Occurrence of any of the events or circumstances described above could also have a material adverse effect on our business, financial condition, results of operations or cash flows.
No assurance can be given that any future transaction about which forward looking statements may be made will be completed or as to the timing or terms of any such transaction.
All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC’s rules, we have no duty to update these statements.
We are one of the world’s largest manufacturers and providers of high quality synthetic and natural graphite and carbon products and related technical and research and development services. We manufacture graphite electrodes and cathodes, products essential to the production of electric arc furnace steel and aluminum. We also manufacture thermal management, fuel cell and other specialty graphite and carbon products for, and provide services to, the electronics, power generation, semiconductor, transportation, petrochemical and other metals markets. We have 13 state-of-the-art manufacturing facilities strategically located on four continents, in more diverse locations than the facilities of any of our competitors. We have customers in about 60 countries, including industry leaders such as Arcelor, Nucor and Bao Steel in steel, Alcoa and Pechiney in aluminum, IBM, Intel and Sony in electronics, MEMC Electronic Materials in semiconductors and Ballard Power Systems in fuel cells.
We have the largest share of the worldwide market for electrodes and cathodes. We have a uniquely positioned global manufacturing network, which we believe cannot be replicated by any of our competitors due to the capital investment, technology and process know-how required to do so. We believe that our network has the largest manufacturing capacity, has one of the lowest manufacturing cost structures of all of our major competitors and delivers the highest level quality products. Over the last few years, we have rationalized our graphite electrode and cathode facilities and redeployed capacity to larger facilities in lower cost countries. This allows us to achieve significant increases in productivity and output from our existing assets, including economies of scale and other cost savings that we believe will increase as we grow our sales. We believe that our network provides us with the operational flexibility to source customer orders from the facility that optimizes our profitability and, with the continuing consolidation in the steel and aluminum industries, provides us a significant growth opportunity in serving larger multi-plant global customers.
We believe that we are the industry leader in graphite and carbon materials science and high temperature processing know-how, and that we operate the premier research, development and testing facilities in our industry. We have over 100 years of experience in the research and development of these technologies, and our intellectual property portfolio is extensive.
We believe that our technological capabilities for developing products with superior thermal, electrical and physical characteristics provide a differentiating advantage. These capabilities have enabled us to accelerate development and commercialization of our technologies to exploit markets with high growth potential for us, including patented advanced pin technology for graphite electrodes, patented processing technology for high performance graphite cathodes, new products enabling PEM fuel cell commercialization, and new electronic thermal management technologies.
We have developed, over the past two years, natural graphite electronic thermal management products and secured product approvals and purchase commitments from a wide range of industry leaders, such as IBM, Intel and Sony, based on superior thermal performance, weight, adaptability and cost characteristics as compared to alternative products. Thermal management products are designed to dissipate heat generated by electronic devices. We expect demand for our products to grow as industry trends continue toward smaller, more powerful electronic devices that generate more heat and require more advanced thermal management solutions.
We are the leading manufacturer of natural graphite products for PEM fuel cells and fuel cell systems. Fuel cells provide environmentally friendly electrical power generation. We expect continued commercialization of fuel cells, encouraged by current governmental programs and driven by concerns relating to the U.S. electrical power grid, environmental protection, foreign oil dependency and other factors. We estimate that the market for our fuel cell products in 2012 will exceed $500 million. About 85% of the 175 fuel cell vehicles that were operational worldwide in 2003 and are expected to be operational in 2004 were or will be powered by Ballard Power Systems fuel cells. Our products are essential components of those fuel cells. Ballard Power Systems, the world leader in PEM fuel cells, is our strategic partner under an exclusive product supply agreement that continues through 2016 and an exclusive collaboration agreement that continues through 2011.
Our synthetic graphite line of business constitutes its own reportable segment, and our natural graphite and advanced carbon materials lines of business together constitute our other reportable segment. See Note (4) to the Consolidated Financial Statements for certain information regarding our reportable segments.
Over the past few years, we faced extremely challenging business and industry conditions. Our management team responded to these challenges and transformed our operations, building sustainable competitive advantages that enable us to compete successfully in our major product lines regardless of changes in economic conditions, to realize enhanced performance as economic conditions improve and to exploit growth opportunities from our intellectual property portfolio.
During this period, we have successfully rationalized and repositioned our unique global manufacturing network, redesigned and implemented changes to our manufacturing, marketing and sales processes, accelerated technology development and new product commercialization, achieved cost savings, restructured debt and other obligations, and managed antitrust liabilities.
Our goal is to create stockholder value by maximizing cash flow from operations, and our business strategies are designed to expand upon the competitive advantages that our initiatives have created. Our strategies include:
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Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
General
Reference is made to the information under “Preliminary Notes – The Company” and in our other SEC filings for background information on our businesses, industry and related matters.
Repositioning Our Global Manufacturing Network and Other Initiatives
In January 2002, we announced a major cost savings plan that we believe is one of the most aggressive major cost reduction plans being implemented in our industry.
The key elements of the 2002 plan consist of:
| o | the further rationalization of graphite electrode manufacturing capacity at our higher cost facilities and the expansion of capacity at our lower cost facilities; |
| o | the implementation of global business and work process changes; |
| o | the redesign and implementation of changes in our benefit plans for active and retired employees; |
| o | the corporate realignment of our subsidiaries to generate significant tax savings; and |
| o | sales of non-strategic assets. |
Under the 2002 plan, we are targeting cumulative recurring annual pretax cost savings of $60 million in 2004 and $80 million in 2005. Savings achieved under the 2002 plan are additive to those which we achieved by the end of 2001 under our 1998 global restructuring and rationalization plan. All cost savings described below under this section entitled “Repositioning Our Global Manufacturing Network and Other Initiatives” are included in the aggregate amounts set forth above. Through 2003, we achieved recurring pretax cost savings of $19 million, for total cumulative savings of $33 million since January 1, 2002. During the 2004 first quarter, we achieved additional savings, primarily from the reduction of our U.S. salaried workforce, benefit plan redesigns and interest rate management activities. These savings were, however, more than offset by higher than expected production costs associated with certain energy-based raw materials and unplanned downtime, primarily associated with our Brazilian graphite electrode manufacturing facility and, to a lesser extent, costs associated with the continued implementation of global work process changes.
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We recorded an aggregate of $34 million of restructuring charges and $48 million of impairment losses on long-lived and other assets, and may record an additional $6 million of restructuring charges (primarily for severance associated with further global business and work process changes, but excluding additional restructuring charges that may be recorded relating to the closure of the majority of the graphite electrode manufacturing operations in Italy), in connection with the 2002 plan. These charges include payments through March 31, 2004 of $21 million of cash costs and expected payments of an additional $14 million of cash costs. All charges described below under this section entitled “Repositioning our Global Manufacturing Network and Other Initiatives” are included in the aggregate amounts set forth above.
Rationalization of Our Global Manufacturing Network. We have repositioned our global manufacturing network by rationalizing our higher cost manufacturing facilities and redeploying capacity to our remaining larger, lower cost, strategically located facilities.
In the 2001 fourth quarter, we recorded a $7 million restructuring charge and a $24 million impairment loss on long-lived assets in connection with the planned mothballing of our high cost graphite electrode manufacturing operations at our facility in Italy. In 2002, we mothballed the Italian facility and recorded an additional $6 million restructuring charge. These operations had the capacity to manufacture 26,000 metric tons of graphite electrodes annually. At the end of 2003, we announced the permanent closure of the majority of our graphite electrode manufacturing operations in Italy. We also recorded a $5 million impairment loss on long-lived assets relating to the remaining fixed assets. In the next twelve to eighteen months, we may record additional restructuring charges and incur additional exit costs in connection with such closure. It is also possible that we may, at any time, decide to permanently shut down our remaining graphite electrode operations in Italy. In such event, we may record additional restructuring charges and incur additional exit costs.
During the 2002 second quarter, we launched the expansion of our graphite electrode manufacturing facility in Mexico from about 40,000 metric tons to about 60,000 metric tons annually. We completed 10,000 metric tons of expansion at this facility by the end of 2002. We completed the remaining 10,000 metric tons of expansion during the 2003 first quarter. The 2003 second quarter was the first full quarter of operation of the fully expanded capacity. In 2002 and 2003, we also incrementally expanded graphite electrode manufacturing capacity at our other facilities. The expansions required capital investments of about $15 million. We now have the capability, depending on product demand and mix, to manufacture more than 220,000 metric tons of graphite electrodes from our existing assets.
Building on the success at our facility in Mexico, we currently have a de-bottlenecking project underway that will increase our annual graphite electrode production capacity to 230,000 metric tons by the end of 2004. This project requires capital investments of about $10 million. With the completion of this project, our facility in Spain will be the largest graphite electrode manufacturing facility in Europe with 55,000 metric tons of capacity, second in the world only to our facility in Mexico.
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Redesign and Implementation of Changes to Global Manufacturing, Marketing and Sales Processes. We have evaluated virtually every aspect of our global supply chain, and we have redesigned and implemented changes to our global manufacturing, marketing and sales processes to leverage the strengths of our repositioned network. Among other things, we have eliminated manufacturing bottlenecks, improved product and service quality and delivery reliability, expanded our range of products, and improved our global sourcing and product mix for our customers. Since 1999, we have reduced annual customer compensation for graphite electrode quality claims from $3 million to less than $1 million. We also redirected marketing and sales activities to better service the needs of both existing and new customers.
Redesign and Implementation of Changes to Benefit Plans. In the 2001 fourth quarter and the 2002 first quarter, we redesigned and implemented changes in our retiree medical insurance plan and our U.S. retirement and savings plans for active employees. Among other things, we froze our qualified defined benefit plan and established a new defined contribution plan for most of our U.S. employees.
In July 2002, we amended our U.S. post-retirement medical coverage. Effective March 31, 2003, we discontinued the Medicare supplement plan (for retirees 65 years or older or those eligible for Medicare benefits). This change applies to all active employees except for some employees covered by a collective bargaining agreement, all current retirees who were not covered by a collective bargaining agreement when they retired and those retirees who retired under a former collective bargaining agreement.
Effective March 2003, we froze our qualified defined benefit plan for our remaining U.S. employees and closed our non-qualified U.S. defined benefit plan for the participating salaried workforce. The closure and settlement of our non-qualified U.S. defined benefit plan resulted in a $11 million restructuring charge in the 2003 first quarter.
In June 2003, we announced the termination of the early retiree medical plan for retirees under age 65, effective December 31, 2005. In addition, we will limit the amount of retiree’s life insurance after December 31, 2004.
The impact of these changes is being amortized over the average remaining period to full eligibility of the related post-retirement benefits and resulted in a $8 million net benefit in 2003 that is reflected on the Consolidated Statements of Operations. We expect such benefits to amount to about $10 million in 2004.
Implementation of Changes to Global Business Processes. We began to implement in 2000 and continue to implement global business and work process rationalization and transformation initiatives, including:
| o | the streamlining of our organizational structure within our three major lines of business; |
| o | the consolidation and streamlining of order fulfillment, purchasing, finance and accounting, and human resource processes; |
| o | the identification and implementation of outsourcing opportunities; |
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| o | the improvement in performance through realignment and enterprise-wide standardization of supply chain processes and systems; and |
| o | the improvement of interfaces and information technology infrastructures with trading partners. |
These activities are targeted for completion by the end of 2005. Through March 31, 2004, our investment in these initiatives included about $14 million of consulting fees and internal costs and $17 million of capital expenditures, primarily for costs related to implementation of global information technology systems for advanced planning and scheduling software and for global treasury management systems.
We have also implemented and continue to implement an enterprise-wide risk management process whereby we assess the business risks to our goal of maximizing cash flow, using a structured and disciplined approach. This approach seeks to align our personnel and processes with our critical strategic risks so that our management team and GTI’s Board of Directors may better evaluate and manage those uncertainties.
Effective April 2001, we entered into a ten year service contract with CGI Group Inc. (“CGI”) valued at $75 million. Pursuant to this contract, CGI became the delivery arm for our global information technology service requirements, including the design and implementation of our global information and advanced manufacturing and demand planning processes, using J.D. Edwards software. Through this contract, we are seeking to transform our information technology service capability into an efficient, high quality enabler for our global supply chain initiatives as well as a contributor to our cost reduction activities. Under the outsourcing provisions of this contract, CGI manages our data center services, networks, desktops, telecommunications and legacy systems. Through this contract, we believe that we will be able to leverage the resources of CGI to assist us in achieving our information technology goals and our cost savings targets.
In the 2002 third quarter, we entered into a ten year outsourcing contract with CGI valued at $36 million. Pursuant to this contract, CGI became the delivery arm for our finance and accounting business process services, including accounts receivable and accounts payable activities. CGI also provides various related analytical services such as general accounting, cost accounting and financial analysis activities. Through this contract, we believe that we will be able to further leverage the resources of CGI to assist us in achieving our cost savings targets.
Severance Programs. We have implemented and continue to implement voluntary and selective severance programs, designed to complement our global business and work process rationalization and transformation initiatives.
Through December 31, 2003, we substantially completed U.S. voluntary and selective severance programs announced in December 2002. Through March 31, 2004, these programs had resulted in a reduction of 109 U.S. employees (or 29% of the U.S. salaried workforce). We recorded an $8 million restructuring charge in the 2003 first quarter in connection with these programs.
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From 1998, we reduced our global workforce by about 1,700 employees, or over 30%. Current severance programs are expected to reduce our global workforce by about 75 employees (or about 2%) over the next 12 to 18 months.
Corporate Realignment of Our Subsidiaries. In the 2002 first half, we substantially completed the realignment of our foreign subsidiaries under the 2002 plan. Most of the operations and net sales of our synthetic graphite line of business are located outside the U.S. and, as a result of the realignment, are held by our Swiss subsidiary or its subsidiaries. Most of our technology is held by our U.S. subsidiaries.
The realignment of our foreign subsidiaries has resulted and is expected to result in substantial tax savings. We used opportunities created by the realignment to improve cash management and corporate services delivery and reallocate intercompany debt as well as reduce taxes. This reallocation of intercompany debt better matches intercompany debt with cash flow from operations. Debt service on our intercompany debt provides an important source of funds to repay our debt to third parties, including the Senior Facilities, the Senior Notes and the Debentures.
Sales of Non-Strategic Assets. Net cash proceeds from asset sales in 2003 totaled $24 million, including the sale of our non-strategic composite tooling business based in California in June 2003 for $16 million (which included a $1 million working capital adjustment) and the termination of our executive life insurance program and liquidation of our split dollar life insurance policies for executives for net cash proceeds of $3 million. We intend to continue to sell real estate, non-strategic businesses and certain other non-strategic assets. We are targeting an additional $25 million of asset sales in 2004, for an aggregate total of about $50 million from January 1, 2002 through the end of 2004.
Global Economic Conditions and Outlook
We are impacted in varying degrees, both positively and negatively, as global, regional or country conditions fluctuate.
2002-2003. Over the past three years through the 2003 first half, we faced extremely challenging business and industry conditions. Adverse global and regional economic conditions negatively impacted many of the end markets for our products. Many of the customers in these markets reduced production levels (which reduced demand and adversely impacted prices for products sold by us and our competitors), became less creditworthy, filed for bankruptcy protection or were acquired as part of the consolidation trends within their industries. In the 2003 second half, global and certain regional economies began to strengthen. In addition, for most of this period, industry-wide capacity for most of our products exceeded demand. We have been experiencing intense competition, particularly in the graphite electrode industry.
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Global and certain regional economic conditions began to strengthen in the 2003 second half. Steel production increased globally and was particularly strong in China. We estimate that worldwide steel production was about 964 million metric tons in 2003. We estimate that electric arc furnace steel production increased to about 305 million metric tons in 2003. We operated our graphite electrode manufacturing capacity at very high levels, and estimate that (excluding China, for which reliable information is not available) industry-wide graphite electrode manufacturing capacity utilization rate was approximately 94% in 2003. Graphite electrode price increases announced since September 2002 have been successfully implemented.
Demand for cathodes in 2003 (excluding China) decreased slightly from 2002 because of reduced construction of new aluminum smelters. We operated our cathode manufacturing capacity at relatively high operating levels in 2003. Demand for refractories was strong in 2003 as a result of our increased penetration of various markets, including Europe and China, and increased blast furnace construction and refurbishment. Weak economic conditions resulted in relatively low demand and weak pricing in 2003 for most of our other products.
2004 First Three Months. Global and regional economic conditions strengthened slightly in the 2004 first quarter while steel production remained relatively stable. We estimate that worldwide steel production was about 246 million metric tons in the 2004 first quarter. We estimate that worldwide steel production in the 2004 first quarter was about 1% lower than in the 2003 fourth quarter and about 6.5% higher than the 2003 first quarter. We estimate that electric arc furnace steel production continued to represent about 32% of worldwide steel production. We operated our graphite electrode manufacturing capacity at very high levels, and estimate that (excluding China, for which reliable information is not available) industry-wide graphite electrode manufacturing capacity utilization rate in the 2004 first quarter was about the same as the 2003 average. Additional graphite electrode price increases for new orders were announced during the 2004 first and second quarters.
Demand for cathodes remained relatively stable during the 2004 first quarter as compared to the 2003 fourth quarter. Demand for refractories continued to remain strong in the 2004 first quarter. Economic conditions strengthened in the 2004 first quarter for most of our other products.
Outlook. We believe that we are well positioned to increase earnings and cash flow from operations (excluding payments in connection with restructurings, investigations, lawsuits and claims and the impact of the reduction of factoring of accounts receivable as described under “Liquidity and Capital Resources”) under current and improving global and regional economic conditions. We expect net sales of all our products to increase by about 10% in 2004 from 2003.
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Synthetic Graphite. The graphite electrode supply/demand balance remains tight primarily due to increased electric arc furnace steel production and, to a lesser extent, graphite electrode industry-wide rationalization, including bankruptcies of competitors. In February 2004, we announced graphite electrode price increases of $150 per metric ton in North and South America (bringing the spot price to $2,750 per metric ton) and $150/€115 per metric ton in Europe, Russia and the other countries in the Community of Independent States, the Middle East, Africa and Asia. On May 10, 2004, we announced graphite electrode price increases on a global basis, effective immediately for new orders, of $150 per metric ton in North and South America, bringing the price to $2,900 per metric ton, and $150/€125 per metric ton in Europe, the Commonwealth of Independent States, the Middle East, Africa and Asia. These price increases are driven by continued upward pressure on energy and petroleum-based raw material costs, strength in steel production and the tight supply/demand balance in the graphite electrode industry. As the majority of our graphite electrode order book has been placed, these recent price increases are expected to impact less than 5% of our 2004 business.
For 2004, we continue to fill our graphite electrode order book and expect average sales revenue per metric ton of graphite electrodes to be between approximately $2,500 and $2,525 for 2004. This represents an increase of approximately $155 to $180 over the average for 2003, approximately one-third of which is estimated to be associated with expected benefits from net changes in currency exchange rates. We expect graphite electrode sales volume for 2004 to be approximately 210,000 metric tons.
We expect demand for our cathodes in 2004 to be similar to 2003. Our strategic alliance with Pechiney, which is a 30% owner of our cathode business and purchases cathodes from us under a requirements contract, continues to position us as the leading supplier of cathodes to the aluminum industry.
Operation of our synthetic graphite facilities at capacity is expected to positively impact synthetic graphite cost of sales in 2004 as compared to 2003, offset by higher energy, freight and other raw material costs and the negative impact of net changes in currency exchange rates on costs. In addition, we expect to benefit from initiatives that allow us to achieve significant increases in productivity and output from our existing assets, including economies of scale and other cost savings that we believe will increase as we grow our sales.
Other. We expect growing net sales of our electronic thermal management products and services, due to our continuing successful product development and commercialization initiatives, the development of new, higher performance electronic devices and the strengthening economic condition of the electronics industry. In the electronic thermal management market, we continue to deliver innovative solutions to our customers who are experiencing strong growth in their end markets. Our thermal management products are being utilized in some of the thinnest and lightest laptops being sold today. We are hiring additional personnel in sales, marketing and research and development to support our accelerating growth. Sales of our products are growing, from about $500,000 in 2002 to $2.2 million in 2003 and an estimated $8 million in 2004.
We expect financial performance of most of our other businesses in 2004 to improve from 2003 levels primarily due to the recovery of economic conditions in the end markets for their products. In particular, demand for carbon electrodes in the U.S. and demand for advanced synthetic graphite products used in the semiconductor, telecommunications and electronics industries has strengthened. In addition, demand for our refractories has strengthened as a result of our increased penetration of various markets, particularly Europe and China, and increased blast furnace construction and refurbishment. We continue to seek to drive productivity and cost improvements in all of these businesses.
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Financing and Capital Structure Transactions
In October 2003, we sold an aggregate of 25,300,000 shares of our common stock in a registered public offering at a public offering price of $8.00 per share. The net proceeds from this offering were approximately $190 million, of which $114 million was used to repay term loans outstanding under the Senior Facilities, $56 million was used to reduce the balance outstanding under the Revolving Facility, and the balance was used to repay other short-term debt. In connection therewith, we recorded a charge of $2 million for the write-off of capitalized fees associated with the term loans repaid with the net proceeds. The write-off has been included in other (income) expense, net, on the Consolidated Statements of Operations.
On January 22, 2004, we completed an offering of $225 million aggregate principal amount of Debentures at a price of 100% of principal amount. The net proceeds from the offering were approximately $218 million. We used the net proceeds to repay the remaining $21 million of term loans outstanding under the Senior Facilities, to make a provisional payment of $71 million to the EU Competition Authority against the EU antitrust fine and to reduce factoring of accounts receivable by $41 million. We intend to use the balance for general corporate purposes, including strategic acquisitions that are complementary to our businesses. Pending use for a specific corporate purpose, we intend to invest the unused balance of the net proceeds in short-term, investment quality, interest-bearing securities or deposits.
During 2003, we exchanged $55 million aggregate principal amount of Senior Notes, plus accrued interest of $2 million, for approximately 9.9 million shares of our common stock, and we purchased $2 million aggregate principal amount of Senior Notes, plus accrued interest, for $3 million in cash. The exchanges and purchase did not result in a material net gain or loss.
In the 2004 first quarter, we exchanged $35 million aggregate principal amount of Senior Notes, plus accrued interest of $1 million, for 3,161,131 shares of common stock. These exchanges resulted in a net loss of $5 million in the 2004 first quarter which has been recorded in other (income) expense, net.
In the 2004 first quarter, we purchased $8 million aggregate principal amount of Senior Notes, plus accrued interest, for $9 million in cash. These purchases resulted in a loss of $1 million.
Litigation Against Our Former Parent Companies Initiated By Us
In February 2000, we commenced a lawsuit against our former parents, Mitsubishi Corporation and Union Carbide Corporation, to recover certain payments made to them in connection with our leveraged equity recapitalization in January 1995 as well as certain unjust receipts
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by them from their investments in us and damages for aiding and abetting breaches of fiduciary duties owed to us by our former senior management in connection with illegal graphite electrode price fixing activities. We are seeking to recover more than $1.5 billion, including interest. In January 2004, the SDNY District Court granted the defendants’ motion to dismiss this lawsuit. We have appealed the grant of the motion to dismiss as well as the grant in November 2002 of a motion to disqualify certain of our counsel to the U.S. Second Circuit Court of Appeals. We expect to incur $10 million to $20 million for legal expenses to pursue this lawsuit from the date of filing the complaint through appeal and ultimately trial. Through March 31, 2004, we had incurred about $6 million of these legal expenses. This lawsuit is in its earliest stages, and the ultimate outcome of this lawsuit is subject to many uncertainties.
Antitrust Litigation Against Us
In April 1998, GTI pled guilty to a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a non-interest-bearing fine in the aggregate amount of $110 million, payable in six annual installments. The payment schedule has been revised periodically at our request. The payment schedule for the $52.5 million balance consists of quarterly payments ranging from $3.25 million to $5.375 million, payable from April 2004 through January 2007. Beginning in 2004, the DOJ may ask the EDPA District Court to accelerate the payment schedule based on a change in our ability to make such payments. Interest will begin to accrue on the unpaid balance, commencing in April 2004, at the statutory rate of interest then in effect. At March 31, 2004, the statutory rate of interest was 1.17% per annum. Accrued interest will be payable together with each quarterly payment. Of the $110 million original aggregate amount, $90 million is treated as a fine and $20 million is treated as imputed interest for accounting purposes.
In January 2000, the EU Competition Authority alleged that we and other producers violated European antitrust laws in connection with the sale of graphite electrodes. In July 2001, the EU Competition Authority assessed a fine of €50.4 million ($62 million, based on currency exchange rates in effect at March 31, 2004) against us. This decision established the maximum obligation with respect to our last major remaining antitrust liability. After an in-depth analysis of the decision, in October 2001, we filed an appeal to the European Court challenging, among other things, the amount of the EU antitrust fine, including the accrual of interest and the rate thereof.
Under its decision, the EU Competition Authority stated that, until paid (including a provisional payment described below), the EU antitrust fine would accrue interest at the statutory rate of 8.04% per annum, commencing October 2001, provided, however, that if a letter of credit, sufficient to secure payment of both the fine and interest accrued and accruing thereon, was provided to the EU Competition Authority, then the rate of interest would be 6.04% per annum.
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In February 2004, we used net proceeds from the issuance and sale of the Debentures to post a provisional payment of $71 million to the EU Competition Authority against the EU antitrust fine. The provisional payment included $9 million for accrued interest for the period from October 2001 to the date of the provisional payment at the rate of 6.04% per annum. The EU Competition Authority has advised us that its position is that the provisional payment should have included accrued interest at the rate of 8.04% per annum. As a result, in April 2004, we paid $3 million to the EU Competition Authority for the remaining accrued interest. We have, however, advised the EU Competition Authority that we disagree with its position and have filed an interim appeal challenging the 8.04% per annum interest rate.
A provisional payment constitutes the furnishing of cash collateral intended to secure payment to the EU Competition Authority of a fine and any interest thereon that is ultimately determined to be due and is not an admission of or acquiescence to any liability.
On April 29, 2004, the EU antitrust fine was reduced on appeal to €42 million, plus accrued interest of €7.7 million (at a rate of 8.04% per annum) (an aggregate of about $59 million at currency exchange rates in effect at the time the decision on the appeal was issued).
Except as described above, the antitrust investigations against us in the U.S., Canada, the European Union, Japan and Korea with respect to graphite electrodes and in the European Union with respect to graphite electrodes and isostatic and extruded specialty graphite have been resolved. Under plea agreements in the U.S. and Canada, we will not be subject to prosecution by the respective antitrust authorities with respect to any other violations of their respective antitrust laws occurring prior to the date of the applicable plea agreement in connection with the sale of graphite and carbon products. All payments due have been timely paid. It is possible that antitrust investigations seeking, among other things, to impose fines and penalties could be initiated against us by antitrust authorities in other jurisdictions.
We have settled, among other things, virtually all of the actual and potential claims against us by customers in the U.S. and Canada arising out of alleged antitrust violations occurring prior to the date of the relevant settlement in connection with the sale of graphite electrodes and carbon electrodes. All settlement payments due have been timely paid. None of the settlements or plea agreements contain restrictions on future prices of our graphite electrodes. There remain, however, certain pending claims as well as pending lawsuits in the U.S. relating to the sale of graphite electrodes sold to foreign customers. It is also possible that additional antitrust lawsuits and claims could be asserted against us in the U.S. or other jurisdictions.
Since 1997, we have recorded pretax charges of $383 million against results of operations as a reserve for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. The charges of $383 million are calculated on a basis that (i) excludes, among other things, both actual and imputed interest on the DOJ antitrust fine and actual interest, if any, on the EU antitrust fine after the European Court’s decision on our main appeal is issued and becomes final and (ii) includes, among other things, the impact of changes in currency exchange rates on the euro-denominated EU antitrust fine and interest accrued or to accrue on the EU antitrust fine prior to the time the European Court’s decision on our main appeal is issued and becomes final.
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Despite the fact that a provisional payment of a fine is only provisional under European law, generally accepted accounting principles require a charge to be recorded to cover the full amount of the provisional payment, to the extent that payment was not already covered by a reserve. In connection with our provisional payment, we recorded a $32 million charge in the 2003 fourth quarter and a $1 million charge in the 2004 first quarter, which increased our estimate of the aggregate expenses for these liabilities from $350 million to $383 million. To the extent that aggregate liabilities and expenses, net, are known or reasonably estimable, as of March 31, 2004, $383 million represents our estimate of these liabilities and expenses. The guilty pleas and the decisions by the antitrust authorities make it more difficult to defend against other investigations, lawsuits and claims.
Through March 31, 2004, we paid an aggregate of $347 million of fines and net settlements and expenses (of which $327 million has been applied against the reserve and $20 million of imputed interest (which is described below) has not been applied against the reserve). In the aggregate, the fines and net settlements and expenses are within the amounts we used to evaluate the aggregate charges of $383 million. Our insurance has not and will not materially cover liabilities that have or may become due in connection with antitrust investigations or related lawsuits or claims.
At March 31, 2004, $56 million remained in the reserve. The remaining amount of the reserve is unfunded. Such remaining amount is available primarily for the DOJ antitrust fine and other matters. The reserve does not cover interest on the DOJ antitrust fine. Such interest will be recorded in interest expense on the Consolidated Statements of Operations. Interest accruing on the EU antitrust fine, if any, after the date of the European Court’s decision on our main appeal will be recorded in interest expense.
Actual aggregate liabilities and expenses (including settled investigations, lawsuits and claims as well as continuing investigations, pending appeals and unsettled pending, threatened and possible lawsuits and claims mentioned above) could be materially higher than $383 million and the timing of payment thereof could be sooner than anticipated.
Results of Operations
Financial information discussed below omits our non-strategic composite tooling business that was sold in June 2003 and has been accounted for as discontinued operations. The results of our discontinued operations were not material to our consolidated results of operations.
Three Months Ended March 31, 2004 as Compared to Three Months Ended March 31, 2003.Net sales of $197 million in the 2004 first quarter represented a $27 million, or 16%, increase from net sales of $170 million in the 2003 first quarter, primarily due to higher net sales in our synthetic graphite line of business. Cost of sales of $152 million in the 2004 first quarter represented a $21 million, or 16%, increase from cost of sales of $131 million in the 2003 first quarter, primarily due to the higher sales volumes. Gross profit of $45 million in the 2004 first quarter represented a $6 million, or 15%, increase from gross profit of $39 million in the 2003 first quarter. Gross margin was 22.8% in the 2004 first quarter as compared to a gross margin of 23.0% in the 2003 first quarter.
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Synthetic Graphite Segment. Net sales of $174 million in the 2004 first quarter represented a $25 million, or 16%, increase from net sales of $149 million in the 2003 first quarter, primarily due to higher average graphite electrode sales revenue per metric ton and higher sales volumes of graphite electrodes. Volume of graphite electrodes sold was 50,600 metric tons in the 2004 first quarter as compared to 47,000 metric tons in the 2003 first quarter. The higher volume of graphite electrodes sold represented an increase of $8 million in net sales. The increase was a result of higher demand from a strengthening global steel industry, particularly in Asia. Average sales revenue per metric ton of graphite electrodes in the 2004 first quarter was $2,485 as compared to the average in the 2003 first quarter of $2,272. The higher average sales revenue per metric ton represented an increase of $11 million in net sales, approximately half of which was attributable to changes in currency exchange rates. Net sales of cathodes increased 11%, or $3 million, in the 2004 first quarter as compared to the 2003 first quarter primarily due to increased volumes.
Cost of sales of $133 million in the 2004 first quarter represented a $18 million, or 15%, increase from cost of sales of $115 million in the 2003 first quarter, primarily due to the higher sales volumes of graphite electrodes. Gross profit in the 2004 first quarter was $41 million, 20% or $7 million higher than in the 2003 first quarter. The increase in gross profit was primarily due to higher graphite electrode net sales and improved productivity throughout the production network. These improvements were partially offset by higher graphite electrode costs due to continued upward pressure on raw material and energy costs, an equipment outage at our manufacturing facility in Brazil and the negative impact of net changes in currency exchange rates on costs. Gross margin was 23.5% of net sales in the 2004 first quarter as compared to the 22.7% of net sales in the 2003 first quarter.
Other Segment. Net sales of $23 million in the 2004 first quarter represented a $2 million, or 12%, increase from net sales of $21 million in the 2003 first quarter, primarily due to increased net sales in our natural graphite materials line of business and increased net sales of refractories in our advanced carbon materials line of business. Cost of sales of $19 million in the 2004 first quarter represented a $3 million, or 23%, increase from cost of sales of $16 million in the 2003 first quarter. The increase in cost of sales was primarily related to higher sales volumes in our advanced carbon materials line of business. Gross profit in the 2004 first quarter was $4 million (a gross margin of 17.6% of net sales) as compared to gross profit in the 2003 first quarter of $5 million (a gross margin of 25.0% of net sales). The 2003 first quarter benefited from one time, higher priced emergency refractory orders. In addition, the 2004 first quarter was negatively impacted by higher distribution costs in the advanced carbon materials business driven by the timing of customer orders. Electronic thermal management sales were $2 million in the 2004 first quarter as compared to less than a half a million dollars in the 2003 first quarter.
Items Affecting Us as a Whole. Selling, administrative and other expenses were $21 million in the 2004 first quarter, the same as in the 2003 first quarter. Research and development was $2 million in the 2004 first quarter and $3 million in the 2003 first quarter. Cost savings programs, including the redesign of employee benefit plans and the streamlining of GTI’s organizational structure, resulted in savings which were partially offset by costs associated primarily with the continued implementation of global work process changes.
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Other (income) expense, net, was expense of $13 million in the 2004 first quarter and income of $4 million in the 2003 first quarter. In the 2004 first quarter, we recorded a $6 million ($5 million of which was non-cash) loss on the reduction of Senior Notes outstanding, a $2 million non-cash charge for the mark-to-market on interest rate caps, a $2 million net loss from currency transactions and translations, a $2 million charge for legal, environmental and other related costs and $3 million of bank fees and other expenses. These expenses were partially offset by a curtailment gain from the termination of a defined benefit pension plan of $2 million.
In the 2003 first quarter, we had an $8 million gain primarily due to currency exchange benefits associated with euro-denominated intercompany loans, which were partially offset by other expenses, including a $1 million charge for the mark-to-market adjustment on interest rate caps, $1 million for legal, environmental and other related costs and $2 million of bank and other expenses.
In the 2004 first quarter, we recorded a $1 million charge primarily associated with changes in estimates for the U.S. voluntary and selective severance program. In the 2003 first quarter, we recorded $19 million of restructuring charges, consisting of $8 million for organizational changes and $11 million for the closure and settlement of our U.S. non-qualified defined plan for the participating salaried workforce. The $8 million charge for organizational changes related to U.S. voluntary and selective severance programs and related benefits associated with a total workforce reduction of 109 employees. The closure of our non-qualified U.S. defined benefit plan resulted in recognition of net settlement costs of $11 million.
In the 2004 first quarter, we recorded a $1 million charge for additional potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims.
Interest expense was $7 million in the 2004 first quarter as compared to $14 million in the 2003 first quarter. Interest rate swaps reduced our interest expense by approximately $8 million during the 2004 first quarter, including $4 million of benefit for current interest rate swaps, $1 million of amortization of fair value adjustments for previously sold interest rate swaps and a $3 million reduction of interest expense from acceleration of amortization of fair value adjustments for previously sold interest rate swaps as a result of our exchanges of Senior Notes for common stock. Average total debt outstanding was $668 million in the 2004 first quarter as compared to $756 million in the 2003 first quarter. The average annual interest rate was 5.8% in the 2004 first quarter as compared to 7.1% in the 2003 first quarter. These average annual rates include the benefits of our interest rate swaps, but exclude imputed interest on the DOJ fine and the acceleration of the amortization of gains realized from the sale of interest rate swaps due to the early extinguishment of debt from our exchanges of Senior Notes for common stock.
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Interest income amounted to $1 million in the 2004 first quarter as compared to nil in the 2003 first quarter primarily due to interest earned on cash proceeds from the issuance and sale of the Debentures offering and interest earned on the provisional payment made to the EU Competition Authority in February 2004.
Provision for income taxes was a charge of $1 million in the 2004 first quarter as compared to a benefit of $4 million in the 2003 first quarter. The effective income tax rate was approximately 65% in the 2004 first quarter as compared to approximately 32% in the 2003 first quarter. The higher effective income tax rate in the 2004 first quarter was primarily due to nondeductible expenses associated with the restructuring charge. Excluding such expenses, the effective income tax rate would have been approximately 35%.
We estimate that we will have an effective income tax rate of 35% for 2004.
As a result of the matters described above, net income was breakeven in the 2004 first quarter as compared to a net loss of $9 million in the 2003 first quarter.
Effects of Inflation
We incur costs in the U.S. and each of the six non-U.S. countries in which we have a manufacturing facility. In general, our results of operations, cash flows and financial condition are affected by the effects of inflation on our costs incurred in each of these countries. See “–Currency Translation and Transactions” for a further discussion of highly inflationary countries.
During the past three years, we experienced higher freight, energy and other raw material costs primarily due to substantial increases in regional and worldwide market prices of natural gas and other petroleum-based raw materials. We have been able to generally mitigate the effects of those increases on our cost of sales by a combination of improved operating efficiency and on-going cost savings. In addition, during 2003, we mitigated seasonal increases in our natural gas costs by entering into short duration fixed rate purchase contracts with certain of our North American suppliers. These contracts expired in the 2004 first quarter. In addition, we have entered into natural gas derivative contracts, effectively fixing 100% of our direct and indirect natural gas cost exposure in North America (45% of direct worldwide exposure) through April 2004. Except as described above, we did not experience significant inflation with respect to our costs. We cannot assure you that future increases in our costs will not occur or exceed the rate of inflation or the amounts, if any, by which we may be able to increase prices for our products.
Currency Translation and Transactions
We account for our non-U.S. subsidiaries under SFAS No. 52, “Foreign Currency Translation.” Accordingly, except for highly inflationary countries, the assets and liabilities of our non-U.S. subsidiaries are translated into dollars for consolidation and reporting purposes. Foreign currency translation adjustments are generally recorded as part of stockholders’ equity and identified as part of accumulated other comprehensive loss on the Consolidated Balance Sheets until such time as their operations are sold or substantially or completely liquidated.
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We have subsidiaries in Russia, Mexico, Brazil and other countries which have had in the past, and may have in the future, highly inflationary economies, defined as cumulative inflation of about 100% or more over a period of three calendar years. In general, the financial statements of foreign operations in highly inflationary economies are remeasured as if the functional currency of their economic environments were the dollar and translation gains and losses relating to these foreign operations are included in other (income) expense, net, on the Consolidated Statements of Operations rather than as part of stockholders’ equity on the Consolidated Balance Sheets. Currently, only our Russian subsidiary operates in a highly inflationary economy. We account for our Russian subsidiary using the dollar as its functional currency because Russia is considered to have a highly inflationary economy.
We account for our Mexican subsidiary using the dollar as its functional currency, irrespective of Mexico’s inflationary status, because its sales and purchases are predominantly dollar-denominated.
We also record foreign currency transaction gains and losses as part of other (income) expense, net.
Significant changes in currency exchange rates impacting us are described under “–Effects of Changes in Currency Exchange Rates” and “– Results of Operations–Three Months Ended March 31, 2004 as Compared to Three Months Ended March 31, 2003 – Items Affecting Us as a Whole.”
Effects of Changes in Currency Exchange Rates
We incur costs in dollars and the currency of each of the six non-U.S. countries in which we have a manufacturing facility, and we sell our products in multiple currencies. In general, our results of operations, cash flows and financial condition are affected by changes in currency exchange rates affecting these currencies relative to the dollar and, to a limited extent, each other.
When the currencies of non-U.S. countries in which we have a manufacturing facility decline (or increase) in value relative to the dollar, this has the effect of reducing (or increasing) the dollar equivalent cost of sales and other expenses with respect to those facilities. This effect is, however, partially offset by the cost of petroleum coke, a principal raw material used by us, which is priced in dollars. In certain countries where we have manufacturing facilities, and in certain instances where we price our products for sale in export markets, we sell in currencies other than the dollar. Accordingly, when these currencies increase (or decline) in value relative to the dollar, this has the effect of increasing (or reducing) net sales. The result of these effects is to increase (or decrease) operating profit and net income.
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Many of the non-U.S. countries in which we have a manufacturing facility have been subject to significant economic pressures, which have impacted inflation and currency exchange rates. We seek to mitigate adverse impacts of changes in currency exchange rates on net sales by increasing local currency prices for some of our products in various regions as circumstances permit. We cannot predict changes in currency exchange rates in the future or whether those changes will have net positive or negative impacts on our net sales, cost of sales or net income. We cannot assure you that we would be able to mitigate any adverse effects of such changes.
During the 2004 first quarter, the average exchange rate of the euro, the South African rand and the Brazilian real increased about 17%, 25% and 22%, respectively, when compared to the average exchange rate for the 2003 first quarter. During the 2004 first quarter, the average exchange rate for the Mexican peso declined about 3% when compared to the average exchange rate for the 2003 first quarter.
In the case of net sales of graphite electrodes, the impact of these events was an increase of about $6 million in the 2004 first quarter as compared to the 2003 first quarter. In the case of cost of sales of graphite electrodes, the impact of these events was an increase of about $7 million in 2004 first quarter as compared to the 2003 first quarter.
We have non-dollar denominated intercompany loans between GrafTech Finance and some of our foreign subsidiaries. At March 31, 2004, the aggregate principal amount of these loans was $444 million (based on currency exchange rates in effect at March 31, 2004). These loans are subject to translation gains and losses due to changes in currency exchange rates. A portion of these loans are deemed to be essentially permanent and, as a result, translation gains and losses on these loans are recorded in accumulated other comprehensive loss on the Consolidated Balance Sheets. The balance of these loans are deemed to be temporary and, as a result, translation gains and losses on these loans are recorded in other (income) expense, net, on the Consolidated Statements of Operations. Those gains or losses are, however, non-cash. Foreign currency translation gains and losses relating to these loans included in other (income) expense, net, were a loss of $5 million in the 2004 first quarter and a gain of $8 million in the 2003 first quarter. To manage certain exposures to specific financial market risks caused by changes in currency exchange rates, we use various financial instruments as described under “Item 3–Qualitative and Quantitative Disclosures about Market Risk.”
Liquidity and Capital Resources
Our sources of funds have consisted principally of invested capital, cash flow from operations and debt and equity financings. Our uses of those funds (other than for operations) have consisted principally of debt reduction, capital expenditures, payment of fines, liabilities and expenses in connection with antitrust investigations, lawsuits and claims and payment of restructuring costs.
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We are highly leveraged and have other substantial obligations. At March 31, 2004, we had total debt of $704 million, cash and cash equivalents of $66 million and a stockholders’ deficit of $80 million. In addition, we have historically factored a substantial portion of our accounts receivable and used the proceeds to reduce our debt. If we had not sold such receivables, our accounts receivable and our debt would have been about $45 million and $4 million higher at December 31, 2003 and March 31, 2004, respectively. We have used a portion of the net proceeds from the issuance and sale of the Debentures to replace the cash previously provided by such factoring.
We use cash and cash equivalents, funds available under the Revolving Facility, subject to continued compliance with the financial covenants and representations under the Senior Facilities, as well as monthly or quarterly cash flow from operations as our primary sources of liquidity. At March 31, 2004, the Revolving Facilities provided for maximum borrowings of up to €175 million ($215 million, based on currency exchange rates in effect at March 31, 2004). Our ability to borrow under the Revolving Facility may effectively be less because of the impact of additional borrowings upon our compliance with the maximum secured debt leverage ratio permitted or minimum interest coverage ratio required under the Senior Facilities. At March 31, 2004, we were in compliance with the financial covenants under the Senior Facilities and had no outstanding balance under the Revolving Facility with $197 million (after consideration of outstanding letters of credit and at currency exchange rates in effect at March 31, 2004) fully available.
At March 31, 2004, 64% (or $450 million) of our total debt had effectively been converted to variable rate obligations. At March 31, 2004, we also had interest rate caps for a total notional amount of $500 million through August 2007. These instruments effectively cap our interest rate exposure (represented by the net impact of our swaps on the Senior Notes) to no greater than 434 basis points above the six-month LIBOR rate of 116 basis points at March 31, 2004.
We continue to implement interest rate management initiatives to seek to minimize interest expense and optimize the risk in our portfolio of fixed and variable interest rate obligations as described under “Item 3–Quantitative and Qualitative Disclosures about Market Risk” in this Report. We estimate that we will have interest expense of approximately $35 million for 2004.
2003 Deleveraging Actions.We completed over $300 million in deleveraging actions in 2003. These actions consisted of sales of non-strategic assets that generated net proceeds of $24 million (including the sale of our non-strategic composite tooling business for $16 million (which includes a working capital adjustment of $1 million)), the sale of interest rate swaps for net cash proceeds of $30 million, the exchange of common stock for $55 million aggregate principal amount of Senior Notes (plus accrued interest), and the public offering of shares of our common stock for net proceeds of $190 million. Virtually all of such proceeds were used to reduce debt. See “–Long-Term Contractual, Commercial and Other Obligations and Commitments” for 2004 actions.
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Long-Term Contractual, Commercial and Other Obligations and Commitments. The following tables summarize our long-term contractual obligations and other commercial commitments at March 31, 2004.
| Payment Due By Period
|
|---|
| Total
| Year Ending
March
2005
| Two Years
Ending
March
2007
| Two Years
Ending
March
2009
| Years
Ending After
March
2009
|
|---|
| | (Dollars in millions) |
|---|
| Contractual and Other Obligations | | | | | | | | | | | | | | | | | |
| Total long-term debt | | | $ | 702 | | $ | - | | $ | 1 | | $ | - | | $ | 701 | |
| Capital lease obligations | | | | - | | | - | | | - | | | - | | | - | |
| Operating leases | | | | 7 | | | 3 | | | 4 | | | - | | | - | |
| Unconditional purchase obligations | | | | 44 | | | 8 | | | 16 | | | 10 | | | 10 | |
|
| |
| |
| |
| |
| |
| Total contractual obligations | | | | 753 | | | 11 | | | 21 | | | 10 | | | 711 | |
| Estimated liabilities and expenses in | | |
| connection with antitrust | | |
| investigations and related lawsuits | | |
| and claims(a) | | | | 56 | | | 16 | | | 40 | | | - | | | - | |
| Postretirement, pension and related | | |
| benefits | | | | 89 | | | 22 | | | 15 | | | 15 | | | 37 | |
| Other long-term obligations | | | | 24 | | | 7 | | | 3 | | | 3 | | | 11 | |
|
| |
| |
| |
| |
| |
| Total contractual and other | | |
| obligations | | | $ | 922 | | $ | 56 | | $ | 79 | | $ | 28 | | $ | 759 | |
|
| |
| |
| |
| |
| |
| Other Commercial Commitments | | |
| Lines of credit | | | | 27 | | | 27 | | | - | | | - | | | - | |
| Letters of credit | | | | 18 | | | 17 | | | 1 | | | - | | | - | |
| Guarantees | | | | 1 | | | 1 | | | - | | | - | | | - | |
|
| |
| |
| |
| |
| |
Total other commercial
commitments | | | $ | 46 | | $ | 45 | | $ | 1 | | $ | - | | $ | - | |
|
| |
| |
| |
| |
| |
_________________
| (a) | Consists primarily of the outstanding balance of the DOJ antitrust fine. |
During the 2004 first quarter, our total long-term debt increased to $702 million, primarily because we sold $225 million aggregate principal amount of Debentures for net proceeds of $218 million and used a portion of the proceeds to reduce higher interest rate or cost obligations, consisting of repaying $21 million of term loans under the Senior Facilities, making a $71 million provisional payment to the EU Competition Authority against the EU antitrust fine and replacing cash previously provided by factoring of accounts receivable of $41 million. In addition, we exchanged common stock for $35 million aggregate principal amount of Senior Notes, plus accrued interest, and purchased $8 million of Senior Notes, plus accrued interest.
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Effective April 2001, we entered into a ten year service contract with CGI valued at $75 million ($36 million of which is the unconditional purchase obligation at March 31, 2004). Pursuant to this contract, CGI provides a majority of our global information technology service requirements. We are dependent on CGI for these services. A failure by CGI to provide these services to us in a timely manner could have an adverse effect on our operations and results of operations. The first preceding table includes a line entitled “unconditional purchase obligations” that includes the minimum purchases under that contract. In September 2002, we entered into a ten year outsourcing contract with CGI to provide finance and accounting business process services valued at $36 million. That contract does not constitute an unconditional purchase obligation and therefore is not included in the first preceding table.
The second preceding table includes a line entitled “lines of credit.” These are local lines of credit established by our foreign subsidiaries for working capital purposes and are not part of the Revolving Facility.
Cash Flow and Plans to Manage Liquidity. As a result of our significant leverage and other substantial obligations, we have placed high priority on efforts to manage cash, generate additional cash flow and reduce debt. Our longer term efforts include our 2002 major cost savings plan, our strategic alliances and our financing activities. Our shorter term efforts include our interest rate management and working capital initiatives.
During the four years prior to 2002, we had positive annual cash flow from operations, excluding payments in connection with restructurings and antitrust investigations, lawsuits and claims. Typically, the first quarter of each year resulted in neutral or negative cash flow from operations (excluding payments in connection with restructurings, antitrust investigations, lawsuits and claims and the impact of the reduction of factoring of accounts receivable) due to various factors. These factors included customer order patterns, fluctuations in working capital requirements and payment of variable compensation with respect to the immediately preceding year. Typically, the other three quarters resulted in positive cash flow from operations (before such exclusions). The third quarter tended to produce relatively less positive cash flow primarily as a result of scheduled plant shutdowns by our customers for vacations.
Our cash flow from operations (before such exclusions) in the first and third quarters typically is adversely impacted by the semi-annual interest payments on the Senior Notes and will be further impacted by the semi-annual interest payments on the Debentures beginning in July 2004. The second and fourth quarters correspondingly benefit from the absence of such interest payments.
As part of our cash management activities, we seek to manage accounts receivable credit risk, collections, and accounts payable and payments thereof to seek to maximize our free cash at any given time and minimize accounts receivable losses. In addition, we have historically factored a portion of our accounts receivable and used the proceeds to reduce our debt. In the 2004 first quarter, we used a portion of the net proceeds from the issuance and sale of the
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Debentures to replace cash provided by factoring of accounts receivable. Certain of our subsidiaries sold receivables totaling $48 million in the 2003 first quarter and $2 million in the 2004 first quarter. If we had not sold such receivables, our accounts receivable and our debt would have been about $45 million higher at December 31, 2003 and $4 million higher at March 31, 2004. When we sell receivables, we incur costs equal to approximately 3.2% to 8.0% of the amount of the receivables sold. In addition, careful management of credit risk over at least the past three years has allowed us to avoid significant accounts receivable losses notwithstanding the poor financial condition of many of our potential and existing customers. In order to seek to minimize our credit risks, we reduced our sales of, or refused to sell (except for cash on delivery), graphite electrodes to some customers and potential customers in the U.S. and, to a limited extent, elsewhere. Our unrecovered trade receivables worldwide were only 0.2% of global net sales during this period. We cannot assure you that we will not be materially adversely affected by accounts receivable losses in the future.
We use cash and cash equivalents, funds available under the Revolving Facility and cash flow from operations as our primary sources of liquidity. We believe that our cost savings initiatives will, over the next one to two years, continue to improve our cash flow from operations for a given level of net sales. Improvements in cash flow from operations resulting from these initiatives are being partially offset by associated cash implementation costs, while they are being implemented. We also believe that our planned sales of non-strategic assets together with these improvements in cash flow from operations should allow us to reduce our debt and other obligations over the long term.
We may from time to time and at any time exchange or purchase Senior Notes in open market or privately negotiated transactions, opportunistically on terms that we believe to be favorable. These exchanges or purchases may be effected for cash (from cash and cash equivalents, borrowings under our Revolving Facility or new credit facilities, or proceeds from sale of debt or equity securities or assets), common stock or other equity or debt securities, or a combination thereof. We may at any time and from time to time seek and obtain consent from the lenders under the Senior Facilities with respect to any restrictions thereunder applicable to such transactions. We will evaluate any such transaction in light of then prevailing market conditions and our then current and prospective liquidity and capital resources, including projected and potential needs and prospects for access to capital markets. Any such transactions may, individually or in the aggregate, be material.
Our high leverage and other substantial obligations could have a material impact on our liquidity. Cash flow from operations services payment of our debt and these obligations, thereby reducing funds available to us for other purposes. Our leverage and these obligations make us more vulnerable to economic downturns or in the event that these obligations are greater or timing of payment is sooner than expected.
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Our ability to service our debt and other obligations as they come due, including maintaining compliance with the financial covenants and the representations regarding absence of material adverse changes under the Senior Facilities, is dependent on our future performance, which is subject to various factors, including certain factors beyond our control such as changes in supply, demand and other conditions affecting our industry, changes in global and regional economic conditions, changes in interest and currency exchange rates, and inflation in raw material, energy and other costs. The Senior Facilities require us to, among other things, comply with financial covenants relating to specified minimum interest coverage and maximum net senior secured debt leverage ratios that become more restrictive over time. A failure to comply with such covenants, unless waived, would be a default under the Senior Facilities. This would permit the lenders to accelerate the maturity of the Senior Facilities and terminate their commitments to extend credit under the Revolving Facility. An acceleration of maturity of the Senior Facilities would permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes and the holders of the Debentures to accelerate the maturity of the Debentures. If we were unable to repay our debt to the lenders and holders or otherwise obtain a waiver from the lenders and holders, the lenders and holders could proceed against the collateral securing the Senior Facilities and the Senior Notes, respectively, and exercise all other rights available to them, and we could be required to undertake significant actions (which may be inconsistent with our plans or adverse to our stockholders) to raise the funds necessary for repayment. We cannot assure you that we would be able to obtain any such waiver or take any of such actions on favorable terms or at all.
At March 31, 2004, we were in compliance with the financial covenants under the Senior Facilities. If we were to believe that we would not continue to comply with these covenants, we would seek an appropriate waiver or amendment from the lenders thereunder. We cannot assure you that we would be able to obtain such waiver or amendment on acceptable terms or at all.
At March 31, 2004, the Revolving Facility provided for maximum borrowings of up to €175 million ($215 million, based on currency exchange rates in effect at March 31, 2004). It is possible that our future ability to borrow under the Revolving Facility could effectively be less because of the impact of additional borrowings upon our compliance with the maximum net senior secured debt leverage ratio permitted or minimum interest coverage ratio required under the Senior Facilities. At March 31, 2004, we had no outstanding balance under the Revolving Facility and $197 million (after consideration of outstanding letters of credit and at currency exchange rates in effect at March 31, 2004) fully available thereunder.
We believe that the long term fundamentals of our business continue to be sound. Accordingly, although we cannot assure you that such will be the case, we believe that, based on our expected cash flow from operations and our existing capital resources, and taking into account our working capital needs and our efforts to reduce costs, improve efficiencies and product quality, generate growth and cash flow and maximize funds available to meet our debt service and other obligations, we will be able to manage our liquidity to permit us to service our debt and meet our obligations when due.
Related Party Transactions. We have not, since January 1, 2003, engaged in or been a party to any material transactions with affiliates or related parties other than transactions with our subsidiaries (including Carbone Savoie and AET), compensatory transactions with directors and officers (including employee benefits, stock option and restricted stock grants, and compensation deferral), and transactions with our 25%-owned joint venture with Jilin Carbon Co. Ltd. (“Jilin”) in China.
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Off-Balance-Sheet Financings and Commitments. We have not, since January 1, 2003, undertaken or been a party to any material off-balance-sheet financing arrangements or other commitments (including non-exchange traded contracts), other than:
| | o | Interest rate caps and swaps and currency exchange rate contracts which are described under “Item 3 – Quantitative and Qualitative Disclosures About Market Risk.” |
| | o | Commitments under non-cancelable operating leases that, at December 31, 2003 totaled less than $3 million individually in each year and $5 million in the aggregate and, at March 31, 2004, totaled $2 million individually in each year and $4 million in the aggregate. |
| | o | Minimum required purchase commitments under our information technology outsourcing services agreement with CGI described under “–Long-Term Contractual, Commercial and Other Obligations and Commitments” that, at December 31, 2003, totaled approximately $5 million in each year and about $38 million in the aggregate and, at March 31, 2004, totaled approximately $5 million in each year and about $36 million in the aggregate. |
| | o | Factoring of accounts receivable as described under “– Cash Flow and Plans to Manage Liquidity.” |
We have not been, since January 1, 2003, affiliated with or related to any special purpose entity other than GrafTech Finance.
Cash Flows. In general, during 2003 and the 2004 first quarter, we used cash in operating activities (including payments related to restructurings and antitrust investigations, lawsuits and claims) as well as for capital expenditures. Financing for these uses was provided primarily by net proceeds from our public offerings of common stock in 2001 and 2003, our incurrence of long-term and short-term debt, and proceeds from sales of non-strategic assets and interest rate swaps. We expect that we will have net cash used in operating activities in 2004. For 2004, we expect to make payments of about $15 million related to restructurings, about $85 million related to antitrust fines (excluding the benefit from the reduction of the EU antitrust fine) and about $45 million related to replacement of cash that would have been provided by factoring of accounts receivable. Excluding payments related to restructurings, antitrust fines and the impact of the reduction of factoring of accounts receivables, we believe that we will have net positive cash provided by operating activities in 2004.
Cash Flow Used in Operating Activities. Cash flow used in operating activities was $154 million in 2004 first quarter as compared to $24 million in 2003 first quarter, an increase of $130 million.
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Cash used in operating activities was $154 million in the 2004 first quarter. The primary uses consisted of $166 million for working capital and $16 million for other long-term assets and liabilities offset by a source of cash of $28 million from the net loss, after adding back the net effect from non-cash items. Working capital uses related primarily to a $71 million provisional payment against the EU antitrust fine, $13 million of restructuring payments, decreases in payables due to timing of payment patterns (including our semi-annual interest payment on the Senior Notes), and a reduction in factoring of accounts receivable of $41 million. Other long-term assets and liabilities uses were primarily for pension and postretirement benefits. Non-cash items consisted primarily of $12 million related to deferred income taxes, $9 million of depreciation and amortization and $5 million of loss on exchange of common stock for Senior Notes.
Cash used in operating activities was $24 million in the 2003 first quarter. The primary uses consisted of $19 million for working capital and $4 million from the net loss, after adding back the net effect from non-cash items. Working capital uses related primarily to decreases in payables due to timing of payment patterns and increases in inventories to support anticipated customer demand. Non-cash items consisted primarily of $19 million of restructuring charges and impairment losses offset by other non-cash credits of $16 million related primarily to currency exchange gains on euro-denominated intercompany loans.
Cash Flow Used in Investing Activities.Cash flow used in investing activities was $9 million in the 2004 and 2003 first quarters. Virtually all of such investing activities consisted of capital expenditures. Capital expenditures in the 2004 first quarter related primarily to the expansion of graphite electrode manufacturing capacity, implementation of J.D. Edwards information systems and essential capital maintenance. Capital expenditures in the 2003 first quarter related primarily to expansion of graphite electrode manufacturing capacity in our facility in Mexico, implementation of J.D. Edwards information systems and essential capital maintenance.
Cash Flow Provided by Financing Activities. Cash flow provided by financing activities was $195 million during 2004 first quarter as compared to $31 million in 2003 first quarter. During the 2004 first quarter, we received gross proceeds of $225 million (less issuance costs of $8 million) from the sale of the Debentures. We used these proceeds primarily to repay term loans of $21 million outstanding under the Senior Facilities. We also used these proceeds to make a provisional payment of $71 million to the EU Competition Authority against the EU antitrust fine and to replace cash previously provided by factoring of accounts receivable. In January 2004, we also purchased $8 million aggregate principal amount of Senior Notes, plus accrued interest, for $9 million in cash.
Cash flow provided by financing activities was about $31 million during 2003 first quarter primarily due to $35 million in borrowings under the Revolving Facility and $10 million in proceeds from the sale of interest rate swaps, offset primarily by short term debt payments.
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PART I (CONT’D)
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Restrictions on Dividends and Stock Repurchases
Under the Senior Facilities, we are generally permitted to pay dividends on our common stock and repurchase our common stock in an aggregate annual amount of between $25 million and $50 million, depending on our leverage ratio and excess cash flow. Under the Senior Notes, we are generally permitted to pay dividends on our common stock and repurchase common stock in an aggregate cumulative (from February 15, 2002) amount of $25 million, plus certain consolidated net income, equity proceeds and investment gains. Under the Debentures, dividends on our common stock and repurchases of our common stock may result in adjustments to the conversion rate applicable to the Debentures.
Description of Our Financing Structure
A description of our financing structure is set forth under “Management’s Discussion and Analysis of Financial Condition–Description of our Financing Structure” in the Annual Report, which description is hereby incorporated herein by reference. Such description contains all of the information required with respect thereto.
Description of Senior Facilities, Senior Notes and Debentures. A description of the Senior Facilities, the Senior Notes and the Debentures is set forth under “Long-Term Debt and Liquidity” in Note (6) to the Consolidated Financial Statements contained in this Report, and such description is hereby incorporated herein by reference. Other than as set forth below, such description contains all of the information required with respect thereto.
Our operating subsidiary in Italy engaged in the advanced graphite materials business, our operating subsidiary in Russia and Carbone Savoie, AET and certain immaterial domestic and foreign operating and holding companies are neither guarantors of the secured intercompany revolving note of our Swiss subsidiary that is pledged to secure the Senior Facilities, nor guarantors of the Senior Notes or the unsecured intercompany term notes pledged to secure the Senior Notes, nor guarantors of the Debentures. At December 31, 2003 and March 31, 2004, the aggregate combined book value of their assets was about $186 million, in each case, and their debt and liabilities totaled $78 million (excluding intercompany trade and other miscellaneous liabilities of $20 million) and $77 million (excluding intercompany trade and other miscellaneous liabilities of $23 million), respectively. For 2003, their aggregate combined net loss was about $8 million, and for the 2004 first quarter, their aggregate combined net income was about $1 million. For 2003, and the 2004 first quarter, their aggregate combined net source of cash from operations was about $10 million and $13 million, respectively (excluding the impact of payments and borrowings under a short-term unsecured intercompany cash flow note issued by Carbone Savoie).
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks primarily from changes in interest rates, currency exchange rates and commercial energy rates. We routinely enter into various transactions that have been authorized according to documented policies and procedures to manage well-defined risks. These transactions relate primarily to financial instruments described below. Since the counterparties to these financial instruments are large commercial banks and similar financial institutions, we do not believe that we are exposed to material counterparty credit risk. We do not use financial instruments for trading purposes.
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Our exposure to changes in interest rates results primarily from floating rate long-term debt tied to LIBOR or euro LIBOR. Our exposure to changes in currency exchange rates results primarily from:
| o | investments in and intercompany loans to our foreign subsidiaries and our share of the earnings of those subsidiaries, to the extent denominated in currencies other than local currencies; |
| o | raw material purchases made by our foreign subsidiaries in currencies other than local currencies; and |
| o | export sales made by our subsidiaries in currencies other than local currencies. |
Our exposure to changes in energy costs results primarily from the purchase of natural gas and electricity for use in our manufacturing operations.
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Interest Rate Management. We implement interest rate management initiatives to seek to minimize our interest expense and optimize the risk in our portfolio of fixed and variable interest rate obligations. Use of these initiatives is allowed under the Senior Notes and the Senior Facilities. We have interest rate swaps that effectively convert fixed rate debt (represented by the Senior Notes) into variable rate debt. At March 31, 2004, we had swaps for a notional amount of $450 million.
Our interest rate swaps are designated as hedging the exposure to changes in the fair value of the related debt (called a fair value hedge). The related debt for our swaps is the Senior Notes. Our swaps are marked-to-market monthly, and we are required to provide cash collateral to the counterparty to the extent that the negative fair value of our swaps, net of the fair value of our interest rate caps, exceeds $15 million. We may, at any time, close out our positions in these swaps and caps.
At March 31, 2004, the carrying value of our debt was reduced by $5 million (excluding the offsetting value of our interest rate caps of $2 million) as a result of our fair value hedge. The interest rate swap derivative was valued at $5 million at March 31, 2004 and recorded as part of other long-term obligations on the Consolidated Balance Sheets. When we sell swaps, the gain or loss is amortized as a credit or charge to interest expense over the remaining term of the Senior Notes. When we reduce the outstanding principal amount of the Senior Notes (through exchanges or otherwise), the related portion of such credit or charge is accelerated and recorded in the period in which such reduction occurs. At March 31, 2004, the carrying value of our debt was increased by $28 million as a result of gains realized from previously sold swaps. The net impact of current and terminated hedge instruments was a $23 million increase in the fair value of our debt, and is recorded on the Consolidated Balance Sheets on the line entitled “fair value adjustments for hedge instruments.”
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In the 2003 first quarter, we entered into an additional $200 million notional amount of swaps (bringing our total notional amount of swaps to $450 million) through the remaining term of the Senior Notes, effectively converting that amount of fixed rate debt to variable rate debt. Subsequently in the 2003 first quarter, we sold the entire $450 million notional amount of swaps for $10 million in cash. Following the sale of the swaps, in the 2003 first quarter, we entered into $350 million notional amount of swaps through the remaining term of the Senior Notes. Subsequently, in the 2003 second quarter, we entered into an additional $50 million notional amount of swaps (bringing our total notional amount of swaps to $400 million). Subsequently in the 2003 second quarter, we sold the total notional amount of $400 million of swaps for $21 million in cash. In the 2003 third quarter, we entered into $500 million notional amount of swaps for the remaining term of the Senior Notes. Subsequently in the 2003 third quarter, we sold $15 million notional amount of swaps and paid $1 million in cash. In the 2004 first quarter, we sold $35 million notional amount of swaps for a nominal amount. As a result, at March 31, 2004, we held $450 million notional amount of swaps for the remaining term of the Senior Notes.
Interest rate swaps reduced our interest expense by approximately $4 million in the 2003 first quarter.
Interest rate swaps reduced our interest expense by $8 million in the 2004 first quarter. The reduction was due to the benefit from current interest rate swaps in the amount of $4 million. Also included in this $8 million was $1 million of amortization of fair value adjustments for previously sold interest rate swaps. The credit to interest expense for the 2004 first quarter due to acceleration of the amortization of fair value adjustments for previously sold interest rate swaps amounted to $3 million.
We enter into agreements with financial institutions that are intended to limit, or cap, our exposure to the incurrence of additional interest expense due to increases in variable interest rates. In the 2003 first quarter, we entered into interest rate caps for a notional amount of $300 million through August 2007. In the 2003 second quarter, we entered into additional interest rate caps for a notional amount of $200 million through August 2007 (bringing our total notional amount of caps to $500 million through August 2007). These instruments effectively cap our interest rate exposure (represented by the net impact of our swaps on the Senior Notes) to no greater than 434 basis points above the six-month LIBOR rate of 116 basis points at March 31, 2004. All of our interest rate caps are marked to market monthly. Gains and losses are recorded in other (income) expense, net, on the Consolidated Statements of Operations. Losses on caps amounted to $1 million for the 2003 first quarter and $2 million for the 2004 first quarter.
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Currency Rate Management. We enter into foreign currency instruments to manage exposure to changes in currency exchange rates. These foreign currency instruments, which include, but are not limited to, forward exchange contracts and purchased currency options, attempt to hedge global currency exposures, net, relating to euro-denominated debt and identifiable foreign currency receivables, payables and commitments held by our foreign and domestic subsidiaries. Forward exchange contracts are agreements to exchange different currencies at a specified future date and at a specified rate. Purchased foreign currency options are instruments which give the holder the right, but not the obligation, to exchange different currencies at a specified rate at a specified date or over a range of specified dates. The result is the creation of a range in which a best and worst price is defined, while minimizing option cost. Forward exchange contracts and purchased currency options are carried at market value. All of these contracts mature within one year and are marked to market monthly. Gains and losses due to the recording of such contracts at fair value are recognized currently in other (income) expense, net, on the Consolidated Statements of Operations. In 2003, we recorded a loss of $7 million with respect to the instruments held during the course of the year and a loss of $2 million with respect to instruments held during the course of the 2003 first quarter. In the 2004 first quarter, we recorded a realized gain of $2 million with respect to instruments held during the course of the 2004 first quarter. We had no such contracts outstanding at December 31, 2003 or March 31, 2004; however, we may at any time purchase further instruments.
Commercial Energy Rate Management. We have entered into short duration fixed rate purchase contracts with certain of our North American natural gas suppliers in order to mitigate seasonal increases in our natural gas costs. These contracts expired at the end of the 2004 first quarter. In addition, we have entered into natural gas hedge derivative contracts, effectively fixing 100% of our direct and indirect natural gas cost exposure in North America (45% of direct worldwide exposure) through April 2004.
Sensitivity Analysis. We used a sensitivity analysis to assess the potential effect of changes in currency exchange rates and interest rates for the 2004 first quarter. Based on this analysis, a hypothetical 10% weakening or strengthening in the dollar across all other currencies would have changed our reported gross margin for the 2004 first quarter by about $2 million. In addition, based on this analysis, a hypothetical increase in interest rates of 100 basis points (including the impact of such increase on current interest rate swaps) would have increased our interest expense by about $1 million for the 2004 first quarter.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report, and, based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that these controls and procedures are effective. There were no changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of that evaluation.
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Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
A control system is subject to inherent limitations and, as a result, can provide only reasonable, not absolute, assurance that the system’s objectives will be achieved. In the first instance, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, decision-making in connection with system design or operation can be faulty, and breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the acts of single individuals, by collusion of two or more individuals, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. In light of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
Item 1. Legal Proceedings
This information required in response to this Item is set forth in Note 9 to the Notes to Consolidated Financial Statements contained in this Report, and such information is hereby incorporated herein by reference. Such description contains all of the information required with respect thereto.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
In the 2004 first quarter, we exchanged $35 million aggregate principal amount of Senior Notes, plus accrued interest of approximately $1 million, for 3,161,131 shares of common stock. The Senior Notes are fully and unconditionally guaranteed by GTI. These transactions were exempt from registration under Section 3(a)(9) of the Securities Act of 1933 because the shares of common stock were issued to holders of Senior Notes (the issuance of which had been registered under the Securities Act of 1933) solely in exchange for Senior Notes and no commission or remuneration was paid or given directly or indirectly in connection with any such exchange.
In the 2004 first quarter, we issued and sold $225 million aggregate principal amount of Debentures. The Debentures were sold to initial purchasers who were, and who resold them to other purchasers who were, qualified institutional buyers (as such term is defined under Rule 144A of the Securities Act). The transaction was exempt from registration under Section 4(2) of the Securities Act. A description of the terms of the Debentures is set forth under “Long-Term Debt and Liquidity–Debentures” in Note (6) to the Consolidated Financial Statements contained in this Report, and such description is hereby incorporated herein by reference. Such description contains all of the information required with respect thereto.
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Item 6. Exhibits and Reports on Form 8-K
The exhibits listed in the following table have been filed as part of this Report.
Exhibit
Number | Description of Exhibit |
|---|
| |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Craig S. Shular, Chief Executive Officer & President. |
| |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Corrado F. De Gasperis, Vice President, Chief Financial Officer & Chief Information Officer. |
| |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Craig S. Shular, Chief Executive Officer & President. |
| |
| 32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Corrado F. De Gasperis, Vice President, Chief Financial Officer & Chief Information Officer. |
No reports on Form 8-K were filed during the 2004 first quarter.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 10, 2004 | | GRAFTECH INTERNATIONAL LTD.
By: /s/ Corrado F. De Gasperis
Corrado F. De Gasperis
Vice President, Chief Financial Officer
& Chief Information Officer
(Principal Accounting Officer) |
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Exhibit
Number | Description of Exhibit |
|---|
| |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Craig S. Shular, Chief Executive Officer & President. |
| |
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Corrado F. De Gasperis, Vice President, Chief Financial Officer & Chief Information Officer. |
| |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Craig S. Shular, Chief Executive Officer & President. |
| |
| 32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Corrado F. De Gasperis, Vice President, Chief Financial Officer & Chief Information Officer. |
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