Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the GrafTech Third Quarter 2013 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to Kelly Taylor. Please go ahead

Thank you, Jody. Good morning and welcome to GrafTech International’s third quarter 2013 conference call. On the call today is GrafTech’s Chief Executive Officer, Craig Shular and our Chief Financial Officer, Erick Asmussen. This is Erick’s first call as our CFO. By way of background, since joining GrafTech in 1999 as Tax Director, he has also served as our Worldwide Controller, Treasurer and Director of Finance as well as VP of Strategy Planning and Corporate Development. Eric has a tremendous depth and breadth of financial and business experience and wealth of knowledge about Graftech’s operations and strategies. We issued our earnings release this morning. If you didn't receive a copy, please contact Marie Noar at 216-676-2160 and she’ll be happy to fax or e-mail a copy to you. As a reminder, some of the matters discussed during this call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please note the cautionary language about our forward-looking statements contained in our press release, including those are in the planned rationalization of our graphite electrode production platforms. That same language applies to this call. Also, to the extent that we discussed any non-GAAP financial measures, you will find reconciliations in our press release, they are posted on our website at www.graftech.com in the Investor Relations section. For your reference a replay of the call will be available on our website. At this time I would like to turn the call over to Craig.

Thank you, Kelly. Good morning, everyone, and thank you for joining Graftech’s call. Today we will take you through our third quarter results, detail our announced plans to improve our Industrial Materials segment business model competitiveness, provide outlook commentary and then open it up for questions. In Q3 total company sales came in at just over $300 million, EBITDA excluding the impact of rationalization related charges came in at $35 million in the middle of our guidance range. Adjusted net income was $6 million or $0.04 per share. We remain in a difficult operating environment particularly for our Industrial Materials segment, we have announced initiatives today designed to significantly improve our competitiveness, allow us to better serve customers and well position our Industrial Materials business as global economies and steel demand recovers. In our Industrial Materials segment sales decreased 10% to $231 million, operating income for the segment was $4 million excluding the impact of rationalization and related charges? During the quarter, we announce price increases to our customers for needle coke and graphite electrodes. In August we announced new pricing for normal premium grade needle coke of $1,875 per metric ton which represents an increase of approximately 15%. In September we announce new pricing for standard sized meltered and graphite electrodes of $5400 per metric ton which represents an increase for approximately 20%. We do not expect to material impact to 2013 results from this price increases as our 2013 business is largely booked. In our Engineered Solutions segment sales increased 15% to $70 million in the quarter. Operating income for the ES segment was $5 million. Our ES business had its second quarter roll of $70 million in sales despite solid growth in our advance consumer electronics product line operating income was negatively impacted by continued weakness in…

Yes sir. (Operator Instructions) Your first question comes from the line of Luke Folta from Jefferies.

Good morning, Luke. How are you today?

Good Craig. How are you?

Excellent. Thank you.

Yes. I guess first on this $75 million of expected cost savings, can you talk about how much of that you think is going to be cash versus non-cash items?

Luke, the best way to look at that is $75 million, approximately $10 million of that will be non-cash.

Okay. And the other thing I had was the, with you closing the facilities in Brazil and South Africa, how much shipment potentially do you think you can give up by not having facilities in those local markets?

We don’t think we gave up any at all. The remaining four large low cost facilities can pick up all of the requirements in those markets. And in fact as we’ve said on the call and in the release, can do it much cheaper. And they’ve got tremendous quality so they are very well positioned to do that. So I don’t see any constraint there at all, Luke.

Okay. So would you say that the operating cost advantage of the remaining facilities exceeds that of the freight cost to get an [extra] reserve there?

Absolutely, spot on. And that’s just some of the power of this rationalization. You’re absolutely correct.

Okay. And then on Seadrift it seems like you expect inventory reduction through next year and a bit more into 2015 just based on your working capital outlook. Should we assume that will 2015 see the full benefit of utilizing Seadrift to 100% in terms of internal consumption goals?

I think ‘14 and ‘15. Remember the line down agreement finishes the end of this year. So ‘14 we’ll see the full benefit of the integration of Seadrift. We have literally no constraint. So I expect that to run whole out from here forward.

Okay. And then just on the, in the prepared remarks you talked about there are being some union consultations going on or something. Is that something that could kind of hold up this whole process or do you expect, what do you think the risk of its applications around those factors are in terms of closing these facilities?

Those are the very normal union and workforce consultations. So there is not anything out of the ordinary there. That’s normal course adhering to local regulations, having a very professional transition. So that’s built in all of our numbers and in the goal to be substantially finished by the middle of next year. So I don’t see any major issues there.

Okay, great. And then just one last one for me, just thinking through the, when these facilities closed is this going to have any meaningful change on your mix in terms of both UHP and non UHP electrodes?

No, the mix will stay pretty much the same, no change.

Okay.

Thanks very much. Have a good day.

Thank you.

Your next question comes from the line of Edward Marshall from Sidoti & Company.

Good morning, Ed. Edward Marshall - Sidoti & Company: Good morning, Craig, Kelly, welcome Eric. So I just wanted to, I guess it’s interesting that you announced the cost reductions and at the same time you’ve [violated] that, you can add it back very quickly. And I guess the questions in your mind and I think you’ve mentioned it several times that structurally industry despite the capacity additions really hasn’t changed your outlook for the future for electrodes?

Yeah. That’s spot on, Ed. We see EAF growth, cost competitiveness looking forward to be a very bright future for EAF. And so when the EU emerges from this tough recession, the U.S. recovers, non-residential construction recovers in the U.S., you are going to see the EAF industry I believe do very, very well. The [admin] of DRI is tremendous for EAF in cost competitiveness. So we are very bullish on EAF go forward, we get out of these recessions, demand picks up, EAF is advantaged, DRI just grows that advantage are nimble. And so looking forward we will overtime at the right time when demand recovers put this capacity in. Edward Marshall - Sidoti & Company: When that capacity comes back on and I think you said capacities optically looks that way. What kind of cost savings from the places that you're seeing today versus where they are, where they’re structurally located today. What are the cost savings to you, I mean are they going to be meaningful from servings in Monterrey versus Brazil or South Africa?

Yeah. They are absolutely meaningful. South Africa and Brazil great teams, but these were our smallest plants, our highest cost plants some of our oldest plants. And in tough environments to be a manufacturer, electricity costs have gone up so much, social costs et cetera. So growing the remaining four plants which are already large world class, we've done a lot of automation. Obviously, there has been a lot of preparation to get to this day. The four plants that we have are prepared for this and have been getting prepared for this through Lean Six Sigma automation, majority of our capital has gone into the four large plants getting ready for this day. And so they have a much lower cost structure, it’s a step change. And so the starting point is significant. But then as we further grow those sites and you still have the same one plant manager, engineer et cetera for instance when we do the 15,000 tons in Monterrey at the right time when the market returns that is just going to further lower the cost structure at that plant. So these are very, very attractive. I think as you from the numbers, I mean the cash that they generate and if you do the math, you see that if you went out to replace the 60,000 tons, this rationalization more than pace for to replace the 60,000 tons and you get the low cost platform and you get more throughput at these advantage sites. So this is a major rationalization for us and we’ll really improve our competitiveness. Edward Marshall - Sidoti & Company: Arguably I mean you’re doing what you've done in past cycles, you’re improving the operational and throughout the cycle improving your operations and becoming a stronger company. And I am curious as you look kind of to your longer term goal and I think you confirmed that $500 million to $600 million today, but does that, I mean you’re changing the cost structure, could you actually see that being much higher than that $500 million to $600 million over the term or is this something that you’d previously planned into that guidance?

Well, we've been thinking $500 million to $600 million. And so I would keep in that range here. We need the EU recovery to move the needle. And so I think any reassessment of that $500 million to $600 million will be after we get these economies back on their feet. And as we've talked Ed when non-res construction comes back in the U.S. that’s so beneficial to the EAF shops in the U.S. that’s virtually all EAF, so that will burn a lot of electrodes. And then the EU as we've talked is 30%, 35% of our total company’s sales. Next year is probably going to be the first sign of growth there in five years and so as the EU starts to come back that gives us a tremendous amount of leverage in our business model. Edward Marshall - Sidoti & Company: So there is $35 million of cost savings next year. And am I right there is $20 million from the coker that's coming on from EBITDA savings as you wind down those agreements? So essentially you starting with the $55 million head start from where you started in 2013, is it the right way to think about?

Well, obviously we can take care of the vast majority of our needle coke needs now, we don’t have to buy from a third party. So there is going to be benefit from that, you are right, Ed, because now we can really enjoy an orchestrate the full integration of the needle coker with our electrode plans. Prior the last three years through the wind down agreement with the DOJ we had to buy from a third party. So just think of what we’re trying to do here is next year we’re completely on our own in needle coke, so we don’t have this constraint of a wind down. This is a dramatic improvement in our cost structure, so the four large low cost electrode plants that remain can get very integrated to Seadrift. And they’ve got great product quality. And all we’re trying to do is get positioned for the term. EU is starting to look like a bottom end, the U.S. is come aways but we need non-res. So we just want the right cost structure, a very aggressive low cost structure for when the term comes and then the capability of take care of it. And then incrementally at the right time when the demand returns to our industry we’ll add that first $15,000 in moderate which is -- that’s probably going to be the lowest cost $15,000 in our industry. Edward Marshall - Sidoti & Company: Finally pricing. You mentioned, I don’t know how much you will talk about this, but you mentioned the 2014 price increases that you have announced both in coke and electrode. Is there any framework which you can put around that to kind of talk about how the market looking at that? I know there has been several announcements from some of your competitors et cetera, but kind of how the industry is kind of accepting or not those price increases and maybe the shape up for ‘14? And I understand you are not giving today for ‘14?

Yeah, absolutely. Well, needle coke as we said, we’ve announced an increase up 15%, electrodes up about 20%, cost in both of those businesses is going up. And so we’re out there seeking a price increase. I think costs are going up for all of our competitors. So we will see how this plays out in the market place. It’s very early in the bid season there is virtually no activity out there. So it’s really too early to say much there. In our February release, we will give guidance, we will have I think by then a fair amount that we will put together end of February. Edward Marshall - Sidoti & Company: Excellent I appreciate your comments today. Thank you.

Thank you, sir. Have a Good day.

Your next question comes from the line of Chelsea Bolton from Goldman Sachs.

Hi, Chelsea. How are you today?

Hi this Sal.

Hey, Sal.

Craig, I am going to ask question on behalf Chelsea. Couple of things. First of all where are you buying the needle coke for those two facilities in the one you are shutting down?

We buy from all the producers. So we don’t detail individual suppliers, that is not our practice, but we buy literally from all the other producers out there.

Got you. So I mean is there a rationalization in needle coke, you think happening at the same time or is it just you guys are doing it?

Yeah. I don’t know what the others are doing, I know this one we have prepared for quite some time for this, as I said with our CapEx, our Lean/Six Sigma. So this has been a well thought out plan, we look many alternatives and I don’t know what the others are doing on this front. I do know though that our cost structure’s going to make a nice step change to that. And the integration you will see the real power of it over the ‘14 and ‘15.

And those are the facilities you are awaiting it, I mean you are not selling it somebody or leaving it, and just totally you wrap it out, totally you finished?

Yeah, correct, we won’t be selling them. What we will do is and we are very skilled at this. We will be taking some of the equipment that we can use it before remaining low cost sides. So we will pull some equipment out and then what we do overtime, we will level that and will not sell out electrode plant, no, that will all get leveled and then down the road the land will get sold.

Now you did make some comments about how the prices will do the prices increases, I just wondering if -- how do you see the market because still pretty big? I remember in 2012, middle 2012, Seadrift increased the coke price by 20%, but ended up down 10% for ‘13. I am just wondering if you think market has strength to, is it all cost push or is it some demand pull also in these price increases you have announced.

There is a lot of cost push on this. And I agree with you as we said in our comments. So global steel remains very, very challenging. There are some data points though, there has been some price increases that have been achieved, there is the ABI Index here in the U.S. Out of last 14 months, 13 have been positive and just if you look at history, 13 months out of 14 that's a long very positive trend. Okay, if I look back to prior cycle. So that really points that ‘14 non-res should be better in the U.S. And it looks like consensuses and even some of my customers in EU see that the EU is definitely in the bottoming process. And it may take a few months to get there, but it looks like next year, we should start to see the return to growth from the EU. So, I think all those things point that we need to try and get some price here, our costs are up and our customers are getting some price and we'll just let that play out so.

Okay, great. Thanks very much.

Thank you, sir. Have a good day.

Your next question comes from the line of Michael Gambardella from JPMorgan.

Good morning, Mike. How are you today?

Good, Craig. How you doing?

Excellent. Thank you

Great. Hey congratulations on the announcement. And not just doing on your hands waiting for someone else to do it.

Thank you sir.

But I’ve got couple of questions for you with the strategic objective that you have here with cutting the capacity, because I remember in past years, you actually made a point of saying how important it is to have a local production site to supply the customers in that country or that region. And that I'm just wondering when you pull out at South Africa and Brazil does that kind of open up the customer base, it's fair game in the world and customers probably favor the local producer, you, because they get quicker deliveries right there and everything like that. And I do remember you saying that you’ll get a preferential even pricing because you had such a close proximity to the consumers. So I am just wondering especially with some of the new capacity coming on around the world even in the United States I think with (inaudible) bringing on 30,000 tons next year or at the end of this year. How this is all going to play out in terms of the actual cost savings and be a risk losing some of that business down in South America, particularly Brazil and South Africa?

Yeah, Mike good point. In both of these geographies that we're talking about South Africa and Brazil obviously there is no local producer. So there won’t be a resident local producer after we exit. And obviously we know the customers very well because we've been there we know the furnaces, we will still have a sales and customer tech service team local on the ground. And so and then obviously the cost structure will be dramatically improved. And then I also think what the customers will see locally is better quality, I think they’re going to see better quality out of these four large plants than maybe what they had from our variable small plants. So I don’t expect a lot of shift in market share there. Our customers are global a lot of the bids are global bids from the accounts they’ve got factories and many continents. So our industry has really become very global, electrodes move all around the place. So it’s a well taken point, Mike, it is something we have our eye on the ball on that but I think we’re well prepared for that and the cost structure will help us a lot also.

And of the 60,000 tons, half of your cutting at Brazil, South Africa, what was the approximate shipment number to say this year and last year?

You mean the local shipments in South Africa and Brazil?

Out of the plants to get shutting down with this 60,000 tons this past week, how much were they actually shipping?

Well, we've been running all our plants on a program where obviously you’ve filled the low cost plans first. So both of these have done our highest cost plans for quite some time and they’ve been at lower operating rates than the other four and it’s some of that has been as we’ve been preparing for this exercise. So I can’t give you specific numbers, some of that’s market sensitive et cetera. But these have been our two lowest running plan’s they’ve gotten the small slice of capital keep them going as we’ve prepared for this over the last few years.

I mean have these two plans been running under the 50% of capacity?

Yes. Absolutely.

And I am just trying to figure out the cost savings from such low volumes, could you give us the components besides the DD&A have been $10 million of the $75 million term of the major components and how you figure that $65 million in cost savings?

Yes. It’s the period cost, the fixed in there, variable cost. Those locations in many cases to build the graphite electrode don’t have the local raw material supplies. And so a lot of that gets imported. So when you look at the $67 million, $65 million of it is variable in period. Now you are right Mike they were running at low operating rates and your takeaway should be that’s how high their cost was in those jurisdictions for us.

And but you are very confident that you can maintain your share of the business with those local consumers?

No, never, we ship to 80 countries today and electrodes move all around the world. So it’s a very global market.

And so we’ve been doing that in many countries to have share and good portion, a large portion of customers business based on service and quality and what not. So this is something new to us. We will build do this, I don’t see a big loss in share there, Mike at all. I think the cost structure is great and obviously we know the customers we know their furnaces very, very well.

Okay. Last question you guys running some capacity here but (inaudible) increasing 30,000 tons of capacity next year, your dealers and market just becoming a lot more cost competitive and how do you think that new 30,000 tons of capacity just that one producer is going to fill into the marketplace?

Yeah I think that should be very interesting and I mean obviously you see our first move is going to be Monterrey and I guess all I will say is I really like the cost structure that we have in Monterrey. It’s a very large plant, it’s a spectacular team, great cost structure.

All right, thanks Craig.

Thank you, sir.

Your next question comes from the line of Philip Gibbs from KeyBanc Capital Markets.

Good morning Craig.

Phil, how are you today?

Hey, Craig. Good morning. How are you?

Excellent. Thank you.

Good welcome Eric, to the CFO ranks.

Thank you, Phil.

I had a question just in some of your longer term assumptions Craig on the EBITDA power of the business I know that’s $500 million to $600 million. I know there is going to be a lot moving pieces there, but to that I guess curious about is how you are thinking about pricing on the electrode side, are we having to get back to prior peak levels? One, and then two, where were this type of thought process puts your ES business?

Yeah. Let me answer the ES part first. As you all see it around the we have there to do $255 million in sales. So is a this business we have taken from $80 and $85 million to $255 million. So ES, we think ES has the potential out of three and four, five years, three to five years to be a $500 million business. So that’s the way we look at ES. In the case of IM, remember our last peak when steel was running at good up levels and we were running at 90% plus and ES business was still so small business, we did $369 million of EBITDA. So what we are saying is and you’ve seen this in our IR deck and our IR road shows. What we seen and when steel recovers and when the global economies recover. We will have back integrated Seadrift which we did have in the $369 million EBITDA. We will have a much lower graphite electrode cost structure, based on what we have talked about here today. And so we think the potential from IM is much greater, if the next upterm in the cycle. And then like I said ES will be a much bigger contributor. So, our team’s objective is 500 to 600 and I think your takeaway what we talked about today is how driven we are towards that objective. We have a long track record of cost cutting, productivity improvements, quality improvements and making tough decisions. And so that's the way, I would frame these actions here today.

Any, how would you frame it up, just as far as the benefits, all the sequel you would get from moving away from P66 and using your own material. I think that's a little bit loss. I mean, I guess I understand, but if the price in needle coke right is fairly competitive in the marketplace. And you have got, your own internal costs and how you are passing that there. I'm just trying to think about how to frame that up into next year as far as, how the benefit would be, because it's obviously a big part of your longer term EBITDA potential.

Yeah. I look it in two fronts, one on utilization rate and one on quality. On utilization rate, now that we are done with the wind down agreement, looking forward, I see Seadrift running, virtually full out all these, there is no need for it, no. So you have that steady high operating rate and what that delivers in cost structure. On the quality front, we've talked a lot since we acquired Seadrift and what we've done on quality. And we've talked about breakthroughs and super premium needle coke. We've talked about just the normal premium needle coke and the quality improvements we've made. And I'll tell you this right now, our graphite electrode plants further make electrodes out of Seadrift needle coke then to buy on the outside. And that’s just the statement of how far they’ve taken quality. So the other portion to our business model is that the Seadrift needle coke is a very, very good coke today, normal premium and super premium. And we're putting a lot of R&D into that, that’s continued out of our scientist and pharma. And so what I see overtime is that gap widening, Seadrift getting a much better more consistent needle coke. And like I said, my plant managers today want Seadrift needle coke to make electrodes; don’t send me others I want Seadrift each and every day.

Okay, Craig. And just lastly, would you add current levels of utilization I mean assuming your same 70%, 30% mix I think that’s what you've been at, right?

Correct.

With melter and non-melter. That would mean that you’d be a little bit long coke at 115,000 metric tons assuming that 70% takes the real high, the premiums and super premiums stuff. Do you need Seadrift coke for the non-melter piece of the business?

Yeah. Remember some of that 30% does use high quality needle coke, so factor that. And then Seadrift also has some third-party sales that are very attractive too. So I think your takeaway should be Seadrift’s going to run full out, so that’s very nice to have in our business model. And remember it’s going to run fall out throughout this cycle. So we have an asset, large asset, second largest needle coke producer in the world we are. We’re going to run full out in the trough, we’re going to run full out in the up cycle. And then with the quality improvements, we think it makes a better electrode for us and we’re the ones putting R&D and making breakthroughs in needle coke. And so I think overtime that sustainable competitive advantage will grow and be very beneficial to our electrodes and our steel customers.

Thanks, Craig.

Thank you, sir. Phil, have a good day.

Your next question comes from the line of Charles Bradford from Bradford Research.

Hey Chuck, how are you today?

Good morning. Could you talk a bit about what you are seeing worldwide in DRI output, obviously the new coke plants been delayed? And what that's going to do for the electrode use per ton of electric steel?

Yeah. On electrode consumption front, we don’t see a big change. There is a number of DRI units around the world that we service today. So we have a lot of experience with putting electrodes into DRI applications. And so when we look across all of the furnaces and all of records that we maintain on consumption and utilization rates, we don’t think it’s going to have a material difference at all, DRI or scrap. What we do think it’s going to do is it’s going to be very beneficial to EAF. And it’s going to give EAF more scrap to melt which is good. And where it’s utilizing low cost nature gas like a Nucor project, I think it’s going to be very beneficial to EAF. And so we’re very bullish on DRI. I think what Nucor is doing is outstanding, tapping into low cost natural gas and helping out their cost structure. And so Chuck that’s the way we would see DRI.

When we look at electric furnace output around the world it looks like third quarter was up about 2.3%, but if I take out China, it was basically unchanged. Is that basically the way you see it as well?

Yeah. That’s pretty much I mean it’s still very, very sluggish demand out there. We see the EU in a bottoming process I think that’s pretty clear to a lot of people. So if EU stays its course, it should return to growth next year. And then I believe and I think many of our customers think that non-res construction in the U.S. will have a much better year next year if everything stays the course.

The European Union was down I guess 6.1% for the third quarter?

Correct.

But some of the areas like Brazil and Africa were actually up?

Yeah. They were up a bit, Middle East was up. So it’s that kind of recovery, it’s very uneven and spotty. But if I look at the trends, we are getting closer to the end of this recession. It’s been five brutal years I think the longest our steel customers have ever seen and the deepest. But I think we’re closer to the end. Next year I think could still be a transition year depending how I think the EU is going to take a while. But I think next year we’ll have a number of pluses for our steel customers in various geographies.

Thank you very much.

Thank you, sir. Have a good day.

Your next question comes from Chelsea Bolton from Goldman Sachs.

Hi, this is Sal again.

Hey Sal.

I was little late in your prepared remarks; did you gave us the utilization rates for Q3 for the electrode business?

Yeah. We were around 75%, Sal.

Okay. And what do you expect in Q4, do you have any idea?

Yeah. It’s going to be higher, I think we’ll be into the 80s, some of that has been transitioning we’re going through that we talked about. So you will see us probably in the 80s maybe even in the mid 80s.

Okay, great. And on Seadrift, what utilization rate you have been running in ‘12 and ‘13 because there you have been running at full out in ‘14 and beyond?

Yeah. There has been some quarters where it get down. So it’s been in the 80s, 90s. From here forward it’s going to be full out.

Great. Now I just want to get a little bit more understanding on the vertical, the integration, the vertical integration and the event for this in steel business where meaning is about scraps companies and then it didn’t materialize probably because the purchase was done in particularly in market, but didn’t materialize because in the end you can’t subsidize steel mills transferring at cost of scrap. I guess understanding Seadrift’s situation, my understanding is that you will still be using on lending in terms of the economics or transaction between the two groups. And is Seadrift in this current environment or current agreements, is it selling below the market price and would you be able to get better pricing on Seadrift’s side. What that means that the third-party they are selling right now is at a discount for the market price at the moment?

No, no it’s always there will be a market price. So we do on arms length to our electrode business. So they stay market price because I want them to stay competitive, I don’t want them to get completion. So it’s arms length to get in the market price. As far as the analogy with scrap, remember there is only a handful of needle cokers, there is only two in the Western Hemisphere that if they challenge what scrap is that their barriers to entry are quite low and many, many people have bought shredders and set up shredders and so that makes for the tough business model. In the case of needle coke, there is only a few of them. And then the other big difference to always remind ourselves of, there is a big quality difference. Scrap is kind of scrap, right, but in needle coke, lot of technology and what we're doing in Seadrift with our needle coke and SSP or super premium and what not has the ability to drive a sustainable competitive advantage. My electrode plant managers only want Seadrift needle coke open up, it's all the same price to them, they’re going to be different on the economics because we charge in market, but since we bought it till today, they want Seadrift needle coke now because it makes one hell of an electrode.

Okay. And one last thing, what was the thought process regarding the capacity rationalization, you’re doing it. Is it all because of the cost side that you’re doing it or are there some factor was that in those regions there was lot more competition from Chinese and Indians electrode. So it was becoming not uncompetitive for you that region?

No, it's not that latter at all, it is the cost side. Sal, we’ve worked hard on this, it's well thought out, we prepared for this and our four plants are ready for this, they are large, they have been automated, they have gotten majority of our capital, they have gotten yield improvement. So they are ready to seize this opportunity. So it's all on the cost side, Brazil, South Africa disadvantage on the cost side, labor cost, the electric cost, tremendous inflation in the last 10 years. And like I said they don’t have a lot of the other local raw materials that we need to make an electrode, so a lot of items get imported there. And when we compare to what we can do in Mexico or Spain, it is so much more cost competitive. And so it’s driven by the cost side, Sal. We're making a step change improvement in our cost structure.

Are you going to do any write-down on these assets?

Yeah. Let me let Erick jump in. Yeah, we’ll do a write-down. He will give you the timing for GAAP.

Sal, the write-down will happen over the third and fourth quarter and the second quarter of next year. Again GAAP requires that you accelerate the depreciation over the new lives of the assets. So to some extent, you’re going to see the write-down come over the next few quarters.

Okay. Craig, do you have any idea what kind of number we're looking at?

In our guidance we put of the cash and non-cash approximately $52 million will come in the fourth quarter.

Okay, Craig. Thank you very much.

Thank you, sir. Have a good day.

Your next question comes from the line of Phil Gibbs from KeyBanc Capital Markets.

Phil, are you there?

Craig, I am here. I just, I had a question on the capacity utilization that you've provided for the fourth quarter. Does that assume your new base or is that your old bases as far as before or after these….?

That’s still the old bases.

Okay.

Yeah. It’s coming up one to finish off the pipeline in the two plants that are being closed. And it’s coming up in the other plants to pick up the future.

Okay. And how do we think about your inventory position and year-end as relative to where it finished the quarter?

Yeah. I expect it to come down a little bit more. I think you will see the trend is downward on that. We’ll be running down the inventories at the two sites that are closed and so you will see that. And then the end of 2014, obviously what we talked about in this release you will see a significant reduction.

Okay. And just lastly, Craig, just from a broad perspective, what was really the thought process for the capacity rationalization now, it’s just far as today with global growth stabilizing and recovering, I think you talked a lot about the U.S. potentially getting better next year than Europe. Just want to see what it’s indicative of the new capacity or just your longer term market demand factors?

Yeah. I don’t think it’s anything particular about today. Remember we have to prepare the four large sites so they’ve been, like I said, getting the majority of our CapEx. And so they’ve had to be prepared, our teams had to be prepared. We look at many alternatives from our following to closure. And so there is, this has been something we analyze literally on a regular basis how to dramatically improve this cost structure. So there is nothing specific in particular about today. One of the things we looked at as we study through this was how to do this and be ready to capture the upside. And so we've also worked very hard on whatever our debottlenecking opportunities and drive those in detail what’s required, how much time will they take, what equipment, can the team do it, is the team ready, how long a lead time will they need. And so there has been both ends of this. One that the transition out compared with four sites and then also have the incremental increase at the right time when demand recovers, ready to go. So our aim out of all this is not to miss one bit of the recovery. The aim is to capture all that recovery upside and do it in a much lower cost base.

Make sense. I appreciate it.

Thank you, sir. Jody we don’t show anyone else in the queue, is that it?

Yes sir.

With that, thank you very much for joining our call and I look forward to talking to in February on our Q4 call. Thank you, all. Have a great day.