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GRAFTECH INTERNATIONAL LTD



                                FORM Report)10-Q
                                 (Quarterly




 Filed 04/30/09 for the Period Ending 03/31/09


   Address          12900 SNOW ROAD
                    PARMA, OH 44130
 Telephone          2166762000
         CIK        0000931148
     Symbol         GTI
  SIC Code          3620 - Electrical Industrial Apparatus
    Industry        Electronic Instr. & Controls
      Sector        Technology
 Fiscal Year        12/31




                                      http://www.edgar-online.com
                      © Copyright 2009, EDGAR Online, Inc. All Rights Reserved.
       Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
Table of Contents


                                     UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                                                                  Washington, D.C. 20549


                                                                       FORM 10-Q

(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
  ACT OF 1934
     for the quarterly period ended March 31, 2009

                                                                                    OR

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     for the transition period from                  to


                                                                Commission file number: 1-13888




                      GRAFTECH INTERNATIONAL LTD.
                                                            (Exact name of registrant as specified in its charter)




                                  Delaware                                                                              06-1385548
                          (State or other jurisdiction of                                                               (I.R.S. Employer
                         incorporation or organization)                                                              Identification Number)




                            12900 Snow Road
                               Parma, OH                                                                                    44130
                     (Address of principal executive offices)                                                              (Zip code)

                                         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           No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date
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        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                Accelerated Filer                Non-Accelerated Filer             Smaller Reporting Company
No 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).   Yes

As of April 28, 2009, 120,257,860 shares of common stock, par value $.01 per share, were outstanding.
Table of Contents

                                                         TABLE OF CONTENTS

PART I.       FINANCIAL INFORMATION:
Item 1. Financial Statements:
      Consolidated Balance Sheets at December 31, 2008 and March 31, 2009 (unaudited)                         Page 3
      Consolidated Statements of Operations for the Three Months ended March 31, 2008 and 2009 (unaudited)    Page 4
      Consolidated Statements of Cash Flows for the Three Months ended March 31, 2008 and 2009 (unaudited)    Page 5
      Notes to Consolidated Financial Statements (unaudited)                                                  Page 6
Introduction to Part I, Item 2, and Part II, Item 1                                                          Page 28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations                Page 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk                                           Page 45
Item 4. Controls and Procedures                                                                              Page 47
PART II.     OTHER INFORMATION:
Item 1. Legal Proceedings                                                                                    Page 48
Item 6. Exhibits                                                                                             Page 48
SIGNATURE                                                                                                    Page 49
EXHIBIT INDEX                                                                                                Page 50
                                                                     2
Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.     Financial Statements

                                     GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                            CONSOLIDATED BALANCE SHEETS
                                            (Dollars in thousands, except share data)
                                                           (Unaudited)
                                                                                                       At December 31,
                                                                                                                         At March 31,
                                                                                                              2008           2009
                                                                                                        (as adjusted—
                                                                                                          see Note 4)
                                                ASSETS
Current Assets:
     Cash and cash equivalents                                                                         $      11,664     $       6,113
     Accounts and notes receivable, net of allowance for doubtful accounts of $4,110 at December 31,
        2008 and $5,274 at March 31, 2009                                                                    146,986        91,452
     Inventories                                                                                             290,397       279,481
     Prepaid expenses and other current assets                                                                14,376         5,545
           Total current assets                                                                              463,423       382,591
  Property, plant and equipment                                                                              873,932       866,582
  Less: accumulated depreciation                                                                             536,562       532,894
           Net property, plant and equipment                                                                 337,370       333,688
  Deferred income taxes                                                                                        1,907        17,620
  Goodwill                                                                                                     7,166         6,977
  Other assets                                                                                                12,887        12,236
  Investment in non-consolidated affiliate                                                                   118,925       120,015
  Restricted cash                                                                                              1,451         1,391
           Total assets                                                                                $     943,129     $ 874,518

                            LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
  Accounts payable                                                                                     $      55,132     $     32,255
  Interest payable                                                                                               953              470
  Short-term debt                                                                                              9,347           11,985
  Accrued income and other taxes                                                                              34,861           39,818
  Other accrued liabilities                                                                                  140,330           86,336
            Total current liabilities                                                                        240,623          170,864
Long-term debt:
      Principal value                                                                                         50,328           65,161
      Fair value adjustments for hedge instruments                                                               191              178
      Unamortized bond premium                                                                                    38               36
               Total long-term debt                                                                           50,557           65,375
Other long-term obligations                                                                                  118,272          114,752
Deferred income taxes                                                                                         29,087           26,564
(see Contingencies – Note 15)
Stockholders’ equity:
         Preferred stock, par value $.01, 10,000,000 shares authorized, none issued                               —               —
         Common stock, par value $.01, 150,000,000 shares authorized, 122,634,854 shares issued at
            December 31, 2008 and 123,132,983 shares issued at March 31, 2009                                  1,226             1,231
         Additional paid-in capital                                                                        1,290,381         1,291,141
         Accumulated other comprehensive loss                                                               (355,960)         (372,886)
         Accumulated deficit                                                                                (317,752)         (309,283)
         Less: cost of common stock held in treasury, 3,974,345 shares at December 31, 2008 and
            March 31, 2009                                                                                  (112,511)        (112,511)
         Less: common stock held in employee benefit and compensation trusts, 55,728 shares at
            December 31, 2008 and 51,206 shares at March 31, 2009.                                              (794)         (729)
Total stockholders’ equity                                                                                   504,590       496,963
         Total liabilities and stockholders’ equity                                                    $     943,129     $ 874,518

                                       See accompanying Notes to Consolidated Financial Statements
3
Table of Contents

                                                          PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                             (Dollars in thousands, except per share data)
                                                              (Unaudited)
                                                                                                                     For the
                                                                                                             Three Months Ended
                                                                                                                   March 31,
                                                                                                            2008             2009
                                                                                                       (as adjusted—
                                                                                                         see Note 4)
Net sales                                                                                              $ 290,002         $134,026
Cost of sales                                                                                            181,901          101,932
      Gross profit                                                                                       108,101           32,094

Research and development                                                                                     2,265             2,068
Selling and administrative expenses                                                                         22,591            21,635
Restructuring charges                                                                                          152               (32)
      Operating income                                                                                      83,093             8,423

Equity in earnings of non-consolidated affiliate                                                               —           (1,212)
Other expense (income), net                                                                                 21,035         (5,534)
Interest expense                                                                                             7,650          1,647
Interest income                                                                                               (372)          (117)
Income before provision for income taxes                                                                    54,780         13,639
Provision for income taxes                                                                                  18,096          5,170
      Net income                                                                                       $    36,684       $ 8,469


Basic income per common share:
      Net income per share                                                                             $      0.36       $      0.07
      Weighted average common shares outstanding                                                           102,274           118,956

Diluted income per common share:
      Net income per share                                                                             $      0.34       $      0.07
      Weighted average common shares outstanding                                                           117,599           119,245

                                         See accompanying Notes to Consolidated Financial Statements
                                                                      4
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                                                      PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     (Dollars in thousands)
                                                          (Unaudited)
                                                                                                                     For the
                                                                                                              Three Months Ended
                                                                                                                   March 31,
                                                                                                             2008              2009
                                                                                                       (as adjusted—
                                                                                                         see Note 4)
Cash flow from operating activities:
      Net income                                                                                       $    36,684         $ 8,469
      Adjustments to reconcile net income to net cash used in operating activities:
            Depreciation and amortization                                                                    8,558             8,028
            Deferred income taxes                                                                              887             1,686
            Equity in earnings of non-consolidated affiliate                                                   —              (1,212)
            Currency losses (gains)                                                                         16,235            (9,161)
            Post-retirement and pension plan changes                                                           453             1,415
            Stock based compensation                                                                         1,161               517
            Interest expense                                                                                 3,034               329
            Other charges, net                                                                               3,666             5,514
      Dividends from non-consolidated affiliate                                                                —                 122
      (Increase) decrease in working capital *                                                              (5,723)            1,608
      Decrease (increase) in long-term assets and liabilities                                                2,223            (2,991)
            Net cash provided by operating activities                                                       67,178            14,324
Cash flow from investing activities:
      Capital expenditures                                                                                  (9,389)          (12,637)
      Gain (loss) from derivative instruments                                                                  224              (419)
      Proceeds from sale of assets                                                                              51                17
      (Increase) decrease in restricted cash                                                                  (176)               60
            Net cash used in investing activities                                                           (9,290)          (12,979)
Cash flow from financing activities:
      Short-term debt borrowings, net                                                                      15,887             3,597
      Revolving Facility borrowings                                                                        70,625            62,975
      Revolving Facility reductions                                                                       (66,677)          (48,000)
      Long-term debt reductions                                                                          (124,663)             (129)
      Excess tax benefit from stock-based compensation                                                         53                10
      Supply chain financing                                                                                  —             (24,696)
      Long-term financing obligations                                                                         (31)             (275)
      Purchase of treasury shares                                                                          (1,003)              (14)
      Proceeds from exercise of stock options                                                                 167                54
            Net cash used in financing activities                                                        (105,642)           (6,478)
Net decrease in cash and cash equivalents                                                                 (47,754)           (5,133)
Effect of exchange rate changes on cash and cash equivalents                                                  (13)             (418)
Cash and cash equivalents at beginning of period                                                           54,741            11,664
Cash and cash equivalents at end of period                                                             $    6,974          $ 6,113

* Net change in working capital due to the following components:
      (Increase) decrease in current assets:
            Accounts and notes receivable                                                              $   (25,953)        $ 69,092
            Effect of factoring on accounts receivable                                                      30,618          (15,869)
            Inventories                                                                                      3,493            4,049
            Prepaid expenses and other current assets                                                          884              409
      Decrease in accounts payable and accruals                                                             (6,982)         (55,584)
      Decrease in interest payable                                                                          (7,650)            (483)
      Restructuring payments                                                                                  (133)              (6)
                  Increase in working capital                                                          $    (5,723)        $ 1,608

                                         See accompanying Notes to Consolidated Financial Statements
                                                                        5
Table of Contents

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

(1) Interim Financial Presentation
      These 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”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have
been omitted or condensed. These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated
Financial Statements, including the accompanying Notes, contained in our Annual Report on Form 10-K for the year ended December 31, 2008
(the “Annual Report” ). The year-end Consolidated Balance Sheet was derived from audited Consolidated Financial Statements, and has been
adjusted to reflect the change in accounting as described in Note 4.

       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 and cash flows for the interim periods presented. The results
for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year.

     Certain amounts for 2008 were reclassified to conform to the 2009 presentation.

(2) New Accounting Standards
     Recently Adopted Accounting Standards
      In January 2009, we adopted the Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 applies to
convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement
of the conversion option. Even though we extinguished our cash-settleable convertible debentures in June 2008, we were required to apply FSP
APB 14-1 retrospectively to our previously issued financial statements for the periods in which the convertible debentures were outstanding. FSP
APB 14-1 requires bifurcation of the instrument into a debt component that is initially recorded at fair value and an equity component. The
difference between the fair value of the debt component and the initial proceeds from issuance of the instrument is recorded as a component of
equity. The liability component of the debt instrument is accreted to par using the effective yield method; accretion is reported as a component of
interest expense. The equity component is not subsequently re-valued as long as it continues to qualify for equity treatment. The effect and
disclosures required by the adoption of FSP APB 14-1 are included in Note 4.

      In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments Granted in Share-
Based Payment Transactions Are Participating Securities”. Under this FSP, if our instruments granted in share-based payment transactions are
determined to be participating securities prior to vesting, we are required to use the two-class method of calculating earnings per share as
described in SFAS No. 128, Earnings per Share, and to adjust our prior period earnings per share calculations. We adopted this FSP in 2009 and
determined there was no material impact on our consolidated financial statements.
                                                                         6
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                                                      PART I (CONT’D)
                                        GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                         (Unaudited)
       In April 2008 the FASB approved FSP FAS 142-3, Determination of the Useful Life of Intangible Assets . FSP FAS 142-3 amends the
factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible
asset under SFAS No. 142, Goodwill and Other Intangible Assets . It is effective for financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years and should be applied prospectively to intangible assets acquired after the
effective date. The FSP also requires expanded disclosure related to the determination of useful lives for intangible assets and should be applied
to all intangible assets recognized as of, and subsequent to the effective date. The adoption of FSP FAS 142-3 did not have a material impact to
our consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. The statement amends
and expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 161 is effective for our fiscal and interim period financial statements beginning 2009. The disclosures required by this statement are included
in Note 18.

       In December 2007, the FASB issued SFAS No. 141(R), Business Combinations . The statement, which replaces Statement 141, Business
Combinations , substantially changes the accounting for and reporting of business combinations including (i) expanding the definition of a
business and a business combination; (ii) requiring all assets and liabilities of the acquired business, including goodwill, contingent assets and
liabilities, and contingent consideration to be recorded at fair value on the acquisition date; (iii) requiring acquisition-related transaction and
restructuring costs to be expensed rather than accounted for as acquisition costs; and (iv) requiring reversal of valuation allowances related to
deferred tax assets and changes to acquired income tax uncertainties to be recognized in earnings. We will apply this statement prospectively to
business combinations for which the acquisition date is after January 1, 2009.

       As of January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008,
the FASB approved FSP FAS 157-2, Effective Date of FASB Statement No. 157, that permitted companies to partially defer the effective date of
SFAS No. 157, until fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. FSP FAS 157-2 did not permit companies to defer recognition and
disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at
least annually. We applied the provisions of Statement 157 to our nonfinancial assets and nonfinancial liabilities on January 1, 2009. The
adoption did not have a material impact on our consolidated financial statements.
                                                                          7
Table of Contents

                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
     Recently Issued Accounting Standards
       The FASB recently announced that on July 1, 2009, the FASB Accounting Standards Codification is expected to become the single official
source of authoritative, nongovernmental U.S. generally accepted accounting principles, superseding existing FASB, AICPA, EITF, and related
literature. After July 1, 2009, only one level of authoritative GAAP will exist, excluding the guidance issued by the Securities Exchange
Commission (“SEC”). The Codification does not change GAAP; instead, it introduces a new structure – arranged within Topics, Subtopics,
Sections, and Subsections.

      In December 2008, the FASB approved FSP No. FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets , which
provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. These disclosures
include how investment allocation decisions are made; information about major categories of plan assets, significant concentrations of risks
within plan assets, and fair value measurements of plan assets. Our effective date is December 31, 2009; we are not required to present the
disclosures for prior periods.

      On April 1, 2009, the FASB approved FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies, which amends Statement 141(R) and eliminates the distinction between contractual and non-
contractual contingencies. Under FSP FAS 141(R), an acquirer is required to recognize at fair value an asset acquired or liability assumed in a
business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the
measurement period. If the acquisition-date fair value cannot be determined, the acquirer applies the recognition criteria in SFAS No. 5,
Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of the Amount of a Loss – and interpretation of FASB Statement
No. 5,” to determine whether the contingency should be recognized as of the acquisition date or after it.

      On April 9, 2009, the FASB approved FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairment.

      FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with Statement 157 when the volume and level of
activity for the asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on identifying circumstances that indicate a
transaction is not orderly. We are required to adopt this FSP for our interim and annual reporting periods ending after June 15, 2009. This FSP
does not require disclosures for periods presented for comparative purposes at initial adoption. This FSP requires comparative disclosures only
for periods ending after initial adoption.

       FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the
guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. It did not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity
securities. We are required to adopt this FSP for our interim and annual reporting periods ending after June 15, 2009. This FSP does not require
disclosures for periods presented for comparative purposes at initial adoption. This FSP requires comparative disclosures only for periods ending
after initial adoption.
                                                                         8
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                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
      On April 9, 2009, the FASB also approved FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments
to require disclosures about fair value of financial instruments in interim period financial statements of publicly traded companies and in
summarized financial information required by APB Opinion No. 28, Interim Financial Reporting . We are required to adopt this FSP for our
interim and annual reporting periods ending after June 15, 2009. This FSP does not require disclosures for periods presented for comparative
purposes at initial adoption. This FSP requires comparative disclosures only for periods ending after initial adoption.

      On April 13, 2009, the SEC issued Staff Accounting Bulletin (“SAB”) No. 111 that amends Topic 5.M. entitled Other Than Temporary
Impairment of Certain Investments in Debt and Equity Securities . This SAB maintains the SEC staff’s previous views related to equity
securities and amends Topic 5.M. to exclude debt securities from its scope.

(3) Stock-Based Compensation
     In the three months ended March 31, 2008 and 2009, we recognized $1.2 million and $0.5 million, respectively, in stock-based
compensation expense. A majority of the expense, $1.1 million and $0.5 million respectively, was recorded as selling and administrative
expenses in the Consolidated Statement of Operations, with the remaining expense recorded as cost of sales and research and development.

     As of March 31, 2009, the total compensation cost related to the non-vested restricted stock and stock options not yet recognized was
$3.9 million and will be recognized over the weighted average life of 1.43 years.

       During 2008, we approved an additional performance share award program under our long-term incentive plan. Under this program, a
maximum of 597,000 shares of performance shares, which represent the right to receive shares contingent upon the achievement of one or more
performance measures, will be issued to eligible employees. These new awards are both service and performance based. Eligible employees
must remain employed with the company for a three year period, which began in the first quarter of 2009, and also meet specific performance
targets established for each year for the awards to vest. If performance targets are not met at a minimum of a 50% level, the employees forfeit
their awards for that specific annual grant. The maximum number of shares that can be earned, 597,000, is based on meeting the targets at a
150% of target level for all three years. The performance targets 2009 were established in February. We recognized expense of $0.1 million in
the three months ended March 31, 2009 related to these awards, which assumes the 2009 targets will be met at a 100% target level.
                                                                       9
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                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
     Restricted stock activity under the plans for the three months ended March 31, 2009 was as follows:
                                                                                                                                 Weighted-
                                                                                                                                  Average
                                                                                                                   Number of     Grant Date

                                                                                                                    Shares       Fair Value
     Outstanding unvested at January 1, 2009                                                                        640,152      $      9.05
           Granted                                                                                                  287,905             8.39
           Vested                                                                                                  (340,170)            9.46
           Forfeited                                                                                                 (5,866)            8.00
     Outstanding unvested at March 31, 2009                                                                         582,021      $      8.50

     Stock option activity under the plans for the three months ended March 31, 2009 was as follows:
                                                                                                                                  Weighted-

                                                                                                                                     Average
                                                                                                                   Number of         Exercise
                                                                                                                    Shares            Price
     Outstanding at January 1, 2009                                                                                1,359,238      $  8.84
           Granted                                                                                                       —            —
           Vested                                                                                                        —            —
           Exercised                                                                                                 (10,000)        5.35
           Forfeited                                                                                                  (5,000)       17.81
     Outstanding at March 31, 2009                                                                                 1,344,238      $ 8.83

(4) Adoption of FSP APB 14-1
      On July 22, 2004, GTI issued $225.0 million aggregate principal amount of Debentures. The Debentures were scheduled to mature on
January 15, 2024, unless earlier converted, redeemed or repurchased. On May 30, 2008, we called for the redemption of the $225.0 million
outstanding principal amount of the Debentures.

      On June 13, 2008, the redemption date, the Debenture holders who exercised their conversion rights received 60.3136 shares of our
common stock for each $1,000 principal amount of Debentures on conversion, together with a make-whole payment totaling $9.0 million, which
represented the present value of all remaining scheduled payments of interest on the redeemed Debentures from the date of conversion through
January 15, 2011.

      We also made payment of $0.2 million to the Debenture holders who did not exercise their conversion rights and opted to receive a
redemption price in cash equal to 100% of the principal plus accrued but unpaid interest until the redemption date. These Debenture holders
received the make-whole value in shares.

     As mentioned in Note 2, we were required to retrospectively change our method of accounting for the Debentures during the period they
were outstanding to comply with FSP APB 14-1. Under this FSP, we separated the Debentures into two accounting components:
     1.    a debt component, representing the fair value of the Debentures if they had no conversion rights, and
                                                                       10
Table of Contents

                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
     2.    an equity component, representing the difference between the proceeds from the issuance of the Debentures and their fair value.

      The amount allocated to the equity component was accounted for as debt discount. We also allocated the transaction costs to the liability
and equity components in proportion to the allocation of proceeds and accounted for them as debt issuance costs and equity issuance costs,
respectively.

      Debt discount and debt issuance costs not allocated to equity were amortized over the period to the first conversion date (7 years) using the
interest method and recorded as interest expense. Because the amounts allocated to equity were not deductible for income tax purposes we
recorded the tax effects as adjustments to additional paid-in capital.

     The effect of the adoption of the FSP on our balance sheet at December 31, 2008, and our statement of operations for the three months
ended March 31, 2008 follows (dollars in thousands):
                                                                                                                                Retrospectively
                                                                                                                Previously
                                                                                                                 reported          Adjusted
     Balance Sheet as of December 31, 2008
          Additional paid-in capital                                                                           1,268,980          1,290,381
          Accumulated deficit                                                                                   (296,351)          (317,752)
     Statement of Operations for the three months ended March 31, 2008
          Interest expense                                                                                          5,686              7,650
          Income from continuing operations                                                                        56,744             54,780
          Net income                                                                                               38,648             36,684
                Basic income per common share                                                                        0.38               0.36
                Diluted income per common share                                                                      0.34               0.34

     There was no impact to provision for income taxes due to valuation allowances.
                                                                        11
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                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
(5) Earnings Per Share
     The following table shows the information used in the calculation of our basic and diluted earnings per share as of March 31:
                                                                                                                        For the
                                                                                                                  Three Months Ended
                                                                                                                       March 31,
                                                                                                           2008                            2009
                                                                                                         (Dollars in thousands, except share data)
     Net income, as reported                                                                         $         36,684              $           8,469
           Add: Interest on Debentures, net of tax benefit                                                        916                            —
           Add: Amortization of Debentures discount and issuance costs, net of tax
             benefit                                                                                           2,395                           —
                Net income, as adjusted                                                              $        39,995               $         8,469
     Weighted average common shares outstanding for basic calculation                                    102,274,038                   118,955,516
           Add: Effect of stock options and restricted stock                                               1,754,328                       289,057
           Add: Effect of Debentures                                                                      13,570,560                           —
     Weighted average common shares outstanding for diluted calculation                                  117,598,926                   119,244,573

      The calculation of weighted average common shares outstanding for the diluted calculation excludes consideration of stock options
covering 1,945,313 and 1,190,703 shares for the three months ended March 31, 2008 and 2009, respectively, because the exercise of these
options would not have been dilutive for those periods due to the fact that the exercise prices were greater than the weighted average market
price of our common stock for each of those periods.

(6) Segment Reporting
     Our businesses are reported in the following reportable segments:

      Industrial Materials. Our industrial materials segment manufactures and delivers high quality graphite electrodes and refractory products.
Electrodes are key components of the conductive power systems used to produce steel and other non-ferrous metals. 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.

     Engineered Solutions. Engineered solutions include advanced graphite materials products for the transportation, solar, and oil and gas
exploration industries, as well as natural graphite products.

      We evaluate the performance of our segments based on segment operating income. Intersegment sales and transfers are not material and
the accounting policies of the reportable segments are the same as those for our Consolidated Financial Statements as a whole. Corporate
expenses are allocated to segments based on each segment’s percentage of consolidated sales.
                                                                         12
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                                                      PART I (CONT’D)
                                        GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                         (Unaudited)
     The following tables summarize financial information concerning our reportable segments.
                                                                                                                            For the Three
                                                                                                                           Months Ended
                                                                                                                              March 31,
                                                                                                                        2008              2009
                                                                                                                        (Dollars in thousands)
     Net sales to external customers:
           Industrial materials                                                                                      $248,289        $104,521
           Engineered solutions                                                                                        41,713          29,505
     Total net sales                                                                                                 $290,002        $134,026
     Segment operating income:
           Industrial materials                                                                                      $ 74,665        $    6,788
           Engineered solutions                                                                                         8,428             1,635
     Total operating income                                                                                          $ 83,093        $    8,423
     Reconciliation of operating income to income before provision for income taxes
     Equity in earnings of non-consolidated affiliate                                                                     —            (1,212)
     Other expense (income), net                                                                                       21,035          (5,534)
     Interest expense                                                                                                   7,650           1,647
     Interest income                                                                                                     (372)           (117)
     Income before provision for income taxes                                                                        $ 54,780        $ 13,639

(7) Investment in Non-Consolidated Affiliate
      On June 30, 2008, we acquired 100% of the common stock of Falcon-Seadrift Holding Corp., now named GrafTech Seadrift Holding
Corp. (“GTSD”). The principal asset of GTSD is limited partnership units constituting approximately 18.9% of the equity interests of Seadrift
Coke L.P. (“Seadrift”); a privately-held producer of needle coke, the primary raw material used in the manufacture of graphite electrodes. The
substance of the transaction was the acquisition of an asset, the limited partnership units. The cost of our acquisition was $136.5 million of which
$135.0 million was paid in cash.

       We perform an assessment of our investment in Seadrift for impairment whenever changes in the facts and circumstances indicate that a
loss in value has occurred (a “triggering event”), which is other than temporary. Because Seadrift is privately-held, we determine the fair value
based upon the present value of expected future cash flows using discount rates commensurate with the risks of the investment.

      At December 31, 2008, we determined that the fair value of the investment was less than our carrying value and that the loss in value is not
temporary. We recorded a $34.5 million noncash impairment to recognize this other than temporary loss in value. The fair value of Seadrift
reflected reductions in the estimated future cash flows based on a lower expectation of tons shipped and reduced growth and profitability
resulting primarily from the downturn in the economy.

     Given the current economic environment and the uncertainties regarding the impact on steel producers and their suppliers, including
Seadrift, there can be no assurances that our estimates and assumptions regarding the fair value of Seadrift will prove to be accurate. If the
assumptions regarding forecasted revenue, growth rates, and expected profitability are not achieved, we may be required to record additional
impairment charges in future periods.

      We determined that no triggering event occurred in the quarter ended March 31, 2009. It is not possible at this time to determine if a
triggering event may occur in the future and if any such triggering event would result in a loss of value that is other than temporary.

      Our equity earnings are based on Seadrift’s results of operations with a one-month lag because its accounting close cycle and preparation
of financial statements occurs subsequent to our reporting deadline. We include an estimate for the effect of Seadrift’s LIFO inventory
accounting on interim periods. Our statement of operations includes income of $1.2 million which represents our equity in the earnings of
Seadrift for the first quarter, on a one-month lag, of $2.5 million income, as well as the amortization of the difference between our cost of the
investment and the net assets of Seadrift assigned to the long-lived assets of $1.3 million.
                                                                        13
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                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
(8) Other Expense (Income), Net
     The following table presents an analysis of other expense (income), net:
                                                                                                                           For the Three
                                                                                                                          Months Ended
                                                                                                                             March 31,
                                                                                                                        2008            2009
                                                                                                                       (Dollars in thousands)
     Currency losses (gains)                                                                                          $15,464        $(6,351)
     Loss on extinguishment of debt                                                                                     4,725            —
     Gain on the disposal of fixed assets                                                                                 (48)           (17)
     Bank and other financing fees                                                                                        445            505
     Loss on the sale of accounts receivable                                                                              340             78
     Other                                                                                                                109            251
           Total other expense (income), net                                                                          $21,035        $(5,534)

      We have non-dollar-denominated intercompany loans between GrafTech Finance and certain of our foreign subsidiaries. At December 31,
2008 and March 31, 2009, the aggregate principal amount of these loans was $558.4 million and $533.8 million, respectively (based on currency
exchange rates in effect at such dates). These loans are subject to remeasurement gains and losses due to changes in currency exchange rates.
Certain of these loans had been deemed to be essentially permanent prior to settlement and, as a result, remeasurement gains and losses on these
loans were recorded as a component of accumulated other comprehensive loss in the stockholders’ equity section of the Consolidated Balance
Sheets. The loans remaining are deemed to be temporary and, as a result, remeasurement gains and losses on these loans are recorded as
currency gains / losses in other income (expense), net, on the Consolidated Statements of Operations. For the three months ended March 31,
2008 and 2009, we had a net total of $15.5 million of currency losses and $6.4 million of currency gains, respectively, due to the remeasurement
of intercompany loans and the effect of transaction gains and losses related to foreign subsidiaries whose functional currency is the US dollar.

     In connection with the redemption of $125 million of the outstanding principal of the Senior Notes in the three months ended March 31,
2008, we incurred a $4.7 million loss on the extinguishment of debt, which includes $4.3 million related to the call premium and $0.4 million of
charges for the accelerated amortization of the debt issuance fees, terminated interest rate swaps and the premium related to the Senior Notes.
                                                                       14
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                                                      PART I (CONT’D)
                                        GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                         (Unaudited)
(9) Benefit Plans
     The components of our consolidated net pension and postretirement cost are set forth in the following table:
                                                                                                      Pension Benefits             Postretirement Benefits
                                                                                                        For the Three                   For the Three
                                                                                                       Months Ended                    Months Ended
                                                                                                          March 31,                      March 31,
                                                                                                     2008           2009            2008            2009
                                                                                                                    (Dollars in thousands)
Service cost                                                                                     $   246         $   157        $   120          $    93
Interest cost                                                                                      2,890           2,619            554              554
Expected return on plan assets                                                                    (3,254)         (2,909)           —                —
Amortization of transition obligation                                                                (22)              2            —                —
Amortization of prior service cost (benefit)                                                          34              11           (332)            (319)
Amortization of unrecognized loss                                                                    497             319          1,051              967
Settlement                                                                                           171              41            —                —
      Net cost                                                                                   $ 562           $ 240          $ 1,393          $ 1,295

(10) Long-Term Debt and Liquidity
     The following table presents our long-term debt:
                                                                                                                      At December 31,          At March 31,

                                                                                                                            2008                    2009
                                                                                                                              (Dollars in thousands)
Revolving Facility                                                                                                    $       30,000           $     44,975
Senior Notes:
     Senior Notes due 2012                                                                                                    19,906                 19,906
     Fair value adjustments for terminated hedge instruments*                                                                    191                    178
     Unamortized bond premium                                                                                                     38                     36
           Total Senior Notes                                                                                                 20,135                 20,120
Other European debt                                                                                                              422                    280
           Total                                                                                                      $       50,557           $     65,375

*    Fair value adjustments for terminated hedge instruments will be amortized as a credit to interest expense over the remaining term of the
     Senior Notes.

      In the three months ended March 31, 2008, we redeemed a total of $125 million of the outstanding principal amount of the 10 1 / 4 %
Senior Notes, due 2012, at 103.417% plus accrued interest. In connection with this redemption, we incurred a $4.7 million loss on the
extinguishment of debt.

                                                                      15
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                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
(11) Inventories
     Inventories are comprised of the following:
                                                                                                   At December 31,
                                                                                                                             At March 31,

                                                                                                        2008                      2009
                                                                                                           (Dollars in thousands)
           Inventories:
                Raw materials and supplies                                                         $    130,615              $ 119,541
                Work in process                                                                         111,995                110,617
                Finished goods                                                                           49,895                 51,110
                                                                                                        292,505                281,268
                        Excess and obsolete reserves                                                     (2,108)                (1,787)
                                                                                                   $    290,397              $ 279,481

      During the three months ended March 31, 2009, we recorded a $7.2 million charge to cost of goods sold under the provisions of SFAS
No. 151, Inventory Costs – an amendment of APB No. 43, Chapter 4 . SFAS No. 151 requires abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) to be recognized as current period charges. It also requires that allocation of fixed production
overheads to the costs of conversion be based on normal capacity of the production facilities. The $7.2 million impact was attributable to
adjustments of fixed production overheads to the costs of conversion based on normal capacity versus actual levels, due to production levels
below normal capacity in the first quarter.

(12) Interest Expense
     The following table presents an analysis of interest expense:
                                                                                                                             For the Three
                                                                                                                             Months Ended
                                                                                                                               March 31,
                                                                                                                          2008             2009
                                                                                                                         (Dollars in thousands)
     Interest incurred on debt                                                                                        $ 4,831            $ 1,264
     Amortization of fair value adjustments for terminated hedge instruments                                              (71)               (13)
     Amortization of debt issuance costs                                                                                  625                345
     Amortization of premium on Senior Notes                                                                              (14)                (3)
     Amortization of discount on Debentures                                                                             2,205                —
     Interest incurred on other items                                                                                      74                 54
           Total interest expense                                                                                     $ 7,650            $ 1,647

                                                                      16
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                                                      PART I (CONT’D)
                                        GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                         (Unaudited)
(13) Other Comprehensive Income
      Other comprehensive income consisted of the following:
                                                                                                                              For the Three
                                                                                                                             Months Ended
                                                                                                                                March 31,
                                                                                                                          2008              2009
                                                                                                                          (Dollars in thousands)
      Net income                                                                                                       $ 36,684         $ 8,469
      Other comprehensive income:
            Foreign currency translation adjustments, net of tax                                                        (23,605)         17,020
            Amortization of prior service costs and unrecognized gains and losses, net of tax                            (1,229)             41
            Natural gas derivatives and other, net of tax                                                                  (247)           (135)
      Total comprehensive income                                                                                       $ 11,603         $25,395

(14) Supply Chain Financing
      During 2008, we entered into a supply chain financing arrangement with a financing party. Under this arrangement, we essentially
assigned our rights to purchase needle coke from our supplier to the financing party. The financing party purchases the product from our supplier
under standard payment terms and then immediately resells it to us under longer payment terms. The financing party pays the supplier the
purchase price for the product and then we pay the financing party. In effect, we have a longer period of time to pay the financing party than by
purchasing directly from the supplier. Our payment to the financing party for this needle coke includes a mark up (the “Mark Up”). The Mark
Up is a premium expressed as a percentage of the purchase price, and is subject to quarterly reviews. This arrangement helps us to maintain a
balanced cash conversion cycle between inventory payments and the collection of receivables. Based on the terms of the arrangement, the total
amount that we owe to the financing party may not exceed $49.3 million at any point in time.

      Based on the guidance of SFAS 49, Accounting for Product Financing Arrangements , we record the inventory once title and risk of loss
transfers from the supplier to the financing party. During the three months ended March 31, 2009, we purchased $5.4 million of inventory under
this agreement, and made payments to the financing party of $50.6 million for purchases made during 2008, including $0.6 million related to the
Mark Up.

(15) Contingencies
      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.
                                                                          17
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                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
     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
amounted to $0.9 million at December 31, 2008 and $1.4 million at March 31, 2009. The following table presents the activity in this accrual for
the three months ended March 31, 2009:
                                                                                                                    (Dollars in Thousands)
           Balance at January 1, 2009                                                                               $                913
           Product warranty charges                                                                                                  752
           Payments and settlements                                                                                                 (221)
           Balance at March 31, 2009                                                                                $              1,444

(16) Financial Information About the Issuer, the Guarantors of Our Debt Securities and Subsidiaries Whose Securities Secure the
Senior Notes and Related Guarantees
      On February 15, 2002, GrafTech Finance (“ Finco ”), a direct subsidiary of GTI (the “ Parent ”), issued $400 million aggregate principal
amount of Senior Notes and, on May 6, 2002, $150 million aggregate principal amount of additional Senior Notes. All of the Senior Notes have
been issued under a single Indenture and constitute a single class of debt securities. The Senior Notes mature on February 15, 2012. The Senior
Notes have been guaranteed on a senior basis by the Parent and the following wholly-owned direct and indirect subsidiaries of the Parent:
GrafTech Global, GrafTech International Holdings Inc., GrafTech International Trading Inc., and GrafTech Technology LLC. The Parent, Finco
and these subsidiaries together hold a substantial majority of our U.S. assets.

     On January 22, 2004, the Parent issued $225 million aggregate principal amount of Debentures. The guarantors of the Debentures were the
same as the guarantors of the Senior Notes, except for Parent (which was the issuer of the Debentures but a guarantor of the Senior Notes) and
Finco (which was a guarantor of the Debentures but the issuer of the Senior Notes). The Parent and Finco are both obligors on the Senior Notes
and were both obligors in the Debentures, although in different capacities.

      In June 2008 the entire outstanding principal amount of the Debentures were either converted into shares of common stock or redeemed
and the obligations of the guarantors of the Debentures were released. The guarantees of the Senior Notes remain in full force and effect.

      The guarantors of the Senior Notes, solely in their respective capacities as such, are collectively called the “ U.S. 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 and joint and several. Finco and each of the other U.S.
Guarantors (other than the Parent) 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 of the Senior Notes.

      Provisions in the Revolving Facility restrict the payment of dividends by our subsidiaries to the Parent. At March 31, 2009, retained
earnings of our subsidiaries subject to such restrictions were approximately $1,257 million. Investments in subsidiaries are recorded on the
equity basis.
                                                                        18
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                                                    PART I (CONT’D)
                                      GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                       (Unaudited)
     The following tables set forth condensed consolidating balance sheets at December 31, 2008 and March 31, 2009 and condensed
consolidating statements of operations and cash flows for the three months ended March 31, 2008 and 2009 of the Parent, Finco, all other U.S.
Guarantors and the Non-Guarantors.

                                                  Condensed Consolidating Balance Sheet
                                                          at December 31, 2008
                                                                    Parent       Finco (Issuer
                                                                 (Guarantor of                    All Other                    Consolidation/
                                                                                     of Senior       U.S.            Non-
                                                                 Senior Notes)        Notes)     Guarantors       Guarantors   Eliminations     Consolidated
                                                                                                     (Dollars in thousands)
                           ASSETS
Current assets:
Cash and cash equivalents                                        $     131       $     713       $     341     $   10,479      $       —        $  11,664
     Intercompany loans                                                —           244,463             —          684,297         (928,760)           —
     Intercompany accounts receivable                                  —             9,846             —            9,880          (19,726)           —
     Accounts receivable - third party                                 —               —            26,783        120,203              —          146,986
     Accounts and notes receivable, net                                —           254,309          26,783        814,380         (948,486)       146,986
     Inventories                                                       —               —            56,091        234,306              —          290,397
     Prepaid expenses and other current assets                         —                13           9,040          5,323              —           14,376
           Total current assets                                        131         255,035          92,255      1,064,488         (948,486)       463,423
     Property, plant and equipment, net                                —               —            84,178        253,192              —          337,370
     Deferred income taxes                                             —               —               —            1,907              —            1,907
     Intercompany loans                                                —           558,433             —              —           (558,433)           —
     Investments in affiliates                                     504,459             —           512,097            —         (1,016,556)           —
     Goodwill                                                          —               —               —            7,166              —            7,166
     Other assets                                                      —             2,355           5,155          5,377              —           12,887
     Investment in non-consolidated affiliate                          —               —           118,925            —                —          118,925
     Restricted cash                                                   —               —               —            1,451              —            1,451
           Total assets                                          $ 504,590       $ 815,823       $ 812,610     $1,333,581      $(2,523,475)     $ 943,129

     LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                                 $     —         $     —         $   9,032     $   46,100      $       —        $  55,132
Interest payable                                                       —               943             —               10              —              953
      Intercompany loans                                               —           694,177         237,645         16,664         (948,486)           —
      Third party loans                                                —             6,700             —            2,647              —            9,347
Short-term debt                                                        —           700,877         237,645         19,311         (948,486)         9,347
Accrued income and other taxes                                         —               —             4,838         30,023              —           34,861
Other accrued liabilities                                              —               685          37,734        101,911              —          140,330
      Total current liabilities                                        —           702,505         289,249        197,355         (948,486)       240,623
Long-term debt                                                         —            50,135             —              422              —           50,557
Intercompany loans                                                     —               —               —          558,433         (558,433)           —
Other long-term obligations                                            —               —            75,945         42,327              —          118,272
Deferred income taxes                                                  —               —             6,140         22,947              —           29,087
Stockholders’ equity                                               504,590          63,183         441,276        512,097       (1,016,556)       504,590
            Total liabilities and stockholders’ equity           $ 504,590       $ 815,823       $ 812,610     $1,333,581      $(2,523,475)     $ 943,129

                                                                      19
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                                                    PART I (CONT’D)
                                      GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                       (Unaudited)
                                                 Condensed Consolidating Balance Sheet
                                                          at March 31, 2009
                                                               Parent        Finco (Issuer
                                                            (Guarantor of                     All Other                     Consolidation/
                                                                                 of Senior       U.S.             Non-
                                                             Senior Notes)        Notes)     Guarantors        Guarantors   Eliminations     Consolidated
                                                                                                  (Dollars in thousands)
                          ASSETS
Current assets:
Cash and cash equivalents                                   $     141        $     814       $    (61)      $    5,219      $       —        $   6,113
     Intercompany loans                                           —            230,806          7,413          633,058         (871,277)           —
     Intercompany accounts receivable                             —              8,869           (612)          10,877          (19,134)           —
     Accounts receivable - third party                            —                —           24,954           66,498              —           91,452
     Accounts and notes receivable, net                           —            239,675         31,755          710,433         (890,411)        91,452
     Inventories                                                  —                —           57,244          222,237              —          279,481
     Prepaid expenses and other current assets                    —                125            734            4,686              —            5,545
           Total current assets                                   141          240,614         89,672          942,575         (890,411)       382,591
     Property, plant and equipment, net                           —                —           84,495          249,193              —          333,688
     Deferred income taxes                                        —                —           10,662            6,958              —           17,620
     Intercompany loans                                           —            533,775            —                —           (533,775)           —
     Investments in affiliates                                496,822              —          485,788              —           (982,610)           —
     Goodwill                                                     —                —              —              6,977              —            6,977
     Other assets                                                 —              2,009          5,004            5,223              —           12,236
     Investment in non-consolidated affiliate                     —                —          120,015              —                —          120,015
     Restricted cash                                              —                —              —              1,391              —            1,391
           Total assets                                     $ 496,963        $ 776,398       $795,636       $1,212,317      $(2,406,796)     $ 874,518

    LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                            $     —          $     —         $  6,446       $   25,809      $       —        $  32,255
Interest payable                                                  —                463              1                6              —              470
      Intercompany loans                                          —            642,761        226,432           20,044         (889,237)           —
      Third party loans                                           —              7,300            —              4,685              —           11,985
Short-term debt                                                   —            650,061        226,432           24,729         (889,237)        11,985
Accrued income and other taxes                                    —                —           16,849           24,181           (1,212)        39,818
Other accrued liabilities                                         —                600         34,233           51,503              —           86,336
      Total current liabilities                                   —            651,124        283,961          126,228         (890,449)       170,864
Long-term debt                                                    —             65,095            —                280              —           65,375
Intercompany loans                                                —                —              —            533,737         (533,737)           —
Other long-term obligations                                       —                —           74,817           39,935              —          114,752
Deferred income taxes                                             —                —              215           26,349              —           26,564
Stockholders’ equity                                          496,963           60,179        436,643          485,788         (982,610)       496,963
            Total liabilities and stockholders’ equity      $ 496,963        $ 776,398       $795,636       $1,212,317      $(2,406,796)     $ 874,518

                                                                    20
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                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
                                              Condensed Consolidating Statements of Operations
                                                for the Three Months Ended March 31, 2008
                                                                  Parent       Finco (Issuer
                                                               (Guarantor of                    All Other                   Consolidation/
                                                                                   of Senior       U.S.           Non-
                                                               Senior Notes)        Notes)     Guarantors      Guarantors   Eliminations     Consolidated
                                                                                                 (Dollars in thousands)
Net sales                                                      $       —       $         —     $ 58,501      $ 231,501      $        —       $ 290,002
Cost of sales                                                          —                 —       66,862        115,039               —         181,901
      Gross profit                                                     —                 —       (8,361)       116,462               —         108,101
Research and development                                               —                 —        2,266             (1)              —           2,265
Selling, administrative, and other expenses                            —                 —       14,271          8,320               —          22,591
Restructuring charges                                                  —                 —           (2)           154               —             152
      Operating income                                                 —                 —      (24,896)       107,989               —          83,093
Other (income) expense, net                                            —              7,782        3,174       (12,054)          22,133          21,035
Interest expense                                                     3,316           12,385        3,882        10,200          (22,133)          7,650
Interest income                                                        —               (199)         —            (173)             —              (372)
      Income (loss) before provision for (benefit from)
          income taxes                                              (3,316)      (19,968)       (31,952)      110,016              —             54,780
Provision for (benefit from) income taxes                                –           280          2,968        14,848              —             18,096
      Income (loss)                                                 (3,316)      (20,248)       (34,920)       95,168              —             36,684
Equity (deficit) in earnings of subsidiaries                        40,000           —           95,168           —           (135,168)             —
      Net income (loss)                                        $    36,684     $ (20,248)      $ 60,248      $ 95,168       $ (135,168)      $   36,684

                                                                      21
Table of Contents

                                                     PART I (CONT’D)
                                       GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
                                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (Unaudited)
                                             Condensed Consolidating Statements of Operations
                                               for the Three Months Ended March 31, 2009
                                                             Parent        Finco (Issuer
                                                          (Guarantor of                      All Other                     Consolidation/
                                                                               of Senior        U.S.             Non-
                                                          Senior Notes)         Notes)      Guarantors        Guarantors   Eliminations     Consolidated
                                                                                                (Dollars in thousands)
Net sales                                                 $       —        $         —      $ 49,050        $ 84,976       $        —       $ 134,026
Cost of sales                                                     —                  —        40,384          61,548                —         101,932
      Gross profit                                                —                  —         8,666          23,428                —          32,094
Research and development                                          —                  —         2,054              14                —           2,068
Selling, administrative, and other expenses                       —                  —        12,402           9,233                —          21,635
Restructuring charges                                             —                  —           —               (32)               —             (32)
      Operating income                                            —                  —        (5,790)         14,213                —           8,423
Equity in earnings of non-consolidated affiliate                  —                  —        (1,212)            —                  —          (1,212)
Other (income) expense, net                                       —              (7,617)       (8,021)          (8,934)         19,038          (5,534)
Interest expense                                                  —              10,705         1,328            8,652         (19,038)          1,647
Interest income                                                   —                 —             —               (117)            —              (117)
      Income (loss) before provision for (benefit from)
          income taxes                                            —               (3,088)      2,115          14,612               —            13,639
Provision for (benefit from) income taxes                         —                  —         2,396           2,774               —             5,170
      Income (loss)                                               —               (3,088)       (281)         11,838               —             8,469
Equity (deficit) in earnings of subsidiaries                    8,469                —        11,838             —             (20,307)            —
      Net income (loss)                                   $     8,469      $      (3,088)   $ 11,557        $ 11,838       $   (20,307)     $    8,469

                                                                      22
Q1 2009 Earning Report of GrafTech International
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Q1 2009 Earning Report of GrafTech International

  • 1. GRAFTECH INTERNATIONAL LTD FORM Report)10-Q (Quarterly Filed 04/30/09 for the Period Ending 03/31/09 Address 12900 SNOW ROAD PARMA, OH 44130 Telephone 2166762000 CIK 0000931148 Symbol GTI SIC Code 3620 - Electrical Industrial Apparatus Industry Electronic Instr. & Controls Sector Technology Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2009, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
  • 2. Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2009 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to Commission file number: 1-13888 GRAFTECH INTERNATIONAL LTD. (Exact name of registrant as specified in its charter) Delaware 06-1385548 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 12900 Snow Road Parma, OH 44130 (Address of principal executive offices) (Zip code) 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  No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date 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 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  Accelerated Filer Non-Accelerated Filer Smaller Reporting Company
  • 3. No  Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes As of April 28, 2009, 120,257,860 shares of common stock, par value $.01 per share, were outstanding.
  • 4. Table of Contents TABLE OF CONTENTS PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Balance Sheets at December 31, 2008 and March 31, 2009 (unaudited) Page 3 Consolidated Statements of Operations for the Three Months ended March 31, 2008 and 2009 (unaudited) Page 4 Consolidated Statements of Cash Flows for the Three Months ended March 31, 2008 and 2009 (unaudited) Page 5 Notes to Consolidated Financial Statements (unaudited) Page 6 Introduction to Part I, Item 2, and Part II, Item 1 Page 28 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Page 33 Item 3. Quantitative and Qualitative Disclosures About Market Risk Page 45 Item 4. Controls and Procedures Page 47 PART II. OTHER INFORMATION: Item 1. Legal Proceedings Page 48 Item 6. Exhibits Page 48 SIGNATURE Page 49 EXHIBIT INDEX Page 50 2
  • 5. Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) (Unaudited) At December 31, At March 31, 2008 2009 (as adjusted— see Note 4) ASSETS Current Assets: Cash and cash equivalents $ 11,664 $ 6,113 Accounts and notes receivable, net of allowance for doubtful accounts of $4,110 at December 31, 2008 and $5,274 at March 31, 2009 146,986 91,452 Inventories 290,397 279,481 Prepaid expenses and other current assets 14,376 5,545 Total current assets 463,423 382,591 Property, plant and equipment 873,932 866,582 Less: accumulated depreciation 536,562 532,894 Net property, plant and equipment 337,370 333,688 Deferred income taxes 1,907 17,620 Goodwill 7,166 6,977 Other assets 12,887 12,236 Investment in non-consolidated affiliate 118,925 120,015 Restricted cash 1,451 1,391 Total assets $ 943,129 $ 874,518 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 55,132 $ 32,255 Interest payable 953 470 Short-term debt 9,347 11,985 Accrued income and other taxes 34,861 39,818 Other accrued liabilities 140,330 86,336 Total current liabilities 240,623 170,864 Long-term debt: Principal value 50,328 65,161 Fair value adjustments for hedge instruments 191 178 Unamortized bond premium 38 36 Total long-term debt 50,557 65,375 Other long-term obligations 118,272 114,752 Deferred income taxes 29,087 26,564 (see Contingencies – Note 15) Stockholders’ equity: Preferred stock, par value $.01, 10,000,000 shares authorized, none issued — — Common stock, par value $.01, 150,000,000 shares authorized, 122,634,854 shares issued at December 31, 2008 and 123,132,983 shares issued at March 31, 2009 1,226 1,231 Additional paid-in capital 1,290,381 1,291,141 Accumulated other comprehensive loss (355,960) (372,886) Accumulated deficit (317,752) (309,283) Less: cost of common stock held in treasury, 3,974,345 shares at December 31, 2008 and March 31, 2009 (112,511) (112,511) Less: common stock held in employee benefit and compensation trusts, 55,728 shares at December 31, 2008 and 51,206 shares at March 31, 2009. (794) (729) Total stockholders’ equity 504,590 496,963 Total liabilities and stockholders’ equity $ 943,129 $ 874,518 See accompanying Notes to Consolidated Financial Statements
  • 6. 3
  • 7. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited) For the Three Months Ended March 31, 2008 2009 (as adjusted— see Note 4) Net sales $ 290,002 $134,026 Cost of sales 181,901 101,932 Gross profit 108,101 32,094 Research and development 2,265 2,068 Selling and administrative expenses 22,591 21,635 Restructuring charges 152 (32) Operating income 83,093 8,423 Equity in earnings of non-consolidated affiliate — (1,212) Other expense (income), net 21,035 (5,534) Interest expense 7,650 1,647 Interest income (372) (117) Income before provision for income taxes 54,780 13,639 Provision for income taxes 18,096 5,170 Net income $ 36,684 $ 8,469 Basic income per common share: Net income per share $ 0.36 $ 0.07 Weighted average common shares outstanding 102,274 118,956 Diluted income per common share: Net income per share $ 0.34 $ 0.07 Weighted average common shares outstanding 117,599 119,245 See accompanying Notes to Consolidated Financial Statements 4
  • 8. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) For the Three Months Ended March 31, 2008 2009 (as adjusted— see Note 4) Cash flow from operating activities: Net income $ 36,684 $ 8,469 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 8,558 8,028 Deferred income taxes 887 1,686 Equity in earnings of non-consolidated affiliate — (1,212) Currency losses (gains) 16,235 (9,161) Post-retirement and pension plan changes 453 1,415 Stock based compensation 1,161 517 Interest expense 3,034 329 Other charges, net 3,666 5,514 Dividends from non-consolidated affiliate — 122 (Increase) decrease in working capital * (5,723) 1,608 Decrease (increase) in long-term assets and liabilities 2,223 (2,991) Net cash provided by operating activities 67,178 14,324 Cash flow from investing activities: Capital expenditures (9,389) (12,637) Gain (loss) from derivative instruments 224 (419) Proceeds from sale of assets 51 17 (Increase) decrease in restricted cash (176) 60 Net cash used in investing activities (9,290) (12,979) Cash flow from financing activities: Short-term debt borrowings, net 15,887 3,597 Revolving Facility borrowings 70,625 62,975 Revolving Facility reductions (66,677) (48,000) Long-term debt reductions (124,663) (129) Excess tax benefit from stock-based compensation 53 10 Supply chain financing — (24,696) Long-term financing obligations (31) (275) Purchase of treasury shares (1,003) (14) Proceeds from exercise of stock options 167 54 Net cash used in financing activities (105,642) (6,478) Net decrease in cash and cash equivalents (47,754) (5,133) Effect of exchange rate changes on cash and cash equivalents (13) (418) Cash and cash equivalents at beginning of period 54,741 11,664 Cash and cash equivalents at end of period $ 6,974 $ 6,113 * Net change in working capital due to the following components: (Increase) decrease in current assets: Accounts and notes receivable $ (25,953) $ 69,092 Effect of factoring on accounts receivable 30,618 (15,869) Inventories 3,493 4,049 Prepaid expenses and other current assets 884 409 Decrease in accounts payable and accruals (6,982) (55,584) Decrease in interest payable (7,650) (483) Restructuring payments (133) (6) Increase in working capital $ (5,723) $ 1,608 See accompanying Notes to Consolidated Financial Statements 5
  • 9. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Interim Financial Presentation These 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”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, including the accompanying Notes, contained in our Annual Report on Form 10-K for the year ended December 31, 2008 (the “Annual Report” ). The year-end Consolidated Balance Sheet was derived from audited Consolidated Financial Statements, and has been adjusted to reflect the change in accounting as described in Note 4. 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 and cash flows for the interim periods presented. The results for interim periods are not necessarily indicative of results which may be expected for any other interim period or for the full year. Certain amounts for 2008 were reclassified to conform to the 2009 presentation. (2) New Accounting Standards Recently Adopted Accounting Standards In January 2009, we adopted the Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement of the conversion option. Even though we extinguished our cash-settleable convertible debentures in June 2008, we were required to apply FSP APB 14-1 retrospectively to our previously issued financial statements for the periods in which the convertible debentures were outstanding. FSP APB 14-1 requires bifurcation of the instrument into a debt component that is initially recorded at fair value and an equity component. The difference between the fair value of the debt component and the initial proceeds from issuance of the instrument is recorded as a component of equity. The liability component of the debt instrument is accreted to par using the effective yield method; accretion is reported as a component of interest expense. The equity component is not subsequently re-valued as long as it continues to qualify for equity treatment. The effect and disclosures required by the adoption of FSP APB 14-1 are included in Note 4. In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments Granted in Share- Based Payment Transactions Are Participating Securities”. Under this FSP, if our instruments granted in share-based payment transactions are determined to be participating securities prior to vesting, we are required to use the two-class method of calculating earnings per share as described in SFAS No. 128, Earnings per Share, and to adjust our prior period earnings per share calculations. We adopted this FSP in 2009 and determined there was no material impact on our consolidated financial statements. 6
  • 10. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In April 2008 the FASB approved FSP FAS 142-3, Determination of the Useful Life of Intangible Assets . FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets . It is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and should be applied prospectively to intangible assets acquired after the effective date. The FSP also requires expanded disclosure related to the determination of useful lives for intangible assets and should be applied to all intangible assets recognized as of, and subsequent to the effective date. The adoption of FSP FAS 142-3 did not have a material impact to our consolidated financial statements. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. The statement amends and expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 161 is effective for our fiscal and interim period financial statements beginning 2009. The disclosures required by this statement are included in Note 18. In December 2007, the FASB issued SFAS No. 141(R), Business Combinations . The statement, which replaces Statement 141, Business Combinations , substantially changes the accounting for and reporting of business combinations including (i) expanding the definition of a business and a business combination; (ii) requiring all assets and liabilities of the acquired business, including goodwill, contingent assets and liabilities, and contingent consideration to be recorded at fair value on the acquisition date; (iii) requiring acquisition-related transaction and restructuring costs to be expensed rather than accounted for as acquisition costs; and (iv) requiring reversal of valuation allowances related to deferred tax assets and changes to acquired income tax uncertainties to be recognized in earnings. We will apply this statement prospectively to business combinations for which the acquisition date is after January 1, 2009. As of January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB approved FSP FAS 157-2, Effective Date of FASB Statement No. 157, that permitted companies to partially defer the effective date of SFAS No. 157, until fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP FAS 157-2 did not permit companies to defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. We applied the provisions of Statement 157 to our nonfinancial assets and nonfinancial liabilities on January 1, 2009. The adoption did not have a material impact on our consolidated financial statements. 7
  • 11. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Recently Issued Accounting Standards The FASB recently announced that on July 1, 2009, the FASB Accounting Standards Codification is expected to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles, superseding existing FASB, AICPA, EITF, and related literature. After July 1, 2009, only one level of authoritative GAAP will exist, excluding the guidance issued by the Securities Exchange Commission (“SEC”). The Codification does not change GAAP; instead, it introduces a new structure – arranged within Topics, Subtopics, Sections, and Subsections. In December 2008, the FASB approved FSP No. FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets , which provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. These disclosures include how investment allocation decisions are made; information about major categories of plan assets, significant concentrations of risks within plan assets, and fair value measurements of plan assets. Our effective date is December 31, 2009; we are not required to present the disclosures for prior periods. On April 1, 2009, the FASB approved FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends Statement 141(R) and eliminates the distinction between contractual and non- contractual contingencies. Under FSP FAS 141(R), an acquirer is required to recognize at fair value an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the acquirer applies the recognition criteria in SFAS No. 5, Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of the Amount of a Loss – and interpretation of FASB Statement No. 5,” to determine whether the contingency should be recognized as of the acquisition date or after it. On April 9, 2009, the FASB approved FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairment. FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with Statement 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. We are required to adopt this FSP for our interim and annual reporting periods ending after June 15, 2009. This FSP does not require disclosures for periods presented for comparative purposes at initial adoption. This FSP requires comparative disclosures only for periods ending after initial adoption. FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It did not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. We are required to adopt this FSP for our interim and annual reporting periods ending after June 15, 2009. This FSP does not require disclosures for periods presented for comparative purposes at initial adoption. This FSP requires comparative disclosures only for periods ending after initial adoption. 8
  • 12. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) On April 9, 2009, the FASB also approved FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments to require disclosures about fair value of financial instruments in interim period financial statements of publicly traded companies and in summarized financial information required by APB Opinion No. 28, Interim Financial Reporting . We are required to adopt this FSP for our interim and annual reporting periods ending after June 15, 2009. This FSP does not require disclosures for periods presented for comparative purposes at initial adoption. This FSP requires comparative disclosures only for periods ending after initial adoption. On April 13, 2009, the SEC issued Staff Accounting Bulletin (“SAB”) No. 111 that amends Topic 5.M. entitled Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities . This SAB maintains the SEC staff’s previous views related to equity securities and amends Topic 5.M. to exclude debt securities from its scope. (3) Stock-Based Compensation In the three months ended March 31, 2008 and 2009, we recognized $1.2 million and $0.5 million, respectively, in stock-based compensation expense. A majority of the expense, $1.1 million and $0.5 million respectively, was recorded as selling and administrative expenses in the Consolidated Statement of Operations, with the remaining expense recorded as cost of sales and research and development. As of March 31, 2009, the total compensation cost related to the non-vested restricted stock and stock options not yet recognized was $3.9 million and will be recognized over the weighted average life of 1.43 years. During 2008, we approved an additional performance share award program under our long-term incentive plan. Under this program, a maximum of 597,000 shares of performance shares, which represent the right to receive shares contingent upon the achievement of one or more performance measures, will be issued to eligible employees. These new awards are both service and performance based. Eligible employees must remain employed with the company for a three year period, which began in the first quarter of 2009, and also meet specific performance targets established for each year for the awards to vest. If performance targets are not met at a minimum of a 50% level, the employees forfeit their awards for that specific annual grant. The maximum number of shares that can be earned, 597,000, is based on meeting the targets at a 150% of target level for all three years. The performance targets 2009 were established in February. We recognized expense of $0.1 million in the three months ended March 31, 2009 related to these awards, which assumes the 2009 targets will be met at a 100% target level. 9
  • 13. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Restricted stock activity under the plans for the three months ended March 31, 2009 was as follows: Weighted- Average Number of Grant Date Shares Fair Value Outstanding unvested at January 1, 2009 640,152 $ 9.05 Granted 287,905 8.39 Vested (340,170) 9.46 Forfeited (5,866) 8.00 Outstanding unvested at March 31, 2009 582,021 $ 8.50 Stock option activity under the plans for the three months ended March 31, 2009 was as follows: Weighted- Average Number of Exercise Shares Price Outstanding at January 1, 2009 1,359,238 $ 8.84 Granted — — Vested — — Exercised (10,000) 5.35 Forfeited (5,000) 17.81 Outstanding at March 31, 2009 1,344,238 $ 8.83 (4) Adoption of FSP APB 14-1 On July 22, 2004, GTI issued $225.0 million aggregate principal amount of Debentures. The Debentures were scheduled to mature on January 15, 2024, unless earlier converted, redeemed or repurchased. On May 30, 2008, we called for the redemption of the $225.0 million outstanding principal amount of the Debentures. On June 13, 2008, the redemption date, the Debenture holders who exercised their conversion rights received 60.3136 shares of our common stock for each $1,000 principal amount of Debentures on conversion, together with a make-whole payment totaling $9.0 million, which represented the present value of all remaining scheduled payments of interest on the redeemed Debentures from the date of conversion through January 15, 2011. We also made payment of $0.2 million to the Debenture holders who did not exercise their conversion rights and opted to receive a redemption price in cash equal to 100% of the principal plus accrued but unpaid interest until the redemption date. These Debenture holders received the make-whole value in shares. As mentioned in Note 2, we were required to retrospectively change our method of accounting for the Debentures during the period they were outstanding to comply with FSP APB 14-1. Under this FSP, we separated the Debentures into two accounting components: 1. a debt component, representing the fair value of the Debentures if they had no conversion rights, and 10
  • 14. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2. an equity component, representing the difference between the proceeds from the issuance of the Debentures and their fair value. The amount allocated to the equity component was accounted for as debt discount. We also allocated the transaction costs to the liability and equity components in proportion to the allocation of proceeds and accounted for them as debt issuance costs and equity issuance costs, respectively. Debt discount and debt issuance costs not allocated to equity were amortized over the period to the first conversion date (7 years) using the interest method and recorded as interest expense. Because the amounts allocated to equity were not deductible for income tax purposes we recorded the tax effects as adjustments to additional paid-in capital. The effect of the adoption of the FSP on our balance sheet at December 31, 2008, and our statement of operations for the three months ended March 31, 2008 follows (dollars in thousands): Retrospectively Previously reported Adjusted Balance Sheet as of December 31, 2008 Additional paid-in capital 1,268,980 1,290,381 Accumulated deficit (296,351) (317,752) Statement of Operations for the three months ended March 31, 2008 Interest expense 5,686 7,650 Income from continuing operations 56,744 54,780 Net income 38,648 36,684 Basic income per common share 0.38 0.36 Diluted income per common share 0.34 0.34 There was no impact to provision for income taxes due to valuation allowances. 11
  • 15. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (5) Earnings Per Share The following table shows the information used in the calculation of our basic and diluted earnings per share as of March 31: For the Three Months Ended March 31, 2008 2009 (Dollars in thousands, except share data) Net income, as reported $ 36,684 $ 8,469 Add: Interest on Debentures, net of tax benefit 916 — Add: Amortization of Debentures discount and issuance costs, net of tax benefit 2,395 — Net income, as adjusted $ 39,995 $ 8,469 Weighted average common shares outstanding for basic calculation 102,274,038 118,955,516 Add: Effect of stock options and restricted stock 1,754,328 289,057 Add: Effect of Debentures 13,570,560 — Weighted average common shares outstanding for diluted calculation 117,598,926 119,244,573 The calculation of weighted average common shares outstanding for the diluted calculation excludes consideration of stock options covering 1,945,313 and 1,190,703 shares for the three months ended March 31, 2008 and 2009, respectively, because the exercise of these options would not have been dilutive for those periods due to the fact that the exercise prices were greater than the weighted average market price of our common stock for each of those periods. (6) Segment Reporting Our businesses are reported in the following reportable segments: Industrial Materials. Our industrial materials segment manufactures and delivers high quality graphite electrodes and refractory products. Electrodes are key components of the conductive power systems used to produce steel and other non-ferrous metals. 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. Engineered Solutions. Engineered solutions include advanced graphite materials products for the transportation, solar, and oil and gas exploration industries, as well as natural graphite products. We evaluate the performance of our segments based on segment operating income. Intersegment sales and transfers are not material and the accounting policies of the reportable segments are the same as those for our Consolidated Financial Statements as a whole. Corporate expenses are allocated to segments based on each segment’s percentage of consolidated sales. 12
  • 16. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following tables summarize financial information concerning our reportable segments. For the Three Months Ended March 31, 2008 2009 (Dollars in thousands) Net sales to external customers: Industrial materials $248,289 $104,521 Engineered solutions 41,713 29,505 Total net sales $290,002 $134,026 Segment operating income: Industrial materials $ 74,665 $ 6,788 Engineered solutions 8,428 1,635 Total operating income $ 83,093 $ 8,423 Reconciliation of operating income to income before provision for income taxes Equity in earnings of non-consolidated affiliate — (1,212) Other expense (income), net 21,035 (5,534) Interest expense 7,650 1,647 Interest income (372) (117) Income before provision for income taxes $ 54,780 $ 13,639 (7) Investment in Non-Consolidated Affiliate On June 30, 2008, we acquired 100% of the common stock of Falcon-Seadrift Holding Corp., now named GrafTech Seadrift Holding Corp. (“GTSD”). The principal asset of GTSD is limited partnership units constituting approximately 18.9% of the equity interests of Seadrift Coke L.P. (“Seadrift”); a privately-held producer of needle coke, the primary raw material used in the manufacture of graphite electrodes. The substance of the transaction was the acquisition of an asset, the limited partnership units. The cost of our acquisition was $136.5 million of which $135.0 million was paid in cash. We perform an assessment of our investment in Seadrift for impairment whenever changes in the facts and circumstances indicate that a loss in value has occurred (a “triggering event”), which is other than temporary. Because Seadrift is privately-held, we determine the fair value based upon the present value of expected future cash flows using discount rates commensurate with the risks of the investment. At December 31, 2008, we determined that the fair value of the investment was less than our carrying value and that the loss in value is not temporary. We recorded a $34.5 million noncash impairment to recognize this other than temporary loss in value. The fair value of Seadrift reflected reductions in the estimated future cash flows based on a lower expectation of tons shipped and reduced growth and profitability resulting primarily from the downturn in the economy. Given the current economic environment and the uncertainties regarding the impact on steel producers and their suppliers, including Seadrift, there can be no assurances that our estimates and assumptions regarding the fair value of Seadrift will prove to be accurate. If the assumptions regarding forecasted revenue, growth rates, and expected profitability are not achieved, we may be required to record additional impairment charges in future periods. We determined that no triggering event occurred in the quarter ended March 31, 2009. It is not possible at this time to determine if a triggering event may occur in the future and if any such triggering event would result in a loss of value that is other than temporary. Our equity earnings are based on Seadrift’s results of operations with a one-month lag because its accounting close cycle and preparation of financial statements occurs subsequent to our reporting deadline. We include an estimate for the effect of Seadrift’s LIFO inventory accounting on interim periods. Our statement of operations includes income of $1.2 million which represents our equity in the earnings of Seadrift for the first quarter, on a one-month lag, of $2.5 million income, as well as the amortization of the difference between our cost of the investment and the net assets of Seadrift assigned to the long-lived assets of $1.3 million. 13
  • 17. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (8) Other Expense (Income), Net The following table presents an analysis of other expense (income), net: For the Three Months Ended March 31, 2008 2009 (Dollars in thousands) Currency losses (gains) $15,464 $(6,351) Loss on extinguishment of debt 4,725 — Gain on the disposal of fixed assets (48) (17) Bank and other financing fees 445 505 Loss on the sale of accounts receivable 340 78 Other 109 251 Total other expense (income), net $21,035 $(5,534) We have non-dollar-denominated intercompany loans between GrafTech Finance and certain of our foreign subsidiaries. At December 31, 2008 and March 31, 2009, the aggregate principal amount of these loans was $558.4 million and $533.8 million, respectively (based on currency exchange rates in effect at such dates). These loans are subject to remeasurement gains and losses due to changes in currency exchange rates. Certain of these loans had been deemed to be essentially permanent prior to settlement and, as a result, remeasurement gains and losses on these loans were recorded as a component of accumulated other comprehensive loss in the stockholders’ equity section of the Consolidated Balance Sheets. The loans remaining are deemed to be temporary and, as a result, remeasurement gains and losses on these loans are recorded as currency gains / losses in other income (expense), net, on the Consolidated Statements of Operations. For the three months ended March 31, 2008 and 2009, we had a net total of $15.5 million of currency losses and $6.4 million of currency gains, respectively, due to the remeasurement of intercompany loans and the effect of transaction gains and losses related to foreign subsidiaries whose functional currency is the US dollar. In connection with the redemption of $125 million of the outstanding principal of the Senior Notes in the three months ended March 31, 2008, we incurred a $4.7 million loss on the extinguishment of debt, which includes $4.3 million related to the call premium and $0.4 million of charges for the accelerated amortization of the debt issuance fees, terminated interest rate swaps and the premium related to the Senior Notes. 14
  • 18. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (9) Benefit Plans The components of our consolidated net pension and postretirement cost are set forth in the following table: Pension Benefits Postretirement Benefits For the Three For the Three Months Ended Months Ended March 31, March 31, 2008 2009 2008 2009 (Dollars in thousands) Service cost $ 246 $ 157 $ 120 $ 93 Interest cost 2,890 2,619 554 554 Expected return on plan assets (3,254) (2,909) — — Amortization of transition obligation (22) 2 — — Amortization of prior service cost (benefit) 34 11 (332) (319) Amortization of unrecognized loss 497 319 1,051 967 Settlement 171 41 — — Net cost $ 562 $ 240 $ 1,393 $ 1,295 (10) Long-Term Debt and Liquidity The following table presents our long-term debt: At December 31, At March 31, 2008 2009 (Dollars in thousands) Revolving Facility $ 30,000 $ 44,975 Senior Notes: Senior Notes due 2012 19,906 19,906 Fair value adjustments for terminated hedge instruments* 191 178 Unamortized bond premium 38 36 Total Senior Notes 20,135 20,120 Other European debt 422 280 Total $ 50,557 $ 65,375 * Fair value adjustments for terminated hedge instruments will be amortized as a credit to interest expense over the remaining term of the Senior Notes. In the three months ended March 31, 2008, we redeemed a total of $125 million of the outstanding principal amount of the 10 1 / 4 % Senior Notes, due 2012, at 103.417% plus accrued interest. In connection with this redemption, we incurred a $4.7 million loss on the extinguishment of debt. 15
  • 19. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (11) Inventories Inventories are comprised of the following: At December 31, At March 31, 2008 2009 (Dollars in thousands) Inventories: Raw materials and supplies $ 130,615 $ 119,541 Work in process 111,995 110,617 Finished goods 49,895 51,110 292,505 281,268 Excess and obsolete reserves (2,108) (1,787) $ 290,397 $ 279,481 During the three months ended March 31, 2009, we recorded a $7.2 million charge to cost of goods sold under the provisions of SFAS No. 151, Inventory Costs – an amendment of APB No. 43, Chapter 4 . SFAS No. 151 requires abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) to be recognized as current period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. The $7.2 million impact was attributable to adjustments of fixed production overheads to the costs of conversion based on normal capacity versus actual levels, due to production levels below normal capacity in the first quarter. (12) Interest Expense The following table presents an analysis of interest expense: For the Three Months Ended March 31, 2008 2009 (Dollars in thousands) Interest incurred on debt $ 4,831 $ 1,264 Amortization of fair value adjustments for terminated hedge instruments (71) (13) Amortization of debt issuance costs 625 345 Amortization of premium on Senior Notes (14) (3) Amortization of discount on Debentures 2,205 — Interest incurred on other items 74 54 Total interest expense $ 7,650 $ 1,647 16
  • 20. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (13) Other Comprehensive Income Other comprehensive income consisted of the following: For the Three Months Ended March 31, 2008 2009 (Dollars in thousands) Net income $ 36,684 $ 8,469 Other comprehensive income: Foreign currency translation adjustments, net of tax (23,605) 17,020 Amortization of prior service costs and unrecognized gains and losses, net of tax (1,229) 41 Natural gas derivatives and other, net of tax (247) (135) Total comprehensive income $ 11,603 $25,395 (14) Supply Chain Financing During 2008, we entered into a supply chain financing arrangement with a financing party. Under this arrangement, we essentially assigned our rights to purchase needle coke from our supplier to the financing party. The financing party purchases the product from our supplier under standard payment terms and then immediately resells it to us under longer payment terms. The financing party pays the supplier the purchase price for the product and then we pay the financing party. In effect, we have a longer period of time to pay the financing party than by purchasing directly from the supplier. Our payment to the financing party for this needle coke includes a mark up (the “Mark Up”). The Mark Up is a premium expressed as a percentage of the purchase price, and is subject to quarterly reviews. This arrangement helps us to maintain a balanced cash conversion cycle between inventory payments and the collection of receivables. Based on the terms of the arrangement, the total amount that we owe to the financing party may not exceed $49.3 million at any point in time. Based on the guidance of SFAS 49, Accounting for Product Financing Arrangements , we record the inventory once title and risk of loss transfers from the supplier to the financing party. During the three months ended March 31, 2009, we purchased $5.4 million of inventory under this agreement, and made payments to the financing party of $50.6 million for purchases made during 2008, including $0.6 million related to the Mark Up. (15) Contingencies 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. 17
  • 21. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 amounted to $0.9 million at December 31, 2008 and $1.4 million at March 31, 2009. The following table presents the activity in this accrual for the three months ended March 31, 2009: (Dollars in Thousands) Balance at January 1, 2009 $ 913 Product warranty charges 752 Payments and settlements (221) Balance at March 31, 2009 $ 1,444 (16) Financial Information About the Issuer, the Guarantors of Our Debt Securities and Subsidiaries Whose Securities Secure the Senior Notes and Related Guarantees On February 15, 2002, GrafTech Finance (“ Finco ”), a direct subsidiary of GTI (the “ Parent ”), issued $400 million aggregate principal amount of Senior Notes and, on May 6, 2002, $150 million aggregate principal amount of additional Senior Notes. All of the Senior Notes have been issued under a single Indenture and constitute a single class of debt securities. The Senior Notes mature on February 15, 2012. The Senior Notes have been guaranteed on a senior basis by the Parent and the following wholly-owned direct and indirect subsidiaries of the Parent: GrafTech Global, GrafTech International Holdings Inc., GrafTech International Trading Inc., and GrafTech Technology LLC. The Parent, Finco and these subsidiaries together hold a substantial majority of our U.S. assets. On January 22, 2004, the Parent issued $225 million aggregate principal amount of Debentures. The guarantors of the Debentures were the same as the guarantors of the Senior Notes, except for Parent (which was the issuer of the Debentures but a guarantor of the Senior Notes) and Finco (which was a guarantor of the Debentures but the issuer of the Senior Notes). The Parent and Finco are both obligors on the Senior Notes and were both obligors in the Debentures, although in different capacities. In June 2008 the entire outstanding principal amount of the Debentures were either converted into shares of common stock or redeemed and the obligations of the guarantors of the Debentures were released. The guarantees of the Senior Notes remain in full force and effect. The guarantors of the Senior Notes, solely in their respective capacities as such, are collectively called the “ U.S. 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 and joint and several. Finco and each of the other U.S. Guarantors (other than the Parent) 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 of the Senior Notes. Provisions in the Revolving Facility restrict the payment of dividends by our subsidiaries to the Parent. At March 31, 2009, retained earnings of our subsidiaries subject to such restrictions were approximately $1,257 million. Investments in subsidiaries are recorded on the equity basis. 18
  • 22. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following tables set forth condensed consolidating balance sheets at December 31, 2008 and March 31, 2009 and condensed consolidating statements of operations and cash flows for the three months ended March 31, 2008 and 2009 of the Parent, Finco, all other U.S. Guarantors and the Non-Guarantors. Condensed Consolidating Balance Sheet at December 31, 2008 Parent Finco (Issuer (Guarantor of All Other Consolidation/ of Senior U.S. Non- Senior Notes) Notes) Guarantors Guarantors Eliminations Consolidated (Dollars in thousands) ASSETS Current assets: Cash and cash equivalents $ 131 $ 713 $ 341 $ 10,479 $ — $ 11,664 Intercompany loans — 244,463 — 684,297 (928,760) — Intercompany accounts receivable — 9,846 — 9,880 (19,726) — Accounts receivable - third party — — 26,783 120,203 — 146,986 Accounts and notes receivable, net — 254,309 26,783 814,380 (948,486) 146,986 Inventories — — 56,091 234,306 — 290,397 Prepaid expenses and other current assets — 13 9,040 5,323 — 14,376 Total current assets 131 255,035 92,255 1,064,488 (948,486) 463,423 Property, plant and equipment, net — — 84,178 253,192 — 337,370 Deferred income taxes — — — 1,907 — 1,907 Intercompany loans — 558,433 — — (558,433) — Investments in affiliates 504,459 — 512,097 — (1,016,556) — Goodwill — — — 7,166 — 7,166 Other assets — 2,355 5,155 5,377 — 12,887 Investment in non-consolidated affiliate — — 118,925 — — 118,925 Restricted cash — — — 1,451 — 1,451 Total assets $ 504,590 $ 815,823 $ 812,610 $1,333,581 $(2,523,475) $ 943,129 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ — $ — $ 9,032 $ 46,100 $ — $ 55,132 Interest payable — 943 — 10 — 953 Intercompany loans — 694,177 237,645 16,664 (948,486) — Third party loans — 6,700 — 2,647 — 9,347 Short-term debt — 700,877 237,645 19,311 (948,486) 9,347 Accrued income and other taxes — — 4,838 30,023 — 34,861 Other accrued liabilities — 685 37,734 101,911 — 140,330 Total current liabilities — 702,505 289,249 197,355 (948,486) 240,623 Long-term debt — 50,135 — 422 — 50,557 Intercompany loans — — — 558,433 (558,433) — Other long-term obligations — — 75,945 42,327 — 118,272 Deferred income taxes — — 6,140 22,947 — 29,087 Stockholders’ equity 504,590 63,183 441,276 512,097 (1,016,556) 504,590 Total liabilities and stockholders’ equity $ 504,590 $ 815,823 $ 812,610 $1,333,581 $(2,523,475) $ 943,129 19
  • 23. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Condensed Consolidating Balance Sheet at March 31, 2009 Parent Finco (Issuer (Guarantor of All Other Consolidation/ of Senior U.S. Non- Senior Notes) Notes) Guarantors Guarantors Eliminations Consolidated (Dollars in thousands) ASSETS Current assets: Cash and cash equivalents $ 141 $ 814 $ (61) $ 5,219 $ — $ 6,113 Intercompany loans — 230,806 7,413 633,058 (871,277) — Intercompany accounts receivable — 8,869 (612) 10,877 (19,134) — Accounts receivable - third party — — 24,954 66,498 — 91,452 Accounts and notes receivable, net — 239,675 31,755 710,433 (890,411) 91,452 Inventories — — 57,244 222,237 — 279,481 Prepaid expenses and other current assets — 125 734 4,686 — 5,545 Total current assets 141 240,614 89,672 942,575 (890,411) 382,591 Property, plant and equipment, net — — 84,495 249,193 — 333,688 Deferred income taxes — — 10,662 6,958 — 17,620 Intercompany loans — 533,775 — — (533,775) — Investments in affiliates 496,822 — 485,788 — (982,610) — Goodwill — — — 6,977 — 6,977 Other assets — 2,009 5,004 5,223 — 12,236 Investment in non-consolidated affiliate — — 120,015 — — 120,015 Restricted cash — — — 1,391 — 1,391 Total assets $ 496,963 $ 776,398 $795,636 $1,212,317 $(2,406,796) $ 874,518 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ — $ — $ 6,446 $ 25,809 $ — $ 32,255 Interest payable — 463 1 6 — 470 Intercompany loans — 642,761 226,432 20,044 (889,237) — Third party loans — 7,300 — 4,685 — 11,985 Short-term debt — 650,061 226,432 24,729 (889,237) 11,985 Accrued income and other taxes — — 16,849 24,181 (1,212) 39,818 Other accrued liabilities — 600 34,233 51,503 — 86,336 Total current liabilities — 651,124 283,961 126,228 (890,449) 170,864 Long-term debt — 65,095 — 280 — 65,375 Intercompany loans — — — 533,737 (533,737) — Other long-term obligations — — 74,817 39,935 — 114,752 Deferred income taxes — — 215 26,349 — 26,564 Stockholders’ equity 496,963 60,179 436,643 485,788 (982,610) 496,963 Total liabilities and stockholders’ equity $ 496,963 $ 776,398 $795,636 $1,212,317 $(2,406,796) $ 874,518 20
  • 24. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Condensed Consolidating Statements of Operations for the Three Months Ended March 31, 2008 Parent Finco (Issuer (Guarantor of All Other Consolidation/ of Senior U.S. Non- Senior Notes) Notes) Guarantors Guarantors Eliminations Consolidated (Dollars in thousands) Net sales $ — $ — $ 58,501 $ 231,501 $ — $ 290,002 Cost of sales — — 66,862 115,039 — 181,901 Gross profit — — (8,361) 116,462 — 108,101 Research and development — — 2,266 (1) — 2,265 Selling, administrative, and other expenses — — 14,271 8,320 — 22,591 Restructuring charges — — (2) 154 — 152 Operating income — — (24,896) 107,989 — 83,093 Other (income) expense, net — 7,782 3,174 (12,054) 22,133 21,035 Interest expense 3,316 12,385 3,882 10,200 (22,133) 7,650 Interest income — (199) — (173) — (372) Income (loss) before provision for (benefit from) income taxes (3,316) (19,968) (31,952) 110,016 — 54,780 Provision for (benefit from) income taxes – 280 2,968 14,848 — 18,096 Income (loss) (3,316) (20,248) (34,920) 95,168 — 36,684 Equity (deficit) in earnings of subsidiaries 40,000 — 95,168 — (135,168) — Net income (loss) $ 36,684 $ (20,248) $ 60,248 $ 95,168 $ (135,168) $ 36,684 21
  • 25. Table of Contents PART I (CONT’D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Condensed Consolidating Statements of Operations for the Three Months Ended March 31, 2009 Parent Finco (Issuer (Guarantor of All Other Consolidation/ of Senior U.S. Non- Senior Notes) Notes) Guarantors Guarantors Eliminations Consolidated (Dollars in thousands) Net sales $ — $ — $ 49,050 $ 84,976 $ — $ 134,026 Cost of sales — — 40,384 61,548 — 101,932 Gross profit — — 8,666 23,428 — 32,094 Research and development — — 2,054 14 — 2,068 Selling, administrative, and other expenses — — 12,402 9,233 — 21,635 Restructuring charges — — — (32) — (32) Operating income — — (5,790) 14,213 — 8,423 Equity in earnings of non-consolidated affiliate — — (1,212) — — (1,212) Other (income) expense, net — (7,617) (8,021) (8,934) 19,038 (5,534) Interest expense — 10,705 1,328 8,652 (19,038) 1,647 Interest income — — — (117) — (117) Income (loss) before provision for (benefit from) income taxes — (3,088) 2,115 14,612 — 13,639 Provision for (benefit from) income taxes — — 2,396 2,774 — 5,170 Income (loss) — (3,088) (281) 11,838 — 8,469 Equity (deficit) in earnings of subsidiaries 8,469 — 11,838 — (20,307) — Net income (loss) $ 8,469 $ (3,088) $ 11,557 $ 11,838 $ (20,307) $ 8,469 22