GrafTech International Ltd (EAF) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to today's GrafTech reports Q3 2008 results conference call. Please be aware today's conference is being recorded. At this time, I would like it turn the call to Kelly Powell for opening remark and introductions.

Thank you, Deana. Good morning, and welcome to GrafTech International third quarter conference call. On the call today is GrafTech Chief Executive Officer, Craig Shular and our Chief Financial Officer, Mark Widmar.. We issued our third quarter earnings release this morning. If you did not receive a copy, please contact [Jen Radecke] at 216-676-2281 and she will be happy to fax or E-mail a copy to you.

As reminder some the matters discussed during this call may include forward-looking statements as defined in the Private Securities Reform Act of 1995. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call. Also to the extent that we discuss any non-GAAP financial measures you will find reconciliations in our press release which is posted on our website at www.GrafTech.com in the investor relations section.

At this time I would like to turn the call to Craig.

Good morning, Kelly. Good morning everyone. Thank you for joining GrafTech's conference call. Today we will take you through our third quarter highlights and then open it up for questions.

In Q3 we recorded sales of $316 million an increase of 26% and gross profit of $114 million representing a 45% improvement versus Q3 '07. Operating income increased 57% to $87 million. Income from continuing operations before specials improved 90% to $66 million resulting in $0.55 EPS. Operating cash flow was $69 million, more than tripling year-over-year. We completed the quarter with a company record low net debt of $331million a reduction of $32 million over the second quarter of '08 and an improvement of $285 million year-over-year.

Turning to our industrial materials segment. Net sales increased 24% to $266 million. Operating income for the segment was $74 million. A 43% increase over the prior year. Our industrial materials segment benefited from higher graphite electrode selling prices and favorable currency exchange rate fluctuations. Partially offset by the anticipated impact of rising raw material costs. The Engineered Solutions segment continue to gained traction as third quarter sales were $50 million. A 39% increase over the same period in the prior year. Operating income for the segment nearly quadrupled to $13 million, as compared to $3 million in the Q3 '07 quarter.

Strong sales and increase demand in solar and electronic thermal management products are reflected in this segments improving operating income margin which is 25.2% year to date, an expansion of more than 16 percentage points over the prior year. Recapping our first nine months '08 performance. We continue to leverage our top growth at the sales line into solid operating results as a result of our nine months '08 results are reflected as follows. Sales were up 26%. Operating income increased 52%.

Income from continuing operations before specials improved more than 80% to $188 million. Operating cash flow more than doubled to $171 million. Return on sales for the nine month '08 expanded over six full percentage points to 20%. Lastly on our first nine months performance in Q3 we acquired an 18.9% stake in Seadrift Coke, the world second largest petroleum based needle coke producer. Petroleum needle coke of course is our key raw material. We're in the final stages of completing the purchase price accounting and will include Seadrift results if our year end earnings.

Turing to outlook. As a result of the current economic environment exacerbated by the global financial crisis, we expect the fourth quarter and 2009 to be a very challenging environment for both of our segments. Based on current IMF projections, the growth in the fourth quarter will decline globally particularly in industrialized nations where growth rates are expected to be negative. Consequently a number of steel producers have announced reductions in operating rates. Based on the above, we expect reduced electric arc steel production in the fourth quarter.

Given current global economic conditions which have been and may continue to be extremely volatile, we are revising our '08 annual guidance for revenue and operating income to reflect market uncertainty and volatility in currency movement. We expect total company '08 sales to increase 18 to 20% and we target operating income of $315 million to $330 million. Despite the difficult economic environment, '08 will be a record year for GrafTech.

Looking ahead into 2009, it is very difficult to provide much commentary at this time given the current volatile and uncertain markets. Finally I'd like to comment on the turn around this company has achieved over the past few years. Our team has successfully delevered the balance sheet. Reducing net debt from a peak of $700 million to an anticipated net debt position of approximately $100 million as we exit this year.

We have repositioned our global production platform. We now have much larger production facilities [a bit] fewer which are more efficient and located close to our customers. Over the past few years we developed a number of new products products and tailored solutions for our customers. As a result our engineered solution business has gained significant traction and is beginning to contribute in a meaningful way. Our head count has been significantly reduced and our productivity has gone up. These improvements amongst others position us well for the uncertainty that lies ahead.

With that, lets open it up for questions, Deana.

Thank you, sir. (OPERATOR INSTRUCTIONS) We will take our first question with Brett Levy with Jefferies & Company.

Hi, Craig, how are you?

Good morning, Brett. How are you today?

Not bad. You guys have sort of got an internal estimate as to how much mini-mil is going to come off? I mean are you saying 5%? 10%? As you guys kind of look forward you are in the unique position globally to have a sense of how much capacity is likely to be rationalized at least temporarily? Any sense as to sort of where that will be?

Yes. Brett, very hard to ID it specifically to the electric arc furnace segment. So let's speak about total steel. Just looking around at the customer announcements. They kind of varied from 5% to 10% on the low end of the reduction to as high as 30%. So there's been a lot of variation depending on the customer. There's been a lot of variation depending on the marketplace where they operate. But I would say total steel looks like it's probably a good 15%, probably plus in announced reductions globally.

And it does look like that is a little skewed toward the integrateds? Is that a fair statement?

I think that's very fair. It's probably skewed toward BOF and will probably continue to be skewed that way. Obviously EAF steel production enjoys a number of advantages. Better cost structure. I think it much smaller carbon footprint.

And obviously there are a lot of variable BOF furnaces around the world, especially in China. And I think China in particular saw good advantage of shuttering some of those during the Olympics when they really tried to address the air quality. And so time will tell but I think one might imagine a scenario where a lot of the old small BOF furnaces in China just never come back.

So, Brett, I think it will be skewed toward BOF. EAF has got the cost advantage. As I look at the EAF cost advantage, and what some of the analysts are saying, that advantage may be widening to day versus BOF.

Oh, yes. Scraps at $146. That's got to be huge advantage for a mini-mill player. I know that sort of when the music is stopped here it looked like everyone is refusing deliveries of scrap and sending it back to the producers. How much on the graphite electrode side, how much was in the pipeline? Are you getting any customer commentary saying that you know what we might not be running in December or we want a discount or we're refusing delivery or anything along that line?

We've had some customers that have expressed an interest to try to move their order. However, in our case, graphite electrode prices in '09 because of raw material increases are going to be higher than '08. And so if a customer moves an order, they lose that price in '09. I don't think we're going to see material amount of that. Obviously we;re going to see some of that. But I think it is going to be somewhat muted because prices are going up in '09 driven by higher needle coke costs.

And that was the last question. On the needle coke side, my sense is that some of the inputs there might be going down in cost. Is there any prospects for needle coke cost relief as you look at this situation going into '09?

From what we see today, we don't see a scenario where needle coke prices don't go up double digit in '09 versus '08.

So the current economic scenario has no effect on needle coke at this point?

Well, you remember '09 cost for needle coke, I think, for most buyers is in process and been delayed because of the obvious economic situation we have. But I would say tight supply demand in needle coke, even with the slowdown. And when I look at year-over-year costs, some of their cost drivers, I would absolutely expect needle coke costs are going to be double digit percentage increases in 09' versus '08. I don't see anything that's going to lead us not to that conclusion.

All right. Thanks very much, Craig. I will get back in the queue.

Thanks, Brett. Have a good day.

And we will move on to Chuck Murphy with Sidoti & Co.

Good morning, guys.

Good morning, Chuck. How are you today?

Doing okay. Just kind of following up on the pricing question. How far along are you guys in locking in kind of the contracts for '09 and how are things turning out so far relative to your original expectations?

Well, Chuck, it was so early in the game when the economic and financial crisis took hold, that really there is not much I can say at all about '09 graphite electrode prices. I can give you the current status. There is little booking going on right now by steel customers. And I don't think it's just in the steel industry. I think virtually industry there is little book going on for '09. So there is limited activity.

I think most of the steel industry like I think so many other industries are destocking so that destocking is underway. And I would expect that destocking to carry through Q4 and probably deep into Q1 as they reduce inventories of steel and also of graphite electrodes. So I look for a softer Q4 and that most like is going to carry right into Q1 as they have low operating rates and continue their destocking.

Okay. And any sense on what the contribution from Seadrift might be from next year?

We will include that in our year end results, so we'll report that in February and then we will have that fully in our numbers and we will have a good dialogue around that. Again we're very pleased with that acquisition. It's strategic. And as you know, Chuck, a key raw material for our company. So we have been pleased with the acquisition and that will be in the Q4 numbers.

Okay. Great. Thank you.

Thanks, Chuck. Have a good day.

And we will move on to Wayne Cooperman with Cobalt Capital.

Hi, guys. Good morning.

Good morning.

You look for pricing up next year. Clearly the mini mills are far more competitive to the blast furnaces. Why are you seeing a slowdown in volume on the mini mill side? Is it just complete nobody knows what's going on and everybody is cutting back?

Wayne, I think that's absolutely it. It;s so much uncertainty in the marketplace, in our customer's order book. I think you seen many of them not give guidance for Q4 which I think is the prudent thing for them to do. It's that uncertain.

So I think after a destocking period, the steel industry will come back to the market. Their book will start to get stabilized and then they will start looking for their '09 requirements of graphite electrode and other raw materials. I don't think the steel customers are ordering anything literally for 09'.

What do you guys see on -- for your competitors doing anything interesting?

I think in the case of the global graphite electrode industry everyone is in kind of the same boat. The steel industry is destocking. There's virtually no order activity. And it's really probably going to take most of Q4 and deep into Q1. So I don't see any difference across the industry.

Great. What -- you guys -- your stocks gotten absolutely destroyed from where it was and obviously things aren't quite as good as they were a few months ago. On the other hand you had a great quarter. You're going to be profitable next quarter. 09' pricing is up. It seems like even in a dire scenario your multiple is somewhat awfully low off a low number. What do you guys think about buying back more stock? Are you just so in the same camp as the steel guys and nobody wants to commit to doing anything at this point?

Wayne, time will tell. Obviously we have bought some stock back in the past. And so it's something we will always evaluate. But to your point, yes, there is so much uncertainty out in the marketplace that I think you will see lot of companies go very slow over the next three, four months until the economic picture is clear.

Okay. Thanks.

Thanks, Wayne. Have a good day.

We will move on to Ian Zaffino with Oppenheimer & Company.

Great. Thank you very much.

Good morning, Ian. How are you today?

Good, good. Good quarter. But I just wanted to focus a little bit on the difference between -- or I guess on your electrode contracts they're not take or pay. Do you have similar dynamics on your needle coke contracts?

You are correct on graphite electrode prices. They are not take or pay. On our raw materials we usually have somewhat of a band where there is some flexibility. So in our experience and in our planning we don't build a book of raw materials that will put us in a position to be receiving more raw materials than we need. We align -- we will align demand and raw materials up so that we don't get into a position where we get buried with our raw materials. That's not our past history and that's not the way we plan our business.

Right, but can you get price relief on the needle coke side after Jan one?

Historically that's never taken place.

But your contracts permit that?

The contracts do not. The contracts historically are all fixed price contracts and then there is a line target with some flexibility around that volume.

Okay. And how do you think about pricing versus volumes for your business?

Well, for us, obviously in our production facilities we are throttling back production. We like to align that with customer demand and so we have been slowing down our facilities. We're much more focused on the margin and the profitability rather than going ahead and running our plants beyond what our customers need and filling up inventory. So we will be slowing down. We are slowing down our plants to align them with customer demand. And I think be better positioned as we go into '09 in that way.

Okay. Thank you very much.

Thanks, Ian.

We will move on to Michael Gambardella with JPMorgan.

Good morning, Craig.

Good morning, Mike. How are you today?

Good. Congratulations. Couple questions. Can you give us an idea of what percentage of your '09 graphite electrode business has been contracted in terms of the price?

Mike, on that book building literally just began when the economic financial crisis really started to gain traction. So obviously there is a bid in the book. We aren't going to comment on this stage. We would rather go ahead and get through some of the destocking period, get back on to building the book for '09 and then give guidance which I think will be much more meaningful after we have a book built. And our goal and target will to be do that in the February release period.

Because my understanding was that New Core which usually starts the season booked back in June. And then everyone else kind of started after that. Is that the case?

I won't comment on a specific customer. But yes, there are some customers that came out in kind of June/July, and that's their typical buying pattern; that's their strategy. And nothing unusual. They are usually the ones that come early. There is some of that activity that took place and then, of course, the financial crisis overran everything and the orders just -- everyone pulled out of the market.

I mean, are you less than 25% booked for '09?

Well, as I said, it's not a guidance we're going to give at this time. I think whatever we say really is not that meaningful and really what we like to do is go ahead and get the destocking behind us as all industries including the steel industry have underway. Build a book and then bring that guidance to the market.

Okay. And then on the needle coke, I think I misunderstood your comments earlier on one of the other questions. First I thought you said that your needle coke prices would be double in '09 versus '08 and then I heard you say double digits.

Yes, double digit. They will be up double digit percent 09' versus 08'. I wouldn't say -- I didn't say double. Double digit percentage.

Okay. Because we were hearing that they were up 80 to 100%. Is that just way off or --

Yes, think those are the kind of numbers. It's very high double digits.

Okay. And then how much have you slowed down your graphite electrode production to match the market?

Right now it takes a little time, but we've obviously had a lot of experience in this area and move quickly on it. We are on a path here in Q4 to be running about 12 to 15% lower OP rate than what we did in Q3. And again all we were doing is aligning our production facilities with our customers orders.

And just refresh my memory on needle coke as a percent of the total cost of production for graphite electrodes.

Yes. It's been going up and you went back a few years because the price was much lower it was 30, 35% and now it's 40% plus because it's gone up so much over the last three or four years in cost.

If it's up 40%, I mean, say it's up 80 to 100% or high double digits and it's 40% of your cost, I mean, that indicates you've got to get a pretty significant price increase. I know that's on the books anticipated earlier, but how likely is that now?

Well, I think your math is probably directionally all correct and logical. And again, I think it's just too early really to comment on '09. And you just have to give us time to put a book together and come back in that February time period will be the goal.

But when we look at needle coke, I mean your position is probably would be considered advantageous compared to other graphite electrode producers in the world and there is no substitute for graphite electrodes in a furnace. So, I mean, presumably at the end of the day, unless some of your competitors just go crazy in terms of discounting regardless of what their needle coke costs are, you would think you would have to have a fairly sizable price jammed through.

Yes. Looking at the cost structure and how much it's going up, we agree. Graphite electrode prices are going to have to go up to accommodate and absorb the large cost increases and we will just have to let things unfold and time will tell. We have a lot of work it to do and between now and then. It may not be until like we said February until we really have a line of sight to an '09 book. Right now it's premature.

Okay. Thanks, Craig.

Thanks, Mike, have a good day.

We will move on to Mark Parr with Keybanc Capital.

Good morning.

Good morning, Mark. How are you doing today?

I'm doing alright. Your stock is doing okay. Nice quarter.

Thank you, sir.

I realize that the situation that we are in on the order books, so I won't ask you how much your order book has done and I won't ask you what your average price upside is. So I promise not to do that. But once thing I would like you to comment on, Craig, if you could, is the pipeline.

And I've seen some customers be willing to stockpile electrodes. Other customers keep a very short fuse on any sort of consumable supplies. How do you see the pipeline if let's say the steel industry decided it wanted to really destock its electrode position that's on the ground at the mill? I mean how much incremental downside could that create to your volume in 09'.

In regards to the graphite electrode inventories that we see around the world, you're absolutely right. There are some customers that literally have a couple weeks inventory and then there are some other customers that have a different strategy and they will have a number of months inventory. And in some cases it can even vary between a customer's plants. Where a customer may has 30, 40 production facilities and different managers of those will have a different strategy. So, you're absolutely right, it's all over the board.

If we look in totality and without trying to give a number in this global market, what we would see is we should expect the global destocking of electrodes to run throughout Q4 and I think deep into Q1. Probably sometime in Q1 it could be the end of Q1. We'll be back globally in most of the accounts where the absolutely have to have electrodes. I think we should plan on Q4 impact from destocking and Q1 and probably deep into Q1 impacted destocking from global steel customers.

Okay. And then along those lines looking at your '09 production schedules, in prior years and this would include '08, you've had ability to run lower cost needle coke well into the following year. Can you see your existing, your '08 needle coke supply carrying you through the first half of 09 or maybe even beyond that at this point?

I think the pattern you have seen over the past will probably continue. That in Q1 we will have some carry over of that low cost coke and will probably go into Q2 like we've seen in the past. So I think we will see markets similar phenomena in '09.

Okay. Terrific. I had another question. Could you give in your updated guidance for '08 for EBIT and for revenues, could you give us the magnitude of the currency benefits in both of those numbers?

Absolutely. Let me toss that over to Mark.

Hi, Mar. So in terms of the outlook, is that what your question relates to, Mark?

I'm looking at your '08 outlook. What's to the totality of the currency benefits in both sales and EBIT?

So when you look at the outlook for the year, year to date we are around 5% on currency. Benefit and when you look at it it for the full year it will be right around 3%.

And that's on the revenue side?

It's on the revenue. When you flow that through to the bottom line, we will have a $10 million EBIT impact year on year of currency.

Okay. Terrific. Thanks very much. I will get back in queue.

Marks, thanks. Have a good day.

(OPERATOR INSTRUCTIONS) And we will move on to Bob Richard with Longbow Research.

Good morning and thanks for taking our call.

Good morning, Bob. How are you today?

Good. I appreciate all the color. Production cutbacks to maintain pricing is pretty refreshing. Would you expect that rational behavior from some of the marginal guys like China? Could you maybe comment on that?

Really, hard to say what other people are going to do. From our advantage point it's just the prudent thing to do. Align with customer demand. Shrink working capital. Get the cash in the door. Allow for some more deleveraging. As I said, we were well underway in slowing down our facilities and aligning it with customer demand. What the others are doing have I no idea.

Okay. That's fair. And the lack of clarity in the industrial metals I certainly appreciate. How about engineered solutions maybe for next year? Is there a little more clarity there? Is it as unknown as the industrial metals?

Bob, I would say it's just as unknown. We don't have long-term contracts there and given the global economies and the volatility, I think we should expect in both of our businesses impact of this global slowdown.

Okay. Thanks very much. And great quarter.

Thanks, Bob. Appreciate it. Have a good day.

And we will move on to [Asad Abidi] with Merrill Lynch.

Good morning, guys. Thanks --

Hi [Asad]. How are you today?

Very well, yourself?

Excellent. Thank you.

Couple of questions for you, In terms of the customers that are closing their electric arc furnaces in Q4, we've talked before about the cost advantage that these guys have in the blast furnace producers. So can you run me through why they are closing the plants down? Shouldn't they be closing their blast production first?

[Asad], each customer obviously has a different portfolio of equipment. So, it's almost case by case. We have some customers that all they have are electric arc furnaces. They are 100% EAF. And so obviously for them if they want to slow down that's their choice.

And then we've got other customers that have a portfolio of blast furnaces. Some large, some small. Some less productive and obviously those customers are hitting those small old BOFs. And then we've got other customers that have all of the above. But if they want to slow down just a small increment, well they will go to the EAF because they can close one or two million tons. If they want to do more then they will go to the big BOF and obviously hit three, four million, five million tons depending on the size of their BOF complex.

So, [Asad] it varies customer by customer, but when you step back and look in general, I would say across our customer portfolio, EAF is the lower cost way to make steel. More efficient. Smaller carbon footprint. And usually at the end of that whole story, if you will cut back, what we see when we look back on customers, they've shuttered more BOF than they had EAF because of the cost advantage.

I presume -- if they want to hold back production, and they decide to make cuts permanent rather than temporary they would be switching EAF back on rather than -- and turning BOF off?

That's right. What that -- that's absolutely right. What we see in many times if they want to really take something out permanently, they look at the old smaller highest cost BOFs they have in their portfolio around the world and they'll take those out. And in down turns, generally what happens they never come back. They take those out and then when the market settles and it starts to come back and the upswing comes, the money that they have, they invest in the larger more efficient furnaces.

So what we tend to see in downturns is a lot of the high cost facilities that go out of the market. Many of them for good. And as I said earlier at the outset, I think in China we will see lot of this. Because I think China got a good experience with the Olympics when it shuttered so much steel to clean up air quality, and they saw obviously a tremendous impact. The Olympics was stellar. The air quality was good. And I think as we sit today a lot of those old small BOFs in China, their high cost and the footprint they have on the carbon side is tremendous. I don't think those will come back.

And I think that's probably good news. And you will see more EAF. There's more scrap coming up in China. And net-net, EAF will be the low cost producer and probably at the end of this cycle be the one that comes out with a nice growth rate.

And I mean do you sell to any I don't know if they exist, any old EAF plants that are inefficient that are relatively high cost? Is that much of your portfolio?

We have some in our portfolio. I think like all of the GE producers do. There is absolutely some of those. Some of those are in China. And some of those may go away in this process also.

But in general, EAFs got $100 plus-plus advantage in cost structure over BOF. And virtually if you look back the last 40 years almost every year it's gained share. So I would look -- these troughs, these slowdowns are usually periods where those small high cost BOFs really get evaluated and a lot of them don't get turned back on when this is over.

Okay. And then coming back to needle coke pricing, have you settled your contracts here for 2009 and is in chance you can go -- sorry. Is any chance I mean given the fact that the world situation has changed quite lot and given that the needle coke produced input cost have come down considerably and given the fact you're a big customer. Any chance to go back and renegotiate pricing for '09?

'09 is not fixed yet. '09 negotiations are still in process. Obviously they have been slowed because of the last two months of economic and financial crisis. So that work is still in process. But as I said earlier, we expect needle coke prices in 09' to be up significantly high double digit percentage increase.

Great. My last question is actually not forward looking for once. It's on engineered solutions, I just want to understand how you got to your margin this quarter.

Well ES has continued to enjoy a number of applications in solar and electronic thermal management customers that have done very well. So we are well positioned a number of new products there. Some products that we have gotten industry awards for. And so those tailored solutions are products obviously that command good prices, good margins.

They are unique solutions in some cases. And that has allowed ES to drive some of the margin expansion. And then lastly, ES like our IN business has continued to drive lean and productivity improvements. So that also is part of that expansion in margin.

That's good. Thank you for all your help.

Thanks, [Asad]. Have a good day.

We will move on to [LaVonne Von Redden] within Hocky Capital.

Good morning, Craig. Everybody.

Good morning, [LaVonne]. How are you today, sir?

Not too bad. It's been awhile. I want to come back to the needle coke issue. I guess I'm a little confused in terms of your expectation for that amount of a price increase on the needle coke side given you are kind of saying over the next roughly I guess six months including this quarter we will have a lot of destocking from folks like yourselves not ordering needle coke.

One would think that supply and demand will shift in your favor and that they wouldn't be able to get that kind of pricing. Maybe you could help me understand why you think you will still get that high double digit price increase?

Well, there is only a handful of producers. One,. [LaVonne]. And supply/demand has been tight and it's not the only product the refinery can make. So they can switch to other products. So I think you add all those up and you -- we will see double digit increase year over year on price. The refinery has other alternatives, other products her can make. This needle coke has been tight for a number of years. And there is only a handful of producers.

Okay. And the other thing I was going to ask is related to just thinking about the destocking that's actually taking place. One would think that given your comments with the needle coke obviously I think yourselves and some of your competitors want to keep margin. The actual price for the graphite electrode then as we look into '09 is going to be substantially higher than where it would be today. Why would you -- why would a customer destock as opposed to if anything I would be prebuying to avoid that additional cost on the graphite electrode.

Well, [LaVonne] I don't think it's particular just to the steel industry. I see customers in every industry right now destocking and pulling money out of working capital. Remember, the credit markets are virtually completely frozen. And so I think there is a tremendous drive in the steel industry and all industries to go ahead, destock, reduce working capital, increase and accelerate cash flow and delever.

Okay.

So I don't see it particular to our steel customers. I see every industry destocking underway.

And the final question is in the past typically we talk about the price of the graphite electrode only being I think a couple percent of the cost of making steel. Scrap prices have come down substantially and if you keep margin and your needle coke cost goes up as you anticipate, what kind of percentage of the cost to make steel move to for the graphite electrode?

Well, under various assumptions, let's say this year it's been about a cost of graphite electrode is about 2% of cost of a ton of steel. So very, very small number. And gee maybe what does it grow to maybe 3%. So it's still very small percentage of the total cost to generate a ton of steel.

Okay. Excellent. Thanks.

Thanks, [LaVonne]. Have a good day.

You, too.

And we will move on to Paresh Jain with Religare.

Yes, good morning. Thank you for taking my question. Just wanted to confirm that what you said earlier is that we were anticipating an increase in price in the graphite electrode in CY '09. But probably volumes might fall down. Is that so?

Paresh, that's correct. We would anticipate '09 prices driven up by higher input cost in the case of -- especially in the case of needle coke. There are some other costs that are going up also. Some of that metallurgical coke is very tight and that's seen some very large increases.

I would expect that's going to have a significant price increase still in '09. That's in short supply. We get that from the steel industry. And I think they are still looking, time will tell, but I think they are look for double digit year over year price increase for '09.

Okay, because metallurgical coke price has already fallen from around $720 to $550.

Right.

So are we anticipating that coke prices will continue to remain high in 09'?

Petroleum needle coke prices?

Metallurgical coke.

Met coke, yes, I see pressure in the price of metallurgical coke, yes, sir. I would expect '09 prices will be above '08 for metallurgical coke. That's what we see right now. Now obviously the markets are in a great state of change. But that's the recent data points.

Okay. And is this -- is it so that we first contract out needle coke prices and then we contract the graphite electrode prices?

Yes, that's always been our approach and strategy go ahead and secure the key raw material needle coke and then go ahead and build a book. And obviously the last couple months all of that has been delayed with the financial crisis in the world.

Right. So in that case, I mean since we haven't contracted the needle coke prices for the contract that we have already built in for '09. I mean I'm not asking how much contract was built in. To model for example, needle coke prices are way above expectations or way below expectations. Then do we renegotiate -- then do our customers renegotiate the graphite electrode prices?

Paresh, we have very little in the electrode book for '09. It's not material. I think the way you should look at '09, our company has to build the raw material portfolio that's been delayed for all the reasons discussed and then we have to build an '09 electrode book that's been delayed because of the reasons we talked. So really for '09 we have to let it play out and we've got to get into next year to really take a look at it.

The point wasn't what of a minimum built in -- do the customers have or do we all our customers have the flexibility of going back to each other and renegotiating the prices demending upon where the needle coke price has finally turned out?

Well time will tell. But as I said in the '09 book, I wouldn't look at it as a material amount in the book. The season for building the book just got underway and then the globe went into a financial crisis. So it's not a material amount.

Okay. My final question at the beginning of the call you said that probably around a 15% production cut back has been announced. So can you give a sense that in the steel cost curve, [how much percentage] will be there in the stock curve -- in the last 15 of the cost curve. Last 15th quartile of the cost curve?

I don't know that I fully understand your question. Can you just rephrase it?

If you're leasing around 100 million tons of steel, globally just for example. And your saying the 15% might shut down because of the slowdown. So just wondering -- I understand that in the cost curve, how much percentage of EM would be there as a part of the [stock move] cost curve?.

Oh, that's a very hard one to tell. So it looks like 15% or so of steel is slowed down. On the operate level. How much of that is exactly EF around the world? Very hard to tell or predict. I think we have to let that play out.

But as I said earlier, I think EAF remains advantaged on the cost side versus BOF steel. And I think that advantage has been growing. And historically that advantage has looked -- has grown and has looked more attractive to steel producers when we had slowdowns.

Okay. Fine. Thanks for taking my questions.

Thanks, [Paresh]. Our pleasure. Have a good day.

And we will move on to Mike Christodolou with Inwood Capital.

Hi, Craig.

Good morning, Mike. How are you today?

I'm well, thank you. A couple sets of questions. I guess we're all beating this needles coke issue pretty well. But just to understand again, you supply agreement with Conoco pursuant to a long-term supply agreement so you are pretty much committed on supply, but historically, right you've built the electrode book in the fall say now October to say January. And then you've got the supply locked in but you have committed to price in the spring. Do I understand that historical time line correctly?

Historically it worked this way. We have a long term supply agreement with Conoco that's for the tonnage and price is renegotiated every year to the market. And so it's given us some sense of confidence and assurance over the volume that we will have.

And so historically what's happened is before the graphite electrode book building process began we negotiated and secured the pricing and finalized the actual volume for the upcoming year. Then we went on and built the book. And that book building process, you are right. Usually it would really gaine steam toward the end of Q3, Q4 and the kind of finish up in February and obviously none of that has taken place because of the financial crisis.

But you've gone ahead and locked in the price a little early and now you know what you are dealing with?

That's what we have done historically. As we sit today given the global crisis, all of our raw material negotiations are in process and the '09 book is in process. Normally raw material, I think normally we would have a significant portion of our raw material already locked up and we would be well into the book building process. As we sit here today, there is virtually none of the raw material locked up and the book building process is really yet to begin in a meaningful way.

Could you envision that your supplier Conoco would let you go further than say the spring in terms of committing on pricing? Again, I understand you are saying tight needle coke supply seems to trump the fact that crude prices have been cut in half. How long out could you or would you want to play that?

Yes, I would expect that the needle coke will get fixed this year and then the book building process will really get underway in Q1.

And then to triangulate, you used the phrase a double digit increase and then a high double digit increase. And just to triangulate to pricing and I know it's hypothetical, Craig, so I will note that publicly, you made the comment that graphite electrode as a percentage of steel cost could go from 2% to 3%.

Again, you were speaking broadly and hypothetically, but that's about a 50% price increase in theory. And I would note anecdotally that supports what one public EAF company just said last week they have a lot facilities here in the southwest and also in eastern Europe and they said they have locked at prices up 40 to 50%. Is there anything in the public domain that you could site anecdotally just to triangulate on those types of numbers?

Let me say this. I think you are reading a little bit more than you should into 2% to 3% in the electrode costs as a percentage of making a ton of steel. The point to the caller that asked that question was whether it's 2% to 3% it's a small percentage of the total cost of steel. That's really the point we were trying to make rather than the 3% exactly itself. I think you are reading more into it than what you should.

And that really we need to build '09 raw material portfolio and then we need to build the '09 graphite electrode book before we can really say too much at all or infer too much at all on '09. It's that uncertain out there. I don't think it's just the steel industry. I think it's virtually any industry you go across globally because of the financial crisis.

Last question just on competitive behavior. One of your other public competitors did say on their call last week that they are focusing on margins. I'm curious if you heard anything out of the high cost small capacity low quality producers in India and China in terms of graphite electrodes. Any sense of their propensity to want to slog on here in a market where some of their customers are cutting back?

Have I no idea.

Okay. Thank you.

Thank you. Have a good day.

And we will move on to Frank [Biss] with Pilot.

Hi, good morning.

Hi, Frank. How are you today?

Good. How are you?

Excellent, thanks.

To clarify, on the needle coke, sorry to beat a dead horse, have you -- you have not fixed the price on that yet or you have?

No, as I said, we were still working through our raw material books. So we have not fixed needle coke and other key raw materials which normally would be fixed by this time of year. And it's directly as a result of the financial crisis. So we don't have our raw material portfolio fixed yet and we don't have the '09 book.

And I guess obviously huge increases. My question is, if less steel is going to be produced, there'll be less graphite, electrodes produced, wouldn't then there be less needle coke needed and maybe prices wouldn't be up as much or that's not happening?

Well, I expect them to be up high double digit as we said. Now what everyone has to remember is, remember, we booked the needle coke prices that we are enjoying in '08 way back in '07. And I think you to look at oil way back then. And so we book -- as we all been talking, we booked that way back before the actual year got underway so that's back in kind of a Q3 time frame. And then oil continued to go up after that. And we all followed that curve.

So here we sit at oil with $60. But I think it you compare the $60 back to when the '08 coke was actually booked, you will see that the gap is not as large as you're inferring. You are expecting gee this should come way down. But I think your reference point is, gee, oil was 140 now it's 60, 62. It should come way down. You got it go back. We booked this needle coke way back in '07 for '08.

And so I don't expect needle coke to come down; there's a handful of producers. The '08 cost if you look at average cost of oil it has a lot of room to go up, I think. Handful of producers. It's tight supply/demand. And don't know what our book is going to look like. All I can say is that I believe it's going to be up high double digit cost there.

Metallurgical coke, Frank also I think will be up double digit because it comes from the steel industry. It's been very, very tight the last couple years. Then as you throttle back some blast furnaces, they're the generator of some of the metallurgical coke. So I think we will have a number of raw materials that could be up significantly that maybe is a little counter to the logic. But when you think through it like when we book needle cook for '08 way back in '07. Metallurgical coke could be up. There are some tars that could be in shorter supply and they could be double digits that we require.

Okay. Thank you for the clarification.

Thanks, Frank. Our pleasure.

And we will move on to [Greg Vanese] with Smith Barney.

Good morning, Greg. How are you?

Fine, thank you. Again this needle coke issue. Three or four years ago there was a problem with the pricing of needle coke versus that you fix that price and then your electrode price is not -- it's fixed but the supply is not fixed. If we have a global slowdown that continues could you end up being long needle coke but not have -- people have committed to certain volume -- or they haven't committed to a certain volume so you are long needle coke and don't have a customer for your electrode. They aren't taking the supply.

Well, Greg, I think in any business that's always a risk but it's a risk that we have managed I think pretty here well the last few years. And obviously it's a reason why our raw material book is open right now and our customer book is open. And we will try very hard to align those.

There is anyway -- we had talked about this before several years ago about not -- essentially having more that you will supply the graphite electrode but the pricing will be determined more on a monthly basis. Where and if you can do the same thing with your needle coke where you are not caught in between the needle coke pricing and the graphite electrodes.

Well, Greg, generally what happens is raw material book gets put together such that you will understand your cost structure, then you build the graphite electrode sales book. So you can understand pretty good what your cost is and then on your point and then your biggest risk as you highlighted is gee what if things drop down worse than what everyone expects, could you be long raw materials? Yes, tha't a risk, but it's a risk we have become accustomed to managing through.

Okay. Thank you.

Thanks, Greg. Have a good day.

Our next question comes from Brad Langston with Sandlan Capital.

Hi, Craig, Mark.

Good morning, Brad. How are you today?

Doing well, thanks. Just a couple questions for you guys. Looking at your 2008 guidance and then if we make some conservative assumptions for next year you guys should continue to generate pretty significant amounts of cash flow. ANd I was curious primarily what your priority for the use of that cash and what your targeted leverage for the company?

Well, as I said many times very hard to make too many comments about '09. But let's talk about our priority for cash. We would like to continue to delever. We would expect to entering '09 with net debt of approximately $100 million. We just closed as you know $131 million all time record low debt in our company's history. So we like to go into this very uncertain period with a very solid balance sheet and very low debt.

So we will continue to delever. Obviously we will watch the marketplace for opportunities in any significant trough there sometimes are some opportunities for consolidation in the industry. Acquisitions. So we will hopefully be well positioned for that. If you're in good shape, strong, solid balance sheet, cash flow you can seize some of those opportunities and that's the position we'd like to have our company in.

You can also continue to grow new products through solar, nuclear, many of the other industries that we are serving and that's the position we like to be in. Go forward, Brad, I think you are going to see us continue to delever. If we see a smart, prudent acquisition we may look that the very hard. We will continue to grow our new product portfolio and attack some of these new and emerging markets, alternative energy, nuclear, et cetera.

I guess second question on that, when you look at the tradeoff between buying back stock and further delevering, how do you guys make those decisions internally?

Well, obviously like all companies go through consideration of buying back stock, and as I've said, we brought some back here in the recent past. It's obviously something we are very attuned to. It's something we view very positively. We have a share buyback program. We've actually executed on a portion of that. So it's obviously something we look at hard and very favorably.

And so we will weigh the level of debt. We'll weigh the credit markets. Are the credit markets opened back up? Is there fluidity out there? Are they getting stable? We will take look at the global economies. What do they look like?

What's our order book look like? And then between that we will weigh deleveraging, stock buyback, acquisitions, a host of alternatives, new product development et cetera that we have to utilize our cash.

Okay. Great. And I know you've already mentioned this. But I was wondering if you could elaborate more on the depth of the production cuts that you guys are planning to make in '09?

And secondly in the past your gross margins have been 25% plus, even through the worse troughs back in 2002 and the steel cycles. How drastic were the production cuts then you had to make to maintain your prices in margin and what -- what are you foresee your production cuts, the depth of next year?

As I said earlier on the call, Brad. We've throttled back production to align with our customer's orders. And that's a 12, 15% cut back. Time will tell where that goes or how long we keep that in place. I don't think anyone has a good line of the real demand because there is this destocking taking place.

So I think real demand will become more evidence sometime in Q1 probably and then we will be in a better position to determine where do we run the plants. It could be a higher level than. It could be a lower level. Time really has to tell. Last time last trough, you're right we did throttle back some and as I recall back then we throttled back about 15 to 20% in production levels.

Okay. Great. And do you think -- if you had to venture a guess, 15 to 20% cut back, will that be sufficient to maintain pricing? I know the model is much more geared toward price than volume. Will that be sufficient to be able to maintain taking supply off the market to maintain pricing?

Brad, it's really too material tell. There's so many variables. I think there is so much uncertainty in the marketplace that that's one that really time has to tell.

Fair enough. And just last question on engineering solutions. Are your current operating margins in the mid-20% level sustainable on a go-forward basis?

Well, again, I apologize for taking this approach on '09. It's that uncertain in all industries, not just steel and electrodes. Time is going to have to tell on that. I will tell you what we have done.

You've seen it in the numbers. We had nice margin expansion and we achieved that by offering some very unique tailored solution to the marketplace. Some of our products have received national and international award. Number of them are going into emerging industries like nuclear. Electronic thermal management, solar, et cetera.

So to the extent those industries still grow, I think we will probably still command some very good margins there. What we don't know obviously is what else the volume look like. What's the volume of activity of our customers in '09 in those industries? And, Brad I don't think anyone really knows that at this stage.

Fair. Last question. Are you specked into the solar applications that you service in that division and should as a result should that division grow similarly to the expected solar CAGR industry of the solar industry?

Well, directionally, yes. You're correct. We are in a number of customers, I won't mention their names, our customers have different technologies. Some have unique proprietary technology where we sign agreements and secrecy agreements so we can develop a tailored solution.

But, to the extent solar continues to grow, I would expect ES will do favorably on. What we just don't know is the level of volume. What's the activity? Literally across the globe activity has slowed down in every industry. And time is going to have to tell where that really comes out in '09.

Thanks, guys.

Thank you. Have a good day.

And we will move on to Charles Bradford with Bradford Research.

Good morning.

Hi, Chuck. How are you today?

Fine. Some questions about some of your competitors whom obviously aren't as cost competitive as you are. Yet they've got prices of 15% below yours and they've got to be getting kind of into a difficult straits, one in particular is private equity owned. What's the opportunities to take someone -- one of the weaker players out?

Well, sorry, I really can't speak for our competitors. And obviously we would view and review all opportunities to grow our global platform. And if there was the right opportunity in the marketplace, we would look very hard at it. Obviously our balance sheet has strengthened nicely over the last few years. But, Chuck, again, this is one we have to wait and see where this market goes. I can't speak for the competitors. Is there a deal out there? Who knows. Time will tell.

When you bought the 19% piece of Seadrift, the other portion I believe was private equity owned. Do you have rights of first refusal by any chance?

Chuck, you are right. The other portion is private equity owned. We have some very significant minority shareholder rights, but we do not have the right of first refusal.

Okay. Thank you.

Thank you, Chuck. Have a good day.

We will take our next question from Mark Parr with Keybanc Capital.

Hi, thanks.

Hi, Mark. How's it going?

I had some follow-ups. Could you, Mark I was wondering if you could talk about the tax rate. The numbers been coming up over the last couple of years just to refresh our memories about why your tax rate seems to be increasing on a go-forward basis?

Actually, Mark I'm not sure which numbers you looking at specifically but our tax rate has been coming down.

Coming down. I'm sorry. Apologize.

Okay. Good. Want to make sure we were in the right direction. Largely I think which we've said before, Mark is that it's largely attributed to jurisdictional mix of income that we are generating. Large portion of our income is generated outside of the US which has a favorable tax structure associated with it. So as the profitability has increasing and that profit has generated in low tax rate jurisdiction. We've seen a favorable impact on our tax rate.

Given some of your production changes that you are going to be doing here in the fourth quarter and the first quarter, could we see more positive surprise on the tax rate over the next couple of quarters?

And we've updated our guidance. At this point in time, Mark it's too early really to say about the rate in '09. But we have updated our guidance to 25% for the year which takes into consideration where we are year to date plus what are our expectations would be for Q4. We have to look at for next year I would assume a higher rate at this point in time and as we learn more about '09 we would be able to give you better guidance for '09 as it relates to the tax rate.

Okay. I'm just trying -- and then just lastly, could you talk a little bit about some of the puts and takes for SG&A for '09? I know you can't quantify at this point, but what are the things that we really ought to be think being at the margin that could have an impact?

Yes. I think if you look at our SG&A year to date we were basically flat and which is consistent with the reductions that we made over the last couple of years that we were very focused and managing our overhead cost structure. For '09 at this point of time we will continue to evaluate and look for leverage where we can and minimize indiscretionary spend and to align the cost structure as best we can for customer demand and volumes.

So there will be some discretionary spending whether it relays to T&E, whether it relates to variable compensation that maybe associated with commissions that we may have to pay. There will be other third party consultants that will scrutinize and evaluate the value ad and determine if it's the right investment we need to make. We will continue to evaluate every line item of our cost structure and we'll align that to demand that we see for next year.

Okay. Terrific. I appreciate the additional color. Thanks.

And we will move on to Chuck Murphy with Sidoti & Company.

Just a follow-up regarding Seadrift. Craig, I know you said you would give details on what it will contribute to '09 on the fourth quarter conference call. But could you speak on a qualitative basis how much of a hedge that might provide as compared to rising needle coke prices?

Well, roughly as our ownership, roughly 19% ownership and Seadrift does a capacity somewhere between 150 or so, 150,000 metric tons. You could take that percentage of the 150 and you could infer that gives us somewhat of a hedge.

Okay. I mean, it should be a pretty solid hedge. Not just a little bit.

Yes. As I said at the outset we were pleased with that acquisition and I think we married up with a very good team. I have been impressed with the Seadrift team. They have a fine, very professional highly committed team there.

Okay. Great. Thank you.

Thank you.

We will take our next question from Yvonne Varano with Jefferies & Company.

Thanks. I was just wondering if you could talk about whether or not an increase in volume had an impact on the revenue line? I know you mentioned pricing and currency so should we assume volumes are flat in 3Q?

The volumes were essentially flat year on year in Q3.

Okay. And then you talked about locking in your needle coke last year way back in '07. Do you know what the price of oil was at the time you locked those contracts in?

Yvonne it would have been in that Q3 time frame. We don't gave specific date. But we were Q2 negotiating and probably the actual finalization was sometime in Q3. So kind of go back to the price of Q2, Q3 of '07. It would have been in that kind of environment.

Just remember,coke is tight and remember, sometimes as we go through this, you remind people there are several different grades of coke. What we were talking about is the high grade which is limited, is tight and which we use to make great electrodes for our customers and many of our customers have the largest EAF furnaces. They want productivity. So it's that segment of needle coke we were talking about and that segment is tight. There's a handful of producers and they have other alternatives to use those assets. So we expect that price to be up significantly in '09.

Okay. And then knowing that the price is going up, should we assume that you are going to continue buying needle coke in to your end or assume you are going to cut back in the 12 to 15% range in a similar to what you are cutting back your production?

No. We have a contract in place and we will take all those orders. We need that coke. We have been planning on getting that coke. So we will take those orders as committed.

Great. Thanks very much.

Thanks, Yvonne. Have a good day.

We will move on to Shawn Nicholson with Kennedy Capital.

Good afternoon, guys.

Hi, Shawn. How are you today?

I had a quick question on -- I know in the past you have stated when you go to build the book, even though it's taking longer this time, that the spot price is usually the starting negotiation point. Is that still the case in this environment? I know you guys put out something in July around 9,500 metric ton. When those -- when that book begins building, is that where you begin starting at price level?

Yes, that's been the history absolutely. That's been the starting point and then the negotiations are underway. There are bids and quotes given around the world. And then a book gets built. So, Shawn, I would expect the same kind of process. Once the destocking finishes and that gets underway. And then as I said, time will tell where that finishes up for '09.

Okay. Just looking at the spot price increase that happened in '08, if I have correct it, 8500 about to the 9500 about from May to July. How much of that was demand versus cost driven?

Majority of that was cost driven. Majority of that was cost driven.

So clearly the focus on the call is obviously a needle coke increases. But clearly the spot price that you guys are putting out there in July was reflecting significant potential needle coke increases as well.

That's right. Anticipated increases needle coke, metallurgical coke, some of the tars and as we sit here today I would expect all those to be up significant double digit.

Okay. Great. And then just have you seen -- are you seeing more customers just come in maybe today and doing smaller order quantities instead of actually committing to the book of business for '09? I mean they still have to -- obviously steel is being produced and if you are selling those smaller quantities are they at that spot price?

No, Shawn we're not seeing that. Literally what we're seeing is literally no market at all out there. Our customers worldwide and as I said before not just steel but I think virtually every industry is going through some significant destocking because nobody really knows what's the real demand for their product or industry in '09.

I don't see much of any orders but I also haven't seen any of what you mentioned. Some customers they usually got 35,000 tons in a year are they coming in and giving me 300? No, I don't see that and remember, our product's critical to our customer got to have it to melt scrap steel. Generally what our customers do is they assess their annual requirements which now may not happen until sometime in Q1. Because the market and then they go ahead and book for the year.

That's what our typical customer does because they want to know the cost. They want to line up their cost structure, the want to be assured of supply and because it's two or maybe 3% of their cost structure, it's an item they want put away. Be done with, get the electrodes, quality supply to be assured to get that supply when I wasn't it and then go ahead and make their money in steel.

Okay. But just if somebody did come in and next week with an order, it would -- would it be -- how would you price that? Would it be just at the price?

It would be at that spot price. $94.75.

Okay. Great. Thanks, guys. I appreciate it.

Thanks, Shawn. Have a good day.

(OPERATOR INSTRUCTIONS) And we will take a follow-up question from [Paresh Jain] with Religare.

Yes, thank you for taking a follow-up question. Just wanted to understand that metallurgical coke as a percentage of total cost, how much percentage is that?

[Paresh], it's not a guidance item we've given historically, obviously it's a smaller one. It's a single digit percentage of our cost structure. But it's an important item and it's an item over the last few years that we seen 100, 200% cost increases. So it's a small percentage but it has gone up dramatically. But I just highlight that, I expect that to be up double digit in '09 versus '08.

Metallurgical coke. Okay. Because that's surprising because I mean we have seen the demand from steel sectors falling off of the metallurgical coke. And eventually, I mean the driver for the commodity is such basically steel is falling off. So it is pretty surprising that we expect that sort of an increase because --

What we see is as some BOF facilities get shuttered and closed, they are the source of this metallurgical coke. And so as they get shuttered, slow down and close and some of them permanently close, they no longer have the metallurgical coke so the price stays very firm. Time will tell where that comes. But right now if you go out and try to get met coke it's still very pricey.

Okay. And lastly, just assuming that probably -- I mean 5% of the EA production closes down. So what percentage of graphite electrodes would have to probably close down to sustain the prices of the margins that existed in the early part of the year, any rough idea?

[Paresh], that's again one that we are just going to have to wait. Time will tell. There are so many variables in that. It wouldn't be prudent to try and guess what that is. I think we have to be patient and let us go ahead and build our raw material portfolio. Build our book and then come out with our guidance next year.

Okay. And finally when you say that a EFs production is a low cost method of production as compared to blast furnace. So can I assume that in the top quartile of the cost curve EF producers won't be existing in that quartile?

I would look at it this way. I think around the world there are a number of very high cost BOF furnaces that are small in today's standards. They were built some 40, 50 years ago. They do not have the appropriate pollution abatement systems on them and I think in downturns as we are seeing now, these types of furnaces go under extreme analysis. Gee, should we continue that or take it completely out of service. And I think we will see some of that activity. I think we are already starting to see it in China. And there is examples of that happening last month, this month in China.

Right. And most of Europe is represented in China or probably other parts of the world also?

Other parts also. I think you will see some of that in Europe and in the US, absolutely. I mean Europe signed the [Kiota Accord] and those BOF furnaces -- some are 40, 50 years old and they may not make this downturn. Which is probably net-net good for the environment there and of course EAF will be the beneficiary.

Okay fine, thanks.

Thanks, [Paresh] . Have a

Thanks, you too.

And we will move on to [LaVonne Von Redden] with Hocky Capital.

Yes, Craig. You actually hit on one other question which I had which is related to spot market pricing. Given the current demand is turned down so much, you kind of indicated that you're still getting high spot market prices but your needle coke cost haven't risen just yet. Are your competitors keeping a fairly high spot market price for graphite electrodes?

I can't speak for them. But if we get a small one off order, it's priced at spot. And so today that's still a high price. We've had very little of that. You should think of our market has really very little activity right now. Very little activity. And it's really the destocking is underway.

Okay. Thanks, guys.

Thank you. Thanks, LaVonne.

There are no further questions that the time. I would like to turn the call back over to Mr. Shular.

Deana, thank you very much. Everyone, thank you, very much, for joining our call. I look forward to talking to you in Q1 next year. When we will report the full '08 and then give guidance on '09. Thank you very much. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day.