10-Q 1 a2017-q210xq.htm 10-Q Document

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 June 30, 2017
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
 
graftechinternationala02.jpg
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)
 
 
982 Keynote Circle
44131
Brooklyn Heights, OH
(Zip code)
(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  o    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
Emerging Growth Company  o
Non-Accelerated Filer o
Smaller Reporting Company  o
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 Exchange Act Rule 12b-2).    Yes  ¨    No  ý
As of July 14, 2017, 100 shares of common stock, par value $.01 per share, were outstanding.
(Explanatory Note: The registrant is a voluntary filer and not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the registrant been subject to such requirements.)



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)
Unuaudited
 
As of December 31, 2016
 
As of
June 30,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
11,610

 
$
11,930

Accounts and notes receivable, net of allowance for doubtful accounts of
$326 as of December 31, 2016 and $367 as of June 30, 2017
80,568

 
81,997

Inventories
156,111

 
164,424

Prepaid expenses and other current assets
21,665

 
24,345

Current assets of discontinued operations
60,979

 
42,616

Total current assets
330,933

 
325,312

Property, plant and equipment
585,704

 
610,939

Less: accumulated depreciation
76,849

 
104,191

Net property, plant and equipment
508,855

 
506,748

Deferred income taxes
19,803

 
19,340

Goodwill
171,117

 
171,117

Other assets
141,568

 
126,756

Total assets
$
1,172,276

 
$
1,149,273

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
47,663

 
$
47,253

Short-term debt
8,852

 
8,007

Accrued income and other taxes
5,256

 
7,539

Other accrued liabilities
30,594

 
27,279

Current liabilities of discontinued operations
20,042

 
16,168

Total current liabilities
112,407

 
106,246

Long-term debt
356,580

 
367,956

Other long-term obligations
82,148

 
81,140

Deferred income taxes
42,906

 
45,707

Long-term liabilities of discontinued operations
850

 
971

Contingencies – Note 9

 

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

 

Common stock, par value $.01, 225,000,000 shares authorized,
100 shares issued as of December 31, 2016 and June 30, 2017

 

Additional paid-in capital
854,337

 
854,337

Accumulated other comprehensive (loss) income
(7,558
)
 
6,037

Accumulated deficit
(269,394
)
 
(313,121
)
Total stockholders’ equity
577,385

 
547,253

 
 
 
 
Total liabilities and stockholders’ equity
$
1,172,276

 
$
1,149,273

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)
(Unaudited)
 
 
For the Three
Months Ended June 30,
 
For the Six
Months Ended June 30,
 
2016
 
2017
 
2016
 
2017
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
 
 
 
Net sales
$
115,365

 
$
116,314

 
$
210,941

 
$
221,053

Cost of sales
120,266

 
106,423

 
217,696

 
208,780

Additions to lower of cost or
market inventory reserve
3,504

 
212

 
14,625

 
1,509

Gross (loss) profit
(8,405
)
 
9,679

 
(21,380
)
 
10,764

Research and development
786

 
943

 
1,438

 
1,772

Selling and administrative expenses
13,423

 
12,195

 
27,215

 
23,878

Operating loss
(22,614
)
 
(3,459
)
 
(50,033
)
 
(14,886
)
 
 
 
 
 
 
 
 
Other expense (income), net
(1,198
)
 
1,186

 
(960
)
 
4,253

Interest expense
6,436

 
7,902

 
12,896

 
15,448

Interest income

 
(139
)
 
(12
)
 
(262
)
Loss from continuing operations before
provision for income taxes
(27,852
)
 
(12,408
)
 
(61,957
)
 
(34,325
)
 
 
 
 
 
 
 
 
(Benefit from) Provision for income taxes
(5,591
)
 
925

 
(5,886
)
 
1,286

Net loss from continuing operations
(22,261
)
 
(13,333
)
 
(56,071
)
 
(35,611
)
 
 
 
 
 
 
 
 
    Loss from discontinued operations, net of tax
(106,138
)
 
(4,050
)
 
(108,702
)
 
(8,116
)
 
 
 
 
 
 
 
 
Net loss
$
(128,399
)
 
$
(17,383
)
 
$
(164,773
)
 
$
(43,727
)
 
 
 
 
 
 
 
 
STATEMENTS OF COMPREHENSIVE LOSS
 
 
 
 
 
 
 
Net loss
$
(128,399
)
 
$
(17,383
)
 
$
(164,773
)
 
$
(43,727
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(830
)
 
8,755

 
11,674

 
13,595

Commodities and foreign currency
    derivatives and other
(106
)
 

 
27

 

Other comprehensive (loss) income, net of tax:
(936
)
 
8,755

 
11,701

 
13,595

Comprehensive loss
$
(129,335
)
 
$
(8,628
)
 
$
(153,072
)
 
$
(30,132
)

See accompanying Notes to Condensed Consolidated Financial Statements

4


GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, unaudited)
 
For the Six Months Ended June 30, 2016
 
For the Six Months Ended June 30, 2017
Cash flow from operating activities:
 
 
 
Net loss
$
(164,773
)
 
$
(43,727
)
Adjustments to reconcile net loss to
cash provided by operations:
 
 
 
Depreciation and amortization
43,228

 
33,294

Impairments
105,600

 
5,300

Change in inventory lower-of-cost-or-market reserve
net of depreciation
12,758

 
(1,762
)
Deferred income tax provision
(9,091
)
 
(993
)
Post-retirement and pension plan changes
2,102

 
1,478

Interest expense
3,203

 
3,382

Other charges, net
(2,646
)
 
5,130

Net change in working capital*
24,506

 
157

Change in long-term assets and liabilities
(3,702
)
 
1,214

Net cash provided by operating activities
11,185

 
3,473

Cash flow from investing activities:
 
 
 
Capital expenditures
(15,140
)
 
(13,445
)
Proceeds from the sale of assets
557

 
3,156

Other
(721
)
 

Net cash used in investing activities
(15,304
)
 
(10,289
)
Cash flow from financing activities:
 
 
 
Short-term debt, net
11,004

 
(4,856
)
Revolving Facility borrowings
32,000

 
30,000

Revolving Facility reductions
(32,000
)
 
(18,000
)
Revolving Facility refinancing fees
(922
)
 

Principal payments on long-term debt
(69
)
 
(71
)
Net cash provided by financing activities
10,013

 
7,073

Net change in cash and cash equivalents
5,894

 
257

Effect of exchange rate changes on cash and cash equivalents
588

 
63

Cash and cash equivalents at beginning of period
6,927

 
11,610

Cash and cash equivalents at end of period
$
13,409

 
$
11,930

* Net change in working capital due to the following components:
 
 
 
Accounts and notes receivable, net
$
5,211

 
$
1,136

Inventories
17,122

 
5,999

Prepaid expenses and other current assets
(2,580
)
 
(1,509
)
Change in accounts payable and accruals
4,703

 
(5,499
)
Increase in interest payable
50

 
30

Net change in working capital
$
24,506

 
$
157


See accompanying Notes to Condensed Consolidated Financial Statements

5

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 graphite electrodes and needle coke. References herein to “GTI,” “we,” “our,” or “us” refer collectively to GrafTech International Ltd. and its subsidiaries. On August 15, 2015, GrafTech became an indirect wholly owned subsidiary of Brookfield Asset Management Inc. through a tender offer to our former shareholders and subsequent merger transaction.
The Company's only reportable segment, Industrial Materials, is comprised of our two major product categories: graphite electrodes and needle coke products. Needle coke is the key raw material to producing graphite electrodes. The Industrial Materials business segment focuses on providing the highest quality graphite electrodes and providing the best customer service all while striving to be the lowest cost producer.
We previously operated an Engineered Solutions business segment which is currently held for sale. See Note 2 "Discontinued Operations and Assets Held for Sale" for further information. All results from the Engineered Solutions business have been excluded from continuing operations, unless otherwise indicated.
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, 2016 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, 2016 (the “Annual Report”) but does not include all disclosures required by GAAP in audited financial statements. 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. New Accounting Standards
In May 2014, the 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. During the fourth quarter of 2016, we completed the initial evaluation of the new standard and the related assessment and review of a representative sample of existing revenue contracts with our customers. We determined, on a preliminary basis, that although the timing and pattern of revenue recognition may change, the amount of revenue recognized during the year should remain substantially the same.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under this new guidance, a company will now recognize most leases on its balance sheet as lease liabilities with corresponding right-of-use assets. This ASU is effective for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of this standard on its financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other (Topic 350). This guidance was issued to simplify the accounting for goodwill impairment. The guidance removes the second step of the goodwill impairment test, which requires that a hypothetical purchase price allocation be performed to determine the amount of impairment, if any. Under this new guidance, a goodwill impairment charge will be based on the amount by which

6

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


a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will become effective on a prospective basis for the Company on January 1, 2020 with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the adoption of this standard on its results of operations.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715). This standard requires an entity to report the service cost component in the same line item as other compensation costs. The other components of net (benefit) cost will be required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. This standard is effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of this standard on its results of operations. The components of the net (benefit) cost are shown in Note 4, "Benefit Plans."
(2)
Discontinued Operations and Related Assets Held for Sale
On February 26, 2016, the Company announced that it had initiated a strategic review of its Engineered Solutions business segment to better direct its resources and simplify its operations. Any potential sale of assets was prohibited by the Revolving Facility without approval of the requisite lenders thereunder. On April 27, 2016, GrafTech and certain of its subsidiaries entered into an amendment to the Revolving Facility (see Note 6 "Debt and Liquidity") which, among other things, permits the sale of assets with the restriction that the proceeds be utilized to pay down revolver borrowings. As of June 30, 2016, the Engineered Solutions segment qualified for reporting as discontinued operations as its divestiture represents a strategic shift for the Company.
During the second quarter of 2016, we evaluated the fair value of the Engineered Solutions business segment utilizing the market approach (Level 3 measure). As a result, we incurred an impairment charge to our Engineered Solutions business segment of $105.6 million to align the carrying value with estimated fair value. The analysis was updated as of December 31, 2016, resulting in an additional impairment charge of $14.3 million. We continue to update this estimate and during the six months ended June 30, 2017, we further reduced the estimated fair value by $5.3 million based upon current information. The current estimate reflects management’s view of the manner in which the Engineered Solutions business will be divested, including  assumptions as to if and how it will be split, given the lines of business and asset groups that constitute the Engineered Solutions segment. Amongst other things, the split into groups influences the computation of the impairment charge. These assumptions and estimates are subject to change until divestiture is completed and may be adjusted in the quarter that the information becomes available.
On November 30, 2016, we completed the sale of our Fiber Materials Inc. business, which was a business line within our former Engineered Solutions business. The sale resulted in cash proceeds of $15.9 million and a loss of $0.2 million. We have the ability to realize up to $8.5 million of additional proceeds based on the earnings of the Fiber Materials business over the 24 months following the transaction. We have elected to record this contingent consideration as it is realized and as such it is not recognized thus far on the transaction.
On July 3, 2017, we completed the sale of our Advanced Energy Technologies business. This sale resulted in an additional impairment of $2.8 million to the carrying value of our Engineered Solutions business as of June 30, 2017. See Note 13 "Subsequent Events" for more information.

7

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


The following tables summarize the results of the Engineered Solutions business segment, reclassified as discontinued operations for the three and six months ended June 30, 2016 and 2017.
 
For the Three Months Ended June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2017
 
2016
 
2017
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
Net sales
$
29,930

 
$
32,428

 
$
59,019

 
$
64,193

Cost of sales
24,569

 
28,610

 
50,554

 
57,022

    Gross profit
5,361

 
3,818

 
8,465

 
7,171

Research and development
813

 
711

 
1,691

 
1,281

Selling and administrative expenses
5,059

 
4,106

 
9,514

 
7,800

Impairment
105,600

 
2,800

 
105,600

 
5,300

    Operating loss
(106,111
)
 
(3,799
)
 
(108,340
)
 
(7,210
)
Other income
(81
)
 
(47
)
 
(72
)
 
(18
)
Interest expense
951

 
524

 
1,670

 
1,133

Loss from discontinued operations
    before income taxes
(106,981
)
 
(4,276
)
 
(109,938
)
 
(8,325
)
(Benefit from) income taxes
    on discontinued operations
(843
)
 
(226
)
 
(1,236
)
 
(209
)
Loss from discontinued operations
$
(106,138
)
 
$
(4,050
)
 
$
(108,702
)
 
$
(8,116
)
The significant components of our Statements of Cash Flows for the Engineered Solutions business segment held for sale are as follows:
 
For the Six Months
Ended June 30,
 
2016
 
2017
 
(Dollars in thousands)
 
 
 
 
Depreciation and amortization
$
3,052

 
$
2,311

Impairment
105,600

 
5,300

Deferred income taxes
(1,236
)
 
(209
)
Capital expenditures
2,513

 
432


8

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


The following table summarizes the carrying value of the assets and liabilities of discontinued operations as of December 31, 2016 and June 30, 2017.
 
As of
December 31, 2016
 
As of
June 30, 2017
 
(Dollars in thousands)
Assets of discontinued operations:
 
 
 
  Accounts receivable
$
17,094

 
$
18,325

  Inventories
71,816

 
58,050

  Prepaid expenses and other current assets
320

 
952

  Net property plant and equipment
79,048

 
78,827

  Other assets
12,608

 
11,669

     Total assets of discontinued operations prior to impairment
180,886

 
167,823

 
 
 
 
  Impairment
(119,907
)
 
(125,207
)
 
 
 
 
         Total assets of discontinued operations
$
60,979

 
$
42,616

 
 
 
 
Liabilities of discontinued operations:
 
 
 
  Accounts payable
$
7,253

 
$
6,389

  Accrued income and other taxes
2,326

 
994

  Other accrued liabilities
10,463

 
8,785

     Total current liabilities of discontinued operations
20,042

 
16,168

 
 
 
 
  Other long-term obligations
850

 
971

 
 
 
 
          Total liabilities of discontinued operations
$
20,892

 
$
17,139

(3)
Segment Reporting

We previously operated two reportable business segments, Industrial Materials and Engineered Solutions. During 2016 the Company decided to sell the businesses that comprised our Engineered Solutions segment to focus our Industrial Materials segment. During the second quarter of 2016 the Engineered Solutions segment qualified as held for sale status and as such the related results have been excluded from continuing operations. See Note 2 "Discontinued Operations and Assets Held for Sale" for significant components of the results of our Engineered Solutions segment.
Our Industrial Materials segment manufactures and delivers high quality graphite electrodes and needle coke products. Electrodes are key components of the conductive power systems used to produce steel and other non-ferrous metals. Needle coke, a crystalline form of carbon derived from decant oil, is the key ingredient in, and is used primarily in, the production of graphite electrodes.

9

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


Information concerning our reportable segment is as follows:
 
For the Three Months Ended June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2017
 
2016
 
2017
 
(Dollars in thousands)
Net sales to external customers:
 
 
 
 
 
 
 
Industrial Materials
$
115,365

 
$
116,314

 
$
210,941

 
$
221,053

 
 
 
 
 
 
 
 
Operating (loss) income:
 
 
 
 
 
 
 
Industrial Materials
(16,291
)
 
2,308

 
(36,538
)
 
(4,090
)
Corporate, R&D and Other expenses
(6,323
)
 
(5,767
)
 
(13,495
)
 
(10,796
)
Total operating loss
$
(22,614
)
 
$
(3,459
)
 
$
(50,033
)
 
$
(14,886
)
 
 
 
 
 
 
 
 
Reconciliation of segment operating loss to
    loss before provision for income taxes
 
 
 
 
 
 
 
Other expense (income), net
$
(1,198
)
 
$
1,186

 
$
(960
)
 
$
4,253

Interest expense
6,436

 
7,902

 
12,896

 
15,448

Interest income

 
(139
)
 
(12
)
 
(262
)
Loss from continuing operations before
   provision for income taxes
$
(27,852
)
 
$
(12,408
)
 
$
(61,957
)
 
$
(34,325
)
(4)
Benefit Plans
The components of our consolidated net pension costs are set forth in the following table:
 
For the Three Months Ended June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2017
 
2016
 
2017
 
(Dollars in thousands)
Service cost
$
508

 
$
496

 
$
1,016

 
$
992

Interest cost
1,498

 
1,385

 
2,996

 
2,769

Expected return on plan assets
(1,310
)
 
(1,389
)
 
(2,620
)
 
(2,777
)
Net cost
$
696

 
$
492

 
$
1,392

 
$
984

The components of our consolidated net postretirement costs are set forth in the following table: 
 
For the Three Months Ended June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2017
 
2016
 
2017
 
(Dollars in thousands)
Service cost
$
1

 
$
1

 
$
2

 
$
1

Interest cost
272

 
241

 
543

 
483

Net cost
$
273

 
$
242

 
$
545

 
$
484

(5)
Goodwill and Other Intangible Assets
We are required to review goodwill and indefinite-lived intangible assets annually for impairment. Goodwill impairment is tested at the graphite electrodes reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

10

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


The following tables represents the changes in the carrying value of goodwill and intangibles during three months ended June 30, 2017:
Goodwill
Balance as of December 31, 2016
$
171,117

   Adjustments

Balance as of June 30, 2017
$
171,117

Intangible Assets
 
As of December 31, 2016
 
As of June 30, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization & Impairment
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization & Impairment
 
Net
Carrying
Amount
 
(Dollars in Thousands)
Trade name
$
22,500

 
$
(3,235
)
 
$
19,265

 
$
22,500

 
$
(4,386
)
 
$
18,114

Technological know-how
55,300

 
(10,397
)
 
44,903

 
55,300

 
(13,949
)
 
41,351

Customer –related
    intangible
64,500

 
(6,177
)
 
58,323

 
64,500

 
(8,412
)
 
56,088

Total finite-lived
    intangible assets
$
142,300

 
$
(19,809
)
 
$
122,491

 
$
142,300

 
$
(26,747
)
 
$
115,553

Amortization expense of acquired intangible assets was $3.6 million and $7.2 million in the three and six months ended June 30, 2016 and $3.5 million and $6.9 million in the three and six months ended June 30, 2017. Estimated amortization expense will approximate $6.7 million in the remainder of 2017, $12.9 million in 2018, $12.2 million in 2019, $11.4 million in 2020 and $10.7 million in 2021.
(6)
Debt and Liquidity
The following table presents our long-term debt: 
 
As of
December 31, 2016
 
As of
June 30, 2017
 
(Dollars in thousands)
Credit Facility (Revolving Facility and Term Loan Facility)
$
90,731

 
$
98,031

Senior Notes
274,132

 
277,341

Other Debt
569

 
591

Total Debt
365,432

 
375,963

Less: Short-term Debt
(8,852
)
 
(8,007
)
Long-term Debt
$
356,580

 
$
367,956

The fair value of debt, which was determined using Level 2 inputs, was $363.9 million versus a book value of $376.0 million as of June 30, 2017. As a result of our acquisition by Brookfield and the resulting purchase price accounting adjustments, our Senior Notes were adjusted to their fair market value as of August 15, 2015. The discount to fair value will be accreted over the remaining term of the Notes.
Credit Facility
On April 23, 2014, the Company and certain of its subsidiaries entered into an Amended and Restated Credit Agreement with a borrowing capacity of $400 million and a maturity date of April 2019 (the "Revolving Facility"). On February 27, 2015, GrafTech and certain of its subsidiaries entered into a further Amended and Restated Credit Agreement that provides for, among other things, greater financial flexibility and a $40 million senior secured delayed draw term loan facility (the "Term Loan Facility").
On July 28, 2015, GrafTech and certain of its subsidiaries entered into an amendment to the Amended and Restated Credit Agreement to change the terms regarding the occurrence of a default upon a change in control (which

11

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


is defined thereunder to include the acquisition by any person of more than 25 percent of GrafTech’s outstanding shares) to exclude the acquisition of shares by Brookfield.  In addition, effective upon such acquisition, the financial covenants were eased, resulting in increased availability under the Revolving Facility. The size of the Revolving Facility was also reduced from $400 million to $375 million. The size of the Term Loan Facility remained at $40 million.
On April 27, 2016, GrafTech and certain of its subsidiaries entered into an amendment to the Revolving Facility. The size of the Revolving Facility was permanently reduced from $375 million to $225 million. New covenants were also added to the Revolving Facility, including a requirement to make mandatory repayments of outstanding amounts under the Revolving Facility and the Term Loan Facility with the proceeds of any sale of all or any substantial part of the assets included in the Engineered Solutions segment and a requirement to maintain minimum liquidity (consisting of domestic cash, cash equivalents and availability under the Revolving Facility) in excess of $25 million. The covenants were also modified to provide for: the elimination of certain exceptions to the Company’s negative covenants limiting the Company’s ability to make certain investments, sell assets, make restricted payments, incur liens, incur debt and prepay or redeem other indebtedness; a restriction on the amount of cash and cash equivalents permitted to be held on the balance sheet at any one time without paying down the Revolving Facility and the Term Loan Facility; and changes to the Company’s financial covenants so that until the earlier of March 31, 2019 or the Company has $75 million in trailing twelve month EBITDA (as defined in the Revolving Facility), the Company is required to maintain trailing twelve month EBITDA above certain minimums ranging from ($40 million) to $35 million after which the Company’s existing financial covenants under the Revolving Facility will apply.
With this amendment, the Company has full access to the $225 million Revolving Facility, subject to the $25 million minimum liquidity requirement. As of June 30, 2017, the Company had $68.5 million of borrowings on the Revolving Facility and $14.1 million of letters of credit drawn against the Revolving Facility.
The $40 million Term Loan Facility was fully drawn on August 11, 2015, in connection with the repayment of the Senior Subordinated Notes. The balance of the Term Loan Facility was $29.5 million as of June 30, 2017.
The interest rate applicable to the Revolving Facility and Term Loan Facility is LIBOR plus a margin ranging from 2.25% to 4.75% (depending on our total senior secured leverage ratio). The borrowers pay a per annum fee ranging from 0.35% to 0.70% (depending on our senior secured leverage ratio) on the undrawn portion of the commitments under the Revolving Facility.
Senior Notes
On November 20, 2012, the Company issued $300 million principal amount of 6.375% Senior Notes due 2020 (the "Senior Notes"). The Senior Notes are the Company's senior unsecured obligations and rank pari passu with all of the Company's existing and future senior unsecured indebtedness. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company's existing and future subsidiaries that guarantee certain other indebtedness of the Company or another guarantor.
 
The Senior Notes bear interest at a rate of 6.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The Senior Notes mature on November 15, 2020.
 
The Company is entitled to redeem some or all of the Senior Notes at any time on or after November 15, 2016, at the redemption prices set forth in the indenture. In addition, prior to November 15, 2016, the Company may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus a “make whole” premium determined as set forth in the indenture.

The indenture for the Senior Notes states that if, prior to maturity, a change in control (as defined in the indenture) of the Company occurs and thereafter certain downgrades of the ratings of the Senior Notes as specified in the indenture occur, the Company will be required to offer to repurchase any or all of the Senior Notes at a repurchase price equal to 101% of the aggregate principal amount of the Senior Notes, plus any accrued and unpaid interest. On August 17, 2015, a change in control occurred due to the Merger. However, the downgrade of the ratings of the Senior Notes, as specified in the indenture, did not occur. Therefore, the Company was not required to offer to repurchase the Senior Notes as a result of the Merger.

The indenture for the Senior Notes also contains covenants that, among other things, limit the ability of the Company and certain of its subsidiaries to: (i) create liens or use assets as security in other transactions; (ii) engage

12

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


in certain sale/leaseback transactions; and (iii) merge, consolidate or sell, transfer, lease or dispose of substantially all of their assets.

The indenture for the Senior Notes also contains customary events of default, including (i) failure to pay principal or interest on the Senior Notes when due and payable, (ii) failure to comply with covenants or agreements in the indenture or the Senior Notes which failures are not cured or waived as provided in the indenture, (iii) failure to pay indebtedness of the Company, any Subsidiary Guarantor or Significant Subsidiary (each, as defined in the indenture) within any applicable grace period after maturity or acceleration and the total amount of such indebtedness unpaid or accelerated exceeds $50.0 million, (iv) certain events of bankruptcy, insolvency, or reorganization, (v) failure to pay any judgment or decree for an amount in excess of $50.0 million against the Company, any Subsidiary Guarantor or any Significant Subsidiary that is not discharged, waived or stayed as provided in the indenture, (vi) cessation of any Subsidiary Guarantee (as defined in the indenture) to be in full force and effect or denial or disaffirmance by any subsidiary guarantor of its obligations under its subsidiary guarantee, and (vii) a default under the Company's Senior Subordinated Notes. In the case of an event of default, the principal amount of the Senior Notes plus accrued and unpaid interest may be accelerated.
(7)
Inventories
Inventories are comprised of the following: 
 
As of
December 31, 2016
 
As of
June 30, 2017
 
(Dollars in thousands)
Inventories:
 
 
 
Raw materials and supplies
$
54,469

 
$
50,472

Work in process
52,379

 
69,237

Finished goods
49,263

 
44,715

         Total
$
156,111

 
$
164,424

Due to decreased pricing in our graphite electrode product line, we recorded a lower of cost or market inventory adjustment of $14.6 million and $1.5 million in the six months ended June 30, 2016 and June 30, 2017, respectively. The decrease is attributable to the reduction in product costs and associated improvement on product margins.
(8) Interest Expense
The following tables present the components of interest expense: 
 
For the Three Months Ended June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2017
 
2016
 
2017
 
(Dollars in thousands)
Interest incurred on debt
$
4,819

 
$
6,217

 
$
9,716

 
$
12,086

Accretion of fair value adjustment on
   Senior Notes
1,571

 
1,609

 
3,134

 
3,208

Amortization of debt issuance costs
46

 
76

 
46

 
154

Total interest expense
$
6,436

 
$
7,902

 
$
12,896

 
$
15,448

Interest Rates
The Revolving Facility and Term Loan Facility had an effective interest rate of 5.52% and 5.98% as of December 31, 2016 and June 30, 2017, respectively. The Senior Notes have a fixed interest rate of 6.375%

13

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


(9)
Contingencies
Legal Proceedings
We are involved in various investigations, lawsuits, claims, demands, environmental compliance programs and other legal proceedings arising out of or incidental to the conduct of our business. While it is not possible to determine the ultimate disposition of each of these matters, we do not believe that their ultimate disposition will have a material adverse effect on our financial position, results of operations or cash flows.
Litigation has been pending in Brazil brought by employees seeking to recover additional amounts under certain wage increase provisions applicable in 1989 and 1990 under collective bargaining agreements to which employers in the Bahia region of Brazil were a party (including our subsidiary in Brazil), plus interest thereon. Prior to October 1, 2015, we were not party to such litigation. Companies in Brazil have recently settled claims arising out of these provisions and, in May 2015, the litigation was remanded, in favor of the employees, by the Brazil Supreme Court to the lower courts for further proceedings which included procedural aspects of the case, such as admissibility of instruments filed by the parties. We cannot predict the outcome of such litigation. On October 1, 2015, an action was filed by current and former employees against our subsidiary in Brazil to recover amounts under such provisions, plus interest thereon, which amounts together with interest could be material to us. In the 1st quarter 2017, this case was ruled in favor of the employees at the state court level. The Company has appealed and intends to vigorously defend. The claims specify neither the employees covered nor the amount of damages sought, therefore a range of potential losses cannot be estimated.
Product Warranties
We generally sell products with a limited warranty. We accrue for known warranty claims if a loss is probable and can be reasonably estimated. We also accrue for estimated warranty claims incurred based on a historical claims charge analysis. Claims accrued but not yet paid and the related activity within the accrual for the six months ended June 30, 2017, are presented below: 
 
(Dollars in thousands)
Balance as of December 31, 2016
$
969

Product warranty adjustments
(230
)
Accruals and Payments
(68
)
Balance as of June 30, 2017
$
671

(10)
Income Taxes
We compute and apply to ordinary income an estimated annual effective tax rate on a quarterly basis based on current and forecasted business levels and activities, including the mix of domestic and foreign results and enacted tax laws. The estimated annual effective tax rate is updated quarterly based on actual results and updated operating forecasts. Ordinary income refers to income (loss) before income tax expense excluding significant, unusual, or infrequently occurring items. The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs as a discrete item of tax.

14

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


The following tables summarize the provision for income taxes for the three and six months ended June 30, 2016 and June 30, 2017:
 
For the Three Months Ended June 30,
 
For the Six Months
Ended June 30,
 
2016
 
2017
 
2016
 
2017
 
(Dollars in thousands)
 
 
 
 
 
 
Tax (benefit) expense
$
(5,591
)
 
$
925

 
$
(5,886
)
 
$
1,286

Pretax loss
(27,852
)
 
(12,408
)
 
(61,957
)
 
(34,325
)
Effective tax rates
20.1
%
 
(7.5
)%
 
9.5
%
 
(3.7
)%
For the three and six months ended June 30, 2016 and 2017 the effective tax rate differs from the U.S. statutory rate of 35% primarily due to recent losses in the U.S. and Switzerland where we receive no tax benefit due to a full valuation allowance and worldwide earnings from various countries tax at different rates. The recognition of the valuation allowance does not result in or limit the Company's ability to utilize these tax assets in the future.
As of June 30, 2017, we had unrecognized tax benefits of $3.4 million, $3.0 million of which, if recognized, would have a favorable impact on our effective tax rate.
We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. All U.S. federal tax years prior to 2013 are generally closed by statute or have been audited and settled with the applicable domestic tax authorities. All other jurisdictions are still open to examination beginning after 2010.

We continue to assess the realization of our deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. Examples of positive evidence would include a strong earnings history, an event or events that would increase our taxable income through a continued reduction of expenses, and tax planning strategies that would indicate an ability to realize deferred tax assets. In circumstances where the significant positive evidence does not outweigh the negative evidence in regards to whether or not a valuation allowance is required, we have established and maintained valuation allowances on those net deferred tax assets.
(11)
Derivative Instruments
We use derivative instruments as part of our overall foreign currency and commodity risk management strategies to manage the risk of exchange rate movements that would reduce the value of our foreign cash flows and to minimize commodity price volatility. Foreign currency exchange rate movements create a degree of risk by affecting the value of sales made and costs incurred in currencies other than the U.S. dollar.
Certain of our derivative contracts contain provisions that require us to provide collateral. Since the counterparties to these financial instruments are large commercial banks and similar financial institutions, we do not believe that we are exposed to material counterparty credit risk. We do not anticipate nonperformance by any of the counter-parties to our instruments. Our derivative risk management strategy has not resulted in a material impact to our financial results in 2016 or 2017. Our derivative assets and liabilities are included within "Prepaid expenses and other current assets" and "Other current liabilities" on the Condensed Consolidated Balance Sheets and effects of these derivatives are recorded in revenue, cost of goods sold and other expense (income) on the Condensed Consolidated Statements of Operations.
Foreign currency derivatives
We enter into foreign currency derivatives from time to time to attempt to manage exposure to changes in currency exchange rates. These foreign currency instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, attempt to hedge global currency exposures such as foreign currency denominated debt, sales, receivables, payables, and purchases. Forward exchange contracts are agreements to exchange different currencies at a specified future date and at a specified rate. There was no

15

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


ineffectiveness on these contracts designated as hedging instruments during the six months ended June 30, 2016 and 2017, respectively.
In 2016 and 2017, we entered into foreign currency derivatives denominated in the Mexican peso, South African rand, Brazilian real, euro and Japanese yen. These derivatives were entered into to protect the risk that the eventual cash flows resulting from commercial and business transactions may be adversely affected by changes in exchange rates between the U.S. dollar and the Mexican peso, euro and Japanese yen. As of June 30, 2017, we had outstanding Mexican peso, euro, and Japanese yen currency contracts with an aggregate notional amount of $21.4 million. The foreign currency derivatives outstanding as of June 30, 2017, have maturities through September 29, 2017.
Commodity derivative contracts
We periodically enter into derivative contracts for certain refined oil products and natural gas. These contracts are entered into to protect against the risk that eventual cash flows related to these products may be adversely affected by future changes in prices. As of June 30, 2017, we had no outstanding derivative swap contracts for refined oil products or natural gas.
Net Investment Hedges
We use certain intercompany debt to hedge a portion of our net investment in our foreign operations against currency exposure (net investment hedge). Intercompany debt denominated in foreign currency and designated as a non-derivative net investment hedging instrument was $13.3 million and $14.0 million as of December 31, 2016 and June 30, 2017, respectively. Within the currency translation adjustment portion of other comprehensive income, we recorded no gain or loss in the three months ended June 30, 2016 and a loss of $0.6 million for the six months ended June 30, 2016, resulting from these net investment hedges. We incurred a gain of $0.1 million and a loss of $0.7 million in the three and six months ended June 30, 2017, respectively, resulting from these net investment hedges.
(12)
Guarantor Information

On November 20, 2012, GrafTech International Ltd. (the “Parent”) issued $300 million aggregate principal amount of Senior Notes. The Senior Notes mature on November 15, 2020 and bear interest at a rate of 6.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year. The Senior Notes are guaranteed on a senior basis by the following wholly-owned direct and indirect subsidiaries of the Parent: GrafTech Finance Inc., GrafTech Holdings Inc., GrafTech USA LLC, Seadrift Coke LP, GrafTech Global Enterprises Inc., GrafTech International Holdings Inc., GrafTech DE LLC, GrafTech Seadrift Holding Corp, GrafTech International Trading Inc., GrafTech Technology LLC, GrafTech NY Inc., and Graphite Electrode Network LLC.
The guarantors of the Senior Notes, solely in their respective capacities as such, are collectively called the “Guarantors.” Our other subsidiaries, which are not guarantors of the Senior Notes, are called the “Non-Guarantors.”
    All of the guarantees are unsecured. All of the guarantees are full, unconditional (subject to limited exceptions described below) and joint and several. Each of the Guarantors are 100% owned, directly or indirectly, by the Parent. All of the guarantees of the Senior Notes continue until the Senior Notes have been paid in full, and payment under such guarantees could be required immediately upon the occurrence of an event of default under the Senior Notes. If a Guarantor makes a payment under its guarantee of the Senior Notes, it would have the right under certain circumstances to seek contribution from the other Guarantors.
The Guarantors will be released from the guarantees upon the occurrence of certain events, including the following:  the unconditional release or discharge of any guarantee or indebtedness that resulted in the creation of the guarantee of the Senior Notes by such Guarantor; the sale or other disposition, including by way of merger or consolidation or the sale of its capital stock, following which such Guarantor is no longer a subsidiary of the Parent; or the Parent's exercise of its legal defeasance option or its covenant defeasance option as described in the indenture applicable to the Senior Notes.  If any Guarantor is released, no holder of the Senior Notes will have a claim as a creditor against such Guarantor. The indebtedness and other liabilities, including trade payables and preferred stock, if any, of each Guarantor are effectively senior to the claim of any holders of the Senior Notes.
Investments in subsidiaries are recorded on the equity basis.

16

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


    The following tables set forth condensed consolidating balance sheets as of December 31, 2016 and June 30, 2017, condensed consolidating statements of operations and comprehensive income for the three and six months ended June 30, 2016 and 2017 and the condensed consolidating statements of cashflows for the six months ended June 30, 2016 and 2017.

17

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


CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2016
(in thousands)
 
 
 
 
 
 
 
 
Consolidating
 
 
 
 
 
 
 
 
Non-
 
Entries and
 
 
 
 
Parent
 
Guarantors
 
Guarantors
 
Eliminations
 
Consolidated
 ASSETS
 
 
 
 
 
 
 
 
 
 
 Current Assets:
 
 
 
 
 
 
 
 
 
 
    Cash and cash equivalents
 
$

 
$
636

 
$
10,974

 
$

 
$
11,610

    Accounts receivable - affiliates
 
51,592

 
3,624

 
19,643

 
(74,859
)
 

    Accounts receivable - trade
 

 
7,518

 
73,050

 

 
80,568

    Inventories
 

 
44,563

 
111,548

 

 
156,111

    Prepaid and other current assets
 
1,350

 
4,853

 
15,462

 

 
21,665

    Current assets of discontinued operations
 

 
51,160

 
14,296

 
(4,477
)
 
60,979

      Total current assets
 
52,942

 
112,354

 
244,973

 
(79,336
)
 
330,933

 
 
 
 
 
 
 
 
 
 
 
 Investment in affiliates
 
844,379

 
601,597

 

 
(1,445,976
)
 

 Property, plant and equipment
 

 
191,503

 
317,352

 

 
508,855

 Deferred income taxes
 

 

 
19,803

 

 
19,803

 Goodwill
 

 
70,399

 
100,718

 

 
171,117

 Notes receivable - affiliate
 

 
49,003

 

 
(49,003
)
 

 Other assets
 

 
70,767

 
70,801

 

 
141,568

      Total Assets
 
$
897,321

 
$
1,095,623

 
$
753,647

 
$
(1,574,315
)
 
$
1,172,276

 
 
 
 
 
 
 
 
 
 
 
 LIABILITIES AND
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 Current Liabilities:
 
 
 
 
 
 
 
 
 
 
    Accounts payable - affiliate
 
$
806

 
$
71,243

 
$
2,810

 
$
(74,859
)
 
$

    Accounts payable - trade
 
964

 
8,033

 
38,666

 

 
47,663

    Short-term debt
 

 
3,062

 
5,790

 

 
8,852

    Accrued income and other taxes
 

 
2,095

 
3,161

 

 
5,256

    Other accrued liabilities
 
2,444

 
12,205

 
15,945

 

 
30,594

    Short-term liabilities of discontinued operations
 

 
20,381

 
4,138

 
(4,477
)
 
20,042

         Total current liabilities
 
4,214

 
117,019

 
70,510

 
(79,336
)
 
112,407

 
 
 
 
 
 
 
 
 
 
 
 Long-term debt - affiliate
 
41,590

 

 
7,413

 
(49,003
)
 

 Long-term debt - third party
 
274,132

 
81,695

 
753

 

 
356,580

 Other long-term obligations
 

 
50,943

 
31,205

 

 
82,148

 Deferred income taxes
 

 
909

 
41,997

 

 
42,906

 Long-term liabilities of discontinued operations
 

 
678

 
172

 

 
850

 Stockholders' equity
 
577,385

 
844,379

 
601,597

 
(1,445,976
)
 
577,385

   Total Liabilities and Stockholders' Equity
 
$
897,321

 
$
1,095,623

 
$
753,647

 
$
(1,574,315
)
 
$
1,172,276

 
 
 
 
 
 
 
 
 
 
 

18

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


CONDENSED CONSOLIDATING BALANCE SHEETS
As of June 30, 2017
(in thousands)
 
 
 
 
 
 
 
 
Consolidating
 
 
 
 
 
 
 
 
Non-
 
Entries and
 
 
 
 
Parent
 
Guarantors
 
Guarantors
 
Eliminations
 
Consolidated
 ASSETS
 
 
 
 
 
 
 
 
 
 
 Current Assets:
 
 
 
 
 
 
 
 
 
 
    Cash and cash equivalents
 
$

 
$
811

 
$
11,119

 
$

 
$
11,930

    Accounts receivable - affiliates
 
51,592

 
14,331

 
9,484

 
(75,407
)
 

    Accounts receivable - trade
 

 
9,705

 
72,292

 

 
81,997

    Inventories
 

 
45,037

 
119,387

 


 
164,424

    Prepaid and other current assets
 
554

 
5,786

 
18,005

 

 
24,345

    Current assets of discontinued operations
 

 
32,839

 
11,840

 
(2,063
)
 
42,616

      Total current assets
 
52,146

 
108,509

 
242,127

 
(77,470
)
 
325,312

 
 
 
 
 
 
 
 
 
 
 
 Investment in affiliates
 
828,394

 
581,431

 

 
(1,409,825
)
 

 Property, plant and equipment
 

 
183,901

 
322,847

 

 
506,748

 Deferred income taxes
 

 

 
19,340

 

 
19,340

 Goodwill
 

 
70,399

 
100,718

 

 
171,117

 Notes receivable - affiliate
 


 
60,101

 

 
(60,101
)
 

 Other assets
 

 
64,577

 
62,179

 

 
126,756

      Total Assets
 
$
880,540

 
$
1,068,918

 
$
747,211

 
$
(1,547,396
)
 
$
1,149,273

 
 
 
 
 
 
 
 
 
 
 
 LIABILITIES AND
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 Current Liabilities:
 
 
 
 
 
 
 
 
 
 
    Accounts payable - affiliate
 
$
814

 
$
61,074

 
$
13,519

 
$
(75,407
)
 
$

    Accounts payable - trade
 

 
7,701

 
39,552

 

 
47,253

    Short-term debt
 

 
7,863

 
144

 

 
8,007

    Accrued income and other taxes
 

 
1,405

 
6,134

 

 
7,539

    Other accrued liabilities
 
2,444

 
7,986

 
16,849

 

 
27,279

    Liabilities of discontinued operations
 

 
14,622

 
3,609

 
(2,063
)
 
16,168

         Total current liabilities
 
3,258

 
100,651

 
79,807

 
(77,470
)
 
106,246

 
 
 
 
 
 
 
 
 
 
 
 Long-term debt - affiliate
 
52,688

 

 
7,413

 
(60,101
)
 

 Long-term debt - third party
 
277,341

 
89,778

 
837

 

 
367,956

 Other long-term obligations
 

 
48,151

 
32,989

 

 
81,140

 Deferred income taxes
 

 
1,158

 
44,549

 

 
45,707

 Long-term liabilities of discontinued operations
 

 
786

 
185




971

 Stockholders' equity
 
547,253

 
828,394

 
581,431

 
(1,409,825
)
 
547,253

   Total Liabilities and Stockholders' Equity
 
$
880,540

 
$
1,068,918

 
$
747,211

 
$
(1,547,396
)
 
$
1,149,273

 
 
 
 
 
 
 
 
 
 
 



19

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


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three months ended June 30, 2016
(in thousands)
 
 
 
 
 
 
 
 
Consolidating
 
 
 
 
 
 
 
 
Non-
 
Entries and
 
 
 
 
Parent
 
Guarantors
 
Guarantors
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 Sales - affiliates
 
$

 
$
38,238

 
$
16,081

 
$
(54,319
)
 
$

 Sales - third party
 

 
21,824

 
93,541

 

 
115,365

    Net sales
 

 
60,062

 
109,622

 
(54,319
)
 
115,365

 Cost of sales
 

 
43,760

 
130,825

 
(54,319
)
 
120,266

Additions to lower cost or market inventory reserve
 

 
1,761

 
1,743

 

 
3,504

      Gross profit (loss)
 

 
14,541

 
(22,946
)
 

 
(8,405
)
 
 
 
 
 
 
 
 
 
 
 
 Research and development
 

 
786

 

 

 
786

 Selling and administrative expenses
 

 
3,716

 
9,707

 

 
13,423

      Operating income (loss)
 

 
10,039

 
(32,653
)
 

 
(22,614
)
 
 
 
 
 
 
 
 
 
 
 
 Other expense (income), net
 

 
472

 
(1,670
)
 

 
(1,198
)
 Interest expense - affiliate
 
236

 

 

 
(236
)
 

 Interest expense - third party
 
6,353

 
13

 
70

 

 
6,436

 Interest income - affiliate
 

 
(236
)
 

 
236

 

 Income (Loss) from
  continuing operations before
   provision for income taxes
 
(6,589
)
 
9,790

 
(31,053
)
 

 `
(27,852
)
 
 
 
 
 
 
 
 
 
 
 
 Provision for income taxes
 

 
238

 
(5,829
)
 

 
(5,591
)
 Equity in loss from
continuing operations of subsidiary
 
(15,672
)
 
(25,224
)
 

 
40,896

 

      Net loss from
continuing operations
 
(22,261
)
 
(15,672
)
 
(25,224
)
 
40,896

 
(22,261
)
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued
     operations, net of tax
 

 
(103,752
)
 
(2,386
)
 

 
(106,138
)
Equity in loss from discontinued operations of subsidiary

 
(106,138
)
 
(2,386
)
 

 
108,524

 

      Net loss from
discontinued operations
 
(106,138
)
 
(106,138
)
 
(2,386
)
 
108,524

 
(106,138
)
 
 
 
 
 
 
 
 
 
 
 
      Net loss
 
$
(128,399
)
 
$
(121,810
)
 
$
(27,610
)
 
$
149,420

 
$
(128,399
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Statements of
Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(128,399
)
 
$
(121,810
)
 
$
(27,610
)
 
$
149,420

 
$
(128,399
)
Other comprehensive income
 
(936
)
 
(936
)
 
(936
)
 
1,872

 
(936
)
Comprehensive loss
 
$
(129,335
)
 
$
(122,746
)
 
$
(28,546
)
 
$
151,292

 
$
(129,335
)
 
 
 
 
 
 
 
 
 
 
 


20

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


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three months ended June 30, 2017
(in thousands)
 
 
 
 
 
 
 
 
Consolidating
 
 
 
 
 
 
 
 
Non-
 
Entries and
 
 
 
 
Parent
 
Guarantors
 
Guarantors
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 Sales - affiliates
 
$

 
$
21,453

 
$
12,623

 
$
(34,076
)
 
$

 Sales - third party
 

 
22,482

 
93,832

 

 
116,314

    Net sales
 

 
43,935

 
106,455

 
(34,076
)
 
116,314

 Cost of sales
 

 
45,314

 
95,185

 
(34,076
)
 
106,423

Additions to lower of cost or
market inventory reserve
 

 
209

 
3

 

 
212

      Gross (loss) profit
 

 
(1,588
)
 
11,267

 

 
9,679

 
 
 
 
 
 
 
 
 
 
 
 Research and development
 

 
943

 

 

 
943

 Selling and administrative expenses
 

 
3,970

 
8,225

 

 
12,195

      Operating (loss) income
 

 
(6,501
)
 
3,042

 

 
(3,459
)
 
 
 
 
 
 
 
 
 
 
 
 Other expense (income), net
 
(1
)
 
221

 
966

 

 
1,186

 Interest expense - affiliate
 
788

 

 

 
(788
)
 

 Interest expense - third party
 
6,391

 
1,423

 
88

 

 
7,902

 Interest income - affiliate
 

 
(788
)
 

 
788

 

 Interest income - third party
 

 

 
(139
)
 

 
(139
)
 (Loss) income from continuing
   operations before provision for
     income taxes
 
(7,178
)
 
(7,357
)
 
2,127

 

 `
(12,408
)
 
 
 
 
 
 
 
 
 
 
 
 Provision for income taxes
 

 
123

 
802

 

 
925

 Equity in loss from continuing
    operations of subsidiary
 
(6,155
)
 
1,325

 

 
4,830

 

      Net (loss) income from
continuing operations
 
(13,333
)
 
(6,155
)
 
1,325

 
4,830

 
(13,333
)