GrafTech International Ltd (EAF) 2003 Q2 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Graftech Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. If any one does need assistance at anytime during today's conference, please press the "*" followed by the "0". As a reminder, this conference is being recorded today, Thursday, July 24, 2003. At this time, I would like to turn the conference over to Ms. Elise Garofalo. Please go ahead Madam.

Thanks [Janie]. Good morning everyone and welcome to our conference call. At this time, each of you should have received a copy of our press release. If you haven't, you can call Sasha Boyle at 302-778-8246 and we can either fax or e-mail your copy. Before we get started, I would like to remind all of you that both this released in this conference call contains forward-looking statements as defined in the Private Securities and Litigation Reform Act of 1995. Please the note the cautionary language of our forward-looking statements contained in our news release and same language applies to this call. It's important to note today due to construction near our headquarter here in Delaware, we've been experiencing some interruptions in our telephone service. In the event we get disconnected please hold the line and we will follow back immediately. We apologize in advance of course for any inconvenience this may cause. This morning on the call we have Craig Shular, CEO of Graftech; Scott Mason, President of Graftech's Synthetic graphite line of business; John Wetula, President of Advanced Energy Technology, our natural graphite line of business; and Corrado De Gasperis, our CFO. At this time, I would like to hand the call over to Craig.

Elise, thank you. Good morning everyone, and thank you for joining Graftech's conference call. Today, I will take you through our second quarter results. Net income was $7m or 12 cents per share as compared to a net loss of $7m or 14 cents per share in the second quarter last year. Before other income, restructuring and asset sales, net income was $4m or 7 cents per share. This compares favorably to our 4-6 cent guidance for Q2 and a prior year loss on the same basis of 11 cents per share.

Net sales were strong in this quarter at $181m, which was about 15% higher than the second quarter of last year and 7% higher than the first quarter of this year. Gross profit was $43m, 23% higher than the same period in 2002 and a 10% improvement from the first quarter this year. Improved profitability in the quarter was due to increased sales in our synthetic graphite line of business, ongoing cost savings activities, and de-leveraging actions.

Graphite electrode sales volume was 50,700 metric tons in the quarter and graphite electrode prices increased to $2347 per metric ton. We are pleased to see graphite electrode prices continuing to firm. In South Africa where annual electrode contracts run from July to June, we executed a price increase of approximately 20% bringing graphite electrode prices in that region to above $2500 per metric ton. We also recently announced a price increase for our graphite electrodes in North and South America. The price will be $2600 per metric ton affective for new orders beginning August 1, this year.

Now turning to de-leveraging activities. Net debt was reduced to $695m at the end of the quarter as compared to $737m at March 31, 2003, several key actions drove this reduction. Firstly, we executed on a portion of our asset sale program, generating $18m of net cash proceeds, which were used to pay down debt. We sold our composite tooling business for $15m at the end of June and recorded a $1m gain on the transaction. We also terminated our executive life insurance program and in the second quarter liquidated the life insurance policies for executives receiving approximately $3m of net cash proceeds. This was done as part of our overall company wide benefit redesign program.

Secondly, we took advantage of a spike down in interest rates during the quarter and sold our $400m of interest rate swaps for a $21m cash profit in July with a rebound of interest rates. We replaced our interest rate swaps at virtually the same rates of the original position. Lastly, GTI exchanged 20m of senior notes for approximately 3.8m shares of common stock in June. Subsequently, in July we exchanged an additional 15m of senior notes for 2.8m shares. These transactions were down at prevailing market rates. Reducing our net debt whole 700m this quarter is an important milestone for Graftech and provides us with improved financial strength and stability. The debt for equity exchange was opportunistic and has enhanced the stability of capital structure in a manner consistent with our long-term objectives. As the result of our de-leveraging actions, our Euro 200m revolving credit facility was largely undrawn as of quarter end.

Now let's move to our growth initiatives and review a few highlights. We picked up additional thermal management product approvals during the quarter. Notably at approval in order from IBM or e-graph thermal interface materials for use in IBM's new high-end Regatta servers. We also picked up an approval in our order from Nokia for thermal interface materials that will be used in their power convergent applications. We also jointly published an electronic thermal management technical paper with IBM on our graphite-based heat sinks versus existing leading copper technology. The joint study finds that Graftech's graphite-based heat sink performs competitively with copper at only a quarter of the weight and at a much more competitive cost structure. Heat management is a major challenge in the electronics component industry. And we believe GTI's advantage graphite technology will provide industry leading companies like IBM and Nokia with unique solutions. Our team continues to work on commercializing these technologies and we remain excited about the further of our technology in this arena.

Finally closing with outlook, we are encouraged by the strong order book in our graphite electrode and cathode businesses and we are operating our facilities at virtual capacity. However, in light of overall global weakness in various economies around the world we continue to monitor closely steel and aluminum industries. Looking at the third quarter, we expect earnings per share to be in the range of 5-7 cents. Graphite electrode sales volume in Q3, which is seasonally lower volume quarter is expected to be between 46,000 and 48,000 metric tons. In closing, we reaffirm our 2003 annual earning guidance of 21-26 cents per share. And with that we would like to open up and take your questions.

Thank you sir. Ladies and gentlemen, at this time we will begin the question and answer session. If you do have a question please press the "*" followed by "1" on your pushbutton phone. If you like to decline from the pooling process simply press the "*" followed by "2". You will here a three-tone prompt acknowledging your selection and your questions will be posed in the order in which they are received. If you are using speakerphone today you will need to lift the handset before pressing the number. One moment for our first question. Our first question is from Bruce Klein with Credit Suisse First Boston.

Hi. Good morning.

Good morning Bruce how are you today?

Pretty good. Question on I guess the price hikes. May be if you could give us a little bit more color. I guess -- what's going on in Europe. I guess there are price hikes on your recently announced North-South America, South Africa, and Asia for -- what's going on in Europe. And secondly just -- what does this mean I guess what sort of -- when you said contract prices at the end of this year or '04. Is there any -- direction or any you think you could tell us, so that I could think on that line?

Surely. In regards to Europe, Bruce the price right now in Europe is in Euro terms, 2300 Euro per metric ton plus and at the -- exchange rate that's probably -- you know something getting close to $2600 per metric ton. And we continue to review that market and things remain tight in that market. And as we go forward we will asses the tightness of supply and demand in that arena. And we will at that time determine if there is going to be a price increase in Europe.

Is that -- you are talking about the spot market right now?

That's right.

Okay. So this -- that's up obviously.

Absolutely it's up now, but we will continue to reassess it as we go through the year and as we assess the steel industry's performance. On '04, and you know as you see, we've announced a series of increases here in fact as have a number of participants -- in our industry have this year. And book building for next year will start probably in the fourth quarter and I think probably at the end of the fourth quarter early Q1 next year we'll have a good line of sight of the pricing in our book. But as you can see we are going into next year probably with a spot type of price that's somewhere between $2,500-2,600 and the marketplace will determine how much of that can be kept and what actually is realized after we put book together.

Okay and Mexico is there drag on the profits from the startup and how is that startup plan?

No, there has been no drag at all. In fact the startup has gone exceedingly well and we said they would perform at 60,000 metric per ton annualized rate and they have achieved all of that if anything that might even be little bit of above that. So it has been very professional smooth start up, and we are delighted to have that world's largest facility operating in such a low-cost environment as Mexico, and so uniquely positioned to serve the large NAFTA market.

Last question was -- second last on the --I guess you got couple of exchanges of bonds per stock what's the strategy in terms of targeted plans come forward on that topic?

Well on go forward basis we will continue to evaluate the market. It goes without saying that our company is highly leveraged and one of our key strategies is to de-lever this company. So from time to time we will continue to evaluate the market and if in our judgment it makes sense and it is good, we will assess it at those junctures.

Okay and the last one is the EPS was 5 or 7 cents [bottomline], I guess the first quarter is was with 7 cents extra charges is that -- I mean is that stock gone on below the line for the second half or is actual the way I think about operating property which do you expected to be flat is slightly lower for the third quarter?

Good question Bruce and we should be clear that the 5-7 cents is what is just from the business. We've stripped out all those others. And as you seen here to-date the other has been a positive for us. You know, at currency moves etc. in that number -- so this 5-7 cents is purely what's from the business. Let's called this core operating earnings. The other which so far has been positive year -- this year is out of that number. So let's say we continued with the positive other who knows which way currencies are going to go that would be added to these numbers.

Good job, what would have been second quarter on that same basis core earnings?

Yes it would have been let's see Year-to-date, we've got 8 cents and if put all the others in there on the currency, I mean, let me just pull off our other amount.

I don't want to hold you.

That's okay. Q1 I believe we had 4 cents of other so you had 1 cent in Q1 from the business. You had 4 cents of other. And this quarter you had 7 cents from the business -- I am sorry 5 cents -- 7 cents from the business and 5 cents other. Okay.

Okay thanks I'll pass it on. Thank you.

Bruce, thank you for the question.

Thank you our next question is from Brad Lendy from Royal Bank of Canada.

Hi, first of all guys congratulations it is quite a turn around from the third quarter last year.

Brad, Thank you very much.

You had talked a little bit about raising prices based on the product of the input. Can you talk about what's going on with Needle Coke and some of your other inputs and whether or not you see that sort of --I don't know stabilizing at this point in terms of your cost?

On the gas and electric front, we've felt in the first quarter and also in the second quarter about $2m extra cost there and we have seen a little improvement there but not much so we are kind of expecting we may see that drag the balance of the year. That's in fact that's what we are planning on. On the Needle Coke for this year, as we said we haven't seen any significant moves, however, oil prices as we all know have been north of $30 of barrel here for a while. So, we may see some increases on that front, time will tell. So these increases you see on graphite and electro prices, you are right, will be used to offset some of that $2m of quarter in energy if that energy increase carries into '04.

Alright on the asset sale front for '04, can you give a little bit of guidance, you know, vis-a-vis what the expected timing is for asset sales in Italy and other non-core assets?

Well, we believe, you know, 18m done so far. We are targeting in, you know, to get a total this year of about 25m and this would be some miscellaneous land and some another miscellaneous assets -- non strategic. So, you know, the 18 of course represents the big one, UCI was one of our bigger ones. It was a good deal, million dollar gain recognized on it. So, what you are going to see in the balance for this year are relatively small individual ones. We should finish up with the about 25m in assets sales this year.

And the assets sales in Italy would be more in '04 or beyond?

Well, that's right, and we will give many, you know, we have got many geographies and locations of course that we are looking at. We have got land ownership in a number of countries. So, I wouldn't try to focus on one, but next year we have targeted about 50m in asset sales.

And last question and I'll pass it on, can you a give a little bit of an update, obviously, with electrode prices moving up this way, you have got one old carbide graphite facility potentially starting, is there any other restarting activity that you are seeing in this much more favorable pricing environment, and can you give an update on carbide graphite's facility in Pennsylvania?

Sure. Last year two participants in the electrode industry went through bankruptcy. [Conrady], one in Europe and CG, the one here in the US. [Conrady], we haven't seen any indication of that coming back; numbers of parties have looked at the facility and we don't see any attempt to bring that back, it's just we surmise and you know, it's located in Germany -- just too high cost structure, too small of a plant, it was about 20,000 metric ton plan. In the case of CG is as we know from public documents, they appear to be trying to start up, it would probably be something around 16,000-17,000 metric tonnes. So, far in the marketplace, we haven't seen any product, but I would assume they are trying to get organized and we are planning on them, fully planning on them starting back up and trying to reenter the marketplace.

Al right. Thanks guys.

Thanks, Brad.

Thank you. Our next question is from David Mitchell with William Blair.

Hey, good morning guys.

Hey, David. How are you today?

Good. I did a back the envelope calculation on 2600 dollars instead of 27 and that all dropped to the bottomline after taxes, that would -- you would have made about 16 cents more in the quarter than you reported, is that sort in the ballpark?

Could you say the first part, you didn't come across fairly clear. Could you get the first part, you were a little muffled?

Okay. If you took -- if you know, your recent pricing increase is 2600 bucks, if you realize that instead of the 2347 in the quarter. My back the envelop calculations, is it after tax, you would have earned about 16 cents more in the quarter. Is that a reasonable calculation?

Yes, I would say more or less yes, if all things being equal, you know, 16 cents plus is probably doable there.

Right. So that sort of give us a pretty good indication if prices continue to be firm and you can achieve something in that level of pricing for next year that you are profitability next year should be, you know, three times whatever they were for this year?

I think that's you know probably a valid way to look at and a valid assumption. You know we are working on a number of cost reduction items, you know, you've got to factor that variable in; you've also got to factor into that variable what happens on some of the raw material front, whether it is natural gas or petroleum, coke or something energy related to raw materials we've purchased, but I think your logic, your logical to holds together.

Okay and then on the IBM and Nokia, it is nice to see some good progress in [there]. Can you give us a sense of is IBM or Nokia shared with you, what their sales expectations are for these products and therefore what it would mean for you based on your penetrations on those products?

We've -- Dave, and we've worked very close with these types of industry leading firms, and you know, as we have reported each quarter we picked up a number of very good approvals, I think, in the third quarter we can probably look towards trying to recap some of this for you and answer that question for you in the third quarter. We have been in a gestation period here where as you see its approvals, it's working with the technical teams of our customers that joint paper study we did was an example of several we have ongoing. But I think probably in our third quarter, after we finish up our third quarter, will be a good time to, kind of, recap. Our team has been driving very, very hard on commercializing these approvals. And if I can get you to hold off till the end of Q3, I think that's probably a good time for us to give an update in this arena.

Okay, and then just one more question and I'll get off. I am sure someone else will ask you it anyway, but positive update is anything.

Nothing new there, so nothing new to report. We continue to press it very proactively and we remain committed to the case. As we've said before, we think we have a very good case, and we are waiting on the judge and we are in regular contact with the court.

Okay, great. Thanks guys.

Thank you David. Have a good day.

Thank you. Our next question is from Joseph vonMeister with Jefferies & Co.

Hi guys.

Hey Joe, how are you today.

Good thanks. Could you translate your guidance for the year and for the third quarter into EBITDA terms? And I was also looking for a breakdown of the current debt.

Sure, on the EBITDA question; our EBITDA guidance for this year would be 115-120. And on the debt, we had virtually nothing drawn on the revolver. We had a 137 on Bank B debt, and with the last exchange, we have the bonds are about 515. If you took all --.

They were 530 -- would that be 530 at the end of June?

That's right.

And then 515 probably at the end of September unless you have some more exchanges.

Absolutely correct. And then if you took all those 3 different types of debt, Joe, the weighted average cost for us with our swap program would be probably around 6.4-6.5%.

And I am sorry, what did you say you had on the dollar facility?

About 10m.

And on the other one?

The [Bank B] is 137m.

That is 137.

And then -- so your capital leases in other increased to 32?

Yes, those would be other swing line and short-term obligations, correct.

23 not 32. Those, basically, Joe are some very small lines we have in some local facilities because they are working lines just that, you know, productive at working lines, nothing significant.

And go-forward CAPEX is around 45m?

Yes, that is a good number. I'll tell you the team has been doing a lot of work there and now that we are down to just 6 electrode plants, our team has been driving to get very efficient on that capital line. As you know, historically, we had to maintain 10 graphite electrode plants. With the 6 large plants, I think we are going to see a little synergy there and we may see something below that 45 go forward.

And can you quantify and I know you have done this before and I really apologize, but could you quantify what you think the market potential is for the graphite heat sinks.

Well, you know, good question Joe, and it is one, you are right. We have been asked a number of times. As it is an emerging area and new area, we've really tried to manage everyone's expectation, and as we have said earlier in the call, if you folks could give us another quarter of our commercialization efforts, I think we'd like to recap that progress in our Q3 conference call. The approval process has gone well. The partner shipping with customers has gone well. I think we are starting to get some even recognition in the scientific community with scientists and IBM and other companies and so we'll recap that for you probably in dollars and cents in the end of Q3.

Great job guys, thanks a lot.

Thank you Joe. I appreciate the questions.

Thank you. Our next question is from David Mitchell with William Blair.

Yes, I was going to ask about CAPEX as well, but I -- just remind me - the G&A run rate right now on an annualized basis is what?

About 30m.

Okay, so you are still even though if you get the things down to little bit below 45 or so, actually you'd be spending more than your [depreciation percentage]?

Well, that's right, and that's the challenge we've put before our team. You know, my sense is the 45 is too high unless we have some specific growth projects, and our team is looking very hard to see if we can get that down below 40 and the same way you look at it is the same way I look at it, why can't it be closer to that 30 and that is the challenge in front of our team right now.

Okay, great, thanks.

Thanks David.

Thank you Sir. Ladies and gentlemen, if there are any additional questions, please press the "*" followed by "1" at this time. Once again as a reminder, if you are using speakerphone [equipment] today, you will need to lift the handset. Our next question is from Randall Hut with Liberty View Capital.

Hi guys. Glad to see that you have done some positive deleveraging activities in the past quarter and have some more asset sales on the comp this year. I am looking at the Company now and I calculated around 7 times leverage. I was wondering what target leverage you have. What do you feel comfortable with, the right level and when you expect to be there?

Randall, thanks for the question. Yes, our first target and let me give you a range where we would feel much more comfortable, would be somewhere in the 450-500 level. We think that's a very competitive range for our size company and that's what we would be driving towards in working on as our medium-term, longer-term strategies here.

Thanks guys.

Thank you.

Thank you. Our next question is from Michael Gambardella from J.P. Morgan.

Yes, good morning and congratulations on a good quarter.

Thanks Mike.

I have a question on the cost structure. Do you feel you, -- and Monterrey, your big facility where you've been increasing some capacity, have you maximized the cost savings from that higher capacity yet or it's still too early on to really get those savings under our belt.

Mike, we saw some of it in this quarter, but you know, just from the operate. But I think over the second half of this year, you are going to really appreciate what that very large facility could do. And some of the -- you know, the buckets of impact are producing that much out of a low-cost Mexican facility. Just in addition to, you know, the low cost that it has, we have to move less product across the ocean to serve customers. So, you are going to see that drop. We -- we've talked previously about higher freight, et cetera, because of enumerated actions; you are going to see I think much less of that. I think you are going to see us capable of serving customers better and faster, and I think you are going to see also some efficiencies as we talked earlier on the CAPEX side. We much rather maintain the 6 large plants than the 10 we used to have.

Sure. What do you estimate your capacity on graphite electrodes will be in 2004?

Mike, we'll be about at 210 or so.

And what is the cost differentials, say between the low cost -- lowest cost plant in the group, now that which I'm assuming is Monterrey and your high-cost plant?

The range might be on a per ton basis.

Yeah.

It might be $150-200 range from low to high. You know, we have done a lot of work at all of our plants, but I will tell you one thing we are seeing as we drive more throughput. And you know, if we look at this big picture, when we had the 10 plants, if you go back in our history, and you see when we had 10 plants where we used to do 210-220,000 metric tons. And here with this major repositioning of our production platform, we are going to do 210 with 6 plants in the right geography. And so we are seeing benefits in all the locations. Throughput is up at every location and in Q2 every one of our 6 graphite electrode plants set all-time production records.

Okay. ALCOA has a number of different smelting plants around the world. Really the technology in the aluminum hasn't changed quite radically over a number of years now and all their plants are linked up, where they can see real time -- the operators can see real time, the efficiencies and the cost structure of the other plants within the global organization and this really, you know, drives the best practice cost savings for ALCOA to very high levels. Do you have something similar setup because I would imagine with even six plants, the technology -- the graphite electrode production really hasn't changed radically over the years. Are your operators linked up so that they can see the cost structures of the other operations that you have on a real-time basis. To get some of these best practice like cost savings?

Mike, we have currently a software that we've put in over the last 18 months where we synchronize globally all of the manufacturing operations of those electrode plants. We've got a lot of good benefit out of that with the installation that's ongoing right now of our JDE enterprise wide IT system it will become more real time. Today it's not as real time as we would all like. So what we get today are more incremental views of it rather than a weekly view, we might get a monthly view of it. But we are running those six plants in synchronized fashion. What each one produces is determined centrally and driven by a global model that is designed to execute on the best practices.

Okay. And on SG&A expenses just looking at 2004, how much opportunity do you have to bring it down from current levels?

The big move we made in Q1 of the VSP and SSP program on an annualized basis is about $12m for us. That one is pretty much done and set up, so that 12m is in hand. You are seeing some of that this quarter a couple million. You will see some more, so let's reach forward to '04. I think you'll see at least 12m. We have done a lot of benefit redesign work where every employee globally has faced redesign of benefit in pension plans. I think you are going to see a few more million in that area also next year.

Anything working on the tax -- for the effective tax rate for next year?

Well, as you see it's running at a little higher right now and it's high for our taste. We have done a lot of work and we have an excellent tax team that we put in place. It's -- you know a group of couple new hires and we continue to review that. You saw us do some restructuring of the affiliates, the end of last year where they are held and the holding companies. All of that is designed to bring that tax rate down. We would like to get that rate down closer to a 35% rate than the 40% rate it sits right now.

And a final question. Could you give us some -- an update on the executive compensation program because you've talked about incentive compensation with options and so forth in the past. Is there anything new going on there?

Well, in this entire area of redesign, you know, what we mentioned earlier on the call was the life insurance. We designed everyone's life insurance benchmarking with industry -- our type of industry. And so all employees have a new life insurance program. What we did was we used to have a separate program for executives. We did away with that. We pulled 3m bucks out of that pay down debt. All of our employees now in the U.S. earn exactly the same life insurance program. We have done a similar kind of strategy, Mike, on the bonus program. We used to have a bonus program that had a couple of different layers to it, we didn't like that. We felt better to align all of our employees and I mean salary, hourly -- all of our employees. We put all of the employees in the exact same bonus program. So, everyone of our employees faces the same bonus program with very, very similar targets and as you might imagine most of our targets drive towards cash flow and de-leveraging. So, those are the major changes we've done in that area.

Okay. Thank you.

Thank you.

Thank you. Our next question is from Alex Timor with Columbia Management Group.

Yes. Can you give me a sense within your CAPEX, how much of the investment mode is responsible on the thermal side for your electronic business or including I guess -- yes it's the Graftech business.

Alex, on that side of the business we've got capacity in the ground. So, very, very little less than let's say think about a $0.5m would be -- capital applicable to that end. We've got capacity on the ground. We've got the technology. So I don't think we are CAPEX constrained there at all and I don't think in the near term you will see many dollars have to be utilized in that area.

So all of your CAPEX is basically going into the graphite electrode business.

That's, the majority of that would be in the graphite electrodes and capital business which are sold out today.

Thanks.

Thank you Alex.

Thank you. Our next question is from Bruce Klein with Credit Suisse First Boston.

Hi, just had one follow-up on the -- I know you don't publish the your cost per ton anymore, but I 'm wondering after the first quarter which I think was up little bit directionally 'cause of energy and freight. So I'm wondering how that's fairing in the second quarter and while the Mexico is I assume it is de- bottlenecking action there and that's starting -- really that's [for later quarters].

Yes between two quarters, Bruce, there wasn't really significant move in GE cost per ton if anything the move is on downward side and it's generated by additional Mexican volume, more volume coming through Mexican facility.

Okay. And the facilities are running well?

They are running extremely well, in fact, I can give nothing but congrats to our production team. Our production team year-to-date has broken all safety records. The quality has been superb. They are running their facilities full out and this move to six plants world-class production platform, our production team is really delivered on it.

Okay Thanks.

Thank you.

Thanks. Your next question is from Joseph vonMeister with Jefferies and Company.

Just a follow up.

Sure Joe.

The shares outstanding at the end of the quarter is that 56.6m plus 3.8, shares issued to the bond -- bond holders.

Yes. [inaudible].

Or did you do buyback shares?

With the -- no they all came out of the authorized and when you go from Q1 to the end of this quarter and then the last 15m we just not did. I think you should be about 64.3m.

64.3 as of the conversion in July?

That's right, yes sir.

So there were 3 point okay. 64.3.

Yes sir.

Very good thank you

Thanks Joe.

Thank you our next question is from David Mitchell with William Blair.

Yes. Sorry to keep following up here, but...

David. No problem.

There has been pretty interesting questions asked by other people and I just want to nail it down a little bit more. On the tax rate, talk about likely get it down to 35% versus 40 to date. Can you give us sense of time frame and next year do you think you can make some progress on that front?

David our team is committed to trying to get back the 35 and or below for '04 and that's the challenge that we've given them.

So that's -- you actually believe you can get there okay that's good, but?

Yes we do. That's our challenge, that's our target here. That's what the teams working on they realign some affiliate ownership structures and what not -- really trying to get us off that 40. I am not happy with 40 as you might gather and we need to be 35 or below.

And what -- but at the worst case you are going to get below 40% for next year?

Yes. Absolutely, the team has headed to 35.

Okay and then on world wide capacity you know, do you ever -- every quarter question about [CT] coming back on. Can you just you know put that in perspective in terms of what not - not only North American capacity but worldwide capacity of 16000 tons was that on line is pretty de minimis with the overall picture right?

Well that's right David. You know 16000-17000 tons you got to marry that up with the global picture and global capacity would look more like 1m metric ton And so 17000 and remember that 17000 is only in a few different sizes. So in the breadth of product line, it's narrow and in absolute terms 17000 that - you're absolutely correct that's the small number in any context you want to put.

And versus North -- What's North American capacity in your estimate?

North American capacity would be something north of 125,000 metric tons. So even in -- if you just look at myopically North America it's still a small percent.

Right. And your cash utilization in the quarter was that close to 100%?

Absolutely full out.

And that's pretty similar to what your -- everyone else in the industry is offering right now?

It is what we hear on the conference calls and secondly its what we believe because when we see customers' reactions, i.e. emergency shipment that they need, we believe because somebody else was tight and had a hiccup in their supply chain we continue to see some of that. And so I think we believe what they are saying on their calls. Yes the industry is running at very high level and as we continue to do.

Okay. And then lastly you said there was a up range of, I think, you said a $100-150 dollars a ton between your highest cost and lowest cost plan?

150-200

150-200 can you tell us what is the main driver of that cost difference is?

Well couple; one is size. And you know, that just relate you back it with example given was Mexico.

Right.

Size is extremely important in electrical plant. Labor is very important. Labor when you add up all your labor direct labor, indirect labor, maintenance labor, outside contractors. I can't tell you the difference to get a world class group of contractors from Mexico to work on your plant versus some of the other countries around the world. It's much cheaper. So, if you add all that labor component in and all the indirect labor, you probably start to get close to 25% of the cost of an electrode. So, labor is very important. And then lastly of course is currency and a lot of our plants are in the traditional weak currency countries and over the medium long-term that's a nice place to be if you go back and look on any currency charts, I am sure you can have some pulls backs for short periods of time. But I think the trend on virtually all those currencies looks weak against euro, dollar type currencies.

Okay. Great. Thank you again.

Thank you, Dave have a good day.

Thank you. And there appear to be no further questions at this time. Please continue.

[Janie], thank you very much and again folks thank you very much for your questions. And we look forward to talking to you in the third quarter. Have a good day.

Thank you sir. Ladies and gentlemen, this does conclude today's Graftech second quarter earnings conference call. If you would like to listen to a replay of today's conference please dial 1-800-405-2236 and enter access number of 544737 followed by the # sign. Once again if you like to listen to a replay of today's call please dial 1-800-405-2236 or internationally at [inaudible] 303-590-3000 and enter access number 544737 followed by the # sign. Once again, thank you so much for your participation in today's and you may now disconnect.