0000931148-15-000095.txt : 20151110 0000931148-15-000095.hdr.sgml : 20151110 20151109165148 ACCESSION NUMBER: 0000931148-15-000095 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20150930 FILED AS OF DATE: 20151109 DATE AS OF CHANGE: 20151109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAFTECH INTERNATIONAL LTD CENTRAL INDEX KEY: 0000931148 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 061385548 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13888 FILM NUMBER: 151216379 BUSINESS ADDRESS: STREET 1: 6100 OAK TREE BOULEVARD STREET 2: SUITE 300 PARK CENTER I CITY: INDEPENDENCE STATE: OH ZIP: 44131 BUSINESS PHONE: 2166762000 MAIL ADDRESS: STREET 1: 6100 OAK TREE BOULEVARD STREET 2: SUITE 300 PARK CENTER I CITY: INDEPENDENCE STATE: OH ZIP: 44131 FORMER COMPANY: FORMER CONFORMED NAME: UCAR INTERNATIONAL INC DATE OF NAME CHANGE: 19941011 10-Q 1 a2015-q310q.htm 10-Q 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2015
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
 

GRAFTECH INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
 
Delaware
27-2496053
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
Suite 300 Park Center I
44131
6100 Oak Tree Boulevard
(Zip code)
Independence, OH
 
(Address of principal executive offices)
 
Registrant’s telephone number, including area code: (216) 676-2000
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ý    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer o
Smaller Reporting Company  x
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  ý
As of October 15, 2015, 1,000 shares of common stock, par value $.01 per share, were outstanding.



TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION:
 
 
 
Item 1. Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
Unuaudited
 
Predecessor
 
Successor
 
As of December 31, 2014
 
As of
September 30,
 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
17,550

 
$
13,461

Accounts and notes receivable, net of allowance for doubtful accounts of
   $7,471 as of December 31, 2014 and $6,422 as of September 30, 2015
162,919

 
111,024

Inventories
382,903

 
322,268

Prepaid expenses and other current assets
81,623

 
66,562

Total current assets
644,995

 
513,315

Property, plant and equipment
1,500,821

 
657,247

Less: accumulated depreciation
846,781

 
6,899

Net property, plant and equipment
654,040

 
650,348

Deferred income taxes
16,819

 
13,846

Goodwill
420,129

 
170,021

Other assets
97,822

 
162,474

Total assets
$
1,833,805

 
$
1,510,004

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
86,409

 
$
61,987

Short-term debt
188,104

 
9,600

Accrued income and other taxes
24,506

 
17,750

Rationalizations
9,563

 
5,263

Other accrued liabilities
43,319

 
37,072

Total current liabilities
351,901

 
131,672

Long-term debt
341,615

 
368,589

Other long-term obligations
107,566

 
89,643

Deferred income taxes
28,197

 
79,269

Contingencies – Note 12

 

Stockholders’ equity:
 
 
 
Preferred stock, par value $.01, 10,000,000 shares authorized, none issued

 

Common stock, par value $.01, 225,000,000 shares authorized,
   152,821,011 shares issued as of December 31, 2014 and 1,000
    shares authorized and 1,000 issued as of September 30, 2015
1,528

 

Additional paid-in capital
1,825,880

 
854,337

Accumulated other comprehensive loss
(336,524
)
 
(6,203
)
Accumulated deficit
(245,751
)
 
(7,303
)
Less: cost of common stock held in treasury, 15,922,729 shares as of
   December 31, 2014 and 0 shares as of September 30, 2015
(239,811
)
 

Less: common stock held in employee benefit and compensation trusts,
   80,967 shares as of December 31, 2014 and 0 shares as of
   September 30, 2015
(796
)
 

Total stockholders’ equity
1,004,526

 
840,831

Total liabilities and stockholders’ equity
$
1,833,805

 
$
1,510,004

 See accompanying Notes to Condensed Consolidated Financial Statements

3


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
Predecessor
 
Successor
 
 
For the Three Months Ended September 30, 2014
 
For the Period July 1, 2015 Through August 14, 2015
 
For the Period August 15, 2015 Through September 30, 2015
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
 
 
Net sales
$
260,458

 
$
65,598

 
$
94,591

 
Cost of sales
242,814

 
64,187

 
85,600

 
Gross profit
17,644

 
1,411

 
8,991

 
Research and development
2,871

 
1,211

 
660

 
Selling and administrative expenses
26,980

 
29,604

 
9,806

 
Rationalizations
10,844

 
244

 
637

 
Operating loss
(23,051
)
 
(29,648
)
 
(2,112
)
 
 
 
 
 
 
 
 
Other expense (income), net
1,149

 
243

 
678

 
Interest expense
9,069

 
9,002

 
3,701

 
Interest income
(144
)
 
(22
)
 
(21
)
 
Loss before provision for income taxes
(33,125
)
 
(38,871
)
 
(6,470
)
 
 
 
 
 
 
 
 
Provision for income taxes
1,818

 
3,353

 
833

 
Net loss
$
(34,943
)
 
$
(42,224
)
 
$
(7,303
)
 
 
 
 
 
 
 
 
Basic loss per common share:
 
 
 
 
 
 
Net loss per share
$
(0.26
)
 
$
(0.31
)
 
N/A

 
Weighted average common shares outstanding
136,375

 
137,433

 
N/A

 
 
 
 
 
 
 
 
Diluted loss per common share:
 
 
 
 
 
 
Net loss per share
$
(0.26
)
 
$
(0.31
)
 
N/A

 
Weighted average common shares outstanding
136,375

 
137,433

 
N/A

 
 
 
 
 
 
 
 
STATEMENTS OF COMPREHENSIVE LOSS
 
 
 
 
 
 
Net loss
$
(34,943
)
 
$
(42,224
)
 
$
(7,303
)
 
Other comprehensive loss:
 
 
 
 
 
 
Foreign currency translation adjustments
(22,579
)
 
(5,840
)
 
(5,966
)
 
Commodities and foreign currency derivatives and other, net of tax of ($39), $10, $13, respectively
(668
)
 
375

 
(237
)
 
Other comprehensive loss, net of tax:
(23,247
)
 
(5,465
)
 
(6,203
)
 
Comprehensive loss
$
(58,190
)
 
$
(47,689
)
 
$
(13,506
)
 

See accompanying Notes to Condensed Consolidated Financial Statements





4


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands, except per share amounts)
(Unaudited)

 
Predecessor
 
Successor
 
For the Nine Months Ended September 30, 2014
 
For the Period January 1, 2015 Through August 14, 2015
 
For the Period
August 15, 2015
Through September 30, 2015
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
 
Net sales
$
825,433

 
$
437,931

 
$
94,591

Cost of sales
764,142

 
399,817

 
85,600

Gross profit
61,291

 
38,114

 
8,991

Research and development
8,544

 
5,556

 
660

Selling and administrative expenses
89,024

 
81,147

 
9,806

Rationalizations
11,761

 
4,507

 
637

Impairments
121,570

 
35,381

 

Operating loss
(169,608
)
 
(88,477
)
 
(2,112
)
 
 
 
 
 
 
Other expense (income), net
1,902

 
1,335

 
678

Interest expense
27,223

 
27,118

 
3,701

Interest income
(257
)
 
(367
)
 
(21
)
Loss before provision for income taxes
(198,476
)
 
(116,563
)
 
(6,470
)
 
 
 
 
 
 
Provision for income taxes
3,417

 
4,086

 
833

Net loss
$
(201,893
)
 
$
(120,649
)
 
$
(7,303
)
 
 
 
 
 
 
Basic loss per common share:
 
 
 
 
 
Net loss per share
$
(1.48
)
 
$
(0.88
)
 
N/A

Weighted average common shares outstanding
136,007

 
137,152

 
N/A

 
 
 
 
 
 
Diluted loss per common share:
 
 
 
 
 
Net loss per share
$
(1.48
)
 
$
(0.88
)
 
N/A

Weighted average common shares outstanding
136,007

 
137,152

 
N/A

 
 
 
 
 
 
STATEMENTS OF COMPREHENSIVE LOSS
 
 
 
 
 
Net loss
$
(201,893
)
 
$
(120,649
)
 
$
(7,303
)
Other comprehensive loss:
 
 
 
 
 
Foreign currency translation adjustments
(20,432
)
 
(27,936
)
 
(5,966
)
Commodities and foreign currency derivatives and other, net of tax of ($92), ($68) and $13 respectively
(504
)
 
1,262

 
(237
)
Other comprehensive loss, net of tax:
(20,936
)
 
(26,674
)
 
(6,203
)
Comprehensive loss
$
(222,829
)
 
$
(147,323
)
 
$
(13,506
)


See accompanying Notes to Condensed Consolidated Financial Statements


5


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Predecessor
 
Successor
 
For the Nine Months Ended September 30, 2014
 
For the Period January 1, 2015 Through August 14, 2015
 
For the Period
August 15, 2015
Through September 30, 2015
Cash flow from operating activities:
 
 
 
 
 
Net loss
$
(201,893
)
 
$
(120,649
)
 
$
(7,303
)
Adjustments to reconcile net loss to
 cash provided by operations:
 
 
 
 
 
Depreciation and amortization
93,123

 
45,461

 
10,604

Impairments
121,570

 
35,381

 

Inventory write-downs
18,800

 

 
 
Deferred income tax provision
(4,943
)
 
924

 
863

Post-retirement and pension plan changes
4,097

 
2,998

 
486

Stock-based compensation
4,009

 
15,357

 

Interest expense
11,105

 
14,180

 
786

Other charges, net
4,047

 
102

 
(492
)
Increase (decrease) in working capital*
48,577

 
45,594

 
(47
)
Increase in long-term assets and liabilities
(15,603
)
 
(11,025
)
 
(985
)
Net cash provided by operating activities
82,889

 
28,323

 
3,912

Cash flow from investing activities:
 
 
 
 
 
Capital expenditures
(69,314
)
 
(32,301
)
 
(5,239
)
Proceeds from the sale of assets
4,079

 
646

 
542

Proceeds from derivative instruments
(573
)
 
(8,263
)
 
84

Insurance recoveries
2,834

 

 

Net cash used in investing activities
(62,974
)
 
(39,918
)
 
(4,613
)
Cash flow from financing activities:
 
 
 
 
 
Short-term debt, net
(17
)
 
18,511

 
(10,180
)
Revolving Facility borrowings
229,000

 
160,000

 
22,000

Revolving Facility reductions
(240,000
)
 
(99,000
)
 
(21,000
)
Repayment of Senior Subordinated Notes

 
(200,000
)
 

Issuance of Preferred Shares

 
150,000

 

Principal payments on long-term debt
(158
)
 
(89
)
 
(12
)
Supply chain financing
(9,455
)
 

 

Proceeds from exercise of stock options
2,813

 
32

 

Purchase of treasury shares
(620
)
 
(63
)
 
 
Revolving Facility refinancing fees
(2,741
)
 
(5,068
)
 

Other
1,011

 
(3,499
)
 
(1,385
)
Net cash (used in) provided by financing activities
(20,167
)
 
20,824

 
(10,577
)
Net increase (decrease) in cash and cash equivalents
(252
)
 
9,229

 
(11,278
)
Effect of exchange rate changes on cash and cash equivalents
(758
)
 
(1,746
)
 
(294
)
Cash and cash equivalents at beginning of period
11,888

 
17,550

 
25,033

Cash and cash equivalents at end of period
$
10,878

 
$
25,033

 
$
13,461

* Net change in working capital due to the following components:
 
 
 
 
Accounts and notes receivable, net
$
29,693

 
$
61,008

 
$
(16,927
)
Inventories
46,424

 
1,164

 
18,436

Prepaid expenses and other current assets
(15,560
)
 
2,551

 
3,375

Decrease in accounts payable and accruals
(11,072
)
 
(18,728
)
 
(5,822
)
Rationalizations
(5,671
)
 
(2,677
)
 
(1,642
)
Increase in interest payable
4,763

 
2,276

 
2,533

Change in working capital
$
48,577

 
$
45,594

 
$
(47
)

See accompanying Notes to Condensed Consolidated Financial Statements

6

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



(1)
Organization and Summary of Significant Accounting Policies
A. Organization
GrafTech International Ltd. (the "Company") is one of the world’s largest manufacturers and providers of high quality synthetic and natural graphite and carbon based products. References herein to “GTI,” “we,” “our,” or “us” refer collectively to GrafTech International Ltd. and its subsidiaries. We have seven major product categories: graphite electrodes, refractory products, needle coke products, advanced electronics technologies, advanced graphite materials, advanced composite materials and advanced materials, which are reported in the following segments:
Industrial Materials includes graphite electrodes, refractory products, and needle coke products, and primarily serves the steel industry.
Engineered Solutions includes advanced electronics technologies, advanced graphite materials, advanced composite materials and advanced materials, and provides primary and specialty products to the advanced electronics, industrial, energy, transportation and defense industries.
B. Basis of Presentation
The interim 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, 2014 financial position 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, 2014 (the “Annual Report”) but does not include all disclosures required by GAAP. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the accompanying notes, contained in the Annual Report.
The unaudited consolidated financial statements reflect all adjustments (all of which are of a normal, recurring nature) which management considers necessary for a fair statement of financial position, results of operations, comprehensive income and cash flows 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.
C. Predecessor and Successor Reporting
On August 17, 2015, the Company was acquired by affiliates of Brookfield Asset Management Inc. (see Note 2 "Preferred Share Issuance and Merger"). We elected to account for the acquisition under the acquisition method of accounting. Under the acquisition method of accounting, the assets and liabilities of GTI were adjusted to their fair market value as of August 15, 2015, as this was the day that Brookfield effectively took control of the Company.
Our consolidated statements of operations subsequent to the Merger will include amortization expense relating to the fair value adjustments and depreciation expense based on the the fair value of the Company's property, plant and equipment that had previously been carried at historical cost less accumulated depreciation. Therefore, the Company's financial information prior to the Merger is not comparable to the financial information subsequent to the Merger. As a result, the financial statements and certain note presentations are separated into two distinct periods, the period before the consummation of the Merger (labeled "Predecessor") and the period after the date of merger (labeled "Successor"), to indicate the application of the different basis of accounting between the periods presented.
D. New Accounting Standards
In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605—Revenue Recognition and most industry-specific guidance throughout the Codification. This ASU requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU was expected to be effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. On July 9, 2015, the FASB deferred the effective date to fiscal years beginning after December 15, 2017. We are in the process of assessing the impact of the adoption of ASU 2014-09 on the Company's financial position, results of operations and cash flows.

7

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


On April 7, 2015, FASB issued ASU 2015-3, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015 with early adoption permitted. The Company had $9.7 million of capitalized bank fees included within "Other Assets" on our consolidated balance sheets as of December 31, 2014. We had no capitalized bank fees as of September 30, 2015.
(2)
Preferred Share Issuance and Merger
Preferred Stock
On August 11, 2015, the Company issued and sold to BCP IV GrafTech Holdings LP, an affiliate of Brookfield Asset Management Inc. (“Brookfield”) (i) 136,616 shares of a new Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), convertable into 19.9% of the shares of common stock of the Company outstanding immediately prior to such issuance and (ii) 13,384 shares of a new Series B Convertible Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock,” and, together with the Series A Preferred Stock, the “Preferred Stock”), for an aggregate purchase price of $150,000,000 in cash (the “Purchase Price”), under the Investment Agreement dated May 4, 2014 (the “Investment Agreement”) between the Company and Brookfield.
The closing of such issuance and sale occurred after the satisfaction of the closing conditions set forth in the Investment Agreement.
Pursuant to the Investment Agreement, the Company reimbursed Brookfield for $500,000 in out-of-pocket fees and expenses (including fees and expenses of legal counsel) incurred by Brookfield in connection with the transaction.
The proceeds from the issuance and sale were used by the Company, along with funds available under the Company’s $40 million delayed draw term loan facility, senior revolving credit facility and cash on hand, to prepay the Company’s $200 million Senior Subordinated Notes due November 30, 2015.
Merger Agreement
On May 18, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), dated May 17, 2015, with BCP IV GrafTech Holdings LP (“Parent”) and Athena Acquisition Subsidiary Inc. a wholly owned subsidiary of Parent (“Acquisition Sub”). Pursuant to the Merger Agreement, on May 26, 2015, Parent commenced a cash tender offer to purchase any and all of the outstanding shares of common stock, par value $0.01 per share (the “Shares”), of the Company, at a purchase price of $5.05 per Share in cash (the “Offer Price”), on the terms and subject to the conditions set forth in the Offer to Purchase, dated May 26, 2015 (together with any amendments and supplements thereto, the “Offer to Purchase”) and in the related Letter of Transmittal (the “Letter of Transmittal” and, together with the Offer to Purchase, the “Offer”).
On August 14, 2015, Acquisition Sub accepted for payment all Shares validly tendered in the Offer and not withdrawn prior to the expiration of the offer, and payment of the Offer Price for such Shares was made promptly. On August 17, 2015, Acquisition Sub merged with and into the Company, with the Company surviving as a wholly-owned subsidiary of Parent (the "Merger").
Pursuant to the Merger Agreement, upon consummation of the Merger, each Share that was not tendered and accepted pursuant to the Offer (other than canceled shares, dissenting shares and shares held by the Company’s subsidiaries or Parent’s subsidiaries (other than Acquisition Sub)) was canceled and converted into cash consideration in an amount equal to the Offer Price.

8

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


Business Combination
The computation of the fair value of the total consideration at the date of acquisition follows:
Purchase Consideration
 
 
 
 
 
 
(In thousands except share price)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 # Shares
 
  Unit Price
 
 Amount
 
 
 
 
 
 
 
Convertible Preferred Equity
 
 
 
 
 
 
    Series A and B
 
150

 
$
1,000.00

 
$
150,000

Common Equity
 
 
 
 
 
 
    Common Shares
 
139,397

 
$
5.05

 
$
703,955

    Net value of options
 
 
 
 
 
$
382

Total
 
 
 
 
 
$
854,337

Recording of assets acquired and liabilities assumed: The acquisition was accounted for using the acquisition method of accounting. Under the acquisition method, the identifiable assets acquired and the liabilities assumed are assigned a new basis of accounting reflecting their estimated fair values. The information included herein has been prepared based on the preliminary allocation of purchase price using estimates of the fair values and useful lives of assets acquired and liabilities assumed based on the best available information determined with the assistance of independent valuations, quoted market prices and management estimates.
The following table summarizes the fair values of the identifiable assets acquired and liabilities assumed at the acquisition date:
Net identifiable assets acquired
 
 
Cash
$
25,032

 
Accounts receivable
94,298

 
Inventories
346,590

 
Property, plant and equipment
652,371

 
Intangible assets
158,500

 
Deferred tax assets
35,638

 
Prepaid and other current assets
49,716

 
Other non-current assets
8,428

 
Accounts payable
(68,005
)
 
Short-term debt
(18,779
)
 
Other accrued liabilities
(52,421
)
 
Long-term debt
(367,811
)
 
Other long-term liabilities
(93,837
)
 
Deferred tax liabilities
(85,801
)
Net identifiable assets acquired
$
683,919

 
 
 
Goodwill
$
170,418

 
 
 
Net assets acquired
$
854,337

Goodwill: Goodwill of approximately $170.4 million was recognized for the acquisition and is calculated as the excess of the consideration transferred over the net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.
(3)
Rationalizations and Impairments

9

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


Throughout 2013, 2014 and 2015 the Company undertook rationalization plans in order to streamline our organization and lower our production costs. The total rationalization and related charges incurred are as follows:
All Plans
 
For the Three Months Ended
September 30, 2014 (Predecessor)
 
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
 
(Dollars in thousands)
 
Recorded in Cost of Sales
 
 
 
   Accelerated depreciation
 
 
$
838

 
$
2,807

 
$

 
$
3,645

 
   Inventory loss
 
324

 
2,606

 

 
2,930

 
   Fixed asset write-offs and other
 
1,294

 
180

 

 
1,474

 
Recorded in Research and Development
 
 
 
   Accelerated Depreciation
 

 

 
89

 
89

 
Recorded in Selling and General Administrative
 
 
 
   Other
 
20

 

 

 
20

 
Recorded in Rationalizations
 
 
 
   Severance and related costs
 
4,643

 
3,102

 
2,870

 
10,615

 
   Contract terminations
 
82

 
146

 

 
228

 
Total
 
$
7,201

 
$
8,841

 
$
2,959

 
$
19,001

 
All Plans
 
For the Period July 1, 2015
Through August 14, 2015 (Predecessor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
 
 
 
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Inventory loss
 
27

 
28

 

 
55

   Fixed asset write-offs and other
 
59

 
105

 

 
164

Recorded in Research and Development
 
 
 
 
 
   Accelerated Depreciation
 

 
461

 
164

 
625

Recorded in Selling and General Administrative
 
 
 
 
 
 
   Other
 

 

 

 

Recorded in Rationalizations
 
 
 
 
 
 
 
   Severance and related costs
 

 
282

 
(39
)
 
243

   Contract terminations
 

 

 

 

Total
 
$
86

 
$
876

 
$
125

 
$
1,087


10

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


All Plans
 
For the Period August 15, 2015
Through September 30, 2015 (Successor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
 
 
 
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Inventory loss
 
15

 
132

 

 
147

   Fixed asset write-offs and other
 
15

 
351

 

 
366

Recorded in Research and Development
 
 
 
 
 
 
   Accelerated Depreciation
 

 

 

 

Recorded in Selling and General Administrative
 
 
 
 
 
 
   Other
 

 
201

 
10

 
211

Recorded in Rationalizations
 
 
 
 
 
 
 
   Severance and related costs
 
156

 
480

 

 
636

   Contract terminations
 

 

 

 

Total
 
$
186

 
$
1,164

 
$
10

 
$
1,360

During the second quarter of 2015, in connection with our rationalization initiatives, two sites, located in Salvador, Brazil and Pennsylvania, United States, substantially completed their decommissioning efforts and met the criteria for assets held for sale. Because the carrying value of the sites did not exceed their estimated fair value, no additional impairment was recorded. Our Pennsylvania facility was sold in the third quarter of 2015 for a gain of $0.3 million. Additionally, during the third quarter of 2015, our facility in Meyerton, South Africa substantially completed their decommissioning efforts and met the criteria for assets held for sale. As of September 30, 2015, the sites held for sale represent $7.7 million of assets reported under "Property, plant and equipment" and $1.5 million of liabilities, reported under "Other accrued liabilities".
All Plans
 
For the Nine Months Ended
September 30, 2014 (Predecessor)
 
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
 
(Dollars in thousands)
 
Recorded in Cost of Sales
 
 
 
   Accelerated depreciation
 
$
21,690

 
$
3,633

 
$

 
$
25,323

 
   Inventory loss
 
991

 
13,654

 

 
14,645

 
   Fixed asset write-offs and other
 
5,203

 
310

 

 
5,513

 
Recorded in Research and Development
 
 
 
   Accelerated Depreciation
 

 

 
89

 
89

 
Recorded in Selling and General Administrative
 
 
 
   Other
 
98

 

 

 
98

 
Recorded in Rationalizations
 
 
 
   Severance and related costs
 
5,061

 
3,074

 
2,870

 
11,005

 
   Contract terminations
 
610

 
146

 

 
756

 
Total
 
$
33,653

 
$
20,817

 
$
2,959

 
$
57,429

 

11

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


All Plans
 
For the Period January 1
Through August 14, 2015 (Predecessor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$
432

 
$

 
$

 
$
432

   Inventory loss
 
(33
)
 
975

 

 
942

   Fixed asset write-offs and other
 
1,715

 
1,078

 

 
2,793

Recorded in Research and Development
 
 
   Accelerated Depreciation
 

 

 
940

 
940

Recorded in Selling and General Administrative
 
 
   Other
 
400

 
755

 
954

 
2,109

Recorded in Rationalizations
 
 
   Severance and related costs
 
157

 
4,288

 
(168
)
 
4,277

   Contract terminations
 
25

 
204

 

 
229

Total
 
$
2,696

 
$
7,300

 
$
1,726

 
$
11,722

All Plans
 
For the Period August 15
Through September 30, 2015 (Successor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Inventory loss
 
15

 
132

 

 
147

   Fixed asset write-offs and other
 
15

 
351

 

 
366

Recorded in Research and Development
 
 
   Accelerated depreciation
 

 

 

 

Recorded in Selling and General Administrative
 
 
   Other
 

 
201

 
10

 
211

Recorded in Rationalizations
 
 
   Severance and related costs
 
156

 
480

 

 
636

   Contract terminations
 

 

 

 

Total
 
$
186

 
$
1,164

 
$
10

 
$
1,360

2013 Industrial Materials Rationalization
On October 31, 2013, we announced a global initiative to reduce our Industrial Materials segment's cost base and improve our competitive position. As part of this initiative, we ceased production at our two highest cost graphite electrode plants, located in Brazil and South Africa, as well as a machine shop in Russia. Our graphite electrode capacity was reduced by approximately 60,000 metric tons as a result of these actions. In parallel, we adopted measures for reductions in overhead and related corporate operations. These actions and measures reduced global headcount by approximately 600 people, or approximately 20 percent of our global workforce. These actions were substantially completed during the first half of 2014.

2013 Engineered Solutions Rationalization
In order to optimize our Engineered Solutions platform and improve our cost structure, we also initiated actions to centralize certain operations and reduce overhead in our Engineered Solutions segment. These actions reduced global headcount by approximately 40 people and were substantially completed during 2014.




12

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


Total 2013 Rationalization Initiatives Impact to Financial Results
Charges incurred related to the 2013 rationalization initiatives are as follows:
2013 Plans
 
For the Three Months Ended
September 30, 2014 (Predecessor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$
838

 
$

 
$

 
$
838

   Inventory loss
 
324

 

 

 
324

   Fixed asset write-offs and other
 
1,294

 
6

 

 
1,300

Recorded in Selling and General Administrative
 
 
   Other
 
20

 

 

 
20

Recorded in Rationalizations
 
 
   Severance and related costs
 
(52
)
 

 

 
(52
)
   Contract terminations
 
82

 

 

 
82

Total
 
$
2,506

 
$
6

 
$

 
$
2,512

2013 Plans
 
For the Period July 1, 2015
Through August 14, 2015 (Predecessor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Inventory loss
 
27

 

 

 
27

   Fixed asset write-offs and other
 
59

 
12

 

 
71

Recorded in Selling and General Administrative
 
 
   Other
 

 

 

 

Recorded in Rationalizations
 
 
   Severance and related costs
 

 
10

 

 
10

   Contract terminations
 

 

 

 

Total
 
$
86

 
$
22

 
$

 
$
108

2013 Plans
 
For the Period August 15
Through September 30, 2015 (Successor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Inventory loss
 
15

 

 

 
15

   Fixed asset write-offs and other
 
15

 

 

 
15

Recorded in Selling and General Administrative
 
 
   Other
 

 

 

 

Recorded in Rationalizations
 
 
   Severance and related costs
 
156

 

 

 
156

   Contract terminations
 

 

 

 

Total
 
$
186

 
$

 
$

 
$
186



13

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



2013 Plans
 
For the Nine Months Ended
September 30, 2014 (Predecessor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$
21,690

 
$
826

 
$

 
$
22,516

   Inventory loss
 
991

 
491

 

 
1,482

   Fixed asset write-offs and other
 
5,203

 
131

 

 
5,334

Recorded in Selling and General Administrative
 
 
   Other
 
99

 

 

 
99

Recorded in Rationalizations
 
 
   Severance and related costs
 
366

 
(28
)
 

 
338

   Contract terminations
 
609

 

 

 
609

Total
 
$
28,958

 
$
1,420

 
$

 
$
30,378

2013 Plans
 
For the Period January 1, 2015
Through August 14, 2015 (Predecessor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$
432

 
$

 
$

 
$
432

   Inventory loss
 
(33
)
 

 

 
(33
)
   Fixed asset write-offs and other
 
1,715

 
270

 

 
1,985

Recorded in Selling and General Administrative
 
 
   Other
 

 

 

 

Recorded in Rationalizations
 
 
   Severance and related costs
 
97

 
156

 

 
253

   Contract terminations
 
25

 

 

 
25

Total
 
$
2,236

 
$
426

 
$

 
$
2,662

2013 Plans
 
For the Period August 15, 2015
Through September 30, 2015 (Successor)
 
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Inventory loss
 
15

 

 

 
15

   Fixed asset write-offs and other
 
15

 

 

 
15

Recorded in Selling and General Administrative
 
 
   Other
 

 

 

 

Recorded in Rationalizations
 
 
   Severance and related costs
 
156

 

 

 
156

   Contract terminations
 

 

 

 

Total
 
$
186

 
$

 
$

 
$
186




14

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


The following table represents the roll-forward of the liability incurred for employee termination benefits and contract termination costs incurred in connection with the the rationalization initiatives described above. This liability is included in "Rationalizations" on the Consolidated Balance Sheets.
2013 Plans
 
(Dollars in thousands)
Balance as of December 31, 2013
$
18,421

       Charges incurred
613

       Change in estimates
153

       Payments and settlements
(16,494
)
       Effect of change in currency exchange rates
(1,658
)
Balance as of December 31, 2014
1,035

Charges incurred
193

Change in estimates
214

Payments and settlements
(1,057
)
Effect of change in currency exchange rates
(212
)
Balance as of September 30, 2015
$
173


2014 Engineered Solutions Rationalization
    
On July 29, 2014, we announced additional rationalization initiatives to increase profitability, reduce cost and improve global competitiveness in our Engineered Solutions segment. During the second quarter of 2014, worldwide pricing of our isomolded graphite products ("isomolded") within our Advanced Graphite Material ("AGM") product group, as well as our expectation of future pricing, significantly eroded, driven by significant over-capacity and recent competitor responses. In addition, solar product demand continued to erode, with polysilicon, silicon and silicon wafer production migrating to China. New competitors servicing this industry commenced production in China at pricing levels making the market now unprofitable. As a result of these conditions, the Company decided to cease isomolded production and pursue alternative supply chain relationships in our isomolded product line.
As a result of the above, we tested our long-lived assets used to produce advanced graphite materials for recovery, based on undiscounted cash flows from the use and eventual disposition of these assets. The carrying value of the assets exceeded these undiscounted cash flow and, accordingly, we estimated the fair-value of these long-lived assets based on a market participant view. This resulted in an impairment charge totaling $121.6 million during 2014, and included the impairment of certain acquired customer relationship and technology intangible assets.
Charges incurred related to the 2014 Engineered Solutions rationalization initiatives are as follows:
 
 
Predecessor
 
Successor
 
2014 Engineered Solutions Rationalization
 
For the Three
Months Ended
September 30, 2014
 
For the Period July 1, 2015 Through August 14, 2015
 
For the Period
August 15, 2015
Through
September 30, 2015
 
 
 
Engineered Solutions Segment
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
 
   Accelerated depreciation
 
$
2,802

 
$

 
$

 
   Inventory loss
 
2,606

 
28

 
132

 
   Fixed asset write-offs
   and other
 
174

 
15

 
(267
)
 
Recorded in Rationalizations
 

 
   Severance and related costs
 
2,537

 
36

 

 
   Contract terminations
 
74

 

 

 
Total
 
$
8,193

 
$
79

 
$
(135
)
 

15

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


 
 
Predecessor
 
Successor
2014
Engineered Solutions Rationalization
 
For the Nine
Months Ended September 30, 2014
 
For the Period January 1, 2015 Through
August 14, 2015
 
For the Period
August 15, 2015
Through
September 30, 2015
 
 
Engineered Solutions Segment
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$
2,802

 
$

 
$

   Inventory loss
 
13,168

 
571

 
132

   Fixed asset write-offs
and other
 
174

 
372

 
(267
)
Recorded in Rationalizations
 
 
   Severance and related costs
 
2,537

 
(713
)
 

   Contract terminations
 
74

 
50

 

Total
 
$
18,755

 
$
280

 
$
(135
)
The following table represents the roll-forward of the liability incurred for employee termination benefits and contract termination costs incurred in connection with the 2014 Engineered Solutions rationalization initiatives described above. This liability is included in "Rationalizations" on the Consolidated Balance Sheets.
2014 Engineered Solutions Plan
 
(Dollars in thousands)
Balance as of December 31, 2013
$

Charges incurred
2,611

Change in estimates
(40
)
Payments and settlements
(916
)
Balance as of December 31, 2014
1,655

Charges incurred
50

Change in estimates
(716
)
Payments and settlements
(979
)
Balance as of September 30, 2015
$
10


2014 Corporate and Research & Development Rationalization
During the third quarter of 2014, we announced the conclusion of another phase of our on-going company-wide cost savings assessment. This resulted in changes to the Company’s operating and management structure in order to streamline, simplify and decentralize the organization. These actions are designed to reduce costs by a combination of reduced contractor costs, attrition, early retirements and layoffs. Additionally, the Company downsized its corporate functions by approximately 25 percent, relocated to a smaller, more cost effective corporate headquarters and established a new Technology and Innovation Center. The 2014 Corporate and Research and Development rationalization plan will result in approximately $20 million of charges consisting of severance, accelerated depreciation and other related costs, of which approximately $14 million have been incurred through September 30, 2015. Approximately $12 million of these costs will be cash outlays, the majority of which are expected to be disbursed in 2015.

16

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


Charges incurred related to the 2014 Corporate and Research & Development rationalization initiatives are as follows:
2014 Corporate, Research and Development Plan
 
For the Three Months Ended
September 30, 2014 (Predecessor)
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$
5

 
$

 
$
5

   Fixed asset write-offs
and other
 

 

 

 

Recorded in Research and Development
 
 
   Accelerated depreciation
 

 

 
89

 
89

Recorded in Selling and General Administrative
 
 
   Other
 

 

 

 

Recorded in Rationalizations
 
 
   Severance and related costs
 
4,695

 
565

 
2,870

 
8,130

   Contract terminations
 

 
74

 

 
74

Total
 
$
4,695

 
$
644

 
$
2,959

 
$
8,298

2014 Corporate, Research and Development Plan
 
For the Period July 1, 2015
Through August 14, 2015 (Predecessor)
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Fixed asset write-offs
and other
 

 

 

 

Recorded in Research and Development
 
 
   Accelerated depreciation
 

 

 

 

Recorded in Selling and General Administrative
 
 
   Other
 

 

 
164

 
164

Recorded in Rationalizations
 
 
   Severance and related costs
 

 

 
(39
)
 
(39
)
   Contract terminations
 

 

 

 

Total
 
$

 
$

 
$
125

 
$
125

2014 Corporate, Research and Development Plan
 
For the Period August 15, 2015 Through September 30, 2015 (Successor)
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Fixed asset write-offs
and other
 

 

 

 

Recorded in Research and Development
 
 
   Accelerated depreciation
 

 

 

 

Recorded in Selling and General Administrative
 
 
   Other
 

 

 
10

 
10

Recorded in Rationalizations
 
 
   Severance and related costs
 

 

 

 

   Contract terminations
 

 

 

 

Total
 
$

 
$

 
$
10

 
$
10



17

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


2014 Corporate, Research and Development Plan
 
For the Nine Months Ended
September 30, 2014 (Predecessor)
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$
5

 
$

 
$
5

   Fixed asset write-offs and other
 

 

 

 

Recorded in Research and Development
 
 
   Accelerated depreciation
 

 

 
89

 
89

Recorded in Selling and General Administrative
 
 
   Other
 

 

 

 

Recorded in Rationalizations
 
 
   Severance and related costs
 
4,695

 
565

 
2,870

 
8,130

   Contract terminations
 

 
74

 

 
74

Total
 
$
4,695

 
$
644

 
$
2,959

 
$
8,298

2014 Corporate, Research and Development Plan
 
For the Period January 1
Through August 14, 2015 (Predecessor)
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Fixed asset write-offs and other
 

 
1

 

 
1

Recorded in Research and Development
 
 
   Accelerated depreciation
 

 

 
940

 
940

Recorded in Selling and General Administrative
 
 
   Other
 
400

 

 
954

 
1,354

Recorded in Rationalizations
 
 
   Severance and related costs
 
60

 
8

 
(168
)
 
(100
)
   Contract terminations
 

 

 

 

Total
 
$
460

 
$
9

 
$
1,726

 
$
2,195

2014 Corporate, Research and Development Plan
 
For the Period August 15
Through September 30, 2015 (Successor)
 
Industrial Materials Segment
 
Engineered Solutions Segment
 
Corp, R&D and Other
 
Total
 
 
(Dollars in thousands)
Recorded in Cost of Sales
 
 
   Accelerated depreciation
 
$

 
$

 
$

 
$

   Fixed asset write-offs and other
 

 

 

 

Recorded in Research and Development
 
 
   Accelerated depreciation