PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3)    Earnings Per Share

        Basic and diluted earnings per share are calculated based upon the provisions of SFAS No. 128, “Earnings per Share,” using the following share data:

        Basic earnings (loss) per common share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding, in each case for the same period. Diluted earnings (loss) per share are calculated by dividing net income (loss) by the sum of the weighted average number of common shares outstanding plus the additional common shares that would have been outstanding if potentially dilutive securities had been issued, in each case for the same period. As a result of the net loss reported for 2003 first quarter and 2004 first quarter, 93,527 and 2,245,103, respectively, of potential common shares underlying dilutive securities have been excluded from the calculation of diluted earnings (loss) per share because their effect would reduce the loss per share.

        In addition, the calculation of weighted average common shares outstanding for the diluted calculation excludes consideration of stock options covering 9,216,580 and 3,857,462 shares in the 2003 first quarter and 2004 first quarter, respectively, because the exercise of these options would not have been dilutive for those periods due to the fact that the exercise prices were greater than the weighted average market price of our common stock for each of those periods.

        The following table summarizes information about stock options outstanding at March 31, 2004.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4)       Segment Reporting

        “Other” in the table below includes the natural graphite and advanced carbon materials lines of business.

        We evaluate the performance of our operating segments based on gross profit. Intersegment sales and transfers are not material. The accounting policies of the reportable segments are the same as those for our Consolidated Financial Statements as a whole.

        The following tables summarize financial information concerning our reportable segments.

“Other” in the table above, which includes natural graphite and advanced carbon materials for the 2003 first quarter, has been restated to exclude our composite tooling business that was sold in June 2003.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)    Restructuring Charges and Impairment Losses

        We have had several restructuring charges and impairment losses during the past few years. At March 31, 2004, the outstanding balance of our restructuring reserve was $16 million. The components of this balance consist primarily of $8 million related to the mothballing and closure of our graphite electrode manufacturing operations in Caserta, Italy, $4 million related to organizational changes, $2 million related primarily to remaining lease payments on our former corporate headquarters, and $2 million related to the closure of our graphite electrode manufacturing operations in Welland, Canada.

        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 fourth quarter, we recorded a $2 million net non-cash write-off of the remaining book value of assets of our former graphite electrode manufacturing operations in Clarksville, Tennessee. We also recorded a $5 million non-cash impairment loss on the remaining fixed assets of our graphite electrode manufacturing operations in Caserta, Italy.

        In the 2003 second quarter, we recorded $1 million of restructuring charges for organizational changes.

        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 benefit 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 workforce reduction of 103 employees. The closure of our non-qualified U.S. defined benefit plan resulted in recognition of net settlement costs of $11 million.

        The following table summarizes activity relating to the accrued expense in connection with the restructuring charges. This accrued expense is included in other accrued liabilities on the Consolidated Balance Sheets.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        The fair value of the long-lived assets is calculated on the basis of discounted estimated future cash flows. Estimates of the discounted future cash flows are subject to significant uncertainties and assumptions. Accordingly, actual values could vary significantly from such estimates.

(6)   Long-Term Debt and Liquidity

        The following table presents our long-term debt.

            In the 2003 second quarter, we exchanged $20 million aggregate principal amount of Senior Notes, plus accrued interest of $1 million, for 3,800,758 shares of common stock. These exchanges resulted in a net gain of $1 million in the 2003 second quarter which has been recorded in other (income) expense, net.

        In the 2003 third quarter, we exchanged $35 million aggregate principal amount of Senior Notes, plus accrued interest of $1 million, for 6,088,112 shares of common stock. These exchanges resulted in a net loss of $1 million in the 2003 third quarter which has been recorded in other (income) expense, net.

        In the 2003 fourth quarter, we purchased $2 million aggregate principal amount of Senior Notes, plus accrued interest, for $3 million in cash. These purchases resulted in a nominal gain.

        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.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        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.

        See Note (8) “Financial Instruments – Interest Rate Risk Management” for information regarding the impact on interest expense resulting from these exchanges and repurchases.

            On February 15, 2002, GrafTech Finance issued $400 million aggregate principal amount of Senior Notes. Interest on the Senior Notes is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 2002, at the rate of 10.25% per annum. The Senior Notes mature on February 15, 2012.

        On May 6, 2002, GrafTech Finance issued $150 million aggregate principal amount of additional Senior Notes at a purchase price of 104.5% of principal amount, plus accrued interest from February 15, 2002, under the Senior Note Indenture. All of the Senior Notes constitute one class of debt securities under the Senior Note Indenture. The additional Senior Notes bear interest at the same rate and mature on the same date as the Senior Notes issued in February 2002. The $7 million premium received upon issuance of the additional Senior Notes was added to the principal amount of the Senior Notes shown on the Consolidated Balance Sheets and is amortized (as a credit to interest expense) over the term of the additional Senior Notes. As a result of our receipt of such premium, the effective annual interest rate on the additional Senior Notes is about 9.5%.

        Except as described below, GrafTech Finance may not redeem the Senior Notes prior to February 15, 2007. On or after that date, GrafTech Finance may redeem the Senior Notes, in whole or in part, at specified redemption prices beginning at 105.125% of the principal amount redeemed for the year commencing February 15, 2007 and reducing to 100.00% of the principal amount redeemed for the years commencing February 15, 2010 and thereafter, in each case plus accrued and unpaid interest to the redemption date.

        In addition, before February 15, 2005, GrafTech Finance is entitled at its option on one or more occasions to redeem Senior Notes at a redemption price of 110.25% of the principal amount redeemed, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more underwritten primary public offerings of shares of our common stock pursuant to an effective registration statement under the Securities Act so long as:

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Upon the occurrence of a “change of control,” GrafTech Finance will be required to make an offer to repurchase the Senior Notes at a price equal to 101.00% of the principal amount redeemed, plus accrued and unpaid interest to the redemption date. For this purpose, a change in control occurs on:

        The Senior Notes rank senior to present and future subordinated debt and equally with present and future senior debt and obligations of GrafTech Finance. The Senior Notes are effectively subordinated to present and future secured debt and obligations of GrafTech Finance, to the extent of the value of the assets securing such debt and obligations, and are structurally subordinated to debt and obligations, including trade payables, of subsidiaries that are neither guarantors of the Senior Notes nor unsecured intercompany term note obligors.

        GTI, GrafTech Global and UCAR Carbon and other U.S. subsidiaries that together hold a substantial majority of our U.S. assets have guaranteed the Senior Notes on a senior unsecured basis, except that the guarantee by UCAR Carbon is secured as described below. None of AET, Graphite Electrode Network LLC or Union Carbide Grafito, Inc. is a guarantor of the Senior Notes. UCAR Holdings V Inc. is a guarantor of the Senior Notes, but is being liquidated and dissolved.

        The guarantee by UCAR Carbon has been secured by a pledge of all of the shares of capital stock (constituting 97.5% of the outstanding shares of capital stock) of AET held by UCAR Carbon (called the “AET Pledged Stock”), subject to the limitation that at no time will the value of the pledged portion of the AET Pledged Stock exceed 19.99% of the principal amount of the then outstanding Senior Notes. The pledge of the AET Pledged Stock is junior to the pledge of the AET Pledged Stock to secure UCAR Carbon’s guarantee of the Senior Facilities.

        Each of the guarantees of the Senior Notes is full, unconditional and joint and severable. Payment under the guarantees could be required immediately upon the occurrence of an event of default under the Senior Notes. If a guarantor makes a payment under its guarantee, it would have the right under certain circumstances to seek contribution from the other guarantors.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        The guarantees are general unsecured senior obligations of the guarantors, except for the guarantee by UCAR Carbon which is secured as described above, and rank senior to present and future subordinated guarantees, debt and obligations of the respective guarantors and equally with present and future senior guarantees, debt and obligations of the respective guarantors. The guarantees are effectively subordinated to present and future secured guarantees, debt and obligations of the respective guarantors, to the extent of the value of the assets securing such guarantees, debt and obligations, and are structurally subordinated to guarantees, debt and obligations, including trade payables and preferred stock, of subsidiaries of the respective guarantors.

        Additional information with respect to the guarantees is set forth in Note (10) “Financial Information About the Parent, the Issuer, the Guarantors and the Subsidiaries Whose Securities Secure the Senior Notes and Related Guarantees.”

        Unsecured intercompany term notes in an aggregate principal amount, at March 31, 2004, equal to $522 million (based on currency exchange rates in effect at March 31, 2004) issued by our operating subsidiaries in Mexico, South Africa and Switzerland and our holding company subsidiary in France and guarantees of those unsecured intercompany term notes by our principal foreign subsidiaries have been pledged by GrafTech Finance to secure the Senior Notes, subject to the limitation that at no time will the combined value of the pledged portion of any foreign subsidiary’s unsecured intercompany term note and unsecured guarantee of unsecured intercompany term notes issued by other foreign subsidiaries exceed 19.99% of the principal amount of the then outstanding Senior Notes. As a result of this limitation, the principal amount of unsecured intercompany term notes pledged to secure the Senior Notes at March 31, 2004 equals $350 million (based on currency exchange rates in effect at March 31, 2004), or about 78% of the principal amount of the outstanding Senior Notes. The remaining unsecured intercompany term notes held by GrafTech Finance in an aggregate principal amount at March 31, 2004 of $172 million (based on currency exchange rates in effect at March 31, 2004), or about 33% of the aggregate principal amount of the unsecured intercompany term notes, and any pledged unsecured intercompany term notes that cease to be pledged due to a reduction in the principal amount of the then outstanding Senior Notes due to redemption, repurchase or other events, will not be subject to any pledge and will be available to satisfy the claims of creditors (including the lenders under the Senior Facilities, the holders of the Senior Notes and, pursuant to the subsidiary guarantee by GrafTech Finance of the Debentures, the holders of the Debentures) as their interests may appear. The Senior Notes prohibit the pledge of these unsecured intercompany term notes or related guarantees to secure any other debt or obligation. The foreign subsidiaries who are obligors under any of such unsecured intercompany term notes or the related guarantees are called “unsecured intercompany term note obligors” and their obligations thereunder are called “unsecured intercompany term note obligations.”

        The unsecured intercompany term note obligations rank senior to present and future subordinated guarantees, debt and obligations of the respective obligors, and equally with present and future senior guarantees, debt and obligations of the respective obligors. The unsecured intercompany term note obligations are effectively subordinated to present and future secured guarantees, debt and obligations of the respective obligors, to the extent of the value of the assets securing such guarantees, debt and obligations, and are structurally subordinated to guarantees, debt and obligations, including trade payables and preferred stock, of subsidiaries of the respective obligors that are not also unsecured intercompany term note obligors.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        The Senior Notes contain a number of covenants that, among other things, restrict our ability to incur additional indebtedness, pay dividends, make investments, create or permit to exist restrictions on distributions from subsidiaries, sell assets, engage in certain transactions with affiliates, or enter into certain mergers and consolidations. The covenants may restrict our ability to repurchase or redeem the Debentures, even if so required thereby. Under the Senior Notes, GTI is permitted to pay dividends on common stock and repurchase common stock only in a cumulative amount of $25 million (subject to reduction if we make other restricted payments), plus, if certain leverage ratio requirements are satisfied, an amount of up to the sum of 50% of certain cumulative consolidated net income, 100% of net cash proceeds from certain sales of common stock and certain investment returns. We are also permitted to repurchase common stock from present or former directors, officers or employees of up to the lesser of $5 million annually or $10 million on a cumulative basis from February 15, 2002. GrafTech Global is permitted to pay dividends to GTI for those and other purposes.

        In addition to the failure to pay principal and interest when due or to repurchase Senior Notes when required, events of default under the Senior Notes include: failure to comply with applicable covenants; failure to pay at maturity or upon acceleration indebtedness exceeding $10 million; judgment defaults in excess of $10 million to the extent not covered by insurance; and certain events of bankruptcy.

        The Senior Notes contain provisions as to legal defeasance and covenant defeasance.

            On January 22, 2004, GTI issued $225 million aggregate principal amount of Debentures. Interest on the Debentures is payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2004, at the rate of 1.625% per annum. The Debentures mature on January 15, 2024, unless earlier converted, redeemed or repurchased. The net proceeds from the offering were approximately $218 million. We used the net proceeds to repay the remaining $21 million of term loans then 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, which reduction amounted to $41 million through March 31, 2004. 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 used the balance of the net proceeds to reduce the outstanding balance under the Revolving Facility and to invest in short-term, investment quality, interest-bearing securities or deposits.

        A holder of Debentures may convert its Debentures into shares of our common stock at a conversion rate of 60.3136 shares per $1,000 principal amount (equal to a conversion price of approximately $16.58 per share), subject to adjustment upon certain events, only under the following circumstances:

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Upon conversion, GTI will have the right to deliver, in lieu of shares of our common stock, cash or a combination of cash and shares of our common stock.

        Prior to January 15, 2011, GTI may redeem the Debentures, in whole or in part, at any time, for cash at a redemption price equal to 100% of principal amount, plus accrued and unpaid interest and liquidated damages, if any, only if the last reported sale price of our common stock has exceeded 125% of the then current conversion price for at least 20 trading days during the 30 consecutive trading days ending on the trading day prior to the date on which we mail the notice of redemption. If GTI so redeems the Debentures, GTI will make an additional “make whole” payment in cash, shares of our common stock or a combination thereof on the redeemed Debentures equal to the present value of all remaining scheduled payments of interest on the redeemed Debentures through January 15, 2011. On or after January 15, 2011, GTI may redeem

the Debentures, in whole or in part, at any time, for cash at a redemption price equal to 100% of principal amount, plus accrued and unpaid interest and liquidated damages, if any.

        A holder may require GTI to repurchase some or all of its Debentures on (i) January 15, 2011, January 15, 2014 or January 15, 2019 or (ii) if we experience a “fundamental change” at a repurchase price equal to 100% of principal amount, plus accrued and unpaid interest and liquidated damages, if any. For this purpose, a fundamental change occurs on:

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        We may, at our option, pay the repurchase price in cash, shares of our common stock or a combination thereof, except that we will pay accrued and unpaid interest and liquidated damages, if any, in cash.

        The Debentures are general unsecured senior obligations of GTI and rank senior to present and future subordinated debt and equally with present and future senior debt and obligations of GTI. The Debentures are effectively subordinated to present and future secured debt and obligations of GTI, to the extent of the value of the assets securing such debt and obligations, and are structurally subordinated to debt and obligations, including trade payables and preferred stock, of subsidiaries that are not guarantors of the Debentures.

        GrafTech Finance, GrafTech Global and UCAR Carbon and other U.S. subsidiaries that together hold a substantial majority of our U.S. assets have guaranteed the Debentures on a senior unsecured basis. None of AET, Graphite Electrode Network LLC, Union Carbide Grafito, Inc. or UCAR Holdings V Inc. is a guarantor of the Debentures. Additional information with respect to the guarantees is set forth in Note (11) “Financial Information About the Issuer Parent and the Guarantors Relating to Debentures.”

        Each of the guarantees of the Debentures is full, unconditional and joint and severable. Payment under the Debentures could be required immediately upon the occurrence of any event of default under the Debentures. If a guarantor makes a payment under its guarantee, it would have the right under certain circumstances to seek contribution from the other guarantors.

        The guarantees are general unsecured senior obligations of the guarantors and rank senior to present and future subordinated guarantees, debt and obligations of the respective guarantors and equally with present and future senior guarantees, debt and obligations of the respective guarantors. The guarantees are effectively subordinated to present and future secured guarantees, debt and obligations of the respective guarantors, to the extent of the value of the assets securing such guarantees, debt and obligations, and are structurally subordinated to guarantees, debt and obligations, including trade payables and preferred stock, of subsidiaries of the respective guarantors.

        In addition to the failure to pay principal and interest (including liquidated damages, if any) when due or to repurchase the Debentures when required, events of default under the Debentures include: failure to deliver shares of our common stock, cash or other property upon conversion of the Debentures; failure to pay at maturity or upon acceleration indebtedness exceeding $10 million; judgment defaults in excess of $10 million, to the extent not covered by insurance; and certain events of bankruptcy.

        We have agreed to file a shelf registration statement under the Securities Act of 1933 covering resales of the Debentures and the shares of common stock issuable upon conversion, redemption or repurchase thereof (including upon the making of any “make whole” payment). If the registration statement was not filed by April 21, 2004 or has not become effective by July 20, 2004, we have agreed to pay liquidated damages to holders of Debentures and such shares issuable upon conversion of the Debentures. Liquidated damages will be paid semi-annually in arrears on each January 15 and July 15 and will accrue at a rate per annum not to exceed 0.50% of the principal amount or the then current conversion price, as applicable. Under certain circumstances, GTI has the right to suspend resales under the registration statement. On April 20, 2004, we filed shelf registration statements covering, among other things, resales of the Debentures and the shares of common stock issuable upon conversion thereof. On May 7, 2004, the SEC declared the registration statements effective.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            In February 2002, we completed a debt recapitalization and obtained the Senior Facilities. The Senior Facilities consist of, among other things:

        We are generally required to make mandatory prepayments in the amount of:

        We may make voluntary prepayments under the Senior Facilities. There is no penalty or premium due in connection with prepayments (whether voluntary or mandatory).

20

PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        GrafTech Finance has made and is required to make domestic intercompany loans and foreign secured intercompany loans of the net proceeds of borrowings under the Senior Facilities to GrafTech Global’s subsidiaries. The obligations of GrafTech Finance under the Senior Facilities are secured, with certain exceptions, by first priority security interests in all of these intercompany loans (including the related security interests and guarantees). We used the proceeds from the issuance of the Senior Notes in February 2002 to finance the repayment of all such foreign intercompany term loans that were outstanding at such time. The only other such intercompany loans that were outstanding at such time or thereafter were and are intercompany revolving loans to UCAR Carbon and our Swiss subsidiary. At March 31, 2004, the outstanding aggregate balance of the intercompany loans to UCAR Carbon and our Swiss subsidiary was $14 million.

        GTI guarantees the Senior Facilities on a senior basis. This guarantee is secured, with certain exceptions, by first priority security interests in all of GTI’s assets, including all of the outstanding capital stock of GrafTech Global and GrafTech Finance.

        GrafTech Global and each of GrafTech Global’s domestic subsidiaries (including AET, Graphite Electrode Network LLC, Union Carbide Grafito, Inc. and UCAR Holdings V Inc.) guarantees the Senior Facilities on a senior basis. These guarantees are secured, with certain exceptions, by first priority security interests in all of their assets (including the AET Pledged Stock), except that no more than 65% of the capital stock or other equity interests in our foreign subsidiaries held directly by our U.S. subsidiaries, and no other foreign assets, are pledged to secure the guarantees.

        The intercompany revolving loan to our Swiss subsidiary is secured, with certain exceptions, by a first priority security interest in substantially all of its assets, including a first priority pledge of all of the outstanding capital stock of our foreign subsidiaries that are owned directly by it, and is guaranteed by most of our other principal foreign operating subsidiaries. These guarantees are secured, with certain exceptions, by first priority security interests in their assets.

        Each of the guarantees is full, unconditional and joint and several, except as otherwise required to comply with applicable non-U.S. laws. Payment under the guarantees could be required immediately upon the occurrence of an event of default under the Senior Facilities. If a guarantor makes a payment under its guarantee, it would have the right under certain circumstances to seek contribution from the other guarantors.

        The interest rate applicable to the Revolving Facility is, at our option, either LIBOR plus a margin ranging from 1.375% to 3.375% (depending on our leverage ratio) or, in the case of dollar-denominated loans, the alternate base rate plus a margin ranging from 0.375% to 2.375% (depending on our leverage ratio). The interest rate applicable to the Tranche B Facility was, at our option, either euro LIBOR plus a margin ranging from 2.875% to 3.625% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 1.875% to 2.625% (depending on our leverage ratio). The alternate base rate is the higher of (i) the prime rate announced by JP Morgan Chase Bank or (ii) the federal funds effective rate plus 0.50%. GrafTech Finance pays a per annum fee ranging from 0.375% to 0.500% (depending on our leverage ratio) on the undrawn portion of the commitments under the Revolving Facility. At December 31, 2003 and March 31, 2004, there was nil outstanding under the Revolving Facility. At December 31, 2003 and March 31, 2004, there was $21 million and nil, respectively, outstanding under the Tranche B Facility. The weighted average interest rate on the Senior Facilities was 5.1% during the 2003 first quarter and 4.8% during the 2004 first quarter.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        The Senior Facilities contain a number of significant covenants that, among other things, significantly restrict our ability to sell assets, incur additional debt, repay or refinance other debt or amend other debt instruments, create liens on assets, enter into sale and lease back transactions, make investments or acquisitions, engage in mergers or consolidations, make capital expenditures, make intercompany dividend payments to GTI, pay intercompany debt owed to GTI, engage in transactions with affiliates, pay dividends to stockholders of GTI or make other restricted payments and that otherwise significantly restrict corporate activities. In addition, we are required to comply with financial covenants relating to specified minimum interest coverage ratios and maximum net senior secured debt leverage ratios (which is the ratio of our net senior secured debt to our EBITDA (as defined in the Senior Facilities)), which become more restrictive over time. The covenants may restrict our ability to repurchase or redeem the Senior Notes and the Debentures, even if so required thereby.

        Under the Senior Facilities, GTI is permitted to pay dividends on, and repurchase, common stock in an aggregate annual amount of $25 million, plus up to an additional $25 million if certain leverage ratio and excess cash flow requirements are satisfied. We are also permitted to repurchase common stock from present or former directors, officers or employees in an aggregate amount of up to the lesser of $5 million per year (with unused amounts permitted to be carried forward) or $25 million on a cumulative basis since February 22, 2000.

        In addition to the failure to pay principal, interest and fees when due, events of default under the Senior Facilities include: failure to comply with applicable covenants; failure to pay when due, or other defaults permitting acceleration of, other indebtedness exceeding $7.5 million; judgment defaults in excess of $7.5 million to the extent not covered by insurance; certain events of bankruptcy; and certain changes in control.

Certain Recent Amendments to the Senior Facilities

        In October 2003, the Senior Facilities were amended to, among other things, provide us additional flexibility to make investments and repurchase Senior Notes (up to a maximum of $35 million aggregate principal amount). The amendment also provides for the exclusion from the calculation of the financial covenants the impacts of providing a letter of credit (except to the extent that the letter of credit exceeds $70 million) to secure payment of the EU antitrust fine and of additional charges against results of operations in connection with antitrust investigations and related lawsuits and claims due to accrued interest on the EU antitrust fine through the date of any decision on our appeal of the EU antitrust fine as well as translation of the EU antitrust fine (and accrued interest thereon) from euros into dollars.

        In January 2004, the Senior Facilities were amended to, among other things:

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            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. Certain of our subsidiaries sold receivables totaling $48 million and $2 million during the 2003 first quarter and 2004 first quarter, respectively. If we had not sold such receivables, our accounts receivable and our debt would have been about $47 million and $4 million higher at March 31, 2003 and 2004, respectively. We used a portion of the net proceeds from the issuance and sale of the Debentures to replace the cash previously provided by factoring of accounts receivable.

        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 Facility 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 net senior secured debt leverage ratio permitted or minimum interest coverage ratio required under the Senior Facilities.

        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.

        Our ability to service our debt and other obligations as they come due, including maintaining compliance with the financial covenants and representations under the Senior Facilities, is dependent on our future financial and operating performance. This performance, in turn, 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.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Even if we are able to meet our debt service and other obligations when due, we may not be able to comply with the covenants and other provisions under the Senior Facilities. These covenants and provisions include financial covenants and representations regarding absence of material adverse changes affecting us. A failure to so comply, unless waived, would be a default thereunder. This would permit the lenders to accelerate the maturity of the Senior Facilities. An acceleration of maturity of the Senior Facilities would also permit the lenders to terminate their commitments to extend credit under the Revolving Facility. This would have an immediate material adverse effect on our liquidity. 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. A breach of the covenants contained in the Senior Notes, unless waived, would also permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes. An acceleration of maturity of the Senior Notes would permit the holders of the Debentures to accelerate the maturity of the Debentures and the lenders to accelerate the maturity of the Senior Facilities. A breach of our obligations under the Debentures, unless waived, would also permit the holders of the Debentures to accelerate the maturity of the Debentures. Acceleration of maturity of the Debentures would permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes and the lenders to accelerate the maturity of the Senior Facilities. 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.

(7)    Interest Expense

        The following table presents an analysis of interest expense.

(8)    Financial Instruments

        We use derivative financial instruments to manage well-defined currency exchange rate, interest rate and commercial energy contract risks. We do not use derivative financial instruments for trading purposes.

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PART I (CONT’D)
GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            The notional amount of foreign exchange contracts used by us to minimize foreign currency exposure was nil at December 31, 2003 and at March 31, 2004.

            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 effectively 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.”

        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.

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PART I (CONT’D)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        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 2003 first quarter and $2 million for the 2004 first quarter.

        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 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.

            SFAS No. 107, “Disclosure about Fair Market Value of Financial Instruments,” defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. Such fair values must often be determined by using one or more methods that indicate value based on estimates of quantifiable characteristics as of a particular date. Values were estimated as follows:

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PART I (CONT’D)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9)       Contingencies

        In April 1998, pursuant to a plea agreement between the U.S. Department of Justice (the “DOJ”) and GTI, 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 (the “DOJ antitrust fine”), payable in six annual installments. The plea agreement was approved by the U.S. District Court for the Eastern District of Pennsylvania (the “EDPA District Court”). The payment schedule has been revised periodically at our request. In January 2002, the payment schedule for the $60 million balance outstanding at that time was revised to require a $2.5 million payment in April 2002, a $5.0 million payment in April 2003 and, beginning in April 2004, quarterly payments ranging from $3.25 million to $5.375 million, 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. All payments due have been timely paid.

        In July 2001, the Directorate General IV of the Commission of the European Communities (the “EU Competition Authority”) assessed a fine of €50.4 million (about $62 million, based on currency exchange rates in effect at March 31, 2004) against us for violating antitrust laws of the European Community and the European Economic Area in connection with the sale of graphite electrodes (the “EU antitrust fine”). In October 2001, we filed an appeal to the Court of First Instance of the European Communities in Luxembourg (the “European Court”) challenging, among other things, the amount of the EU antitrust fine, including the accrual of interest and the rate thereof.

        During the pendency of an appeal, provisional payment of the fine or collateral security for payment thereof would typically be required to be paid or provided. 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 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 delivered to the EU Competition Authority, then the rate of interest would be 6.04% per annum.

        In February 2004, we posted a $71 million provisional payment with 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        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 (which was calculated 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. In October 1997, we were served with subpoenas by the DOJ to produce documents relating to, among other things, our carbon electrode and bulk graphite businesses. 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. 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.

        To the extent that antitrust investigations involving us have been resolved with guilty pleas or by adverse decisions, such guilty pleas and decisions make it more difficult for us to defend against other investigations as well as civil lawsuits and claims. We have been vigorously protecting, and intend to continue to vigorously protect, our interests in connection with the investigations described above. We may, however, at any time settle any possible unresolved charges.

            Through March 31, 2004, except as described in the following paragraphs, we have settled or obtained dismissal of all of the civil antitrust lawsuits (including class action lawsuits) previously pending against us, certain civil antitrust lawsuits threatened against us and certain possible civil antitrust claims against us by certain customers who negotiated directly with us. The settlements cover, 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 settlements in connection with the sale of graphite electrodes and carbon electrodes. One of the settlements also covers actual and potential claims against us by certain foreign customers arising out of alleged antitrust violations occurring prior to the date of that settlement in connection with the sale of graphite electrodes sourced from the U.S. Although each settlement is unique, in the aggregate they consist primarily of current and deferred cash payments with some product credits and discounts. All payments due have been timely paid.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        In 1999 and 2000, we and other producers of graphite electrodes were served with three complaints commencing three separate civil antitrust lawsuits in the EDPA District Court. In March 2002, we were served with another complaint commencing a separate civil antitrust lawsuit in the EDPA District Court. These lawsuits are called the “foreign customer lawsuits.” The first complaint, entitled Ferromin International Trade Corporation, et al. v. UCAR International Inc., et al., was filed by 27 steelmakers and related parties, all but one of whom are located outside the U.S. The second complaint, entitled BHP New Zealand Ltd. et al. v. UCAR International Inc., et al. was filed by 4 steelmakers, all of whom are located outside the U.S. The third complaint, entitled Saudi Iron and Steel Company v. UCAR International Inc., et al., was filed by a steelmaker who is located outside the U.S. The fourth complaint, entitled Arbed, S.A., et al. v. Mitsubishi Corporation, et al., was filed by 5 steelmakers, all of whom are located outside the U.S. In each complaint, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of graphite electrodes sold or sourced from the U.S. and those sold and sourced outside the U.S. The plaintiffs seek, among other things, an award of treble damages resulting from such alleged violations. We believe that we have strong defenses against claims alleging that purchases of graphite electrodes outside the U.S. are actionable under U.S. federal antitrust law. We filed motions to dismiss the first and second complaints. In June and July 2001, our motions to dismiss the first and second complaints were granted with respect to substantially all of the plaintiffs’ claims. The claims not dismissed relate to sales invoiced from the U.S. Appeals have been filed by the plaintiffs and the defendants with the U.S. Court of Appeals for the Third Circuit with regard to these dismissals. The U.S. Court of Appeals for the Third Circuit heard oral argument on these appeals on March 11, 2003, and we are awaiting its decision. The third complaint was dismissed without prejudice to refile pending the resolution of such appeals. We filed a motion to stay the lawsuit commenced by the fourth complaint pending resolution of appeals in the other foreign customer lawsuits, and such motion was granted in July 2002.

        In late 2002 and early 2003, we and other producers of bulk graphite were served with three complaints commencing three civil class action antitrust lawsuits. The first complaint, filed in the U.S. District Court for the District of New Jersey (the “NJ District Court”), was entitled Industrial Graphite Products, Inc. v. Carbone Lorraine North America Corporation, et al. The second complaint, filed in the NJ District Court, was entitled Ceradyne, Inc. v. Carbone Lorraine North America Corporation, et al. The third complaint, filed in the EDPA District Court, was entitled General Refractories Company v. GrafTech International Ltd., et al. Subsequently in early 2003, the third complaint was dismissed by the EDPA District Court without prejudice, and we and other producers of bulk graphite were served with two additional complaints commencing civil class action antitrust lawsuits. The complaints were filed in the NJ District Court and were entitled General Refractories Company v. GrafTech International Ltd., et al. and Midwest Graphite Co., Inc. v. SGL Carbon, LLC, et al.. The lawsuits commenced by the first, second, fourth and fifth complaints, along with a lawsuit commenced by a sixth complaint filed only against SGL Carbon, LLC, SGL Carbon A.G. and SGI Carbon GmbH, were subsequently consolidated into a single class action lawsuit filed in April 2003 in the NJ District Court entitled In re: Bulk [Extruded] Graphite Products Antitrust Litigation (the “bulk graphite lawsuit”). In the bulk graphite lawsuit, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of bulk graphite and seek, among other things, an award of treble damages resulting from such alleged violations. In the 2003 first half, we reached an agreement to settle the bulk graphite lawsuit. In March 2004, the NJ District Court approved the settlement agreement.

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PART I (CONT’D)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        The foreign customer lawsuits are still in their early stages. We have been vigorously defending, and intend to continue to vigorously defend, against these remaining lawsuits as well as all threatened lawsuits and possible unasserted claims. We may at any time, however, settle these lawsuits as well as any threatened lawsuits and possible claims. It is possible that additional civil antitrust lawsuits seeking, among other things, to recover damages could be commenced against us in the U.S. and in other jurisdictions.

             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.

        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 a provisional payment, to the extent that payment was not already covered by a reserve. In connection with the provisional payment that we made in February 2004 as described above, we recorded a $32 million charge in the 2003 fourth quarter and $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.

        Through March 31, 2004, we have 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 (as 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 our reserve for potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. The remaining amount of the reserve is unfunded and 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 the payment thereof could be sooner than anticipated.

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PART I (CONT’D)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            We are involved in various other investigations, lawsuits, claims and other legal proceedings incidental to the conduct of our business. While it is not possible to determine the ultimate disposition of each of them, we do not believe that their ultimate disposition will have a material adverse effect on us.

            In February 2000, at the direction of a special committee of independent directors of GTI’s Board of Directors, we commenced a lawsuit in the U.S. District Court for the Southern District of New York (the “SDNY District Court”) against our former parents, Mitsubishi Corporation and Union Carbide Corporation. The other defendants named in the lawsuit include two of the respective representatives of Mitsubishi and Union Carbide who served on GTI’s Board of Directors at the time of our 1995 leveraged equity recapitalization, Hiroshi Kawamura and Robert D. Kennedy. Mr. Kennedy, who was a director of GTI at the time the lawsuit was commenced, resigned as such on March 14, 2000.

        In the lawsuit, we allege, among other things, that, in January 1995, Mitsubishi and Union Carbide had knowledge of facts indicating that GTI had engaged in illegal graphite electrode price fixing activities and that any determination of GTI’s statutory capital surplus would be overstated as a result of those activities. We also allege that certain of their representatives knew or should have known about those activities. In January 2000, Mitsubishi was indicted by the DOJ on a one count charge of aiding and abetting violations of U.S. federal antitrust law in connection with the sale of graphite electrodes. Mitsubishi entered a plea of not guilty. In February 2001, a jury found Mitsubishi guilty of the charge. Mitsubishi entered into a sentencing agreement with the DOJ, which was approved by the EDPA District Court, pursuant to which Mitsubishi agreed to pay a fine of $134 million and not appeal its conviction. Mitsubishi has also been named as a defendant in several civil antitrust lawsuits commenced by electric arc furnace steel producers with respect to its alleged participation in those activities. In addition, we allege that, in January 1995, GTI did not have the statutory capital surplus required to lawfully authorize the payments that GTI made to its former parents. We also allege that Mitsubishi and Union Carbide were unjustly enriched by receipts from their investments in GTI and that they knowingly induced or actively and substantially assisted former senior management of GTI to engage in illegal graphite electrode price fixing activities in breach of their fiduciary duties to GTI.

        Based on the allegations summarized above, we are seeking to recover from Mitsubishi and Union Carbide more than $1.5 billion in damages, including interest. Some of our claims provide for joint and several liability; however, damages from our various claims would not generally be additive to each other.

        In November 2002, the SDNY District Court granted defendants’ motion to disqualify certain of our counsel. In January 2004, the SDNY District Court granted the defendants’ motion to dismiss this lawsuit. We have appealed the grant of both motions to the U.S. Second Circuit Court of Appeals.

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PART I (CONT’D)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        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 to trial. Through March 31, 2004, we had incurred about $6 million of these legal expenses. This lawsuit is in its earliest stages. The ultimate outcome of this lawsuit is subject to many uncertainties. We may at any time settle this lawsuit.

        We generally sell products with a limited warranty. We accrue for known warranty claims if a loss is probable and can be reasonably estimated, and accrue for estimated incurred but unidentified claims based on historical activity. The accruals were not significant for either the 2003 first quarter or the 2004 first quarter.

            On February 15, 2002, GrafTech Finance (the “Issuer”) issued $400 million aggregate principal amount of Senior Notes and, on May 6, 2002, $150 million aggregate principal amount of additional Senior Notes. The Senior Notes have been guaranteed on a senior basis by GTI (the “Parent”) and GrafTech Global, UCAR Carbon and other subsidiaries that together hold a substantial majority of our U.S. assets. Those other subsidiaries are UCAR International Holdings Inc., UCAR International Trading Inc., UCAR Carbon Technology LLC, UCAR Holdings V Inc. and UCAR Holdings III Inc. The guarantors (other than the Parent) are collectively called the “U.S. Guarantors.” The guarantees of the Parent and the U.S. Guarantors are unsecured, except that the guarantee of UCAR Carbon has been secured by a junior pledge of all of the AET Pledged Stock, subject to the limitation that in no event will the value of the pledged portion of the AET Pledged Stock exceed 19.99% of the principal amount of the then outstanding Senior Notes. All of the guarantees are full, unconditional and joint and several, and the Issuer and each of the U.S. Guarantors are 100% owned by the Parent. Our other subsidiaries, which are not guarantors, are called the “Non-Guarantors.” The following table sets forth condensed consolidating balance sheets at December 31, 2003 and March 31, 2004 and condensed consolidating statements of operations and cash flows for the 2003 first quarter and 2004 first quarter of the Parent, the Issuer, the U.S. Guarantors and the Non-Guarantors. Provisions in the Senior Facilities restrict the payment of dividends by our subsidiaries to the Parent. At March 31, 2004, retained earnings of our subsidiaries subject to such restrictions were approximately $457 million. Investments in subsidiaries are recorded on the equity basis. See Note (14) “Discontinued Operations,” for a discussion regarding discontinued operations.

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PART I (CONT’D)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet
at December 31, 2003