GrafTech International Ltd (EAF) 2002 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the GrafTech fourth quarter conference call. At this time all participants are in a listen only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star, followed by the zero. As a reminder, this conference call is being recorded today, Thursday February 13, 2003. I would now like to turn the conference over to Miss Elise Garofalo, Director of Investor Relations'. Please go ahead ma'am.

Thank you very much. Good morning everyone, and welcome to our conference call today. At this time each of you should have received a copy of our press release. If you haven't, please call Sasha Boyle at 302-778-8246, and we can quickly fax or e-mail you a copy.

Before we get started, I'd like to remind all of you that both our release and this call contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Please not the cautionary language about forward-looking statements contained in our news release, that same language applies to this call.

Today on the call I have Craig Shular, Chief Executive Officer of GrafTech; Scott Mason, President of GrafTech's synthetic graphite line of business, and Corrado DeGasperis, our Chief Financial and Information Officer. At this point I'd like to hand the call over to Craig Shular.

Thank you Elise. Good morning everyone, and thank you for joining GrafTech's conference call. Today I will take you through the 2002 fourth quarter results, and comment on our outlook for 2003.

For the fourth quarter we had break-even results, excluding no-recurring items, as compared to a loss of 8 cents in the third quarter 2002. Net loss, excluding non-recurring items, for the year 2002 was $3m or a 6-cent loss per share. Net sales were $160m for the 2002 fourth quarter, 3% higher than the 2001 fourth quarter, and $613m for the year, which was 6% lower than 2001. Gross margin was 24% for the '02 fourth quarter, and 22.8% for the year.

Year-over-year we increased our graphite electrode sales volume approximately 4%; by increasing our market share of strategic global accounts, and participating in the improvement of the North American steel industry. In addition, cathode sales were 17% higher than in 2001, as we completed expansion of our cathode facility in Brazil, and were successful in selling virtually all of our 2002 annual capacity. However, these volume and share improvements were largely offset by the significant decline in graphite electrode selling prices, and the weak end markets for our other businesses.

Turning to the graphite power systems division, we had net sales of $134m for the 2002 fourth quarter, 6% higher than the 2001 fourth quarter, due to stronger sales volumes in all product lines. Graphite electrode sales volume, which met our expectations at 47,300 metric tons, was 11% higher than in the '01 fourth quarter. Average sales revenue per metric ton of graphite electrodes, was approximately $2,100, unchanged from the third quarter. Cathode sales were 19% higher in the '02 fourth quarter as compared to the '01 fourth quarter, primarily due to higher sales volume associated with our capacity expansion. Net sales improved 6% from the '02 third quarter, due to strong sales volume in both graphite electrodes and cathodes.

Gross margin for the GPS division was 24.6% in the '02 fourth quarter. This was our highest in the year. Gross margin increased from 22.3% in the 2002 third quarter, due to improved graphite electrode production costs and increased cathode sales. Graphite electrode cost per metric ton improved to $1,644 versus $1,676 in the '02 third quarter. This was primarily due to improvements in productivity.

On the graphite electrode front, we continue to run our facilities at capacity. We have completed the first phase, 10,000 metric ton expansion, at our Monterrey Mexico facility, at the end of 2002. The second phase of the project will be completed the end of Q1 and will bring our Monterrey facility up to approximately 60,000 metric tons, making it the largest graphite electrode plant in the world. This facility is uniquely positioned to serve the large naphtha steel market.

Next, turning to our AET division, net sales were $26m in the 2002 fourth quarter, $3m lower than in the '01 fourth quarter primarily due to lower sales of products to customers in the aerospace industry. Gross margin was 21.2% in the 2002 fourth quarter, as compared to 25.3% in the '01 fourth quarter. The decline in gross margin was primarily due to lower sales. In the emerging fuel cell arena, our GRAFCELL advanced flexible graphite, was designed into the Ballard Power Systems fuel cell module used to power the recently announced Honda FCX fuel cell car.

The momentum in the fuel cell industry continues to grow. Automotive companies continue to push the technology forward through commercialization activities, most notably the introduction of the Toyota and Honda fuel cell vehicles in 2002. This year Daimler-Chrysler will put approximately 100 fuel cell vehicles in service in major European and U.S. cities. Our graph cell is utilized in all of these fuel cell vehicles.

Additionally, government support for fuel cell commercialization continues to grow. The recent U.S. government initiative, Freedom Fuel, together with the Freedom Car project, calls for the government to commit up to $1.7b to support fuel cell commercialization efforts and the required hydrogen infrastructure. We will continue to work closely with our partner, Ballard, to leverage our opportunities for growth in this arena.

On the electronic thermo management front, we will continue to advance the commercialization of our electronic thermo management products. Our prototype activity has accelerated significantly during the year, from only 11 shipped in the first quarter to over 40 shipped in the fourth quarter. In total, we shipped over 110 prototypes to about 50 customers. Closer to commercialization, we have about 20 active projects, about half of which are in the product approval phase. We look forward to gaining further commercial wins for our eGRAF products through these efforts.

Moving over to our new segment reporting, as a result of our previously announced lines of businesses, LOBs, we will begin reporting under new segments starting in the first quarter of 2003. Our primary line of business includes graphite electrodes, cathodes, and advanced graphite materials. We will report profitability for this line of business in total, consistent with our goal of maximizing cash profitability.

On the cost savings front, we achieved $14m of savings in 2002. To date under our cost savings program, we have streamlined our corporate structure; closed high cost facilities, redesigned benefit plans worldwide, outsourced certain financial functions, and initiated new systems to simplify our operations. We will no longer disclose product specific cost, including graphite electrode production costs per metric ton, under this savings plan. We will continue to measure and report cost savings against our annual cost savings target, and intend to report earnings per share improvements associated with these savings.

We will continue to aggressively pursue opportunities to increase productivity of our organization and reaffirm our commitment on delivering approximately $80m of annual recurring cost savings by 2005. We have targeted $30m of recurring annual cost savings by the end of 2003, $16m more than in 2002. We expect this increase in savings to contribute approximately 18 cents per share to earnings improvement in 2003.

2003 activities already in progress include the freezing of our U.S. qualified defined benefit plan effective March 31, 2003. Effective January 1 '02, a new defined contribution plan was established for our U.S. employees. We also redesigned our U.S. employee healthcare benefits in order to align our plans with industry practices and to control rapidly escalating medical costs.

Moving to some key corporate items, interest expense was $15m for the '02 fourth quarter, the same as the '02 third quarter. As targeted, 2002 interest expense was $60m, the same as 2001. In January 2003 we entered into a 10-year interest rate swap, for a notional amount of $200m to convert the amount of fixed rate debt to variable rate debt. Of the $550m outstanding senior notes, $450m has effectively been converted to variable rate debt. In January 2003 we also entered into five-year interest rate caps, for a notional amount of $200m. Interest expense for 2003 is targeted to be about $57-60m.

Net debt was $706m at the end of the 2002 fourth quarter, essentially the same as the end of the 2002 third quarter. At December 31 '02, we had $10m drawn under our euro $200m revolving credit facility. Considering approximately $45m of capital expenditures and $10m of cash payments associated with previously announced restructuring charges, net debt at the end of 2003 is expected to be approximately $740m, excluding the impact of asset sales.

We reported $4m of impairment in restructuring charges in the fourth quarter. $3m was a non-cash charge associated with the impairment of our investment in our joint venture with GLIN, of which we have 25% ownership. The impairment results from uncertainty about the completion and start up of the planned graphite electrode facility in Chang Chung China, due to the effects of the challenging 2002 graphite electrode industry conditions have had on our joint venture partner. We continue to work closely with GLIN on production alternatives.

Other net income was $2m in the 2002 fourth quarter, attributed primarily to currency exchange benefits associated with euro denominated inter-company loans, partially offset by other expenses. Net loss, excluding non-recurring items, was $3m or a 6-cent loss per share for the year 2002. This net loss included significant other income, the effect of which was partially offset by a non-cash compensation charge during the year. These have the effect of adding $8m of net income, or 13 cents per share, for the year 2002. Excluding these items, the net loss was $11m or 19 cents per share for the year.

Turning over to outlook, in 2003 we intend to increase our earnings between 40-45 cents per share over the aforementioned loss of 19 cents for 2002, putting expected earnings for 2003 between 21-26 cents per share. Improvements will be driven by expected increases in graphite electrode volume and price, and our cost savings program. 2003 estimated sales volume of graphite electrodes is 190,000 metric tons, up from the 180,500 last years, and should result in full capacity utilization.

We have executed graphite electrode price increases in our major markets for 2003 business. Average graphite electrode revenue per metric ton for 2003 is expected to be approximately $150 higher than the 2002 fourth quarter. Approximately one third of that increase is associated with expected benefits from net currency changes, and it's important to note a significant portion of those will be offset by increases in our cost, again attributed to currency increases, primarily the euro.

Our cathode business remains strong, and our capacity is virtually sold out for 2003. We do not foresee any recovery in 2003 over 2002 in the end markets of our remaining businesses, including the semiconductor, electronics and aerospace industries, where we have customers still running at 50-75% operating rates. Therefore we expect the financial performance of those businesses to remain similar to the 2002 levels. We will continue to drive productivity improvements in those businesses.

For the '03 first quarter, we expect earnings per share to be approximately 1 cent per share. We expect graphite electrode sales volume to follow the historical seasonal pattern of being the lowest quarter of the year. We expect this volume to be approximately 46,000 metric tons. Average graphite electrode revenue per metric ton is expected to be approximately $2,220. Q1 prices will be lower than our expected annual average graphite electrode prices, as customers' annual orders, that in some cases run Q1 to Q1, come off our books.

Finally, the graphite electrode industry supply/demand balance remains tight, and we have announced further price increases in February 2003 for the following markets; Europe, an increase of euro 100 per metric ton; in the middle east, North Africa, Asia and South America, a $200 per metric ton increase; and in the United States a 5 cent per pound increase. As the majority of our 2003 graphite electrode book has already been completed and built, the February 2003 price increases are expected to have impact on less than 10% of our 2003 business.

With that, that concludes my prepared remarks. We'd like to open it up for all of your questions.

Thank you sir. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press the star, followed by the one, on your pushbutton phone. If you would like to remove your question from the polling process, please press the star, followed by the two. You will hear a three tone prompt to acknowledge your request. Your questions will be polled in the order they are received, and if you are using speaker equipment, please lift the handset before pressing the numbers. One moment please for the first question. The first question comes from Brent Levy with Royal Bank of Canada, please go ahead.

Hey guys.

Hey Brent, how are you doing?

Not bad. Pretty good quarter actually. I had a couple of quick questions for you. First off, and this is more housekeeping, what is availability as of today on the revolver?

The availability is approximately $165m. Recall we have about $25m reserved for the EU, so if you take the 200 euro facility, and you take away the 25 reserved for the EU, and then the drawn down that was about $10m, you get about $165m euro fully available.

All right, and then can you talk a little bit about the asset sales, and then also, it's not really related, but the Brazil ramp up? In know you already talked about the Mexico ramp up. But I thought you were adding some capacity in Brazil as well.

Absolutely Brent. Let me start with the asset sales program. Our program calls for $50m in sales this year, assets, non-strategic businesses, and another $25m next year. We are actively engaged in that program, and in fact on one of the businesses we are currently marching through an offer for that business. Having said that, we face depressed markets, there's not strong interest out there because of all of the global economic situation and the uncertainty in the Middle East. But we will drive that program, and the target for this year is about $50m.

In Brazil, Brent as you mentioned, we've had a lot of activity there. We really enhanced our cathode manufacturing capabilities there last year. We are the only cathode manufacturer in the western hemisphere. That facility, like our Mexican facility, ran full out. It's very well positioned to serve the market, it's low cost, and it's received a number of customer awards, supplier of the year award from Alcoa, and so you'll see us to continue to grow Brazil.

We believe it's an advantaged production site, it's the only graphite electrode manufacturer in South America, and again on the cathodes, it's the only one in the western hemisphere. So it's running full out, we have virtually doubled the cathode sales out of there last year, and I think over the course of this year we'll be able to give you some more positive updates on the Brazilian facility and the advantage Mexican facility.

OK, and then this is kind of a 2003 modeling question. The February '03 announced price increases are not embedded in that 21 to 26 range?

We have not built much at all in the plan for those, Brent. We've already got $150 in the book that's been built, and so that $150 is done. Those are orders in hand. And the second increase, I think what you'll see will affect some spot customers that come in on a spot basis. We have some customers that book only six-months by six-months, so we'll pick up some of those. But we've been conservative and we really haven't built any of that into the plan. So, that would represent, perhaps, some upside for us. But I think in today's climate, with the Middle East and the economic situation, it's better to be conservative on that front.

OK, I have two more questions and then I'll get back in queue. First off, on the headcount front, can you talk a little bit about where you finished the year? And then I also wanted to get a sense, you had, in December, announced a plan to additionally take, I believe it was, $6m out in '02-I'm sorry, '03. And then, that number was supposed to grow to, I think, $12m out in '04 and '05.

That number doesn't seem to be included in the numbers. Is there an incremental amount of savings here? Or, was that plan kind of just a, I don't know; adjust up on the numbers you had put out?

OK, good questions. Let me knock them off one by one. On the $6m and the $12m, we have detailed $6m in savings for '03, and then $12m in '04. And that $6m and $12m; that $6m for this year in particular Brent is in our plan. That will show up as part of our cost-savings initiative. And a lot of that is around the voluntary severance program that we announced, which will be completed by the end of the first quarter. And, that program is going well and smoothly and professionally and will be completed the end of the first quarter.

On the headcount front, we closed the year with 3,885 people on our team. And, the number that we said, approximately 200 people, would be affected by our voluntary severance. And, our special severance program will be a reduction from that number.

All right, thanks very much.

Brent, thank you very much. Have a good day.

Thank you. The next question comes from Bruce Klein, with Credit Suisse First Boston. Please go ahead.

Hi, good morning.

Good morning, Bruce. How are you today?

Good. I have just a couple of questions on the GE, the price hikes that you guys have achieved. Just give us a little bit of color, how that all kind of went, whether your competitors kind of all followed and any indication what's going on in Asia, in this market particularly China?

Absolutely. Let's talk about the $150 increase, the first price increase. You know that, as we all know, was the first real price increase on our industry in a number of years. So, it was hard-fought. We had a couple of competitors, as we know, go into bankruptcy, at the end of the year.

We had them dump their product on the market, so we had a bubble out there in the market as they just tried to convert whatever they had in inventory to cash. So, we had to fight through all of those issues. Having said that, I'd say the industry, because it was tight, and the condition of the graphite electrode industry responded. And, I'd say there's pretty good movement across the board on price in the Americas, and in all of Europe. And, our $150 is representative of that.

In Asia, where the Japanese producers have the majority of the share, we didn't see a lot of good progress on a price increase. So, Asia, I think, the prices are still very low. The producers that service that market will be lucky to see $50; maybe $100 would be a stretch out there. So, the Asian prices still have room to come up.

The second increase, we have announced, and, you asked what is the industry doing there? Our number one competitor has announced similar increases on that second price increase, in similar geography. So, we believe the graphite electrode industry remains tight. And, we will push hard on those second increases. We haven't built anything into the plan, as we said, for this year. But they will position us, I think, very well if the economies and steel demand and the GE industry remains tight, they'll position us very well to get those increases for next year.

Craig in Asia, I mean, particularly in Japan, labor and energy obviously are a big part of the cost structure. That's not cheap in Japan. What do you think they're thinking? Or, what's their strategy, or why do you think they haven't gone along? Is it not as tight over there? Or, what do you think they're thinking?

No, you're right. Their costs are high. Their power is very high, labor is high. I think they've tried. They tried to execute. They announced--they tried to execute in Japan and in parts of Asia. They just weren't successful. I think one of the things that's aggravating their market is not unlike what we had here with carbon graphite.

One of the Japanese producers has been losing large amounts of money. It is on the edge, and of course, has been doing all the things that a company in that condition does. And I think they've really dragged that market down, and, not unlike CG last year.

And so, it may take further rationalization there before they can see some improvement on the pricing front.

And Craig, on the currency impact, what did that do? Have you guys factored that into the cost-per-improvement on the GE 4Q, vs. 3Q, which I think was down, it was $45, or--?

That's right. That's all factored into there. That's after the currency impact.

Do we know what it would've been before the currency impact?

Well, currency for us, and it's primarily been the Euro, you know. The Euro, we get through our operating plants in Europe. It raises, on a dollar basis, what those costs are. And I would say, on a cost-per-ton basis, at the rate we're running those plants, that could be as much as $25 to $30 a ton. So, it's significant.

As we said, a portion of the $150 increase in the price is currency, and the majority of that gets offset with costs. So, we'll call it $35 or so, a ton.

OK. My last question was just, and I'll jump back in, was just the net debt increase of, I think, it was $34m or $36m in '03. And, when I kind of looked at your obligations that you guys articulated, which was I think about $115m, plus or minus, and I'm thinking about the $34m increase in net debt, and I backed into what your EPS translated, [inaudible] EBITDA, there seemed to be about a $25m or $30m variance, which I couldn't account for. And, I'm wondering what that might've been?

Was it working capital, or other items in there? In terms of--maybe you can just help me with the cash obligations? What else is going on in '03? Particularly in [inaudible] what you [inaudible] in the press release?

Yeah, absolutely. Let me toss that over to Corrado.

Hey Bruce, how are you? You're coming up higher, or lower?

I would've thought your net debt would've been flatter then up $35m, based on what I triangulated back to your EBITDA.

Yeah, there's about $10m, which we obviously acknowledged, relating to the restructuring charges. We probably have about $6m or $7m of cash obligations that, I think, are just slightly up, you know, for pension contributions. And I think there will be a use of working capital. It could be $10m to $15m, as we gear up.

Volumes are expected to be obviously much stronger in the electrode business. So, I would presume a consumption of working capital, maybe $15m.

OK, I think that sounds like about it. OK, I'll let someone else ask, thanks guys.

Bruce, thanks very much.

Thank you. The next question comes from David Common, with JP Morgan. Please go ahead.

Yes, thanks. I think you've largely answered my questions, with the exception of, in terms of asset sales, is $50m really part of your plan? Would you like to see analysts looking for a lower number as a fall back position?

David, thanks for the question. $50m is our plan. You know, I think we should be conservative in today's economic conditions and the uncertainty in the Middle East. We have found, as we've tried to market some of those assets in businesses, that a lot of folks are sitting on the fence. We've got folks that are interested, but they just don't want to do a deal at this time. And so, $50m is the plan. We're working it aggressively, but we obviously are being conservative ourselves, as we manage forward on that number.

OK, thank you.

Thank you, David.

Thank you. The next question comes from Michael Gambardella, with J.P. Morgan. Please go ahead.

Good morning, Craig. How are you?

Good morning, Mike. I'm great, thanks.

Good, and congratulations on what looks to be, at least, the first year-over-year price hike that you've gotten since the price fixing days back in '96.

Thanks very much. Our team's worked very hard on it.

I have a question on the cost side. Can you give us a status report on needle coke costs, with the higher oil price environment we have?

Absolutely, Mike. We've built into our plan that in general, raw materials, and I won't go into any specific one, but in general we expect about a 2%, maybe a 3% increase in some of our raw materials. We plan to offset that as part of our ongoing cost savings program.

We've been monitoring the Middle East situation very closely. We are probably the world's largest buyer of needle coke, so we have a very good platform there, a good leverage in that business. And, we would think that the increases would be relatively minor, is what we're planning.

How much is needle coke, in terms of your total cost, on a percentage basis?

It's approximately 28% to 30% of our total cost. It's very important to us. We've had a pretty good track record, because we are a large buyer, of avoiding any sharp surprises in that area.

Having said that, the Middle East is a question mark. I think if the Middle East and the war, if it comes, goes as the administration is planning, we probably won't see much change at all. We buy on a long-term basis and, barring any real major surprise in the gulf, we don't expect any real big change there.

OK, so you have very little that's kind of spot exposure?

That's right, that's right. The only thing we would have would be a major force ma-jeure situation, where the Middle East really broke down completely and the war, if it comes, didn't go kind of as anticipated.

Recall, where we buy from, the refineries we buy from, are in the U.S. and in the U.K. So, they are not in any way related to the Middle East. So, it would have to take a major hiccup in the Middle East war efforts.

OK, and in terms of the carbon graphite, they had a fairly new, needle coke operation, didn't they? Is that still running?

They had an operation in [Sedra], Texas and as part of the bankruptcy, that has shut down also. It's not a great needle coke facility. It's never produced outstanding needle coke, and it's not an integrated refinery, so it's never had a great cost structure.

So, I don't know if anyone's going to try and start that up. It has some disadvantages, but right now it's not running.

And, how much do you-on the pricing front, do you have a sense on how much these bankrupt companies impacted the pricing? I mean did you sense that the pricing momentum was building in recent, you know, the last month or so?

You know, when you started the pricing agenda, to try to get these increases, did you effectively have weaker price increases at the early stage of the process, and then it built on later as the kind of bubble from these bankrupt guys ended?

Mike, absolutely. That's absolutely the correct picture. As the two folks went out, they just dumped whatever inventory they had to the marketplace. And so, their conduct in the marketplace, you know, before that was what you would expect. And then, at the very end, they just moved everything they had, just to turn it to cash. You know, the business was no longer running and it was the bank seeking cash.

So, on the price increase front, it was very difficult, choppy in the beginning and as you said, as they went away the price increase efforts became much stronger. And, as that bubble, you know, it became very apparent to the marketplace that the bubble of inventory they dumped out there dissipated, and is completely gone now. Things got tight, and, the price increase solidified.

It looks like you got about-you're expecting about a 7% increase in prices from the fourth quarter. Did you achieve prices, you know, above 10% towards the end of the process?

We have some prices that are up more than 10%.

OK. OK, great. Thanks a lot, Craig.

Mike, thank you. Have a good day.

Thank you. Then next question comes from [Vavonne Von Redden], with [Hockey Capital]. Please go ahead.

Vavonne Von Redden?

The next question comes from Kyle Smith, with Jeffries & Company. Please go ahead.

Hi guys.

Hey, Kyle. How are you today?

This is actually Joe Von Meister.

Hey Joe, how are you doing?

I had a couple of real quick follow up question. Firstly, I'm wondering if you can give us some EBITDA guidance to go along with the earnings guidance?

Secondly, I was wondering what the timeline for full implementation of the production ramp in Mexico is now expected to be? And lastly, if you could give us some color on the status of your suit against Union Carbide Mitsubishi?

OK, good. Thanks, Joe. You know, let me handle those three parts. Firstly, on the EBITDA, our expected EBITDA would be $110m to $120m for the year. And on the Mexican ramp up, 10,000 metric tons capacity increase was completed the end of last year. And, a second 10,000 will be complete at the end of the first quarter. And so, middle of this year, we will see all of that availability come to the marketplace.

And as we said, we've already sold it all out. So, the Mexican facility is fully sold out now, now all booked. And, as we said, the price increase is $150.

On the lawsuit front with Mitsubishi and Union Carbide, we continue to pursue that suit aggressively. Like everyone, we've been very disappointed in how long it's taken, and how long the judges had our case. And, we continue to follow up and press. And, we would expect and hope for feedback sometime this year, from Judge Daniels, who's had our case from the very beginning.

So, in terms of the ramp up in EBITDA this year, you'd be looking for that $120n, $110m to $120m to be backend loaded?

That's right. As we said, the first quarter's about a penny. And, we finish up the voluntary severance program the end of the first quarter. And then, the new capacity comes on stream over the course of the year, so it is backend loaded.

A penny of earnings is what in the EBITDA, roughly?

Joe, it would be about $20m, $20m to $30m.

Super, good job guys. Thank you very much.

Thanks Joe, have a good day.

Thank you. Ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you're using speaker equipment, you will need to lift the handset before pressing the numbers. The next question is a follow up from Brent Levy, please go ahead.

Yes, first off, the graphite electrode market, it seems is becoming increasingly bifurcated between the larger and higher spec electrodes and kind of the more commodity grades that go into the sort of more mini-mini mills. As you guys looked at the price increases you got, was that evidence in the pricing power?

Let me hit this on two fronts. You're absolutely right Brent, that the consolidation in our industry and the move of the customer base, is all to the higher end electrodes. There's only a handful of producers at that higher end. All then new furnaces coming out are the largest furnaces available. All that new furnace work going into China are the largest, so they demand the high-end electrodes. So it plays right into the major producers' facilities and it also plays into producers like us that operate on a number of continents that can serve these large global steel companies.

So I would say your observation on the move to the quality is absolutely right, but on the pricing front, I guess I've got to say our price increases were across the board. It's tight and they were across our product lines, from the smaller diameters to the largest diameters, and we find tightness across the product line.

All right, and then the other question may relate to sort of Scott's expertise. The hydrogen infrastructure that would be necessary to kind of a more full ramp up of the hydrogen fuel cell business, can you talk a little bit about what would be necessary to kind of put hydrogen stations around the country, or what we need to do, or an economy would need to do to put that infrastructure in place?

Brent I've got Scott on the line, and I'll toss that over to Scott and he'll fill you in.

Well Brent that's a really good question, because that is one of the hurdles to bring onboard the fuel cell power generation systems around the world. Let me answer it differently, based on the application. That probably would help give some color to how this might work. In the, I'll call it stationary, type application there is a lot of infrastructure already in place, basically in the natural gas lines, where you can easily convert with a small converter, to hydrogen locally, say at your home or office buildings, or even in I'll call it small but centralized power generation facilities. That could be quite exciting.

You see this playing out in Japan, where our partner Ballard is very close with a number of players there, Osaka Gas and Ibarra for example. That whole country is essentially piped up with gas, so the early introduction of residential systems, relatively small fuel cell systems that would also heat water and do all the kinds of things that we normally get out of power in our homes, is a very reasonable and foreseeable kind of fit.

In the portable area, small portable devices that might be used for camping, marine, a variety of applications, even backup power, canned fuel such as hydrogen would be the likely way for that to happen. A good example is the [NEXO1] design from Ballard that's been brought out with Coleman. Essentially you get a DOT approved canister and you would be able to buy those canisters through a variety of distribution channels, and one might expect then that that could be a very straightforward fueling system. There's a lot of hydrogen produced in this country, a lot of it through petrochemical applications today, through cracking of natural gas. It's actually a very large item that's produced. It's really building the filling and then the distribution of those container systems.

In the automotive arena it's a little more complex. The hydrogen infrastructure there could take a number of roots, and it's not clear yet how that might happen. It could be through natural gas to local gas stations, and then they would have a converter there that would make hydrogen. It could be through more centralized systems, in fact we would expect the first generation larger volume fuel cell vehicles to roll out in fleet applications, for example like buses. In Europe today there's supposed to be a delivery this year of about 30 buses by Ballard through Daimler-Chrysler and the [Sitaro] bus, and that essentially leverages the centralized fueling station concept for the fleet application.

Another fleet application that seems to be very likely to take this on is in our rental car systems. About 85% of the rental cars in the United States actually don't use out one full tank of gas, so you could easily see centralized fueling infrastructure for hydrogen there. There's also the opportunity to make hydrogen through I'll call it more natural and renewable energy sources. There are a variety of them, using power for example, to crack water, a very well known technology, and there are a number of companies working at making that a cost-effective solution.

So there's, I'll say a variety of ways. What's really exciting for me is that our government, our federal government, has come out and said they're going to put some money behind making that happen. The Bush administration has committed billions of dollars to get that started, and even more so, [Midi] in Japan, has come out last July and said they were going to help get started the hydrogen fueling infrastructure for the automotive applications, and subsequent to that announcement, most of the major Japanese automotive manufacturers indicated they were bringing out their first generation commercial hydrogen vehicles early. Did I cover it for you, Brent?

Thank you very much.

Thank you. The next question is a follow up from Bruce Klein, please go ahead.

Hi, I'm just wondering the financial impact from converting from defined benefit to contribution, I'm wondering how that impacts your pension expense, as well as what your cash obligations are in '03?

Bruce let me toss that over to Corrado.

Bruce, the savings that we're covering in the conversion of those plans are a component of the 6-12 million that we've announced. The lion's share of that 6-12 million is of course the people that will be coming out of the system, and some minority portion of that, we haven't broken that down publicly, but there's a few million dollars in there associated with just the defined benefit elimination.

OK, that's good. Thanks.

Thank you. The next question comes from Warner Friedman with Maine First Bank; please go ahead.

Good morning. A couple of questions from me, the first is on your net debt position. If I've got this right, your net debt is expected to be at $740m at the end of 2003. This might be reduced by $50m of cash from selling off assets. I would be interested in what kind of assets this would be. Is it assets currently used for production of graphite electrodes, or something else? The second question, with regard to market shares I would be interested, since I of course also noted Celestial Carbon has raised its prices. What the current distribution of market shares in graphite electrodes is, what do you see for you, for SGL and for the market as such? Also current market demand, how high is current market demand and where do you see current market capacity, given that Carbon Graphite is out of the market in that respect. Also asking whether some of the efforts of Carbon Graphite's will be used again by someone who maybe picked them up. I think that would be it.

OK, thank you very much for your questions. Let me start with the assets to be sold. The assets that we have for sale, none of them are the graphite electrode or the cathode businesses. They're made up of some non-strategic businesses we have, we have a couple of other smaller businesses in the portfolio that are non-strategic, and we are marketing those for sale. There's also some pieces of land that we have, some excess land that we have in different parts of the world that we don't need to use. So that makes up the majority of the assets.

On the market share, our market share is roughly 20-21%. Compared to SGL we think it's quite close. I'm sure if you ask them they'll say they're bigger, and if you ask us, we're bigger. So the numbers must be pretty close. So we're 20-21% of the global market share. Global demand for graphite electrodes we believe is around 900,000 metric tons, and that is down. We think we're 20-21% of that.

In the case of the two folks that went out, Carbon Graphite and [Canradi], could they come back? Absolutely. There's a lot of folks have looked at those assets and gone in there to see if they're viable. So far no one's come up with any viable plan to restart them. As I said, both of them we believe, and from their published reports, were losing money at the gross margin level. So even with no debt and no overhead, they lost money. Their size, their quality and where they try to produce graphite electrodes, we believe, is a real disadvantage. So could they try and start up? Sure. Are we ready if they try and start up? Absolutely.

Maybe one question. Current capacity for graphite electrode, if demand is 900,000 metric tons, how is capacity around that?

We think it's very tight. We find that a number of customers are having trouble getting orders filled and we get some emergency rush-rush orders. So we think it's tight. With those two folks going out of business, a couple of the Chinese have gone out of business, we find day-to-day, week-to-week, it's in pretty good balance right now.

OK, last question would be on pricing. You gave price increases for different regions. Could you also give us what percentage increases this would mean for these regions?

Well it's pretty consistent. Our $150 across our portfolio is pretty consistent around the various markets, with the only exception being, as we talked earlier, Asia. Asia we haven't seen much price increase. There was an effort, we have a very small market share out there, about 6%, and we saw some efforts by the large producers out there. But it appears they weren't able to execute, and that price increase out there will be quite small, quite nominal.

I'm sorry; I did not really get that. Does this mean that these price increases all resemble something 7-8% price increase in the regions?

Yes, for our portfolio of graphite electrodes, yes. You could call it; it's about 7%.

OK, thanks a lot.

Thank you, sir. Have a good day.

Thank you. The next question comes from Dennis Scannal, with Rutabaga Capital. Please go ahead.

Yeah, Hi Craig and Corrado. Just a couple of quick things; so, CG and [Canradi], they didn't participate in this round of bidding for graphite electrode, you know, supply this year?

Dennis, that's correct. They did not enter into the bid process at all. There were some questions whether they would in the beginning. Both of them started out a bit like they were going to, and their sales force communicated like they were going to. Both of them dumped all of their inventory rapidly at the end of the year.

But at the end of the day neither of them participated in the '03 bid process. And when the books got built and the thing got done, they have offered no electrodes for sale in '03, and the majority of the industry books have already been built.

Great. And then, I think you said you've booked 150,000 of your 190,000 anticipated production this year?

That's right. Approximately 150,000 has already book booked, it's in the book. And, we're delivering on those orders now.

And that other 40,000, would that be in the back half? Or, could those orders come in at any point during the course of the year?

Those tend to be in the back half. They tend to be customers that booked only the first six months, firstly, and secondly, some spot orders. And thirdly, if steel performs strongly this year, you may have the case where a customer's already booked at the first price increase. But if he needs more than what he's booked for, he'll face the second price increase. So again, that would be back loaded.

Yes, OK. Great. And then, next year in terms of your capacity, you may have mentioned this but, what, 200,000, 210,000? Where do you think you'll be for '04?

Our target, for next year, we're going to be right around 210,000. We've had a lot of effort in this area and our production teams have been having some superb results here.

OK great, and then just a couple of quick things. You mentioned in the release that if you hit your plan, you should be fine on the covenant side. Can you give any comfort in terms of how much downside production you've got there? You know, if you had more of a $90m EBITDA year, as opposed to $110m or $120m, I mean, can you give any more color about the level of protection we've got?

Dennis, surely. In our scenario, of course with the way the economies look right now and the Middle East situation, we've built some downside plans. And, we are comfortable. We are comfortable that we will be able to maintain all of our covenants, full compliance for this year. And that's in the current expectations we've given you. And that's also in our own internal downside plans that we have developed.

OK great. And then, when do you have significant payments again for the, either for here in the U.S. on the anti-trust dumping, or the price fixing issues? And then the EU, when did those cash obligations start kicking in again? I know you guys have negotiated pretty tightly with the relevant authorities.

That's right, Dennis, good question. This year it's very small. It's only about $5m this year. And then, next year they go up to perhaps about $20m or so. So this year they are very small.

And then, just one last very persnickety thing; why are you guys not going to talk about your GE costs per ton? I mean are there some competitive issues? Or are your customers taking a look at that, thinking, you know, well you're getting $2,100 $2,200, you know, per ton, and your costs are going down? I mean, why are you suddenly getting shy about that?

Dennis, you've got it spot-on. We ran into this like a brick wall when we executed these price increases. As you've said, our GE costs have been dropping. We've been publishing it, and here we go out and are driving price increases. And it did not help us in the price increase efforts.

So that is the number one reason we're taking this off the table. Here we are with a second price increase and the steel industry is probably better off if we aren't so transparent on our cost structure.

OK, because we're still a fair bit away from you guys actually achieving an economic return on those assets. I mean we've got a ways to go before, you know, I think you guys will be happy.

That's right, and we will be very transparent with our cost savings and the delivery on that program. Our intention is to delineate that clearly as it relates to EPS.

OK, fair enough. Great, thanks a lot.

Dennis, thank you.

Thank you. The next question comes from Annette Kuntzman, with Oak Tree Capital Management. Please go ahead.

Thanks, good morning. Most of my questions have been answered. I just had one question with regard to the contract negotiations. Did you achieve the volume that you were hoping for, with your targeted customers?

Annette, thanks for the question. Yes we did. Our target was 190,000 metric tons, and we've built the book that is 190,000 tons plus. And so, we obtained our volume target as well as the price increase.

Would we have liked more off the price increase? Absolutely. We talked a bit about why it was choppy in the beginning and some of the impact of that, with a couple competitors exiting. But the 190,000 was our plan from day one.

OK, and then, with the likes of a new [Corrus], etc., did you gain share with your targeted top?

Our target accounts, and we look at the top 10 EAS producers out there. Without going into any individual accounts we are very pleased with the share we've got at all the key strategic accounts we identify.

One of the things we do is, we have the largest customer technical service team in the industry. It's global and it provides a lot of value to these large global accounts, like the new [Corrus], like the [Corrus], like the [Girdows] etc. And that positions us very well to get significant share at those global accounts.

OK, thank you.

Thank you, Annette.

Thank you. That was your final question. Please continue with any further comments.

OK, folks thank you very much for participating in the call. We appreciate your time and we appreciate the excellent questions. We look forward to talking to you in another quarter's time. Thank you.

Thank you, ladies and gentlemen, this concludes GrafTech's fourth quarter conference call. If you'd like to listen to a replay, you may dial 1 800 405 2236, or 303 590 3000, with pass code 523873. Once again, your dial in number is 1 800 405 2236, or 303 590 3000, with pass code 423873. The replay will be available through 5:00 p.m. on Monday, February 17th.

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