10-Q 1 gti-20220930.htm 10-Q gti-20220930
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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 September 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-20220930_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 October 31, 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 September 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 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:
2

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, including the suspension of our operations located in Monterrey, Mexico and our ability to resume operations in Monterrey;
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;
the fact that borrowings under certain of our existing financing agreements subject us to interest rate risk;
3

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)
September 30,
2022


December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$109,394 $57,514 
Accounts and notes receivable, net of allowance for doubtful accounts of
$7,288 as of September 30, 2022 and $6,835 as of December 31, 2021
179,139 207,547 
Inventories438,866 289,432 
Prepaid expenses and other current assets74,344 73,364 
Total current assets801,743 627,857 
Property, plant and equipment815,318 815,298 
Less: accumulated depreciation331,535 313,825 
Net property, plant and equipment483,783 501,473 
Deferred income taxes18,607 26,187 
Goodwill171,117 171,117 
Other assets91,717 85,684 
Total assets$1,566,967 $1,412,318 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$119,410 $117,112 
Long-term debt, current maturities113 127 
Accrued income and other taxes38,585 57,097 
Other accrued liabilities87,385 56,405 
Related party payable - Tax Receivable Agreement4,481 3,828 
Total current liabilities249,974 234,569 
Long-term debt921,090 1,029,561 
Other long-term obligations69,111 68,657 
Deferred income taxes44,818 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 September 30, 2022 and December 31, 2021, respectively
2,566 2,633 
Additional paid-in capital744,519 761,412 
Accumulated other comprehensive loss(26,375)(7,444)
Accumulated deficit(449,709)(733,199)
Total stockholders’ equity271,001 23,402 
Total liabilities and stockholders’ equity$1,566,967 $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)
Three Months Ended September 30,Nine Months
Ended September 30,
 2022202120222021
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales$303,840 $347,348 $1,033,731 $982,495 
Cost of sales170,171 170,286 562,881 518,549 
Gross profit133,669 177,062 470,850 463,946 
Research and development1,014 983 2,617 2,970 
Selling and administrative expenses18,578 19,006 57,862 114,942 
Operating income114,077 157,073 410,371 346,034 
Other income, net(598)(364)(1,358)(314)
Interest expense6,424 16,048 25,035 54,209 
Interest income(241)(417)(2,197)(653)
Income before provision for income taxes108,492 141,806 388,891 292,792 
Provision for income taxes15,041 21,920 56,260 45,942 
Net income$93,451 $119,886 $332,631 $246,850 
Basic income per common share:
Net income per share$0.36 $0.45 $1.28 $0.92 
Weighted average common shares outstanding256,848,575 267,106,109 259,415,295 267,327,888 
Diluted income per common share:
Net income per share$0.36 $0.45 $1.28 $0.92 
Weighted average common shares outstanding256,853,454 267,178,963 259,424,885 267,441,394 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income$93,451 $119,886 $332,631 $246,850 
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax of
$0, $0, $2 and $0, respectively
(13,311)(9,112)(24,911)(13,689)
Commodities, interest rate and foreign currency derivatives, net of tax of $369, $(1,024), $(2,659) and $(7,435), respectively
(2,426)3,729 5,980 27,556 
Other comprehensive (loss) income, net of tax:(15,737)(5,383)(18,931)13,867 
Comprehensive income$77,714 $114,503 $313,700 $260,717 


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)
Nine Months
Ended September 30,
 20222021
Cash flow from operating activities:
Net income$332,631 $246,850 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization41,708 48,415 
Deferred income tax provision11,216 (6,180)
Non-cash stock-based compensation expense1,666 16,293 
Non-cash interest expense(3,103)9,750 
Other adjustments230 6,784 
Net change in working capital*(101,622)47,174 
Change in related party Tax Receivable Agreement(3,828)(21,752)
Change in long-term assets and liabilities(4,293)(4,323)
Net cash provided by operating activities274,605 343,011 
Cash flow from investing activities:
Capital expenditures(45,281)(40,426)
Proceeds from the sale of fixed assets161 356 
Net cash used in investing activities(45,120)(40,070)
Cash flow from financing activities:
Debt issuance and modification costs(2,232)(3,109)
Principal payments on long-term debt(110,000)(300,000)
Repurchase of common stock - non-related party (60,000)(42,378)
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(5,843)(5,446)
Dividends paid to related party(1,919)(2,567)
Interest rate swap settlements3,762 (3,264)
Net cash used in financing activities(176,237)(360,838)
Net change in cash and cash equivalents53,248 (57,897)
Effect of exchange rate changes on cash and cash equivalents(1,368)(889)
Cash and cash equivalents at beginning of period57,514 145,442 
Cash and cash equivalents at end of period$109,394 $86,656 
* Net change in working capital due to changes in the following components:
Accounts and notes receivable, net$22,229 $(3,455)
Inventories(146,501)(7,246)
Prepaid expenses and other current assets1,690 (17,664)
Income taxes payable(20,226)(2,371)
Accounts payable and accruals35,373 71,748 
Interest payable5,813 6,162 
Net change in working capital$(101,622)$47,174 
Net cash paid during the periods for:
Interest $22,998 $38,296 
Income taxes $63,446 $51,394 

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
(Loss) Income
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 
Comprehensive income (loss):
Net income— — — — 93,451 93,451 
Other comprehensive income (loss):
Commodity, interest rate and foreign currency derivatives income, net of tax of $(794)
— — — 1,658 — 1,658 
Commodity, interest rate and foreign currency derivatives reclassification adjustments, net of tax of $1,163
— — — (4,084)— (4,084)
Foreign currency translation adjustments, net of tax of $0
— — — (13,311)— (13,311)
   Total other comprehensive loss— — — (15,737)— (15,737)
Stock-based compensation — 628 — — 628 
Dividends paid to related party stockholder ($0.01 per share)
— — — — (640)(640)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (1,926)(1,926)
Balance as of September 30, 2022256,597,342 $2,566 $744,519 $(26,375)$(449,709)$271,001 
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
(Loss) Income
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)
Net income— — — — 119,886 119,886 
Other comprehensive income (loss):
Commodity, interest rate and foreign currency derivatives income, net of tax of $(581)
— — — 2,111 — 2,111 
Commodity, interest rate and foreign currency derivatives reclassification adjustments, net of tax of $(443)
— — — 1,618 — 1,618 
Foreign currency translation adjustments of $0
— — — (9,112)— (9,112)
   Total other comprehensive loss— — — (5,383)— (5,383)
Repurchase of common stock - non-related party*(4,293,924)(43)(12,067)— (34,129)(46,239)
Stock-based compensation— — 263 — — 263 
Dividends paid to related party stockholder ($0.01 per share)
— — — — (640)(640)
Dividends paid to non-related party stockholders ($0.01 per share)
— — — — (2,028)(2,028)
Balance as of September 30, 2021263,586,828 $2,636 $761,748 $(5,774)$(869,311)$(110,701)
*In the third quarter of 2021, stock repurchases of 363,616 shares totaling $3.9 million were pending settlement as of September 30, 2021. This is included in "Accounts payable" on the Condensed Consolidated Balance Sheet. See Note 11 "Earnings per Share" for details.


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, the Company completed its initial public offering ("IPO") of 38,097,525 shares of its common stock held by Brookfield at a price of $15.00 per share. The Company did not receive any proceeds related to the IPO. The Company's 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 September 30, 2022. The increase in Brookfield's share ownership from December 31, 2021 to September 30, 2022 reflects a reduction of the Company's total outstanding shares due to the repurchase and retirement of 6.7 million shares of its common stock in the first nine months of 2022.
The Company’s only reportable segment, Industrial Materials, is comprised of its 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 the Company's 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 the Company's 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, net" to conform to the current year presentation.
C. New Accounting Standards
10

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

Recently Adopted Accounting Standards
In January 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 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. The Company has 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 the Company's financial position, results of operations and cash flows.
Accounting Guidance Issued But Not Adopted
In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires disclosures intended to enhance the transparency of supplier finance programs. The amendments in this ASU require buyers in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The amendments should be applied retrospectively to each period in which a balance sheet is presented, except for disclosure of rollforward information, which should be applied prospectively. The Company is currently evaluating the impact of adopting this guidance on its disclosures.


(2)Revenue from Contracts with Customers
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of product and contract:
Three Months Ended September 30,Nine Months
Ended September 30,
2022202120222021
(Dollars in thousands)
Graphite Electrodes - LTAs$212,087 $267,349 $683,858 $766,503 
Graphite Electrodes - Non-LTAs79,710 69,295 296,954 181,754 
By-products and other12,043 10,704 52,919 34,238 
Total Revenues$303,840 $347,348 $1,033,731 $982,495 
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 $1.2 million as of December 31, 2021. We did not have any contract asset balances as of September 30, 2022.
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 the December 31, 2021 balance)(2,452)(114)
Increases due to net cash received, not yet recognized22,230 7,177 
Reclassifications between long-term and current143 (143)
Foreign currency impact23  
Balance as of September 30, 2022
$29,784 $11,223 
Transaction Price Allocated to the Remaining Performance Obligations
The following table presents estimated revenues expected to be recognized in the corresponding period below 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
$830-$870(1)
$225- $285(1)
$130-$165(2)
(1) The estimates set forth in this table reflect our current expectations regarding the shift of LTA revenue out of 2022 into 2023, primarily due to the suspension of our operations in Monterrey, Mexico.
(2) Includes expected termination fees from a few customers that have failed to meet certain obligations under their LTAs.
We recorded $212.1 million and $683.9 million of LTA revenue in the three and nine months ended September 30, 2022, respectively, and we expect to record approximately $146.0 million to $186.0 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 September 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
 September 30, 2022December 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 $(15,396)$7,104 $22,500 $(13,935)$8,565 
Technology and know-how55,300 (41,479)13,821 55,300 (38,486)16,814 
Customer-related intangibles64,500 (31,437)33,063 64,500 (28,195)36,305 
Total finite-lived intangible assets$142,300 $(88,312)$53,988 $142,300 $(80,616)$61,684 
Amortization expense for intangible assets was $2.5 million and $2.7 million in the three months ended September 30, 2022 and 2021, respectively, and $7.7 million and $8.2 million in the nine months ended September 30, 2022 and 2021, respectively. Estimated amortization expense will be approximately $2.4 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: 
September 30, 2022
December 31, 2021
 (Dollars in thousands)
2018 Term Loan Facility$433,708 $543,708 
2020 Senior Secured Notes500,000 500,000 
Other debt369 429 
Unamortized debt discount and issuance costs(12,874)(14,449)
Total debt921,203 1,029,688 
Less: Long-term debt, current portion(113)(127)
Long-term debt$921,090 $1,029,561 

During the nine months ended September 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 $778.6 million and $1,051.6 million as of September 30, 2022 and December 31, 2021, respectively. The fair value of our debt is measured using Level 3 inputs.

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

respectively. As of September 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 September 30, 2022, we have satisfied all required amortization installments through the maturity date.
The 2018 Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to GrafTech and restricted subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The 2018 Credit Agreement contains a financial covenant that requires GrafTech to maintain a senior secured first lien net leverage ratio not greater than 4.00 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 September 30, 2022 and December 31, 2021.

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

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: 
September 30, 2022
December 31, 2021
 (Dollars in thousands)
Inventories:
Raw materials and supplies$212,042 $132,113 
Work in process182,657 127,127 
Finished goods44,167 30,192 
         Total$438,866 $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: 
Three Months Ended September 30,Nine Months
Ended September 30,
2022202120222021
 (Dollars in thousands)
Interest incurred on debt$10,458 $13,526 $32,743 $44,476 
Accretion of original issue discount on 2018 Term Loan Facility178 815 1,043 2,658 
Amortization of debt issuance costs and modification costs642 1,707 2,818 7,075 
Unrealized mark-to-market gain on de-designated interest rate swap(249) (6,964) 
Gain upon partial termination of embedded derivative(4,605)