Brookfield Asset Management Ltd. (BAM) Q1 2011 Earnings Report, Transcript and Summary

Good morning, my name Tia, and I will be the conference operator today. At time I would like to welcome everyone to the GrafTech First Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Thank you. At this time I would like to turn the conference over to Ms. Kelly Taylor, Investor Relations Manager. Please go ahead Ma’am.

Thank you, Tia. Good morning and welcome to GrafTech International’s first quarter 2011 conference call. On the call today is GrafTech’s Chief Executive Officer and Acting Chief Financial Officer, Craig Shular. We issued our earnings release this morning. If you do not receive a copy, please contact Marie Nor at 216-676-2160 and she will be happy to fax or email 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. 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 Relation section. At this time, I would like to turn the call over to Craig.

Thank you, Kelly. Good morning to everyone and thank you for joining on our call today. Today we’ll take you through our first quarter highlights and then open it up to questions. In Q1, sales improved to $306 million driven by improved demand in both our business segments as well as sales growth of $65 million as a result of the acquisitions of Seadrift Coke and St. Marys. EBITDA was $70 million, excluding acquisition accounting and related items, an increase of more than 27% year-over-year. Q1 2011 EBITDA compared to Q4 2010 reported, which was $42 million is up 35%. Net income was $27 million or $0.19 per share. Excluding the impact of purchase price accounting, net income was $37 million, an increase of 19% year-over-year. Operating cash flow was a use of $1 million as we increased working capital to support our growing sales. Net debt was $321 million at the end of Q1. Our borrowings during the quarter were used primarily to fund planned CapEx to support growth and the recent acquisitions of Micron Research. The integration of Seadrift and St. Marys continues to proceed very well. In the first quarter, these businesses contributed $18 million of EBITDA. Excluding the elimination of inter-company profit and inventory on sales of needle coke their EBITDA was $28 million. We are tracking well against our targeted synergies and EBITDA contribution of $90 million in 2011. Regarding the quarter’s overhead expense, Q1 2011 was $35 million up $10 million from a year ago. Seven of the $10 million is SG&A at Seadrift and St. Marys, which of course was not in our Q1 2010 numbers. $2 million is applicable to support growth and $1 million is an increase in R&D again to propel growth. For total company this year, we expect to…

(Operator Instructions) And the first question will come from Luke Folta. Luke Folta – Longbow Research: Hi, good morning, Craig.

Good morning, Luke. How are you today? Luke Folta – Longbow Research: Not bad, you?

Oh! Excellent sir. Luke Folta – Longbow Research: Good, couple of questions relating to the supply and demand of needle coke. As understand in the last peak global EAF production was around 415 million to 420 million metric tons globally. Has that run rate, I recall needle coke capacity being pretty much sold out globally, is that sound right to you?

That’s right. Things were tight back at that peak, absolutely correct. Luke Folta – Longbow Research: Since then, has there been any expansion in needle coke capacity?

There has been a little bit I think in a couple of the facilities, but I wouldn’t call it materially different than what you commented on in the OA peak. Luke Folta – Longbow Research: Okay. And based on what you’re seeing as far as your order book in discussion with customers regarding 2011, can you give us a sense of where you think that EAF production number could be for 2011? How it shape then?

What we see is each quarter continuing to improve. We are very pleased with the improvement we saw in Q1 in steel production rates around the world. Virtually every segment up very nicely, South America up double-digit, U.S. 6% plus. So we see that trend continuing. As far as needle coke, we’ve been very pleased with the Seadrift acquisition. Our third-party sales have grown very, very well and we are currently running that facility at 90% plus. Luke Folta – Longbow Research: Okay. So when you put altogether, a number for EAF production is something north of 410, north of that number, is that seen reasonable?

I think if you look at all of the analysts in the various agencies that comment, I think a lot of them are around 400 or so. I think 4, 405, 410 are common numbers we see for EAF production. Luke Folta – Longbow Research: Okay. And in the last cycle, I understand there is a percentage of electrodes that are produced using coal-tar pitch instead of coke. Can you give us a sense of what that percentage was in the ’07, ’08 timeframe?

I don’t have that exact number, but from what I see in the last peak whether it was from oil based or coal tar based both of those has tracked very closely as far as the tightness in supply and demand and both tracked very closely as far as cost structure. So, I don’t see a lot of differences. You’re referring to ’08 and back in ’08, you’re right, we got to those kind of EAF production numbers and things got tight. I don’t think we’re far away from those kinds of tightness currently. Luke Folta – Longbow Research: Okay. And is there any expansion that you are aware of in the capacity of electrode producers that can use coal tar pitch since then?

No, all of us can use coal tar pitch. You fire your furnace a little bit different but we all know very well how to use either type of coke. So that think of their coke size quite interchangeable. You have to change a little bit of your operating practice at the facility. The quality is very similar, and historically whether its cost structure or supply demand trends, the coal tar and the petroleum base have tracked each other very closely. Luke Folta – Longbow Research: Okay. And I guess I’m trying to get at is, I mean is there any reason to suspect that should we get back to this 420 plus sort of global EAF production number that we aren’t going to see the market as high as it was in last cycle. Has there been any changes in that sense since…

I think your logic holds and I think as we continued to get positive data points on the global recovery, to us it’s very encouraging. And I think your analysis that hey we’re not that far off the last peak or we’re not that far off the last time thing started to tighten up, I think it’s pretty accurate. And I think as we look forward really just is it 2012, is it some time in 2012, I don’t think anyone actually knows. But all of the trends from what we see are in tact. They look very encouraging to us. And I mean just look at our situation, we’re going to run our facilities over 90% operating rate in Q4. And so demand is picking up, its broad based. If you look at the Q1 steel production numbers, almost every segment of the world had very nice sequential improvement. And so it’s encouraging to us. As I look forward to big picture 2012, 2013, I think it looks very exciting to us. Luke Folta – Longbow Research: Okay. Thanks for that and just one last question. You had published a price increase on your website here, I think this week. And I just want to kind of put in perspective. You had mentioned that you’ve locked in your needle coke cost for this year and you hedged whatever exposure you have as far as Seadrift is concerned. Does that price increase – is the pretty much suggest margin expansion or is there some other inputs that are increasing that you are trying to offset there?

Well, as you know and as we talked in the last conference call, virtually all of our book is either put together or bid. So this increase will not have any kind of material impact on this year. So I think that’s important. And I think it’s important everyone stay within our annual guidance on EBITDA. But this price is reflective of some of the cost increases that are coming, as you mentioned, Luke, some of ours are hedged very nicely, but others are freight continues to go up around the world, I think many industries are facing that. So this increase is targeted at trying to offset some of those and get a price for our product that represents a fair price to offset some of those cost. I think everyone’s cost have been going up quarter-after-quarter. I know our customers cost for sure and lot of it being driven by improving economies as supply and demand tightens up in many sectors. Luke Folta – Longbow Research: Okay, and just if I could squeeze one more last one…

No worries. Please. Luke Folta – Longbow Research: I just wanted to I guess understand if this price increase is affected till the end of this year, this is not the number we should necessarily be hanging our head on for 2012?

I think that’s a good way to look at it. Obviously, oil and the significant movement in oil since the needle coke books were built for this year, which really is last year Q3. Oil has moved comp from the 70s low 80s to 115, 125. So that large move in oil is not in this 15% right as we said we are virtually all hedged for this year. So that huge cost increase driven by petroleum and related product is not yet in there. And it’s still early in the game looking all the way out to 2012 to really asses yet what is that cost push like. Luke Folta – Longbow Research: Thanks a lot, guys, for all the color.

Thanks, Luke.

The next question will come from Ian Zaffino with Oppenheimer. Ian Zaffino – Oppenheimer: Okay, great, thank you.

Good morning, Ian. How are you today? Ian Zaffino – Oppenheimer: Good, good. Not too bad. Hopefully you guys are good as well.

We’re doing great. Ian Zaffino – Oppenheimer: Okay. Question would be on the your estimates of 90% utilization, is that based on basically what’s written in your book and your discussion to customers or is that based on your projections or I guess of EAF or industry EAF production projections?

Well, that’s based on what we have to service from our book and our customers if we need to be at that level to take care of our sales. And maybe another add-on to that, we will not be adding significantly to inventory, but with year-end with that 90% plus operating rate. Ian Zaffino – Oppenheimer: Okay, good. And now as far as inventory in this channel where is that relative to historical levels?

Yes, I think if we go across the whole supply chain, I think steel inventories everywhere other than China are very, very lean. I don’t see any major inventory bubbles. China has had a build up in the first quarter. I think everyone is monitoring very closely. Some of the China build up we all have to always remind ourselves every year because as Westerns tend to forget about it these Chinese New Year holiday. So if you go back there is almost always a buildup in many industries to accommodate for that. So China has had a buildup in steel. It’s something I think everyone in our industry is watching. It’s a data point, but I think that’s going to work out fine. The rest of the world, the steel inventories are very lean. On electrode front, I don’t see any significant inventories or bubbles at all in the supply-chain of electrodes. I think it is a very healthy view of where electrode inventories are at our customers and at our own facilities. Our facilities do not have a lot of finished good inventory. And so the supply-chain for electrodes looks very good from our vantage point. Ian Zaffino – Oppenheimer: Okay. And then the last question then I’ll let someone else hop on. Given where oil prices are now and I know it’s still very, very early to kind of figure this one out, but given where oil prices are now, I guess you could probably impute where your NeoCon cost would be. What would you need to recover as far as pricing to hold your margins? So how much would pricing need to be up next year to hold the same margins that you have this year?

Well, I think you’re right in. It’s off or really to try (inaudible) that. And price is always hard really to forecast. I think what will come to bear is with where is the oil cost driver, is it steel, 115, 125. That’s a large cost driver everybody faces. Where is supply demand on graphite electrodes and then how is steel running, and if steel continues it’s low, steady improvement I think going into 2012 looking at inventories as you discussed across the supply chain, looking at some of the cost push and looking at the tightness that already is starting to surface in the overall supply chain whether to needle coke and electrodes, we would be very bullish on 2012. To be running at Q4 above a 90% utilization rate is another very positive data point for us. Ian Zaffino – Oppenheimer: Okay. Thank you very much.

Thank you. And have a good day.

The next question will come from Chuck Murphy with Sidoti & Company. Charles Murphy – Sidoti & Company: Good morning, guys.

Good morning, Chuck. How is it going? Charles Murphy – Sidoti & Company: Doing all right. Just a follow-up question on the price increase, I mean, if we’re still at $115 oil six months from now, is it safe to assume that the electrode price would be at least 15% higher?

Well, remember the 15%, as we discussed, does not factor in the move in oil prices. So if you go back into Q3 of last year when that book was put together working on $70s, $80s, low $80s, and now you are $115, $125 and still a moving target, a lot of variables. We all are very familiar within the Middle East. And then also the overall economic recovery is going to probably have a factor into oil pricing because we see a broad base recovery here. As we’ve talked on our last few conference calls we see in virtually every product line, every part of our business sales were up and even if you look at sequential numbers Q4 to Q1, very nice improvement in our business and nice improvement in the EBITDAs. Charles Murphy – Sidoti & Company: Got you. But, I guess as things stand today assuming the 15% increase in prices from 2010 to 2012 wouldn’t be aggressive.

Well, 15%, we’ll not cover the possible increase in the key cost driver of petroleum. So that’s not even in the 15%. It’s really now what the needle coke is going to be for next and we’re still, here we are way out nine months. So that’s not in the 15% and that’s probably the biggest driver. Charles Murphy – Sidoti & Company: Okay, all right. Then the next thing was you mentioned before, I’ll make sure I got my information correct, you said a 71% electrode utilization rate in the first quarter.

Yes, that’s right. We did 75% in Q4, if you recall. 71% in Q1 was lower. January and February, a little bit lower in the beginning, but we are marching up. We will be in the 80s% and all in Q4 we’ll be over 90%. Charles Murphy – Sidoti & Company: Got you. And would you assume that 2012, again all things kept the same would also be in the 90% range.

Yes, all things being equal to what we see and if steel continues its recovery, we would see that next year we would expect to run each quarter beyond 90% utilization rate. Charles Murphy – Sidoti & Company: Got you. Okay. And last question; how much needle coke did you buy from Seadrift in the quarter and any update on what you are expecting for the full year?

Yes. We don't give the quarterly numbers but as we’ve talked in prior conference calls, we’ve been targeting about 70,000 metric tons this year. And I think that's still a good number to think about, about our own internal purchase. And then the balance is out to global market third-party sales, and as I said that's gone very well. I'm very pleased the way that’s gone. And Seadrift is running beyond 90% utilization rate right now because that's gone very well and because of the supply demand equation out there. Charles Murphy – Sidoti & Company: Got you. Okay. Thank you very much.

Thank you, sir. Have a great day. Charles Murphy – Sidoti & Company: You too.

The next question is from Eric Glover with Canaccord. Eric Glover – Canaccord: Hi. Good morning, guys.

Good morning, Eric. How is it going? Eric Glover – Canaccord: Pretty good. You talked a bit about somewhat of a slowdown in the Mid-East in the coming quarter I guess, could you talk about how much of your, what is your exposure there actually?

Yes. The Middle East, it's not a big item for us and so I think a good way for you to think about it, it's about $0.025 for us, it’s what that would look like in the Middle East. And obviously things are very, very fluid there. So think about it as $0.025. On the good news, we’ve been very, very proactive so as to minimize any AR exposure. So we've been really very hasn’t a shift unless we had clear line of sight of LC payment et cetera. So this has not just been the case of the unrest, it’s also been a very proactive move by the company not wanting to ship in there and then struggle to have a collection. So Eric, think of it as a $0.025. And having said that, we are still within our annual guidance range. Eric Glover – Canaccord: Okay. Could you provide an estimate of what you think your global market share in EIS I mean in electrodes is now with the acquisition of St. Marys?

Well it’s obviously a moving target because markets are recovering everywhere. So I think if you look at our Qs, you’re going to see some numbers in the Qs that range all together with everything that are probably around 18% or so 19%. Eric Glover – Canaccord: Very good. Thanks.

Thank you, sir.

The next question is from Charles Bradford with Bradford Research. Charles Bradford – Bradford Research: Hi, good morning.

Good morning, Chuck. How are you doing? Charles Bradford – Bradford Research: Hi. After the earthquake in Japan, I was able to get some data about the graphite electrode producers in Japan some of which had shut down. Do you have any information as to whether or not Tokai or Nippon Carbon or Showa Denko have come back up?

Yes, Chuck. We have been staying very close to that and obviously a very, very sad tragedy. And what we have seen so far is that in our supply chain of our raw materials and in our competitors’ supply chain and their own operations, we have not seen any significant disruptions thus far. So far they have been able to meet their customer orders. We’ve been able to get any of the raw materials that we need out of Japan so, so far that has gone well. I think it’s important we continue to watch that obviously with rolling brownouts, less electric power will be, I think more aggravating as we get into the summer months. And so, this is one we have to stay very close to. And during the summer months, I think when we get to kind of June, July, August, September; I think that’s when it will become clear. Is there any impact at this 20, 25% power drop and the rolling brownouts. Right now, we don’t see any impact and it’s one that we are monitoring closely. And I would say what we’ve seen so far, Chuck, in our guidance of 285 to 315, our assessment is that any pluses and minuses that might be in there are within our guidance range. Charles Bradford – Bradford Research: Have you heard anything about electricity cutbacks in China because we’re beginning to hear about some pretty massive shortages of electricity, and the plan is to cutback electricity for the Chinese steel companies in particular?

Yes, we’ve been hearing that also. I mean in Q1 obviously the steel producers in China were able to run. They built inventory. But I think the Chinese government is doing a number of things to contain that steel industry. It’s gone through tremendous growth. The latest coming out of the government is they have announced a very serious plan and very clear announcement that by 2015 they want to take the current 800 producers of steel in China and get it down to 100 producers. So, obviously a huge task and they may fall short but the numbers are so large, the reductions are even falling short is still a massive consolidation of the customer base. We are following this very closely. We think it plays to our strengths. We much rather deal with larger, sophisticated customers that are driven by productivity and efficiencies in place to our high quality electrodes, our customer tech service. So, I think and your question on power, this move from 800 fragmented running, undisciplined, wild steel production with many times pollution impacts in China consolidating it to 100 bigger players that respecting environment et cetera will also perhaps reduce some of that electric power consumption. Many of those 800 they’re all old furnaces, they’re high consumers. And I think to your question on power, I think, yes, China is talking about it. I think they’re serious. I think the power consumption is an issue and it may help propel this consolidation of steel in China, which I view is a positive for our company for the reasons I talked that is also positive for steel. Charles Bradford – Bradford Research: Yesterday they apparently put on 111 page document identifying which industries and companies are going to be favored and which ones not?

Right Charles Bradford – Bradford Research: And the big energy consumers are not.

That’s right. And I think so, that’s what encourages me that this very clear announce they make they’re going to go from 800 to 100 steel producers that they’re very serious about it because their backs up against the wall on electric power. Many of those 800, the smaller ones, I’d say of those 800 are usually the real offenders in pollution and treating the environment. And so I think this consolidation is going to be good. I think it will help the power issue you’re talk in about. And then lastly as I said I think it plays our strengths. We really like working with large steel producers that are driven by productivity improvements, customer tech service, growing their business. They have a lot of metrics where performance of the electrode is important and they understand the performance of the electrode because they have such detailed metrics and controls. Charles Bradford – Bradford Research: I don’t know if you listened to U.S. Steel’s conference call yesterday but they’ve talked about switching some of their facilities may be to electric furnaces?

Yes, we did. Obviously very encouraging to us as our – the new bill is going in the EAF that we’ve been talking about and that we’ve highlighted in our last few Qs. So, big picture EAF, we’re bullish, we like where the supply demand picture is headed. We like the trends we see in the global improving economies. And as I said we expect that actually Q4 and plus 90% utilization range. Charles Bradford – Bradford Research: Thank you very much.

Thank you, sir. Have a good day. Charles Bradford – Bradford Research: You too.

Our next question will come from Mark Parr with KeyBanc.

Good morning, Mark. How are you today? Mark Parr – KeyBanc: I’m fine. Craig, thanks for asking. Hope you’re doing well. Sounds like it.

We’re superb. Thank you, sir. Mark Parr – KeyBanc: Hi, Kelly. I have had a lot of thoughts this morning about your release, and I think the questions for the most part that have come so far have pretty well answered, everything that I've thought about. One thing that I think the market and again I don’t want to try to throw any stones or any water on this fire because I think you’re doing a great job today Craig, and I think there is a tremendous outlook here that’s continuing to be acknowledged by investors. But the question always seems to come up about the Chinese production of needle coke, Chinese production of electrodes, and I think as the Chinese industry gets more electricity availability and more scrap, those are emerging trends that are going to help support more EAF steel production in China but there is also a concurrent electrode production momentum going on as well. The question I would put to you is and it doesn’t sound like there is from your comments, but I mean is there and what is it about the Chinese needle coke or electrode growth initiatives that may concern you or could potentially impact the outlook for this company over the next couple of years. And is there anything that you see that concerns you?

Yes Mark, very good question. And I think in electrode industry as well as so many other diverse industries, China competitors have to be at the top of the focus. So yes, we have a lot of respect for Chinese competitors, there is a lot of them. But when you go through and analyze them, and obviously we’ve looked at many of them in detail from a growth acquisition standpoint. So I think we understand them well. And two things surface very clearly; one their cost structure, everyone likes to think that China is so cheap to produce, and I would say that when I look at their cost structure versus our cost structure, and even our cost structure with or without the Seadrift acquisition, I like the match up. So they do not have an advantage on the cost structure, so point one. Point two, they are behind on quality. They are coming up the curve, so we have a lot of respect for them. We’ve got to watch them. We use the Chinese many times in our company as the kind of the burning platform to motivate and drive continuous improvement because the Chinese have taken and threatened so many industries around the world, but our path is continuous improvement on quality, servicing our customers and continue to drive lenient organization. So I don’t see that they have a cost advantage at all. We are the low cost producer with or without Seadrift, I'm talking, Seadrift just makes it that much better. And then on the quality, they are still behind on quality and what our team has to do is not stand still on quality. So we are devoting off a lot to R&D to grow that gap, not to standstill and have continuous breakthroughs. Many of…

Yes. Mark Parr – KeyBanc: And a little bit different and I appreciate that colors. Thanks very much. One of the strategic advantages of vertical integration that you and I had talked about overtime was the potential for turning Seadrift's quality into a differentiator in the marketplace. And this certainly feeds into your view of being the highest quality producer in the world along with being the low cost producer. But I just like to get an update if I could, you’ve had a few months, where you have been able to work directly with the Seadrift people on a more intense basis. How much of a differentiation do you feel is achievable as you work to optimize Seadrift's production capabilities? Is there any update you can give us there?

Yes, Mark. Let me give you some quality color. Let's start with where we are today and where our great Seadrift team is today. Seadrift quality today is equal just as good as any of our competitors out there. In fact, many of our customers do not segregate the piles of needle coke at their production facility. They mix it together. So it's just as good as anyone else out there. Our goal is as you’ve mentioned Mark, and as we've talked on previous calls is to raise the level of quality of Seadrift needle coke. And it's a combination of the technology that my team brings to that acquisition as well as our capability to invest in the Seadrift facility. And as far as color of how is that going, that's going very, very well. We are delighted with the team we have inherited in Seadrift as well as our other two acquisitions. So we have a first-class team there. We have now taken those assets up over 90% utilization rates. So we are very pleased with these assets. Like any acquisition you really never know until you get in and you own it. And you really never know about any team until you get in and you live with the team. And what I can say here after these few months together we’re delighted with the team, we’ve got the assets running very, very nicely and we are tracking very nicely to improve the quality and take that quality from as good as anybody else's today to something that’s better. And what we’ve said is see that’s probably an 18 month, 24 months process. It takes some time, it takes some capital, it takes some process changes, and whatnot and that is all under write market. Mark Parr – KeyBanc: Good Craig. Thanks again for the call and good luck on the earnings and congratulations.

Thank you Mark. Have a great day.

(Operator Instructions) The next question will come from Zahid Siddique with Gabelli.

Good morning, Zahid. Zahid Siddique – Gabelli: Hi and good morning. How are you?

I'm great sir, how are you today? Zahid Siddique – Gabelli: Good. A couple of questions, the first on the book, how much of your book is done so far?

Yeah, as we said earlier Zahid, the book is pretty much either all built or already has been bid. So built into our guidance is the book is pretty much altogether. So on the price increase discussion we talked before we shouldn't think of oxide because – for this year because of that price increase we should think of sticking with the – in our guidance of 285 to 315 EBITDA. Zahid Siddique – Gabelli: So that price increase really is then for the 2012 book is that a fair assessment?

I think that's a part of it, I think it's starting to reflect some of the other cost other than the petroleum related cost we talked about earlier on this call. The increases we're seeing there, there maybe some small spot we would capture that. But as we said we don't expect that to be material and again we urge to stay within our guidance. Zahid Siddique – Gabelli: Okay. And what is the steel utilization, what was the utilization in the quarter globally?

Our steel utilization? Zahid Siddique – Gabelli: Yeah.

It was over 80%, it was about 82%. Zahid Siddique – Gabelli: Okay. And then on the size of the contract, I remember it was going back towards being Honeywell, what that trend has been as far as the size of the contract?

Zahid, the trend this year has been annual. So the last two years, ’09, 2010 big recovery years, it was quarter-by-quarter or six month was a long contract. This year it has been predominately annual. And so our customers have wanted to lockup their electric requirements and also lockup their price. Zahid Siddique – Gabelli: Okay. And the natural gas prices, if they were to go up, does that impact your business in any meaningful way?

Yes, it does. So we have natural gas exposure, but we also have a hedging program there also. So we have an ongoing hedging program to minimize any adverse volatility in the natural gas. So I don’t expect any material impact there this year. Zahid Siddique – Gabelli: Okay. And my last question is on the engineered solutions, do you have any products within that are playing into the battery market, the lithium, all that area, are there any products they are involved?

Yes, sir, there is impact. We’ve gotten some government grants also on the energy front and the alternative energy front between ourselves and some lithium ion scientists and producers. So, yes, we have a small amount of sales there. R&D is underway, some of the increase you see in our R&D expenses is to propel that. But it’s very small today, but we like that sector. I think that sector is very, very attractive. And I think graphite material science technology has a role there down the road in that attractive business. Zahid Siddique – Gabelli: And that would be a component site within the battery, the lithium market?

That’s right. That’s correct and this would be within our engineered solutions business. Zahid Siddique – Gabelli: Thank you so much.

Thank you, Zahid, have a good day.

The next question will come from Dan Whalen with Capstone Investment.

Good morning, Dan. How are you doing? Dan Whalen – Capstone Investment: Great. Yourself?

Excellent, thank you. Dan Whalen – Capstone Investment: Good. Most of my questions have been answered here, but I was wondering if you could just give us a quick update in terms of the CFO search. You are nailing down the candidates, any update on that time expectations?

Yes, sir. The search is going well. We’ve had a lot of candidates apply. We’ve had a tremendous pool come and I would expect we’ll have a great CFO in place in July. Dan Whalen – Capstone Investment: Wonderful. Thanks a lot.

Thank you, sir.

The next question is from Tim Hayes with Davenport & Company.

Good morning, Tim. Tim Hayes – Davenport & Company: Good morning. Of course on your outlook for your utilization rate stepping up pretty nicely and seems like it’s increasing more than what I would have figured for the global EAF utilization rate, does that imply that maybe customers are restocking electrodes or does it imply that you are taking some market share?

Tim, very good question and let me go through it this way because I think the data you look at is important. If you look at EAF utilization rates, they appear to be lower numbers. But what we have to remember is over the last few years, a lot of very large EAF furnaces have been put into the ground, so the base is much bigger. So it’s probably better to look at production rates of EAF steel and that’s more indicative of burning electrodes. And as a prior question said, hey, we are getting close, we’re not that far off the peak EAF production of ’08 and we talked about numbers that could be around 400 and it’s not that far off the all-time record. So what you have, Tim, is EAF production has come up nicely. And if you look at those numbers, I think they are better indicator for you. So we’re not that far off the old peak. And then two, the reason utilization rates look a little low or maybe a little sluggish to you on EAF is because the base has grown. Now, growth in that base, those new edges we’ve said are very large furnaces and they require the best electrodes, large diameter right into our sweet spot. So as you look forward as EAF production grows, generally it’s going to be those large furnaces coming up requiring large diameter electrodes. Tim Hayes – Davenport & Company: Okay, thank you.

Thanks Tim.

The final question will come from Marty Pollack with NWQ Investment. Martin Pollack – NWQ Investment: Marty Pollack.

Marty, how are you today? Martin Pollack – NWQ Investment: Good. Just two questions. One on CapEx beyond 2011, (inaudible) robust CapEx budget versus D&A, what would have been going forward as far as comparing both the D&A and the CapEx numbers?

Marty, you are right. We’ve guided kind of 135 to 150 level, which is a big number for us. And the majority of that is to propel growth. So I’m delighted to have that number. In fact for our company that’s an all-time record CapEx and the majority of it is new products, increases in capacity at various products in ES, which has a broad return in demand across the product line. Looking forward, we’ve not given any guidance. I don’t know that we’re going to have a lot of years of 150 in a row. But we will be north of 100, I would expect 80 odd, if you want to run your models, I think 100, something above 100 is probably a good number for us. And if it’s 150 or 170 in a future year, it's probably just to propel growth. To me, that's probably a good news for all of us. If I was to come next year with a 170 behind that means we are propelling an awful lot of growth. Martin Pollack – NWQ Investment: Second question on back to the utilization for the company, 90% by fourth quarter, then perhaps same beyond, steel utilization globally, what did you say was your model, I mean, what was your outlook for that?

Well, we see, Marty, continued improvement over the course of this year. In Q1, virtually every sector globally was up and for instance, I mean if you look at the total steel production in Q1 it was up 7% over Q4 2010 and it was up almost 10% over Q1 2010. So you’ve had a nice broad base. What I'd like to see is it’s almost – it was every geography virtually except for Northern Africa. So just another data point building on so many data points we’ve had over the last 18 months of recovering economy, so it looks like total steel utilization rates this year will be in the 80s. So it will be a nice healthy number. It's come from I think 44, 45. Martin Pollack – NWQ Investment: I just want to go with regard to the flat products versus the logs, logs in certainly this country are still well below optimal utilization. Looking globally is log still have in your forecast looks by the fourth quarter, log products could tend to rise and catch-up with flat rolls?

Yes, a good point. For the long products, there huge soft point is residential and non-residential construction and so what you see in the U.S. is not that much different in many, many other markets, other than put China to the side. So there is not a lot of construction going on around the world, ex, maybe China and a couple instances the BRIC countries. So if you think of where EAF steel is today up in the 80% operating rate, when construction returns it is going to fill an awful lot of furnaces. Think of construction and long products as the sweet spot for many of our EAF customers. This is the absolute bread and butter. And they are all already running in the 80% type level and probably one of their best market segments is residential/non-residential construction, all those projects et cetera is still flat on its back. It has shown very little recovery. So that is yet to come and I think that the question is, is that in ‘12 or ’13? When that starts to come, you’re really going to have higher EAF operating rates. I would say they are in the 80s this year, anyhow call it 85, 86, I don’t think anyone really knows where they’re going to finish up. But that’s going to take them I would expect deep into the 90s when that sector returns, it’s just non-existent today. Martin Pollack – NWQ Investment: Your capability in that environment, can you run in the high 90s efficiently?

Yes, sir. If you go back in our history, we run very nicely 95%, 96% utilization rates. Martin Pollack – NWQ Investment: Thanks so much.

Thank you, Marty. Have a good day.

At this time, there are no further questions. I would like to turn the conference back over to Ms. Taylor for any closing remarks.

Yeah. Thank you very much. Everyone, thank you for your attention and your questions and look forward to talking to you next quarter. Have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. You may now disconnect.