10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the quarterly period ended March 31, 2016
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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for the transition period from to |
Commission file number: 1-13888
GRAFTECH INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
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Delaware | 27-2496053 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
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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.
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Large Accelerated Filer x | Accelerated Filer o |
Non-Accelerated Filer o | Smaller Reporting Company 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 April 15, 2016, 100 shares of common stock, par value $.01 per share, were outstanding.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION: | |
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Item 1. Financial Statements | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Unuaudited |
| | | | | | | |
| Successor |
| As of December 31, 2015 | | As of March 31, 2016 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 6,927 |
| | $ | 9,832 |
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Accounts and notes receivable, net of allowance for doubtful accounts of $304 as of December 31, 2015 and $486 as of March 31, 2016 | 102,815 |
| | 91,407 |
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Inventories | 295,462 |
| | 282,270 |
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Prepaid expenses and other current assets | 21,674 |
| | 24,978 |
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Total current assets | 426,878 |
| | 408,487 |
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Property, plant and equipment | 660,880 |
| | 676,839 |
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Less: accumulated depreciation | 23,347 |
| | 39,877 |
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Net property, plant and equipment | 637,533 |
| | 636,962 |
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Deferred income taxes | 15,327 |
| | 17,151 |
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Goodwill | 172,059 |
| | 173,117 |
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Other assets | 170,218 |
| | 164,823 |
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Total assets | $ | 1,422,015 |
| | $ | 1,400,540 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 49,478 |
| | $ | 47,246 |
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Short-term debt | 4,772 |
| | 9,779 |
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Accrued income and other taxes | 9,039 |
| | 4,612 |
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Rationalizations | 3,048 |
| | 1,813 |
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Other accrued liabilities | 29,779 |
| | 36,950 |
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Total current liabilities | 96,116 |
| | 100,400 |
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Long-term debt | 362,455 |
| | 360,038 |
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Other long-term obligations | 95,485 |
| | 94,851 |
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Deferred income taxes | 57,430 |
| | 58,460 |
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Contingencies – Note 10 |
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Stockholders’ equity: | | | |
Preferred stock, par value $.01, 10,000,000 shares authorized, none issued | — |
| | — |
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Common stock, par value $.01, 225,000,000 shares authorized, 100 shares issued as of December 31, 2015 and March 31, 2016 | — |
| | — |
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Additional paid-in capital | 854,337 |
| | 854,337 |
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Accumulated other comprehensive (loss) income | (10,257 | ) | | 2,380 |
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Accumulated deficit | (33,551 | ) | | (69,926 | ) |
Total stockholders’ equity | 810,529 |
| | 786,791 |
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Total liabilities and stockholders’ equity | $ | 1,422,015 |
| | $ | 1,400,540 |
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See accompanying Notes to Condensed Consolidated Financial Statements
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands, except per share amounts)
(Unaudited)
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| Predecessor | | Successor | |
| For the Three Months Ended March 31, 2015 | | For the Three Months Ended March 31, 2016 | |
CONSOLIDATED STATEMENTS OF OPERATIONS | | | | |
Net sales | $ | 207,211 |
| | $ | 124,665 |
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Cost of sales | 186,448 |
| | 122,999 |
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Lower of cost or market inventory adjustment | — |
| | 11,537 |
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Gross profit (loss) | 20,763 |
| | (9,871 | ) | |
Research and development | 2,431 |
| | 1,530 |
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Selling and administrative expenses | 26,290 |
| | 18,117 |
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Rationalizations | 2,494 |
| | 131 |
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Impairments | 35,381 |
| | — |
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Operating loss | (45,833 | ) | | (29,649 | ) | |
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Other expense (income), net | 393 |
| | 246 |
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Interest expense | 8,921 |
| | 7,180 |
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Interest income | (73 | ) | | (12 | ) | |
Loss before provision for income taxes | (55,074 | ) | | (37,063 | ) | |
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Provision for income taxes | 534 |
| | (688 | ) | |
Net loss | $ | (55,608 | ) | | $ | (36,375 | ) | |
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STATEMENTS OF COMPREHENSIVE LOSS | | | | |
Net loss | $ | (55,608 | ) | | $ | (36,375 | ) | |
Other comprehensive loss: | | | | |
Foreign currency translation adjustments | (29,611 | ) | | 12,504 |
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Commodities and foreign currency derivatives and other, net of tax of ($154) and $0, respectively | 845 |
| | 133 |
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Other comprehensive (loss) income, net of tax: | (28,766 | ) | | 12,637 |
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Comprehensive loss | $ | (84,374 | ) | | $ | (23,738 | ) | |
See accompanying Notes to Condensed Consolidated Financial Statements
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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| Predecessor | | Successor |
| For the Three Months Ended March 31, 2015 | | For the Three Months Ended March 31, 2016 |
Cash flow from operating activities: | | | |
Net loss | $ | (55,608 | ) | | $ | (36,375 | ) |
Adjustments to reconcile net loss to cash provided by operations: | | | |
Depreciation and amortization | 20,570 |
| | 19,458 |
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Impairments | 35,381 |
| | — |
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Lower of cost or market inventory adjustment, net of depreciation | — |
| | 9,962 |
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Deferred income tax provision | 2,973 |
| | (485 | ) |
Post-retirement and pension plan changes | 1,262 |
| | 1,046 |
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Stock-based compensation | 1,572 |
| | — |
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Interest expense | 3,764 |
| | 1,576 |
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Other charges, net | (2,757 | ) | | (750 | ) |
Increase (decrease) in working capital* | 21,991 |
| | 16,523 |
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Increase in long-term assets and liabilities | (6,430 | ) | | (1,231 | ) |
Net cash provided by operating activities | 22,718 |
| | 9,724 |
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Cash flow from investing activities: | | | |
Capital expenditures | (13,601 | ) | | (8,414 | ) |
Proceeds from the sale of assets | 521 |
| | 404 |
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Derivative instrument settlements, net | (7,603 | ) | | (253 | ) |
Net cash used in investing activities | (20,683 | ) | | (8,263 | ) |
Cash flow from financing activities: | | | |
Short-term debt, net | 1 |
| | 5,001 |
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Revolving Facility borrowings | 27,000 |
| | 19,000 |
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Revolving Facility reductions | (32,000 | ) | | (23,000 | ) |
Principal payments on long-term debt | (33 | ) | | (34 | ) |
Purchase of treasury shares | (41 | ) | | — |
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Revolving Facility refinancing fees | (2,247 | ) | | — |
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Other | (54 | ) | | — |
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Net cash (used in) provided by financing activities | (7,374 | ) | | 967 |
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Net change in cash and cash equivalents | (5,339 | ) | | 2,428 |
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Effect of exchange rate changes on cash and cash equivalents | (1,250 | ) | | 477 |
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Cash and cash equivalents at beginning of period | 17,550 |
| | 6,927 |
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Cash and cash equivalents at end of period | $ | 10,961 |
| | $ | 9,832 |
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* Net change in working capital due to the following components: | | |
Accounts and notes receivable, net | $ | 1,040 |
| | $ | 14,249 |
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Inventories | 11,978 |
| | 4,871 |
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Prepaid expenses and other current assets | 7,525 |
| | (2,873 | ) |
Decrease in accounts payable and accruals | (2,483 | ) | | (3,285 | ) |
Rationalizations | (846 | ) | | (1,301 | ) |
Increase in interest payable | 4,777 |
| | 4,862 |
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Net change in working capital | $ | 21,991 |
| | $ | 16,523 |
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See accompanying Notes to Condensed Consolidated Financial Statements
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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(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.
On February 26, 2016, the Company announced it plans to realign its two business segments. Industrial Materials will now be comprised of graphite electrodes and needle coke products. Engineered Solutions will now be comprised of advanced graphite materials, advanced composite materials, advanced electronic technologies, and refractory products. Refractory products was previously included in the Industrial Materials business segment. Advanced materials products will now be a part of the business segment where these products are produced.
This realignment of the business segments will allow the Company to better direct its resources and simplify its operations. The Industrial Materials business segment will continue to focus on being the lowest cost producer providing the best quality of graphite electrodes in a very challenging market. The Engineered Solutions business segment will continue to leverage the intellectual property of carbon and graphite material science to innovate and commercialize advanced technologies and new products in high growth markets.
The Company also announced that it plans to review strategic alternatives for its Engineered Solutions business segment. In 2015, the segment, on a pro forma basis as newly defined, had sales of $154 million or 22% of the total Company's sales. There can be no assurance that the review of strategic alternatives will result in a transaction. If a transaction were to occur, the Company would conduct a complete review and assessment of its corporate services and structure to bring them into alignment with its new size and sharper focus. We are currently in the early stages of this process and the Engineered Solutions business segment does not qualify as discontinued operations as of March 31, 2016.
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, 2015 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, 2015 (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 include amortization expense relating to the fair value adjustments and depreciation expense based on 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
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 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. 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.
In April 2015, the 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. We had no capitalized bank fees as of December 31, 2015. We adopted this ASU as of January 1, 2016, and resulted in no significant impact on the Company's financial position, results of operations or cash flows.
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 us beginning after January 1, 2019. The Company is currently evaluating the impact of the adoption of this standard on its financial position, results of operations or cash flows.
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(2) | Preferred Share Issuance and Merger |
Preferred Stock
On August 11, 2015, the Company issued and sold to BCP IV GrafTech Holdings LP ("Parent"), 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, 2015 (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 of 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 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.
Business Combination
The computation of the fair value of the total consideration at the date of acquisition follows:
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Purchase Consideration | | | | | | |
(In thousands except share price) | | | | | | |
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| | # Shares | | Unit Price | | Amount |
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Convertible Preferred Equity | | | | | | |
Series A and B | | 150 |
| | $ | 1,000.00 |
| | $ | 150,000 |
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Common Equity | | | | | | |
Common Shares | | 139,397 |
| | $ | 5.05 |
| | $ | 703,955 |
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Net value of options | | | | | | $ | 382 |
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Total | | | | | | $ | 854,337 |
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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.
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the fair values of the identifiable assets acquired and liabilities assumed at the acquisition date:
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Net identifiable assets acquired | |
| Cash | $ | 25,032 |
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| Accounts receivable | 94,298 |
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| Inventories | 344,765 |
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| Property, plant and equipment | 650,405 |
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| Intangible assets | 155,700 |
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| Deferred tax assets | 41,606 |
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| Prepaid and other current assets | 49,716 |
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| Other non-current assets | 8,428 |
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| Accounts payable | (68,005 | ) |
| Short-term debt | (18,779 | ) |
| Other accrued liabilities | (53,252 | ) |
| Long-term debt | (367,811 | ) |
| Other long-term liabilities | (101,648 | ) |
| Deferred tax liabilities | (79,235 | ) |
Net identifiable assets acquired | $ | 681,220 |
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Goodwill | $ | 173,117 |
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Net assets acquired | $ | 854,337 |
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Goodwill: Goodwill of approximately $173.1 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. Goodwill was increased by $1.1 million in the three months ended March 31, 2016 as a result of a decreased inventory valuation of $2.0 million offset by an increase to deferred tax assets of $0.9 million.
Throughout 2013, 2014 and 2015 the Company undertook rationalization plans in order to streamline our organization and lower our production costs. The majority of these initiatives were substantially complete as of March 31, 2016. The rationalization liability as of March 31, 2016 was $1.8 million consisting of the plan described below and severance payouts related to prior rationalization plans.
2015 Advanced Graphite Materials Rationalization
On March 2, 2015, GrafTech announced plans to further optimize the production platform for its advanced graphite materials business. These actions included the closure of our Notre Dame, France facility and further reductions in force in our Columbia, Tennessee facility and other locations totaling approximately 85 people. The 2015 Advanced Graphite Materials rationalization plan will result in approximately $10 million of charges consisting of severance, inventory losses and other related costs. Approximately $8 million of these costs will be cash outlays, the majority of which were disbursed in 2015. We incurred charges of $2.6 million and $0.4 million in the three months ended March 31, 2015 and 2016, respectively. The remaining liability associated with this plan is $0.9 million as of March 31, 2016.
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We operate two reportable business segments: Industrial Materials and Engineered Solutions. On February 26, 2016, the Company announced plans to realign its business segments (see Note 1A "Organization and Summary of Significant Accounting Policies"). As a result of this realignment, our Refractory product line was moved from the Industrial Materials business segment to the Engineered Solutions business segment. Additionally, Advanced Materials products will now be a part of the business segment where these products are produced. All prior period amounts have been recast to reflect this change. Our business segments now consist of the following:
Industrial Materials. 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.
Engineered Solutions. The Engineered Solutions segment includes advanced electronics technologies, advanced graphite materials, advanced composite materials and refractory products. Advanced electronics technologies products consist of electronic thermal management solutions, fuel cell components and sealing materials. Advanced graphite materials are highly engineered synthetic graphite products used in many areas due to their unique properties and the ability to tailor them to specific solutions. These products are used in transportation, alternative energy, metallurgical, chemical, oil and gas exploration and various other industries. Advanced composite materials are highly engineered carbon products that are woven into various shapes primarily to support the aerospace and defense industries. Refractory products are used in blast furnaces and submerged arc furnaces due to their high thermal conductivity and the ease with which they can be machined to large or complex shapes.
The following tables summarize financial information concerning our reportable segments and all prior periods have been recast to reflect our new segmentation:
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| Predecessor | | Successor |
| For the Three Months Ended March 31, 2015 | | For the Three Months Ended March 31, 2016 |
| (Dollars in thousands) |
Net sales to external customers: | | | |
Industrial Materials | $ | 162,494 |
| | $ | 95,575 |
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Engineered Solutions | 44,717 |
| | 29,090 |
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Total net sales | $ | 207,211 |
| | $ | 124,665 |
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Operating (loss) income: | | | |
Industrial Materials | $ | (26,943 | ) | | $ | (20,247 | ) |
Engineered Solutions | (3,348 | ) | | (851 | ) |
Corporate, R&D and Other expenses | (15,542 | ) | | (8,551 | ) |
Total operating loss | $ | (45,833 | ) | | $ | (29,649 | ) |
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Reconciliation of segment operating loss to loss before provision for income taxes | | | |
Other expense (income), net | $ | 393 |
| | $ | 246 |
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Interest expense | 8,921 |
| | 7,180 |
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Interest income | (73 | ) | | (12 | ) |
Loss before provision for income taxes | $ | (55,074 | ) | | $ | (37,063 | ) |
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The components of our consolidated net pension costs are set forth in the following table:
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| Predecessor | | Successor |
| For the Three Months Ended March 31, 2015 | | For the Three Months Ended March 31, 2016 |
| (Dollars in thousands) |
Service cost | $ | 827 |
| | $ | 508 |
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Interest cost | 1,526 |
| | 1,498 |
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Expected return on plan assets | (1,354 | ) | | (1,310 | ) |
Amortization of prior service cost | 1 |
| | — |
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Net cost | $ | 1,000 |
| | $ | 696 |
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The components of our consolidated net postretirement costs are set forth in the following table:
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| Predecessor | | Successor |
| For the Three Months Ended March 31, 2015 | | For the Three Months Ended March 31, 2016 |
| (Dollars in thousands) |
Service cost | $ | 4 |
| | $ | 1 |
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Interest cost | 315 |
| | 272 |
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Amortization of prior service benefit | (43 | ) | | — |
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Net cost | $ | 276 |
| | $ | 273 |
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(6) | Goodwill and Other Intangible Assets |
We are required to review goodwill and indefinite-lived intangible assets annually for impairment. Goodwill impairment is tested at the reporting unit level (for example, graphite electrodes, needle coke, etc.) 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.
We received notice, in March 2015, that the market prices for needle coke were decreasing by an additional 18%, effective for the second quarter of 2015. This decline further compressed our margins for needle coke products versus our annual plan. We determined that this change, which was driven by over capacity in the market indicated that the needle coke industry is facing a deeper and longer trough than previously expected. We considered the additional price change as a triggering event and tested our needle coke goodwill for impairment as of March 31, 2015. This test resulted in an impairment charge for the remaining needle coke goodwill of $35.4 million.
As a result of our acquisition by Brookfield, our goodwill and intangibles were revalued as of August 15, 2015. See Note 2 "Preferred Share Issuance and Merger" for description of the Merger and the results of purchase price accounting. The following tables represents the changes in the carrying value of goodwill and intangibles during the predecessor entity period of January 1, 2015 through August 14, 2015 and the successor entity from August 15, 2015 through March 31, 2016:
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | |
Goodwill |
Predecessor | (Dollars in Thousands) |
Balance as of December 31, 2014 | $ | 420,129 |
|
Impairment | (35,381 | ) |
Currency translation effect | (616 | ) |
Balance as of August 14, 2015 | $ | 384,132 |
|
| |
| |
Successor | |
Balance as of August 15, 2015 | $ | 170,418 |
|
Adjustments | 1,641 |
|
Balance as of December 31, 2015 | $ | 172,059 |
|
Adjustments (See Note 2) | 1,058 |
|
Balance as of March 31, 2016 | $ | 173,117 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
Intangible Assets |
| As of December 31, 2015 | | As of March 31, 2016 |
| Gross Carrying Amount | | Accumulated Amortization & Impairment | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization & Impairment | | Net Carrying Amount |
| (Dollars in Thousands) |
Trade name | $ | 26,800 |
| | $ | (1,048 | ) | | $ | 25,752 |
| | $ | 26,800 |
| | $ | (1,746 | ) | | $ | 25,054 |
|
Technological know-how | 63,200 |
| | (3,327 | ) | | 59,873 |
| | 63,200 |
| | (5,528 | ) | | 57,672 |
|
Customer –related intangible | 65,700 |
| | (1,813 | ) | | 63,887 |
| | 65,700 |
| | (2,913 | ) | | 62,787 |
|
Total finite-lived intangible assets | $ | 155,700 |
| | $ | (6,188 | ) | | $ | 149,512 |
| | $ | 155,700 |
| | $ | (10,187 | ) | | $ | 145,513 |
|
Amortization expense of acquired intangible assets was $4.3 million in the three months ended March 31, 2015 and $4.0 million in the three months ended March 31, 2016. Estimated amortization expense will approximate $12.2 million in the remainder of 2016, $15.4 million in 2017, $14.6 million in 2018, $13.8 million in 2019 and $12.9 million in 2020.
The following table presents our long-term debt:
|
| | | | | | | |
| As of December 31, 2015 | | As of March 31, 2016 |
| (Dollars in thousands) |
Credit Facility (Revolving Facility and Term Loan Facility) | $ | 98,000 |
| | $ | 99,000 |
|
Senior Notes | 267,827 |
| | 269,390 |
|
Other Debt | 1,400 |
| | 1,427 |
|
Total Debt | 367,227 |
| | 369,817 |
|
Less: Short-term Debt | (4,772 | ) | | (9,779 | ) |
Long-term Debt | $ | 362,455 |
| | $ | 360,038 |
|
The fair value of debt, which was determined using Level 2 inputs, was $277.4 million versus a book value of $369.8 million as of March 31, 2016. As a result of our acquisition by Brookfield and the resulting purchase price accounting adjustments (see Note 2 "Preferred Share Issuance and Merger"), 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
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Notes.
Credit Facility
On April 27, 2016, Graftech and certain of its subsidiaries entered into an amendment to the Revolving Facility. See Note 14 "Subsequent Events".
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 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 (see Note 2). 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.
The $40 million Term Loan Facility was fully drawn on August 11, 2015, in connection with the repayment of the Senior Subordinated Notes.
As of March 31, 2016, we had $90 million of unused borrowing capacity under the Revolving Credit Facility (after considering financial covenants restrictions and the outstanding letters of credit of $8.1 million).
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.
In the event that operating cash flows fail to provide sufficient liquidity to meet our business needs, including capital expenditures, any such shortfall would need to be made up by increased borrowings under our Revolving Facility, to the extent available. We have begun to look at strategic alternatives for our Engineered Solutions businesses that could result in the sale of one or more of such businesses. Cash proceeds from such sales would be used to repay borrowings outstanding under the Term Loan Facility and Revolving Facility. We cannot assure you that we will, or will be able to, consummate any such sales on acceptable terms or at all or as to the price, terms or conditions of any such sales.
We use cash flow from operations and funds available under the Revolving Facility (subject to continued compliance with the financial covenants and representations under the Revolving Facility) as well as cash on hand as our primary sources of liquidity. The Revolving Facility matures in April 2019. As of March 31, 2016, we had outstanding borrowings drawn from the Revolving Facility of $61.0 million and outstanding letters of credit of $8.1 million. We also had outstanding borrowings on the Term Loan Facility of $38.0 million as of March 31, 2016.
As of March 31, 2016, we were in compliance with all financial and other covenants contained in the Revolving Facility, as applicable. These covenants include maintaining a cash minimum interest coverage ratio of at least 1.50 to 2.50 and a maximum senior secured leverage ratio of 5.75 to 3.00, which are measured based on a rolling average of the prior four quarters. On April 27, 2016, Graftech and certain of its subsidiaries entered into an amendment to the Revolving Facility. See Note 14 "Subsequent Events".
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.
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Company is also entitled to redeem up to 35% of the aggregate principal amount of the Senior Notes before November 15, 2015 with the net proceeds from certain equity offerings at a redemption price of 106.375% of the principal amount plus accrued and unpaid interest, if any.
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 the acquisition of shares by Brookfield (see Note 2 to the Financial Statements). However, the downgrade of the ratings of the Senior Notes, as specified in the indenture, did not occur. Therefore, the Company was not and will not be required to offer to repurchase the Senior Notes as a result of the change in control.
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 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.
Inventories are comprised of the following:
|
| | | | | | | |
| As of December 31, 2015 | | As of March 31, 2016 |
| (Dollars in thousands) |
Inventories: | | | |
Raw materials and supplies | $ | 80,408 |
| | $ | 73,557 |
|
Work in process | 136,858 |
| | 133,612 |
|
Finished goods | 78,196 |
| | 75,101 |
|
Total | $ | 295,462 |
| | $ | 282,270 |
|
Due to decreased pricing in our graphite electrode product line we recorded a lower of cost or market inventory adjustment of $11.5 million in the three months ended March 31, 2016.
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(9) Interest Expense
The following tables present the components of interest expense:
|
| | | | | | | |
| Predecessor | | Successor |
| For the Three Months Ended March 31, 2015 | | For the Three Months Ended March 31, 2016 |
| (Dollars in thousands) |
| | | |
Interest incurred on debt | $ | 5,171 |
| | $ | 5,617 |
|
Amortization of discount on Senior Subordinated Notes | 3,207 |
| | — |
|
Accretion of fair value adjustment on Senior Notes | — |
| | 1,563 |
|
Amortization of debt issuance costs | 543 |
| | — |
|
Total interest expense | $ | 8,921 |
| | $ | 7,180 |
|
Interest Rates
The Revolving Facility had an effective interest rate of 2.68% and 3.44% as of December 31, 2015 and March 31, 2016, respectively. The Senior Notes have a fixed interest rate of 6.375%.
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.
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 three months ended March 31, 2016, are presented below:
|
| | | |
| (Dollars in thousands) |
Balance as of December 31, 2015 | $ | 942 |
|
Product warranty adjustments | — |
|
Payments and settlements | (121 | ) |
Balance as of March 31, 2016 | $ | 821 |
|
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.
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 months ended March 31, 2015 and March 31, 2016:
|
| | | | | | | |
| For the Three Months Ended March 31, 2015 | | For the Three Months Ended March 31, 2016 |
| (Dollars in thousands) |
Tax (benefit) expense | $ | 534 |
| | $ | (688 | ) |
Pretax loss | $ | (55,074 | ) | | $ | (37,063 | ) |
Effective tax rates | (1.0 | )% | | 1.9 | % |
For the three months ended March 31, 2016, 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 at different tax 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. The effective tax rate for the three months ended March 31, 2015 differs from the U.S. statutory rate of 35% primarily due to recent losses in the U.S. where we receive no tax benefit due to a full valuation allowance and worldwide earnings from various countries taxed at different rates.
As of March 31, 2016, we had unrecognized tax benefits of $3.9 million, $3.1 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 2012 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 2009.
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.
| |
(12) | 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 2015 or 2016. 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
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 three months ended March 31, 2015 and 2016, respectively.
In 2015 and 2016, 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 March 31, 2016, we had outstanding Mexican peso, euro, and Japanese yen currency contracts with an aggregate notional amount of $12.4 million. The foreign currency derivatives outstanding as of March 31, 2016 matured in April 2016.
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 March 31, 2016, 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 $11.8 million and $12.5 million as of December 31, 2015 and March 31, 2016, respectively. Within the currency translation adjustment portion of other comprehensive income, we recorded a gain of $0.7 million for the three months ended March 31, 2015 and a loss of $0.6 million in three months ended March 31, 2016, resulting from these net investment hedges.
| |
(13) | 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 have been 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 LLP, Fiber Materials, Inc., Intermat, 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.
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, 2015 and March 31, 2016 and condensed consolidating statements of operations and comprehensive income and statements of cash flows for the three months ended March 31, 2015 (Predecessor) and 2016 (Successor) of the Parent Guarantors and the Non-Guarantors.
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING BALANCE SHEETS |
As of December 31, 2015 |
(in thousands) |
| | | | | | | | | | |
| | | | | | | | Consolidating | | |
| | | | | | Non- | | Entries and | | |
| | Parent | | Guarantors | | Guarantors | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | |
Current Assets: | | | | | | | | | | |
Cash and cash equivalents | | $ | — |
| | $ | 646 |
| | $ | 6,281 |
| | $ | — |
| | $ | 6,927 |
|
Accounts receivable - affiliates | | 51,592 |
| | 9,362 |
| | 20,823 |
| | (81,777 | ) | | — |
|
Accounts receivable - trade | | — |
| | 20,749 |
| | 82,066 |
| | — |
| | 102,815 |
|
Inventories | | — |
| | 123,340 |
| | 172,122 |
| | — |
| | 295,462 |
|
Prepaid and other current assets | | — |
| | 8,109 |
| | 13,565 |
| | — |
| | 21,674 |
|
Total current assets | | 51,592 |
| | 162,206 |
| | 294,857 |
| | (81,777 | ) | | 426,878 |
|
| | | | | | | | | | |
Investment in affiliates | | 1,068,028 |
| | 668,113 |
| | — |
| | (1,736,141 | ) | | — |
|
Property, plant and equipment | | — |
| | 291,494 |
| | 346,039 |
| | — |
| | 637,533 |
|
Deferred income taxes | | — |
| | — |
| | 15,327 |
| | — |
| | 15,327 |
|
Goodwill | | — |
| | 72,399 |
| | 99,660 |
| | — |
| | 172,059 |
|
Notes receivable - affiliate | | — |
| | 46,074 |
| | — |
| | (46,074 | ) | | — |
|
Other assets | | — |
| | 96,964 |
| | 73,254 |
| | — |
| | 170,218 |
|
Total Assets | | $ | 1,119,620 |
| | $ | 1,337,250 |
| | $ | 829,137 |
| | $ | (1,863,992 | ) | | $ | 1,422,015 |
|
| | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | |
Accounts payable - affiliate | | $ | 159 |
| | $ | 72,418 |
| | $ | 9,200 |
| | $ | (81,777 | ) | | $ | — |
|
Accounts payable - trade | | — |
| | 18,546 |
| | 30,932 |
| | — |
| | 49,478 |
|
Short-term debt | | — |
| | 4,636 |
| | 136 |
| | — |
| | 4,772 |
|
Accrued income and other taxes | | — |
| | 5,864 |
| | 3,175 |
| | — |
| | 9,039 |
|
Rationalizations | | — |
| | 995 |
| | 2,053 |
| | — |
| | 3,048 |
|
Other accrued liabilities | | 2,444 |
| | 11,511 |
| | 15,824 |
| | — |
| | 29,779 |
|
Total current liabilities | | 2,603 |
| | 113,970 |
| | 61,320 |
| | (81,777 | ) | | 96,116 |
|
| | | | | | | | | | |
Long-term debt - affiliate | | 38,661 |
| | — |
| | 7,413 |
| | (46,074 | ) | | — |
|
Long-term debt - third party | | 267,827 |
| | 93,758 |
| | 870 |
| | — |
| | 362,455 |
|
Other long-term obligations | | — |
| | 61,246 |
| | 34,239 |
| | — |
| | 95,485 |
|
Deferred income taxes | | — |
| | 248 |
| | 57,182 |
| | — |
| | 57,430 |
|
Stockholders' equity | | 810,529 |
| | 1,068,028 |
| | 668,113 |
| | (1,736,141 | ) | | 810,529 |
|
Total Liabilities and Stockholders' Equity | | $ | 1,119,620 |
| | $ | 1,337,250 |
| | $ | 829,137 |
| | $ | (1,863,992 | ) | | $ | 1,422,015 |
|
| | | | | | | | | | |
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING BALANCE SHEETS |
As of March 31, 2016 |
(in thousands) |
| | | | | | | | | | |
| | | | | | | | Consolidating | | |
| | | | | | Non- | | Entries and | | |
| | Parent | | Guarantors | | Guarantors | | Eliminations | | Consolidated |
ASSETS | | | | | | | | | | |
Current Assets: | | | | | | | | | | |
Cash and cash equivalents | | $ | — |
| | $ | 1,177 |
| | $ | 8,655 |
| | $ | — |
| | $ | 9,832 |
|
Accounts receivable - affiliates | | 51,592 |
| | 12,055 |
| | 22,855 |
| | (86,502 | ) | | — |
|
Accounts receivable - trade | | — |
| | 20,260 |
| | 71,147 |
| | — |
| | 91,407 |
|
Inventories | | — |
| | 114,633 |
| | 167,637 |
| | — |
| | 282,270 |
|
Prepaid and other current assets | | — |
| | 7,387 |
| | 17,591 |
| | — |
| | 24,978 |
|
Total current assets | | 51,592 |
| | 155,512 |
| | 287,885 |
| | (86,502 | ) | | 408,487 |
|
| | | | | | | | | | |
Investment in affiliates | | 1,050,838 |
| | 656,876 |
| | — |
| | (1,707,714 | ) | | — |
|
Property, plant and equipment | | — |
| | 286,386 |
| | 350,576 |
| | — |
| | 636,962 |
|
Deferred income taxes | | — |
| | — |
| | 17,151 |
| | — |
| | 17,151 |
|
Goodwill | | — |
| | 72,399 |
| | 100,718 |
| | — |
| | 173,117 |
|
Notes receivable - affiliate | | — |
| | 46,239 |
| | — |
| | (46,239 | ) | | — |
|
Other assets | | — |
| | 92,017 |
| | 72,806 |
| | — |
| | 164,823 |
|
Total Assets | | $ | 1,102,430 |
| | $ | 1,309,429 |
| | $ | 829,136 |
| | $ | (1,840,455 | ) | | $ | 1,400,540 |
|
| | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | |
Accounts payable - affiliate | | $ | 198 |
| | $ | 74,453 |
| | $ | 11,851 |
| | $ | (86,502 | ) | | $ | — |
|
Accounts payable - trade | | — |
| | 13,859 |
| | 33,387 |
| | — |
| | 47,246 |
|
Short-term debt | | — |
| | 4,636 |
| | 5,143 |
| | — |
| | 9,779 |
|
Accrued income and other taxes | | — |
| | 3,045 |
| | 1,567 |
| | — |
| | 4,612 |
|
Rationalizations | | — |
| | 638 |
| | 1,175 |
| | — |
| | 1,813 |
|
Other accrued liabilities | | 7,225 |
| | 12,268 |
| | 17,457 |
| | — |
| | 36,950 |
|
Total current liabilities | | 7,423 |
| | 108,899 |
| | 70,580 |
| | (86,502 | ) | | 100,400 |
|
| | | | | | | | | | |
Long-term debt - affiliate | | 38,826 |
| | — |
| | 7,413 |
| | (46,239 | ) | | — |
|
Long-term debt - third party | | 269,390 |
| | 89,723 |
| | 925 |
| | — |
| | 360,038 |
|
Other long-term obligations | | — |
| | 59,720 |
| | 35,131 |
| | — |
| | 94,851 |
|
Deferred income taxes | | — |
| | 249 |
| | 58,211 |
| | — |
| | 58,460 |
|
Stockholders' equity | | 786,791 |
| | 1,050,838 |
| | 656,876 |
| | (1,707,714 | ) | | 786,791 |
|
Total Liabilities and Stockholders' Equity | | $ | 1,102,430 |
| | $ | 1,309,429 |
| | $ | 829,136 |
| | $ | (1,840,455 | ) | | $ | 1,400,540 |
|
| | | | | | | | | | |
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
For the Three Months ended March 31, 2015 (Predecessor) |
(in thousands) |
| | | | | | | | | | |
| | | | | | | | Consolidating | | |
| | | | | | Non- | | Entries and | | |
| | Parent | | Guarantors | | Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | |
Sales - affiliates | | $ | — |
| | $ | 51,184 |
| | $ | 26,775 |
| | $ | (77,959 | ) | | $ | — |
|
Sales - third party | | — |
| | 72,021 |
| | 135,190 |
| | — |
| | 207,211 |
|
Net sales | | — |
| | 123,205 |
| | 161,965 |
| | (77,959 | ) | | 207,211 |
|
Cost of sales | | — |
| | 116,589 |
| | 147,818 |
| | (77,959 | ) | | 186,448 |
|
Gross profit | | — |
| | 6,616 |
| | 14,147 |
| | — |
| | 20,763 |
|
| | | | | | | | | | |
Research and development | | — |
| | 2,431 |
| | — |
| | — |
| | 2,431 |
|
Selling and administrative expenses | | — |
| | 14,441 |
| | 11,849 |
| | — |
| | 26,290 |
|
Impairments | | — |
| | 35,381 |
| | — |
| | — |
| | 35,381 |
|
Rationalizations | | — |
| | 326 |
| | 2,168 |
| | — |
| | 2,494 |
|
Operating (loss) income | | — |
| | (45,963 | ) | | 130 |
| | — |
| | (45,833 | ) |
| | | | | | | | | | |
Other expense (income), net | | — |
| | 309 |
| | 84 |
| | — |
| | 393 |
|
Interest expense - affiliate | | — |
| | 160 |
| | — |
| | (160 | ) | | — |
|
Interest expense - third party | | 8,162 |
| | 665 |
| | 94 |
| | — |
| | 8,921 |
|
Interest income - affiliate | | (160 | ) | | — |
| | — |
| | 160 |
| | — |
|
Interest income - third party | | — |
| | — |
| | (73 | ) | | — |
| | (73 | ) |
(Loss) income before income taxes | | (8,002 | ) | | (47,097 | ) | | 25 |
| | — |
| ` | (55,074 | ) |
| | | | | | | | | | |
Provision for income taxes | | — |
| | 351 |
| | 183 |
| | — |
| | 534 |
|
Equity in loss of subsidiary | | (47,606 | ) | | (158 | ) | | — |
| | 47,764 |
| | — |
|
Net (loss) income | | $ | (55,608 | ) | | $ | (47,606 | ) | | $ | (158 | ) | | $ | 47,764 |
| | $ | (55,608 | ) |
| | | | | | | | | | |
Statements of Comprehensive Income | | | | | | | | | | |
| | | | | | | | | | |
Net (loss) income | | $ | (55,608 | ) | | $ | (47,606 | ) | | $ | (158 | ) | | $ | 47,764 |
| | $ | (55,608 | ) |
Other comprehensive (loss) income | | (28,766 | ) | | (28,766 | ) | | (28,830 | ) | | 57,596 |
| | (28,766 | ) |
Comprehensive (loss) income | | $ | (84,374 | ) | | $ | (76,372 | ) | | $ | (28,988 | ) | | $ | 105,360 |
| | $ | (84,374 | ) |
| | | | | | | | | | |
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
For the Three Months Ended March 31, 2016 (Successor) |
(in thousands) |
| | | | | | | | | | |
| | | | | | | | Consolidating | | |
| | | | | | Non- | | Entries and | | |
| | Parent | | Guarantors | | Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | |
Sales - affiliates | | $ | — |
| | $ | 44,686 |
| | $ | 19,730 |
| | $ | (64,416 | ) | | $ | — |
|
Sales - third party | | — |
| | 45,655 |
| | 79,010 |
| | — |
| | 124,665 |
|
Net sales | | — |
| | 90,341 |
| | 98,740 |
| | (64,416 | ) | | 124,665 |
|
Cost of sales | | — |
| | 86,629 |
| | 100,786 |
| | (64,416 | ) | | 122,999 |
|
Lower of cost or market inventory adjustment | | — |
| | 2,073 |
| | 9,464 |
| | — |
| | 11,537 |
|
Gross profit | | — |
| | 1,639 |
| | (11,510 | ) | | — |
| | (9,871 | ) |
| | | | | | | | | | |
Research and development | | — |
| | 1,530 |
| | — |
| | — |
| | 1,530 |
|
Selling and administrative expenses | | — |
| | 9,563 |
| | 8,554 |
| | — |
| | 18,117 |
|
Rationalizations | | — |
| | 87 |
| | 44 |
| | — |
| | 131 |
|
Operating income (loss) | | — |
| | (9,541 | ) | | (20,108 | ) | | — |
| | (29,649 | ) |
| | | | | | | | | | |
Other expense (income), net | | 6 |
| | 269 |
| | (29 | ) | | — |
| | 246 |
|
Interest expense - affiliate | | 198 |
| | — |
| | — |
| | (198 | ) | | — |
|
Interest expense - third party | | 6,344 |
| | 760 |
| | 76 |
| | — |
| | 7,180 |
|
Interest income - affiliate | | — |
| | (198 | ) | | — |
| | 198 |
| | — |
|
Interest income - third party | | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
Loss before income taxes | | (6,548 | ) | | (10,372 | ) | | (20,143 | ) | | — |
| ` | (37,063 | ) |
| | | | | | | | | | |
Provision for income taxes | | — |
| | 131 |
| | (819 | ) | | — |
| | (688 | ) |
Equity in loss of subsidiary | | (29,827 | ) | | (19,324 | ) | | — |
| | 49,151 |
| | — |
|
Net (loss) income | | $ | (36,375 | ) | | $ | (29,827 | ) | | $ | (19,324 | ) | | $ | 49,151 |
| | $ | (36,375 | ) |
| | | | | | | | | | |
Statements of Comprehensive Income | | | | | | | | | | |
| | | | | | | | | | |
Net (loss) income | | $ | (36,375 | ) | | $ | (29,827 | ) | | $ | (19,324 | ) | | $ | 49,151 |
| | $ | (36,375 | ) |
Other comprehensive (loss) income | | 12,637 |
| | 12,637 |
| | 12,637 |
| | (25,274 | ) | | 12,637 |
|
Comprehensive (loss) income | | $ | (23,738 | ) | | $ | (17,190 | ) | | $ | (6,687 | ) | | $ | 23,877 |
| | $ | (23,738 | ) |
| | | | | | | | | | |
PART I (CONT'D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS |
For the Three Months Ended March 31, 2015 (Predecessor) |
(in thousands) |
| | | | | | | Consolidating | | |
| | | | | Non- | | Entries and | | |
| Parent | | Guarantors | | Guarantors | | Eliminations | | Consolidated |
Net cash provided by (used in) operating activities: | $ | 1,136 |
| | $ | 17,731 |
| | $ | 3,851 |
| | $ | — |
| | $ | 22,718 |
|
| | | | | | | | | |
Cash flow from investing activities: | | | | | | | | | |
Repayments from (loans to) affiliates | (1,095 | ) | | — |
| | — |
| | 1,095 |
| | — |
|
Capital expenditures | — |
| | (8,777 | ) | | (4,824 | ) | | — |
| | (13,601 | ) |
Payments for derivative instruments | — |
| | (6,776 | ) | | (827 | ) | | — |
| | (7,603 | ) |
Proceeds from sale of fixed assets | — |
| | 394 |
| | 127 |
| | | | 521 |
|
Net cash provided by (used in) investing activities | (1,095 | ) | | (15,159 | ) | | (5,524 | ) | | 1,095 |
| | (20,683 | ) |
| | | | | | | | | |
Cash flow from financing activities: | | | | | | | | | |
(Repayments to) loans from affiliates | — |
| | 1,095 |
| | — |
| | (1,095 | ) | | — |
|
Short-term debt borrowings | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Revolving Facility borrowings | — |
| | 27,000 |
| | — |
| | — |
| | 27,000 |
|
Revolving Facility reductions | — |
| | (32,000 | ) | | — |
| | — |
| | (32,000 | ) |
Principal payments on long term debt | — |
| | (33 | ) | | — |
| | — |
| | (33 | ) |
Purchase of treasury shares | (41 | ) | | — |
| | — |
| | — |
| | (41 | ) |
Revolver facility refinancing | — |
| | (2,247 | ) | | — |
| | — |
| | (2,247 | ) |
Other | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) |
Net cash provided by (used in) financing activities | (41 | ) | | (6,238 | ) | | — |
| | (1,095 | ) | | (7,374 | ) |
| | | | | | | | | |
Net change in cash and cash equivalents | — |
| | (3,666 | ) | | (1,673 | ) | | — |
| | (5,339 | ) |
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (1,250 | ) | | — |
| | (1,250 | ) |
Cash and cash equivalents at beginning of period | — |
| | 5,503 |
| | 12,047 |
| | — |
| | 17,550 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 1,837 | |