Tokai Carbon is pleased to announce that it has acquired the entire equity in ERFTCARBON (ERFTCARBON Beteiligungsgesellschaft mbH) effective July 26, 2005. The transaction was consummated in accordance with plans previously announced on April 18 of this year, and upon approval by competent anti-trust authorities. The acquisition makes ERFTCARBON a consolidated subsidiary of Tokai Carbon.

As detailed below, ERFTCARBON will withdraw from cathode and carbon electrode operations and dedicate itself to the production of graphite electrodes for steel making. It is hoped that this change will be implemented by the end of 2005. Negotiations with ERFTCARBON's labor council have started on August 3.

Business reorganization of ERFTCARBON

ERFTCARBON's main product range has been graphite electrodes for steel making applications. In addition to this product group, the company also manufactures cathodes for aluminum smelting (carbon and graphite materials) and carbon electrodes for silicon metal production. Its cathode and carbon electrode businesses in recent years have seen intensifying competition from producers in economies with low labor cost, including Ukraine, Russia, Poland, and China. At the same time, in Europe several aluminum smelting plants have announced their closures in succession, diminishing ERFTCARBON's traditional customer base. Despite these developments, demand expectations for graphite electrodes for steel production are pointing upward, as arc-furnace steel making will continue to increase in Eastern Europe, Russia, and Middle East. Out of concern that its current business structure might compel ineffective allocation of resources and loss of enterprise value, ERFTCARBON has therefore decided to specialize in graphite electrodes for steel making, which is a growth area.

While this plan entails a reduction in the number of jobs, the company will concentrate its resources on productivity and quality enhancement in its mainstay in graphite electrodes for steelmaking.By combining ERFTCARBON's integrated production site in Europe with Tokai Carbon's joint venture machining plants in Shanghai, Tokai Carbon plans to further strengthen the foundation of its electrode business worldwide.

The acquisition of ERFTCARBON will have the following effects on Tokai Carbon's consolidated financial results for the current fiscal year. Related to the equity acquisition for a price of approximately 3.4 billion yen, approximately 1.0 billion yen in goodwill amortization will be recognized, with further costs expected from rationalization of equipment or human resources. Tokai Carbon expects these costs to be absorbed at a fairly early stage as the advantages from ERFTCARBON's impending specialization on graphite electrodes for steel making come to bear.

ERFTCARBON is in the process of formulating its new business plan, which calls for sales of around 6.0 billion yen in the second half of 2005.