GrafTech International Ltd (EAF) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Graftech Quarter Three 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 "*" followed by the "1" on your touchtone phone and as a reminder, this conference is being recorded today, Thursday, October 28, 2004. I would now like to turn the conference over to, Ms. Elise Garofalo, Director of Investor Relations. Please go ahead ma'am.

Thanks, Jason. Good morning, everyone, and welcome to our conference call. At this time each of you should have received a copy of our press release. If you haven't, please call Salim Gotfever (phonetic) at 302-778-8244, and we could fax or e-mail you a copy. Before we get started this morning, I'd like to remind all of you that both this release and this call contains 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 discuss any non-GAAP financial information, you will find reconciliations in our press release or on our website.

This morning on the call we have Mr. Craig Shular, Chief Executive Officer of Graftech; Scott Mason, President of our Synthetic Graphite line of business; John Wetula, President of our Natural Graphite line of business; and Corrado De Gasperis, our 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 I will take you through our third quarter and year-to-date highlights, then open it up to questions.

In the third quarter, net income before special charges was $12 million or 12 cents per share, significantly improved over the prior year quarter which had net income of $3 million or 4 cents per share. Net sales increased 19% to $206 million year-over-year as all of our businesses delivered higher sales. In the graphite electrode business sales volumes was 55,800 metric tons, 12% higher than last year. The average sales price increased to just over $2,500 per metric ton versus $2,340 in Q3 last year, up about 7%.

Gross profit increased to $54 million, up 30% versus $41 million in the third quarter of last year. In addition to higher graphite electrode sales, gross profit benefited from running our graphite electrode facilities at capacity where we set new production records in all six facilities, favorable order patterns and product mix in both our carbon refractory and advanced graphite material businesses, and electronic thermal management sales of $3 million in the quarter versus about $0.5 million in Q3 last year.

As previously reported, we incurred higher operating expense of approximately $3 million in the quarter for infrastructure growth in our ETM business, new global IT systems, and Sarbanes-Oxley compliance efforts. These activities are critical for strengthening our platform and supporting growth initiatives. EBITDA was $38 million in the third quarter as compared to $23 million last year, a 65% increase year-over-year. Q3 EBITDA margin was approximately 17.5%. Our team has worked hard to improve EBITDA margin over last few years and has grown it from 11.7% in '02 to 14.7% in '03 and now to current levels almost 18%.

In Q3, interest expense was $10 million, the same as Q2 and we expect Q4 interest expense to be approximately $11 million due to projected higher interest rates. Cash flow from operations increased to $10 million in the quarter after bond interest payments of $19 million and $3 million in antitrust payments. Capital expenditures were $10 million and non-strategic asset sales were another $5 million in the quarter. As a result, net debt was $616 million, down $4 million from Q2.

On the graphite electrode front, in the third quarter, we set as we set graphite electrode production records achieving an annual run rate of over 230,000 metric tons. This represents almost a 30% increase in our annual capacity since the beginning of 2002. This increase in capacity is a critical component of our productivity initiatives and coupled with our market segmentation efforts allows us to continue to leverage our advantaged low-cost production platform. Finally, we raised global prices for standard melter electrodes to $3,500 or Euro 2,800 per metric ton for all new orders as of November 1, 2004.

Turning over to our electronic thermal management business, we had ETM sales of $3 million in the third quarter and as we said that compares to less than $0.5 million in the same period last year and is about 50% higher than our total ETM sales for all of 2003. We expect Q4 sales revenue for this business to be approximately $4 million for an annual total of $12 million. This business continues to gain traction. Our team has obtained its first approval for Dell after over 12 months of work. This application is Dell's latest generation ultra light laptop. Dell had been a prime target of ours due to their large laptop business and also their initiatives into other very large electronic product segments. We are pleased with the progress in this business and as previously announced, we will grow our headcount in this business from 140 to approximately 200 by the end of 2005 in order to support growth initiatives.

Turning to outlook, the steel industry continues to run at high operating rates and demand for graphite electrodes is strong. Q4 electrode sales volumes is expected to be approximately 56,000-58,000 metric tons. We expect earnings per share to be 11-13 cents for the quarter. For the 2005 book, we have approximately 60% of our anticipated electrode sales volume booked, approximately 2/3 of which is melter graphite electrodes. These bookings are a high percentage -- these bookings are a higher percentage than we typically be booked through October. This is due to steel customer advancing their 2005 [meeting] process as a result of high steel production [offering] and continued supply demand tightness in the graphite electrode market. Across all of these contracts, we have built in the ability to reopen them to affect a surcharge in the event of adverse material change in our cost. We secured approximately an average of $325 per metric ton increase on the booked melter graphite electrodes used in large electric arc steal furnaces, primarily in North America or approximately 13% over the average 2004 price for melter electrode. The remaining business booked to-date represents other graphite electrode products segments where we have targeted growth primarily representing less demanding ferrous and non-ferrous applications.

Prices in these segments tend to be lower than the melter segment and reduced average graphite electrode revenue per metric ton. Prices in this segment are approximately $100 per metric ton higher than in '04. The balance of our 2005 order book is being built primarily in Europe, Middle East and Asia to go. Based on the order book built to-date, we expect our average 2005 graphite electrode price to be between $2700 and $2800 per metric tons.

On cost side for '05, we secured about 95% of our needle coke requirement and fixed the price on about 90% of that volume. Needle coke is our most important raw material representing about 30% of our production cost. The needle coke market remains tight and we have recently seen spot increases quoted in excess of 20%. We expect average price for needle coke for ourselves in '05 to increase between 10 and 15%. Our team is working on securing other key raw materials for '05, which we will discuss in our Q4 conference call in mid-February. With that, I would like to conclude our prepared remarks and open it up for 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 "*" followed by the "1" on your pushbutton phone. If you would like to decline from the polling process, press the "*" followed by the "2". You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order that they are received. If you are using a speaker equipment, you will need to lift the handset before pressing the numbers. One moment please for our first question. Our first question comes from Bruce Klein with Credit Suisse, please go ahead with your question.

Hi. Good morning.

Good morning, Bruce. How are you today?

Pretty good. Thanks. I applaud your short comments, that was refreshing. Not for you for your [valuable] session today. On the GE side, what -- the surcharge concepts, how's that going work, I guess, this just have to go certain band on your cost and which costs are -- would be a buyer on a [inaudible] next year?

Bruce, we've not delineated a band in the contracts, the way the contracts are written is a material change in our raw material costs. And we've not specifically linked into a formula or a delineated band and it will be based on what we see on the cost side as we go into next year and then we would look to go ahead and announce the next Q surcharge. The marketplace will, of course, determine how much of a surcharge and how well that execution goes.

Okay. And then if could you help us on the needle coke market, I know you don't -- I think [Unicol] in its prior release was just kind of potentially sell that [inaudible] now making coke anymore, may be you could help us with, I guess, you don't buy from them, and you're kind of locked as you said for '05, but what happens, I guess, in '06, what happens to other guys that do buy them and what kind of market size is this?

Bruce is on the [Unical Lamont periods] it's firm, it's been sold and it's going to a party that is no longer going to make needle coke; at that facility, they're going to make low-grade fuel coke which will not make them a graphite electrode. So everything we have in writing in the formal announcements from them, that's a done deal. And what Unical is going to work on is bringing up the production at their [Cedra] coker, their second and the only other coker and they're going to try and make up that volume. And of course that remains to be seen to what extent that can be done and the quality out of that. The total needle coke market, we think, is a round just a bit under 900,000 metric tons and Lamont represented about -- probably around 95,000 metric tons of that total, but Lamont historically has been some of the best quality and so it's a major coker, it's probably the third largest coker in the world and so this represents a pretty significant portion of quality coke coming out of the market. And then just to confirm your other statement, yes, we have historically not bought from [Unical], we haven't bought for a number of years from either [Cedra or Lamar] and so we're less impacted by this, but looking at the needle coke market for '05 it was tight in '05 and we think it will be at least as tight and perhaps even tighter-- I'm sorry, it has been tight in '04 and we think it will be at least as tight in '05, especially with some of the steel production rates that we're seeing and the demand for electrodes.

And you said that [Unical's] second facility, what timing of when they are going to ramp it up and do they expect to ramp it up with your cost of capital under ramp up get back the full 95 or some piece of that or --

Well, our understanding and it's just an understanding, of course, we don't have the inside on -- inside the gates actions, but our understanding is they are in a process of ramping that up and that they believe they can do that orderly and that they can do that with minimal CapEx, all that remains to be seen. And so I think that's the unknown. Net-net perhaps something like 40,000 or 50,000 metric tons could be out of the market because of Lamont shutdown and then to the extent that [Cedra] can ramp up. So we believe there might be 40,000 or 50,000 net reduction in needle coke year-over-year.

So in any way I suspect that the ramp up could amount to that amounted given, [share] was 95,000, right?

That's right. So that's the variable. I guess we've seen a tight needle coke market this year and, of course, with this activity 40,000 or 50,000 coming out, question on ramp up timing and question on quality, we think needle coke is going to get tighter and I think we're seeing some of that spot price. We've seen this spot pricing of the needle coke go up here post their announcement and of course all that will be factored into graphite electrode cost structures as we go forward.

Any other, you know, coke capacity is being planned?

We don't know of any, we haven't been advised of any coming on, any additions at all and of course we're probably the largest buyer in the world of this products, so we're not aware of any coming on at all.

And the price of the GE contracts or your guidance you're giving next year of 27,00-2800 that kind of compares to your 25,00-2550 or so this year, so that's up a couple of hundred?

That's right. It compares to our 2,500 this year, absolutely correct. That's the average all-in cost for all the product segment.

Okay. I'll past it on. Thanks, guys.

Thanks, Bruce. Have a good day.

Thank you. Our next question comes from Brett Levy with Jefferies. Please go ahead with your question.

Hi, guys. Two questions, first off, can you give us a little bit of an update – obviously, you guys are bringing on some additional capacity, can you give us a little bit of an update on what's going on globally in terms of capacity addition?

Thanks Bret,. Brett, we, of course, are now at 230,000 run rate, that's gone very well for our team, is building on the successes over last two years and you will see us continue to do that, but I think as we've said earlier our objective is to exit '05 at about a 250,000 metric ton run rate and that we will execute right now. For the competition, the two Indian competitors have talked about adding capacity and we believe they may be working on adding somewhere around 15,000 tons over the course of '05. And other than that we don't see any other additions out here that have been announced or that we're aware of.

All right. And I remember that there was one sort of marginal Japanese player, has there been any dynamics -- I don't know, closing that operation or have strong prices kind of kept it going?

Strong prices, Brett, have kept them going and of course, as you know, we've led virtually everyone of the increases and led this last increase. So I would expect they're going to survive at the higher graphite electrode prices and they probably won't get tested until the next [trough]

All right. And then on the working capital side, can you guys give a little bit of guidance -- I mean, obviously higher needle coke and raw material costs are kind of impact your capital as well, can you talk a little bit about what you anticipate the working capital built will be in conjunction with that?

Yeah. We saw we had a net negative last quarter to this quarter, mostly swung around as we collected some of the receivables and we had a positive out of working capital. Let me toss it over Corrado and just talk to you a little about what we see coming perhaps next year in working capital.

Hi, Brett. I mean, without specific guidance, certainly there will a use of cash, you know, receivable as we continue to grow the revenue line strongly. And I think though that it would be much less so relative to inventory. There would probably be some use, but it would not be linear portion of [technical difficulty]

All right. And I guess last one, do you guys remain opportunistic about taking down the level of outstandings on your bond -- your outstanding bond this year?

Yeah. We always, you know, stated course of action and if there is no change in it, and we've been saying this all throughout the last couple of years. We will always look at opportunities to [review that]. We've done that consistently over the last few quarters and when we see opportune times and right pricing and we think it's right thing for our company, we always looked [at opportunities] and reduced our outstanding debt.

All right. Thanks very much.

Brett, thanks very much. Have a good day.

You too.

Thank you. Our next question comes from Robert Logetti (phonetic) from CIBC World Markets. Please go ahead with your question.

Hi, good morning.

Hi Robert, how are you doing?

Good. I just had a few questions for you, one, I wanted to circle back on the contract business of 60%, with the remaining 40% to go and given the reason price increases, is there any opportunity for that average price to creep up a bit and also just with the recent price increase as well, you know, what has been the response from competitors thus far?

Bob, on the upside on the 2700-2800 range, yes, you are correct. There was upside on that. What we have given is what we think is the most likely, but obviously here we've raised prices twice now during the book building process and 3500 execution would represent some upside in that pricing. On your latter part of that question, we have not seen any response from the competition on that increase and marketplace will decide weather or not that’s able to be executed globally. So, so far no feedback from the competition. It's still early, of course, but we are committed to get graphite electrode prices up to that level. We are firm on that like we have been on each one of the other increases that have been achieved to-date.

And typically at this point in the process, I know you have said customers had come in early and that’s why you are at 60% of your order book thus far. Typically at this point of time in the year, what's the more normalized percentage?

It's probably half of that, it's probably more like 25-30% at this time of the year. A lot of years you really don’t start much of anything going until second half of October or into November. So this is much earlier. This is earliest we've had in 10, 15 years.

And what's your view on the average price and if it's double your business in terms of the contract business that's done this early, was it a function of customers coming to you early recognizing the pricing is increasing in order to get a better deal, could you may be give us your thoughts on that?

Well, remember last year we were increasing prices too during the book building. So I am sure that’s an element of it. But I don’t know that that was -- we would call that the overwrite because last year also prices increases were put in place ahead of the book. I would say it's more -- our steel customers today, I would say, are looking forward in '05, they are very strong on their outlook for '05, most of our typical customers would be running absolutely fallout, seven days a week setting new production record and they see that continuing in to '05, most projections we look on EAF steel growth for '05 versus '04 is up 3% to 6.5%. So I think number one, most of our customers are looking for a strong '05, and then secondly I would say graphite electrodes have been tight as we have been saying throughout this year, supply has bee tight, inventory in the trade is low, there has been emergency shipment, there has been hick-ups in some of the competitors' supply schedule and there has been some emergency shipments etc. So I think it's the ladle really what made them try to secure their '05 requirements [inaudible]

Great, I have few questions, one, in terms of the surcharge concept, now I know it’s a generic surcharge, I know it’s a generic clause, but in terms of the timing and when we think about the cost, I mean, you still have a number of costs to go, you know, on the pitch coke and energy costs are always an outstanding issue. On a go forward basis, you know, the fact that 60% of your book is now walked in for next year and the fact that these other costs are still outstanding, how quickly can you act on the surcharge? I mean, how does -- maybe if you could just give us a little bit more details in that regard on if in fact these other costs creep up more than receipted, your ability and the timing on being able to pass those through?

Two points we'd like to make. Any surcharge we would do would be applicable to the entire book, so even those that are already booked. As you said some of the costs are still coming together now and so the extent we face a material increase on even the book material, we would view a surcharge would be across all of our graphite electrode product portfolios. As far as timing, I think you will see us try to do it earlier rather than later because of our attempt to try and recoup any adverse change in the raw materials. So I don’t see any limitation on when. There is no fixed period or wait period on when, it's more of a function of what we actually experience on the cost side.

Last two questions, in terms of the ETM business; obviously, we are seeing a creep up by 3 million this quarter, 4 million next quarter. Any initial indications as to what next year might look like in terms of revenue? And as a follow-up to that, you mentioned the fuel cell business in your press release, how significant is that for you at this point in time and how significant is these four businesses to ;dollar]?

On the ETM front, Bob, we will give '05 guidance on sales in the mid-February call and we obviously are building an '05 book, those product approvals -- as we've said on prior calls, often you get a product approval, but you may not start to get a production schedule for that until that model enters our customers' launch period or a customers' production schedule. So there is often a time delay. And so we will be building '05 production schedules and we are currently with our customers and so mid-February is a very good time for us to give that. And as you've have seen in the past we have given pretty much what we know we have got in hand because as said, you work hard, you can work 12 months plus on a product approval and then you might wait another 6 months until that generation model comes to production as a prior model fades out and gets replaced. So mid-February is our time to give that, we will give very accurate guidance on the sales and of course we expect them to, you know, the direction undoubtedly is up.

On the fuel cell side, our position on fuel cells, we believe, is extremely good. Having said that, this is a business we all know isn’t going to be there for anther 10 years or so in any kind of major volume. But in the transportation arena we have a 100% share and above 85% of all of the vehicles on the road today and that’s going across the Ford, Daimler, Honda, other Japanese automobiles. So we have a tremendous position there with our technology. And so we believe as this business starts to come to market and looking out the 7-10 year timeframe, this will become an important business for us. We continue to advance our product, Ballard is the market leader, we have an exclusive supply arrangement with them out to 26 teams, just an indication of the power of our technology, it's well protected by patent. So I think you should look at this as a business that won't come for probably 7-10 years, but right now Graftech is very well positioned with its technology and products in this arena.

ETM, you have seen us have some good commercial success there. You have seen us pick up now 2 years in a row R&D 100 Award, again a testament to some of this graphite material science that we are converting into commercialized products. So I would get you to look at fuels cells that way. We are going to give you updates now and then. Obviously, it's not important to our numbers today. But you are going to see us try to continue to grow that very large market position we have in fuel cells for the day that does come to market.

Sure, thanks, Craig.

Thanks Bob, have a good day.

Thank you, our next question comes from Bob Schenosky with Jeffries and Company. Please go ahead with your question.

Thank you. Hi, good morning.

Good morning, Bob, how are you doing?

Bob Schenosky. Good. First one just to back up Bob's questions a bit, with no feedback from competitors and I am reading that as they are not undercutting you at this point. Spot prices of 3,500, steel price is up in some cases as much as double. I am a little bit surprised you have locked up so much volume so early at these kinds of price levels, thinking that if you would have waited a little bit longer or may be open up a little bit more to spot business, you could have garnered a potentially higher price at, say, 2750 average. Any comment on that?

Bob, we can. We went to the book building with price up to 2750 and then the first move during the book building which we saw was coming with bigger volume, coming heavy and it quite frankly was proceeding quite well. We moved up to the 2900, 2975 levels you saw us book there during the book building. And again, business just kept coming in and much harder and faster. As far as the choice do we leave this off and take more spot, the decision kind of comes like this. The steel producers come in and your choice is you want to bid on my large volume, I need an annual contract, if you don’t you are not in that bid and they are going to place their annual business. And then what you are left with from that customer is to pick up perhaps any spot business he may have up during the year. In some case there is some f that, in other cases there is very little of that. So that’s the choice you have to make. Where we came out with based on what we saw in the building of the '05 book and how fast it was starting to build and the continued demand we went to the 3500 level, which is another significant increase. So our response to that was 2750 to 2900 to 3500 during the book building process.

Right, but I -- so this sounds like it's still the same in terms of the major mills kind of driving the negotiating process, we try to understand because the new [inaudible] electrode and you don't want to give up those customers?

Well, that's right. And so our choices for those big accounts to say, well, okay, I'm not going to participate, I'll hope later in '05, I guess some of your spot business and rather than to lose any of that volume, our response was let's raise price here again and then okay another time.

Right. No, no, I understand that. What I am asking about is more the secondary steel mills. Okay, you publicly stated you're going to get an average of 2750, spot prices are 3500, how do you drive the higher average price into those secondary mills now that you've already published at 2750 or can you? In other words, what is that 3500 really means?

Well, the 3500 is effective November 1, that's going to be our offer price and that will be our bidding price. And just like the last two increases, when we announced those, those were our bid prices and our team was very firm and committed to get those and of course we saw the positive result of that in the market come up. We are approaching the 3500 in exactly the same way.

But in terms of 3500, how much volume do you think actually comes out of that price next year?

Well, that's the question mark, that's what we're going to see over the next 2.5 months and that will be the final guidance we give in February and I think there was a final question on [inaudible] some upside of that range and, yes, there is upside to that ranging, of course that upside is driven to how much globally can we pickup at the 3500 level.

Okay. Just a couple of other quick ones, if I could?

Sure Bob.

In the last release of a 12-cent third quarter number, the fourth quarter would have been implied a range of 11-16 cents, you tightened the range from 11-13 cents, what changed in the fourth quarter because volumes are pretty, so what changed to take that top 3 cents off that range?

Well, we've got a little bit higher interest rate, we expect, I think, that will be up a million, we've got the continuation, you know, in the same numbers we've talked about before of the IT work and the Sarbanes work. So I don't think there is any real material change at all in that guidance.

Okay. Well, there is that 3-cent differential, would that have just additional spot business may be at a higher level that you just haven't been realized?

That could have been some additional spot, it could be have been some additional volume, it could also be an element of this which we're trying to be very, very strict on and that's no buying, we are not allowing customers to fill up at the old price, which obviously a lot of them or knocking at doors can we do that, we just don't think that's prudent and we don't think that's really going to assist in the last increase we've announced. So, I think you should look another element of that, I was just being very strict and rigid on no buying.

Okay. Very good, and if I could just finally then, you gave us a sense of needle coke cost for next year up 10-15% and if I missed this I apologize, but can you offer a sense of adamant average cost for your other inputs going into next year?

We would like to, Bob, it's bit premature for that and we're, you know, as I said, our team is working very hard on it, we worked hard on global bid and really trying to use the leverage of this much larger platform we built over the last couple of years and so it would be early for us to give that guidance and we will give you good guidance to that in mid-February.

Okay. Fair enough. What percent -- so if you could offer that, what percent do you think will be fixed for the full year?

I think our team is going to try and go to a very high level and that our target would be probably something like 75% fixed going into '05.

Okay. So then in other words, those surcharges you talked about effective with the contracts are effective January 1, that would be based upon that other 25% of costs which would be left in the market?

No. Not really because remember -- cost are continually go up and remember we already have lot of the books built and a lot of that booked out built over the last several weeks, so those costs are continuing to move on that book that's already been fixed. I wouldn't look this, you know, that surcharge -- surcharge will be applicable on the entire book and that cost is still a moving target in any surcharge calculation.

Okay. So in terms of a contract, sorry to deliver the issue --

That's okay.

If you've got a contract, say, with a major mill, they would have -- probably have a pretty good sense of what's fixed and what's not fixed, I can imagine the folks at the two big mini mills in the States wouldn't go to that type of level of interest, given that as an assumption, will they still be willing to pay into a surcharge if they understand that most of your costs are fixed for the full year?

Well, I would say for a lot of the contracts put together very small percentage was fixed. I mean, we're talking about coke and coke, as we announced recently, is fixed and that's 30%. So a number of contracts would have been put together and even that wasn't fixed, and obviously, coke is higher, coke is up. So I don't think anyone's going to point to any of these, Bob, and say, well, when you did my contract most of the yours was fixed. We won't have a high percentage fixed until -- and discuss it until the mid-February call. So, a lot of the contracts put in place were even before we've got the needle coke locked up and that's been done here in Q, you know, recently and as I said that's only 30%.

So you should get some surcharge then between then and February?

That would be -- our expectation is all of the book would be applicable to a surcharge and, of course, I'll say it again -- the marketplace will determine how much of that surcharge is executed.

Okay. Great. Thank you.

Bob, thanks very much. Have a good day.

Thank you. Our next question comes from Dirk Lohmann with HSBC. Please go ahead with your question.

Yeah. Good afternoon, ladies and gentlemen. Couple of question from my side, the first one may be just to clarify once more, you mentioned your capacity which increased to some 250,000 at end of 2005; coming from the European side, I would like to know whether you expect the market to grow that significantly in the next year or whether you try to increase your market share in Europe and then the U.S. by taking away the market share from your core competitors? And the second question just to clarify once more, you said you increased your prices to graphite electrodes, and you said that 60% occurred in order books, so roughly 40% would belong to those price increase or can it have the positive effect on your orders book for next year?

Dirk, thank you for your questions. On the capacity question, yeah, you're absolutely right. Our target is to exit the end of '05 at 250,000 metric tons. Very important to note, our intention as we have done with the increases to-date have been [technical difficulty] a number of market segments in the graphite electrode industry, and some of these segments are non-ferrous [legal] electrodes, etc., very attractive business for us, it is lower price business; however, these are lower cost electrodes for us to make, so it's attractive business. And it's business we believe in our large global advantaged production platform we're very well positioned to produce. In fact we think we can produce this better and cheaper than anybody in the world. And so we welcome this additional volume through our production facility. So I would look at this as going all through the EAF melter market, we've said that before, this is not all targeted for that segment; obviously, we're executing increases in that segment, a lot of this is to other non-EAF melter markets. And so we don't see this as a major disruption over the course of '05 us going to 2000 -- 250,000 metric tons.

On the price, yes, 60% is booked, 3500 becomes effective November 1, marketplace is going determine how much of that gets executed, but you're right, a fair portion of the open book in the EAF melter segments is all available to this kind of increase and our team is out there working on the execution right now.

Okay. Just one quick follow-on, if I may. If you could just give your view on the product side or as far as graphite electrodes is concerned, in Europe we are popping up a discussion that that was 800 millimeter or with a diameter of 800 millimeter have a very interesting prospectus for the next years, whether you have the same judgment here or how do you see the development of the diameter for your graphite electrodes?

Yeah. In the larger diameter of electrodes as a general group we think this is a very interesting area. These are the largest most demanding furnaces and of course today we make a 700 millimeter and a 750 millimeter. The 800 millimeter is an interesting product, it's one we don't currently make to-date by choice. We can make that product, right now the demand for that product in the marketplace is quite small, and we constantly review that and when we find that attractive our global network will go ahead and make that 800 millimeter and may be -- I wouldn't think -- I would see, you know, the historic progression has been to that to go up and I think in our time we're going to see an [technical difficulty] in a 900 millimeter. Any other questions?

Thank you. Our next question comes from Mr. Tom O'Malley with Pilot Rock Capital, please go ahead with your question.

Hi, Craig. I am just struggling with the fact that steel prices are up 100% basically year-over-year, and I totally understand that you have some very large accounts that you want to make sure you maintain that volume, but these guys are pushing price --they are pushing surcharges and it's not like to selling into the airline industry and I just don't understand how the pricing that you are realizing is so weak? We went into the contract season, it appeared to me that pricing is about 3150 and then we get another price announcement of 3500 and then we are hearing the 60% of the book is built at much lower prices despite what appears to be a very robust environment. I was just wondering if you can -- are you guys just afraid that you are going to lose market share, your competitors are not going along, they are discounting prices -- I mean, what's going on there ?

Tom, we agree with you. Steel has had some very good price increases and resulting economics. Obviously we've been seeking higher prices the last two years and have led most of the increases. And so we have worked very hard to bring up the Global graphite electrode price and we went in to the book -- you are right, we went in at about a 2750 in the initial part and then net up to 2875 increase, and then to 3150 and now again to 3500. So we agree with a lot of your observations. We think graphite electrode prices should be higher and we continue to lead and execute. As far as us executing those, oftentimes at each of those levels we give up a little volume as we hold very rigid to make -- to get that price and so our team has been doing that and has done it at virtually everyone of those levels and so far the marketplace has come up and we are working very hard on the 3500 right now. We think a much fair price for graphite electrodes is $3500 type range and we agree the industry we sell into is doing very well and themselves is executed a surcharge and that was their first surcharge in there industry and I think the graphite electrode industry because it's got a petroleum-based products also has to be positioned with the capability and the resilience to go ahead and execute surcharges.

I mean, do you think there is a chance that we do see higher pricing here, it just seems that you guy are going for market share because -- I mean, I don't have -- the $3500 spot price, that's for the large electrodes, right?

That’s for the EAF melter electrodes and in that segment I don' think we have had significant market share growth. The most of the growth has been in that other 30% and that’s the ladle and the non-ferrous and as I said, it's lower price business; however, cheaper to make. So it's still attractive for us and with the platform we built over the last few years, as I said, I think we are the best in world to make those segments. We should have decayed those segments, they are tremendous throughput to our plant and so we have been very diligent not to try and drive a lot of volume into the EAF melter market because that price need to come up. That electrode is an expensive electrode to make, it's got a lot of high priced petroleum-base raw-materials and let's see what the marketplace does here on 3500, we think that’s the right price.

And just within that segment, is that where we were talking about prices averaging between 27,000 and 28,000 right now, just within that large melter segment?

No, Tom, 2700-2800 is our whole book, everything, ladle, those low-priced ones we talk and EAF melter. EAF melter, you know, we are booking right ahead of the November 1 at the 3150. So the last bookings, if I talk to you about, you know, weather a last five in the book were at 3150 EAF melter. November 1, I would expect the next one in the book is to be 3500.

And what percentage of that business is contracted would you say roughly?

Well that we said, you know, of the 60% of our two-thirds of that.

Okay.

Is that, right? So I hope that gives you some clarity on the pricing and where are putting some of this capacity because it's important to understand those different segments because they are critical part of our strategy and they are critical part of us fully utilizing this advantaged platform we built.

I think you guys are doing a good job all around other than the fact that kind of I think the whole street was misled the pricing was going to be higher -- I mean even if the [spot is doing] 20% today, I don't think I am alone and being shocked to see the low price realizations.

This Corrado, Tom. I think that our efforts are to try to communicate much, much better and clearer the diversity in the book and from the financial perspective we have a clear vision that goes well beyond 250,000, you know, a machine that can generate in the near-term in excess of $200 million in EBITDA and we continue to drive improvements in segments that traditionally have been less -- I would say less reliable, lower quality producers, frankly who we wouldn't even consider competitors in the true arena or in the true sense of the word, yet we continue to grow with EAF, which has been stronger as a [late growth] prices, I would say faster than this industry has ever shown that it is been able to move. As Craig pointed out, you do lose some market share when you lead that aggressively. We have so far been able to maintain it overall though the mix has tended to shift, let's say, out of the North-American region and the European region into Asia, which we do want to get bigger, we think it's important to get bigger there. All of those have sort of superficial negative implication on the average selling price, but when you look at revenue, when you look at gross profit, even as a percentage -- but if -- more so overall and you look at EBITDA and cash flow, we are headed for the place that we delineated 3 years ago and frankly today, because of the -- I would say -- extraordinary success in productivity -- really extraordinary success in productivity -- we are looking at a place that’s even well beyond what we thought we could have done 2 years ago -- this notion of 275,000-300,000 in a very methodically, systematic way that allows for revenue and price growth in the segment where frankly there is only three or four producers that can make quality, you know, that the [negroes and bussies] of the world need to make the best deal. There is only a few players there. So dumping electrodes into that segment isn't very logical for us.

So there isn't an opportunity, I think, for us to do a better job and I think this releases is a good step forward in trying to explain the diversity of that marketing of that segmentation of that success albeit at an initial disappoint that on average the price may have been thought to be higher. So, we will keeping doing I think a better job at expanding our explanation -- that giving insight, we always draw the line, of course, if it's going to impact our competitive result -- I mean, we are trying to do things successfully here, but otherwise we will do it more frequently and more timely.

Sure and I just -- we just have the feeling over here that there was just such a strong steel environment, that we, you know, this is probably the best steel environment we have seen in a long, long time and we just would have may be thought that you guys would get a little bit more aggressive because the environment is so tight that the -- if a customer backs off for a month or so, you know, where is he going to go given that the market is so tight.

And not that we stopped -- 3500 I think is the firm move and we continue to access the market. I mean, especially in light of coke etc., we are very with hind side that we were, let's say, more aggressive in trying to lock in our requirements, we knew those requirements would be larger, but it's tight out there for coke. So we continue access the implication of that variable and that scenario on the market place. So I think the story needs to continue to play out and we will stay strong as we move into the market.

Okay, thanks for your comments.

Thank you, have a good day, Tom.

Thank you our next question comes from Valerie Davisson with Lazard Asset Management, please go ahead with your question.

Thanks. Can you talk about, Corrado and Craig, what is the mix shift between the EAF graphite electrodes with the non-EAF graphite electrodes between '04 and '05 and how much impact is that having on this average price that put in your press release?

Absolutely, Valerie. We have been growing for the last couple of years that 30%, the smaller portion to lower cost to make into lower price segment and that generally is ladle electrodes, it's non-steel applications, it's titanium dioxide, it’s a host of those very attractive business. And as I said our platform is so well positioned to produce some -- it's global, it's in the low-cost jurisdictions etc. And roughly I can give you a trend without giving the exact numbers. If I took you back a couple of years, the mix might have been 80-20.

What is in '04 and what's it going to be in '05 projected?

So a few years ago it was 80-20, last year it would have been probably closer to 70-30 and when I mean last year, last year is '04 this year. So, this year would be closer to 70-30 -- 70% EAF melter, 30% other segment. Now, going into next year, I think the mix will be closer to like a 65% EAF melter and 35% other segment. Obviously, we expect our volume will be higher next year, obviously, than this year.

Is there any geographic shifts between '04 and '05?

Yeah, there is a better geographic switch and it shouldn’t be surprising to anybody. Asia steel has been doing extremely well and as we have said on prior calls, we have been growing our there very nicely and so Asia percentage of our sales has been coming up the last few years. We built the much broader team out there. We had one small office and now we have four offices out there -- Singapore, Hong Kong, Beijing, Shanghai. So, we have tremendous coverage, technical people on the ground, and so our share out there has been growing, and '05 volume will be bigger than '04 volume in Asia.

Can you give me any percents on what you think Asia is going to be for this year and what's it going to be in '05 as a percent of the total because it really not have any impact on what your margin per electrode is if the prices are similar worldwide?

Valerie, because we are still building the book out there, you know, currently and over the next few months, I would like to stay away from that. That book building is in process -- still in process in Asia and so let us approve that until we get the book together. But directionally the last 3 years in a row and ''05, each year will be -- in Asia will be bigger volume than the prior year.

When did you actually book the business because the October 7 press release -- I don’t think it said anything about the fact that you had actually booked any of your '05 business yet, and I thought that on October 1 your price was at 3150 for the spot price, so I am confused like the last caller was confused -- if you didn’t announce it on October 7 and now it's 60% booked and in the spot price is 3150, I still don’t understand -- in the environment that we are in, I don’t understand why you didn’t get 3150?

The 3150 price was effective October 1.

Right. So the last press release you put up before this one was October 7 and you didn’t say anything about having booked any business for 2005?

Well, the only reason we wouldn’t have given a recap in the book at that juncture is remember we were building a book at that time. We have just announced the price increase. So the only reason is commercial competitive reasons and then of course we came out with the $3500 increase on October 15th. So the only reason would be not to disrupt any of our commercial activities and not disrupt any successes in trying to put that book together. That’s the only reason you wouldn’t have heard to an update that was X% on October 7. It was purely commercial reasons and as you know, October 1st, we took price to another level, we had the whole very firms losing business get that, achieve it, and then as you see even during that period we were looking at another increase and then that increase went to 3500. So that's the only reason. Obviously, not all of this 60% came in October, it's been building in the prior months.

Okay, but you told me that you control pricing centrally, you don’t control it within the business?

What we do is we don’t allow salesmen or regions or geographies or country managers to control price. We do that centrally for the entire globe. So we get clear visibility. We try not to let a little markets scuttlebutt one dialogue with one customer try to sway everything. So we control it centrally. We believe it's important to do that way if you are going to have try and execute price increases.

So if your current spot price is $3500, we are going to be disappointed then if you don't put the rest of the business at $3500 because if that's the price that you truly believe is out there in the market, we should be disappointed if you can't get contracts at that price?

Effective November 1, that's our spot price and that's what we will bid on the contracts as we have done on the 3150 and ones before that. And remember there are other segments in there. For the EAF melter, that's our price, 3500. There are other segments, as we said, are lower price. So you shouldn’t say all of the other business. The rest of the EAF melter, of course, that will be the objective. Now, I will give you one other little twist, our complexion is regional, Asia historically had a lower price which we have already talked about; you know, that price is, you know, [it has] been down around $2000 to $2100 if we go back a couple of years, so historically that’s been a lower price and --

Are Asians costs lower -- margins the same or margins are lower in Asia?

No. Our margins are of course driven by where we produce. Right? So we don’t produce in Asia. If I look at where most of those electrodes are produced, they are produced in Japan. So they are high cost electrodes.

Okay.

Okay. So that's how we go out to with the four Japanese competitors, we go up against. So, I would say those are high cost electrodes, but historically I am talking back 15 years -- Asia historically in our industry has been low-priced. I agree with you. I don’t see a reason why it should be and we’ve been attempting to bring that price up over the last couple of years and we are going to try and bring it up to this 3500 level, but I am just cautioning you that historically this has always been a lower price arena. It's an arena we don’t have a production facility and our sales have been a relatively small percentage of our total global sales, but that -- as we said in the earlier question, that’s been growing and of course our intention is -- around, you know, in our global platform is to have a production facility out there. But having said all that that’s the history, it’s a lower price geography, we don’t -- there is no reason it should be and we are working on price increases out there to the 3500 level.

Okay. Is there -- the other thing to it, I think I might be missing something, but I guess I don’t understand why you care so much about markets here when the global supply and demand for graphite electrode seems to be in your favor right now. I feel like you could be sold out or you could be nearly sold out at higher prices versus completely sold out at lower prices?

Well, Valerie, it comes down to working with the multiple of graphite electrode market segments and some of those market segments are completely unrelated to steel.

I agree and that's why the first question, I think that you did not address in your press release that there is a mix issue going on between '04 and '05? That I completely understand and I think we all understand that the margins on those products are at least as good as what you get on the EAF product. So obviously you are increasing your share in the non-EAF products in ''05, which is fine, it's probably a more stable market, it's more cyclical; however, on the EAF product, it seems to me like this is an environment where you could have a little less volume at -- I don’t know -- a couple of hundred dollars a metric ton higher?

On the EAF melter segment, as we said to an earlier question, we have not aggressively attempted to put a lot of product into that segment. We have not aggressively attempted to grow the share in there. Some of our share has gone up over the last couple of years because a couple competitors went out and okay, we grew share as, I am sure, a lot of other competitors when some of those facilities got shutdown in the last [trough]. So we enjoyed some of that and our platform was capable of picking of picking it all up, but most of the share increases -- the vast majority of the share increases, to be clear, are in those other segments and they are attractive segments for us. And as you see, we have been able to grow in those segments and completely run our facilities full which from a productivity standpoint is attractive to us.

Okay.

That's why we look at global market share. Global market share, we believe, we are up from last couple of years 19% to 23% or so.

Okay. I don’t have any further questions. Thank you.

Thanks Valerie, much appreciated your questions.

Thank you. Our next question comes from Robert Winters with Zesiger Capital Group. Please go ahead with your question.

Good morning.

Good morning, Bobby. How are you today?

I am okay. Before I ask I have got a couple of questions, follow-up to what other people said, but I do want to know this, Board of Directors listen to this call or do they get a transcript?

Yes, they -- yes to both, they listen to these calls, they join on a regular basis.

First question I have, let's take all of everybody's issues and really bring it down to a point, it seems to me you guys dress up a lot of your answers in market share and different product issues. Has this company achieved any net debt reductions in the last two and half years that hasn’t been done through an equity offering?

Bob, if you look back to --

The simple question, it’s a numbers' answer. So, I'd just be interested to know what net debt reduction has been achieved that has not occurred through the issuance of equity in last two and half years. Give me those in numbers.

Last two and half years we have come out of the [trough].

Again, just the number.

Since '98, it's been dramatic. That's the answer. Last couple of years we're coming out of the [trough] -- paying off all of antitrust liabilities, the answer is no. Since '98, the answer is, yes, we had 1.4 billion of total obligation down to 700 million. So, we have generated cash and we intend to generate a lot of cash as we move forward here leveraging the economies of the scale and the demand in quality in the core segment. We feel good about it. We understand that we -- there is more to be had and I think we are wined on that front. We want more, we are never satisfied and we think very methodically we are gaining share in segments that aren’t the major melters and very aggressively -- as aggressively frankly as the industry has lead us, we would like the industry to move faster, we are trying to get the prices in that major segment up. I think we understand some of the disappointment on that front.

Corrado, you underestimated, [Tim] I go back a long way. I understand what you say about 98 and all of those things that that the Company and industry has been through. Again, this is the -- referring to '98 through to 2004 doesn't really do justice to fact that there was huge industry downturn, but more importantly, in last two and half years, particularly through to-date, you've probably seen [experienced] steel cycles in decades around the world and it won't last for ever. And I don’t know the exact number, but my hunch is that I am not really sure any net debt reduction has been achieved during this upturn in the in the steel cycle, absent an issuance as the issuance of equity. And you guys are increasing your capacity, increasing your market share. Why don't we look to the copper industry where those guys cut capacity during downturn, they are all making [inaudible] of money right now and then they are start bringing back production capacity coming on. This is a cyclical industry and you have to make money when the sun shines. And you guys talk about $3500 a ton and wanting to implement that. But the reality is a year from now it will be almost a miracle if that the steel cycle is still strong globally. So $3500 a ton given the fact that you have already booked 60% of your book to your most important customers really doesn't mean much to your bottom line or to your equity shareholders. It only is going to mean anything if the economic cycle globally and steel cycle is still strong into 2006. And I like a number of your other callers are confused, you said the steel cycle -- and we all know it's incredibly strong, the market is incredibly tight, the raw material by which you produce your products and your competitors do, you are basically saying it's going to become even more scarce. Your customers came running to you looking for to lock up early and you guys are saying you're basically with a 10% price increase. And if you look from the bottom and even if I average out for the mix, your [bottom line of the] cycle is roughly around what $2200 per metric ton?

About $2100, Bobby.

Okay, $2100. So, $2100 to your average, okay, that you are projecting for next year and even if I assume you conserve, you're basically saying from the [trough] to the top [well] through to next year, 30, 31% increase in price. If I am not mistaken, tell me your customers have increased prices by that amount five different times. And I am confused just what you guys as a management team and frankly what your board is sort of sitting here and is okay with the fact that this cycle is going to pass by pretty soon and you really are not going to achieve as a cyclical company normally what occurs ed in a cycle which is debt reduction to the growth and profitability of the business. What you are really talking about is that you are going to have a lot more market share at the end of day.

Bobby, we agree with a lot of what you have said, Steel has had a great year here, and we will probably have great and even better year next year. Obviously, we would like a higher price. We have now led I think this year four price increases and now the last one to $3500. It’s a global market. We have got other participants in the industry. Our growing share, again, has not been in to the segment that we are talking about where this price of $3500 is applicable and so we have worked very hard not to -- in your example of copper, very hard not to disrupt those efforts. We I think led virtually every one of those increases, obviously we would like a higher price and we will continue to do our [inaudible] to get this price up to a fair level for graphite electrodes.

But I guess what you are not -- what we as outsiders don’t understand is if the industry is that tight and you are the lowest cost player in the industry, why don’t you simply just shut the window and say $4000 -- $5000 a ton. We are going to take margins and customers if you don’t like to go build the order book somewhere else and then when you need more you come into paying new price because during the next downturn, you are the lowest cost producer, you are the highest quality producer, are you telling me that you have trouble building the order books then after doing that?

No, I don’t know if we were necessarily at trouble -- trouble doing it. I think that’s one approach, that’s one strategy. Here we are at $3500 level. You mentioned 4000, but here we are at the 3500. Let's see -- I think like -- like I said it’s a global market, let's see what the marketplace delivers.

Okay, the marketplace has delivered for an extended period of time here, more than anybody who's predicted very strong demand environment, and as I said and I guess and assuming that I didn’t get an answer to it. No net debt reduction has been achieved outside of an equity offering?

Yeah, your point is well taken. It's been a nominal amount. We have, as you know, on the legacy items, close to 400 million paid out cash to settle those [first] behind it, and that ate up virtually any free cash flow that was generated during those periods that you just have mentioned.

Okay.

All right, Bobby, thanks you very much for your question.

Thank you. Our next question comes from Greg McKisco (phonetic) with More (phonetic) Capital. Please go ahead with your question.

Yes, I just like to better understand looking at the percent -- understanding the EAF melter, this year I guess what you are saying is that in '04 we understand that 70% of total synthetic revenue was in melters. Is that right?

Yeah, roughly the split was about 70-30 split, that’s right, Greg.

70% of synthetic revenues. So 70% of -- sort of year-to-date of 466 million revenue?

For graphite electrodes. If you are talking about our synthetic LOV, there is a couple of other businesses in there. There is the capital business, and the advanced graphite materials.

Graphite electrodes, Greg, was 65% synthetic and then EAF was about 70% of that 65%.

Okay and then looking at that, just to understand again, then you have booked about 40% of the -- of your electrodes, that are EAF melters, how much is left out there to be booked in '05 at the potentially $3500 a ton?

It would be -- the remaining 40% of the book to be built 70% of that number would be melter, so.

65%. You said earlier, 65%.

I am sorry, let me -- there is no confusion. 65% of our total revenue is graphite electrodes. 65% of or total revenue is graphite electrodes. It's about 80% of the synthetic segment that you referred to. That’s just -- you just looking at segment data, graphite electrode is 80% of number. Now, of graphite electrode, 60% of the order booked is built and 40 is to go and in both of those components, the done and the to go, there is about a 70-30 split of melter versus, what to say, non-melter. So of the remaining 40%, 70% of that number or 28% which --

70% of that number next year, 28%.

So remaining to be booked in melter.

At $3,500.

Presumably at 3,500, yeah. That’s right.

Okay. Thank you.

Thanks, Greg.

Thank you. Our next question comes from Ryan Harkins with Credit Suisse. Please go ahead with your question.

My questions have been answered. Thank you.

Thanks, Ryan.

Thank you. Our next question comes from Dan Berkery with UBS O'Connor. Please go ahead your question.

Yeah. A three short clarifications and a question, may be you can give short answers on them. Since there is no confusion on the next call, this 40% that's not booked, that 78% or 70%, Craig, EAF, none of that’s going to be booked between today and November 1st, is that correct?

Yeah, virtually very little. There might be one order in there, yeah, for your focus ---

Okay. So we could take that 28% down to a low 25% when we think about the 3,500 price?

Fair enough.

Okay. Second clarification, 75% of your total cost right now are fixed of which 90% of your needle coke cost are fixed, is that correct?

Okay. The needle coke is virtually all fixed for '05 and that’s 30% of our costs. The target is to get 75% fixed going into 2005.

Okay. So, you are somewhere between 30% of your total cost of goods sales and 70% your total cost of good sales fixed right now?

Yeah, that’s right. And we continue to work to get it up to that 75% level.

And again one, that’s going to be 75%.

That’s our target.

Okay. Second question on -- or clarification on surcharges, they are going to be based on your cost to good sold.

Correct, they are on our raw material and input costs that we face in '05.

Okay. My question is basically from the sounds of that, your cost of goods sold that you are going to be fixing are basically petroleum-based. Your raw material costs that you are going to be raising your revenues through surcharges on are also petroleum-based. And in effect what you are doing is basically making a large bet that petroleum continues to increase which adds more revenue to your fixed cost base where you expand margin, one, is that the case? And two, if you are wrong in that assumption in petroleum, you were to go to 25 and your cost were fixed this year, I would assume your competitors who are floating are going to be able to undercut you in the spot market, so how should we think of margin if petroleum prices were to move down to 25 a barrel, again?

The way you should think at and this is a very good question, Dan, and one, you know, it's [important] to get the clarification. Our contracts are not linked to a formulae or a benchmark petroleum price in any way and that’s not been in the history in our industry. So if petroleum prices went down, I don’t think you are going to see any change in the prices in graphite electrode market. Okay?

Even if your competitors were to price in the spot lower to their floating?

Yeah, even in that case because our competitors, most of them, are much smaller players, they pay a higher price and I'll tell you, most of them try to lock up their cost also. We face often times the same suppliers and so they generally do not run a whole year spot on the big items. They are just too significant to them, most of our competitors are single plant locations. And so I wouldn’t see disruption in this global market if somebody decided, okay, I am not going to fix pitch, I am going to go ahead and let it run open and pitch is like 12% of the cost to make a graphite electrode and I think we get overwhelming benefit from that. I think what you would probably see is our large buy would overwhelm any difference if they did take that strategy. Our large buy and the leverage it brings to the marketplace would overwhelm, hey, I went fixed versus spot on one plant producer. So we don’t look at that as the major risk in our marketplace. This is more to protect our cost structure for variation in all of our input cost and of course a lot of them were under pressure and have being going up over the last couple of years. And a book get built sometimes 3, 4 months before the year even starts and now the costs are to come in or get fixed over the course of the year. And that’s our intention here, it's to try and protect against those adverse material increases in raw materials.

Thank you, very much. Good luck.

Thank you, sir. Thanks Dan

Thank you. Our next question comes from Michael Christodolou with Inwood Capital. Please go ahead with your question.

Good morning. Just on the same issue, trying to get a sense, you mentioned the last price increase was announced to wall street on October 20th, but I think you suggested it actually got announced to the industry on October 15th. I am just trying to understand the mentality of the customers who may be thinking they are getting a great deal, so they are booking early, when was the concept of surcharges ever first brought with customers and how much of that 60 points of your order book that’s now filled have really gotten filled here in the last 10-15 days by customers who may think that they are front-running inevitable higher prices?

The 60% has been booked over the last 8 weeks or so, so it's not been a big lump in October, if you will. And on the dates, October 1st was effective the increase to 3150. So in the month of October that was our price and the mid-October was when we went out and announced the November 1st increase to 3500, we may be -- I may be off a day or two, it's mid-month that we went out effective November 1. So book got built over the last 8 weeks or so, with the very front-end of the book, you know, we were at around 2750 level, then 2950, then 3150 this month of October and then November will be 3500. So that’s kind of the sequence and those are the three increases over the course of the book building.

And with the concept of surcharge, is that built into everybody including the first guys in line of 2700?

What we have done is everyone of our contracts globally, we have put language in that allows for this price to be increased and reopened in the advent of our material increase in our raw material costs. Now, as I said earlier, it's going to depend on the marketplace what gets executed. Our prior contracts did not have language that allowed for any of that reopening. Now, what could happen, we could reopen and customer could say, I don’t want to accept it, I am going to go somewhere else , that could happen and that’s why I said the marketplace is going to determine. If everyone else says, -- if it's tight, if everyone else has felt increases, then one would expect everyone else is going to be in the same -- all the other graphite electrode producers will be in the same position, not unlike what we have seen in the steel industry. A few of the participants in the industry went out and announced surcharges because the raw material increases and all of them were facing similar raw material increases and that entire industry executed a surcharge.

A few more questions. I thought I heard you say that you heard no real response from competitors, does that mean nobody has gone from 31 to 35 or nobody else is putting surcharges or exactly what?

Yeah, Mike, it only means we have not heard anyone announce that they are going to 3500.

Okay.

So, competitors announced at 3150 and as I said, we booked a -- we have orders booked at 3150 which, say, the market's moved to the 3150 level. And thus far we have not seen anyone else moved to 3500 yet. It's still early on the game, so like as I said the marketplace is going to determine, supply-demand is going to determine where this goes.

Any sense of whether or not competitors have built in a surcharge mechanism?

I don’t know for a fact, but I'd say the changes we made in our contract were not a major issue. So I would assume that the competition probably has similar types of language in their contracts because it's not been a major issue in any of the geographies so far.

And a last question, you have mentioned that Asian margins historically are lower, are they looking better to the degree you have booked any Asian business as part of the 60% of the '05 order book -- driven kind of as is where is?

Yeah, price is up in Asia, so absolutely price is up. So as we said, it's tended to be historically the lower price market, but price is up. What’s gone into the book for ''05, every one of those prices is higher than what it was in '04.

Great. Good luck in seizing the moment.

Thanks, Mike. Much appreciated.

Thank you. Our next question comes from Jason Goins with Franklin. Please go ahead with your question.

Hi, thank you. I guess, my question -- first, my first question is to Craig and Corrado, and my question is given the significant downturn on stocks there, are you guys buying shares in here? and second I'd like sort of more information on how you guys are incentivized to deliver for shareholders from here? Whether there is a specific graphite electrode price you guys are targeted to achieve or profitability's metric or exactly what the metrics are for you guys?

Thanks Jason. Just speaking about Corrado and my purchases and the management team purchases, I think if you go back and look at we have been regular purchasers throughout the last few years; obviously, we don't telegraph those buys, but I think you see we -- especially Corrado and myself have been regular buyers throughout the year and neither of us has -- and I think I speak for the entire management team, has ever sold the single share of stock or [cashing] of our options. So that's what our holdings look like, we continue to grow those holdings.

On our metrics, our metric is primarily delivered and delineated around growing cash flow and so the extent we grow cash flow and accelerate cash flow, that's what our metrics are for the entire company. So it's not a specific pricing graphite electrode; obviously, a higher price is going to grow cash flow much faster than a stable or lower price. So we are driven by cash flow -- to some of the prior questions on debt paydown, that's one of the reasons our team is got a metric that is primarily cash flow each year and growing that cash flow year-over-year.

I guess my second question is, have you guys given any thought into entering into longer term contracts given the strength of pricing, is it possible that you can go to your customers with a -- I don't know -- $3200 price and get that locked in for than a year?

You know, that may be a possibility, the other side of that though is the challenge in trying to lock in raw material costs. We've been working very hard on our raw material costs just to lock in for a full year, that's not always been the case in our industry for a number of the raw material inputs. So we've been working very hard just to get those locked in for the full year. In the other words, we build the book and we have line assigned to the costs and those costs are locked up for the year, so we have some stability over the course of the year. So the counter to that, Jason, would be -- if we did, we would face that raw material movement in the second year or the third year. Having said that, obviously we look at this all the time and if we felt the economics were right and the cash flow was there for us and we would obviously consider it, but typically it's not what we've done so far.

Okay. Thank you.

Craig Shular Thank so much. Have a good day.

Thank you. Our next question comes from Robert Logetti (phonetic) with CIBC World Markets. Please go ahead with your question.

Hi. Just had a quick follow-up question, to get back to the product mix issues and the relative margin, can you may be give us a better sense and I understand there has been a lot of focus on here regarding the average realized price, but I also think it's very important to look at the margin, can you give us a better sense within that mix? Obviously it is shifting more to the lower quality electrode -- lower price electrode, you mentioned there're comparable margin, what's the opportunity on a margin basis with those lower quality electrodes?

Well, it's early to talk until we get book together and we get the raw materials together, but our expectation is year-over-year '04 to '05 we will see margin improving. And so if I can get you just look in a total basis for now until we give full year guidance on '05, this is attractive business for us and year-over-year we expect margin improvement in our total portfolio.

Can you give us some sense of the average price on that other book of business?

Well, that others segment, a lot it has prices down around $2200, but it's got a lot of variation that will even move around the 2200 plus or minus a few hundred bucks, it's a whole host of different size electrode, different formulation into those electrode and completely different applications from making titanium dioxide to making platinum. And so in total, think about something that looks may be like 2200, you know, so it's low price 2100, but there is variation around that plus or minus of few hundred bucks.

With that book being built this year into next year, you've mentioned roughly $100 increase, can you give us some sense of what the pricing has been on an average basis historically within that business? I mean, is the pricing rising and if it's rising, is it rising as a result of the mix within the segment and how should we think about that?

It's rising I think because that the overall segment is seeing some -- in general seeing some increases and so that $100 is on that full overall segment. Obviously, there is a few pieces there where they are may not be implacable, but our team's efforts have been to improve the pricing there, obviously, the [input] costs are going up. So it's been a critical part of the mission. But average price, as I said, think of it something like 2100-2200 and it's up 100 bucks.

Okay. Thank you very much.

Thanks Bob.

Thank you. Our next question comes from Paula Horraty (phonetic) with Harmance Pension LMB (phonetic) Please go ahead with your question.

Thank you. I just have a minor clarification to ask, if one looks -- you announced your price increases and then 10 days later your competitor announced the similar price increases, I think back to the battle day when there were problems with the antitrust authorities, and I was just wondering whether this practice of announcing price increases has been checked and double-checked with your Legal Counsel?

Paula, thank you very much for the question. We are -- absolutely have been through -- I mean we have an entirely new management team here and the old management team went to [inaudible]. So we are very focused that our company has absolutely no activity whatsoever like what was incurred in the past in the global graphite electrode industry. So I don't see that an issue, which is very strict, very strict control over this, very strict control legally, educationally, etc. and so we see absolutely zero issue in this area.

Okay. So and then just -- thank you, and then following on the [brief corollary] and obviously you also checked with counsel about disclosure to clients prior to make it -- to customer prior to making any announcement?

Absolutely, our legal department is strong and broad and intimately involved with every aspect of our business, and at every meeting and because of the legacy I would say in this particular area our management team and our company has gone overboard to ensure that our company never has another issue like that legacy.

I hope so, and your comments show [me that], thank you.

Thank you Paula, thanks very much.

Thank you.

Thank you. And our next question comes from Jessica Tom (phonetic) of Goldman Sachs. Please go ahead with your question.

I just wanted to clarify, could you prioritize the free cash going forward whether it's through share repurchase for the company as a whole rather than individually for management or debt paydown?

Prioritizing, you said the cash flow?

Yes, with your free cash flow and do you first repurchase some shares or reduce debt?

I'm sorry, you're just breaking up and I think I got the question. Absolutely without question, the priority is the leveraging, it remains to be leveraging and that's what we would do first. I don't think until that will be meaningful, I don’t think we would start to consider equity repurchase.

Okay. Thank you very much.

Thank you.

Thank you. Ladies and gentlemen, if there are any additional questions, please press the "*" followed by the "1" at this time. As a reminder, if you're using speaker equipment, you will need to lift the handset before pressing the numbers. Our next question comes from Private Investor, Greg Linnet (phonetic). Please go ahead with your question.

Yeah, I have a question. The contracts that you implemented 8 weeks ago that are [inaudible] as far as the 6% of the book you have built so far, have you gone back to any of those and issued a surcharge, notified them already you got the surcharge [inaudible]?

Greg, we have not and I think action on that front if it comes as I said would be on the entire book.

Why don't you try it, since it's early?

Well obviously we keep very close tabs on input cost and we're building the '05 raw material contracts as we speak, as we did with the needle coke and so we're staying very close to that and the good news is we have the ability to attempt to execute that and we will stay very close to it.

What is mechanism, is there a [burden] approve or do you just notify them, do you notify them on a month-to-month, week-to-week, you're never done so far, I'm just wondering how does it work?

Well, I think in the steel industry you saw them talk about their input cost and their scrap cost, you know, and point to those as justification for their surcharges and then a lot of our input costs are major products and you see some of them impacted by movements and petroleum and so it would based on overall market movements and those. I don’t think transparency is going to be a major issue here. I mean you see them pretty clearly in our cost structure like we saw them in the steel industry for scrap and so as I said this is -- we kept it broad because we have a number of input cost from coke to a [PH], natural gas, power etc.

Craig, if you do implement a surcharge, how would you -- are you going to notify Wall Street that there was a surcharge?

Yeah I think you see, like other companies who've done like steel industry did, they issued a press release.

And is that historically normally your book really -- you didn't start building your book until late November or December, but the New Year, is there correct?

Yeah, that’s been the your historical practice when most of it started to come together it's been earlier this year, as we said.

Okay. So have plenty of time if you want do that and see how it takes.

Yeah, there is no time restriction, if we came to the conclusion this was required, we have no time restriction or time lag and I think our mode would be like all the other companies in the arena they have done it, it would be notify our customers and also issue a press release.

What is the estimate of the debt pay down for next year? You all have a cash flow number that's [inaudible]?

We haven’t given guidance to that yet, Greg, and so we will try and do that and hold back towards the February call on Q4 and the '05 guidance call.

Okay, thank you very much,

Thanks Greg, have a good day.

Thank you our next question comes from Jeff Cross (phonetic) Balt (phonetic) Capital. Please go ahead with your question.

Yeah, just to make -- well, actually can you give us a little more detail on the existing '05 book. Is it possible for you to provide the average melter electrode price that’s in that book? So we really are comparing apples and apple?

Yeah that would be -- I would say -- I got to be a little careful here. But it's just a tad under $3,000.

Well if I use 2950, it would be a good guess?

Yeah, I mean it's we may be a little bit higher than that, I think that’s a good guess.

Okay, that’s my question. Thank you

Thank you Jeff.

Thank you gentlemen. There are no further questions at this time. Please continue.

Thank you, Justin, and thank you everyone for joining the call. We look forward to update you on Q4 and giving the '05 guidance in our standard conference call in the middle of February. Thank you very much. Have a good day.

Thank you. Ladies and gentlemen, that concludes the GrafTech quarter three conference call. If you would like to listen to a replay of today's conference call, please dial 303-590-3000 or 1-800 405-2236 followed by the pass code 11011318. Once again, if you would like to listen to the replay of today's conference call please dial 303-590-3000 or 1-800 405-2236 followed by the pass code 11011318. You may now disconnect and thank you for using AT&T Teleconferencing.