GRAFTECH INTERNATIONAL LTD - FORM 8-K - EX-99.2 - PRESENTATION, DATED FEBRUARY 22, 2011

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8-K - CURRENT REPORT - GRAFTECH INTERNATIONAL LTD	d8k.htm
EX-99.1 - PRESS RELEASE, DATED FEBRUARY 22, 2011 - GRAFTECH INTERNATIONAL LTD	dex991.htm

Accounting for the Acquisitions of

Seadrift Coke L.P. and C/G Electrodes LLC

February 22, 2011

Exhibit 99.2

Forward Looking Statement

NOTE ON FORWARD-LOOKING STATEMENTS: This presentation and related discussions may contain forward-looking

statements about such matters as: our outlook for 2011; the impact of acquired businesses; growth prospects; the markets

we serve, our profitability, cash flow, and liquidity; future sales, costs, working capital, revenues, and business

opportunities; future operational performance; strategic plans; stock repurchase plans; costs of materials and production;

supply chain management; the impact of cost competitiveness and liquidity initiatives; changes in production capacity or

efficiency; capital expenditures; future prices and demand for our products; product quality; investments and acquisitions

that we may make in the future; the integration of Seadrift and St. Marys into our operations; financing (including factoring

and supply chain financing) activities; debt levels; our customers' operations and demand for their products; our position in

markets we serve; regional and global economic and industry market conditions, including our expectations concerning their

impact on us and our customers and suppliers; conditions and changes in the global financial and credit markets; tax rates

and the effects of jurisdictional mix; and currency exchange and interest rates.

We have no duty to update these statements. Our expectations and targets are not predictions of actual performance and

historically our performance has deviated, often significantly, from our expectations and targets. Actual future events,

circumstances, performance and trends could differ materially, positively or negatively, from those set forth in these

statements due to various factors, including: the extent of any adjustments to our preliminary 2010 fourth quarter and full

year results; the actual timing of the filing of our Form 10-K with the SEC and potential effects of delays in such filing; failure

to achieve earnings or other estimates; failure to successfully develop and commercialize new or improved products; adverse

changes in inventory or supply chain management; limitations or delays on capital expenditures; business interruptions;

delays or changes in or non-consummation of investments or acquisitions that we may make in the future; failure to

successfully integrate into our business any completed investments and acquisitions; failure to achieve expected synergies

or the performance or returns expected from any completed investments or acquisitions; inability to protect our intellectual

property rights or infringement of intellectual property rights of others; changes in market prices of our securities; changes in

our ability to obtain financing on acceptable terms; adverse changes in labor relations; adverse developments in legal

proceedings; non-realization of anticipated benefits from organizational changes and restructurings; negative developments

relating to health, safety or environmental compliance or remediation or liabilities; downturns, production reductions or

suspensions, or changes in steel and other markets we or our customers serve; declines in demand; intensified competition

and price or margin decreases, including growth by producers in developing countries; graphite electrode and needle coke

manufacturing capacity increases; adverse differences between actual graphite electrode prices and spot or announced

prices; consolidation of steel producers; mismatches between manufacturing capacity and demand; significant changes in

our provision for income taxes and effective income tax rate; changes in the availability or cost of key inputs, including

petroleum-based coke or energy; changes in interest or currency exchange rates; inflation or deflation; failure to satisfy

conditions to government grants; changes in government fiscal and monetary policy; a protracted regional or global financial

or economic crisis; and other risks and uncertainties, including those detailed in our SEC filings, as well as future decisions

by us. This news release does not constitute an offer or solicitation as to any securities. References to street or analyst

earnings estimates mean those published by First Call.

Executive Summary

•

Strategic rationale and business case for acquisitions of Seadrift and C/G

(St. Marys) remain strong and has already resulted in value creation for

GrafTech.

•

Integration of the assets is progressing as planned. Our assessment of

operational, tax and working capital synergies potential is consistent with

our earlier expectations.

•

Purchase price accounting adjustments are now complete and remain

consistent with prior expectations.

•

We will articulate on this call key accounting adjustments related to the

acquisitions.

Summary of acquisition impact in Q4 2010

Summary of pro forma modeling considerations for 2011

•

The purchase price accounting adjustments will impact the P&L and may

change net income and/or EPS results, however the adjustments are all

non-cash and will not impact cash flow results.

•

The combination of GrafTech, Seadrift and St. Marys

will allow us to be the

best positioned graphite electrode supplier in the world:

Largest producer of graphite electrodes globally

Only graphite electrode producer backward integrated to needle coke

production

Industry’s low-cost producer

World class R&D Center provides strong support to both needle coke

and graphite electrode products

Two North American graphite electrode facilities are strategically

located to serve customers better than anyone else in the industry

Leverage

our

sales

relationships

and

customer

technical

service

arc

furnace know-how to provide superior value to our customers

•

Integration and execution of synergies proceeding well

Acquisitions Significantly Strengthen GrafTech

Business Model

This combination of three great teams creates a platform for

sustainable future growth

Purchase Price Accounting Principles

Purchase price accounting requires consideration to be assigned to fair

value of assets acquired and liabilities assumed in the acquisition,

with the difference being goodwill.

•

Fair value adjustments resulted in a step-up of the values of tangible

assets including inventory, property, plant and equipment (PP&E), etc.

•

Purchase price accounting required identification and valuation of

intangible assets such as customer relationships, technology and

know-how and trade names

•

Tangible and intangible assets will be depreciated/amortized over the

determined useful lives using straight line or accelerated methods

•

We are also required to step-up our previously held 18.9% interest in

Seadrift to fair value, resulting in the recognition of a gain in income

$936,664

Total Consideration

77,342

Fair value of GTI’s 18.9% interest in Seadrift (3)

$859,322

Consideration paid to seller

249,444

Cash

142,598

Zero Coupon Five-Year Senior Subordinated Promissory Notes (2)

$467,280

Fair value of common shares issued

$ 19.47

Price per share (1)

24,000

GTI common shares issued

(1)

Volume weighted average share price on November 30, 2010

(2)

Discounted using an interest rate of 7%

(3)

Recognized

$9.6

million

gain

previously

held

interest

(fair

value

18.9%

interest,

less the 11/30/10 carrying value)

Purchase Price Accounting

Final Consideration

(Dollars in thousands, except per share)

(Unaudited)

Purchase Price Accounting

Fair Value Adjustments

(Dollars in thousands)

(Unaudited)

(14,130)

Accounts Payable

(83,305) (1)

Deferred Tax Liabilities

$936,664

$197,442

(8,039)

(5,860)

Other Net Assets/(Liabilities)

489,244

Goodwill

158,200

Intangible Assets

280,710

109,202

Property, plant and equipment

82,665

76,261

Inventory (FIFO)

23,079

23,729

Accounts Receivable

$ 8,240

Cash

Fair Value

Book Value

(1) Tax effect of differences between book and tax fair values

Replacement value of fixed assets and net working capital

estimated to be $1 billion

•

Inventory is recorded at fair value at the date of closing.

•

Finished goods and work in process have been stepped-up

from carrying cost basis to fair value.

Purchase Price Accounting

Inventory Step-Up

(Dollars in thousands)

(Unaudited)

Inventory Step-Up

$6,404

$1,691

$4,713

Q4 P&L Impact

2011 P&L Impact

Approximately 65% of the 2011 step-up will impact the first quarter

Fair Value Step-up

•

PP&E is recorded at fair value at the date of closing.

•

Straight line deprecation based on average asset useful lives of

15 years.

•

2012 and beyond depreciation expense will increase by $2.3

million to $8.1 million.

Purchase Price Accounting

Property, Plant & Equipment (PP&E) Step-Up

(Dollars in thousands)

(Unaudited)

PP&E Step-Up

$171,508

$562

$5,810

Q4 P&L Impact

2011 P&L Impact

Fair Value Step-Up

Purchase Price Accounting

Amortization of

Intangible Assets

(Dollars in thousands)

(Unaudited)

$1,880 $22,447

$158,200

124 1,473

7,900

Trade Names

498 5,973

42,800

Technology and Know-How

$1,258 $15,001

$107,500

Customer Relationships

Q4 Amortization

2011 Amortization

Fair Value

•

Amortization calculated using straight line or accelerated methods.

•

Useful lives range from 5 to 15 years.

Nov

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Dec

Margin

I/C Sale

Margin

I/C Sale

Margin

I/C Sale

Margin

I/C Sale

Margin

I/C Sale

Margin

Intercompany

sales to Graftech

Sales to 3

Party

customers

•

Seadrift sales to internal GrafTech

customers (intercompany sales) do not have margin as GAAP

requires the elimination of Intercompany profit in reported results.

•

As GrafTech

begins to sell the electrodes/finished product which contains Seadrift

coke

as a primary

raw material, margin will be recognized on the third party sales.

•

Intercompany elimination impact to Q4 2010 was $0.5 million, 2011 impact is anticipated to be

approximately $12 million to $14 million.

I/C Sale

Margin

Timing difference causes a shift of margin to be

recognized in the latter half of 2011.

Intercompany Sales –

Seadrift to GrafTech/St. Marys

Summary of Acquisition Impact: Q4 2010

*Unaudited

Seadrift and St. Marys will be included in our Industrial Materials segment

Q4 2010 Adjustments*

•

Intercompany sales of $1.2 million, intercompany profit elimination of

$0.5 million

•

Inventory step-up resulted in $1.7 million increase in cost of goods

sold expense

•

Adjusted fair value for PP&E and intangibles resulted in increased

depreciation and amortization of $2.4 million

Q4 2010 Non-recurring items*

•

Recognized a $9.6 million gain in income on previously held minority

interest in Seadrift

•

Deferred tax liabilities recognized in Seadrift and St. Marys purchase

price accounting resulted in a $30.3 million valuation allowance

release

•

Customary transaction costs incurred of $2.9 million

Modeling the Pro Forma Business: 2011

•

Intercompany

sales

from

Seadrift

GrafTech/St.

Marys

will

not

be recognized until an electrode is sold (approximately 4 month

lag), at which point intercompany profit will be eliminated

(estimated 2011 impact of approximately $12 million to $14

million)

•

Inventory step-up will result in $4.7 million increase in cost of

goods sold expense

•

Adjusted fair value for PP&E and intangibles will result in

increased depreciation and amortization of $28.3 million

Impact of Purchase Price Accounting is Consistent with Prior Expectations

Questions?

•

Q4 2010 Earnings Release

February 24, 2011

Upcoming Earnings

Phone:

216.676.2000

Fax:

216.676.2202

Email:

kelly.taylor@graftech.com

Internet: www.graftech.com

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