GrafTech International Ltd (EAF) 2004 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the GrafTech first 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. (Operator Instructions). As a reminder this conference is being recorded on Thursday, April 22nd, 2004. I would now like to turn the conference over to Ms. Elise Garofalo, Director of Investor Relations.

Thanks, Kristin. Good morning everyone and welcome to our conference call. If you need a copy of our press release, please call Julie (indiscernible) at 302-778-8244 and we can quickly fax or e-mail you a copy. Before we get started, I would like to remind all of you that both this release and this call contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please note the cautionary language of our forward-looking statements contained in our news release. That same language applies to this call. Also, to the extent we discussed non-GAAP information, you will find reconciliations either in our press release or on our Web site at www.graftech.com.

This morning on the call, we have Craig Shular, Chief Executive Officer; Scott Mason, President of our Synthetic Graphite Line of Business; John Wetula, President of our Natural Graphite Line of Business and Corrado de Gasparis, CFO. At this point, I'd like to hand the call over to Craig.

Thank you, Elise. Good morning everyone and thank you for joining GrafTech's conference call. Today, we will take you through our first quarter highlights and then open up for Q&A.

In the first quarter, net income before special charges was $8 million, or 9 cents per share, as compared to income of 1 cent per share in the 2003 first quarter. The 9 cents per share does not include 3 million, or 2 cents per share, of interest benefit from our recent debt-for-equity exchanges in the water. The 3 million represents accelerated interest benefits achieved as a result of our team's interest rate hedging program. Net sales increased 15 percent versus the same period last year. In our main business, graphite electrodes, sales volume was 50,600 metric tons, or 8 percent higher than the 2003 first quarter and the average sales price increased to $2485 per metric ton versus $2272 in the first quarter of last year, up over 9 percent.

Gross profit increased 15 percent to 45 million versus the first quarter of last year. Q1 profit was impacted by upward pressure on petroleum-based raw materials and energy costs. Our cost savings efforts have not yet mitigated these increases. In addition, we experienced production down time due to an outage of graphitizing equipment in our plant at Brazil. As a result of the outage, we lost about 3000 metric tons of production and this yielded about $2 million of higher costs in the period, which represents 1-2 cents per share. Currently, we're running all of our facilities at capacity, including Brazil and we remain sold out as demand for our graphite electrodes remains strong.

Excluding other income and expense, EBITDA was 31 million in the first quarter, as compared to 23 million last year. This represents a year-over-year increase of 35 percent. In our other business segment, sales were 23 million as compared to 21 million in the same period last year and gross profit was 4 million as compared to 5 million. The comparison is slightly skewed by higher priced emergency refractory orders our team successfully responded to in Q1 of 2003.

In our electronic thermal management business, ETM, we had net sales of 2 million; that is double the fourth quarter last year and virtually the same as sales for the entire period of 2003. During the quarter, we also had a few key commercialization wins. One to note is that our eGraf thermal spreader is being used in the new Sony VAIO X-505. This laptop is the thinnest and lightest laptop in the market today. It weighs less than two pounds. It is the first laptop of its kind that does not require a heat pipe, a fan or even air vents. These components typically take up a lot of space in a laptop, increase the overall cost and in the case of vans (ph), utilize battery power. Our eGraf was critical to this new generation laptop. As we've previously articulated, we will give an update on our revenue guidance for this business in our Q2 conference call.

On the balance sheet, net debt was 613 million at the end of the quarter. This is higher than our year-end net debt balance due to our successful first quarter 1-5/8 convertible debt issue. The convertible proceeds were used to pay down higher cost legacy obligations, which included a provisional payment to the EU of $71 million, the retirement of the remaining 21 million of tranche B bank debt and a $41 million reduction of higher cost accounts receivable factoring. During the quarter, we reduced our highest cost debt, our 10-1/4 senior notes, by $43 million. This was done through a combination of the exchange of equity for 35 million of senior notes and the $8 million buyback of senior notes with cash.

Turning to outlook, we continue to see the economies around the world recovering, most notably the Americas and Asia. The European market continues to lag. However, the steel market overall and the demand for our products globally remains strong. Building on our success at our Monterey, Mexico plant, which resulted in that facility becoming the largest graphite electrode plant in the world at 60,000 metric tons, we have similar debottlenecking and process improvement projects underway at our capital Pamplona, Spain facility. This plant will be expanded to 55,000 metric tons and bring our total capacity to 230,000 metric tons by the end of this year. The Spanish plant will then be the largest single graphite electrode plant in Europe and the second-largest in the world.

For the second quarter, we expect earnings of 12-15 cents per share, graphite electrode sales volume will be about 55,000 metric tons. We expect the impact of higher energy and petroleum-based raw material cost to continue in the second quarter. Our team is directing its full efforts to offset the continued escalation of these costs as a part of our overall savings program. Finally, as a result of these cost pressures, we expect earnings for the year to be between 55 and 65 cents per share. And with that, I would like to open it up to Q&A.

(Operator Instructions). Bruce Klein, Credit Suisse First Boston.

Hi, good morning. The Spain expansion -- what was the timing of that and the cost and the capacity taken up from 230 total versus what you're using as your base?

On the capacity front, Bruce, we were at 220 and we're going up to 230, so a little over 10,000 metric tons we expect out of the Pamplona debottlenecking. And it will cost us a little shy, probably of $10 million, and that 10 million is already in our CapEx expectations for this year of about $45 million. So this is an efficient debottlenecking, again, to get more throughput from our existing six plants. And as I think many of you know. this will take us beyond what we used to do with the old 10 plants.

And the Brazil downtime problem, what happened and how was it fixed and is it back to where it needs to be or?

Brazil was a rectoformer that went out, and a rectoformer basically is the key piece of equipment that transmits the electrical power to our graphitizing process. And so it went down. These are very infrequent occurrences. We keep a lot of spare parts, etc., but in this case, it just happened. What went down in our rectoformer had to be imported, some parts, and we lost about 45 days. And so we lost about 3000 metric tons. It is fully up and running in full-out right now, and all of our facilities are running extremely well and are running at capacity as they did last year.

And lastly, I'll pass it on. The EPS guidance -- I was I think coming out to 155 or something. And I didn't know if you could help me -- or try to release with the number of shares used or and depreciation and make sure, or if you can even answer the question, in terms of what does that triangulate back to in EBITDA, which I thank you think excludes -- or EPS guidance -- I think excluded the restructuring, or is there another income/expense?

The EBITDA should be probably around the 150 to 165 range. I think you should look in that kind of range for us. Obviously, we're working very hard on productivity improvements and cost save program to offset these escalating costs. But I think the 150 to 165 is probably a good range.

Okay. Is that higher? I know the EPS guidance I think is a little lower than the fourth quarter call.

When we talked I believe the last call and the call before, we were looking at really 155 to a 175 type of number in EBITDA. So that is down as is the EPS guidance.

Lastly, in terms of buybacks or exchanges -- what is the strategy? Are you done or are you looking to it more opportunistically, or how do you view that?

Firstly, as you know, this is our highest cost debt, 10-1/4. And literally, the only way for us to take it out of the marketplace is to buy it back. We did some with cash, we did some with shares. Obviously, we're very sensitive to the utilization of our shares. And what triggers these is -- we are approached from the marketplace. We are not aggressively seeking these at all. In fact, our bonds are very difficult to get a hold of, in fact. And so we are approached and if we like the price, we look at it, we look at the accretion. The 35 million we did was accretive to us. And so we looked at the price they're offering at, we look at the share price and we make a decision -- is it accretive, is it in the best medium long-term interest of the Company? And then we go ahead and make the deal if it is. We will continue from time to time to evaluate these. They do come to us now and then and we will continue to evaluate, but we're not pursuing aggressively at all. We did not pursue these to go ahead and take out. But when they do come to us, we will at each one of those opportunities. We evaluate it. If it is accretive and we believe it is in the best medium and long-term interest to take out these 10-1/4 high cost bonds, then we act accordingly.

If I could steal one last question. The EU and the DOJ payments -- any changes to those? I had I think 20 million in total in '04 and 27 in '05; I did not know if there was a change.

On the EU, really no changes. We've made all our payments. That's behind us. It's a provisional payment, as you know we are appealing. So there could be an adjustment downward. On the DOJ, that is scheduled out over the next four years, a small payment each quarter, very manageable.

I think Bruce, where we end up having fully paid the EU, is that we are expecting to pay 9.75 million to the DOJ in three installments this year, and that would be closer to 18 million to them next year, and that is it. It's not a change, as Craig said, from where we have been recently, but it is different than what you just articulated. So let's say 10 million this year, 20 million next year; it's only DOJ. There is nothing else left.

And that's on a fixed payment plan. We've had a fixed payment plan for them for quite some time. And like I said, spread over four years, very manageable for us. And that is the last one, the DOJ. EU -- as you know, we've cleaned all that up with a provisional payment.

Thank you.

Brent Levy, Royal Bank of Canada.

Hey, guys. First off, on the average revenue per ton, can you talk a little that about -- because it looks like from fourth quarter to first quarter, the number is up about $80 a ton -- actually a little bit less than that, about $70 a ton. I get the sense that the price increases negotiated from '03 to '04 would be a bit bigger than that. Can you guys talk about sort of percentage of business done on contract and when those contracts will start to kick in here?

Sure, Brent, good question. Let me start with Q4 of last year. You're right. Q4 last year, the price was a little bit higher. A couple of reasons. One, more spot business at the end of the year. So as you know, we were increasing prices last year, so there was a higher component in the fourth quarter of spot business, which brought the fourth quarter up over the prior quarters that year. So you had that in there. And then we come into Q1, and as you know, we have some contracts that go Q1 to Q1; that is just the way some of the customers' purchasing patterns are. And so Q1 is usually our lowest priced quarter of a year. And so we would expect go forward, Q2 I think you're going to see that price come up another notch. And depending on where the euro is -- the euro, of course, is weakened a bit here. But I think you're going to see it come up over 2500; 2525, that kind of range for Q1 with the noise being around the euro.

Alright. Can you talk a little bit about any initiatives to hedge any of your costs, including interest costs, as you are approaching your 2004?

Let me let Corrado talk a bit about that and some of the things we've done on some of the energy.

First on interest Brent, we have remaining 450 million of senior notes. I think you realized part of our interest management was the convertible and attending to some of the higher cost legacy obligations. So our portfolio of variable to fixed right now is about 70 percent variable, 30 percent fixed. We like that. We like the fact that we were able to fix in some rates at the lower end of the spectrum. We still continue to have a nice swap position against the bonds, effectively reducing the cost by about 320 basis points. So our effective cost of our bonds are 7 percent. We also have that sole position capped out. We have interest rate caps that would not allow the ultimate cost of that debt to go materially or meaningfully higher than its original coupon. That was done opportunistically, timely, if you will. So I don't think there's much more to do there, but the near-term risk of course would be that we would be exposed on 450 million of debt to rising interest rates.

(multiple speakers) interest rates, right?

Yes. On the raw materials side, we are probably most active in the natural gas arena. We were very effective I think over the last six months in hedging the natural gas through the winter strip period. We are fully active in monitoring that constantly. Most of the positions went through April. So we are currently more open than we were, let's say, in the fourth and first quarter. But we will continue to evaluate the cost. We see those as having been up, in terms of the energy inputs, but relatively stable on that front. And I think we will manage to try to hold them stable, even though they are up some.

On the petroleum-based cost, it is much more difficult. The cost of pitch is not only regional, but shorter in the sense of the buying power. So that is one of the ones that we have had some difficulties. Much like the rest of the world, it's not one that we're immune to.

And on the coke side, we've talked about how we have been effective in managing those costs, but we have articulated that we expect some higher costs. We did see some increases, if you will, in the price at the end of last year. That probably you have not really seen yet in the performance. With the inventory turn cycle, you start to see that more in the second quarter. But that is managed really more from the supply relationship than it would be in any artificial means.

The last question is kind of a bigger picture type question. It seems like we have gone from a mode where inefficient capacity was being closed down to a mode where -- and I don't know if I want to call it inefficient capacity -- seems to be getting restarted or debottlenecked. In addition to the capacity you guys are bringing on at Pamplona, can you guys talk about what you see happening on the capacity side globally at this point?

Sure, Brent. Looking at some of the other competitors that have announced some of their intentions and actions, of course we have CG opened up one of the two shut down facilities in the U.S.. Our understanding and our drive-bys at the other facility that did not reopen is that it is in a position that it will not ever been reopened. It has cannibalized for some parts to run the other CG plant. So CG's up. They look like they're running 17,000, they've been doing that for, I would say, the last two quarters. And that is it in the Americas. So you have that 17,000.

Looking over in Europe, I think if you look at SGL, they have talked about trimming some high cost capacity and they have talked about trying to shut a couple of facilities in their last conference call. So net-net, I don't know if that's going to take them down some. It's not clear, but obviously, they have some high cost facilities in Europe, some smaller ones not unlike what we had over the last few years that looked like they are going to be rationalized.

In Asia, from what we see, there's two Indian competitors and both of them have been talking about some increases. They both have small plants today, around 30,000 ton, maybe a little bit less than 30,000. And they each have been talking about adding maybe combined something that looks like 40,000 tons. Where they are in that process I think remains to be seen. But I think their dialogue and some of their discussions in the marketplace is they're trying to get more out of their plants and trying do some kind of expansion there too. Other than that, that's about what we see. We don't see the Japanese moving at all. The other producers around the world we know are third-tier, really not a significant impact because of quality. Significant quality differences. So I think you have SGL maybe rationalizing a bit, you have CG -- no change, that has already been there for six months and it's tapped out. And then maybe you have the two Indians adding maybe up to 240,000. When it will all come, sometime over '05, remains to be seen.

Thank you very much.

Brent, thank you.

James Ristobst (ph), Janna (ph) Profit Partners.

Hi, hello. I have a number of questions. One, given the impact of the higher raw material prices clearly making itself out through your P&L today, I wonder whether this makes management want to sort of reconsider the way you negotiate your contracts with your supplies as well as with your customers? I wonder if going forward, we might see some pass-through clauses for your raw materials? And I wonder whether you can go back to your suppliers. And it's actually sort of try to keep constant costs, you know, over the year for some of the petroleum-derived raw materials at least.

James, a couple of good questions. As a starting point, obviously, the cost increases we are experiencing, we strongly believe all of the people in our industry are experiencing. We all use the same raw materials, we all use natural gas and power. Obviously, we're the largest buyer in the world in our industry in most of those, so we believe we have the leverage. But all of our competitors are feeling the same kind of cost pressure.

So with that as a starting point, I think you raised tow very good points. Will this industry continue annual contracts? The whole industry is feeling the pain of these escalating costs. Obviously, we have contracts in for this year and they will open up again at the end of '04. And I think, based on how this year goes, the industry will look hard at annual contracts.

As far as the surcharge, again, I bring you back to the overall industry. We're all feeling the pain of these cost increases. And so all of our competitors are feeling it. I have to believe some of them are feeling it a lot more than we are because of our buy and the size of our buy. And as far as a surcharge, I think school's out on that. Obviously, it's something we look very hard at. Our steel customers have had tremendous pass-through of their escalating scrap cost and some other costs they have had. And our industry has not had that so far.

It just seems fairly imbalanced, in terms of pass-throughs in different ends of the industry.

James, we agree 100 percent with you and it's something we are looking very hard at. And I think as the pressure builds in our industry, the entire industry will look at it.

I guess asked another way, is sounds like you're going to sort of keep 90 percent of your production spoken for year after year. So you're essentially fixing in your top line. I'm wondering if you can fix in your costs as well? I wonder if you might hedge your (indiscernible) coke prices, for example?

Good point. That would be the other side of it -- you hedge more? And obviously, we're working on that, we're going to continue to work on that as well as productivity improvements just to improve the competitive advantage of our production platform which we already believe is out in front and our mission is just to continue to grow it. Here, we're going to be at 230,000 metric tons and I think you all know our stated objective is to be at 250 by the end of '05. And I believe it is said our team is working full-time on that and we will keep you posted as we get through some of those objectives and lay out process improvements in the plants to get to 250.

My second question is you're giving, if I understood correctly, 55 percent EPS guidance for the full year. I wonder if you can sort of give us an indication, in terms of volume and pricing. Pricing, you've already hinted at, but volume as well?

Volume, the guidance we've given so far is in the $210,000 range, metric tons. That's the guidance we've given and we're still very comfortable with that. Obviously as steel continues to run very well and as that continues throughout the year, there's upside possibilities for us on that, no doubt. Especially as the capabilities in our facilities grows. And hence, you see our sense of urgency to grow to 230/250. Obviously, we believe the steel industry is going to continue to run strong. And, given our market position, if we can make more, we believe we can sell it right now. And if we can get to 250, we believe we can sell 250.

I was wondering if you could sort of shed more light on the 1 million in restructuring charges and the 1 million antitrust reserve adjustment? What are those for?

Let me handle those. The 1 million restructuring, we announced last year a voluntary severance program. And quite a bit of our administrative savings, part of which were realized last year, is the full effect which would be realized this year related to the reduction of our administrative workforce. And we had the remaining closure of those activities really occur right in and around year-end. In fact, we had people leaving the payroll between April 1st and January 1st, if you will. And that really was the residual exit costs associated with that program, just under $1 million for that.

In the antitrust, what happened was we had announced at the end of last year that we were going to pay the EU the provisional payment of the full EUR50 million fine, plus interest. And we had been negotiating with the EU for a couple of years but ultimately concluded it was the best thing to pay that full fine plus interest, despite the fact that we've appealed that fine and still fully expect a reduction. Economically, they were charging what would have ultimately been our highest cost for that obligation, so we paid it. We are in fact earning interest of over 2 percent on that provisional payment because in Europe, the final obligation is really not defined by them until the appeal is finished. We did have -- we did disclose last year that the EU was disputing if the interest rate was 6 percent, which we said, versus 8 percent and we ultimately got a final decision from them that it was the higher rate and so we trued-up that provisional payment. So it is all done now for us. We've paid them the full amount of the obligation plus interest and are really just waiting to hear if there will be a reduction, in which case we would get a refund of the principal and related interest that we've paid. Alright?

Two more questions, if I may. One, I was just wondering if you could comment on the lawsuits against your parent company? Any changes as to timing of us hearing more about that suit?

James, no change there, no new update. We filed our appeal I think a week-and-a-half, two weeks after we got the first ruling. So that was done as soon as possible. And we're in the appeal mode with the higher court.

My last question is -- there is a lot of variables in your business. You have your raw material prices increasing, you're still incurring restructuring expenses. But on the other hand, pricing is starting to reflect the supply and demand. You're running at full capacity and your cost cuts should fit with the bottom line. If the question I'm going to try to answer is -- when will your P&L start to reflect your company's underlining potential, do you think?

Good question. Because obviously what we're working on is going that competitive advantage. And we're going to have to a few ups and downs. It's not going to be a straight line, but we are going to continue to drive to grow that platform to 250 plus grow our competitive advantages on quality and service to customers. We have an industry-leading position here that we believe we can grow and grow significantly. It will start to generate cash flow for the balance of the year. And I think even the year-over-year comparisons are still going to look very good. We have a speed bump here that is a serious one on cost, but we have a team that has time and time demonstrated that it is very resilient and has a tremendous capability of productivity improvements, cost savings and increasing the throughput in our plants through process improvements, cycle times in those furnaces, etc. So our mission is to continue to grow that competitive advantage. We see no change in that and our team will work very hard on cost reductions and productivity improvements this year and selling more than that 210 we have articulated.

And given this speed bump, in terms of cost that you mentioned, does it make sense to sort of more aggressively restructure the business, or is the company just going to continue according to initial plans?

Obviously, I'll tell you what we have done. On our productivity front, we've looked at all of those programs. And you're going to see us accelerate them. There's some we may spend a little bit of money and try to accelerate those where we think the returns are so good. So yes, you're spot-on. We're going to do our damnedest to accelerate those programs. You're going to see us do our damnedest to accelerate that 250,000 metric tons. Obviously getting 250,000 metric tons out of six advantage plants, here we sit with the two largest graphite electrode plants in the world. At 250, we will probably have the four largest graphite electrode plants in the world. And there is some real productivity improvement, there's a real competitive advantage that we believe cannot be replicated.

I do promise this is my last question. In terms of accelerating your restructuring programs, I wonder what the implications are in terms of increased restructuring charges this year?

Obviously, you're not going to see us close any more plants so the heavy lifting is behind us. We have six graphite electrode plants and we're going to have six go forward. And if there is some opportunities on the acquisition front, you're going to see us look very hard at those. So our platform will grow from here forward. So the six will get the 250-plus at a minimum and that is how we're going to power the competitive advantage that are inherent in this platform we've all worked so hard to build over the last few years.

Thank you.

James, thank you.

Bob LaGaipa, CIBC World Markets.

Good morning. I just had a few questions for you. One, I wanted to find out, just relative to -- obviously we all understand the demand has been strong for the electrodes. What I was trying to get a better handle on was what kind of inefficiencies possibly that has created within your plants, just the fact that demand has been so strong? And secondly just with regard to the Brazilian plant, the fact that it was shut down for awhile, if you were actually out in the market purchasing any product to meet demand?

Let me deal with the purchase first. We did not purchase any product. The market is extremely tight right now, and so we did not purchase any. We probably lost about 1000 tons in sales, if you ask me to estimate what we lost there in the first quarter, which we could have easily sold. And as far as the strong that demand causing inefficiencies in our plant, no, we have some very professional teams out there. We like the strong demand. The stronger, the better and running our plants full, as we have shown the last two years, we are very capable of it. We have been running them full now for two years of quarter after quarter. Other than this first quarter, we have set literally historic production records. So we don't see inefficiencies created by the created by strong demand. Running a plant full, steady, reliable is what our team is designed to do. And we plan on running these full out for the foreseeable future. They are advantaged and that's what we're going to do with them.

I actually had a couple of other questions for you. One, I wanted to find out, just relative to raw materials, what kind of increased have you seen, just within the last quarter to this quarter, and what are your expectations for raw materials costs as we move in through the remainder of the year? I guess what I'm asking is -- what is built into the updated forecast?

What we have seen in the first quarter of course as Corrado mentioned, the petroleum-based, the pitch has been up significantly. We've got to look at oil, and pitch and oil are quite linked. But oil is up 20 percent this quarter so far. And so of course, pitch has been up dramatically. And pitch for us is a good 10 percent of our cost structure and it follows oil. And it is a regional market, as Corrado articulated. At best, you may be hedged three months if you're lucky. And so that has been painful and that has been up higher than we expected. Oil has been, in some cases, multi-year highs.

On the energy side, the power and natural gas has been high. We have offset some of the natural gas with hedges. But the power side, it's a regional market. That has been up. It has been up 6 or 7 percent in a lot of the markets and so we have felt that.

So Bob, I'd say in each one of those categories, pitch much higher than what we expected because the move in oil. Energy, higher than we expected and then coke, which is pretty much fixed for the year, but it came at the higher end of the range. We've been looking for 4 or 5 percent -- the increasing Coke absolutely has been at the higher end of the range. And coke is tight out there. The good news for us on coke is it is tight out in the marketplace and our coke needs and requirements are taken care of. And as this market continues to grow, I think we're going to see some difficulty in getting coke for some of the smaller competitors. But go forward, we're going to try and offset those increases with productivity improvements, but they are higher than what we expected. They are higher than what we expected even three months ago, especially with the pitch in power.

Okay. And just related to your supplier agreement from Conoco, that has already been negotiated, the price increase has already been implemented. I'm assuming there has been a price increase from that contract?

That is right. That is all done so we have some stability there back at the higher end of the range. And of course, we have inventory so Q1, we worked off let's say the prior price, the low-cost inventory. So we have Q2, Q3 that will be all the full increased coke.

Lastly, the remaining question that I had for you was just relative to the AT segment, the other segment, the impact of the cost from distribution that you had mentioned in the press release, maybe you could just walk us through that?

This is on the other segment?

Right.

On the other segment, one thing just looking year-over-year, let's recall. Last year, the margins were very high. And as I mentioned in the script, due to our team's ability to really put together some service package and deliver on some emergency orders, refractory orders, there were a couple around the world instances were our customers had some significant outages, breakouts in their furnaces, emergency outages. Our team was able to put together a service package, a product package. Some of it even happened over the Christmas holidays, carried into first quarter of last year and that is very well priced business. And so that is the higher margin you see in Q1 a year ago. So know that in the comparison.

Now in Q1 versus Q4, yes, there is a little bit more distribution cost in there. They are feeling some cost increases in that business, also refractory in carbon electrodes. Obviously, they used some petroleum-based products, they have gas and power usage. So they felt some of that increase. But that business is up, that business is running strong, as is the steel business. So we expect that business to continue to perform nicely over the course of the year.

ETM of course is in that business, so you're going to see that I think start to have more and more impact over the course of this year. We were delighted with the first quarter. We're delighted in electronic thermal management. They have 100 percent of Sony's flagship launch, this VAIO X-505, which is really a step change in the laptop industry. If you get a chance to look at it, it is so small, so efficient, so high-powered of a laptop. And of course without the fan, the battery lasts longer. It is all kinds of benefits, it's a step change in the industry, which of course the only thermal management product ion there is our eGraf. And our eGraf of course was critical to allowing that laptop to look the way it is with that kind of power, size and weight. As we go forward, I think you will see that other segment start to contribute more. And the only thing I would note again, as I said, the quarter-over-quarter comparison was a little distorted.

Thanks.

Andrew O'Connor, Strong Capital.

Good morning, guys. Commensurate with your EBITDA guidance of 150-165 million and the earnings of 55-65 cents, I wanted to know what are you looking for the top line in full year '04? Revenues in '04?

Revenues in '04, we were looking Andrew at over 800 million, 810-815 million.

So we will be 800 million-plus.

So if my math is correct, that would suggest an EBITDA margin of maybe about 20 percent, not quite 20 percent, up quite a bit from 13 percent in '02 and 16 percent in '03. Wanted to know how much higher do you think you can get the EBITDA margin, or what would you look for at your peak?

We won't give you guidance here, but obviously, we're very pleased with the trend you just articulated, 13 to 16 to 20. And our team has been working very hard on all of the action items that delivers that kind of a trend. So obviously, our mission, as I said earlier, grow the competitive advantages in this platform and continue to grow that EBITDA and cash flow. As we get to 250-plus metric tons, obviously, that is going to have a very positive impact on EBITDA and the EBITDA margins.

I think Andrew, without about the percentage, we have talked in the past about returning the quality of earnings and the quality of that margin to a level that in the future, looked more like 200 million of EBITDA. And of course, the cost could slow that a little bit. But with the machine and the revenue side that Craig was articulating, I don't think it will stop. We're headed for that level.

Secondly, I wanted to know with EBITDA again of 150 to 165 million, what free cash flow are we looking for in '04 and how do we get there?

We haven't given specific guidance, but we're absolutely at that inflection where we have turned cash flow positive from operations. We mentioned that in the release. That is very important to us. I think it is important to note that cash flow from ops even includes some of these legacy obligations, including the antitrust, etc. So the inflection is very positive for us. We look to really get that number up and stable. It is the goal. I will stop short maybe of giving you a number, but we're at an inflection. It is positive from here forward and we believe stable and growing from here forward.

And the CapEx of 40 million?

About 45 is our guidance for this year.

45, Craig?

45, and that includes the debottlenecking work we talked about in Spain.

Thank you very much.

Michael Gambardella, J.P. Morgan.

Good morning, guys. A couple of questions. Could you give us an idea just going forward the rest of the year, the breakdown between fixed and variable costs for the rest of the year?

We haven't given the cost guidance in per-ton terms in recent past, Mike. Generally speaking, the variable cost can be two-thirds of the total. And that is really where we've seen the input pressures with the coke, with the pitch, with the gas on the totally variable costs.

(indiscernible) side, of course, Mike, as we continue to grow the platform, that's been going down steady year-over-year for us.

In terms of that two-thirds variable cost, how much of that is you possibly hedge?

Break it down, Craig mentioned pitch is 10 percent, difficult to do, although we're evaluating. Coke can be up to 40-50 percent of those numbers. We believe we have 40-50 percent of the variable number, maybe 30 percent of the total. We believe we have stability in that number. We're not necessarily happy with the increase for this year, but we believe we have stability. And then strategically of course, we have the reliability of the supply. The gas and energy are components that we evaluate constantly. The answer to your question is between supplier relationship and other synthetic means, it's a reasonable -- if you throw coke into something that we are able to manage, it is a pretty good number. But there is still 20-30 percent there that is exposed.

On the coke contract with Conoco and needle (ph) coke, how far is that contract and how fixed and variable are the prices?

Mike, we've fixed generally is for a one-year fix, and so it is opened up once a year, fixed for the upcoming year. And that is about as long as we go, that we can go on an individual fixing. And obviously, the contract is, because we're the largest buyer and they have a significant portion of our business, it is -- you should look at that contract as evergreen.

On the cost side, in terms of, it sounded like you are really not considering a surcharge for any of your customers. But you have the South African contracts coming up, which I think are about 6 percent of your total sales. I think they come up midyear.

That's right. They come up June 1st, Mike, and they are about 6 percent of our sales.

I am assuming you can cover your costs on those.

Absolutely. That one is fair game, and of course the market is very tight and so the South African market is well positioned for a nice increase.

What have you seen recently on completed transactions in the spot market? And how much more do you have to go there?

Well, I can give you a color. After we announced the 150 increase globally and, which was 115 in the euro land, we have been doing business, spot business, at the 150 up. So in the U.S., we have done deals full price 27.50. You remember U.S. base price is 2600. And with the 150, 2750. So we have done deals there and the customer, quite frankly, has gladly taken the product. So it remains tight. You'll recall the entire industry followed that 150 increase. I think the entire industry is going to feel the same increase and probably even to a larger extent than what we're feeling here in Q1. And I would not take surcharge off of the table. It's not something we've ruled out, it's something we continually -- I don't want you to put in your plans by any means. But by the same token, I don't want you to say we have ruled it out. It's something I think is very valid we have to look at and we continue to look hard at it. And I think the rest of the industry is feeling these same pressures we are.

Do you sense that on a global basis, we're going to see any supply shortages in graphite electrode because of the raw materials situation?

The one that could aggravate it would be coke. We have heard of some difficulty of some smaller players getting the coke. And these would be in some of the markets, like we have heard that in Russia, that high-quality coke has been short. And as you know, there is a couple of smaller Russian producers and they buy some of that high-quality coke and they don't make a very good electrode but they try to start with the best coke that they can. And we have heard that that has gotten tight. We hear that coke producers are running full out and are tight. And so we would not be surprised. If steel continues to run like this, we think there could be some coke shortages on the horizon later this year.

On the ETM business, I think it was back in September last year, you mentioned that your ETM order book was about 8 million for 2004. Can you give us an update on that?

Yes. Our order book remains firm and 8 million -- you're absolutely correct -- is our last guidance out. Obviously, we're delighted with Q1, 2 million, up from 1 million in Q4. And we continue to work closely with major customers. Obviously, we have in the pipeline a lot of commercial wins to come, like the Sony X505. And in the July conference call, we will update that 8 million. We will refresh that number. As we said, I think the last two quarters, we'd like to wait until Q2 this year and refresh that. Obviously, as I think all of you are aware, these projects sometimes have a year, year-and-a-half work. And then you get into the latest generation as it comes. And so Q2 -- we look forward to that conversation with you all in Q2.

Final question. Just could you give us some guidance on depreciation expense, interest expense and effective tax rates for the rest of the year and for the year as a whole?

Yes. Depreciation should come in around 34 million, and interest expense we think will be about 35. Obviously, a lot of progress made on that line. You all know the reasons, but go back a few years when that thing was 70 million. And then on a tax rate, our expectation is 35 percent.

And on this depreciation, because last year, it jumped around quite a bit. And first quarter around 9 million, and now guidance of about 34, somewhat less for the full year. What is causing the depreciation to move around like that?

I think this quarter, the number is actually 8.5. So in the rounding the million (multiple speakers). So that is consistent with the 34. I think the only volatility comes that 98, 99 percent of our depreciation is our manufacturing facility, so it will fluctuate with inventory. I don't expect to have any major fluctuation, other than rounding for this year though, because we are running full. We are running -- we're making and selling just as fast as we can, so it should be more stable.

Great, thank you.

David Bear (ph), Providence Advisers.

Hide there. Just a couple of questions to follow-up I think on some themes that other people have raised. When in the quarter did you really get a sense that these expenses were going to be perhaps more than you had really anticipated? Is sort of the first part of the question. And the second part of the question was back -- maybe if you could give us some more nuances on how you approached (indiscernible) surcharges to customers. Are you precluded from doing that in any of your long-term contracts? And is it more just an industry dynamic, or is it some combination of the two?

On the first one on the cost and the Brazilian outage, as we said, Brazil was out for about 45 days. And the Brazilian outage and then how long it was going to take to repair became apparent pretty much in the latter half of February, early March. Obviously, as I said, we keep a lot of spare parts and a lot of the critical components. It just happened that the extent of this one, some imported parts, and so it took longer to fix. In fact, share the details with you, the imports got hung up in customs. We had some issues there, not uncommon in some of the countries. And so net-net, it was 45 days, so longer than we expected.

On the cost side, likewise, in the middle of February after we got February closed, so we closed February, that is kind of the second week of March. We start to get a feel of the actual roll-through of the cost. And so I would say in March, we started to get a pretty good flavor that that cost trend is above what we expected. We have had a lot of dialogue with suppliers over the last three weeks to get an indication of where are they going, what are they thinking, what is oil doing to them? And that became very clear to us that this is going to continue at least through the first half of this year. And of course, we spent a lot of time in the three or four weeks on our productivity projects. Can they be celebrated? Can they be moved forward and which ones should be, can we spend some money to get more out of it quicker? And so we've gone through that drill. And net-net, that became very apparent to us that this cost is going to have an adverse impact on us in the first half and effect our overall year.

And then the pass-through part of the question?

On the surcharge, I think we have been clear. We haven't taken it off the table by any means. And we ruled out -- yes, we do have some contracts out there that the wording would be such that it would be a challenge. But again having said that, we have -- the entire steel industry just went through that and they also have a number of contracts, some which have that wording as a challenge also. So I'm not going to say every one of our contracts is -- it would be an easy one to execute. There are some that are on a spectrum that would be more difficult than others. There might be some that would be not advisable for us to do that because of the language and the terms and conditions in those contracts which we would want to honor.

Okay, so the roll-through process really does not happen until the next major round, which is really the end of the year?

The next sure window where roll-through will come in the next negotiation. Whether or not there are sure to surcharges I think remains to be seen. I think it is still an open issue out there. As I said, I don't want to take that off the table yet.

Okay.

Bop Schenosky, Jeffries & Co.

Thank you, good morning. I had a couple questions for you. First, can you give us an update on Mexico, in terms of the timing of the output, as well as the timing of the cost benefits?

Thanks, Bob. Mexico is running at the 60,000 metric ton run rate. That project is already done, debottlenecked. You may be referring to Spain, which is on the come. Spain will ramp up over the course of this year and it will go roughly from a 45,000-ton level to 55,000 ton-plus. And that will ramp-up over the course of the year. Of course, we're trying to accelerate that because we believe we can sell everything we make today. And the team is working around the clock to make that happen as soon as it can be done safely. And by the end of the year, we will be at at least 230 plus capability.

What I was trying to get out of Mexico is when you think year-over-year, what are the cost benefits of the additional output on a per-ton basis?

On Mexico, remember, Mexico used to run at about 42-45,000 tons and now it is at 60. So for us, roughly on a cost side, let me put my head here together with Corrado to isolate that one. If you want to look at big picture, we used to supply that out of the U.S. plant. So taking the U.S. plant and the cost structure of that out of the picture for us, Mexican cost is a couple of $100 plus plus per ton lower than the U.S. plant. So maybe that's a way for you to look at it. We knocked a couple hundred dollars out of that equation to service NAFTA. So NAFTA used to be serviced by two smaller plants. They used one in the U.S., one Mexico. Now they're serviced by the largest plant in Mexico, a couple hundred dollars plus plus a ton cheaper to do that.

So you should be saving about $3 million out of Mexico, is that fair?

I would say that, and --.

Probably that.

At least, I would say we've got that out of Mexico. When you look fully loaded, at least that. You have to look at where the costs are going, too. Medical costs, all of those things in the U.S. continue to accelerate 19, 20 percent. SO I think where very comfortable with that number, Bob.

For '04 on a year-over-year basis?

And I would say the only additive to that would be that, while Mexico -- remember, we had a situation where the U.S. and Italian plants came out and we were really servicing the world in a less optimal way. And in other words, moving material from Brazil or Europe to the U.S., etc. Once Mexico came on, not only did we get the 2-3 million of leverage, if you will on the existing facility, we were able to then mitigate some of those incremental logistical and/or mainly logistical and/or inefficiencies that we were experiencing for a little bit there too. So it is probably higher, a little bit higher.

And those should be showing up this year?

That's right.

And then in terms of Spain, is there any incremental operating cost increases because of what you're trying to do from a debottlenecking standpoint?

No. It's all on the plus side, it's all in the good. This will be more throughput. Literally, we will add to some of our hourly workforce team there. But the salary team will stay the same and this is just more efficiency out of the same -- basically the same assets.

There is no negative to implicate there. We literally, once we get the tonnage, we will immediately reoptimize the network.

Just to ask the same question a different way, can you quantify the impact of pitch and power for the balance of the year, relative to first quarter?

It remains to be seen. They're still escalating. So we won't give you a number now because they're still moving up. But pitch was up -- oil's up 20 percent in the first quarter. So the direction on pitch is up 20 percent. Now some of it we had already fixed for the first quarter. We're going to see more pitch increases in the second quarter. In the first quarter, pitch was up over 10 percent. I think we're going to see net, from the end of last year to the second quarter, it will probably be up 20 percent, moving in tandem with oil.

And pitch being about 10 percent of our cost.

Because I'm trying to get a handle on what you're building in, in terms of some of these costs, relative to the 55-65-cent range.

You're hitting the right.

Those are the right parameters. Energy is up a good 7 percent. The trend is still biased on the upside, so there is probably room to run there. And obviously with our earnings guidance for the year, we are trying to put it in a range that we feel extremely comfortable with.

Well, with the bias of energy higher, how long have you locked in?

On natural gas, we have an active hedge program. As Corrado said, we took the winter strip -- that worked out very good for us. In Q4 and Q1, gas was up significantly. We I mitigated most of that. We've brought -- some of that hedge is unwound. Natural gas has come down a little bit. And so we will continue to monitor it. We usually are hedged over the winter months at least 60 percent of our natural gas. Power is a little bit more difficult. Power is a regional market, country by country. In some countries, it is literally zone by zone. You have a local power company. We are a big user, so we do have some leverage. But let's say globally -- electric power has been on the up-trend, and in some regions, significantly up.

Do you buy most of it fixed, or are you interruptible?

No. We usually to try and get in a contract where we have a very nice baseload because one of the things that we bring to the power company is guaranteed offtake. And they love to have that in the portfolio. So we usually try to represent that. So we have a fixed base we will take, and then we try to get as much flexibility as we can above that fixed base so then we can run the plants exactly like we want. We try to get enough flexibility in the range so that we are not running it at the nighttime versus the daytime. We like to get a nice steady rate so we can run full out and not have to shut things down in the daytime. Usually with our base, we're able to negotiate that way.

On a kilowatt hour basis, how much higher are you higher this year than you were last year?

As I said, I think we're going to the up at least 7 percent.

Are you naked on natural gas for the year now?

Right now, I think we're probably 10 percent is still left, and that's going to unwind completely by the end of this month. We constantly -- that could change before the end of the month, but right now things being equal, if we don't do anything, the last contract will unwind by the end of April.

I just had a couple more quick things. One, again, not to beat a dead horse here as well, but I would think that the timing of any pass-throughs would be optimum here. Nucor has done it and for the first time on scrap, they've been very successful relative to their shareholders. Earnings have been coming up, the stock price is reflecting it. And one would think that if the steel companies are ever going to take on such an increase now would definitely be the time to try to do that.

We agree with your observation, Bob.

The one thing that Bob (indiscernible) brought up, and I would ask the question again, you talked about you've been producing full out for a couple of years here. But I just want to understand, again, you ran into some operating problems in the third quarter, fourth quarter of '02 with mismatched sales and production. And I would like to get an understanding that that is not the issue moving forward. I know how difficult it is when there's such high demand that you want to basically placate every single customer. But I also want to understand that you're not operating at such levels that's going to impair the gross margin, because you guys should be minting money at this point in time?

Again, the high demand and any adverse impact that has on our plants, no, that is not the case here, absolutely not. We run a global platform with a very sophisticated computer model. Our plants are given production orders well in advance, planned out. They don't decide day by day what to make; they know well in advance what they are to make and we make it where it generates the highest cash profits for us. So that's a well-oiled machine we've worked very hard on the last two years. And in fact, it's part of what has allowed up to get more throughput out of those plans, and as we have said, run those plants very safely. I think I mentioned in the last call, we're broken every safety record in the last couple of years. Part of that is having a very well-oiled, disciplined machine that knows what they're supposed to do that people are -- have their plans and they're not doing exactly what you are saying -- could that the happening. They're not screwing around, trying to fill different orders, last-minute, no planning. That's not an efficiency we have in the system right; that is not what impacted us in Q1.

That should be fixed from '02 then?

Absolutely.

A question on the Brazil outage. What's the threshold for you to make announcements, in terms of outages, to the analyst community?

A lot of our plants have a couple of rectoformers, and so in this case, one of the ones in Brazil went down. Material to us. The way it turned out, yes, it is very important to us. It lasted longer than what we all expected, had to import parts. Parts got hung up in customs. But this one for us did not reach that level of materiality. If we had a major plant go down, it was going to be extended and it was going to significantly impact the volume and guidance. Obviously, we would react as soon as we saw that coming.

You said that cost you 2 million in the quarter then. What's the threshold -- is it 5 million?

I would go 5 million-plus, to us.

I'd think for investors, it might be a little bit lower, though. Finally the left I have -- is there any update, in terms of any of the asset sales?

We have 25 million set up for this year on target and we are working on part of that. It's probably a $5 million piece, maybe a little bit more and we will keep you posted. What we do on those -- when we get them done, we announce them. And so the team is working on it.

Thanks for your time.

Thanks, Bob.

Bernard Diggins (ph), Gardner Lewis Asset Management.

Hi, guys. good morning. Obviously every one of my questions has probably been asked 19 times so far. The only big I was looking through my notes -- I was trying to find a specific time where you had given specific revenue guidance for 2004 prior to this morning. And I'm just curious, had you talked about a target number prior to today, 810 to 815?

I think indirectly, probably, Bernhard. We gave volume and price guidance of graphite electrodes, we gave ETM guidance. I think if you -- if all other things were held equal, you'd get a number consistent with what I said earlier.

I was at 800, so I just didn't know if anything had changed on the sub line there.

No, I think that's right.

Great, thanks guys.

Do you have any more questions in the key?

Andrew Berg, Financial Management Advisers.

Hi, guys. I have just a housekeeping question. What is the available on the revolver at the end of the quarter?

It's undrawn, Andrew. It's a EUR175 million revolver over 200 million in dollar equivalent, undrawn.

Okay. You know, roughly I think at the end of the year, it was like $230, $300 basis. Do you know what it is today?

Yes. The Euro equivalent today would be I think closer to 210. So absent any letter of credits, it would be over 200 million.

Okay. And you don't have any LCs against it right now?

About 10 million.

Very small, normal, business LCs. So think of that facility as undrawn.

That's how I usually do.

Fully available.

I appreciate it. Thanks guys.

Rod Fewer (ph), Strong Capital.

I am going to beat a dead horse here, but let's say that it's a year from now and all of your contract are up for renewal. You have a lot of complicated hedging in the synthetic market. I would think that if you were to go to all of your customers and say, you know what, from now on, everything is a pass-through. We're not going to hedge anything. We're or two percent of your total cost of production. This shouldn't be a big deal for you guys, but it is a big deal for us. What is the precedent for that? What do you think the feedback would be if we were a year from now today, what is the feedback you think you would get from the customers?

Bob, on the precedent, it hasn't been done in our industry in the past. But having said that, the scrap surcharges that the steel industry executed this year, and I think that was one of their first times in recent history to do that. So there's not a precedent, but it doesn't mean it is impossible. As I said at the outset, I believe all of the competitors are feeling these cost pressures, some of them obviously because they have a smaller buyer probably feeling it, Rod, even more so than we are. And so let's stay tuned. Let's see where our industry goes on this. As I said on the surcharges, we've not taken that off the table. Obviously, we are feeling the pain of this cost escalation and working offset it, but so is everybody else in our industry.

Just to verify that you are only a few percentage points of total cost production, correct, for the steel guys?

That's right. We're 2-3 percent of their total cost. Thanks, Rod.

J.D. Padgett, Founders Asset Management.

I had a couple of questions. One, just kind of looking at the signed synthetic graphite line. Excluding the electrode sales, it looks like everything else was in that category was pretty strong this quarter. Would you expect that to continue at this kind of run rate through the year?

The balance of that was pretty good. And as far as continuing, I think those businesses are on track. But lets recall -- they also use the same kind of raw material input cost. So they're going to see some pressure in Q2 on their cost structure also. Some of them worked off inventories that were lower cost. And so I think you have to factor that into it. But those other two businesses in there continue to perform well and the end market demand is good and improving.

From a revenue perspective, though, you think this kind of run rate or slightly improving through the years?

Yes. I think in that kind of range revenue, they should fall in that kind of range over the course of the year.

I suspect in the first quarter, the contribution from those two product lines was higher than you would've expected?

Tell you, not really. One is aluminum and we have been expecting that. We've been in that business a lot of years, so we understand it very well. The other one is our advanced graphite material, kind of the specialty graphite material, which goes into some of the end marks, our electronics defense aerospace. Well, of course, semiconductor has been picking up, defense aerospace has been picking up. So we've been expecting those to have a better year this year. And you saw some of that in the first quarter.

And did you, anything you're talking about today change you thinking on kid of the average price realization on the electrodes side this year?

As we said earlier, I would say Q2, again, depending on where the euro has been. Euro was off on a tear there for awhile. It has backed off now, it is below 120. Depending on there that goes, we would look for Q2 to be 2500, 2525, something like that.

What about on a full year basis? I know at one time you had kind of talked about 2550?

We would still be looking at that kind of range. But again, depending on the Euro, could it be 2525? It could be. That's a $25 difference, pretty small. But I would say on an annual basis, 2525, 2550, can we be there? Can be there. Spot business right now is going to 2750. As more spot business in the current market position like last year tends to come in the second half of the year and price may even be higher in the second half of the year in the spot market. And so I think 2525, 2550 is still very good numbers.

So anything you can do above the 210 and volume would kind of go towards those spot?

That would help weight it, that is right. That would help weight it. And to the extent steel continues to run strong and stronger, I would expect more spot business. The customers book an order for so many tons, and if they run harder than they expect it, many of them at the end of the year, the fourth quarter, have a tale of their needs that is not covered under contract and they pay the new spot business price.

Operating expenses for you guys -- any reason to think that the trend there changes meaningfully over the next three quarters?

No. I think you should plan on that continuing. We have talked about the various issues and pressures and items there and some of the opportunities we're working on in productivity.

So to keep that flat at 25 million a quarter, is that?

Yes, I would.

Can you push that down at all?

That is the mission. Absolutely. Would I like to see that at 21? Absolutely. That is our team's mission. We've been bringing that down VSP, SSP programs, those kinds of things. And we have to be relentless on that.

So hopefully, the trend is down?

Yes.

The final question, just on the interest expense discussion that you had kind of in the footnotes here, did not make a lot of sense to me. It kind of talked about the 7 million that we saw in the first quarter going to 9 million and the second quarter, but then the full-year number. to get those things to foot kind of implies in Q3 and Q4 that it steps back up above 9 million?

I think the run rate of 9 million is the right number. So I think that's what we would be saying, you know, 34-35 million. Is there a confusion between what happened in Q1 versus that run rate? Is that your question?

No, just if you had 7 million in Q1 and then 9 million in Q2, so 35 less 16, divided by two, kind of gets -- implies that it steps back up above and beyond 9 million Q3, Q4?

I think 9 million is the right number. So that would be 27 plus 7, right, 34, but we are sensitive to the rates, so we have some exposure there.

So that is kind of building in a little bit of an increase in the rate environment of 35?

Right.

Great, thank you for the clarification.

Justin Livengood (ph), Merrill Lynch.

Good morning, guys, how are you?

Good morning, Justin, how are you?

I would like to revisit the topic of full-year guidance, specifically the Bob Schenosky line of questioning a moment ago. If pitch and power prices do not move for the next 8.5 months for the rest of the year, what, if anything, does that mean for your guidance?

We'll -- it's still in the range that would represent, if they stayed flat and productivity improvements, that is upside for us obviously. Right? So that will be the mission. You're asking -- what if they just stayed flat all the way through the year?

Right.

We will be in the range, that is our guidance we've given. And our mission and upside would be offset those and even more than offset those, and that is the upside. So the range covers that kind of eventuality, if they stayed flat.

So the guidance does not contemplating any improvement in energy or hitch costs for the back half?

That's right. We've tried to be quite conservative here and it does not expect that, okay, these things outside our control are going to take a big turn here and get better.

Gotcha. And one other small question. On Brazil, were the 45 days of down time all before March 31?

Yes. We had it back up and running, so we're running full out now, it's running very well and we expect to set an all-time quarterly record of production in Q2.

Great, thanks, guys.

Thank you, Justin.

(Operator Instructions). Jeff Cross, Cross Capital Company.

I just wanted to see if I could clarify in my own mind the bottom line application, if the rectoformer in Brazil hadn't gone out on us. Would that have added maybe a penny or two to EPS, just assuming everything else had been roughly the same and we had not had the extra expenses and had not lost sales from it?

It would have added a good 2 cents.

Good 2 cents, okay. I had a whole bunch of other questions, but everybody took care of them.

Thanks, Jeff.

John Schaefer (ph), Hahn (ph) Capital Management.

Hey, good morning guys. I was just curious whether you guys had any material change in mix, in terms of your full-year guidance. Has there been any change in terms of mix that might have affected sort of overall price realization or your revenue line and accounted for any of the -- sort of the lowering of guidance?

The items we have articulated so far are absolutely the major items on the impact of this lowering of guidance. In the case of mix, John, what we are seeing, Asia is running very, very hard. China is running very hard. So our Asian sales are coming in larger than expected. And so Asia, of course, has got a nice price increase there last year, 200-plus spots, but it is still today one of the lower-priced markets. You will recall it is now around the $2400 level, 2350. So if there is any slight shading in mix, it would be more in Asia than expected. But in the context of what we've talked about here today, that is not a major item.

Okay. And then secondly, on the debt repurchase, could you walk me through the math of that and get me to how -- by my figures, you issued 3.2 million shares to buy it back I guess $35 million. I'm not sure whether there's a market value or face value on bonds, but it works out to be something slightly less than $11 a share?

There are two modifications to your understanding. One is that we think the average price of the bonds in the first quarter were closer to 115. And so obviously there's a higher cost there. And we would also exchange for that price, plus accrued interest. So I think you will see that the average share price would be in the mid-13s.

Okay, perfect. That's all guys.

Management, at this time, there are no further questions. Please continue with any further remarks you'd like to make.

Thank you. Thank you everyone for attending the call and we look forward to talking to you in our second quarter conference call. Thank you very much.

Ladies and gentlemen, this concludes the GrafTech first quarter conference call. If you've like to listen to a replay of today's conference, please dial 1-800-405-2236, or 303-590-3000 and use the access code of 575516.