10-Q 1 gti-20220630.htm 10-Q gti-20220630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from______ to ______
Commission file number: 1-13888
gti-20220630_g1.jpg
GRAFTECH INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
Delaware27-2496053
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
982 Keynote Circle44131
Brooklyn Heights,OH(Zip code)
(Address of principal executive offices)
Registrant’s telephone number, including area code: (216676-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value per shareEAFNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerEmerging Growth Company
Non-Accelerated FilerSmaller Reporting Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 
As of July 29, 2022, 256,597,342 shares of common stock outstanding.


TABLE OF CONTENTS
 

Presentation of Financial, Market and Industry Data
We present our financial information on a consolidated basis. Unless otherwise noted, when we refer to dollars, we mean U.S. dollars.
Certain market and industry data included in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022 (the "Report") has been obtained from third-party sources that we believe to be reliable. Market estimates are calculated by using independent industry publications, government publications and third-party forecasts in conjunction with our assumptions about our markets. We cannot guarantee the accuracy or completeness of this market and market share data and have not independently verified it. None of the sources consented to the disclosure or use of data in this Report. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings “Cautionary Note Regarding Forward-Looking Statements” in this Report and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 ("Annual Report on Form 10-K") filed on February 22, 2022.
Cautionary Note Regarding Forward-Looking Statements
This Report may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our current views with respect to, among other things, financial projections, plans and objectives of management for future operations, and future economic performance. Examples of forward-looking statements include, among others, statements we make regarding future estimated revenues and volumes derived from our take-or-pay agreements that had initial terms of three-to-five years ("LTA"), future pricing of short-term agreements and spot sales ("Non-LTA"), anticipated levels of capital expenditures, and guidance relating to earnings per share and adjusted EBITDA. You can identify these forward-looking statements by the use of forward-looking words such as “will,” “may,” “plan,” “estimate,” “project,” “believe,” “anticipate,” “expect,” “foresee,” “intend,” “should,” “would,” “could,” “target,” “goal,” “continue to,” “positioned to,” “are confident,” or the negative versions of those words or other comparable words. Any forward-looking statements contained in this Report are based upon our historical performance and on our current plans, estimates and expectations considering information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates, or expectations contemplated by us will be achieved. Our expectations and targets are not predictions of actual performance and historically our performance has deviated, often significantly, from our expectations and targets. These forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth
2

strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:
the ultimate impact the COVID-19 pandemic has on our business, results of operations, financial condition and cash flows, including the duration and spread of any variants, the duration and scope of related government orders and restrictions, the impact on our employees, and the disruptions and inefficiencies in our supply chain;
the ultimate impact the conflict between Russia and Ukraine has on our business, results of operations, financial condition and cash flows, including the duration and scope of such conflict, its impact on disruptions and inefficiencies in our supply chain and our ability to procure certain raw materials;
the possibility that we may be unable to implement our business strategies, including our ability to secure and maintain longer-term customer contracts, in an effective manner;
the cyclical nature of our business and the selling prices of our products, which may decline in the future, may lead to periods of reduced profitability and net losses in the future;
the impact of inflation and our ability to mitigate the effect on our costs;
the risks and uncertainties associated with litigation, arbitration, and like disputes, including disputes related to contractual commitments;
the possibility that global graphite electrode overcapacity may adversely affect graphite electrode prices;
our dependence on the global steel industry generally and the electric arc furnace steel industry in particular;
the sensitivity of our business and operating results to economic conditions, including any recession, and the possibility others may not be able to fulfill their obligations to us in a timely fashion or at all;
the competitiveness of the graphite electrode industry;
our dependence on the supply of raw materials, including decant oil, petroleum needle coke, and energy, and disruptions in supply chains for these materials;
our manufacturing operations are subject to hazards;
changes in, or more stringent enforcement of, health, safety and environmental regulations applicable to our manufacturing operations and facilities;
the legal, compliance, economic, social and political risks associated with our substantial operations in multiple countries;
the possibility that fluctuation of foreign currency exchange rates could materially harm our financial results;
the possibility that our results of operations could deteriorate if our manufacturing operations were substantially disrupted for an extended period, including as a result of equipment failure, climate change, regulatory issues, natural disasters, public health crises, such as the COVID-19 pandemic, political crises or other catastrophic events;
our dependence on third parties for certain construction, maintenance, engineering, transportation, warehousing and logistics services;
the possibility that we are unable to recruit or retain key management and plant operating personnel or successfully negotiate with the representatives of our employees, including labor unions;
the sensitivity of goodwill on our balance sheet to changes in the market;
the possibility that we are subject to information technology systems failures, cybersecurity attacks, network disruptions and breaches of data security;
our dependence on protecting our intellectual property and the possibility that third parties may claim that our products or processes infringe their intellectual property rights;
the possibility that our indebtedness could limit our financial and operating activities or that our cash flows may not be sufficient to service our indebtedness;
the possibility that restrictive covenants in our financing agreements could restrict or limit our operations;
3

the fact that borrowings under certain of our existing financing agreements subject us to interest rate risk;
the possibility that disruptions in the capital and credit markets could adversely affect our results of operations, cash flows and financial condition, or those of our customers and suppliers;
the possibility that the market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets, including by Brookfield Asset Management Inc. and its affiliates (together, “Brookfield”);
the possibility that we may not pay cash dividends on our common stock in the future; and
the fact that our stockholders have the right to engage or invest in the same or similar businesses as us.
These factors should not be construed as exhaustive and should be read in conjunction with the Risk Factors and other cautionary statements that are included in our Annual Report on Form 10-K and other filings with the Securities and Exchange Commission ("SEC"). The forward-looking statements made in this Report relate only to events as of the date on which the statements are made. Except as required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this Report that could cause actual results to differ before making an investment decision to purchase our common stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.
4

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
As of
June 30,
2022
As of
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$55,835 $57,514 
Accounts and notes receivable, net of allowance for doubtful accounts of
$7,639 as of June 30, 2022 and $6,835 as of December 31, 2021
206,570 207,547 
Inventories396,749 289,432 
Prepaid expenses and other current assets89,657 73,364 
Total current assets748,811 627,857 
Property, plant and equipment815,868 815,298 
Less: accumulated depreciation327,060 313,825 
Net property, plant and equipment488,808 501,473 
Deferred income taxes21,918 26,187 
Goodwill171,117 171,117 
Other assets85,610 85,684 
Total assets$1,516,264 $1,412,318 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$149,662 $117,112 
Long-term debt, current maturities119 127 
Accrued income and other taxes44,418 57,097 
Other accrued liabilities75,270 56,405 
Related party payable - Tax Receivable Agreement4,481 3,828 
Total current liabilities273,950 234,569 
Long-term debt920,342 1,029,561 
Other long-term obligations71,145 68,657 
Deferred income taxes44,629 40,674 
Related party payable - Tax Receivable Agreement long-term10,973 15,455 
Commitments and contingencies - Note 7
Stockholders’ 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, 256,597,342 and 263,255,708 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
2,566 2,633 
Additional paid-in capital743,891 761,412 
Accumulated other comprehensive loss(10,638)(7,444)
Accumulated deficit(540,594)(733,199)
Total stockholders’ equity195,225 23,402 
Total liabilities and stockholders’ equity$1,516,264 $1,412,318 
See accompanying Notes to the Condensed Consolidated Financial Statements
5


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
(Unaudited)
For the Three Months Ended June 30,For the Six Months
Ended June 30,
 2022202120222021
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales$363,646 $330,750 $729,891 $635,147 
Cost of sales201,496 201,867 392,710 348,263 
Gross profit162,150 128,883 337,181 286,884 
Research and development723 1,018 1,603 1,987 
Selling and administrative expenses18,030 75,783 39,284 95,936 
Operating income143,397 52,082 296,294 188,961 
Other (income) expense, net(563)357 (760)50 
Interest expense9,399 15,994 18,611 38,161 
Interest income(1,858)(199)(1,956)(236)
Income before provision for income taxes136,419 35,930 280,399 150,986 
Provision for income taxes21,422 7,765 41,219 24,022 
Net income$114,997 $28,165 $239,180 $126,964 
Basic income per common share:
Net income per share$0.44 $0.11 $0.92 $0.47 
Weighted average common shares outstanding258,845,588 267,560,712 260,719,446 267,440,501 
Diluted income per common share:
Net income per share$0.44 $0.11 $0.92 $0.47 
Weighted average common shares outstanding258,845,588 267,807,944 260,734,273 267,765,378 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income$114,997 $28,165 $239,180 $126,964 
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax of
$1, $0, $2 and $0 respectively
(18,622)8,854 (11,600)(4,577)
Commodities, interest rate and foreign currency derivatives, net of tax of $634, $(3,079), $(3,028) and $(6,411), respectively
(4,557)11,472 8,406 23,827 
Other comprehensive (loss) income, net of tax:(23,179)20,326 (3,194)19,250 
Comprehensive income$91,818 $48,491 $235,986 $146,214 


See accompanying Notes to the Condensed Consolidated Financial Statements
6

GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the Six Months
Ended June 30,
 20222021
Cash flow from operating activities:
Net income$239,180 $126,964 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization28,446 32,831 
Deferred income tax provision6,557 (4,195)
Non-cash stock-based compensation expense1,038 16,031 
Non-cash interest expense(3,674)7,199 
Other adjustments3,411 3,354 
Net change in working capital*(61,989)50,434 
Change in related party Tax Receivable Agreement(3,828)(21,752)
Change in long-term assets and liabilities(2,702)(2,111)
Net cash provided by operating activities206,439 208,755 
Cash flow from investing activities:
Capital expenditures(29,348)(26,052)
Proceeds from the sale of fixed assets139 219 
Net cash used in investing activities(29,209)(25,833)
Cash flow from financing activities:
Debt issuance and modification costs(2,232)(3,084)
Principal payments on long-term debt(110,000)(200,000)
Repurchase of common stock - non-related party (60,000) 
Payments for taxes related to net share settlement of equity awards(230)(4,074)
Proceeds from exercise of stock options225  
Dividends paid to non-related party(3,917)(3,418)
Dividends paid to related party(1,279)(1,927)
Interest rate swap settlements(1,433)(2,109)
Net cash used in financing activities(178,866)(214,612)
Net change in cash and cash equivalents(1,636)(31,690)
Effect of exchange rate changes on cash and cash equivalents(43)379 
Cash and cash equivalents at beginning of period57,514 145,442 
Cash and cash equivalents at end of period$55,835 $114,131 
* Net change in working capital due to changes in the following components:
Accounts and notes receivable, net$(1,119)$9,305 
Inventories(104,717)7,823 
Prepaid expenses and other current assets(14,028)(12,071)
Income taxes payable(16,436)(17,761)
Accounts payable and accruals74,386 62,748 
Interest payable(75)390 
Net change in working capital$(61,989)$50,434 
Net cash paid during the periods for:
Interest $22,360 $30,548 
Income taxes $49,934 $44,572 

See accompanying Notes to the Condensed Consolidated Financial Statements
7


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except per share data)
(Unaudited)
Issued
Shares of
Common
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings (Accumulated
Deficit)
Total
Stockholders’
Equity (Deficit)
Balance as of December 31, 2021263,255,708 $2,633 $761,412 $(7,444)$(733,199)$23,402 
Net income— — — — 124,183 124,183 
Other comprehensive income (loss):
Commodity, interest rate and foreign currency derivatives income, net of tax of $(4,181)
— — — 14,800 — 14,800 
Commodity, interest rate and foreign currency derivatives reclassification adjustments, net of tax of $519
— — — (1,837)— (1,837)
Foreign currency translation adjustments, net of tax of $1
— — — 7,022 — 7,022 
   Total other comprehensive income— — — 19,985 — 19,985 
Repurchase of common stock - non-related party(3,035,830)(31)(8,530)— (21,439)(30,000)
Stock-based compensation— — 465 — — 465 
Options exercised 25,000 — 225 — — 225 
Payments for taxes related to net share settlement of equity awards(22,293)— (63)— (167)(230)
Dividends paid to related party ($0.01 per share)
— — — — (640)(640)
Dividends paid to non-related party ($0.01 per share)
— — — — (1,985)(1,985)
Balance as of March 31, 2022260,222,585 $2,602 $753,509 $12,541 $(633,247)$135,405 
Net income— — — — 114,997 114,997 
Other comprehensive loss:
Commodity, interest rate and foreign currency derivatives loss, net of tax of $347
— — — (2,498)— (2,498)
Commodity, interest rate and foreign currency derivatives reclassification adjustments, net of tax of $287
— — — (2,059)— (2,059)
Foreign currency translation adjustments, net of tax of $1
— — — (18,622)— (18,622)
   Total other comprehensive loss— — — (23,179)— (23,179)
Repurchase of common stock - non-related party(3,626,591)(36)(10,191)— (19,773)(30,000)
Stock-based compensation1,348 — 573 — — 573 
Dividends paid to related party stockholder ($0.01 per share)
— — — — (639)(639)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (1,932)(1,932)
Balance as of June 30, 2022256,597,342 $2,566 $743,891 $(10,638)$(540,594)$195,225 
8


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except per share data)
(Unaudited)
Issued
Shares of
Common
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings (Accumulated
Deficit)
Total
Stockholders’
Equity (Deficit)
Balance as of December 31, 2020267,188,547 $2,672 $758,354 $(19,641)$(1,070,770)$(329,385)
Net income— — — — 98,799 98,799 
Other comprehensive income (loss):
Commodity, interest rate and foreign currency derivatives income, net of tax of $(3,144)
— — — 11,660 — 11,660 
Commodity, interest rate and foreign currency derivatives reclassification adjustments, net of tax of $(187)
— — — 695 — 695 
Foreign currency translation adjustments, net of tax $0
— — — (13,431)— (13,431)
   Total other comprehensive loss— — — (1,076)— (1,076)
Stock-based compensation92,135 1 766 — — 767 
Payments for taxes related to net share settlement of equity awards(23,090)— (65)— (210)(275)
Dividends paid to related party ($0.01 per share)
— — — — (1,277)(1,277)
Dividends paid to non-related party ($0.01 per share)
— — — — (1,394)(1,394)
Balance as of March 31, 2021267,257,592 $2,673 $759,055 $(20,717)$(974,852)$(233,841)
Net income— — — — 28,165 28,165 
Other comprehensive income:
Commodity, interest rate and foreign currency derivatives income, net of tax of $(1,921)
— — — 7,158 — 7,158 
Commodity, interest rate and foreign currency derivatives reclassification adjustments, net of tax of $(1,158)
— — — 4,314 — 4,314 
Foreign currency translation adjustments, net of tax of $0
— — — 8,854 — 8,854 
   Total other comprehensive income— — — 20,326 — 20,326 
Stock-based compensation917,410 915,254 — — 15,263 
Payments for taxes related to net share settlement of equity awards(294,250)(3)(757)— (3,039)(3,799)
Dividends paid to related party stockholder ($0.01 per share)
— — — — (650)(650)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (2,024)(2,024)
Balance as of June 30, 2021267,880,752 $2,679 $773,552 $(391)$(952,400)$(176,560)


See accompanying Notes to the Condensed Consolidated Financial Statements

9

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


(1)Organization and Summary of Significant Accounting Policies
A. Organization
GrafTech International Ltd. (the “Company” or "GrafTech") 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 the Company and its subsidiaries. On August 15, 2015, GTI became an indirect wholly owned subsidiary of Brookfield. In April 2018, we completed our initial public offering ("IPO") of 38,097,525 shares of our common stock held by Brookfield at a price of $15.00 per share. We did not receive any proceeds related to the IPO. Our common stock is listed on the New York Stock Exchange under the symbol “EAF.” Brookfield has since distributed a portion of its GrafTech common stock to the owners in the Brookfield consortium and sold shares of GrafTech common stock in public and private transactions, resulting in a reduction of Brookfield's ownership of outstanding shares of GrafTech common stock to 24.3% as of December 31, 2021 and 24.9% as of June 30, 2022. The increase in Brookfield's share ownership from December 31, 2021 to June 30, 2022 reflects a reduction of our total outstanding shares due to the repurchase and retirement of 6.7 million shares of our common stock during the first six months of 2022.
The Company’s only reportable segment, Industrial Materials, is comprised of our two major product categories: graphite electrodes and petroleum needle coke products. Petroleum needle coke is a key raw material used in the production of graphite electrodes. The Company's vision is to provide highly engineered graphite electrode products, services and solutions to electric arc furnace operators.
B. Basis of Presentation
The interim condensed consolidated financial statements are unaudited; however, in the opinion of management, they have been prepared in accordance with Rule 10-01 of Regulation S-X and in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The December 31, 2021 Consolidated Balance Sheet data included herein was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 22, 2022, but does not include all disclosures required by GAAP in audited financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the accompanying notes, contained in our Annual Report on Form 10-K.
The unaudited condensed consolidated financial statements reflect all adjustments (all of which are of a normal, recurring nature) which management considers necessary for a fair presentation of our financial statements for the interim periods presented. The results for the interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.
Certain items previously reported in specific financial statement captions within the Condensed Consolidated Statements of Cash Flows have been reclassified between lines within cash flow from operations and between lines within financing activities to conform to the current presentation. In addition, items previously presented under "Related party Tax Receivable Agreement expense (benefit)" on the Condensed Consolidated Statement of Operations have been collapsed into "Other (income) expense, net" to conform to the current year presentation.
C. New Accounting Standards
Recently Adopted Accounting Standards
In January 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-01, Reference Rate Reform (Topic 848): Scope, which amended Topic 848 reference rate reform to clarify the scope and availability of expedients for certain derivative instruments affected by reference rate reform. We have elected various optional expedients in Topic 848 related to hedging relationships and expect to make future elections related to contract modifications and other hedging relationships. The future election and application of these expedients are not expected to have a material impact on our financial position, results of operations and cash flows.


10

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

(2)Revenue from Contracts with Customers
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of product and contract:
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2022202120222021
(Dollars in thousands)
Graphite Electrodes - LTAs$229,290 $253,589 $471,771 $499,154 
Graphite Electrodes - Non-LTAs109,194 65,204 217,244 112,459 
By-products and other25,162 11,957 40,876 23,534 
Total Revenues$363,646 $330,750 $729,891 $635,147 
The Graphite Electrodes revenue categories include only graphite electrodes manufactured by GrafTech.
Contract Balances
Substantially all of 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. Additionally, 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 which are included in "Prepaid expenses and other current assets," on the Condensed Consolidated Balance Sheets were $0.3 million as of June 30, 2022 and $1.2 million as of December 31, 2021.
11

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

The following table provides information about deferred revenue from contracts with customers. 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:
Current Deferred RevenueLong-Term Deferred Revenue
(Dollars in thousands)
Balance as of December 31, 2021
$9,840 $4,303 
Revenue recognized (included in 12.31.2021 balance)(2,221) 
Increases due to net cash received, not yet recognized14,913 7,177 
Reclassifications between long-term and current143 (143)
Foreign currency impact24  
Balance as of June 30, 2022
$22,699 $11,337 
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. The revenue associated with our LTAs is expected to be approximately as follows:
202220232024
(Dollars in millions)
Estimated LTA revenue
$860-$960
$200- $255
$130-$165(1)
(1) Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs.
We recorded $229.3 million and $471.8 million of LTA revenue in the three and six months ended June 30, 2022, respectively, and we expect to record approximately $388.0 million to $488.0 million of LTA revenue for the remainder of 2022.
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 years 2023 and through 2024, the contractual revenue amounts above are based upon the minimum volume for those contracts with specified ranges. The actual revenue realized from these contracted volumes may vary in timing and total due to contract non-performance, force majeure notices, arbitrations, credit risk associated with certain customers facing financial challenges and customer demand related to contracted volume ranges. As it relates to the conflict between Ukraine and Russia, we have provided force majeure notices with respect to certain impacted LTAs. Certain of our LTA counterparties have challenged the force majeure notices, but we will continue to enforce our contractual rights. In the event of a force majeure, the LTAs provide our counterparties with the right to terminate the LTA if the force majeure event continues for more than six months after the delivery of the force majeure notice, with no continuing obligations of either party. The estimates of LTA revenue as set forth above in the immediately preceding table reflects (i) our current view of the validity of such force majeure notices and (ii) our current expectations of termination fees from our customers who have failed to meet certain obligations under their LTAs.
12

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

(3)Goodwill and Other Intangible Assets
The goodwill balance was $171.1 million as of June 30, 2022 and December 31, 2021.
The following table summarizes intangible assets with determinable useful lives by major category, which are included in "Other assets" on our Condensed Consolidated Balance Sheets:
Intangible Assets
 As of June 30, 2022As of December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(Dollars in thousands)
Trade names$22,500 $(14,915)$7,585 $22,500 $(13,935)$8,565 
Technology and know-how55,300 (40,524)14,776 55,300 (38,486)16,814 
Customer-related intangibles64,500 (30,359)34,141 64,500 (28,195)36,305 
Total finite-lived intangible assets$142,300 $(85,798)$56,502 $142,300 $(80,616)$61,684 
Amortization expense for intangible assets was $2.6 million and $2.7 million in the three months ended June 30, 2022 and 2021, respectively, and $5.2 million and $5.5 million in the six months ended June 30, 2022 and 2021, respectively. Estimated amortization expense will be approximately $4.9 million for the remainder of 2022, $9.2 million in 2023, $8.0 million in 2024, $7.3 million in 2025 and $6.7 million in 2026. Amortization expense is included in "Cost of sales" on the Condensed Consolidated Statement of Operations.
(4)Debt and Liquidity
The following table presents our long-term debt: 
As of
June 30, 2022
As of
December 31, 2021
 (Dollars in thousands)
2018 Term Loan Facility$433,708 $543,708 
2020 Senior Secured Notes500,000 500,000 
Other debt394 429 
Unamortized debt discount and issuance costs(13,641)(14,449)
Total debt920,461 1,029,688 
Less: Long-term debt, current portion(119)(127)
Long-term debt$920,342 $1,029,561 

During the six months ended June 30, 2022, we repaid $110.0 million of principal of our 2018 Term Loan Facility (as defined below). The fair value of our debt was approximately $816.4 million and $1,051.6 million as of June 30, 2022 and December 31, 2021, respectively. The fair value of our debt is measured using Level 3 inputs.
In conjunction with the May 2022 amendment (discussed below) to our 2018 Revolving Credit Facility, we recorded $2.2 million of deferred debt issuance costs that will be amortized over the term of the amended agreement.
13

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


2018 Term Loan and 2018 Revolving Credit Facility
In February 2018, the Company entered into a credit agreement (as amended, the “2018 Credit Agreement”), which provides for (i) a $2,250 million senior secured term facility (the “2018 Term Loan Facility”) after giving effect to the June 2018 amendment (the “First Amendment”) that increased the aggregate principal amount of the 2018 Term Loan Facility from $1,500 million to $2,250 million and (ii) a $330 million senior secured revolving credit facility after giving effect to the May 2022 amendment that increased the revolving commitments under the 2018 Credit Agreement by $80 million from $250 million (the “2018 Revolving Credit Facility” and, together with the 2018 Term Loan Facility, the “Senior Secured Credit Facilities”). GrafTech Finance Inc. (“GrafTech Finance”) is the sole borrower under the 2018 Term Loan Facility while GrafTech Finance, GrafTech Switzerland SA (“Swissco”) and GrafTech Luxembourg II S.à r.l. (“Luxembourg Holdco” and, together with GrafTech Finance and Swissco, the “Co-Borrowers”) are co-borrowers under the 2018 Revolving Credit Facility. The 2018 Term Loan Facility and the 2018 Revolving Credit Facility mature on February 12, 2025 and May 31, 2027, respectively. As of June 30, 2022 and December 31, 2021, there was no debt outstanding on the 2018 Revolving Credit Facility and there was $4.2 million and $3.3 million of letters of credit drawn against the 2018 Revolving Credit Facility, respectively.
The 2018 Term Loan Facility bears interest, at our option, at a rate equal to either (i) the Adjusted LIBO Rate (as defined in the 2018 Credit Agreement), plus an applicable margin equal to 3.00% per annum following an amendment in February 2021 (the “Second Amendment”) that decreased the Applicable Rate (as defined in the 2018 Credit Agreement) by 0.50% for each pricing level or (ii) the ABR Rate (as defined in the 2018 Credit Agreement), plus an applicable margin equal to 2.00% per annum following the Second Amendment, in each case with one step down of 25 basis points based on achievement of certain public ratings of the 2018 Term Loan Facility. The Second Amendment also decreased the interest rate floor from 1.00% to 0.50% for the 2018 Term Loan Facility.
The 2018 Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) the Adjusted Term SOFR Rate and Adjusted EURIBOR Rate (each, as defined in the 2018 Credit Agreement), plus an applicable margin initially equal to 3.00% per annum or (ii) the ABR Rate, plus an applicable margin initially equal to 2.00% per annum, in each case with two 25 basis point step downs based on achievement of certain senior secured first lien net leverage ratios. In addition, we are required to pay a quarterly commitment fee on the unused commitments under the 2018 Revolving Credit Facility in an amount equal to 0.25% per annum.
The Senior Secured Credit Facilities are guaranteed by each of our domestic subsidiaries, subject to certain customary exceptions, and by GrafTech Luxembourg I S.à r.l., a Luxembourg société à responsabilité limitée and an indirect wholly owned subsidiary of GrafTech, Luxembourg HoldCo, and Swissco (collectively, the “Guarantors”) with respect to all obligations under the 2018 Credit Agreement of each of our foreign subsidiaries that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Internal Revenue Code of 1986, as amended from time to time (the “Code”)).
All obligations under the 2018 Credit Agreement are secured, subject to certain exceptions, by: (i) a pledge of all of the equity securities of each domestic Guarantor and of each other direct, wholly owned domestic subsidiary of GrafTech and any Guarantor, (ii) a pledge on no more than 65% of the equity interests of each subsidiary that is a Controlled Foreign Corporation (within the meaning of Section 956 of the Code), and (iii) security interests in, and mortgages on, personal property and material real property of each domestic Guarantor, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement. The obligations of each foreign subsidiary of GrafTech that is a Controlled Foreign Corporation under the 2018 Revolving Credit Facility are secured by (i) a pledge of all of the equity securities of each Guarantor that is a Controlled Foreign Corporation and of each direct, wholly owned subsidiary of any Guarantor that is a Controlled Foreign Corporation, and (ii) security interests in certain receivables and personal property of each Guarantor that is a Controlled Foreign Corporation, subject to permitted liens and certain exceptions specified in the 2018 Credit Agreement.
The 2018 Term Loan Facility amortizes at a rate of $112.5 million a year payable in equal quarterly installments, with the remainder due at maturity. The Co-Borrowers are permitted to make voluntary prepayments at any time without premium or penalty. GrafTech Finance is required to make prepayments under the 2018 Term Loan Facility (without payment of a premium) with (i) net cash proceeds from non-ordinary course asset sales (subject to customary reinvestment rights and other customary exceptions and exclusions), and (ii) commencing with the Company’s fiscal year ended December 31, 2019, 75% of Excess Cash Flow (as defined in the 2018 Credit Agreement), subject to step-downs to 50% and 0% of Excess Cash Flow based on achievement of a senior secured first lien net leverage ratio greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00 and less than or equal to 1.25 to 1.00, respectively. Scheduled quarterly amortization payments of the 2018 Term Loan Facility during any calendar year reduce, on a dollar-for-dollar basis, the amount of the required Excess Cash Flow prepayment for such calendar year, and the aggregate amount of Excess Cash Flow prepayments for any calendar year reduce subsequent quarterly amortization payments of the 2018 Term Loan Facility as directed by GrafTech Finance. As of June 30, 2022, we have satisfied all required amortization installments through the maturity date.
14

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

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 to 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 $35.0 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. We were in compliance with all of our debt covenants as of June 30, 2022 and December 31, 2021.

2020 Senior Secured Notes
In December 2020, GrafTech Finance issued $500 million aggregate principal amount of 4.625% senior secured notes due 2028 (the “2020 Senior Secured Notes”) in a private offering. The 2020 Senior Secured Notes and related guarantees are secured on a pari passu basis by the collateral securing the Senior Secured Credit Facilities. All of the proceeds from the 2020 Senior Secured Notes were used to partially repay borrowings under our 2018 Term Loan Facility.
The 2020 Senior Secured Notes pay interest in arrears on June 15 and December 15 of each year, with the principal due in full on December 15, 2028. Prior to December 15, 2023, up to 40% of the 2020 Senior Secured Notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 104.625% of the principal amount thereof, together with accrued and unpaid interest, if any. The 2020 Senior Secured Notes may be redeemed, in whole or in part, at any time prior to December 15, 2023 at a price equal to 100% of the principal amount of the notes redeemed plus a premium together with accrued and unpaid interest, if any, to, but not including, the redemption date. Thereafter, the 2020 Senior Secured Notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
The indenture governing the 2020 Senior Secured Notes (the “Indenture”) contains certain covenants that, among other things, limit the Company’s ability, and the ability of certain of its subsidiaries, to incur or guarantee additional indebtedness or issue preferred stock, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, incur or suffer to exist liens securing indebtedness, make certain investments, engage in certain transactions with affiliates, consummate certain asset sales and effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all assets. Pursuant to the Indenture, if our pro forma consolidated first lien net leverage ratio is no greater than 2.00 to 1.00, we can make restricted payments so long as no default or event of default has occurred and is continuing. If our pro forma consolidated first lien net leverage ratio is greater than 2.00 to 1.00, we can make restricted payments pursuant to certain baskets.
The Indenture contains events of default customary for agreements of its type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company or GrafTech Finance, all outstanding 2020 Senior Secured 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 Secured Notes may declare all of the 2020 Senior Secured Notes to be due and payable immediately.

(5)Inventories
Inventories are comprised of the following: 
As of
June 30, 2022
As of
December 31, 2021
 (Dollars in thousands)
Inventories:
Raw materials and supplies$195,300 $132,113 
Work in process161,189 127,127 
Finished goods40,260 30,192 
         Total$396,749 $289,432 
15

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

(6)Interest Expense
The following table presents the components of interest expense: 
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2022202120222021
 (Dollars in thousands)
Interest incurred on debt$10,927 $14,085 $22,285 $30,950 
Accretion of original issue discount on 2018 Term Loan Facility338 572 865 1,843 
Amortization of debt issuance costs and modification costs932 1,337 2,176 5,368 
Mark-to-market gain on de-designated interest rate swap(2,798) (6,715) 
Total interest expense$9,399 $15,994 $18,611 $38,161 
The 2020 Senior Secured Notes carry a fixed interest rate of 4.625%. The 2018 Term Loan Facility had an effective interest rate of 4.67% and 3.50% as of June 30, 2022 and December 31, 2021, respectively. See Note 4, "Debt and Liquidity" for details of these transactions.
During the three and six months ended June 30, 2022, we made prepayments of $40.0 million and $110.0 million, respectively, under our 2018 Term Loan Facility. In connection with this, we recorded $0.2 million and $0.5 million, respectively, of accelerated accretion of the original issue discount and we recorded $0.3 million and $0.8 million, respectively, of accelerated amortization of the debt issuance cost.
During the three and six months ended June 30, 2021, we made prepayments of $50.0 million and $200.0 million, respectively, under our 2018 Term Loan Facility. In connection with this, we recorded $0.3 million and $1.2 million, respectively, of accelerated accretion of the original issue discount and $0.4 million and $2.0 million, respectively, of accelerated amortization of the debt issuance cost. We also recorded $1.6 million of modification costs related to the 2018 Term Loan Facility repricing in the first quarter of 2021.
The Company has interest rate swap contracts to fix the cash flows associated with the risk in variability in the one-month USD London Interbank Offered Rate ("LIBOR") for the 2018 Term Loan Facility. See Note 9, "Fair Value Measurements and Derivative Instruments" for details of these transactions.

(7) Commitments and Contingencies
Legal Proceedings
We are involved in various investigations, lawsuits, claims, demands, labor disputes and other legal proceedings, including with respect to environmental and human exposure or other personal injury matters, arising out of or incidental to the conduct of our business. While it is not possible to determine the ultimate disposition of each of these matters and proceedings, we do not believe that their ultimate disposition will have a material adverse effect on our financial position, results of operations or cash flows. Additionally, we are involved in the following legal proceedings.
We are involved in various arbitrations, sometimes as claimants and other times as respondents/counterclaimants, pending before the International Chamber of Commerce with several customers who, among other things, have failed to perform under their LTAs and in certain instances are seeking to modify or frustrate their contractual commitments to us. In particular, Aperam South America LTDA, Aperam Sourcing S.C.A., ArcelorMittal Sourcing S.C.A., and ArcelorMittal Brasil S.A. (collectively, the “Claimants”) initiated a single arbitration proceeding against two of the Company’s subsidiaries in the International Chamber of Commerce in June 2020. In June 2021, the Claimants filed their statement of claim, seeking approximately $61 million plus interest in monetary relief and/or reimbursement in respect of several fixed price LTAs that were executed between such subsidiaries and the Claimants in 2017 and 2018. On July 29, 2022, the Claimants filed a reply brief in which they revised their calculation of damages to $161.5 million including interest, covering the period from the first quarter of 2020 through the first quarter of 2022. The Claimants argue, among other things, that they should no longer be required to comply with the terms of the LTAs that they signed due to an alleged drop in market prices for graphite electrodes in January 2020. Alternatively, the Claimants argue that they should not be required to comply with the LTAs that they signed due to alleged market circumstances at the time of execution. We believe we have valid defenses to these claims. We intend to vigorously defend them and enforce our rights under the LTAs.
16

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

Pending litigation in Brazil has been brought by employees seeking to recover additional amounts and interest thereon under certain wage increase provisions applicable in 1989 and 1990 under collective bargaining agreements to which employers in the Bahia region of Brazil were a party (including our subsidiary in Brazil). Companies in Brazil have settled claims arising out of these provisions and, in May 2015, the litigation was remanded by the Brazilian Supreme Court in favor of the employees union. After denying an interim appeal by the Bahia region employers on June 26, 2019, the Brazilian Supreme Court finally ruled in favor of the employees union on September 26, 2019. The employers union has determined not to seek annulment of such decision. Separately, on October 1, 2015, a related action was filed by current and former employees against our subsidiary in Brazil to recover amounts under such provisions, plus interest thereon, which amounts together with interest could be material to us. If the Brazilian Supreme Court proceeding above had been determined in favor of the employers union, it would also have resolved this proceeding in our favor. In the first quarter of 2017, the state court initially ruled in favor of the employees. We appealed this state court ruling, and the appellate court issued a decision in our favor on May 19, 2020. The employees have further appealed and, on December 16, 2020, the court upheld the decision in favor of GrafTech Brazil. On February 22, 2021, the employees filed a further appeal and, on April 28, 2021, the court rejected the employees' appeal in favor of GrafTech Brazil. The employees filed a further appeal and we intend to vigorously defend our position. As of June 30, 2022, 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 accrual for the six months ended June 30, 2022, are presented below: 
(Dollars in thousands)
Balance as of December 31, 2021$1,088 
Product warranty charges/adjustments406 
Payments and settlements(389)
Balance as of June 30, 2022$1,105 
Related Party Tax Receivable Agreement
On April 23, 2018, the Company entered into the tax receivable agreement ("Tax Receivable Agreement") that provides Brookfield, as the sole pre-IPO stockholder, the right to receive future payments from us for 85% of the amount of cash savings, if any, in U.S. 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 the LIBOR plus 1.00% per annum. The term of the Tax Receivable Agreement commenced on April 23, 2018 and will continue until there is no potential for any future tax benefit payments.
As of June 30, 2022, the total Tax Receivable Agreement liability was $15.5 million, of which $4.5 million was classified as current liability "Related party payable - Tax Receivable Agreement" on the Condensed Consolidated Balance Sheets, as we expect this portion to be settled within 12 months, and $11.0 million of the liability remained as a long-term liability in "Related party payable - Tax Receivable Agreement long-term" on the Condensed Consolidated Balance Sheets. As of December 31, 2021, the total Tax Receivable Agreement liability was $19.3 million, of which $3.8 million was classified as a current liability "Related party payable - Tax Receivable Agreement" on the Condensed Consolidated Balance Sheets, and $15.5 million of the liability was classified as a long-term liability in "Related party payable - Tax Receivable Agreement long-term" on the Condensed Consolidated Balance Sheets. The 2021 current liability was settled in the first quarter of 2022.
(8) Income Taxes
We compute and apply to ordinary income an estimated annual effective tax rate on a quarterly basis based on current and forecasted business levels and activities, including the mix of domestic and foreign results and enacted tax laws. The estimated annual effective tax rate is updated quarterly based on actual results and updated operating forecasts. Ordinary income refers to income before the provision for income taxes excluding significant, unusual or infrequently occurring items. The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs as a discrete item of tax.
17

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


The following table summarizes the provision for income taxes:
For the Three Months Ended June 30,For the Six Months
Ended June 30,
2022202120222021
(Dollars in thousands)
Provision for income taxes$21,422 $7,765 $41,219 $24,022 
Pre-tax income136,419 35,930 280,399 150,986 
Effective tax rate15.7 %21.6 %14.7 %15.9 %
The effective tax rate for the three months ended June 30, 2022 was 15.7%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates, which is partially offset by the net combined impact related to the U.S. taxation of global intangible low taxed income ("GILTI") and Foreign Tax Credits ("FTCs").
The effective tax rate for the three months ended June 30, 2021 was 21.6%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at lower rates, which is partially offset by the net combined impact related to the U.S. taxation of GILTI and FTCs. A portion of the one-time Change in Control (as defined in Note 12. Stock-Based Compensation) charges recorded in the second quarter of 2021 was not deductible and contributed to the increase in the effective rate from the prior periods.
The provision for income tax increased from $7.8 million for the three months ended June 30, 2021 to $21.4 million for the three months ended June 30, 2022. This change is primarily related to an increase in pre-tax income, partially offset by a decrease in the effective tax rate due to the mix of worldwide earnings from various countries taxed at different rates and U.S. taxation of GILTI.
The effective tax rate for the six months ended June 30, 2022 was 14.7%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates, which is partially offset by the net combined impact related to the U.S. taxation of GILTI and FTCs.
The effective tax rate for the six months ended June 30, 2021 was 15.9%. This rate differs from the U.S. statutory rate of 21% primarily due to worldwide earnings from various countries taxed at different rates which is partially offset by the net combined impact related to the U.S. taxation of GILTI and FTCs.
The provision for income tax increased from $24.0 million for the six months ended June 30, 2021 to $41.2 million for the six months ended June 30, 2022. This change is primarily related to an increase in pre-tax income, partially offset by a decrease in the effective tax rate due to the mix of worldwide earnings from various countries taxed at different rates and U.S. taxation of GILTI.
As of June 30, 2022, we had unrecognized tax positions of $0.1 million, which, if recognized, would have an immaterial, favorable, impact on our effective tax rate.
We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. All U.S. federal tax years prior to 2018 are generally closed by statute or have been audited and settled with the applicable domestic tax authorities. Other jurisdictions are generally closed for years prior to 2016.
We continue to assess the realization of our deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. Examples of positive evidence would include a strong earnings history, an event or events that would increase our taxable income through a continued reduction of expenses, and tax planning strategies that would indicate an ability to realize deferred tax assets. In circumstances where the significant positive evidence does not outweigh the negative evidence in regards to whether or not a valuation allowance is required, we have established and maintained valuation allowances on those net deferred tax assets.
(9) Fair Value Measurements and Derivative Instruments
In the normal course of business, we are exposed to certain risks related to fluctuations in currency exchange rates, commodity prices and interest rates. We use various derivative financial instruments, primarily foreign currency derivatives,
18

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

commodity derivative contracts, and interest rate swaps as part of our overall strategy to manage risks from these market fluctuations.
Certain of our derivative contracts contain provisions that require us to provide collateral. Since the counterparties to these financial instruments are large commercial banks and similar financial institutions, we do not believe that we are exposed to material counterparty credit risk. We do not anticipate nonperformance by any of the counterparties to our instruments.
Foreign currency derivatives
We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, are used to hedge global currency exposures such as foreign currency denominated debt, receivables, payables, sales and purchases.
Foreign currency forward and swap contracts are used to mitigate the foreign exchange risk of balance sheet items. These derivatives are fair value hedges. Gains and losses from these derivatives are recorded in cost of sales and they are largely offset by the financial impact of translating foreign currency-denominated payables and receivables.
In the first quarter of 2022, we entered into foreign currency derivatives with maturities of one to 12 months in order to protect against the risk that cash flows associated with certain sales and purchases denominated in a currency other than the U.S. dollar will be adversely affected by future changes in foreign exchange rates. These derivatives are designated as cash flow hedges. The resulting unrealized gains or losses from these derivatives are recorded in accumulated other comprehensive income ("AOCI") and subsequently, when realized, are reclassified to net sales or cost of sales in the Condensed Consolidated Statements of Operations when the hedged exposures affect earnings.
Commodity derivative contracts
We have entered into commodity derivative contracts for refined oil products. These contracts were entered into to protect against the risk that eventual cash flows related to these products will be adversely affected by future changes in prices. In the fourth quarter of 2017, we began to enter into LTAs with many of our customers and began to hedge the cash flows related to these contracts. The unrealized gains or losses related to commodity derivative contracts designated as cash flow hedges are recorded in AOCI and subsequently, when realized, are reclassified to the Condensed Consolidated Statement of Operations when the hedged item impacts earnings, which is when the finished product is sold. All of our commodity derivative contracts matured as of June 30, 2022.
Interest rate swap contracts
We utilize interest rate swaps to limit exposure to market fluctuations on our variable-rate debt. Each derivative agreement's unrealized gain or loss is recorded in AOCI and, when realized, is recorded to interest expense.
We entered into interest rate swap contracts that are "pay fixed, receive variable." Our risk management objective was to fix our cash flows associated with the risk of variability in the one-month USD LIBOR for a portion of our outstanding debt. It was expected that the swaps would fix the cash flows associated with the forecasted interest payments on our debt to an effective fixed interest rate of 4.2%, which could be lowered to 3.95% depending on credit ratings. Since their modification concurrent with the 2018 Term Loan Facility modification in the first quarter of 2021, the swaps contain an other-than-insignificant financing element. As such, they are considered hybrid instruments composed of a debt host and an embedded derivative and the associated cash (outflows)/inflows are classified as financing (use)/source of cash.
The debt host portion amounted to a liability of $5.7 million as of June 30, 2022 with $2.6 million included in "Other accrued liabilities" and $3.1 million in "Other long-term obligations" on the Condensed Consolidated Balance Sheets. As of December 31, 2021, the debt host portion amounted to a liability of $7.0 million, with $2.6 million included in "Other accrued liabilities" and $4.4 million included in "Other long-term obligations" on the Condensed Consolidated Balance Sheets. The corresponding loss is accounted for in AOCI and is being amortized over the remaining life of the swaps. The embedded derivative is treated as a cash flow hedge.
In the first quarter of 2022, in connection with the repayment of principal on our 2018 Term Loan Facility discussed in Note 4, "Debt and Liquidity," and our probability assessment of the variable-rate debt remaining outstanding through the term of the swaps, we de-designated one interest rate swap contract with a $250.0 million notional amount, maturing in the third
19

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

quarter of 2024. The fair value of the embedded derivative at the de-designation date was a gain of $6.6 million and was recorded in AOCI and will be amortized into interest expense over the remaining life of the swap. The change in fair value of the de-designated embedded derivative in the second quarter and first six months of 2022 resulted in gains of $2.8 million and $6.7 million, respectively, and were recorded in interest expense in the Condensed Consolidated Statements of Operations.
All derivatives are recorded on the balance sheet at fair value. If the derivative is designated and effective as a cash flow hedge, changes in the fair value of the derivative are recognized in AOCI until the hedged item is recognized in earnings. The ineffective portion of a derivative's fair value, if any, is recognized in earnings immediately. If a derivative is not a hedge, changes in the fair value are adjusted through earnings. The fair values of the outstanding derivatives are recorded on the balance sheet as assets (if the derivatives are in a gain position) or liabilities (if the derivatives are in a loss position). The fair values will also be classified as short-term or long-term depending upon their maturity dates. The fair value of all of our derivatives was determined using Level 2 inputs.
The notional amounts of our outstanding derivative instruments as of June 30, 2022 and December 31, 2021 were as follows:
As of June 30, 2022As of December 31, 2021
 Notional AmountNotional Amount
(Dollars in thousands)
Derivative instruments designated as hedges:
Foreign currency derivatives$57,235 $ 
Commodity derivative contracts 19,474 
Interest rate swap contracts250,000