What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-23 compared with 2020-02-21 · 510 added, 496 removed, 1037 unchanged (49% of the section changed)

69 unchanged sentences

Accounts and notes receivable, net of allowance for doubtful accounts of $ 8,243 as of December 31, 2020 and $ 5,474 as of December 31, 2019

182,647 247,051

Inventories 265,964 313,648

Prepaid expenses and other current assets 35,114 40,946

4 unchanged sentences

Deferred income taxes 32,551 55,217

Goodwill 171,117 171,117

Other assets 93,660 104,230

Total assets $ 1,432,712 $ 1,526,164

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

9 unchanged sentences

Deferred income taxes 43,428 49,773

Related party payable

Related party payable - tax receivable agreement 19,098 62,014

Commitments and contingencies – Note 12

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For the Year Ended December 31,

2020 2019 2018

STATEMENTS OF OPERATIONS

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

Cost of sales 563,864 750,390 705,698

Gross profit 660,497 1,040,403 1,190,212

Research and development 3,975 2,684 2,129

1 unchanged sentence

Operating income 588,609 974,045 1,126,051

Other expense (income), net

Related party tax receivable agreement expense

Other expense 3,330 5,203 3,361

Related party tax receivable agreement (benefit) expense ( 21,090 ) 3,393 86,478

Interest expense 98,074 127,331 135,061

1 unchanged sentence

Income from continuing operations

before provision (benefit) for income taxes

Provision (benefit) for income taxes

before provision for income taxes 510,045 842,827 902,808

Provision for income taxes 75,671 98,225 48,920

Net income from continuing operations 434,374 744,602 853,888

Income (loss) from discontinued operations, net of tax

Income from discontinued operations, net of tax — — 331

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

Basic income per share:

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STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

Other comprehensive (loss) income:

1 unchanged sentence

tax of $( 162 ), $( 67 ), and $( 288 ), respectively

6,568 ( 6,371 ) ( 18,391 )

Commodities and interest rate derivatives, net of

tax of $ 5,399 , $( 1,546 ), and $ 802 , respectively

( 18,848 ) 4,810 ( 7,698 )

Other comprehensive (loss) income, net of tax:

( 12,280 ) ( 1,561 ) ( 26,089 )

Comprehensive income $ 422,094 $ 743,041 $ 828,130

5 unchanged sentences

For the Year Ended December 31,

2020 2019 2018

Cash flow from operating activities:

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

Adjustments to reconcile net income

1 unchanged sentence

Depreciation and amortization 62,963 61,819 66,413

Impairment of long-lived assets

Related party Tax Receivable Agreement expense

Related party Tax Receivable Agreement (benefit) expense ( 21,090 ) 3,393 86,478

Deferred income tax provision 20,241 17,503 ( 37,078 )

3 unchanged sentences

Net change in working capital* 86,438 ( 47,687 ) ( 177,754 )

Change in related party Tax Receivable Agreement ( 27,857 ) — —

Change in long-term assets and liabilities ( 16,470 ) ( 2,489 ) ( 583 )

2 unchanged sentences

Capital expenditures ( 36,075 ) ( 64,103 ) ( 68,221 )

Cash received from divestitures

Proceeds from the sale of fixed assets 379 219 926

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Short-term debt (reductions) borrowings, net ( 146 ) — ( 12,607 )

Credit Facility borrowings

Credit Facility reductions — — ( 45,692 )

Refinancing fees and debt issuance costs ( 6,278 ) — ( 27,326 )

Proceeds from the issuance of long-term

3 unchanged sentences

Repurchase of common stock - non-related party ( 30,099 ) ( 10,868 ) —

Payment for taxes related to net share settlement of equity awards ( 71 ) — —

Principal payments on long-term debt ( 896,214 ) ( 350,140 ) ( 56,372 )

2 unchanged sentences

Related-party promissory note repayment — — ( 750,000 )

Refinancing fees and debt issuance costs

Net cash used in financing activities ( 463,683 ) ( 709,631 ) ( 731,044 )

10 unchanged sentences

For the Year Ended December 31,

2020 2019 2018

Supplemental disclosures of cash flow information:

Net cash paid during the periods for:

Interest $ 86,962 $ 121,075 $ 108,006

Income taxes 73,971 99,278 21,444

Non-cash financing activities:

2 unchanged sentences

Accounts and notes receivable, net $ 63,557 $ ( 404 ) $ ( 139,180 )

Inventories 44,633 ( 21,549 ) ( 126,355 )

Prepaid expenses and other current assets 3,028 3,929 7,116

2 unchanged sentences

Interest payable 430 62 ( 2,113 )

(Increase) decrease in working capital

Decrease (increase) in working capital $ 86,438 $ ( 47,687 ) $ ( 177,754 )

** During the second quarter of 2018, we declared a $ 750 million dividend in the form of a Promissory Note that was a non-cash transaction.

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(Dollars in thousands, except share data)

Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Retained Earnings (Accumulated

Income (Loss) Retained Earnings (Accumulated

Deficit) Total

Stockholders’

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Balance as of December 31, 2017 302,225,923 $ 3,022 $ 851,315 $ 20,289 $ ( 261,411 ) $ 613,215

Net income — — — — 854,219 854,219

Other comprehensive income (loss):

Commodity and foreign currency derivatives income (loss), net of tax of $0

Commodity derivatives income (loss), net of tax of $ 715

— — — ( 6,866 ) — ( 6,866 )

Commodity and foreign currency derivatives reclassification adjustments, net of tax of $ 87

— — — ( 832 ) — ( 832 )

Foreign currency translation adjustments, net of tax of $( 288 )

— — — ( 18,391 ) — ( 18,391 )

Total other comprehensive income — — — ( 26,089 ) — ( 26,089 )

Common stock repurchased and retired (from related party) ( 11,688,311 ) ( 117 ) ( 32,844 ) — ( 192,039 ) ( 225,000 )

Stock-based compensation — — 1,151 — — 1,151

Dividends paid to related party stockholder ($ 5.14 per share)

— — — — ( 1,488,649 ) ( 1,488,649 )

Dividends paid to non-related party stockholders ($ 0.9345 per share)

— — — — ( 55,616 ) ( 55,616 )

Related-party promissory note repayment — — — — ( 750,000 ) ( 750,000 )

Balance as of December 31, 2018 290,537,612 $ 2,905 $ 819,622 $ ( 5,800 ) $ ( 1,893,496 ) ( 1,076,769 )

Net income — — — — 744,602 744,602

Other comprehensive income (loss):

Commodity derivatives income (loss), net of tax of $715

Commodity and interest rate derivatives income (loss), net of tax of $( 3,418 )

— — — 11,830 — 11,830

Commodity derivatives reclassification adjustments, net of tax of $ 1,872

— — — ( 7,020 ) — ( 7,020 )

Foreign currency translation adjustments, net of tax of $( 67 )

— — — ( 6,371 ) — ( 6,371 )

Total other comprehensive loss — — — ( 1,561 ) — ( 1,561 )

Common stock repurchased and retired

(from related party)

Common stock repurchased and retired (from related party) ( 19,047,619 ) ( 190 ) ( 53,524 ) — ( 196,286 ) ( 250,000 )

Common stock repurchased and retired (from non-related party) ( 1,004,685 ) ( 10 ) ( 2,825 ) — ( 8,033 ) ( 10,868 )

Stock based compensation — — 2,146 — — 2,146

Dividends paid to related party

stockholder ($ 5.14 per share)

Dividends paid to non-related party

stockholders ($0.9345 per share)

Related-party promissory note repayment

Dividends paid to related party stockholder ($ 0.34 per share)

— — — — ( 78,010 ) ( 78,010 )

Dividends paid to non-related party stockholders ($ 0.34 per share)

— — — — ( 20,613 ) ( 20,613 )

Balance as of December 31, 2019 270,485,308 2,705 765,419 ( 7,361 ) $ ( 1,451,836 ) $ ( 691,073 )

Net income — — — — 434,374 434,374

Other comprehensive income (loss):

Commodity and interest rate derivatives income (loss), net of tax of $ 4,250

— — — ( 15,594 ) — ( 15,594 )

Commodity derivatives reclassification adjustments, net of tax of $ 879

— — — ( 3,254 ) — ( 3,254 )

Foreign currency translation adjustments, net of tax of $( 162 )

— — — 6,568 — 6,568

Total other comprehensive loss — — — ( 12,280 ) — ( 12,280 )

Common stock repurchased and retired

(from related party)

Common stock repurchased and retired

(from non-related party)

Common stock repurchased and retired (from non-related party) ( 3,328,574 ) ( 33 ) ( 9,700 ) ( 20,366 ) ( 30,099 )

Stock based compensation 42,411 — 2,665 — — 2,665

Dividends paid to related party

stockholder ($0.34 per share)

Dividends paid to non-related party

stockholders ($0.34 per share)

Dividends paid to related party stockholder ($ 0.115 per share)

— — — — ( 22,272 ) ( 22,272 )

Dividends paid to non-related party stockholders ($ 0.115 per share)

— — — — ( 8,603 ) ( 8,603 )

Common stock withheld for taxes on equity award settlement ( 10,598 ) — ( 30 ) — ( 41 ) ( 71 )

Adoption of ASC 326 ( 2,026 ) ( 2,026 )

Balance as of December 31, 2020 267,188,547 $ 2,672 $ 758,354 $ ( 19,641 ) $ ( 1,070,770 ) $ ( 329,385 )

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(“Brookfield”) through a tender offer to our former stockholders and subsequent merger transaction.

Brookfield has since distributed portions of its GrafTech common stock to the owners in the Brookfield consortium and sold portions of GrafTech common stock, resulting in the reduction in Brookfield's ownership of outstanding shares of GrafTech common stock to 55.3 % as of December 31, 2020.

See Note 14 "Stockholders equity" and Note 17 "Subsequent events" for more information.

The Company’s only reportable segment, Industrial Materials, is comprised of our two major product categories:

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Revenue Recognition

The Company adopted Accounting Standards Codification ("ASC") 606 on January 1, 2018.

The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's goods and will provide financial statement readers with enhanced disclosures.

The reported results for 2019 and 2018 reflect the application of ASC 606 guidance while the reported results for 2017 and prior were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605), which is also referred to herein as the "previous revenue guidance".

Prior to the adoption of ASC 606, revenue from sales of our commercial products was recognized when they met four basic criteria (1) persuasive evidence of an arrangement existed, (2) delivery had occurred, (3) the amount was determinable and (4) collection was reasonably assured.

Sales were recognized when both title and the risks and rewards of ownership were transferred to the customer or services had been rendered and fees had been earned in accordance with the contract.

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods.

Revenue is recognized when a customer obtains control of promised goods.

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" for more information.

To achieve this core principle, the following five steps are performed:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

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

The Company sells the majority of its products directly to steel manufacturers located in various jurisdictions.

The Company’s contracts consist of longer-term take-or-pay sales contracts of graphite electrodes with terms of up to five years and short-term purchase orders (deliveries within one year ).

Collectability is assessed based on the customer’s ability and intention to pay, reviewing a variety of factors including the customer’s historical payment experience and published credit and financial information.

Additionally, for multi-year contracts, we may require the customer to post a bank guarantee, guarantee of a parent, a letter of credit or a significant pre-payment.

The promises of delivery of graphite electrodes represent the distinct performance obligations of our contracts.

A small portion of our sales consist of deliveries of by-products of the manufacturing processes, such as graphite powders, naphta and gasoil.

Given their nature, the Company’s performance obligations are satisfied at a point in time when control of the products has been transferred to the customer.

In most cases, control transfer is deemed to happen at the delivery point of the products defined under the incoterms, usually at time of loading the truck or the vessel.

The Company has elected to treat the transportation activity as a fulfilment activity instead of as a distinct performance obligation, and outbound freight cost is accrued when the product delivery promises are satisfied.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods to the customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer are excluded from the transaction price.

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

The estimated variable consideration is reflected through revenue reversal accruals that are based on the Company's experience as well as anticipated performance.

Historically, these reversals have been insignificant.

Additionally, when termination fees are invoiced under certain provisions of the longer-term take-or-pay sales agreements, they are accounted for as an element of variable consideration that is constrained, i.e.

not recognized, until collected.

Contracts that contain multiple distinct performance obligations require an allocation of the transaction price to each performance obligation based on a relative stand-alone selling price basis.

The Company regularly reviews market conditions and internally approved pricing guidelines to determine stand-alone selling prices for the different types of its customer contracts.

The stand-alone prices as known at contract inception are utilized as the basis to allocate the transaction price to the distinct performance obligations.

The allocation of the transaction price to the performance obligations remains unchanged if stand-alone selling prices change after contract inception.

Changes to longer-term take-or-pay contracts are reviewed to assess whether there has been a change in volume, price or both and whether any additional volumes are at their stand-alone selling price to determine whether the contract modification should be accounted for as (1) part of the existing contract, (2) the termination of the existing contract and the creation of a new contract or (3) a separate contract.

Under the most commonly negotiated terms, the accounting is such that it treats these modified contracts as the termination of the existing contract and the creation of a new contract.

Inventories are stated at the lower of cost or market.

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The ranges of estimated useful lives are as follows:

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Buildings 25 - 40

Land improvements 20

7 unchanged sentences

Capital expenditures within accounts payable totaled $ 8.9 million and $ 11.5 million as of December 31, 2020 and 2019, respectively.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

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Allowance for Doubtful Accounts

Judgment is required in assessing the likelihood of collection of receivables, including the current creditworthiness of each customer, related aging of the past due balances and the facts and circumstances surrounding any non-payment.

We evaluate specific accounts when we become aware of a situation where a customer may not be able to meet its financial obligations.

The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received.

We adopted the new credit losses standard in 2020 introducing the Current Expected Credit Losses ("CECL") accounting model, using a lifetime of expected credit losses measurement objective for the recognition of credit losses at the time the financial assets originates or acquired.

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

Prior to adoption of the CECL standard, the allowance for doubtful accounts was based on judgment to assess the likelihood of collection of receivables, including the current creditworthiness of each customer, related aging of the past due balances and the facts and circumstances surrounding any non-payment.

We evaluated specific accounts when we became aware of a situation where a customer may not be able to meet its financial obligations.

Receivables are charged off when amounts are determined to be uncollectible.

Capitalized Bank Fees

We capitalize bank fees upon the incurrence of debt and record them as a contra-liability against our debt.

We had capitalized bank fees of $ 20.2 million and $ 24.3 million as of December 31, 2019 and 2018 , respectively.

Deferred Debt Issuance Costs

We defer debt issuance costs upon the incurrence of debt and record them as a direct reduction against our debt.

We had deferred debt issuance costs of $ 18.1 million and $ 20.2 million as of December 31, 2020 and 2019, respectively.

We amortize such amounts over the life of the respective debt instrument using the effective interest method.

The estimated life may be adjusted upon the occurrence of a triggering event.

Amortization of capitalized bank fees amounted to $ 4.1 million , $ 3.5 million and $ 0.3 million in 2019 , 2018 and 2017 , respectively.

Capitalized bank fee amortization is included in interest expense.

Amortization of debt issuance costs amounted to $ 9.2 million, $ 4.1 million and $ 3.5 million in 2020, 2019 and 2018, respectively.

Debt issuance costs amortization is included in interest expense.

Derivative Financial Instruments

5 unchanged sentences

When the underlying hedged transaction is realized, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in the Consolidated Statement of Operations on the same line as the gain or loss on the hedged item attributable to the hedged risk.

For a net investment hedge, the effective portion of the change in the fair value of the derivative is recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the Consolidated Balance Sheet.

We formally document our hedge relationships, including the identification of the hedging instruments and the related hedged items, as well as our risk management objectives and strategies for undertaking the hedge transaction.

Derivatives are recorded at fair value in prepaid expenses and other current assets, other long-term assets, other current liabilities and other long-term obligations in the consolidated balance sheets.

We also formally assess, both at inception and at least quarterly thereafter,

We also formally assess, both at inception and at least quarterly thereafter, whether a derivative used in a hedging transaction is highly effective in offsetting changes in either the fair value or the cash flows of the hedged item.

When it is determined that a derivative ceases to be highly effective or that the hedged transaction is no longer probable of occurring, we discontinue hedge accounting.

GRAFTECH INTERNATIONAL LTD.

1 unchanged sentence

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

whether a derivative used in a hedging transaction is highly effective in offsetting changes in either the fair value or the cash flows of the hedged item.

When it is determined that a derivative ceases to be highly effective, we discontinue hedge accounting.

Foreign Currency Derivatives

8 unchanged sentences

Derivatives used in this manner relate to risks resulting from assets or liabilities denominated in a foreign currency.

Commodity Derivative Contracts

Commodity Contracts

We have entered into derivative contracts for refined oil products.

These contracts are entered into to protect against the risk that eventual cash flows related to these products will be adversely affected by future changes in prices.

All commodity contracts are carried at fair value and are treated as hedges to the extent they are effective.

All commodity contracts are carried at fair value and are treated as cash flow hedges to the extent they are effective.

Changes in their fair values are included in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets until settlement.

Realized gains and losses resulting from settlement are recognized in accumulated other comprehensive income (loss) and are recorded in cost of sales on the Consolidated Statements of Operations when the underlying hedged item is realized.

Realized gains and losses resulting from settlement are first recognized in accumulated other comprehensive income (loss) and are recorded in cost of sales on the Consolidated Statements of Operations when the underlying hedged item is realized.

Interest Rate Swap Contracts

We have entered into interet rate swap contracts that are "pay variable, receive fixed" with maturities of either two or five years.

We have entered into interest rate swap contracts that are "pay variable, receive fixed" with maturities of either two or five years .

The Company’s risk management objective was to fix its cash flows associated with the risk in variability in the one-month U.S.

LIBO Rate for a portion of our outstanding debt.

LIBO Rate for a portion of our outstanding debt under the 2018 Term Loan.

It is expected that these swaps will fix the cash flows associated with the forecasted interest payments on this notional amount of debt.

2 unchanged sentences

Realized gains and losses resulting from the settlement are recognized in interest expense in the period of settlement.

We file a consolidated U.S federal income tax return for GTI and its eligible domestic subsidiaries.

We file a consolidated U.S.

federal income tax return for GTI and its eligible domestic subsidiaries.

subsidiaries file income tax returns in their respective local jurisdictions.

6 unchanged sentences

The guidance on accounting for uncertainty in income taxes also provides guidance on derecognition, classification, interest and penalties on income taxes, and accounting in interim periods.

As a result of the enactment of the Tax Act of 2017, the Company is required to make an accounting policy election of either (1) treating taxes due on future U.S.

inclusions in taxable income related to Global Intangible Low Tax Income ("GILTI") as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”).

The Company’s accounting policy will be to treat taxes due on future U.S.

inclusions in taxable income related to GILTI as a current period expense when incurred.

The Company treats taxes due on future U.S.

inclusions in taxable income related to Global Intangible Low Tax Income ("GILTI") as a current period expense when incurred (the “period cost method”).

See Note 13 "Income Taxes" for more information.

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-initial public offering ("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

GRAFTECH INTERNATIONAL LTD.

1 unchanged sentence

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Related Party Tax Receivable Agreement

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 Internal Revenue Code of 1986, as amended from time to time (the "Code"), foreign tax credits, and certain NOLs in Swissco (collectively, the "Pre‑IPO Tax Assets").

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 Internal Revenue Code of 1986, as amended from time to time (the "Code"), foreign tax credits, and certain NOLs in Swissco (collectively, the "Pre-IPO Tax Assets").

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

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When payments are fixed or determinable, the liability is discounted using a rate at which the payments could be effectively settled.

The accrued liability relating to environmental remediation was $ 4.9 million as of December 31, 2019 and $ 4.2 million as of December 31, 2018 .

The increase in the liability was the result of a revised estimate for asset retirement obligations related to landfills.

The accrued liability relating to environmental remediation was $ 4.9 million as of December 31, 2020 and 2019.

Our environmental liabilities do not take into consideration possible recoveries of insurance proceeds.

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subsidiaries are sold or substantially or completely liquidated.

For our Mexican, Swiss, United Kingdom and Russian subsidiaries, whose functional currency is the U.S.

dollar, we remeasure non-monetary balance sheet accounts and the related income statement accounts at historical exchange rates.

Resulting gains and losses arising from the fluctuations in currency for monetary accounts are recognized in other (income)

GRAFTECH INTERNATIONAL LTD.

1 unchanged sentence

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For our Mexican, Swiss, United Kingdom and Russian subsidiaries, whose functional currency is the U.S.

dollar, we remeasure non-monetary balance sheet accounts and the related income statement accounts at historical exchange rates.

Resulting gains and losses arising from the fluctuations in currency for monetary accounts are recognized in other (income) expense, net, in the Consolidated Statements of Operations.

expense, net, in the Consolidated Statements of Operations.

Gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in earnings as incurred.

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We perform the annual goodwill impairment test at December 31.

The annual goodwill impairment testing may begin with a qualitative assessment of potential impairment indicators in order to determine whether it is necessary to perform the two-step goodwill impairment test.

The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level.

The annual goodwill impairment testing may begin with a qualitative assessment of potential impairment indicators in order to determine whether it is necessary to perform the quantitative goodwill impairment test.

In 2020, ASU No.

2017-14 simplified the accounting for goodwill impairment removing the second step of the good will impairment test.

Prior to adopting the new guidance, the impairment test for goodwill used a two-step approach, which was performed at the reporting unit level.

Step one compares the fair value of the reporting unit to its carrying value.

The fair value for each reporting unit with goodwill is determined in accordance with accounting guidance on determining fair value, which requires consideration of the income, market, and cost approaches as applicable.

If the carrying value exceeds the fair value, there is potential impairment and step two must be performed.

Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value (i.e., fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets).

If the carrying value exceeded the fair value, there is potential impairment and step two must be performed.

Step two compared the carrying value of the reporting unit’s goodwill to its implied fair value (i.e., fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets).

If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment is recognized.

1 unchanged sentence

The estimated useful lives for each major category of amortizable intangible assets are:

Trade name 5 - 20

Technology and know-how 5 - 14

4 unchanged sentences

Time periods between overhauls vary by unit.

We also perform an annual scheduled significant maintenance and repair shutdown of the plant (referred to as “turnaround”).

We also perform significant maintenance and repair shutdown of the plant (referred to as “turnaround”) every other year.

Costs of overhauls and turnarounds include plant personnel, contract services, materials, and rental equipment.

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Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-02, Leases (Topic 842).

Under this guidance, companies recognize most leases on its balance sheet as lease liabilities with corresponding right-of-use assets.

This ASU is effective for fiscal years beginning after December 15, 2018.

The Company 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.

In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU No.

2017-04, Intangibles-Goodwill and Other (Topic 350).

2 unchanged sentences

Under this new guidance, a goodwill impairment charge will be based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

The guidance will become effective on a prospective basis for the Company on January 1, 2020 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The 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 is effective beginning 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.

3 unchanged sentences

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.

(2) Revenue from Contracts with Customers

The Company adopted ASC 606 on January 1, 2018.

The reported results for 2019 and 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605), which is also referred to herein as the "previous revenue guidance".

Financial Statement Impact of Adopting ASC 606

The Company adopted ASC 606 effective January 1, 2018 using the modified retrospective method.

Under this method, we could elect to apply the cumulative effect method to either all contracts as of the date of initial application or only to contracts that are not complete as of that date.

We elected to apply the modified retrospective method to contracts that are not complete as of the date of initial application.

The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 was to be recorded as an adjustment to accumulated deficit as of the adoption date.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

of using the modified retrospective method, there were no adjustments that were made to accounts on the Company's consolidated balance sheet as of January 1, 2018.

Impact of the adoption of ASC 606 on accounting policies

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods.

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

To achieve this core principle, the following five steps are performed:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

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

The Company sells the majority of its products directly to steel manufacturers located in various jurisdictions.

The Company’s contracts consist of longer-term take-or-pay sales contracts of graphite electrodes with terms of up to five years and short-term purchase orders (deliveries within one year).

Additionally, for multi-year contracts, we may require the customer to post a bank guarantee, guarantee of a parent, a letter of credit or a significant pre-payment.

The promises of delivery of graphite electrodes represent the distinct performance obligations of our contracts.

A small portion of our sales consist of deliveries of by-products of the manufacturing processes, such as graphite powders, naphta and gasoil.

Given their nature, the Company’s performance obligations are satisfied at a point in time when control of the products has been transferred to the customer.

In most cases, control transfer is deemed to happen at the delivery point of the products defined under the incoterms, usually at time of loading the truck or the vessel.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods to the customer.

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

The Company’s contracts and customary practices involve few rebates or discounts.

The Company provides a limited warranty on its products and may issue credit notes or replace products free of charge for valid quality claims;

historically, quality claims have been insignificant and the Company records appropriate accruals for the estimated credit notes based on the historical statistical experience.

Certain contracts provide for limited rebates when deliveries are late versus committed dates.

These rebates are accrued for based on historical statistics of late deliveries on the contracts to which those terms apply.

Contracts that contain multiple distinct performance obligations require an allocation of the transaction price to each performance obligation based on a relative stand-alone selling price basis.

The Company regularly reviews market conditions and internally approved pricing guidelines to determine stand-alone selling prices for the different types of its customer contracts.

The stand-alone prices as known at contract inception are utilized as the basis to allocate the transaction price to the distinct performance obligations.

The allocation of the transaction price to the performance obligations remains unchanged if stand-alone selling prices change after contract inception.

The Company expenses sales commissions as earned as their amortization period would not extend beyond the year in which they are incurred.

These costs are recorded within selling and administrative expense.

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 London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

ASU 2020-04 can be elected for both interim and annual periods from March 12, 2020 through December 31, 2022.

We plan to adopt ASU 2020-04 as of January 1, 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 C ompany is currently evaluating the effects of this on our financial position, results of operations or cash flows.

GRAFTECH INTERNATIONAL LTD.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(2) Revenue from Contracts with Customers

Disaggregation of Revenue

The following table provides information about disaggregated revenue by type of product and contract for 2019 and 2018 :

December 31, 2019

December 31, 2018

The following table provides information about disaggregated revenue by type of product and contract:

For the Year Ended December 31,

2020 2019 2018

(Dollars in thousands)

Graphite Electrodes - Three- to five-year take-or-pay contracts

Graphite Electrodes - Long-term agreements $ 1,069,772 $ 1,437,354 $ 1,341,557

Graphite Electrodes - Short-term agreements and spot sales 123,845 260,979 395,928

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

Impact of New Revenue Guidance on Financial Statement Line Items

There would be no differences to the reported consolidated balance sheet, statement of operations and cash flows, as of and for the twelve months ended December 31, 2019 and 2018 , had the previous revenue guidance still been in effect.

Contract Balances

Receivables, net of allowances for doubtful accounts, were $ 247.1 million as of December 31, 2019 and $ 248.3 million as of December 31, 2018.

Substantially all the Company's receivables relate to contracts with customers.

Accounts receivables are recorded when the right to consideration becomes unconditional.

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These contract liabilities are recorded as current or long-term deferred revenue, depending on the lag between the pre-payment and the expected delivery of the related products.

Additionally, under ASC 606, deferred revenue originates from contracts where the allocation of the transaction price to the performance obligations based on their relative stand-alone selling prices results in the timing of revenue recognition being different from the timing of the invoicing.

In this case, deferred revenue is amortized into revenue based on the transaction price allocated to the remaining performance obligations.

Current deferred revenue is included in "Other accrued liabilities" and long-term deferred revenue is included in "Other long-term obligations" on the Consolidated Balance Sheets.

The following table provides information about deferred revenue from contracts with customers (in thousands):

Deferred revenue or contract assets originate from contracts where the allocation of the transaction price to the performance obligations based on their relative stand-alone selling prices results in the timing of revenue recognition being different from the timing of the invoicing.

In this case, deferred revenue is amortized into revenue based on the transaction price allocated to the remaining performance obligations and contract assets are realized through the contract invoicing.

Contract assets as of December 31, 2020 were $ 2.7 million, of which $ 1.5 million and $ 1.2 million are included in "Prepaid expenses and other assets" and "Other long-term assets," respectively, on the Condensed Consolidated Balance Sheets.

There were no contract assets as of December 31, 2019.

Current deferred revenue is included in "Other accrued liabilities" and long-term deferred revenue is included in "Other long-term obligations" on the Condensed Consolidated Balance Sheets.

GRAFTECH INTERNATIONAL LTD.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Current deferred revenue

Long-Term deferred revenue

The following table provides information about deferred revenue from contracts with customers (in thousands):

Current deferred revenue Long-Term deferred revenue

(Dollars in thousands)

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Revenue recognized ( 4,678 ) —

Revision of estimates — ( 694 )

Reclassification between long-term and current 3,042 ( 3,042 )

Foreign currency impact 71 ( 122 )

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Revenue recognized ( 6,270 ) —

Revision of estimates

Reclassification between long-term and current ( 1,804 ) 1,804

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Transaction Price Allocated to the Remaining Performance Obligations

The following table presents estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands).

The estimated revenues do not include contracts with original duration of one year or less.

Three- to five-year take-or-pay contracts

(Dollars in thousands)

2023 and thereafter

The majority of the long-term take-or-pay contracts are defined as pre-determined fixed annual volume contracts while a small portion are defined with a specified volume range.

The estimated revenues for the year 2020 include our current expectation for the specified volume range contracts as well as for the impact of credit risk.

The estimated revenues for the years 2021 and beyond are based upon the mid-point of the volume range for those contracts with specified ranges.

In addition to the expected remaining revenue to be recognized with the longer-term sales contracts, the Company recorded $ 1,437.4 million and $ 1,341.6 million of revenue pursuant to these contracts in the year ended December 31, 2019 and 2018 , respectively.

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

We have negotiated long-term sales agreement ("LTA") modifications with many of these customers.

W e also worked to preserve our rights under the LTAs in a few arbitrations that arose from some non-performance and other disputes during the year.

As a result of recent contract modifications, as well as on-going discussions with many of our customers, the remaining revenue associated with our LTAs is expected to be approximately as follows:

2021 2022 2023 through 2024

(Dollars in millions)

Estimated LTA revenue $ 925 -$ 1,025

$ 910 -$ 1,010

$ 350 -$ 450 (1)

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

The majority of the LTAs are defined as pre-determined fixed annual volume contracts while a small portion are defined with a specified volume range.

For the year 2021 and beyond, the contractual revenue amounts above are based upon the minimum volume for those contracts with specified ranges.

The actual revenue realized from these contracted volumes may vary in timing and total due to the credit risk associated with certain customers facing financial challenges and non-performance on contracts, as well as customer demand related to contracted volume ranges.

In addition to the expected remaining revenue to be recognized with the LTAs, the Company recorded $ 1,069.8 million, $ 1,437.4 million and $ 1,341.6 million of revenue pursuant to these contracts in the year ended December 31, 2020, 2019 and 2018, respectively.

GRAFTECH INTERNATIONAL LTD.

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The number of stock-based awards granted by our Board of Directors for the years ended 2020, 2019 and 2018 were as follows:

2020 2019 2018

Stock options 308,875 229,250 979,790

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Accounting for Stock-Based Compensation

Stock-based compensation expense recognized in 2019 was $ 2.1 million .

A majority of the expense, $ 1.9 million , was recorded as Selling and Administrative Expenses in the Consolidated Statement of Operations, with the remaining expenses incurred as cost of sales.

Stock-based compensation expense recognized was $ 1.2 million in 2018.

A majority of the expense, $ 1.0 million , was recorded as Selling and Administrative Expenses in the Consolidated Statement of Operations, with the remaining expenses incurred as Cost of Sales.

There was no stock-based compensation expense recognized in 2017.

Stock-based compensation expense was $ 2.7 million, $ 2.1 million and $ 1.2 million in 2020, 2019 and 2018, respectively.

A majority of the expense, $ 2.3 million in 2020, $ 1.9 million in 2019 and $ 1.0 million in 2018, was recorded as selling and administrative expenses in the Consolidated Statement of Operations, with the remaining expenses incurred as cost of sales.

As of December 31, 2020, unrecognized compensation cost related to non-vested stock options, deferred share units and restricted stock units represents $ 7.9 million, which will be recognized over a weighted average period of 3.4 years.

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Deferred Share Units and Restricted Stock Units.

Compensation expense for deferred share units and restricted stock unit awards is based on the closing price of our common stock on the date of grant, less forfeitures or cancellations of awards throughout the vesting period, which generally range between one and three years.

The weighted average grant date fair value of deferred share units and restricted stock units was approximately $ 8.84 per share during 2020.

Deferred share units and restricted stock unit awards activity under the Omnibus Equity Incentive Plan for 2020 was as follows:

of Shares Weighted-

Outstanding unvested as of December 31, 2019 282,716 $ 12.83

Granted 392,269 8.84

Cancelled ( 45,760 ) 12.24

Vested ( 104,737 ) 10.30

Outstanding unvested as of December 31, 2020 524,488 $ 10.41

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Of the total deferred share units granted, 58,207 were granted to our independent directors in lieu of cash retainers and vested immediately upon grant.

The remaining deferred share units and restricted stock units vest over a period of two to five years.

The remaining deferred share units and restricted stock units vest over a period of one to five years .

GRAFTECH INTERNATIONAL LTD.

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The weighted-average fair value of the options granted in 2019 was $ 5.13 .

There were no options granted in 2017 .

During 2018, we granted 979,790 options to certain of our officers and employees.

The weighted-average fair value of the options granted in 2018 was $ 6.08 .

The weighted average assumptions used in our Black-Scholes option pricing model for options granted in 2020 and 2019 were as follows:

For the Year Ended

December 31,2019

For the Year Ended

December 31,2020 For the Year Ended

December 31,2019 For the Year Ended

December 31,2018

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2.84 % - 2.98 %

Expected term in years

Expected term in years 6.5 years 6.5 years 6.5 years

Dividend Yield .

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Expected Volatility .

We estimate the volatility of our common stock at the date of grant based on the historical volatility of comparable companies over the most recent period commensurate with the expected life of the award.

For 2020, we estimated the volatility of our common stock at the date of grant based on the historical volatility of the company’s stock.

The volatility factor we use is based on our historical closing prices since our stock has been publicly traded.

For the years 2019 and 2018, we estimated the volatility of our common stock at the date of grant based on the historical volatility of comparable companies over the most recent period commensurate with the expected life of the award.

Risk-Free Interest Rate.

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The stock options vest over a five year period, with one-fifth of the award vesting on the anniversary date of the grant in each of the next five years .

Options outstanding at December 31, 2019, have a weighted average remaining contractual life of 8.5 years , a weighted average remaining vesting period of 1.9 years , and an aggregate intrinsic value of zero.

Options outstanding at December 31, 2020, have a weighted average remaining contractual life of 7.9 years, a weighted average remaining vesting period of 2.9 years, and an aggregate intrinsic value of $ 0.5 million.

There were no options exercised during 2020, 2019 or 2018.

Stock options outstanding and exercisable under our plans at December 31, 2020 are:

Options Outstanding

Options Exercisable

Range of Exercise Prices

Life in Years

Options Outstanding Options Exercisable

Range of Exercise Prices Number

Outstanding Weighted

Life in Years Weighted

Prices Number

Exercisable Weighted

$ 7.28 - $ 20.00 1,248,935 7.9 $ 13.66 342,574 $ 15.38

Stock option awards activity under the Omnibus Equity Incentive Plan for 2020 was as follows:

of Shares Weighted-

Outstanding unvested as of December 31, 2019 931,658 $ 15.06

Granted 308,875 8.99

Vested ( 190,212 ) 15.13

Forfeited ( 143,960 ) 14.82

Outstanding unvested as of December 31, 2020 906,361 $ 13.01

As of December 31, 2019 , we have 221,752 options expected to vest in the next year.

As of December 31, 2020, we had 303,583 options expected to vest in the next year.

There were 342,574 options exercisable as of December 31, 2020.

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(4) Segment Reporting

We previously operated two reportable business segments, Industrial Materials and Engineered Solutions.

During the second quarter of 2016, the Company decided to sell the businesses that comprised our Engineered Solutions segment to focus on our Industrial Materials segment.

Accordingly, the Engineered Solutions business qualified as held-for-sale status and the related results have been excluded from continuing operations.

Our Industrial Materials segment manufactures high-quality graphite electrodes essential to the production of EAF steel and other ferrous and non-ferrous metals.

Petroleum needle coke, a crystalline form of carbon derived from decant oil, is a key raw material used in the production of graphite electrodes.

We utilize substantially all the needle coke that we produce internally to manufacture our graphite electrodes and as a result approximately 95 % of our revenues from external customers are derived from the sale of graphite electrodes and graphite electrode by-products from our manufacturing processes.

In 2019 , one customer accounted for more than 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.

The following tables summarize information as to our continuing operations in different geographic areas.

We utilize substantially all the needle coke that we produce internally to manufacture our graphite electrodes and as a result approximately 97 % of our revenues from external customers are derived from the sale of graphite electrodes.

In 2020, no customer accounted for more than 10% of our net sales.

The following tables summarize information as to our operations in different geographic areas:

2020 2019 2018

(Dollars in thousands)

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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

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

At December 31,

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United States $ 169,208 $ 174,307

Mexico 132,867 141,621

Brazil 4,309 5,694

France 92,805 88,514

Spain 106,467 102,577

Other countries 561 307

Long-lived assets represent fixed assets, net of accumulated depreciation.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Total $ 506,217 $ 513,020

(a) Long-lived assets represent fixed assets, net of accumulated depreciation.

(5) Debt and Liquidity

The following table presents our long-term debt:

December 31, 2019

December 31, 2020 As of

December 31, 2019

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2018 Credit Facility (2018 Term Loan and 2018 Revolving Facility) $ 943,708 $ 1,843,750

2020 Senior Notes $ 500,000 —

Other Debt 615 705

Unamortized debt discount and issuance costs ( 24,192 ) ( 31,632 )

Total Debt 1,420,131 1,812,823

Short-term Debt ( 131 ) ( 141 )

Long-term Debt $ 1,420,000 $ 1,812,682

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2018 Credit Agreement

13 unchanged sentences

For borrowings under both the 2018 Term Loan Facility and the 2018 Revolving Credit Facility, if the Administrative Agent determines that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate and such circumstances are unlikely to be temporary or the relevant authority has made a public statement identifying a date after which the LIBO Rate shall no longer be used for determining interest rates for loans, then the Administrative Agent and the Co-Borrowers shall endeavor to establish an alternate rate of interest, which shall be effective so long as the majority in interest of the lenders for each Class (as defined in the 2018 Credit Agreement) of loans under the 2018 Credit Agreement do not notify the Administrative Agent otherwise.

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

All obligations under the 2018 Credit Agreement are guaranteed by 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").

GRAFTECH INTERNATIONAL LTD.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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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.

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,

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 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

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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.

The proceeds of the Incremental Term Loans were used to repay, in full, the $ 750 million of principal outstanding on previously existing debt.

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.

Through the year 2020, we made total repayments for $ 820 million on our 2018 Term Loan Facility, a significant portion of such repayments was funded by the cash obtained from the 2020 Senior Notes issued on December 22, 2020.

Additionally, during 2020, we executed several transactions to repurchase a total of $ 80 million of principal of our 2018 Term Loan facility.

2020 Senior Notes

On December 22, 2020, GrafTech Finance issued $ 500 million aggregate principal amount of 4.625 % Senior Secured Notes due 2028 (the “2020 Senior Notes”) at an issue price of 100 % of the principal amount thereof in a private offering to

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 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 will also be 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 proceeds from the 2020 Senior Notes were used to partially repay our 2018 Term Loan Facility.

(6) Goodwill and Other Intangible Assets

We are required to review goodwill and indefinite-lived intangible assets annually for impairment.

impairment is tested at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

Goodwill impairment is tested at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

For the years ended December 31, 2020 and 2019, an assessment for potential impairment was performed and an impairment adjustment was not required.

The following table represents the changes in the carrying value of goodwill and intangibles for the years 2018 and 2019 :

(Dollars in Thousands)

Balance as of December 31, 2017

Balance as of December 31, 2018

Balance as of December 31, 2019

There has been no change in the carrying value of goodwill for the years 2019 and 2020.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes acquired intangible assets with determinable useful lives by major category which are included in Other Assets on our Consolidated Balance Sheets:

As of December 31, 2019

As of December 31, 2018

As of December 31, 2020 As of December 31, 2019

Amount Accumulated

Amortization Net

Amount Accumulated

Amortization Net

(Dollars in thousands)

Trade name $ 22,500 $ ( 11,932 ) $ 10,568 $ 22,500 $ ( 9,861 ) $ 12,639

Technology and know-how 55,300 ( 34,091 ) 21,209 55,300 ( 29,112 ) 26,188

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Total finite-lived intangible assets $ 142,300 $ ( 69,871 ) $ 72,429 $ 142,300 $ ( 58,446 ) $ 83,854

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense of intangible assets was $ 12.2 million , $ 12.9 million , $ 13.6 million in 2019, 2018 and 2017, respectively.

Amortization expense of intangible assets was $ 11.4 million, $ 12.2 million and $ 12.9 million in 2020, 2019 and 2018, respectively.

Estimated annual amortization expense for the next five years will approximate $ 10.7 million in 2021, $ 10.1 million in 2022, $ 9.2 million in 2023, $ 8.0 million in 2024 and $ 7.3 million in 2025.

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For the Year Ended December 31

2020 2019 2018

(Dollars in thousands)

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Interest rates

The 2018 Credit Agreement had an effective interest rate of 5.30 % as of December 31, 2019 and 6.02 % as of December 31, 2018 .

The Old Revolving Facility and Old Term Loan Facility had an effective interest rate of 4.57 % as of December 31, 2017 and the Senior Notes had a fixed interest rate of 6.375 % , both of which were repaid on February 12, 2018 as part of our refinancing (See Note 5 "Debt and Liquidity").

The 2020 Senior Notes issued on December 22, 2020 carry a fixed interest rate of 4.625 %.

The 2018 Credit Agreement had an interest rate of 4.50 % as of December 31, 2020, 5.30 % as of December 31, 2019 and 6.02 % as of December 31, 2018.

The Old Revolving Facility and Old Term Loan Facility, both of which were repaid on February 12, 2018, had an interest rate of 4.56 % and 4.58 %, respectively, as of the date of the repayment.

The 2012 Senior Notes issued on November 20, 2012, which were also repaid on February 12, 2018, had a fixed interest rate of 6.375 % (See Note 5 "Debt and Liquidity").

In December 2020, the proceeds from the issuance of the $ 500 million 2020 Senior Notes were used to repay $ 500 million of principal on the 2018 Term Loan.

The repayment of the 2018 Term Loan was accounted for as a partial debt extinguishment and triggered $ 3.2 million of accelerated accretion of the original issue discount and $ 5.2 million of accelerated amortization of the debt issuance costs.

The 2020 Senior Notes were accounted for as new debt and the related debt issuance costs were deferred.

As a result of our February 12, 2018 refinancing, we paid a prepayment premium for the redemption of our 2012 Senior Notes totaling $ 4.8 million.

The accretion of the August 15, 2015 fair value adjustment to our Senior Notes totaling $ 19.4 million in 2018, included accelerated accretion of $ 18.7 million resulting from the prepayment.

The accretion of the August 15, 2015 fair value adjustment to our 2012 Senior Notes issued on November 20, 2012, totaling $ 19.4 million in 2018, included accelerated accretion of $ 18.7 million resulting from the prepayment.

Amortization of debt issuance costs included $ 0.3 million of accelerated amortization related to the refinancing.

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• Level 1 – based upon quoted prices for identical instruments in active markets,

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

• Level 2 – based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations of all of whose significant inputs are observable, and

2 unchanged sentences

Cash and cash equivalents, short-term notes and accounts receivable, accounts payable and other current payables – The carrying amount approximates fair value because of the short maturity of these instruments.

Debt – The fair value of our debt as of December 31, 2019 and December 31, 2018 approximated book value of $ 1,812.8 million and $ 2,156.6 million , respectively.

Debt – The fair value of our debt as of December 31, 2020 and December 31, 2019 was $ 1,453.1 million and $ 1,812.8 million, respectively.

The fair values were determined using Level 3 inputs.

Foreign currency derivatives – Foreign currency derivatives are carried at market value using Level 2 inputs.

We had an outstanding gain of $ 0.2 million as of December 31, 2019 and an outstanding loss of $ 0.1 million as of December 31, 2018 .

We had an outstanding loss of $ 0.1 million as of December 31, 2020 and an outstanding gain of $ 0.2 million as of December 31, 2019.

Commodity derivative contracts – Commodity derivative contracts are carried at fair value.

We determine the fair value using observable, quoted refined oil product prices that are determined by active markets and therefore classify the commodity derivative contracts as Level 2.

We had outstanding gains of $ 0.5 million and outstanding losses of $ 4.1 million as of December 31, 2019 and outstanding gains of $ 0.3 million and outstanding losses of $ 11.0 million as of December 31, 2018 .

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

We had outstanding unrealized gains of $ 0.6 million and outstanding unrealized losses of $ 2.8 million as of December 31, 2020 and outstanding unrealized gains of $ 0.5 million and outstanding unrealized losses of $ 4.1 million as of December 31, 2019.

Interest rate swap contracts – Interest rate swap contracts are carried at fair value.

We determine the fair value using the income approach to value the derivatives, using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single discounted present amount reflecting current market expectations about those future amounts.

We had no outstanding unrealized gains and outstanding unrealized losses of $ 11.9 million as of December 31, 2020.

We had outstanding unrealized gains of $ 2.9 million and outstanding unrealized losses of $ 0.1 million as of December 31, 2019.

16 unchanged sentences

These contracts are entered into to protect against the risk that eventual cash flows related to these products will be adversely affected by future changes in prices.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In the fourth quarter of 2017, we began to enter into three - to five-year take-or-pay contracts with many of our customers and began to hedge the cash flows related to these contracts.

3 unchanged sentences

The fair value of these contracts was determined using Level 2 inputs.

In the fourth quarter of 2019, we released $0.4 million from accumulated other comprehensive income to cost of sales.

This resulted from a portion of our commodity derivative contracts failing to qualify for hedge accounting.

In connection with de-designated commodity derivative contracts, we recognized in cost of sales a $ 0.4 million unrealized loss in 2020 and a $ 0.4 million unrealized gain in 2019 as a result of the variation in fair value from the de-designation date.

This resulted from a small portion of our commodity derivative contracts that ceased to qualify for hedge accounting.

Interest rate swap contracts

1 unchanged sentence

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 .

The Company’s risk management objective was to fix its cash flows associated with the risk in variability in the one-month US LIBO Rate for a portion of our outstanding debt.

The Company’s risk management objective was to fix its cash flows associated with the risk in variability in the one-month US LIBO Rate for a portion of our outstanding 2018 Term Loan.

It is expected that these swaps will fix the cash flows associated with the forecasted interest payments on this notional amount of debt to an effective fixed interest rate of 5.1 %, which could be lowered to 4.85 % depending on credit ratings.

Within accumulated other comprehensive income we recorded a net unrealized pre-tax gain of $ 2.9 million as of December 31, 2019 .

In December 2020, in connection with the $ 500 million principal repayment of the 2018 Term Loan, we de-designated one interest rate swap contract of $ 250 million notional maturing in the third quarter of 2021.

Within accumulated other comprehensive income, we recorded a net unrealized pre-tax loss of $ 11.9 million and a net unrealized pre-tax gain of $ 2.9 million as of December 31, 2020 and 2019, respectively.

The fair value of these contracts was determined using Level 2 inputs.

The change in the fair value of the de-designated interest rate swap contract from the de-designation date to December 31, 2020, was recorded in interest expense and was immaterial.

Net Investment Hedges

We use certain intercompany debt to hedge a portion of our net investment in our foreign operations against currency exposure (net investment hedge).

In the second quarter of 2020, we discontinued our net investment hedge following a reduction in the investment that materially decreased the currency exposure.

As of December 31, 2019, intercompany debt denominated in foreign currency and designated as a non-derivative net investment hedging instrument was $ 5.5 million.

Within our currency translation adjustment portion of other comprehensive income (loss), we recorded $ 1.2 million in pre-tax gains in 2020, and no gain or loss in 2019, resulting from these net investment hedges.

GRAFTECH INTERNATIONAL LTD.

1 unchanged sentence

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

We use certain intercompany debt to hedge a portion of our net investment in our foreign operations against currency exposure (net investment hedge).

Intercompany debt designated in foreign currency and designated as a non-derivative net investment hedging instrument was $ 5.5 million and $ 9.5 million as of December 31, 2019 and 2018 , respectively.

Within our currency translation adjustment portion of other comprehensive income (loss), we recorded no gain or loss in 2019 , and a gain of $ 2.2 million in 2018 , resulting from these net investment hedges.

The fair value of all derivatives is recorded as assets or liabilities on a gross basis in our Consolidated Balance Sheets.

At December 31, 2020 and 2019, the fair value of our derivatives and their respective balance sheet locations are presented in the following table:

Asset Derivatives

Liability Derivatives

As of December 31, 2019

(Dollars in thousands)

Asset Derivatives Liability Derivatives

Location Fair Value Location Fair Value

As of December 31, 2020 (Dollars in thousands)

Derivatives designated as cash flow hedges:

Commodity derivative contracts

Prepaid and other current assets

Other accrued liabilities

Other long-term assets

Other long-term obligations

Interest rate swap contracts

Prepaid and other current assets

Other accrued liabilities

Other long-term assets

Other long-term obligations

Commodity derivative contracts Prepaid and other current assets $ 518 Other accrued liabilities $ 888

Other long-term assets 63 Other long-term obligations 1,898

Interest rate swap contracts Prepaid and other current assets — Other accrued liabilities 4,080

Other long-term assets — Other long-term obligations 6,903

Total fair value $ 581 $ 13,769

As of December 31, 2019

Commodity derivative contracts

Prepaid and other current assets

Other accrued liabilities

Other long-term assets

Other long-term obligations

Commodity derivative contracts Prepaid and other current assets $ 104 Other accrued liabilities $ 1,872

Other long-term assets 369 Other long-term obligations 2,255

Interest rate swap contracts Prepaid and other current assets $ 253 Other accrued liabilities $ —

Other long-term assets $ 2,684 Other long-term obligations $ 72

Total fair value $ 3,410 $ 4,199

Asset Derivatives

Liability Derivatives

As of December 31, 2019

(Dollars in Thousands)

Asset Derivatives Liability Derivatives

Location Fair Value Location Fair Value

As of December 31, 2020 (Dollars in Thousands)

Derivatives not designated as hedges:

Foreign currency derivatives

Prepaid and other current assets

Other current liabilities

Commodity derivative contracts

Prepaid and other current assets

Other accrued liabilities

Foreign currency derivatives Prepaid and other current assets $ 6 Other accrued liabilities $ 111

Interest rate swap contracts Prepaid and other current assets — Other accrued liabilities 952

Total fair value $ 6 $ 1,063

1 unchanged sentence

Derivatives not designated as hedges:

Foreign currency derivatives

Prepaid and other current assets

Other current liabilities

As a result of the settlement of commodity derivative contracts, as of December 31, 2019 and December 31, 2018 , net realized pre-tax gains of $ 3.5 million and $ 7.0 million , respectively, were reported in accumulated other comprehensive income (loss) and will be released to earnings within the next 12 months.

Foreign currency derivatives Prepaid and other current assets $ 239 Other accrued liabilities $ 81

Commodity derivative contracts Prepaid and other current assets 376 Other accrued liabilities —

Total fair value $ 615 $ 81

As a result of the settlement of commodity derivative contracts, as of December 31, 2020 and December 31, 2019, net realized pre-tax loss of $ 7.4 million and net realized pre-tax gain of $ 3.5 million, respectively, were reported in accumulated other comprehensive income (loss) and will be released to earnings within the next 12 months.

GRAFTECH INTERNATIONAL LTD.

3 unchanged sentences

Amount of (Gain)/Loss

Location of (Gain)/Loss Recognized in the Consolidated Statement of Operations

Location of Realized (Gain)/Loss Recognized in the Consolidated Statement of Operations 2020 2019 2018

Derivatives designated as cash flow hedges:

(Dollars in thousands)

Commodity derivative contracts

Cost of sales

Interest rate swaps

Interest expense

Commodity derivative contracts Cost of sales $ ( 4,134 ) $ ( 8,892 ) $ ( 919 )

Interest rate swaps Interest expense (income) 4,390 ( 1,050 ) —

Amount of (Gain)/Loss

Location of (Gain)/Loss Recognized in the Consolidated Statement of Operations

Location of Realized (Gain)/Loss Recognized in the Consolidated Statement of Operations 2020 2019 2018

Derivatives not designated as hedges:

(Dollars in thousands)

Foreign currency derivatives

Cost of sales, Other expense/(income)

Commodity derivative contracts

Cost of sales

Foreign currency derivatives Cost of sales, Other expense/(income) $ ( 2,671 ) $ ( 506 ) $ ( 522 )

Commodity derivative contracts Cost of sales ( 530 ) ( 223 ) —

GRAFTECH INTERNATIONAL LTD.

3 unchanged sentences

The following tables present supplementary balance sheet details:

December 31, 2019

December 31, 2020 As of

December 31, 2019

(Dollars in thousands)

Inventories *:

Raw materials and supplies $ 101,098 $ 129,879

1 unchanged sentence

Finished goods 54,535 52,334

$ 265,964 $ 313,648

Prepaid expenses and other current assets:

3 unchanged sentences

Other current assets 3,381 4,332

$ 35,114 $ 40,946

Property, plant and equipment:

Land and improvements $ 50,285 $ 46,548

Buildings 80,041 71,784

Machinery and equipment and other 621,478 567,715

Construction in progress 33,098 47,370

$ 784,902 $ 733,417

Other accrued liabilities:

2 unchanged sentences

Deferred revenue 13,056 11,776

Other 23,158 17,342

$ 56,501 $ 48,335

Other long term obligations:

1 unchanged sentence

Pension and related benefits 37,847 37,431

Other 27,962 18,603

$ 81,478 $ 72,562

*During the fourth quarter of 2020, we elected to change the presentation of needle coke within our Seadrift manufacturing facility to present such inventory as a raw material.

Prior to this change, such needle coke was presented, as either work in process or finished goods.

We applied this change in accounting policy retrospectively for all periods presented, thereby increasing raw materials by $ 25.1 million, decreasing work in process by $ 5.8 million, and decreasing finished goods by $ 19.3 million as of December 31, 2019.

The change had no impact on total inventories or any other financial statement disclosures.

We believe that the new presentation enhances comparability and consistency of inventory disclosure as it accounts for needle coke inventory as raw material across all of our facilities and whether sourced internally from Seadrift or from third-party suppliers.

We currently use all Seadrift produced needle coke internally.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table presents an analysis of the allowance for doubtful accounts:

2020 2019 2018

Balance at beginning of year $ 5,474 $ 1,129 $ 1,097

ASC 326 adoption impact 2,026 — —

Additions 1,458 4,636 122

Deductions ( 715 ) ( 291 ) ( 90 )

Balance at end of year $ 8,243 $ 5,474 $ 1,129

We lease certain transportation and mobile manufacturing equipment such as railcars and forklifts, as well as real estate.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company adopted ASC 842 on January 1, 2019, which requires that all leases, financing and operating, be included on the balance sheet.

11 unchanged sentences

Leases may include variable lease and variable non-lease components costs which are accounted for as variable lease expense in the income statement.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Components of lease expense are as follows:

For Year Ended December 31, 2019

For the Year Ended December 31,

(Dollars in thousands)

3 unchanged sentences

Total lease cost $ 6,726 $ 5,057

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash-flow and other information related to leases is as follows:

For Year Ended December 31, 2019

For the Year Ended December 31,

(Dollars in thousands)

2 unchanged sentences

Supplemental balance sheet information related to leases is as follows:

December 31, 2019

As of December 31,

(Dollars in thousands)

Operating RoU Assets*

*Amount included in Other assets

Current operating lease liabilities

Non-current operating lease liabilities

Operating RoU Assets Other assets $ 7,164 $ 7,994

Current operating lease liabilities Other accrued liabilities 4,102 4,475

Non-current operating lease liabilities Other long-term obligations 3,195 3,598

Total operating lease liabilities $ 7,297 $ 8,073

**Amounts included in Other accrued liabilities and Other long-term obligations

Weighted average remaining lease term (in years) 2.7 2.3

6 unchanged sentences

Present value of lease payments $ 7,297

Current operating lease liability

Non-current operating lease liability

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2020, we have not entered into any additional operating lease commitments that have yet to commence.

Disclosure related to periods prior to adoption of the new lease standard

As of December 31, 2018 , lease commitments under non-cancelable operating leases required the following future payments:

(Dollars in thousands)

2024 and thereafter

(11) Retirement Plans and Postretirement Benefits

7 unchanged sentences

The Union Carbide plan is responsible for paying retirement and death benefits earned as of February 26, 1991.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Effective January 1, 2002, we established a defined contribution plan for U.S.

10 unchanged sentences

For the Year Ended December 31,

2020 2019 2018

(Dollars in thousands)

Service cost $ 1,322 $ 1,183 $ 1,297 $ 624 $ 1,315 $ 674

Interest cost 3,949 174 5,070 275 4,709 253

Expected return on assets ( 4,730 ) ( 401 ) ( 5,026 ) ( 424 ) ( 5,679 ) ( 330 )

Mark-to-market loss (gain)

Mark- to- market loss 613 2,596 205 3,302 2,473 503

Pension costs $ 1,154 $ 3,552 $ 1,546 $ 3,777 $ 2,818 $ 1,100

The mark-to-market loss in 2020 was the result of the unfavorable change in the discount rate, new employee obligations and unfavorable foreign currency translation, partially offset by better than expected return on plan assets, particularly for the U.S.

The mark-to-market loss in 2019 was the result of the unfavorable change in the discount rate, partially offset by better than expected return on plan assets, particularly for the U.S.

The mark-to-market loss in 2018 was the result of less than expected return on plan assets, partially offset by a favorable change to the discount rate.

The mark-to-market gain in 2017 was

the result of better than expected returns on plan assets and favorable changes to the mortality tables, partially offset by unfavorable changes to the discount rate.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The reconciliation of the beginning and ending balances of our pension plans’ benefit obligations, fair value of assets, and funded status at December 31, 2020 and 2019 are:

December 31, 2019

December 31, 2020 As of

December 31, 2019

2 unchanged sentences

Net benefit obligation at beginning of period $ 135,810 $ 28,903 $ 126,985 $ 22,332

Service cost 1,322 1,183 1,297 624

Interest cost 3,949 174 5,070 275

13 unchanged sentences

Funded status (underfunded):

Amounts recognized in accumulated

other comprehensive loss:

Prior service credit

$ ( 24,686 ) $ ( 13,634 ) $ ( 27,978 ) $ ( 9,923 )

Amounts recognized in the statement

4 unchanged sentences

Net amount recognized $ ( 24,686 ) $ ( 13,634 ) $ ( 27,978 ) $ ( 9,923 )

• For certain international jurisdictions, the amount reported under "Benefits paid" include obligations and assets that have been transferred into our plans in connection with personnel hired during the year.

The accumulated benefit obligation for all defined benefit pension plans was $ 176.3 million and $ 162.6 million as of December 31, 2020 and 2019, respectively.

5 unchanged sentences

Foreign government bonds – Valued by the trustees using various pricing services of financial institutions.

Equity securities – Valued at the closing price reported on the active market on which the security is traded.

Fixed insurance contract – Valued at the present value of the guaranteed payment streams.

GRAFTECH INTERNATIONAL LTD.

1 unchanged sentence

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Equity securities – Valued at the closing price reported on the active market on which the security is traded.

Fixed insurance contract – Valued at the present value of the guaranteed payment streams.

Investment contracts – Valued at the total cost of annuity contracts purchased, adjusted for market differences from the date of purchase to year-end.

6 unchanged sentences

As of December 31, 2020

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 1,850 $ — $ — $ 1,850

3 unchanged sentences

Total assets in the fair value hierarchy $ — $ 995 $ 24,087 $ 25,082

Investments measured at net asset value

Plan - Investments measured at net asset value $ 113,718

Total $ 1,850 $ 995 $ 24,087 $ 140,650

As of December 31, 2019

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 1,524 $ — $ — $ 1,524

3 unchanged sentences

Total assets in the fair value hierarchy $ — $ 995 $ 17,985 $ 18,980

Investments measured at net asset value

Plan - Investments measured at net asset value $ 106,308

Total $ 1,524 $ 995 $ 17,985 $ 126,812

The following table presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy for international plan pension assets for the years ended December 31, 2019 and 2020 (dollars in thousands):

13 unchanged sentences

Assumptions used to determine net pension costs and projected benefit obligations are:

Pension Benefit Obligations Key Assumptions

As of December 31,

Pension Benefit Obligations Key Assumptions As of December 31,

Weighted average assumptions to determine benefit obligations:

19 unchanged sentences

Fixed income, debt securities, or cash 80 % 100 %

Total 100 % 100 %

Investment Policy and Strategy.

21 unchanged sentences

Estimated future benefit payments reflecting expected future service for the years ending December 31:

2021 9,254 1,102

2022 9,211 1,087

2023 9,149 1,229

2024 9,022 2,763

2025 8,976 1,330

2026-2030 42,021 13,164

Post-Employment Benefit Plans

We provide life insurance benefits for eligible retired employees.

These benefits are provided through various insurance companies.

We accrue the estimated net postretirement benefit costs during the employees’ credited service periods.

In July 2002, we amended our U.S.

postretirement medical coverage.

In 2003 and 2004, we discontinued the Medicare Supplement Plan (for retirees 65 years or older or those eligible for Medicare benefits).

This change applied to all U.S.

active employees and retirees.

In June 2003, we announced the termination of the existing early retiree medical plan for retirees under age 65, effective December 31, 2005.

In addition, we limited the amount of retiree’s life insurance after December 31, 2004.

These modifications are accounted for prospectively.

The impact of these changes is being amortized over the average remaining period to full eligibility of the related postretirement benefits.

During 2009, we amended one of our U.S.

plans to eliminate the life insurance benefit for certain non-pooled participants.

The components of our consolidated net postretirement costs are set forth in the following table:

For the Year Ended December 31,

(Dollars in thousands)

Interest cost

Mark-to-market loss (gain)

Post-employment benefits (benefit)

The reconciliation of beginning and ending balances of benefit obligations under, fair value of assets of, and the funded status of, our postretirement plans is set forth in the following table:

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Postretirement Benefits

December 31, 2019

December 31, 2018

(Dollars in thousands)

Changes in Benefit Obligation:

Net benefit obligation at beginning of period

Interest cost

Foreign currency exchange rates

Actuarial (gain) loss

Gross benefits paid

Plan amendment

Net benefit obligation at end of period

Changes in Plan Assets:

Fair value of plan assets

at beginning of period

Employer contributions

Gross benefits paid

Fair value of plan assets at end of period

Funded status:

Amounts recognized in accumulated

other comprehensive loss:

Prior service credit

Amounts recognized in the statement of

financial position:

Current liabilities

Non-current liabilities

Net amount recognized

We annually re-evaluate assumptions and estimates used in projecting the postretirement liabilities and expenses.

These assumptions and estimates may affect the carrying value of postretirement plan liabilities and expenses in our Consolidated Financial Statements.

Assumptions used to determine net postretirement benefit costs and postretirement projected benefit obligation are set forth in the following table:

Postretirement Benefit Obligations

Weighted average assumptions to determine benefit obligations:

Discount rate

Health care cost trend on covered charges:

Years to ultimate

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Postretirement Benefit Costs

Weighted average assumptions to determine net cost:

Discount rate

Health care cost trend on covered charges:

Years to ultimate

Assumed health care cost trend rates have a significant effect on the amounts reported for our postretirement benefits.

A one-percentage point change in assumed health care cost trend rates would have the following effects at December 31, 2019 :

One Percentage

Point Increase

One Percentage

Point Decrease

(Dollars in thousands)

Effect on total service cost

and interest cost components

Effect on benefit obligations

Discount rates are set for each plan in reference to the yields available on AA-rated corporate bonds of appropriate currency and duration.

The appropriate discount rate is derived by developing an AA-rated corporate bond yield curve in each currency.

The discount rate for a given plan is the rate implied by the yield curve for the duration of that plan’s liabilities.

In certain countries, where little public information is available on which to base discount rate assumptions, the discount rate is based on government bond yields or other indices and approximate adjustments to allow for the differences in weighted durations for the specific plans and/or allowance for assumed credit spreads between government and AA-rated corporate bonds.

The following table represents projected future postretirement cash flow by year:

(Dollars in thousands)

Expected contributions in 2020:

Expected employer contributions

Expected employee contributions

Estimated future benefit payments reflecting expected

future service for the years ending December 31:

We have legacy post-retirement medical coverage and life insurance benefits for eligible retired employees in the US and in certain foreign jurisdictions.

Effective December 31, 2005, all US post-retirement medical coverage plans were frozen.

The post-employment benefit plans are un-funded and our periodic contributions correspond to the amount of benefits paid in the period.

Our funding contributions were $ 1.3 million and $ 1.7 million in 2020 and 2019, respectively.

The estimated liability for post-employment benefit plans was $ 17.2 million and $ 18.1 million as of December 31, 2020 and December 31, 2019, respectively.

The expense recognized in the Consolidated Statement of Operations for post-employment benefits was $ 0.7 million, $ 1.6 million and none for 2020, 2019 and 2018, respectively.

Our employee savings plan provides eligible employees the opportunity for long-term savings and investment.

The plan allows employees to contribute up to 5 % of pay as a basic contribution and an additional 45 % of pay as supplemental contribution.

In 2019 , 2018 and 2017 , the contributions to our savings plan were $ 2.1 million , $ 1.3 million and $ 1.6 million , respectively.

In 2020, 2019 and 2018, the Company's matching contributions to our savings plan were $ 2.2 million, $ 2.1 million and $ 1.3 million, respectively.

(12) Contingencies

9 unchanged sentences

In the first quarter of 2017, the state court initially ruled in favor of the employees.

We have appealed this state court ruling as well and intend to vigorously defend it.

We appealed this state court ruling, and the appellate court issued a decision in our favor on May 19, 2020.

The employees have further appealed, and on December 16, 2020, the court upheld the decision in favor of GrafTech Brazil.

On February 22, 2021, the employees filed a further appeal , and we intend to vigorously defend our position.

As of December 31, 2020, we are unable to assess the potential loss associated with these proceedings as the claims do not currently specify the number of employees seeking damages or the amount of damages being sought.

13 unchanged sentences

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 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 the pre-IPO Tax Assets.

2 unchanged sentences

During the second quarter of 2018, it was determined that the conditions were appropriate for the Company to release a valuation allowance of certain tax assets as we exited our three year cumulative loss position.

This release resulted in the recording of a $86.5 million liability related to the TRA on the Consolidated Statements of Operations as "Related Party Tax Receivable Agreement Expense." As of December 31, 2019, the total TRA liability is $89.9 million, of which $ 27.9 million is classified as current liability "Related party payable - tax receivable agreement" on the balance sheet, as we expect this portion to be settled within twelve months, and $ 62.0 million of the liability remains as a long-term liability in "Related party payable - tax receivable agreement" on the balance sheet.

This release resulted in the recording of a $ 86.5 million liability related to the TRA on the Consolidated Statements of Operations as "Related Party Tax Receivable Agreement Expense."

As of December 31, 2019, the total TRA liability was $ 89.9 million, of which $ 27.9 million was classified as a current liability in "Related party payable-tax receivable agreement" on the balance sheet, and $ 62.0 million of the liability remained as a long-term liability in "Related party payable-tax receivable agreement" on the balance sheet.

The 2019 current liability was settled in the first quarter of 2020.

In 2020, the TRA liability was reduced by $ 21.1 million as a result of revised U.S.

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

tax attributes.

The reduction was recorded as a "Related Party Tax Receivable Agreement Benefit" on the Consolidated Statement of Operations.

As of December 31, 2020, total TRA liability is $ 40.9 million, of which $ 21.8

million is classified as current liability "Related party payable - tax receivable agreement" on the balance sheet, as we expect this portion to be settled within twelve months, and $ 19.1 million of the liability remains as a long-term liability in "Related party payable - tax receivable agreement" on the balance sheet.

Long-term Incentive Plan

1 unchanged sentence

The purpose of the plan is to retain senior management personnel of the Company, to incentivize them to make decisions with a long-term view and to influence behavior in a way that is consistent with maximizing value for the pre-IPO stockholder of the Company in a prudent manner.

Each participant is allocated a number of profit units, with a maximum of 30,000 profit units (or Profit Units) available under the plan.

Each participant is allocated a number of profit units, with a maximum of 30,000 profit units ("Profit Units") available under the plan.

Awards of Profit Units generally vest in equal increments over a five-year period beginning on the first anniversary of the grant date and subject to continued employment with the Company through each vesting date.

10 unchanged sentences

Given the successful completion of the IPO in the second quarter of 2018, it is reasonably possible that a Change in Control, as defined above, may ultimately happen and that the awarded Profit Units will be subsequently paid out to the participants.

Assuming 100% vesting of the awarded Profit Units and depending on Brookfield’s sales proceeds, the potential liability triggered by a Change in Control is estimated to be in the range of $ 65 million to $ 90 million .

Depending on Brookfield’s sales proceeds, the potential liability triggered by a Change in Control is estimated to be in the range of $ 55 million to $ 70 million.

As of December 31, 2020, the awards are 100 % vested.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(13) Income Taxes

The following table summarizes the U.S.

1 unchanged sentence

For the Year Ended December 31,

2020 2019 2018

(Dollars in thousands)

$ 51,672 $ 85,365 $ ( 68,032 )

458,373 757,462 970,840

$ 510,045 $ 842,827 $ 902,808

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Income tax expense (benefit) consists of the following:

For the Year Ended December 31,

U.S income taxes:

2020 2019 2018

income taxes:

Current $ ( 7,660 ) $ 16,589 $ 787

Deferred 27,822 5,690 ( 52,145 )

20,162 22,279 ( 51,358 )

income taxes:

Current 63,092 64,134 85,252

Deferred ( 7,583 ) 11,812 15,026

55,509 75,946 100,278

Total income tax expense (benefit) $ 75,671 $ 98,225 $ 48,920

The tax expense changed from a benefit of $( 10.8 ) million for the year ended December 31, 2017 to expense of $ 48.9 million and $ 98.2 million for the years ended December 31, 2018 and 2019, primarily due to the increase in earnings, the shift in the jurisdictional mix of earnings and losses from year to year.

Partially offsetting these items was a partial release, both in 2018 and in 2019, of a valuation allowance recorded against the deferred tax asset related to certain foreign and U.S.

federal and state tax attributes.

Certain jurisdictions shifted from pre-tax losses in 2017 to pre-tax earnings in 2018 and 2019.

Tax Cuts and Jobs Act

On December 22, 2017, the U.S.

government enacted the Tax Cuts and Jobs Act (“Tax Act”), which significantly revises the U.S.

corporate income tax system.

These changes include a federal statutory rate reduction from 35 % to 21 % , the elimination or reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive compensation.

The Tax Act also transitions international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures which have the effect of subjecting certain earnings of our foreign subsidiaries to U.S.

taxation as GILTI.

In general, these changes were effective beginning in 2018.

The Tax Act also includes a one-time mandatory deemed repatriation or transition tax on the accumulated previously untaxed foreign earnings of our foreign subsidiaries.

For the fourth quarter of 2017, we were able to reasonably estimate certain Tax Act effects and, therefore, recorded provisional adjustments associated with the deemed repatriation transition tax and re-measurement of certain deferred tax asset and liabilities.

Due to the complexities involved in accounting for the enactment of the Tax Act, the SEC staff issued Staff Accounting Bulletin ("SAB") No.

118 allowed the Company to record provisional amounts in earnings for the year ended December 31, 2017.

118 also provides that where reasonable estimates can be made, the provisional accounting should be based on such estimates and when no reasonable estimate can be made, the provisional accounting may be based on the tax law in effect before the Tax Act.

On October 15, 2018, the Company’s U.S.

tax returns for 2017 were filed and the changes to the provisional tax positions reflected in those returns compared to the estimates recorded in the Company’s earnings for the year ended December 31, 2017 were recorded in 2018.

These adjustments were immaterial to the Company’s financial statements.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On August 1, 2018, the U.S.

Department of Treasury and the U.S.

Internal Revenue Service (IRS) issued proposed regulations under code section 965 and on January 15, 2019, the IRS issued final 965 regulations.

The Company continues to analyze the effects of the Tax Act and newly issued final regulations on its financial statements.

The final impact of the Tax Act and the regulations may differ from the amounts that have been recognized, due to, among other things, changes in the Company’s interpretation of the Tax Act, additional legislative or administrative actions to clarify the intent of the statutory language provided that they differ from the Company’s current interpretation, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates utilized to calculate the impacts, including changes to current year earnings estimates and applicable foreign exchange rates.

We estimate that any change will be immaterial to the Company’s financial statements at this time.

The Company also continues to evaluate the impact of the GILTI provisions under the Tax Act which are complex and subject to continuing regulatory interpretation by the IRS.

The Company is required to make an accounting policy election of either (1) the period cost method or (2) the deferred method.

As of December 31, 2018, the Company’s accounting policy will be to treat taxes due on future U.S.

inclusions in taxable income related to GILTI as a current period expense when incurred.

Income tax expense (benefit) differed from the amount computed by applying the U.S, federal income tax rate of 21 % for years ended December 31, 2019 and 2018 and 35 % for the year ended December 31, 2017 to income before Provision (benefit) expense for income taxes as set forth in the following table:

Income tax expense in 2020 was $ 75.7 million on income before taxes of $ 510.0 million.

In 2019, income tax expense

was $ 98.2 million on income before taxes of $ 842.8 million, and in 2018, income tax expense was $ 48.9 million on income before taxes of $ 902.8 million.

The change in tax expense from year to year is primarily due to changes in earnings and the shift

in the jurisdictional mix of earnings and losses from year to year.

The years 2018 and 2019 also included partial release of a valuation allowance recorded against the deferred tax asset related to certain foreign, US federal and state tax attributes.

Income tax expense (benefit) differed from the amount computed by applying the U.S.

federal income tax rate of 21 % for years ended December 31, 2020, 2019 and 2018 to income before (benefit) expense for taxes as set forth in the following table:

For the Year Ended December 31,

2020 2019 2018

(Dollars in thousands)

Tax at statutory U.S.

federal rate $ 107,109 $ 176,994 $ 189,590

Impact of U.S.

Tax Act - GILTI 45,539 65,531 93,739

Impact of the 2017 Tax Act - transition tax

Impact of the 2017 Tax Act - tax rate change

Impact of Tax Receivable Agreement ( 4,429 ) 713 18,160

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Foreign tax credits ( 37,280 ) ( 56,171 ) ( 65,046 )

Other ( 1,450 ) ( 2,491 ) ( 552 )

Provision (benefit) for income taxes $ 75,671 $ 98,225 $ 48,920

The company has been granted a tax holiday in Brazil, which expires in 2024.

The availability of the tax holiday in Brazil did not have a significant impact on the current tax year.

GRAFTECH INTERNATIONAL LTD.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities as of December 31, 2019 and December 31, 2018 are set forth in the following table.

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2020 and December 31, 2019 are set forth in the following table:

As of December 31,

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Provision for rationalization charges 96 232

Mark- to- market Hedges 3,552 768

Other 3,646 1,104

Total gross deferred tax assets 76,017 98,082

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Deferred tax liabilities:

Fixed assets $ 54,485 $ 56,659

Inventory 8,573 12,778

Goodwill and acquired intangibles 7,552 6,996

Other 3,254 2,468

Total deferred tax liabilities 73,864 78,901

Net deferred tax asset

Net deferred tax ( liability) asset $ ( 10,620 ) $ 5,445

Net non-current deferred tax assets are separately stated as deferred income taxes in the amount of $ 84.3 million as of December 31, 2019 and $ 63.2 million as of December 31, 2020.

Net non-current deferred tax liabilities are separately stated as deferred income taxes in the amount of $ 45.8 million as of December 31, 2018 and $ 49.8 million as of December 31, 2019.

We continue to assess the need for valuation allowances against deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income.

Net non-current deferred tax liabilities are separately stated as deferred income taxes in the amount of $ 78.9 million at December 31, 2019 and $ 73.9 million at December 31, 2020.

At each reporting period, we assess the need for valuation allowances against deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income.

Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.

1 unchanged sentence

Examples of negative evidence would include cumulative losses in recent years and history of tax attributes expiring unused.

In circumstances where the significant positive evidence does not outweigh the negative evidence in regards to whether or not a valuation allowance is required, we have established and maintained valuation allowances on those net deferred tax assets.

The recognition of the valuation allowance does not result in or limit the Company's ability to utilize these tax assets in the future.

Valuation allowance activity for the years ended December 31, 2018 and 2019 was as follows:

In circumstances where the significant positive evidence does not outweigh the negative evidence in our assessment, we have established and maintained valuation allowances on those net deferred tax assets.

However, the recognition of the valuation allowance does not result in or limit the Company's ability to utilize these tax assets in the future.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Valuation allowance activity for the years ended December 31, 2018, 2019 and 2020 is as follows:

(Dollars in thousands)

1 unchanged sentence

Credited to income ( 14,548 )

Changes attributable to write-off of underlying assets ( 30,138 )

Translation adjustment ( 24 )

Changes attributable to movement in underlying assets

Balance as of December 31, 2019 $ 13,736

Credited to income ( 980 )

Changes attributable to write-off of underlying assets

Translation adjustment 17

Balance as of December 31, 2020 $ 12,773

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In the fourth quarter of 2017, with the enactment of the Tax Act, additional taxable income was derived as a result of inclusion of accumulated previously untaxed foreign earnings of GrafTech’s foreign subsidiaries.

This additional taxable income led to the utilization of the U.S.

net operating loss carryforward in 2017 and a partial release of the valuation allowance against the U.S.

deferred tax assets.

The valuation allowance was further reduced by the U.S.

tax rate decrease from 35% to 21% as a result of the Tax Act.

During 2018, we determined that sufficient positive evidence existed that allowed us to conclude that a full valuation allowance was no longer required to be recorded against the deferred tax assets related to the U.S.

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This valuation allowance and the related deferred tax asset were subsequently released to the income statement in 2019.

In March of 2017, $ 19.5 million of foreign tax credits expired.

During the fourth quarter of 2017, we increased our foreign tax credit carryforward by $ 37.7 million , as a result of additional foreign taxable income derived in connections with the new U.S.

tax legislation that was enacted on December 22, 2017.

In 2020, the reduction in the valuation allowance resulted primarily from expirations of NOLs upon which a valuation allowance was previously recorded.

As of December 31, 2020, we have a total foreign tax credit carryforward of $ 17.9 million.

As indicated above, a valuation allowance is no longer recorded against this foreign tax credit carryforward.

These tax credit carryforwards begin to expire as of March 15, 2025.

In addition, we have state net operating loss carryforwards of $ 250.0 million (net of federal benefit), which can be carried forward from 5 to 20 years.

These state net operating loss carryforwards generated a deferred tax asset of $ 14.9 million as of December 31, 2019.

These tax credit carryforwards begin to expire in 2025.

In addition, we have state net operating losses carryforwards of $ 255.7 million (net of federal benefit), which can be carried forward from 5 to 20 years.

These state net operating losses carryforwards result in a deferred tax asset of $ 15.0 million as of December 31, 2020.

We also have U.S.

state tax credits of $ 0.1 million as of December 31, 2020.

We have foreign loss carryforwards on a gross basis of $16.8 million as of December 31, 2019, which can be carried forward indefinitely.

During the fourth quarter of 2017, GrafTech Switzerland moved from a cumulative loss position to a cumulative profit position, as well as a current year utilization of its net operating loss carryforward.

This positive evidence and utilization led to a full release of the valuation allowance against the GrafTech Switzerland deferred tax asset in 2018.

Our foreign loss carryforwards on a gross basis are $ 9.1 million and may be carried forward indefinitely.

As of December 31, 2020, we had unrecognized tax benefits of $ 0.1 million, which, if recognized, would have a favorable impact on our effective tax rate.

We have elected to report interest and penalties related to uncertain tax positions as income tax expense.

Accrued interest and penalties were $ 0.8 million as of December 31, 2017, and $ 0.9 million as of December 31, 2018 (an increase of $ 0.1 million ).

We had no accrued interest and penalties as of December 31, 2019 (a decrease of $ 0.9 million ).

Accrued interest and penalties were $ 0.9 million as of December 31, 2018 and no accrued interest and penalties as of December 31, 2019 (a decrease of $ 0.9 million).

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

1 unchanged sentence

Balance as of December 31, 2018 $ 1,990

Settlements ( 1,383 )

Reductions for tax positions of prior years ( 421 )

Lapse of statutes of limitations

Foreign currency impact ( 2 )

Balance as of December 31, 2019 $ 184

Reductions for tax positions of prior years

Lapse of statutes of limitations ( 75 )

Foreign currency impact 16

1 unchanged sentence

It is reasonably possible that a reduction of unrecognized tax benefits of up to $ 0.1 million may occur within 12 months due to settlements and the expiration of statutes of limitation.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

We file income tax returns in the U.S.

1 unchanged sentence

federal tax years prior to 2016 are generally closed by statute or have been audited and settled with the applicable domestic tax authorities.

All other jurisdictions are still open to examination beginning after 2013.

Other jurisdictions are still open to examination beginning after 2014.

GRAFTECH INTERNATIONAL LTD.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2020, the Company has accumulated undistributed earnings generated by our foreign subsidiaries of approximately $ 1.2 billion.

Because $ 1.3 billion of such earnings have previously been subject to taxation by way of the transition tax on foreign earnings required by the Tax Act, as well as the current and previous years’ GILTI inclusion, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign and state taxes.

Because $ 1.0 billion of such earnings have previously been subject to taxation by way of the transition tax on foreign earnings required by the Tax Act, as well as the current and previous years’ GILTI inclusion, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign withholding and state taxes.

We intend, however, to indefinitely reinvest these earnings and expect future U.S.

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We incurred $ 5.1 million of legal, accounting, printing and other fees associated with this offering through December 31, 2019, which was recorded in "Selling and administrative" expenses in the Consolidated Statements of Operations.

Follow-on Offering and Common Stock Repurchases

Follow-on Offerings and Common Stock Repurchases

On August 13, 2018, Brookfield completed an underwritten public secondary offering (the "Offering") of 23,000,000 shares of our common stock at a price to the public of $ 20.00 per share.

6 unchanged sentences

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

We may purchase shares from time to time on the open market, including under Rule 10b5-1 and/or Rule 10b-18

We may purchase shares from time to time on the open market, including under Rule 10b5-1 and/or Rule 10b-18 plans.

The amount and timing of repurchases are subject to a variety of factors including liquidity, stock price,

GRAFTECH INTERNATIONAL LTD.

1 unchanged sentence

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The amount and timing of repurchases are subject to a variety of factors including liquidity, stock price, applicable legal requirements, other business objectives and market conditions.

applicable legal requirements, other business objectives and market conditions.

As of December 31, 2020, we had repurchased 4,333,259 shares of common stock totaling $ 41.0 million under this program.

1 unchanged sentence

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, GrafTech 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, GrafTech repurchased 19,047,619 shares of common stock, reducing total shares outstanding by approximately 7 % .

Separately, GrafTech 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 per share, set by the competitive bidding process of the secondary block trade.

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

Brookfield undertook several transactions during 2020 reducing their ownership to 55.3 % as of December 31, 2020.

The Board of Directors declared and paid a dividend of $ 0.0645 per share for the first quarter of 2018 totaling $ 19.5 million, which was paid on June 29, 2018 and represented a prorated quarterly dividend of $ 0.085 (or $ 0.34 per annum) per share of our common stock prorated from the date of our IPO, April 23, 2018 to June 30, 2018.

We have paid our regular quarterly dividends of $ 0.085 per share since that time.

Additionally, we paid a special dividend to stockholders of $ 0.70 per share on December 31, 2018.

Since that time, the Company paid regular quarterly dividends of $ 0.085 through the first quarter of 2020.

Effective the second quarter of 2020, the regular quarterly dividend was reduced to $ 0.01 per share.

Accumulated other comprehensive income (loss)

The balance in our Accumulated other comprehensive (loss) income is set forth in the following table:

December 31, 2019

December 31, 2020 As of

December 31, 2019

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The following table shows the information used in the calculation of our basic and diluted earnings per share calculation as of December 31, 2020, 2019 and 2018.

See Note 14 "Stockholders' Equity" for details on our April 12, 2018 stock split and our common stock repurchases on 2019 and 2018 .

See Note 14 "Stockholders' Equity" for details on our April 12, 2018 stock split and our common stock repurchases in 2020 and 2019.

For the Year Ended December 31,

2020 2019 2018

Weighted average common shares outstanding for basic calculation 267,916,483 289,057,356 297,748,327

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The following summarizes certain consolidated operating results by quarter for 2020 and 2019.

March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31

(Dollars in thousands, except per share amounts)

Net Sales $ 318,646 $ 280,718 $ 286,987 $ 338,010 $ 474,994 $ 480,390 $ 420,797 $ 414,612

Gross profit 179,729 150,118 155,125 175,525 279,470 283,343 242,300 235,290

Research and development 712 710 650 1,903 637 713 611 723

2 unchanged sentences

Related party Tax Receivable

Agreement Expense

Agreement (benefit) expense ( 3,346 ) — — ( 17,744 ) — — — 3,393

Interest Expense 25,672 20,880 22,474 29,048 33,700 32,969 31,803 28,859

Interest Income ( 1,141 ) ( 348 ) ( 93 ) ( 168 ) ( 414 ) ( 731 ) ( 1,765 ) ( 1,799 )

Net income 122,268 92,776 94,234 125,096 197,436 196,368 175,876 174,922

Net income per share $ 0.45 $ 0.35 $ 0.35 $ 0.47 $ 0.68 $ 0.68 $ 0.61 $ 0.61

(17) Subsequent Events

Dividend declaration

On February 3, 2021, the Board of Directors declared a dividend of $0 .01 per share of common stock to stockholders of record as of the close of business on February 26, 2021, to be paid on March 31, 2021.

Brookfield Offering and Ownership

On January 20, 2021, Brookfield completed the sale of 20,000,000 shares of our common stock, in an underwritten public offering at a price of $ 10.90 per share.

Brookfield's ownership percentage stood at approximately 47.8 % of our outstanding common stock following the transaction.

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).

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.

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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data