth in the Indenture.

The Indenture contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of its subsidiaries, to incur or guarantee additional indebtedness or issue preferred stock, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, incur or suffer to exist liens securing indebtedness, make certain investments, engage in certain transactions with affiliates, consummate certain assets sales and effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all assets.

The Indenture contains events of default customary for agreements of its type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company or GrafTech Finance, all outstanding 2020 Senior Notes will become due and payable immediately without further action or notice.

If any other type of event of default occurs and is continuing, then the trustee or the holders of at least 30% in principal amount of the then outstanding 2020 Senior Notes may declare all of the Senior Notes to be due and payable immediately.

The entirety of the 2020 Senior Notes proceeds was used to pay down a portion of our 2018 Term Loans.

Term Loan Repricing

On February 17, 2021 (the “Effective Date”), the Company entered into a second amendment (the “Second Amendment”) to its 2018 Credit Agreement to, among other things, (a) decrease the Applicable Rate (as defined in the Credit Agreement) with respect to any Initial Term Loan (as defined in the Credit Agreement) by 0.50% for each pricing level, (b) decrease the interest rate floor for all Initial Term Loans to 0.50%, (c) add certain technical provisions with respect to the impact of European Union bail-in banking legislation on liabilities of certain non-U.S.

financial institutions, and (d) add certain technical provisions in connection with future replacement of the LIBO Rate (as defined in the Credit Agreement).

In connection with the Second Amendment, on February 12, 2021, GrafTech Finance repaid approximately $150 million aggregate principal amount of its Initial Term Loans with cash on hand.

Fixed-rate obligations

As of December 31, 2019 and 2018, all of our debt was based on variable interest rates.

As of December 31, 2020, we had $500 million of fixed-rate debt consisting of our 2020 Senior Notes and $944 million of debt based on variable interest rates.

However, during the third quarter of 2019, we entered into four interest rate swap contracts.

The contracts are "pay fixed, receive variable" with notional amounts of $500 million maturing in two years and another $500 million maturing in five years.

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.

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.

Long-Term Contractual, Commercial and Other Obligations and Commitments.

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Payments Due by Year Ending December 31,

Total 2021 2022-2023 2024-2025 2026+

(Dollars in Thousands)

Contractual and Other Obligations

2018 Term Loan Facility (a)

Long-term Debt (a) $ 1,444,323 $ 154 $ 307 $ 943,862 $ 500,000

Interest on Long-term Debt (b) 380,111 71,398 139,952 99,386 69,375

Leases (c) 7,846 4,124 2,401 1,255 66

Total contractual obligations 1,832,280 75,676 142,660 1,044,503 569,441

Postretirement, pension and related benefits (c)

Committed purchase obligations (d)

Related party Tax Receivable Agreement (e)

Postretirement, pension and related benefits (d) 121,211 11,838 23,454 24,710 61,209

Committed purchase obligations (e) 1,588 1,588 — — —

Related party Tax Receivable Agreement (f) 40,850 21,752 8,179 8,132 2,787

Other long-term obligations 12,330 1,810 1,590 705 8,225

Uncertain income tax provisions 125 47 42 36 —

Total contractual and other obligations (f)

Total contractual and other obligations (g) $ 2,008,384 $ 112,711 $ 175,925 $ 1,078,086 $ 641,662

Other Commercial Commitments

Guarantees (g)

Guarantees (h) 2,437 2,437 — — —

Total other commercial commitments $ 2,437 $ 2,437 $ — $ — $ —

The Company entered into the 2018 Credit Agreement, which provided for the 2018 Term Loan Facility and 2018 Revolving Credit Facility.

The proceeds of the 2018 Term Loan Facility were used to redeem the Senior Notes, repay outstanding indebtedness under the amended and restated credit agreement dated February 27, 2015, pay fees and expenses relating to the redemption of the Senior Notes and repayment of such indebtedness and pay a dividend.

The 2018 Term Loan Facility has an outstanding balance of $1,844 million and matures on February 12, 2025.

The term loan bears interest at a rate equal to either the Adjusted LIBO Rate, plus an applicable margin initially equal to 3.50% per annum or the ABR Rate, plus an applicable margin initially equal to 2.50% per annum, in each case with one step down of 75 basis points based on achievement of certain public ratings of the 2018 Term Loans (see "Liquidity and Capital Resources" for full details of this transaction).

Represents estimated interest payments required on 2018 Term Loan Facility using a monthly LIBOR curve through February 2025 net of interest rate swap impacts.

Represents estimated postretirement, pension and related benefits obligations based on actuarial calculations.

Represents committed purchases of raw materials.

Represents Brookfield's 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 certain tax assets attributable to periods prior to our IPO, including certain federal NOLs, previously taxed income under Section 959 of the Code, foreign tax credits, and the Pre‑IPO Tax Assets.

(a) Represents our total debt from our 2018 Credit Facility with an outstanding balance of $944 million,which matures on February 12, 2025 and from our 2020 Senior Notes with an outstanding balance of $500 million due in 2028 (see "Financing transactions" in this section for full details of these obligations).

(b) Represents estimated interest payments required on our 2018 Term Loan Facility using a monthly LIBOR curve through February 2025, net of interest rate swap impacts and estimated interest payments on the 2020 Senior Notes through December 15, 2028.

(d) Represents estimated postretirement, pension and related benefits obligations based on actuarial calculations.

(e) Represents committed purchases of raw materials.

(f) Represents Brookfield's right to receive future payments from us for 85% of the amount of cash savings, if any, in U.S.

In addition, we will pay interest on the payments we will make to Brookfield with respect to the amount of these cash savings from the due date (without extensions) of our tax return where we realize these savings to the payment date at a rate equal to LIBOR plus 1.00% per annum.

The term of the TRA commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments.

In addition, letters of credit of $3.1 million were issued under the Revolving Facility as of December 31, 2019.

Represents surety bonds, which are renewed annually, and other bank guarantees.

If rates were unfavorable, we would use letters of credit under our revolving facility.

Represents our undiscounted non-cancelable operating lease future payments as of December 31, 2019.

The term of the Tax Receivable Agreement commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments.

(g) In addition, letters of credit of $3.6 million were issued under the Revolving Facility as of December 31, 2020.

(h) Represents surety bonds, which are renewed annually, and other bank guarantees.

If rates were unfavorable, we would use letters of credit under the Revolving Facility.

Off-Balance sheet arrangements and commitments.

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For the Year Ended December 31,

2020 2019 2018

(Dollars in thousands)

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This requires us to use significant judgment including estimation of future cash flows, which is based upon relevant market data, internal forecasts, estimation of the long‑term growth for our business, the useful life over which cash flows will occur and determination of the weighted average cost of capital for purposes of establishing a discount rate.

Refer to Note 1, "Business and Summary of Significant Accounting Policies", of the Notes to the Consolidated Financial Statements for information regarding our goodwill impairment testing.

Refer to Note 1, "Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements for information regarding our goodwill impairment testing.

Employee benefit plans.

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Excluding the defined contribution plans, accounting for these plans requires assumptions as to the discount rate, expected return on plan assets, expected salary increases and health care cost trend rate.

See Note 11, "Retirement Plans and Postretirement Benefits", of the Notes to the Consolidated Financial Statements for further details.

See Note 11, "Retirement Plans and Postretirement Benefits," to the Consolidated Financial Statements for further details.

Impairments of long‑lived assets.

We record impairment losses on long‑lived assets used in operations when events and circumstances indicate that the assets might be impaired and the future undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets.

We may record impairment losses on long‑lived assets used in operations when events and circumstances indicate that the assets might be impaired and the future undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets.

Assets to be disposed are reported at the lower of the carrying amount or fair value less estimated costs to sell.

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Accounting for income taxes.

When we prepare the Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.

When we prepare the Consolidated Financial Statements for the year ended December 31, 2020, we are required to estimate our income taxes in each of the jurisdictions in which we operate.

This process requires us to make the following assessments:

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Related-party Tax Receivable Agreement.

On April 23, 2018, the Company entered into a tax receivable agreement (the "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 certain 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 Swissco (collectively, the "Pre‑IPO Tax Assets").

On April 23, 2018, the Company entered into a Tax Receivable Agreement that provides Brookfield, as the sole pre-IPO stockholder, the right to receive future payments from us for 85% of the amount of cash savings, if any, in U.S.

The term of the TRA commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments.

The calculation of the TRA liability requires significant judgment with regards to the assumptions underlying the forecast of future taxable income, in total and by jurisdiction, as well as their timing.

The term of the Tax Receivable Agreement commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments.

The calculation of the Tax Receivable Agreement liability requires significant judgment with regards to the assumptions underlying the forecast of future taxable income, in total and by jurisdiction, as well as their timing.

Revenue recognition.

We adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606 effective January 1, 2018 and elected the modified retrospective transition method.

Under this method, any cumulative effect of applying the new revenue standard for contracts not yet complete is recorded as an adjustment to the opening balance of retained earnings as of the beginning of 2018.

The comparative information for prior years was not revised and will continue to be reported under the accounting standards in effect for the period presented.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

Revenue is recognized when a customer obtains control of promised goods, in an amount that reflects the consideration which we expect to receive in exchange for those goods.

To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, the following five steps are performed:

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and (v) recognize revenue when (or as) we satisfy a performance obligation.

We only apply the five‑step model to contracts when it

is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

We only apply the five‑step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

In 2019 and 2018, our revenue streams primarily consisted of three‑ to five‑year take‑or‑pay supply contracts and short‑term binding and non‑binding purchase orders (deliveries within the year) directly with steel manufacturers.

In 2017, our revenue streams consisted primarily of annual non‑binding purchase orders.

From 2018 to the present, our revenue streams primarily consisted of long-term take‑or‑pay supply contracts and short‑term purchase orders (deliveries within the year) directly with steel manufacturers.

The promises of delivery of graphite electrodes represent the distinct performance obligations to which the contract consideration is allocated, based upon the electrode stand‑alone selling prices for the class of customers at the time the agreements are executed.

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Any variable consideration is recognized up to its unconstrained amount (i.e., up to the amount for which it is probable that a significant reversal of the variable revenue will not happen).

Recent accounting pronouncements

Recently adopted accounting standards

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842).

Under ASU No.

2016-02, the Company recognizes most leases on its balance sheet as lease liabilities with corresponding right-of-use assets.

2016-02 was effective for fiscal years beginning after December 15, 2018.

The Company adopted ASU No.

2016-02 on January 1, 2019.

The adoption impact was not material to our financial position, results of operations or cash flows.

See Note 10 "Leases" for information regarding this standard and its adoption.

Accounting Standards Not Yet Adopted

In January 2017, the FASB issued ASU No.

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2017-04, 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.

2017-04 became effective on a prospective basis for the Company on January 1, 2020.

The adoption of this standard is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

2017-04 became effective

on a prospective basis for the Company on January 1, 2020.

The Company adopted ASU No.

2017-04 on January 1, 2020, with no impact to our financial position, results of operations or cash flows.

In June 2016, the FASB issued ASU No.

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The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

2016-13 is effective for the the Company on January 1, 2020.

The adoption of this standard will impact the timing of our credit losses;

however, it is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

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.

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 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, 2023.

The adoption of ASU 2020-04 is not expected to have a material impact on our financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 is intended to improve consistent application of Topic 740 and simplify the accounting for income taxes.

This pronouncement removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance.

ASU 2019-12 is effective for annual and interim reporting periods beginning after December 12, 2020, with early adoption permitted.

The Company is currently evaluating the effects of this on our financial position, results of operations and cash flows.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis