GRAFTECH INTERNATIONAL LTD 10-K

Item 8. Financial Statements and Supplementary Data (Unless otherwise noted, all dollars are presented in thousands) Page Report of Independent Registered Public Accounting Firm 60 Consolidated Balance Sheets 62 Consolidated Statements of Operations and Comprehensive Income (Loss) 63 Consolidated Statements of Cash Flows 64 Consolidated Statements of Stockholders’ Equity (Deficit) 66 Notes to the Consolidated Financial Statements 67 See the Table of Contents located at the beginning of this Report for more detailed page references to information contained in this Item. 59 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of GrafTech International Ltd.: Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of GrafTech International Ltd. and its subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 60 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Related Party Tax Receivable Agreement - Refer to Notes 1 and 12 to the financial statements Critical Audit Matter Description On April 23, 2018, the Company entered into a tax receivable agreement (the "TRA") that provides the sole pre-IPO stockholder, the right to receive future payments from the Company for 85% of the amount of cash savings, if any, in U.S. federal income tax and Swiss Federal and Cantonal tax that the Company and its subsidiaries realize as a result of the utilization of certain deferred tax assets attributable to periods prior to the IPO. The Company’s TRA liability was $40.9 million as of December 31, 2020. The determination of the TRA liability required management to make significant estimates and assumptions related to forecasted revenues and taxable income in the appropriate taxing jurisdiction, which are the primary drivers of utilization of the deferred tax assets. Given the significant estimates and assumptions related to forecasted revenues and taxable income in the appropriate jurisdictions, auditing the TRA liability required a high degree of auditor judgement and an increased extent of effort, including the need to involve our income tax specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to forecasted revenues and taxable income included the following, among others: • Tested the effectiveness of controls over the calculation and recording of the TRA liability, including those over the forecasts of revenues and taxable income. • With the assistance of our income tax specialists, we evaluated whether the sources of management’s estimated taxable income were of the appropriate character and sufficient to utilize the deferred tax assets under the relevant tax law and tested the mathematical accuracy of the calculation used to determine the TRA liability. • We evaluated management’s ability to accurately estimate revenues and taxable income by comparing actual results to management’s historical estimates and evaluating whether there have been any changes that would affect management’s ability to continue accurately estimating revenues and taxable income. • We tested the reasonableness of management’s estimates of revenues and taxable income by jurisdiction by comparing management’s forecast to: ◦ Historical revenues, cost of sales, and income ◦ Schedule of future revenues resulting from contracts with certain customers ◦ Internal communications to management and the Board of Directors ◦ Industry reports for the Company and the steel industry • We evaluated whether the estimates of future revenues and taxable income were consistent with evidence obtained in other areas of the audit. /s/ DELOITTE & TOUCHE LLP Cleveland, Ohio February 23, 2021 We have served as the Company’s auditor since 2015. 61 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) As of December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 145,442 $ 80,935 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 Total current assets 629,167 682,580 Property, plant and equipment 784,902 733,417 Less: accumulated depreciation 278,685 220,397 Net property, plant and equipment 506,217 513,020 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) Current liabilities: Accounts payable $ 70,989 $ 78,697 Short-term debt 131 141 Accrued income and other taxes 48,720 65,176 Other accrued liabilities 56,501 48,335 Related party payable - tax receivable agreement 21,752 27,857 Total current liabilities 198,093 220,206 Long-term debt 1,420,000 1,812,682 Other long-term obligations 81,478 72,562 Deferred income taxes 43,428 49,773 Related party payable - tax receivable agreement 19,098 62,014 Commitments and contingencies – Note 12 Stockholders’ (deficit) equity: Preferred stock, par value $ 0.01 , 300,000,000 shares authorized, none issued — — Common stock, par value $ 0.01 , 3,000,000,000 shares authorized, 267,188,547 and 270,485,308 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively 2,672 2,705 Additional paid – in capital 758,354 765,419 Accumulated other comprehensive (loss) income ( 19,641 ) ( 7,361 ) Accumulated deficit ( 1,070,770 ) ( 1,451,836 ) Total stockholders’ (deficit) equity ( 329,385 ) ( 691,073 ) Total liabilities and stockholders’ equity $ 1,432,712 $ 1,526,164 See accompanying Notes to the Consolidated Financial Statements 62 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Dollars in thousands, except per share data) 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 Selling and administrative expenses 67,913 63,674 62,032 Operating income 588,609 974,045 1,126,051 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 Interest income ( 1,750 ) ( 4,709 ) ( 1,657 ) Income from continuing operations 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 from discontinued operations, net of tax — — 331 Net income $ 434,374 $ 744,602 $ 854,219 Basic income per share: Net income per share $ 1.62 $ 2.58 $ 2.87 Net income from continuing operations per share 1.62 2.58 2.87 Weighted average shares outstanding 267,916,483 289,057,356 297,748,327 Diluted income per share: Net income per share 1.62 2.58 2.87 Diluted net income from continuing operations per share 1.62 2.58 2.87 Weighted average diluted shares outstanding 267,930,644 289,074,601 297,753,770 STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Net income $ 434,374 $ 744,602 $ 854,219 Other comprehensive (loss) income: Foreign currency translation adjustments, net of 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 See accompanying Notes to the Consolidated Financial Statements 63 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) 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 to cash provided by operations: Depreciation and amortization 62,963 61,819 66,413 Related party Tax Receivable Agreement (benefit) expense ( 21,090 ) 3,393 86,478 Deferred income tax provision 20,241 17,503 ( 37,078 ) Loss on extinguishment of debt 8,329 — 23,827 Non-cash interest expense 6,192 6,344 5,320 Other charges, net 10,526 21,831 15,761 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 ) Net cash provided by operating activities 563,646 805,316 836,603 Cash flow from investing activities: Capital expenditures ( 36,075 ) ( 64,103 ) ( 68,221 ) Proceeds from the sale of fixed assets 379 219 926 Net cash used in investing activities ( 35,696 ) ( 63,884 ) ( 67,295 ) Cash flow from financing activities: Short-term debt (reductions) borrowings, net ( 146 ) — ( 12,607 ) Credit Facility reductions — — ( 45,692 ) Refinancing fees and debt issuance costs ( 6,278 ) — ( 27,326 ) Proceeds from the issuance of long-term debt, net of original issue discount 500,000 — 2,235,000 Repayment of 2012 Senior Notes — — ( 304,782 ) Repurchase of common stock - related party — ( 250,000 ) ( 225,000 ) 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 ) Dividends paid to non-related-party ( 8,603 ) ( 20,613 ) ( 55,616 ) Dividends paid to related-party ( 22,272 ) ( 78,010 ) ( 1,488,649 ) Related-party promissory note repayment — — ( 750,000 ) Net cash used in financing activities ( 463,683 ) ( 709,631 ) ( 731,044 ) Net change in cash and cash equivalents 64,267 31,801 38,264 Effect of exchange rate changes on cash and cash equivalents 240 ( 746 ) ( 1,749 ) Cash and cash equivalents at beginning of period 80,935 49,880 13,365 Cash and cash equivalents at end of period $ 145,442 $ 80,935 $ 49,880 See accompanying Notes to the Consolidated Financial Statements 64 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) 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: Dividend payable - Promissory Note** — — 750,000 * Net change in working capital due to the following components: 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 Income taxes payable ( 12,420 ) ( 18,174 ) 67,054 Accounts payable and accruals ( 12,790 ) ( 11,551 ) 15,724 Interest payable 430 62 ( 2,113 ) 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. See Note 5 "Debt and Liquidity" for details. See accompanying Notes to the Consolidated Financial Statements 65 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Dollars in thousands, except share data) Issued Shares of Common Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity (Deficit) Balance as of December 31, 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 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 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 $( 67 ) — — — ( 6,371 ) — ( 6,371 ) Total other comprehensive loss — — — ( 1,561 ) — ( 1,561 ) Common stock repurchased and retired (from related party) ( 19,047,619 ) ( 190 ) ( 53,524 ) — ( 196,286 ) ( 250,000 ) Common stock repurchased and retired (from non-related party) ( 1,004,685 ) ( 10 ) ( 2,825 ) — ( 8,033 ) ( 10,868 ) Stock based compensation — — 2,146 — — 2,146 Dividends paid to related party stockholder ($ 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 $( 162 ) — — — 6,568 — 6,568 Total other comprehensive loss — — — ( 12,280 ) — ( 12,280 ) Common stock repurchased and retired (from non-related party) ( 3,328,574 ) ( 33 ) ( 9,700 ) ( 20,366 ) ( 30,099 ) Stock based compensation 42,411 — 2,665 — — 2,665 Dividends paid to related party stockholder ($ 0.115 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 ) See accompanying Notes to the Consolidated Financial Statements 66 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except as otherwise noted) (1) Business and Summary of Significant Accounting Policies Discussion of Business and Structure GrafTech International Ltd. (the “Company”) is a leading manufacturer of high-quality graphite electrode products essential to the production of electric arc furnace ("EAF") steel and other ferrous and non-ferrous metals. References herein to “GTI,” “we,” “our,” or “us” refer collectively to GrafTech International Ltd. and its subsidiaries. On August 15, 2015, GTI became an indirect wholly owned subsidiary of Brookfield Asset Management Inc. (“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: graphite electrodes and needle coke products. Needle coke is the key raw material to producing graphite electrodes. The Company's vision is to provide the highest quality graphite electrodes at the lowest cost while providing the best customer service all while striving to be the lowest cost producer. Summary of Significant Accounting Policies The Consolidated Financial Statements include the financial statements of GrafTech International Ltd. and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. Cash Equivalents We consider all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Cash equivalents consist of certificates of deposit, money market funds and commercial paper. Revenue Recognition 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 ). 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. 67 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 Inventories are stated at the lower of cost or market. Cost is principally determined using the “first-in first-out” (“FIFO”) and average cost, which approximates FIFO, methods. Elements of cost in inventory include raw materials, direct labor and manufacturing overhead. We allocate fixed production overheads to the costs of conversion based on normal capacity of the production facilities. We recognize abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) as current period charges. Property, Plant and Equipment Expenditures for property, plant and equipment are recorded at cost. Maintenance and repairs of property and equipment are expensed as incurred. Expenditures for replacements and betterments are capitalized and the replaced assets are retired. Gains and losses from the sale of property are included in cost of sales or other expense (income), net. We depreciate our assets using the straight-line method over the estimated useful lives of the assets. The ranges of estimated useful lives are as follows: Years Buildings 25 - 40 Land improvements 20 Machinery and equipment 5 - 20 Furniture and fixtures 5 - 10 The carrying value of fixed assets is assessed when events and circumstances indicating impairment are present. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation expense was $ 51.5 million, $ 49.7 million and $ 53.5 million in 2020, 2019 and 2018, respectively. Capital expenditures within accounts payable totaled $ 8.9 million and $ 11.5 million as of December 31, 2020 and 2019, respectively. 68 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Accounts Receivable Trade accounts receivable primarily arise from sales of goods to customers and distributors in the normal course of business. Allowance for Doubtful Accounts 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. 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 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 We do not use derivative financial instruments for trading purposes. They are used to manage well-defined commercial risks associated with commodity purchases, interest rates and currency exchange rate risks. On the date that a derivative contract for a hedging instrument is entered into, the Company designates the derivative as either (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), (2) a hedge of the exposure of a forecasted transaction or of the variability in the cash flows of a recognized asset or liability (a cash flow hedge), (3) a hedge of a net investment in a foreign operation (a net investment hedge) or (4) a contract not designated as a hedging instrument. For a fair value hedge, both the effective and ineffective portions of the change in the fair value of the derivative are 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 cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive loss in the Consolidated Balance Sheet. 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 and is de-recognized upon liquidation or sale of the entity. 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, 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. 69 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Foreign Currency Derivatives We enter into foreign currency derivatives from time to time to manage exposure to changes in currency exchange rates. These instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, attempt to hedge global currency exposures, relating to non-dollar denominated debt and identifiable foreign currency receivables, payables and commitments held by our foreign and domestic subsidiaries. Forward exchange contracts are agreements to exchange different currencies at a specified future date and at a specified rate. Purchased foreign currency options are instruments which give the holder the right, but not the obligation, to exchange different currencies at a specified rate at a specified date or over a range of specified dates. The result is the creation of a range in which a best and worst price is defined, while minimizing option cost. Forward exchange contracts and purchased currency options are carried at fair value. These contracts may be designated as cash flow or fair value hedges to the extent that they are effective and are accounted for as described in section above (“Derivative Financial Instruments”). For derivatives that are not designated as a hedge, any gain or loss is immediately recognized in cost of sales on the Consolidated Statements of Operations. Derivatives used in this manner relate to risks resulting from assets or liabilities denominated in a foreign currency. 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 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 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 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 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. All interest rate swaps are carried at their fair value and are treated as cash flow hedges. Changes in their fair value are in included in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets until settlement. Realized gains and losses resulting from the settlement are recognized in interest expense in the period of settlement. Income Taxes We file a consolidated U.S. federal income tax return for GTI and its eligible domestic subsidiaries. Our non-U.S. subsidiaries file income tax returns in their respective local jurisdictions. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax benefit carry forwards. Deferred tax assets and liabilities at the end of each period are determined using enacted tax rates. A valuation allowance is established or maintained, when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. Under the guidance on accounting for uncertainty in income taxes, we recognize the benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. 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. 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 70 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. The term of the TRA commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments. Retirement Plans and Postretirement Benefits We use actuarial methods and assumptions to account for our defined benefit pension plans and our postretirement benefits. We immediately recognize the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each year with a mark-to-market adjustment ("MTM Adjustment") and whenever a plan is remeasured (e.g. due to a significant curtailment, settlement, etc.). Pension and postretirement benefits expense includes the MTM adjustment, actuarially computed cost of benefits earned during the current service period, the interest cost on accrued obligations, the expected return on plan assets based on fair market values, and adjustments due to plan settlements and curtailments. Contributions to the qualified U.S. retirement plan are made in accordance with the requirements of the Employee Retirement Income Security Act of 1974. Postretirement benefits and benefits under the non-qualified retirement plan have been accrued, but not funded. The estimated cost of future postretirement life insurance benefits is determined by the Company with assistance from independent actuarial firms using the “projected unit credit” actuarial cost method. Such costs are recognized as employees render the service necessary to earn the postretirement benefits. We record our balance sheet position based on the funded status of the plan. Additional information with respect to benefits plans is set forth in Note 11, “Retirement Plans and Postretirement Benefits.” Environmental, Health and Safety Matters Our operations are governed by laws addressing protection of the environment and worker safety and health. These laws provide for civil and criminal penalties and fines, as well as injunctive and remedial relief, for noncompliance and require remediation at sites where hazardous substances have been released into the environment. We have been in the past, and may become in the future, the subject of formal or informal enforcement actions or proceedings regarding noncompliance with these laws or the remediation of company-related substances released into the environment. Historically, such matters have been resolved by negotiation with regulatory authorities resulting in commitments to compliance, abatement or remediation programs and in some cases payment of penalties. Historically, neither the commitments undertaken nor the penalties imposed on us have been material. Environmental considerations are part of all significant capital expenditure decisions. Environmental remediation, compliance and management expenses were approximately $ 11.1 million, $ 11.6 million and $ 12.4 million in 2020, 2019 and 2018, respectively. A charge to income is recorded when it is probable that a liability has been incurred and the cost can be reasonably estimated. 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, 2020 and 2019. Our environmental liabilities do not take into consideration possible recoveries of insurance proceeds. Because of the uncertainties associated with environmental remediation activities at sites where we may be potentially liable, future expenses to remediate sites could be considerably higher than the accrued liability. Foreign Currency Translation and Remeasurement We translate the financial statements of foreign subsidiaries, whose local currency is their functional currency, to U.S. dollars using period-end exchange rates for assets and liabilities and weighted average exchange rates for each period for revenues, expenses, gains and losses. Differences arising from exchange rate changes are included in accumulated other comprehensive loss on the Consolidated Balance Sheets until such time as the operations of such non-U.S. 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) 71 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. We have non-dollar denominated intercompany loans between some of our foreign subsidiaries. These loans are subject to remeasurement gains and losses due to changes in currency exchange rates. Certain of these loans had been deemed to be essentially permanent prior to settlement and, as a result, remeasurement gains and losses on these loans were recorded as a component of accumulated other comprehensive income (loss) in the stockholders’ equity section of the Consolidated Balance Sheets. The remaining loans are deemed to be temporary and, as a result, remeasurement gains and losses on these loans are recorded as currency (gains) losses in other (income) expense, net, on the Consolidated Statements of Operations. Goodwill and Other Intangible Assets Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. We do not recognize deferred income taxes for the difference between the assigned value and the tax basis related to nondeductible goodwill. Goodwill is not amortized; however, impairment testing is performed annually or more frequently if circumstances indicate that impairment may have occurred. 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 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 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. Other amortizable intangible assets, which consist primarily of trademarks and trade names, customer-related intangibles and technological know-how, are amortized over their estimated useful lives using the straight line or sum-of-the-years digits method. The estimated useful lives for each major category of amortizable intangible assets are: Years Trade name 5 - 20 Technology and know-how 5 - 14 Customer related intangible 5 - 15 Additional information about goodwill and other intangibles is set forth in Note 6, “Goodwill and Other Intangible Assets.” Major Maintenance and Repair Costs We perform scheduled major maintenance of the storage and processing units at our Seadrift plant (referred to as “overhaul”). Time periods between overhauls vary by unit. 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. We defer these costs when incurred and use the straight-line method to amortize them over the period of time estimated to lapse until the next scheduled overhaul of the applicable storage or processing unit. Under this policy, $ 10.2 million was deferred in 2020 and $ 0.8 million of costs were deferred in 2019. Amortization of deferred maintenance costs totaled $ 6.0 million, $ 5.1 million and $ 3.1 million in 2020, 2019 and 2018, respectively. Earnings per share The calculation of basic earnings per share is based on the number of common shares outstanding after giving effect to the stock split effected on April 12, 2018 and common stock repurchases. Diluted earnings per share recognizes the dilution that would occur if stock options or restricted shares were exercised or converted into common shares. See Note 15, “Earnings Per Share”. 72 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses. Significant estimates and assumptions are used for, but are not limited to inventory valuation, pension and other post-retirement benefits, allowance for doubtful accounts, contingent liabilities, accruals and valuation allowances, asset impairment, and environmental-related accruals. Actual results could differ from our estimates . Subsequent Events We evaluate events that occur after the balance sheet date but before financial statements are issued to determine if a material event requires our amending the financial statements or disclosing the event. See Note 17 "Subsequent Events" for further details. Recent Accounting Standards Recently Adopted Accounting Standards In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). This guidance was issued to simplify the accounting for goodwill impairment. The guidance removes the second step of the goodwill impairment test, which requires that a hypothetical purchase price allocation be performed to determine the amount of impairment, if any. Under this new guidance, a goodwill impairment charge will be based on the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU No. 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. 2016-13 , Financial Instruments–Credit Losses (Topic 326) , which introduces the Current Expected Credit Losses ("CECL") accounting model. CECL requires earlier recognition of credit losses, while also providing additional transparency about credit risk. CECL utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. ASU No. 2016-13 was effective for the Company on January 1, 2020. The adoption of ASU No. 2016-13 resulted in a cumulative-effect adjustment of $ 2.0 million included as an adjustment to our accounts receivable reserve and to retained earnings on January 1, 2020. 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. 73 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 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 the Year Ended December 31, 2020 2019 2018 (Dollars in thousands) 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 By-products and other 30,744 92,460 158,425 Total Revenues $ 1,224,361 $ 1,790,793 $ 1,895,910 Effective the first quarter of 2019, the Graphite Electrodes revenue categories include only graphite electrodes manufactured by GrafTech. The revenue category “By-products and Other” now includes re-sales of low-grade electrodes purchased from third-party suppliers, which represent a minimal contribution to our profitability. For comparability purposes, the prior period has been recast to conform to this presentation. Contract Balances Substantially all the Company's receivables relate to contracts with customers. Accounts receivables are recorded when the right to consideration becomes unconditional. Payment terms on invoices range from 30 to 120 days depending on the customary business practices of the jurisdictions in which we do business. Certain short-term and longer-term sales contracts require up-front payments prior to the Company’s fulfillment of any performance obligation. These contract liabilities are recorded as current or long-term deferred revenue, depending on the lag between the pre-payment and the expected delivery of the related products. 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. 74 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table provides information about deferred revenue from contracts with customers (in thousands): Current deferred revenue Long-Term deferred revenue (Dollars in thousands) Balance as of December 31, 2018 $ 5,380 $ 7,716 Increases due to cash received 7,961 — Revenue recognized ( 4,678 ) — Revision of estimates — ( 694 ) Reclassification between long-term and current 3,042 ( 3,042 ) Foreign currency impact 71 ( 122 ) Balance as of December 31, 2019 11,776 3,858 Increases due to cash received 10,110 — Revenue recognized ( 6,270 ) — Reclassification between long-term and current ( 1,804 ) 1,804 Foreign currency impact ( 756 ) — Balance as of December 31, 2020 $ 13,056 $ 5,662 Transaction Price Allocated to the Remaining Performance Obligations The following table presents estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of reporting period. The estimated revenues do not include contracts with original duration of one year or less. 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. 75 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (3) Stock-Based and Other Management Compensation Our Omnibus Equity Incentive Plan permits the granting of options, and other stock-based awards (including restricted stock units and deferred share units). As of December 31, 2020, the aggregate number of shares authorized under the plans since their initial adoption was 15,000,000 . Shares issued upon vesting of awards or exercise of options are new share issuances. Upon the vesting or payment of stock awards, an employee may elect receipt of the full share amount and either pay the resulting taxes or sell shares in the open market to cover the tax obligation. 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 Award type: Stock options 308,875 229,250 979,790 Deferred share units 58,207 31,829 42,243 Restricted stock units 334,062 260,640 6,740 Accounting for Stock-Based Compensation 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. As of December 31, 2019, unrecognized compensation cost related to non-vested stock options, deferred share units and restricted stock units represents $ 7.6 million, which will be recognized over a weighted average period of 3.8 years. 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 five 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: Number of Shares Weighted- Average Grant Date Fair Value 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 During 2020, we granted 392,269 shares of deferred share units and restricted stock units to certain directors, officers and employees at prices ranging from $ 6.48 to $ 10.66 . 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 one to five years . 76 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Stock Options. Compensation expense for stock options is based on the estimated fair value of the option on the date of the grant. We calculate the estimated fair value of the option using the Black-Scholes option-pricing model. During 2020, we granted 308,875 options to certain of our officers and employees. The weighted average fair value of the options granted in 2020 was $ 3.11 . During 2019, we granted 229,250 options to certain of our officers and employees. The weighted-average fair value of the options granted in 2019 was $ 5.13 . 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 31,2020 For the Year Ended December 31,2019 For the Year Ended December 31,2018 Dividend yield 0.44 % - 3.77 % 2.39 % - 3.05 % 1.70 % - 2.27 % Expected volatility 50 % 50 % 45 % Risk-free interest rate 0.37 % - 1.22 % 1.79 % - 2.63 % 2.84 % - 2.98 % Expected term in years 6.5 years 6.5 years 6.5 years Dividend Yield . Our dividend yield estimate is based on our expected dividends and the stock price on the grant date. Expected Volatility . 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. We base the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. Expected Term In Years. The expected life of awards granted represents the time period that the awards are expected to be outstanding. We determined the expected term of the grants using the “simplified” method as described by the SEC, since we do not have a history of stock option awards to provide a reliable basis for estimating such term. 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, 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 Number Outstanding Weighted Average Remaining Contractual Life in Years Weighted Average Exercise Prices Number Exercisable Weighted Average Exercise Prices $ 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: Number of Shares Weighted- Average Exercise Price 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, 2020, we had 303,583 options expected to vest in the next year. There were 342,574 options exercisable as of December 31, 2020. 77 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Incentive Compensation Plans We have a global incentive program for our worldwide salaried and hourly employees, the Incentive Compensation Program (the “ICP”), which includes a stockholder-approved executive incentive compensation plan. The ICP is based primarily on adjusted earnings before income taxes, depreciation and amortization. The balance of our accrued liability for ICP was $ 8.9 million at December 31, 2020 and $ 6.9 million as of December 31, 2019. (4) Segment Reporting 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 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) Net sales: United States $ 260,867 $ 403,916 $ 429,599 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, 2020 2019 (Dollars in thousands) Long-lived assets (a): 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 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: As of December 31, 2020 As of December 31, 2019 (Dollars in thousands) 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 Less: Short-term Debt ( 131 ) ( 141 ) Long-term Debt $ 1,420,000 $ 1,812,682 78 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2018 Credit Agreement On February 12, 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”) among the Company, GrafTech Finance Inc. (“GrafTech Finance”), GrafTech Switzerland SA (“Swissco”), GrafTech Luxembourg II S.à.r.l.(“Luxembourg Holdco” and, together with GrafTech Finance and Swissco, the “Co-Borrowers”), the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A. as administrative agent (the "Administrative Agent") and as collateral agent, which provides for (i) a $ 1,500 million senior secured term facility (the “2018 Term Loan Facility”) and (ii) a $ 250 million senior secured revolving credit facility (the “2018 Revolving Credit Facility” and, together with the 2018 Term Loan Facility, the “Senior Secured Credit Facilities”), which may be used from time to time for revolving credit borrowings denominated in dollars or Euro, the issuance of one or more letters of credit denominated in dollars, Euro, Pounds Sterling or Swiss Francs and one or more swing line loans denominated in dollars. GrafTech Finance is the sole borrower under the 2018 Term Loan Facility while GrafTech Finance, Swissco and Lux Holdco are Co-Borrowers under the 2018 Revolving Credit Facility. On February 12, 2018, GrafTech Finance borrowed $ 1,500 million under the 2018 Term Loan Facility (the "2018 Term Loans"). The 2018 Term Loans mature on February 12, 2025. The maturity date for the 2018 Revolving Credit Facility is February 12, 2023. The proceeds of the 2018 Term Loans were used to (i) repay in full all outstanding indebtedness of the Co-Borrowers under our previous credit agreement and terminate all commitments thereunder, (ii) redeem in full our previously held 2012 Senior Notes at a redemption price of 101.594 % of the principal amount thereof plus accrued and unpaid interest to the date of redemption, (iii) pay fees and expenses incurred in connection with (i) and (ii) above and the Senior Secured Credit Facilities and related expenses, and (iv) declare and pay a dividend to the sole pre-IPO stockholder, with any remainder to be used for general corporate purposes. See Note 7 "Interest Expense" for a breakdown of expenses associated with these repayments. In connection with the repayment of our previous credit agreement and redemption of our previously held 2012 Senior Notes, all guarantees of obligations under the previous credit agreement, the 2012 Senior Notes and related indenture were terminated, all mortgages and other security interests securing obligations under the previous credit agreement were released and the indenture were terminated. Borrowings under the 2018 Term Loan Facility bear interest, at GrafTech Finance’s option, at a rate equal to either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 3.50 % per annum or (ii) the ABR Rate (as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 2.50 % per annum, in each case with one step down of 25 basis points based on achievement of certain public ratings of the 2018 Term Loans. Borrowings under the 2018 Revolving Credit Facility bear interest, at the applicable Co-Borrower’s option, at a rate equal to either (i) the Adjusted LIBO Rate, plus an applicable margin initially equal to 3.75 % per annum or (ii) the ABR Rate, plus an applicable margin initially equal to 2.75 % per annum, in each case with two 25 basis point step downs based on achievement of certain senior secured first lien net leverage ratios. In addition, the Co-Borrowers will be required to pay a quarterly commitment fee on the unused commitments under the 2018 Revolving Credit Facility in an amount equal to 0.25 % per annum. For borrowings under both the 2018 Term Loan Facility and the 2018 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"). 79 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS All obligations under the 2018 Credit Agreement are secured, subject to certain exceptions and Excluded Assets (as defined in the 2018 Credit Agreement), by: (i) a pledge of all of the equity securities of GrafTech Finance and each domestic Guarantor (other than GrafTech) and of each other direct, wholly owned domestic subsidiary of GrafTech and any Guarantor, (ii) a pledge on no more than 65 % of the equity interests of each subsidiary that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code), and (iii) security interests in, and mortgages on, personal property and material real property of GrafTech Finance and each domestic Guarantor, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement. The obligations of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation under the Revolving Credit Facility are secured by (i) a pledge of all of the equity securities of each Guarantor that is a Controlled Foreign Corporation and of each direct, wholly owned subsidiary of any Guarantor that is a Controlled Foreign Corporation, and (ii) security interests in certain receivables and personal property of each Guarantor that is a Controlled Foreign Corporation, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement. The 2018 Term Loans amortize at a rate equal to 5 % per annum of the original principal amount of the 2018 Term Loans payable in equal quarterly installments, with the remainder due at maturity. The Co-Borrowers are permitted to make voluntary prepayments at any time without premium or penalty, except in the case of prepayments made in connection with certain repricing transactions with respect to the 2018 Term Loans effected within twelve months of the closing date of the 2018 Credit Agreement, to which a 1.00 % prepayment premium applies. GrafTech Finance is required to make prepayments under the 2018 Term Loans (without payment of a premium) with (i) net cash proceeds from non-ordinary course asset sales (subject to customary reinvestment rights and other customary exceptions and exclusions), and (ii) commencing with the Company’s fiscal year ending December 31, 2019, 75 % of Excess Cash Flow (as defined in the 2018 Credit Agreement), subject to step-downs to 50 % and 0 % of Excess Cash Flow based on achievement of a senior secured first lien net leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00 and less than or equal to 1.25 to 1.00, respectively. Scheduled quarterly amortization payments of the 2018 Term Loans during any calendar year reduce, on a dollar-for-dollar basis, the amount of the required Excess Cash Flow prepayment for such calendar year, and the aggregate amount of Excess Cash Flow prepayments for any calendar year reduce subsequent quarterly amortization payments of the 2018 Term Loans as directed by GrafTech Finance. The 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to GrafTech and restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The 2018 Credit Agreement contains a financial covenant that requires GrafTech to maintain a senior secured first lien net leverage ratio not greater than 4.00 :1.00 when the aggregate principal amount of borrowings under the 2018 Revolving Credit Facility and outstanding letters of credit issued under the 2018 Revolving Credit Facility (except for undrawn letters of credit in an aggregate amount equal to or less than $ 35 million), taken together, exceed 35 % of the total amount of commitments under the 2018 Revolving Credit Facility. The 2018 Credit Agreement also contains customary events of default. First Amendment to 2018 Credit Agreement On June 15, 2018, the Company entered into a first amendment (the “First Amendment”) to its 2018 Credit Agreement. The First Amendment amended the 2018 Credit Agreement to provide for an additional $ 750 million in aggregate principal amount of incremental term loans (the “Incremental Term Loans”) to GrafTech Finance. The Incremental Term Loans increased the aggregate principal amount of term loans incurred by GrafTech Finance under the 2018 Credit Agreement from $ 1,500 million to $ 2,250 million. The Incremental Term Loans have the same terms as those applicable to the 2018 Term Loans, including interest rate, payment and prepayment terms, representations and warranties and covenants. The Incremental Term Loans mature on February 12, 2025, the same date as the 2018 Term Loans. GrafTech paid an upfront fee of 1.00 % of the aggregate principal amount of the Incremental Term Loans on the effective date of the First Amendment. The proceeds of the Incremental Term Loans were used to repay, in full, the $ 750 million of principal outstanding on 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 80 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. 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. There has been no change in the carrying value of goodwill for the years 2019 and 2020. 81 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, 2020 As of December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (Dollars in thousands) Trade name $ 22,500 $ ( 11,932 ) $ 10,568 $ 22,500 $ ( 9,861 ) $ 12,639 Technology and know-how 55,300 ( 34,091 ) 21,209 55,300 ( 29,112 ) 26,188 Customer related intangible 64,500 ( 23,848 ) 40,652 64,500 ( 19,473 ) 45,027 Total finite-lived intangible assets $ 142,300 $ ( 69,871 ) $ 72,429 $ 142,300 $ ( 58,446 ) $ 83,854 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. (7) Interest Expense The following table presents an analysis of interest expense: For the Year Ended December 31 2020 2019 2018 (Dollars in thousands) Interest incurred on debt $ 83,555 $ 121,010 $ 100,844 Related Party Promissory Note interest expense — — 5,090 2012 Senior Note redemption premium — — 4,782 Accretion of fair value adjustment on 2012 Senior Notes — — 19,414 Accretion of original issue discount on 2018 Term Loans 5,340 2,196 1,455 Amortization of debt issuance costs 9,179 4,125 3,476 Total interest expense $ 98,074 $ 127,331 $ 135,061 Interest rates 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 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. (8) Fair Value Measurements and Derivative Instruments Fair Value Measurements Depending on the inputs, we classify each fair value measurement as follows: • Level 1 – based upon quoted prices for identical instruments in active markets, 82 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 • Level 3 – based upon one or more significant unobservable inputs. The following section describes key inputs and assumptions used in valuation methodologies of our assets and liabilities measured at fair value on a recurring basis: 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, 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 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 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. Additional fair value information related to our Pension funds' assets can be found in Note 11 "Retirement Plans and Postretirement Benefits". Derivative Instruments We use derivative instruments as part of our overall foreign currency and commodity risk management strategies to manage the risk of exchange rate movements that would reduce the value of our foreign cash flows and to minimize commodity price volatility. Foreign currency exchange rate movements create a degree of risk by affecting the value of sales made and costs incurred in currencies other than the U.S. dollar. Certain of our derivative contracts contain provisions that require us to provide collateral. Since the counterparties to these financial instruments are large commercial banks and similar financial institutions, we do not believe that we are exposed to material counterparty credit risk. We do not anticipate nonperformance by any of the counter-parties to our instruments. Foreign currency derivatives We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, attempt to hedge global currency exposures such as foreign currency denominated debt, sales, receivables, payables, and purchases. We had no foreign currency cash flow hedges outstanding as of December 31, 2020 and December 31, 2019 and therefore, no unrealized gains or losses reported under accumulated other comprehensive income (loss). As of December 31, 2020, we had outstanding Mexican peso, South African rand, euro, Swiss franc and Japanese yen currency contracts, with aggregate notional amounts of $ 71.0 million. As of December 31, 2019, we had outstanding Mexican peso, South African rand, euro, Swiss franc and Japanese yen currency contracts, with aggregate notional amounts of $ 78.8 million. The foreign currency derivatives outstanding as of December 31, 2020 had maturity dates from January 2021 to March 2021, and were not designated as hedging instruments. Commodity derivative contracts We have entered into commodity derivative contracts for refined oil products. These contracts are entered into to protect against the risk that eventual cash flows related to these products will be adversely affected by future changes in prices. 83 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. As of December 31, 2020, we had outstanding commodity derivative contracts with a notional amount of $ 61.3 million and maturities from January 2021 to June 2022. As of December 31, 2019, we had outstanding commodity derivative contracts with a notional amount of $ 99.5 million with maturities from January 2020 to June 2022. Within Accumulated Other Comprehensive income (loss), we had a net unrealized pre-tax loss of $ 2.2 million and a net unrealized pre-tax loss of $ 3.7 million as of December 31, 2020 and 2019, respectively. The fair value of these contracts was determined using Level 2 inputs. 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 During the third quarter of 2019, the Company entered into interest rate swap contracts. The contracts are "pay fixed, receive variable" with notional amounts of $ 500 million maturing in two years and another $ 500 million maturing in five years . 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. 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. 84 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 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 $ 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 $ 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 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 $ 6 Other accrued liabilities $ 111 Interest rate swap contracts Prepaid and other current assets — Other accrued liabilities 952 Total fair value $ 6 $ 1,063 As of December 31, 2019 Derivatives not designated as hedges: 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. 85 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The location and amount of realized (gains) losses on derivatives are recognized in the Statements of Operations when the hedged item impacts earnings and are as follows for the years ended December 31, 2020, 2019 and 2018: Amount of (Gain)/Loss Recognized 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 $ ( 4,134 ) $ ( 8,892 ) $ ( 919 ) Interest rate swaps Interest expense (income) 4,390 ( 1,050 ) — Amount of (Gain)/Loss Recognized 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) $ ( 2,671 ) $ ( 506 ) $ ( 522 ) Commodity derivative contracts Cost of sales ( 530 ) ( 223 ) — 86 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (9) Supplementary Balance Sheet Detail The following tables present supplementary balance sheet details: As of December 31, 2020 As of December 31, 2019 (Dollars in thousands) Inventories *: Raw materials and supplies $ 101,098 $ 129,879 Work in process 110,331 131,435 Finished goods 54,535 52,334 $ 265,964 $ 313,648 Prepaid expenses and other current assets: Prepaid expenses $ 9,242 $ 9,986 Value added tax and other indirect taxes receivable 10,666 13,890 Spare parts inventory 11,825 12,738 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: Payrolls (including incentive programs) $ 13,159 $ 11,801 Employee benefits 7,128 7,416 Deferred revenue 13,056 11,776 Other 23,158 17,342 $ 56,501 $ 48,335 Other long term obligations: Postretirement benefits $ 15,669 $ 16,528 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. 87 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 (10) Leases We lease certain transportation and mobile manufacturing equipment such as railcars and forklifts, as well as real estate. The Company adopted ASC 842 on January 1, 2019, which requires that all leases, financing and operating, be included on the balance sheet. The Company adopted ASC 842 using the modified retrospective approach under which prior periods’ financial statements are not restated and a cumulative-effect adjustment to retained earnings at the beginning of the period of adoption is recorded, if applicable. The Company elected to adopt the transition package of practical expedients for lease identification, classification, initial direct costs and hindsight. At the adoption of ASC 842 on January 1, 2019, the Company recognized right-of-use ("RoU") assets and corresponding operating lease liabilities of $ 7.5 million with no cumulative-effect adjustment to retained earnings. We determine if an arrangement is a lease at lease inception. When an arrangement contains a lease, we then determine if it meets any of the criteria for a financing lease. Leases with a term of 12 months or less are not recorded on the balance sheet. RoU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. RoU assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. In order to compute the lease liability, when the rate implicit in the lease is not readily determinable, we discount the lease payments using our estimated incremental borrowing rate for secured fixed rate debt over the same term, derived from information available at the lease commencement date. Our lease term includes the option to extend the lease when it is reasonably certain that we will exercise that option. The Company has elected to account for the lease and non-lease components as a single lease component, except for leases of warehouse space where they will be accounted for separately. Leases may include variable lease and variable non-lease components costs which are accounted for as variable lease expense in the income statement. Components of lease expense are as follows: For the Year Ended December 31, 2020 2019 (Dollars in thousands) Operating lease cost 6,138 4,816 Short-term lease cost 159 14 Variable lease cost 429 227 Total lease cost $ 6,726 $ 5,057 88 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Supplemental cash-flow and other information related to leases is as follows: For the Year Ended December 31, 2020 2019 (Dollars in thousands) RoU assets obtained in exchange for new operating lease liabilities (non-cash) 5,262 4,995 Operating (use of cash) from operating leases ( 6,177 ) ( 4,724 ) Supplemental balance sheet information related to leases is as follows: As of December 31, 2020 2019 (Dollars in thousands) Location 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 Weighted average remaining lease term (in years) 2.7 2.3 Weighted average discount rate - operating leases 5.82 % 5.61 % As of December 31, 2020, lease commitments under non-cancelable operating leases extending for one year or more will require the following future payments: (Dollars in thousands) 2021 4,124 2022 1,377 2023 1,024 2024 872 2025 and thereafter 449 Total lease payments $ 7,846 Less: Imputed interest ( 549 ) Present value of lease payments $ 7,297 As of December 31, 2020, we have not entered into any additional operating lease commitments that have yet to commence. (11) Retirement Plans and Postretirement Benefits Retirement Plans On February 26, 1991, we formed our own retirement plan covering substantially all our U.S. employees. Under our plan, covered employees earned benefit payments based primarily on their service credits and wages subsequent to February 26, 1991. Prior to that date, substantially all our U.S. employees were participants in the U.S. retirement plan of Union Carbide Corporation (“Union Carbide”). While service credit was frozen, covered employees continued to earn benefits under the Union Carbide plan based on their final average wages through February 26, 1991, adjusted for salary increases (not to exceed six percent per annum) through January 26, 1995, the date Union Carbide ceased to own a minimum 50 % of the equity of GTI. The Union Carbide plan is responsible for paying retirement and death benefits earned as of February 26, 1991. 89 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Effective January 1, 2002, we established a defined contribution plan for U.S. employees. Certain employees had the option to remain in our defined benefit plan for an additional period of up to five years. Employees not covered by this option had their benefits under our defined benefit plan frozen as of December 31, 2001, and began participating in the defined contribution plan. Effective March 31, 2003, we curtailed our qualified benefit plan and the benefits were frozen as of that date for the U.S. employees who had the option to remain in our defined benefit plan. We also closed our non-qualified U.S. defined benefit plan for the participating salaried workforce. The employees began participating in the defined contribution plan as of April 1, 2003. Pension coverage for employees of foreign subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are systematically provided for by depositing funds with trustees, under insurance policies or by book reserves. The components of our consolidated net pension costs are set forth in the following table: For the Year Ended December 31, 2020 2019 2018 U.S. Foreign U.S. Foreign U.S. Foreign (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 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. plans. 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. plans. 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. 90 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: As of December 31, 2020 As of December 31, 2019 U.S. Foreign U.S. Foreign (Dollars in thousands) Changes in Benefit Obligation: 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 Participant contributions — 470 — 417 Foreign currency exchange changes — 2,869 — 379 Actuarial (gain) loss 9,583 2,683 12,868 3,319 Benefits paid* ( 10,410 ) 2,434 ( 10,410 ) 1,557 Net benefit obligation at end of period $ 140,254 $ 38,716 $ 135,810 $ 28,903 Changes in Plan Assets: Fair value of plan assets at beginning of period $ 107,832 $ 18,980 $ 99,845 $ 15,354 Actual return on plan assets 13,700 488 17,689 441 Foreign currency exchange rate changes — 1,893 — 377 Employer contributions 4,446 817 708 834 Participant contributions — 470 — 417 Benefits paid* ( 10,410 ) 2,434 ( 10,410 ) 1,557 Fair value of plan assets at end of period $ 115,568 $ 25,082 $ 107,832 $ 18,980 Funded status (underfunded): $ ( 24,686 ) $ ( 13,634 ) $ ( 27,978 ) $ ( 9,923 ) Amounts recognized in the statement of financial position: Non-current assets $ — $ 13 $ — $ 37 Current liabilities ( 423 ) ( 50 ) ( 427 ) ( 43 ) Non-current liabilities ( 24,263 ) ( 13,597 ) ( 27,551 ) ( 9,917 ) 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. Plan Assets The accounting guidance on fair value measurements specifies a hierarchy based on the observability of inputs used in valuation techniques (Level 1, 2 and 3). See Note 8, “Fair Value Measurements and Derivative Instruments", for a discussion of the fair value hierarchy. The following describes the methods and significant assumptions used to estimate the fair value of the investments: Cash and cash equivalents – Valued at cost. Cash equivalents are valued at net asset value as provided by the administrator of the fund. 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. 91 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Investment contracts – Valued at the total cost of annuity contracts purchased, adjusted for market differences from the date of purchase to year-end. Collective trusts – Valued at the net asset value provided by the administrator of the fund (the practical expedient). The net asset value is primarily based on quoted market prices of the underlying securities for which quoted market prices of the underlying securities of the funds. Some of the underlying investments include securities for which quoted market prices are not available and are valued using data obtained by the trustee from the best available source or market value. This method may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although we believe its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The fair value of other plan assets by category is summarized below (dollars in thousands): As of December 31, 2020 Level 1 Level 2 Level 3 Total U.S. Plan Assets Cash and cash equivalents $ 1,850 $ — $ — $ 1,850 International Plan Assets Foreign government bonds — 995 — 995 Fixed insurance contracts — — 24,087 24,087 Total assets in the fair value hierarchy $ — $ 995 $ 24,087 $ 25,082 U.S. 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 U.S. Plan Assets Cash and cash equivalents $ 1,524 $ — $ — $ 1,524 International Plan Assets Foreign government bonds $ — $ 995 $ — $ 995 Fixed insurance contracts — — 17,985 17,985 Total assets in the fair value hierarchy $ — $ 995 $ 17,985 $ 18,980 U.S. 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): Fixed Insurance Contracts Balance at December 31, 2018 $ 14,396 Gain / contributions / currency impact 3,603 Distributions ( 14 ) Balance at December 31, 2019 17,985 Gain / contributions / currency impact 6,149 Distributions ( 16 ) Balance at December 31, 2020 $ 24,118 92 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS We annually re-evaluate assumptions and estimates used in projecting pension assets, liabilities and expenses. These assumptions and estimates may affect the carrying value of pension assets, liabilities and expenses in our Consolidated Financial Statements. Assumptions used to determine net pension costs and projected benefit obligations are: Pension Benefit Obligations Key Assumptions As of December 31, 2020 2019 Weighted average assumptions to determine benefit obligations: Discount rate 1.78 % 2.59 % Rate of compensation increase 1.46 % 1.50 % Pension Cost Key Assumptions Weighted average assumptions to determine net cost: Discount rate 2.59 % 3.71 % Expected return on plan assets 4.14 % 4.92 % Rate of compensation increase 1.50 % 1.74 % We adjust our discount rate annually in relation to the rate at which the benefits could be effectively settled. 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 expected return on assets assumption represents our best estimate of the long-term return on plan assets and generally was estimated by computing a weighted average return of the underlying long-term expected returns on the different asset classes, based on the target asset allocations. The expected return on assets assumption is a long-term assumption that is expected to remain the same from one year to the next unless there is a significant change in the target asset allocation, the fees and expenses paid by the plan or market conditions. The rate of compensation increase assumption is generally based on salary increases. Plan Assets. The following table presents our retirement plan weighted average asset allocations at December 31, 2020, by asset category : Percentage of Plan Assets as of December 31, 2020 US Foreign Equity securities and return seeking assets 20 % — % Fixed income, debt securities, or cash 80 % 100 % Total 100 % 100 % Investment Policy and Strategy. The investment policy and strategy of the U.S. plan is to invest approximately 20 % in equities and return seeking assets and approximately 80 % in fixed income securities. Rebalancing is undertaken monthly. To the extent we maintain plans in other countries, target asset allocation is 100 % fixed income investments. For each plan, the investment policy is set within both asset return and local statutory requirements. Information for our pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2019 and 2020 follows: 2020 2019 U.S. Foreign U.S. Foreign (Dollars in thousands) Accumulated benefit obligation $ 140,254 $ 35,316 $ 135,810 $ 26,829 Fair value of plan assets 115,568 24,118 107,832 17,985 93 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Information for our pension plans with a projected benefit obligation in excess of plan assets at December 31, 2020 and 2019 follows: 2020 2019 U.S. Foreign U.S. Foreign (Dollars in thousands) Projected benefit obligation $ 140,254 $ 37,734 $ 135,810 $ 27,944 Fair value of plan assets 115,568 24,118 107,832 17,985 Following is our projected future pension plan cash flow by year: U.S. Foreign (Dollars in thousands) Expected contributions in 2021: Expected employer contributions $ 2,363 $ 886 Expected employee contributions — — 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 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. Savings Plan 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 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 Legal Proceedings We are involved in various investigations, lawsuits, claims, demands, environmental compliance programs and other legal proceedings arising out of or incidental to the conduct of our business. While it is not possible to determine the ultimate disposition of each of these matters, we do not believe that their ultimate disposition will have a material adverse effect on our financial position, results of operations or cash flows. 94 Pending litigation in Brazil has been brought by employees seeking to recover additional amounts and interest thereon under certain wage increase provisions applicable in 1989 and 1990 under collective bargaining agreements to which employers in the Bahia region of Brazil were a party (including our subsidiary in Brazil). Companies in Brazil have settled claims arising out of these provisions and, in May 2015, the litigation was remanded by the Brazilian Supreme Court in favor of the employees union. After denying an interim appeal by the Bahia region employers on June 26, 2019, the Brazilian Supreme Court finally ruled in favor of the employees union on September 26, 2019. The employers union has determined not to seek annulment of such decision. Separately, on October 1, 2015, a related action was filed by current and former employees against our subsidiary in Brazil to recover amounts under such provisions, plus interest thereon, which amounts together with interest could be material to us. If the Brazilian Supreme Court proceeding above had been determined in favor of the employers union, it would also have resolved this proceeding in our favor. In the first quarter of 2017, the state court initially ruled in favor of the employees. We appealed this state court ruling, and the appellate court issued a decision in our favor on May 19, 2020. The employees have further appealed, and on December 16, 2020, the court upheld the decision in favor of GrafTech Brazil. On February 22, 2021, the employees filed a further appeal , and 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. Product Warranties We generally sell products with a limited warranty. We accrue for known warranty claims if a loss is probable and can be reasonably estimated. We also accrue for estimated warranty claims incurred based on a historical claims charge analysis. Claims accrued but not yet paid and the related activity within the reserve for 2019 and 2020 are as follows: (Dollars in Thousands) Balance as of December 31, 2018 $ 1,528 Product warranty charges/adjustments 1,033 Payments and settlements ( 726 ) Balance as of December 31, 2019 $ 1,835 Product warranty charges/adjustments 1,220 Payments and settlements ( 1,058 ) Balance as of December 31, 2020 $ 1,997 Related Party Tax Receivable Agreement 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. In addition, we will pay interest on the payments we will make to Brookfield with respect to the amount of these cash savings from the due date (without extensions) of our tax return where we realize these savings to the payment date at a rate equal to LIBOR plus 1.00 % per annum. The term of the TRA commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments. There was no liability recognized on the date we entered into the TRA as there was a full valuation allowance recorded against our deferred tax assets. During the second quarter of 2018, it was determined that the conditions were appropriate for the Company to release a valuation allowance of certain tax assets as we exited our three year cumulative loss position. This release resulted in the recording of a $ 86.5 million liability related to the TRA on the Consolidated Statements of 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 95 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 The long-term incentive plan ("LTIP") was adopted by the Company effective as of August 17, 2015, as amended and restated as of March 15, 2018. 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 ("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. Any unvested Profit Units that have not been previously forfeited will accelerate and become fully vested upon a ‘‘Change in Control’’ (as defined below). Profit Units will generally be settled in a lump sum payment within 30 days following a Change in Control based on the ‘‘Sales Proceeds’’ (as defined below) received by Brookfield Capital Partners IV, L.P. (or, together with its affiliates, Brookfield Capital IV) in connection with the Change in Control. The LTIP defines ‘‘Change in Control’’ as any transaction or series of transactions (including, without limitation, the consummation of a combination, share purchases, recapitalization, redemption, issuance of capital stock, consolidation, reorganization or otherwise) pursuant to which (a) a person not affiliated with Brookfield Capital IV acquires securities representing more than seventy percent ( 70 %) of the combined voting power of the outstanding voting securities of the Company or the entity surviving or resulting from such transaction, (b) following a public offering of the Company’s stock, Brookfield Capital IV has ceased to have a beneficial ownership interest in at least 30 % of the Company’s outstanding voting securities (effective on the first of such date), or (c) the Company sells all or substantially all of the assets of the Company and its subsidiaries on a consolidated basis. It is intended that the occurrence of a Change in Control in which Sales Proceeds exceed the Threshold Value would constitute a ‘‘substantial risk of forfeiture’’ within the meaning of Section 409A of the Code. The LTIP defines ‘‘Threshold Value’’ as, as of any date of determination, an amount equal to $ 855,000,000 (which represents the amount of the total invested capital of Brookfield Capital IV as of August 17, 2015), plus the dollar value of any cash or other consideration contributed to or invested in the Company by Brookfield Capital IV after August 17, 2015. The Threshold Value shall be determined by the Board of Directors in its sole discretion. The LTIP defines ‘‘Sales Proceeds’’ as, as of any date of determination, the sum of all proceeds actually received by the Brookfield Capital IV, net of all Sales Costs (as defined below), (i) as consideration (whether cash or equity) upon the Change in Control and (ii) as distributions, dividends, repurchases, redemptions or otherwise as a holder of such equity interests in the Company. Proceeds that are not paid upon or prior to or in connection with the Change in Control, including earn-outs, escrows and other contingent or deferred consideration shall become ‘‘Sale Proceeds’’ only as and when such proceeds are received by Brookfield Capital IV. ‘‘Sales Costs’’ means any costs or expenses (including legal or other advisor costs), fees (including investment banking fees), commissions or discounts payable directly by Brookfield Capital IV in connection with, arising out of or relating to a Change in Control, as determined by the Board of Directors in its sole discretion. 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. 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. (13) Income Taxes The following table summarizes the U.S. and non-U.S. components of income (loss) from continuing operations before Provision (benefit) for income taxes: For the Year Ended December 31, 2020 2019 2018 (Dollars in thousands) U.S. $ 51,672 $ 85,365 $ ( 68,032 ) Non-U.S. 458,373 757,462 970,840 $ 510,045 $ 842,827 $ 902,808 96 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, 2020 2019 2018 U.S. income taxes: Current $ ( 7,660 ) $ 16,589 $ 787 Deferred 27,822 5,690 ( 52,145 ) 20,162 22,279 ( 51,358 ) Non-U.S. 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 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 Tax Receivable Agreement ( 4,429 ) 713 18,160 Valuation allowance ( 980 ) ( 14,548 ) ( 93,125 ) State taxes, net of federal tax benefit 3,591 4,231 1,529 U.S. tax impact of foreign earnings (net of foreign tax credits) 2,113 2,181 792 Establishment/resolution of uncertain tax positions ( 78 ) ( 1,293 ) ( 345 ) Adjustment for foreign income taxed at different rates ( 38,464 ) ( 76,922 ) ( 95,822 ) 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 97 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 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 at December 31, 2020 and December 31, 2019 are set forth in the following table: As of December 31, 2020 2019 (Dollars in thousands) Deferred tax assets: Postretirement and other employee benefits $ 18,202 $ 18,256 Foreign tax credit and other carryforwards 37,101 55,103 Capitalized research and experimental costs 3,897 5,566 Environmental reserves 1,111 1,110 Inventory adjustments 7,381 14,863 Long-term contract option amortization 1,031 1,080 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 Less: valuation allowance ( 12,773 ) ( 13,736 ) Total deferred tax assets 63,244 84,346 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 ( 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 $ 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. Examples of positive evidence would include a strong earnings history, an event or events that would increase our taxable income through a continued reduction of expenses, and tax planning strategies that would indicate an ability to realize deferred tax assets. 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 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. 98 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) Balance as of December 31, 2018 $ 58,446 Credited to income ( 14,548 ) Changes attributable to write-off of underlying assets ( 30,138 ) Translation adjustment ( 24 ) Balance as of December 31, 2019 $ 13,736 Credited to income ( 980 ) Translation adjustment 17 Balance as of December 31, 2020 $ 12,773 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. tax attributes. This positive evidence was primarily supplied by the company exiting a cumulative loss period in the U.S. as well as sufficient U.S. current and forecasted taxable income that would utilize the U.S. tax attributes. As a result, a partial release (to reflect only the economic benefit of the attributes) of the valuation allowance against federal net operating losses and state losses was recorded in 2018 while a full release of the valuation allowance against the federal foreign tax credit carryforward, other federal deferred tax assets was also recorded. A valuation allowance of $ 35.8 million is included in the December 31, 2018 balance reflected above as there was not sufficient positive evidence that the deferred tax asset related to the U.S. federal net operating loss would generate more than its estimated economic benefit. This valuation allowance and the related deferred tax asset were subsequently released to the income statement in 2019. 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 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. 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 $ 0.9 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: (Dollars in thousands) Balance as of December 31, 2018 $ 1,990 Settlements ( 1,383 ) Reductions for tax positions of prior years ( 421 ) Foreign currency impact ( 2 ) Balance as of December 31, 2019 $ 184 Lapse of statutes of limitations ( 75 ) Foreign currency impact 16 Balance as of December 31, 2020 $ 125 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. We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. All U.S. federal tax years prior to 2016 are generally closed by statute or have been audited and settled with the applicable domestic tax authorities. Other jurisdictions are still open to examination beginning after 2014. 99 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 $ 1.0 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. cash generation to be sufficient to meet future U.S. cash needs. (14) Stockholders' Equity The following information should be read in conjunction with the Consolidated Statement of Stockholders' Equity. Stock Split On April 12, 2018, the Company effected a 3,022,259.23 to one stock split of the Company's then outstanding common stock. We have retroactively applied this split to all share presentations, as well as "Net income per share" and "Income from continuing operations per share" calculations for the periods presented. Conditional Dividend to Pre-IPO Stockholder On April 19, 2018, we declared a $ 160 million cash dividend payable to Brookfield, the sole pre-IPO stockholder. Payment of this dividend was conditional 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 (as defined in the 2018 Credit Agreement) having occurred and continuing or that would result from the payment of the dividend and (iii) the payment occurring within 60 days from the dividend record date. The conditions of this dividend were met upon filing of our first quarter report on Form 10-Q and the dividend was paid on May 8, 2018. Brookfield Promissory Note On April 19, 2018, we declared a dividend in the form of the Brookfield Promissory Note to the sole pre-IPO stockholder. This note was repaid on June 15, 2018 with proceeds from our Incremental Term Loans. See Note 5 "Debt and Liquidity". Initial Public Offering On April 23, 2018, we completed the IPO of 35,000,000 shares of our common stock at a price of $ 15 per share. This offering represented a sale of 11.6 % of our sole pre-IPO stockholder's ownership in the Company. On April 26, 2018, we closed the sale of an additional 3,097,525 shares of common stock at a price to the public of $ 15 per share from the pre-IPO stockholder, as a result of the partial exercise by the underwriters in our IPO of their overallotment option. After giving effect to the partial exercise of the overallotment option, the total number of shares of common stock sold by the pre-IPO stockholder was 38,097,525 . The Company did not receive any proceeds related to the offering. 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 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. The Company did not receive any proceeds related to the Offering. Pursuant to a share repurchase agreement with Brookfield, we concurrently repurchased 11,688,311 shares directly from Brookfield. The price per share paid by us in the repurchase was equal to the price at which the underwriters purchased the shares from Brookfield in the Offering net of underwriting commissions and discounts. We funded the share repurchase from cash on hand. The terms and conditions of the share repurchase were reviewed and approved by the audit committee of our board of directors, which is comprised solely of independent directors. All repurchased shares were retired. On July 30, 2019, our Board of Directors authorized a program to repurchase up to $ 100 million of our outstanding common stock. We may purchase shares from time to time on the open market, including under Rule 10b5-1 and/or Rule 10b-18 plans. The amount and timing of repurchases are subject to a variety of factors including liquidity, stock price, 100 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. On December 5, 2019, GrafTech announced two separate transactions. The first was a Rule 144 secondary block trade in which Brookfield sold 11,175,927 shares of GrafTech common stock at a price of $ 13.125 per share to a broker-dealer who placed the shares with institutional and other investors. Separately, 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. Dividends 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. 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: As of December 31, 2020 As of December 31, 2019 (Dollars in thousands) Foreign currency translation adjustments, net of tax $ ( 2,725 ) $ ( 9,293 ) Commodities, foreign currency and interest rate derivatives, net of tax ( 16,916 ) 1,932 Total accumulated comprehensive (loss) income $ ( 19,641 ) $ ( 7,361 ) (15) Earnings per Share 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 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 Add: Effect of equity awards 14,161 17,245 5,443 Weighted average common shares outstanding for diluted calculation 267,930,644 289,074,601 297,753,770 Basic earnings per common share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding, which includes 73,320 , 32,981 and 5,592 shares of participating securities in 2020, 2019 and 2018, respectively. Diluted earnings per share are calculated by dividing net income (loss) by the sum of the weighted average number of common shares outstanding plus the additional common shares that would have been outstanding if potentially dilutive securities had been issued. The weighted average common shares outstanding for the diluted earnings per share calculation excludes consideration of 1,667,325 , 1,082,113 and 650,432 equivalent shares in 2020, 2019 and 2018, respectively, as these shares are anti-dilutive. 101 GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (16) Summary of quarterly financial data (Unaudited) The following summarizes certain consolidated operating results by quarter for 2020 and 2019. 2020 2019 March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31 (Dollars in thousands, except per share amounts) As Reported: 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 Selling and administrative expenses 14,932 16,001 19,062 17,918 15,226 15,394 15,708 17,346 Other expense (income), net ( 3,314 ) 311 694 5,639 467 863 ( 688 ) 4,561 Related party Tax Receivable 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. 102 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.