Tokai Carbon : Consolidated Financial Statements for the third quarter ended September 30, 2016

Financial Results for the First Nine Months of the Fiscal Year Ending December 31, 2016--Consolidated [Japan GAAP]

Company name: Tokai Carbon Co., Ltd.

Security code: 5301 URL http://www.tokaicarbon.co.jp/ Representative: Hajime Nagasaka, President & CEO Contact: Kazuhiro Matsubara,

Executive Officer and General Manager, Accounting Department,

Tel: [phone]

Scheduled date for submission of quarterly report: November 4, 2016 Commencement of dividend payments: -

Supplementary reference documents to support the

quarterly financial statements: Yes

Explanatory meeting to discuss the quarterly financial

statements will be held: Yes (telephone conference for institutional investors and analysis)

November 2, 2016 Tokyo Stock Exchange

(Amounts rounded down to the nearest millions of yen)

１． Consolidated Financial Results for the First Nine Months of the Fiscal Year Ending December 31, 2016 (From January 1, 2016 to September 30, 2016)

1. Operating Results (Cumulative)

   (Percentage figures represent year-on-year changes.)

   Net sales		Operating income		Ordinary income		Quarterly net income/(loss) attributable to the owners of the parent company
   Nine months ended	JPY in	%	JPY in	%	JPY in	%	JPY in	%
   	Millions	Millions	Millions	Millions
   	66,373	(17.5)	470	(86.7)	522	(85.6)	(5,377)	-
   September 30, 2016
   Nine months ended	80,497	(5.0)	3,548	44.4	3,625	36.5	1,433	(12.0)
   September 30, 2015

   Net income per share	Net income per share--fully diluted
   Nine months ended	JPY	JPY
   	(25.23)	-
   September 30, 2016
   Nine months ended	6.72	-
   September 30, 2015

   Note: Total comprehensive income Nine months ended September 30, 2016 (14,390 JPY in Millions)(-%) Nine months ended September 30, 2015 (3,326 JPY in Millions)(- %)

2. Financial position

   Total assets	Net assets	Shareholders' equity ratio
   As of September 30, 2016	JPY in Millions	JPY in Millions	%
   	154,031	109,250	69.8
   As of December 31, 2015	184,074	124,971	66.8

   Note: Shareholders' equity Nine months ended September 30, 2016 107,452JPY in Millions As of December 31, 2015 122,915 JPY in Millions

   ２． Dividends

   Annual dividend
   End of 1st quarter	End of 2nd quarter	End of 3rd quarter	Year-end	Full-year
   As of December 31,	JPY	JPY	JPY	JPY	JPY
   	-	3.00	-	3.00	6.00
   2015
   As of December 31,	-	3.00	-

   2016
   As of December 31, 2016 (forecast)	3.00	6.00

   Note: Amendment of dividend forecasts that have been disclosed lastly: None

   ３． Forecast of Consolidated Earnings for the Fiscal Year Ending December 31, 2016 (From January 1, 2016 to December 31, 2016)

   (Percentages represent year-on-year changes.)

   Net sales		Operating income		Ordinary income		Net income/(loss) attributable to the owners of the parent company		Net income per share
   Full fiscal year	JPY in Millions 87,000	% (17.0)	JPY in Millions 700	% (82.9)	JPY in Millions 1,000	% (76.8)	JPY in Millions (5,100)	% -	JPY (23.92)

   Note: Amendment of earning forecasts that have been disclosed lastly: Yes

   *Notes

3. Changes in significant subsidiaries during the period (that accompanied changes in the scope of consolidation): None

   Newly consolidated: company (companies) (name of company )

4. Application of accounting principles peculiar to quarterly consolidated financial statement preparation: None
5. Changes in accounting policies and estimates, and retrospective restatements

6. Changes in accounting policies due to revisions of accounting standards, etc. : Yes

7. Changes in accounting policies other than item 1) above : None

8. Changes in accounting estimates : None

9. Retrospective restatement : None

10. Number of shares issued (common stock)

11. Number of shares issued at end of the period (including treasury stock):

12. Number of shares held in treasury at end of the period:

13. Average number of shares during the period (quarterly cumulative period)

14. 3Q2016 ending December 31	224,943,104 shares	For the fiscal year ending December 31, 2015	224,943,104 shares
    3Q2016 ending December 31	11,770,614 shares	For the fiscal year ending December 31, 2015	11,752,962 shares
    3Q2016 ending December 31	213,180,071 shares	3Q2015 ending December 31	213,216,569 shares

    *Status of conducting the "Quarterly Review"

    At the time that these quarterly financial results were released, the review process for disclosing quarterly consolidated financial statements under the Financial Instruments and Exchange Act had been completed.

    *Appropriate use of earnings forecasts and other important information (Consideration of the matters such as descriptions about the future)

    These materials contain various forward-looking statements and other forecasts regarding performance and other matters. Such statements are based on information available at the time of preparation as well as certain reasonable assumptions. Actual results may differ materially from those expressed or implied by forward-looking statements due to a range of factors. For the assumptions underlying the earnings forecasts presented and other information regarding the use of such forecasts, please refer to "1. (3) Description of Forecasts of Consolidated Results and Other Information on Future Projections" on page 3 in the "Attachments" section.

    (How to obtain the supplementary document describing the quarterly results)

    In order to explain the quarterly results, the Company is going to have a telephone conference for institutional investors and analysts on Wednesday, November 2, 2016. The Company will post the document for the conference on its website immediately after it is held.

    Contents of the "Attachments" Section

    １． Quantitative Information Related to Consolidated Quarterly Earnings

    Results 4

    （１） Description of Operating Results 4

    （２） Description of Financial Position 5

    （３） Description of Forecasts of Consolidated Results and Other Information on Future

    Projections 5

    ２． Summary Information (Notes) 6

    （１） Changes in Accounting Policies and Estimates, and Retrospective

    Restatements 6

    ３． Quarterly Consolidated Financial

    Statements 7

    （１） Quarterly Consolidated Balance

    Sheets 8

    （２） Quarterly Consolidated Statements of Operations and Comprehensive

    Income 9

    Quarterly Consolidated Statements of Operations

    First nine months 7

    Quarterly Consolidated Statements of Comprehensive Income

    First nine months 8

    （３） Notes to the Quarterly Consolidated Financial

    Statements 9

    (Notes on the Going-concern Assumption) 9

    (Notes for When the Amount of Shareholders' Equity Has Changed Significantly) 9

    (Segment Information) 10

    １． Quantitative Information Related to Consolidated Quarterly Earnings Results

    （１） Description of Operating Results

    During the first nine months of the fiscal year under review (from January 1 to September 30, 2016), the global economy generally continued to recover moderately, driven by the steadily recovering economy in countries in Europe and America, despite slowdowns in economic growth in some developing countries.

    On the other hand, the Tokai Carbon Group's operating environment continued to be difficult. The reasons behind this are that the production of carbon black, the Group's main product, continued to be sluggish owing to low production of Japanese vehicles and tires, and that demand for graphite electrodes decreased due to the overproduction of Chinese steel.

    Under these circumstances, the Tokai Carbon Group started the three-year Mid-Term Management Plan, T-2018, the first year of which is the fiscal year under review. T-2018 aims to establish the growth foundations that are derived from the structural reform comprised of "restructuring" and "reforming employees' consciousness." The performance goals that have been set for the year of 2018 are as follows: Net sales of 1,10 JPY in Billions,

    operating income of 9 JPY in Billions, at least 8% of ROS (Rate of Sales), and at least 6% of ROIC. During the first nine months of the fiscal year 2016, the Group took the structural reform measures including the following: 1) Reducing the production capacity and product lineup of isotropic graphite with regard to fine carbon business, 2) optimizing the required personnel, 3) taking measures for further downsizing the graphite electrode business as well as restructuring the graphite electrode industry, 4) decreasing the production capacity of carbon black in Chinese plants as well as shifting to the system for mainly producing high-value added products, 5) reducing the inventories, amounting to 8 JPY in Billions, throughout the Group, and 6) improving internal communication throughout the divisions. Although these structural reform measures involve significant pain, the Group judges that these measures are inevitable to shift to a strong profit structure and is promoting the measures to complete them within the fiscal year under review.

    As a result, the net sales of the first nine months were 66,373 JPY in Millions, up 17.5% from the same period last year. The operating income was 470 JPY in Millions, down 86.7% from the same period last year. The ordinary income was 522 JPY in Millions, down 85.6% from the same period last year. The net loss attributable to the owners of the parent company was 5,377 JPY in Millions. (In the same period last year, the Group generated 1,433 JPY in Millions as the net income attributable to the owners of the parent company.)

    The business performance of each segment is described below.

    As described in Considerations (Segment Information), the Tokai Carbon Group has adopted "change of the classification of each business segment" and "change of the method for measuring profit or loss of each business segment" since the first three months of the fiscal year under review. Furthermore, to calculate the year-to-year comparison, the Group compared the new business segment to the corresponding previous business segment.

    Carbon Black

    The falling prices of crude oil for carbon black, which had continued since two years ago, showed a sign of recovery in this summer. However, the prices did not return to the last year's levels. During the period from January to September, the net sales decreased from the same period last year due to the price revision in response to the fluctuations of the prices of crude oil for carbon black; on the other hand the operating income increased from the same period last year due to measures such as cost reduction measures in foreign subsidiaries.

    The results are that the net sales of this business segment were 27,805 JPY in Millions, down 23.9% from the same period last year, and that the operating income was 3,282 JPY in Millions, up 177.4% from the same period last year.

    Graphite Electrodes

    Crude steel production in the world during the period from January to August this year decreased from the same period last year. While the production adjustment caused by the overproduction of Chinese steel continued in each area, demand for electrodes continued to be sluggish. Under these circumstances, the imbalance in the supply and demand of graphite electrodes continued, the selling prices dropped due to market deterioration, and the strong yen continued. These caused the net sales to substantially decrease.

    The results are that the net sales of this business segment were 15,644 JPY in Millions, down 22.7% from the same period last year, and that the operating loss was 827 JPY in Millions. (In the same period last year, the segment generated an operating income of 1,980 JPY in Millions.)