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Executives

Carol Knies – Senior Director, IR

Jim Bolch – President and CEO

Phil Damaska – EVP and CFO

Analysts

Craig Irwin – Wedbush

Karl Blunden – Goldman Sachs

Francesco Citro – Maxim Group

Kirk Ludtke – CRT Capital

Jared Weil – Deutsche Bank

Sean Britain – Bayside Capital

Andrew Hain – Gleacher

Trent Porter – Guggenheim

Joe Farricielli – Cantor Fitzgerald

Bruce Falbaum – Cohanzick

Andreas Körner – Nomura

Seth Yeager – Jefferies & Company

Tony Venturino – Federated Investors

Exide Technologies, Inc. (XIDE) F3Q13 Earnings Call February 7, 2013 9:00 AM ET

Operator

Good morning. My name is Brandy, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Exide Technologies Fiscal 2013 Third Quarter Results Conference 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)

Thank you. Ms. Carol Knies, you may begin your conference.

Carol Knies

Thank you. Good morning and thanks for joining us. You may view the slide presentation for today’s discussion on our website at www.exide.com. The presentation is located on the Investor Relations home page under Events.

On the call today is Jim Bolch, President and Chief Executive Officer; and Phil Damaska, Executive Vice President and Chief Financial Officer. At this time, I’ll review our Safe Harbor statement, and we’ll provide details of Exide’s fiscal 2013 third quarter results as of December 31, 2012, followed by a question-and-answer period.

Listeners should be aware that certain statements on this call may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. As such, they involve known and unknown risks, uncertainties, and other factors that may cause the actual or expected results of the company to be materially different from any results expressed or implied by such forward-looking statements. These factors are enumerated in further detail in the company’s most recent Form 10-Q filed yesterday with the United States Securities and Exchange Commission. Any statements made during this call are made as of today, and the company undertakes no obligation to update any of these statements in the future.

At this time, I’ll turn the call over to Jim Bolch, President and Chief Executive Officer.

Jim Bolch

Thank you, Carol. And now, please turn to Slide 3 for an overview of our third quarter results. Net sales, excluding the negative impact of foreign currency translation and lead pricing, increased 6% over the prior-year period. This improvement is primarily the result of increased automotive and network power sales globally, as well as increased aftermarket unit sales in Transportation Europe.

Operating income, before restructuring and impairment charges, was $20.5 million. This compares with $30.3 million in the prior-year period. Operating income declined mainly due to the continued high cost of spent batteries in the Americas, which negatively impacted margins by roughly $11 million. In November, we began to see improvement in spent battery costs in the U.S. and this trend has continued, which should benefit margins in both Americas segments in the fourth quarter. Net loss for the fiscal 2013 third quarter was $15.4 million or $0.20 per share.

Please turn to Slide 4 as I begin the review of the strategy update that we announced last November. For the Transportation Americas business, we have taken steps to rationalize capacity of both battery and lead production. We have ceased battery assembly at our Bristol, Tennessee plant. New equipment in our Salina and Manchester plants is installed and in production. I’m pleased to state that we’ve received approval from all of our OE customers for these two plants.

Formation, or the process to charge batteries, will continue in Bristol until the early part of fiscal 2014 as the receiving plants are finalizing preparations to facilitate higher unit volumes.

Our Frisco, Texas lead recycling facility ceased operations on December 1 as planned. As for the agreement with the City of Frisco, we’re in the process of removing equipment while decontamination of the facility is completed. We plan to begin demolition of the facility next week.

Please turn to slide 4 as I begin the review of the strategy update that we announced last November. For the Transportation Americas business, we have taken steps to rationalize capacity of both battery and lead production. We have ceased battery assembly at our Bristol, Tennessee plant. New equipment in our Salina and Manchester plants is installed and in production. I’m pleased to state that we’ve received approval from all of our OE customers for these two plants.

Formation, or the process to charge batteries, will continue in Bristol until the early part of fiscal 2014 as the receiving plants are finalizing preparations to facilitate higher unit volumes.

Our Frisco, Texas lead recycling facility ceased operations on December 1 as planned. As per the agreement with the City of Frisco, we’re in the process of removing equipment, while decontamination of the facility is completed. We plan to begin demolition of the facility next week.

We will idle lead production at our Reading, Pennsylvania plant no later than March 31. Following these two events, we’ll be producing 75% to 80% of our U.S. lead needs at our recycling plants. We have secured the balance of our lead needs via long-term tolling contracts with several lead suppliers. Core collection continues to improve due to the efforts through our branch network with captive return volume up 25% sequentially from FY 2013 second quarter and 15% over prior-year third quarter.

From a core collection perspective, our customer mix continues to improve with fewer units being sold to the automotive OE channel. The result of these actions, along with other productivity initiatives, will continue to improve the cost position of the Americas Transportation business. We now have two manufacturing plants running at near-full capacity and are continuing to optimize our lead supply chain.

Please turn to Slide 5 for an update on Industrial Americas. Our strategy for this business is invest to grow. Our current tubular capacity is essentially sold out as we continue to see strong customer demand for these premium products. We are currently reviewing plans to add a third U.S. production line. To supplement growth of the North American tubular market in the near-term, we continue to utilize our manufacturing assets in Europe to provide additional capacity.

The North American tubular market is a subset of the motor power market and is estimated to be about $250 million. We continue to leverage our new AGM capacity adding Columbus, Georgia to serve the network power market. We have the flexibility of using a new AGM capacity in Columbus to serve either the transportation or the network power market as demand dictates.

We expect strong future demand for our telecom customers, as they begin increased capital investment and battery ordering. In fact, network orders were up 64% in January versus last year. Core collection efforts in our Industrial business remain robust, due to the efforts of our sales and branch network with captive return volume up 48% over prior-year third quarter.

Please turn to Slide 6 for an update of Transportation Europe and Rest of World. We continue to manage the ramp-up of micro-hybrid battery capacity to align with demand and qualification processes of our OE customers. Unit sales of combined AGM and MHF products were up about 5% sequentially and 11% versus the prior-year third quarter. This is in spite of continued softness in new car builds across the European continent.

I’m pleased to report that we’ve recently been awarded a contract with a new OE customer for our MHF product for start/stop vehicles. Shipments are expected again in fiscal 2014. We continue to evaluate our geographic footprint and focus our resources in areas with the highest potential return. We recently sold the Transportation Australasia business in a transaction that closed on February 4.

In alignment with our strategy, we decided to exit this low-growth market, which has become dominated by Asian-produced batteries, in order to pursue more attractive segments. We clearly see opportunities for expanded profitable revenue in the Russia-CIS region, utilizing our Pinsk, Belarus operations for initial production. We are pursuing growth opportunities with partners in this region, as well as the expanding Middle East market where we already have a JV partnership.

Please turn to Slide 7 for an update on Industrial Energy Europe and Rest of World. This business continues to focus on improving profitability through productivity enhancements and pricing. We have seen steady progress in this business over the last four quarters and are committed to continued profitability improvements.

We have recently been successful with implementing price increases to recover calendar 2013 higher premiums on lead purchases. Our initiative to turn our service platform into a profit-generating function involves a change in the management structure, implementing growth targets and cost reductions. This process began this year and will continue through the next fiscal year.

Our penetration into Russia continues to expand via a strong distribution partner. We’re beginning discussions with this partner to consider locally based assembly, to gain a further foothold in the market with more competitively sourced products.

At this time, I’ll turn the call over to our Chief Financial Officer, Phil Damaska.

Phil Damaska

Thanks, Jim, and good morning. Please turn to Slide 8 for a review of our third quarter financial results. Net sales in the quarter were up 6%, excluding the negative impact of foreign currency translation and lower lead-related pricing. The increase was driven by strong aftermarket sales by the Transportation Europe and Rest of World segment, while Industrial Energy Americas enjoyed revenue growth of about 16%, excluding lower lead-based pricing.

Third quarter gross profit was lower than the comparable prior-year period by approximately $6 million. While unit sales in Transportation Europe were up nicely, our inability to increase prices to cover higher product costs in the region, weighed on margins. This, coupled with a mix shift to lower priced non-branded products also presented headwinds.

Although core costs in the Americas began to decline, higher inventory lead costs, which carried over into the period continues to negatively impact results. Versus the prior-year quarter, higher lead input costs negatively impacted margins in the fiscal third quarter by approximately $11 million.

Operating income, excluding restructuring and impairment charges, declined versus the prior-year period, primarily as a result of the items just mentioned. Sequentially, however, we saw solid improvements with operating income before restructuring and impairment charges improving in the fiscal third quarter by about $13 million.

A solid January in Transportation aftermarket unit sales and continued strong industrial orders in the Americas provides a strong start to the fourth quarter.

If you move to Slide 9, year-to-date U.S. lead production was about 246,000 tons, approximately 4% lower than the prior-year capital period. As the chart indicates, 78% was used to satisfy internal demand. External lead sales decreased about 6,000 tons compared to the first nine months of fiscal 2012, as we began to phase out of this volatile revenue stream.

As Jim indicated earlier, lead production in Frisco, Texas ceased on December 1 and we plan to cease lead production in our highest cost facility, Reading, Pennsylvania, in the fourth quarter when that facility is idled.

We have described during prior fiscal 2003 calls, the lead impact resulting from record high core costs, coupled with lower relative LME prices, has weighed heavily on the profits in the Americas region. For the nine-month year-to-date period, these factors have combined to reduce margins in the Americas on battery sales and third party lead sales year-over-year by almost $44 million.

And as Jim indicated, we are focused on improving our collection of spent batteries at more economical levels. Additionally, as we reduce our Transportation OE volume and third party lead sales, our captive core rate should be further improved, due to the customer mix change.

With lower relative core costs in the recent past and the recent uptick in the LME price of lead, we would expect to see improving margins in our Americas businesses as we close fiscal 2013.

Now if you turn to Slide 10, I’ll provide an update on our segment results. Net sales in Industrial Energy Americas increased 16%, excluding lower lead-related pricing. Margins, however, remained under pressure year-over-year, due to higher lead input costs and lower LME base pricing. We remain optimistic about this business, which is very sound.

Network power orders were up 27% and 64% in December and January, respectively as compared with the same months last year. While market conditions in Europe remain challenging, net sales in our Industrial Energy Europe and Rest of World segment increased in the quarter by approximately 5%, excluding the negative impacts of currency exchange and lower lead prices.

Operating income continued to improve year-over-year in this segment on targeted non-lead pricing and continued operational improvements. Margins in our import-based Rest of World businesses remain under pressure from locally made products. Our Transportation Americas segment stabilized in the fiscal 2013 third quarter in spite of continued lead input cost headwinds.

While unit sales improved year-over-year in October and November, December sales softened dramatically, particularly in the back half. The result was an approximate 1% reduction in unit sales for the quarter. January, however, had a solid rebound. In spite of higher year-over-year lead input costs, this segment had higher gross margins and reported its first quarter of positive operating income in the fiscal year. Some of the benefits of the Bristol capacity reduction should begin to be realized in our fiscal fourth quarter, ramping to full run rate in the first half of fiscal 2014.

The Transportation Europe and the Rest of World segment reported disappointing results in the most recent quarter. Higher unit sales in the aftermarket resulted from the beginning of a more normal winter selling season. Our inability, however, to obtain pricing and to offset higher product costs and a mix shift to lower margin products impacted profitability.

If you’ll please turn to Slide 11, I’ll give you an update on our liquidity and cash flow position. At December 31, 2012, we had total liquidity of $164 million versus $258 million at December 31, 2011. The current year includes $80 million in cash and approximately $82 million under the revolving credit facility.

The amount available under the revolver excludes $30 million of the facility as a result of not meeting the required fixed charge coverage ratio. We expect this to be temporary, as we see improved EBITDA and lower capital spending over the next few quarters. The free cash flow burn in the first nine months of fiscal 2013 was $109 million, as compared to $73 million use of free cash flow in the prior-year comparable period. The increased use of cash was principally the result of lower operating income and higher inventory, both the result of higher lead input costs resulting the core purchases in the Americas.

While we expect fourth quarter free cash flow to be in the range of $30 million, our global inventory levels are forecasted to be higher than I would consider ideal. Actions are being taken to address this and bring our days-on-hand down to historical levels.

A final point before I turn the call back over to Jim, you might have noted that during the period, we retired slightly more than $4 million of our convertible debt due September 2013.

And now, Jim, back to you.

Jim Bolch

Thanks, Phil. Slide 12 is a summary of the progress we’ve made on our strategic initiatives by segment. I’ve discussed most of these in my earlier dialogue, so this slide serves to bring those comments together. We’ve made solid progress on executing our strategic initiatives this year.

Most of the expected financial benefits will not become evident though until fiscal 2014. This is certainly the case for Transportation Americas. As Phil indicated, we’ll be ramping to the full run rate savings for the Bristol closure in the first half of fiscal 2014.

Progress continues in Transportation Europe and Rest of World as we leverage our investment in AGM and MHF production capacity, with the addition of a new international OE customer for our micro-hybrid batteries.

Additionally, the completed sale of the Australasia business allows us to better focus on growth in other more attractive segments. The outlook for Industrial Energy Americas is stable for motor power and very positive for network power as orders for the fourth quarter through the fiscal year. The Industrial Energy Europe and Rest of World continues to make progress, with improving profitability, realizing we still have work to do.

Please turn to Slide 13 for a brief summary and wrap-up for the quarter. The third quarter was primarily impacted by continued high input costs globally. We expect improvement in spent battery cost trends in the Americas to translate into improved financial results going forward.

In Europe, we continue to seek greater recovery of input costs through pricing and productivity improvements. Our strategic initiatives to simplify our business, improve execution, and focus on higher return opportunities are on track. The early impact of these changes should begin to show in the results next quarter.

While I’m still not satisfied with the current financial performance, I am very encouraged with the steady progress on many fronts. We are laser focused on the execution of our key initiatives and driving improved results. As we close fiscal 2013 and prepare for next fiscal year, driving productivity and cash generation is without a doubt in the forefront of our plans.

Before we open the call for your questions, I’d like to take a moment to recognize our former President and CEO, Gordon Ulsh who passed away last week. Gordon joined Exide in 2005 until his retirement from the company in 2010. He led our company through some challenging times and built the foundation for Exide’s research, development and technology expansion. Our thoughts are with his family. Thank you for your attention this morning and we will now open the call for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Craig Irwin of Wedbush.

Phil Damaska

Good morning, Craig.

Craig Irwin – Wedbush

Good morning. Good morning, everybody. My first question is about the lead cost drag. So you disclosed in your filing last night an $11.3 million lead drag. That’s a fairly significant improvement from last quarter where you disclosed something slightly over $18 million or $38 million for the first half of the year. Can you give us color on where this is coming from, particularly given that the junk LME spread appears to have stayed flat sequentially.

Jim Bolch

Hi, Craig. This is Jim, I’ll take that one. So I’d say your analysis is correct. We did see improvement in the quarter. First thing I would point out to you, as Phil said in his remarks, there is inventory costs in the system, so there’s about a two-month lag because of days-on-hand as you see this flow through the system. So just keep that in mind from a timing standpoint.

We think we’ve seen strong operational improvements through the quarter, and it’s really the result of all the actions that we’ve talked about on past calls to drive higher captive returns, which gives you obviously a better blended cost. As we’ve exited now Frisco in the quarter, third party lead sales are down again; that helps the blended costs. And looking forward, and we’re right on track with the plan that we’ve been executing.

So to-date, this morning, I think LME was about $1.10, and we’ve able to hold core costs effectively flat. So for the Americas business, it’s really that spread of core costs to LME that drives the profitability and we expect to see that come through stronger in the fourth quarter.

Craig Irwin – Wedbush

Great. So my next question I wanted to touch on was translating share gains into potential margin opportunity. So it’s obvious to anyone that’s looked at the full stack for Transportation Rest of World, Industrial North America or even Transportation North America that your unit growth is impressive; North America down 70 bps versus the competitor down 4% in the North American aftermarket.

That’s some pretty strong execution on the channel side. The margins though appear to have had less strength in the lift. Can you speak maybe a little bit about the initiatives that you have to translate this better customer capture into increasing profitability for the company.

Jim Bolch

So, Craig, I think we’d have to take those kind of market by market. In the case of Americas Transportation, the industry statistics showed aftermarket effectively flat for the quarter, which really mirrored our results. In fact, for OE, we were down a bit more than the industry, but that’s very much in alignment with our strategy to maximize our mix in our remaining two factories in North America. So in that business, we continue really to focus on execution and cost reduction in those two factories and optimizing our customer mix.

In the Americas Industrial business, we’ve actually have seen solid growth there, 16%, if you exclude the lead cost in the quarter. And we’ve seen margins there, but obviously still impacted by the lead core costs, which rolled over into this quarter.

In Europe, we have some work to do on the Transportation side. The good news was we had – we saw strong growth in Transportation aftermarket. But we didn’t have the pricing that we wanted to see. There’s a lot of factors going on there. Some of it, as Phil indicated, is some migration to some private-label batteries, especially in southern Europe, which is under more economic duress right now. But the action for us there is really continue to focus on customer mix, productivity, and getting pricing in those markets. But we feel very good with the customer demand that we’ve seen in Europe and what we’ve been able to do in that market.

Craig Irwin – Wedbush

Great. And then my last question is related to the sale of the land around the Frisco facility. So there appears to be – have been some flap this morning, back and forth, over a statement in your 10-Q that you expect payment for this in the back half of your fiscal year. So I’ve done my own work here and spoken to the people from TCEQ in the last week and they indicated to me that the plan was on file, that everything was set and that they were waiting for some final schedules from Exide and the City of Frisco to approve the voluntary cleanup plan.

And from my read of the filings, it looks like this is tiny. I mean, only half million to maybe a million dollar cleanup. I know those can be accomplished pretty rapidly. Can you maybe give us a little bit more color on why this payment would be expected in the back half of the year? And any other commentary around that if you could.

Jim Bolch

Sure, Craig. Let me take you through the key milestones. Pick it up from where we talked about the call last quarter. The funds for this transaction went into escrow back in October. We were right on track with ceasing operations December 1. This is what we had put in the plan. We finalized with TCEQ which is the Texas Commission on Environment Quality this last month on the agreed order, which lays out the process to close the plant and the like.

One of the things within that plan is we try to incorporate feedback from other interested regulatory agencies as well as other interested parties. Part of what goes into now the plan going forward is public comment periods and that’s a little bit of why we would expect this process to maybe stretch out a bit longer than we thought initially.

Just last night, we had a public meeting in the City of Frisco explaining all the activities to interested parties and taking questions and comments there. We’ll be meeting with the city again today, but we remained very engaged with the city and the regulatory authorities on this process going forward.

Our plan is to start demolishing the facility next week and at that point we – it will be followed by the cleanup mode, the remediation. And then once we’re through the regulatory hurdles there then we would be cleared to transfer land, which at this point is a bit fluid as we’re finalizing those plans with the regulators and all the interested parties. But our best guess at this point is the second half of the year.

Phil Damaska

Yeah. Let me just add, Craig, and for the edification of all on the call. You will recall that once this transition takes place and the transfer land and the funds become available, those funds will go into a collateral escrow as well. The monies will have to be spent on replacement collateral under the bond indenture.

So certainly the timing of receipt, although maybe a bit later than we had originally assumed, we don’t think it’s going to affect our going-forward liquidity. We’ll likely look to hold back on investments in the Americas that may have otherwise been made earlier in fiscal 2014 to later in the year to be accommodated by the proceeds that come out of that sale.

Craig Irwin – Wedbush

Great. Congratulations on the continued progress with the junk recovery in North America and thanks for taking my questions.

Phil Damaska

Thanks, Craig.

Operator

Your next question comes from the line of Frank Jarman of Goldman Sachs.

Karl Blunden – Goldman Sachs

Hey, guys.

Phil Damaska

Good morning.

Karl Blunden – Goldman Sachs

Hi. Good morning. Thanks for taking my question. It’s actually Karl Blunden on for Frank.

Jim Bolch

Hey, Karl.

Karl Blunden – Goldman Sachs

My first question just relates the revolver draw. I wonder if you could provide some more color around your cash needs and the domicile of that cash? Just given that you drew – drew cash – and drew on the revolver, but our view was that probably the cash level was sufficient even without that.

Phil Damaska

Yeah. As you’re aware, Karl, I mean, this is the highest seasonal piece of our working capital demand and we did see sales increases, which drive receivables. Certainly, the less-than-ideal inventory position that I commented on, clearly was a drag on cash flow in the quarter. Certainly, our intent is to keep our working capital at about 20% to 21% of sales and to accomplish that in terms of keeping vendors satisfied. We thought it appropriate to draw on the revolver during the quarter.

Karl Blunden – Goldman Sachs

Okay.

Phil Damaska

Our expectation would be to pay that down as we generate cash in the first – in the fourth fiscal quarter.

Karl Blunden – Goldman Sachs

Fantastic. And then just with regard to your CapEx, I wonder if you could remind us of how you think about your maintenance CapEx requirements and how much flexibility you have to pull down your total CapEx for the year if free cash flow does come in a little weaker than expected?

Phil Damaska

Well, historically, we’ve indicated that our replacement maintenance capital is in the $35 million range. Clearly, with the reduction in footprint, think about Bristol, and Frisco and Reading, the maintenance capital required on an annual basis, should necessarily come down. You’ve got less facilities with which to have to have to deal with. So that number is probably below $30 million once all those actions are taken.

And certainly the replacement pieces of them have some flexibility. Obviously, the maintenance, if you have a piece of equipment that goes down, you need to make sure it gets back up and running to produce batteries. But certainly there’s some flexibility in the timing of replacement.

And as we’ve talked about, we’re certainly looking to minimize capital during the first half of fiscal 2012, one, to wait for the proceeds from Frisco, but also in the run-up the repayment of the converts. It’s just prudent to do that and we will likely do that.

Karl Blunden – Goldman Sachs

Fantastic. Thank you very much.

Operator

Your next question comes from the line of William Bremer of Maxim Group.

Phil Damaska

Hey, Bill.

Francesco Citro – Maxim Group

Good morning. This is Francesco Citro for Bill Bremmer. Thank you for taking my questions. First question will be about your restructuring initiative. Could you give us an idea of what is that you expect in terms of charges for restructuring and impairment both next quarter and for fiscal 2014?

Phil Damaska

Good question. We think the bulk of the impairment charges that we took mostly in the third quarter are essentially behind us. Restructuring for the nine months year-to-date is about $6 million. We’re certainly looking at other activities in terms of further cost reduction and we’ve consistently set our restructuring. In the year, we’ll be in the $5 million to $10 million range. We’re at $6 million. There could be $2 million to $3 million more in the third quarter, but we haven’t identified that.

On a going-forward basis, as you look into fiscal 2014, we clearly continue to look for cost reductions around the fringes in our overhead costs. And I don’t it would be unreasonable to expect that we would continue to see restructuring charges in the $5 million to $10 million range going forward.

Francesco Citro – Maxim Group

I see. And that would be just restructuring, right? Not – do you expect any other impairment of this with regard of this Transportation business, which closed down in February, the Australasia? Is there going to be another write-down for it?

Phil Damaska

No, that one was actually sold and we closed on that transaction on February 4, so the impacts of that transaction are fully reflected in our third quarter results.

Francesco Citro – Maxim Group

Oh, okay, okay, thank you. That next is on your interest expense, I’m looking at the run rate that you had this fiscal year, so if was $14 million, $17 million and then up to $18 million, outpacing the growth of your debt. What do we have to expect going forward in terms of – what would be the run rate? And also has there been any one-timer in this past quarter?

Phil Damaska

In the past quarter, no. We would expect that our normal run rate for total interest expense is in the $70 million range.

Francesco Citro – Maxim Group

For the year?

Phil Damaska

Yes.

Francesco Citro – Maxim Group

That was also for 2014?

Phil Damaska

I’m sorry?

Francesco Citro – Maxim Group

That would be also for fiscal 2014?

Phil Damaska

That’s correct.

Francesco Citro – Maxim Group

Okay. And my last question about your Transportation both for the Americas and Europe and Rest of the World, if you can give us an idea on what kind of margins do you expect there? Or if you can give like a quarter-over-quarter on a year-over-year expectations?

Phil Damaska

Yeah, I’m not sure I’m prepared to go into the details in terms of expected margins going forward. What I will indicate – and this is just affirming what we’ve talked about in the past – with respect to the Transportation Americas business, with the execution of the Bristol capacity reduction, we do still expect annualized savings from that initiative of $20 million to $25 million. We expect to reach full run rate of that $20 million to $25 million in the first half of fiscal 2014. So that’s a large step-change in terms of the cost structure of that business that should improve margins pretty dramatically in that business.

Francesco Citro – Maxim Group

All right. So directionally, it is expected to improve both sequentially and year-over-year, would that be a fair assumption?

Phil Damaska

That’s a fair assumption.

Francesco Citro – Maxim Group

Okay. Maybe if I can just one last, after you close Frisco and idled Reading, if my calculations are correct, that you will left to buy about 25% of your lead from the market? If you can give us some color on what is your strategy in terms of securing prices if you go like spot market, long-term contract, every color would be helpful.

Jim Bolch

So this is very consistent with the strategy we announced on the call last quarter. And your number is correct. We’d indicated we would now have 75% to 80% covered by internal, so 20% to 25% we would buy. Those demands are already completely covered in multi-year contracts for tolling contracts. So where we would bring the scrap material and they would process it into finished lead.

Francesco Citro – Maxim Group

And okay, so that is all for me. Thank you so very much.

Phil Damaska

Thanks very much.

Operator

Your next question comes from the line of Kirk Ludtke of CRT Capital.

Phil Damaska

Hey, Kirk.

Kirk Ludtke – CRT Capital

Hi, good morning. I just wanted to maybe talk about the convert for a second. So I guess you – could you talk a little bit about buying the converts in the quarter and it sounds like you’re still planning to repay that convert rather than refinance it? Is that true?

Phil Damaska

That’s our current view, yes.

Kirk Ludtke – CRT Capital

Okay. And what was the – what – any color as to your plans for future open market purchases of the convert?

Phil Damaska

I’ve nothing to comment on at this point in time.

Kirk Ludtke – CRT Capital

Okay. With respect to the Transportation Europe and Rest of World, it looks like – it looks like the operating income was down 56% year-over-year, I’m just – it looks like something, maybe the pricing pressure really picked up there. I’m curious if you could talk a little bit about that and where it’s coming from?

Phil Damaska

I mean, clearly, that was a disappointment, as I commented on. Volume had recovered from the – the low, relative low levels last year when we had a very mild winter. As Jim indicated, unfortunately, the mix has changed. We’ve had a pretty dramatic switch from our branded products to call it private brand and second brand products, which tend to carry a lower average selling price. Some of its specific market-based volumes were – and as Jim indicated, Southern Europe, obviously, is facing some greater challenges from a financial perspective and that’s where we saw the biggest drop in our branded mix to the non-branded mix.

But clearly a disappointment, we need to figure out how we’re going to recover higher costs, which exist. Labor costs are higher, utility costs are higher, the competitive environment isn’t allowing much in the way of prices to recover those costs at this point in time and it’s something we have to figure out.

Kirk Ludtke – CRT Capital

So it sounds like it’s really the – it’s a shift in consumption rather than a change in – a new competitor coming in or someone dumping batteries and driving price down?

Phil Damaska

Yeah, if you think about it, I mean, if your battery goes and you need your car, you need a battery. The choice you can make is do I buy a higher-end battery or do I buy down and pick up something that’s less costly and, unfortunately, less margin for the producers at least from our perspective.

Kirk Ludtke – CRT Capital

Right, okay. On the core costs, it sounds like – I’m trying to understand the comment about things moderating in November and so far in the fourth quarter. I’m curious is it that they’re actually down year-over-year? Or are they just not up as much as they were in the third quarter?

Jim Bolch

Well, I’d look at it with a couple of perspectives. One is that absolute core costs have moderated and even a bit down. The LME, which tends to set the pricing mechanism in a lot of the markets, has gone up. So the spread between core costs and LME has tended back toward more historical levels.

The other really important part is that we have dramatically continued to improve our captive core return rates, which has the impact of taking you out of the market for buying those higher priced cores. So our blended core cost has definitely gone down. And so what you would see in November would move into inventory, which would then be realized in the fourth quarter period.

Phil Damaska

Yeah, and I’ll just remind you, Kirk, that this core situation vis-à-vis LME began in the fourth quarter of last year, so our expectations are that we’re going to benefit versus last year’s fourth quarter from the combination of moderating core costs, coupled with higher LME.

Kirk Ludtke – CRT Capital

So it’s an improvement from – it’s an improvement from in the fourth quarter from the third quarter? And then you would expect an ongoing improvement 2014 versus 2013?

Phil Damaska

Assuming they stay where they’re at today.

Kirk Ludtke – CRT Capital

Yeah. Okay.

Jim Bolch

The big thing I would remind you of here as we’ve talked about extensively in the last couple of calls, we actually have changed our business model dramatically. So certainly we’d like to see lower cost of cores in the market, but no matter what those core costs do, we’re much less vulnerable to those costs than we were in the past, as we’ve taken out customers that don’t have core returns, for example, third-party lead sales and reduce our OE channel, but also what we’ve done to improve our core returns. So despite the fact that cores could still go up and down, it will have much less impact on our results going forward in that Americas business.

Kirk Ludtke – CRT Capital

Okay, great. I appreciate it. That’s helpful. And then just lastly, with respect to the Frisco proceeds, do you have – and maybe you could talk about the – any contractual protections you have to – in place to move this along the public comment period?

Jim Bolch

I don’t know if we have much more to add versus what I’ve already said. We have a sales agreement for the property that defines it pretty clearly. We’re working closely with the regulators and with the city. So I anticipate we’re going to work our way along this path pretty well.

Kirk Ludtke – CRT Capital

Okay. Any guess as to where in the second half of 2014 you’d get the proceeds?

Phil Damaska

Yeah. We’re not going to get anymore finite than the comment we’ve already made.

Kirk Ludtke – CRT Capital

Okay. I appreciate it. Thank you.

Phil Damaska

Thanks.

Operator

Your next question comes from Jared Weil of Deutsche Bank.

Jared Weil – Deutsche Bank

Hey, guys.

Jim Bolch

Hey, Jared, good morning.

Jared Weil – Deutsche Bank

Morning. So something on the Bristol savings, the way that’s rolling through, it’s sounds like that’s going to be pretty back-half weighted in the next fiscal year, is that fair?

Phil Damaska

Well, I mean, it’s how you interpret – it’s getting to full run rate in the first half. We haven’t indicated when in the first half, but certainly, there’ll be more in the second half than the first half.

Jared Weil – Deutsche Bank

Okay. And then sort of as we’re kind of exiting a business here in early February, I mean, what are the other businesses or small pieces of businesses? Can you give us an idea of what maybe you consider non-core as you’re sort of reallocating capital and figuring out strategy? Is there some more pieces or areas of the business that you might consider exiting in the same fashion?

Jim Bolch

No, I don’t think it’d be appropriate probably to speculate on what those might be on a call like this, but suffice it to say, that’s a conversation we have all the time: where can we allocate our resources for the best return? So over the course of this year, we’ve been pretty successful and we’ve sold off the Australasia business, we closed a small industrial business in India and we’ve completely changed our lead supply chain in North America, with the closure of one and the idling of another recycling plant. So I think that will be a continuing conversation going forward.

Jared Weil – Deutsche Bank

Okay, fair enough. And then sort of as we – as you guys look at your expectation for free cash flow in Q4 and next fiscal year and the Frisco proceeds coming in and your expected level of CapEx, I mean, how comfortable are you guys with your liquidity position? And then can you just remind us what – as we move past this Bristol closing and recycling capacity reduction, what a new sort of minimum level of liquidity you guys feel is comfortable for this business?

Phil Damaska

Well, I’ll take that, Jared. We talked about the $161 million of liquidity at December 31 and the free cash flow generation estimated at – in the $30 million range. I’m certainly comfortable with our current liquidity level. And as we move into fiscal 2014, we’re clearly, as I indicated, going to be very mindful of cash as we approach the convert repayment. We are going to look to reduce our capital spending from the $50 million range that we had in fiscal 2013.

And as we enter the year with a higher-than-ideal level of inventory, my expectation is we’ll use less cash in building inventory than we typically do in the first half of next year. So, again, comfortable; I think our liquidity’s adequate and stable at this point and to time to allow us to continue to operate this business and make the investments necessary.

Jared Weil – Deutsche Bank

Okay. Fair enough. Thanks, guys.

Operator

Your next question comes from Sean Britain of Bayside Capital.

Sean Britain – Bayside Capital

Hi, good morning. Most of my questions have been answered. Just two housekeeping questions, one, how much sales to Pep Boy are in the Transportation Americas in this quarter? If I recall correctly, that would – they would – we didn’t have any sales to them in the prior quarter.

Phil Damaska

There were some sales in the prior quarter. We’re certainly at the full run rate at this point in time. I don’t think we’ve given any information in terms of the number of units or sales levels that we have with our specific customer and we’re not prepared to do so at this point in time. But suffice it to say, we’re at a full run rate this quarter versus only a partial at the end of the second quarter.

Jared Weil – Deutsche Bank

Okay. And I think I didn’t hear the answer to this question earlier. Roughly how – what percentage of your cash is in the U.S. versus overseas?

Phil Damaska

Two-thirds of our cash is readily accessible, let me put it that way, whether it’s in offshore bank accounts or in the U.S.

Jared Weil – Deutsche Bank

Okay. Thank you very much.

Operator

Your next question comes from Andrew Hain of Gleacher.

Andrew Hain – Gleacher

Hi. Good morning, guys.

Phil Damaska

Morning.

Andrew Hain – Gleacher

Yeah. Just – good job on the Americas. That’s nice to see stabilization in that business on the Transportation side. Not to beat a dead horse here, but just on the Transportation Europe, I was just – it sounds like there’s three things going on: there’s the pricing, there’s mix, and then there’s costs.

I was just wondering if you could give me kind of an order of magnitude of those three things that are affecting operating income or maybe a better word’s EBITDA of that division? I mean, mix has more maybe of a permanent connotation to it, or maybe not. So I was just wondering maybe order of magnitude and whether you think these things are sort of temporary? Or like a step downward in some sort of permanent fashion?

Phil Damaska

It’s difficult to conclude whether it’s permanent or not. I mean, clearly, economic challenges on an individual basis drive specific buying decisions. I think certainly as the economic woes continue in Europe, people are going to be more conscious in terms of how much they spend on whatever they’re buying, a battery only being one of those.

So clearly, I wouldn’t expect a necessarily rebound in the mix of our product and that can’t be under-diminished. I mean, that was a significant impact in terms of the average selling price in that market. So it’s something we’re going to have to work our way through.

My expectation is if it’s affecting us, it’s got to be affecting some of our competitors and obviously we just need to focus on how we’re going to recover higher costs, either through reduction of those costs or through pricing in the marketplace.

Andrew Hain – Gleacher

So it sounds like if you could fix one of them, you’d change the mix problem?

Phil Damaska

Yeah. That would be the easiest.

Andrew Hain – Gleacher

Okay. And have the biggest impact?

Phil Damaska

Yes.

Andrew Hain – Gleacher

Okay. And then just to be clear, on your converts, you can currently use cash on the balance sheet or borrowings from your ABL revolver to mature the convert?

Phil Damaska

Yes.

Andrew Hain – Gleacher

And did the fixed charge covenant violation impact that or put any restrictions on that at all? I know it reduced the borrowing availability, but it didn’t have any impact on – or, I guess, did it have any impact on your ability to use those monies for that?

Phil Damaska

Yeah, I mean, there is not a default. We’re just not able to tap that bottom $30 million. And, again, I expect that to be temporary as we continue to see improved EBITDA over the next couple, three quarters, as well as the reduced capital that I talked about a few minutes ago.

Andrew Hain – Gleacher

Okay. Thanks, guys. Again, good job on the Americas side.

Phil Damaska

Thanks.

Operator

Your next question comes from Trent Porter of Guggenheim.

Phil Damaska

Hey, Trent.

Trent Porter – Guggenheim

Oh, hey, guys. You took care of most of mine. I just wonder if – first of all, I think you addressed this, but I just want to make absolutely sure I’m clear on the lead improvement, both from the blended rate and so on. Lead has cost you $44 million over the past nine months and, I forget, $50 million over the past four quarters. Are you saying then you think beginning in the next quarter that lead should be a benefit, rather than a negative impact year-over-year?

Phil Damaska

At a minimum, it’s not going to be a headwind.

Trent Porter – Guggenheim

So the lead headwind is effectively going away?

Phil Damaska

Vis-à-vis fourth quarter versus our – versus the fourth quarter of last year.

Trent Porter – Guggenheim

Okay.

Phil Damaska

I’m not going to speculate in terms of what’s going to happen to core costs going forward, but certainly it’s something that we hope not to have to talk about in the fourth quarter results.

Trent Porter – Guggenheim

Got it. Okay. And then you talked about January and we’ve all felt the weather. Is it possible to qualitatively quantify the strength of January unit volume? In other words, JZI talked a few quarters ago about a potential perfect storm, if the weather cooperated. Obviously the weather didn’t cooperate. Is it cold enough to see a real significant pop in unit volume in the March quarter?

Phil Damaska

I’m not going to comment on interim months’ results. We saw a rebound off the low December and that’s all we’re prepared to say at this point in time.

Trent Porter – Guggenheim

Okay. And then the final – Transportation Europe, the mix shift – do you feel like the mix – the mix shift has kind of stabilized? Or is this something that – what I’m getting at is should we expect this until you figure out a fix? Should we expect the situation to get worse? Or be stable? Is the mix now 50% then potentially goes to 70%?

Phil Damaska

Yeah, on that at this point in time, I’m not prepared to go into that level of detail. Yeah, I think this will clearly continue to be a challenge in the fourth quarter. Once we get out of the fourth quarter, we’re back into the spring season and, obviously, volumes are lower. But it’s not likely this is going to turn around and reverse itself in the next couple of months.

Trent Porter – Guggenheim

Got it, okay. All right, thank you very much.

Phil Damaska

Thanks.

Operator

Your next question comes from Joe Farricielli of Cantor Fitzgerald.

Joe Farricielli – Cantor Fitzgerald

Hi, guys. I was looking at the schedule for your restructuring and impairment items and realizing that this past quarter, when you closed Reading I was expecting to see more of the call it $15.8 million in this quarter related to Transportation America, but it’s $10 million, maybe $11 million was coming out of Europe, both Transportation and Industrial combined. I don’t – maybe you mentioned that on the call already, so I apologize – but what was the restructuring specifically in Europe?

Phil Damaska

What occurred in Europe and Rest of World was principally impairment charges, relative to the closure of the – the finalization of the closure of the Industrial business in India, the sale transaction with respect to the Australasia Transportation business and the impairment charge in another Indian business, a Transportation business.

Joe Farricielli – Cantor Fitzgerald

Okay, so would it – so these are costs...

Phil Damaska

They’re non-cash asset write-downs.

Joe Farricielli – Cantor Fitzgerald

Okay, okay, so it’s not – okay that’s – that gets to it. All right. Thank you.

Phil Damaska

All right.

Operator

Your next question comes is a follow up from Craig Irwin of Wedbush.

Phil Damaska

Mr. Irwin.

Craig Irwin – Wedbush

Thank you for taking an additional question here. So in discussing your captive recovery of junk, I think you said that you had a 25% improvement sequentially. I just wanted to confirm that that was through the branches? And I wanted to see whether or not you might be able to give us a year-over-year number so that we can take out a little bit of the seasonality there? And just my back-of-the-envelope math suggests we’re somewhere around 85% now captive for North America. I was wondering if you might be able to respond to that? Or give us a more accurate number?

Jim Bolch

Craig, I think the information that we gave in the script was 25% sequentially and 15% over the prior-year third quarter for the Transportation Americas business. At this point, we don’t state what the absolute values are. But you – you can get a sense of where that’s going. And, obviously, in the Industrial business, the improvement is much more dramatic. In the script, we talked about being 48% up year-on-year. So, clearly, the actions we’ve taken over the last year have been very effective.

Phil Damaska

And it is mostly branch-focused, Craig, just to address the first part of your question.

Craig Irwin – Wedbush

Thank you. And then you had mentioned previously that you were going to take pricing actions with your OEM customers in North America, given the lack of lead covers, they don’t get comebacks, right? So that has obviously been a much more challenging business to serve. Can you update us on whether or not you’ve achieved those price negotiations? And if maybe they are scheduled to come through at a later date? Or if you expect to potentially reduce the total volume at which you participate in the OEM market in North America?

Jim Bolch

Yeah, Craig, I – well, I think we spoke to this a bit on the call last quarter, but we completed negotiations with all of our OE customers that were served out of the Bristol facility as we transitioned them into the new plants. All of those negotiations included price increases. There was some attrition in the volume, which we saw some of that this quarter, we’ll see a bit more next quarter. But for all the volume that was transitioned, it was transitioned at better pricing.

Craig Irwin – Wedbush

Great. And then my last question is related to your lead recycling, what you toll and what you sell open market. So with the positive moves in lead prices on the LME, can you maybe give us a little bit of color about how you handled pricing on these contracts? And how the positive movement in lead could potentially help your profitability there? Assuming obviously that core costs are flat, which fortunately they’re going down right now. But can you comment just on a price basis as far as how this would impact profitability?

Jim Bolch

Craig, you’re asking specifically about third party lead sales, where we sell to others?

Craig Irwin – Wedbush

Third party lead sales and tolling contracts, so some people have you their tolling contracts indexed to LME and their profitability goes up when prices go up. So I was hoping you might be able to talk to that too.

Jim Bolch

So – I’ll just to be clear, our business model has changed dramatically. A couple of quarters back, we had excess capacity that we could serve the market with, either a tolling or with third party lead sales. With the exit of both the Frisco and the Reading site, we’ll now have less than 100%, in fact, it’ll be 75% to 80% of our needs. So we really aren’t in the tolling business for others anymore. We’ve secured what we believe to be pretty favorable long-term tolling contracts, but we’re not prepared to discuss the terms of those contracts. We have over the last quarter’s still done some opportunistic third party lead sales, but that’s only if we find our self in a temporary position of excess lead. So – but that wouldn’t be a key part of our business strategy going forward.

Craig Irwin – Wedbush

So then just to confirm, as we progress through fiscal 2014, should we expect the tolling in open market volumes to continue to trail down, given these actions you’ve already taken?

Phil Damaska

They should be close to zero. I mean, we have one long-term third-party lead sales contract that will continue, but it’s insignificant to the total picture.

Craig Irwin – Wedbush

Okay. Thank you very much.

Phil Damaska

Thanks, Craig.

Operator

Your next question comes from Bruce Falbaum of Cohanzick.

Bruce Falbaum – Cohanzick

Good morning. Just a quick question regarding sales in Europe, can you characterize the effect of the winter weather that we’ve seen in calendar 2012, comparing it to winter 2011, 2012 and sort of an average winter?

Phil Damaska

I would suggest this is probably more representative of an average winter, with last year being much more mild. I think we talked in the third quarter last year of the weather conditions impacting our global Transportation business by upwards of 700,000 units. I would suggest that we’ve recovered most of that this year given the normal weather. There certainly wasn’t an uptick, because there was no winter last year, but certainly more normalized volume this year as compared to last year.

Bruce Falbaum – Cohanzick

Okay, great. Thank you.

Operator

Your next question comes from the line of Andreas Körner of Nomura.

Phil Damaska

Good morning.

Andreas Körner – Nomura

Good morning. Two quick ones, the SG&A number for this quarter is higher by about $3 million to $4 million. What – you mentioned sales commissions and stuff like that, but can you give more color on what exactly is going on there?

Phil Damaska

It’s principally compensation costs and the timing of sales and marketing spend. That – sales and marketing spend can be lumpy sometimes and it was just higher this quarter than last quarter. We don’t see it as being a trend.

Andreas Körner – Nomura

Okay. My other question is about the start-and-stop battery system that JCI has been talking about, the 48-volt system that includes both lead and lithium ion. I believe they provided a time of 2016 when both lithium ion and lead would merge together and provide a 48-volt battery system for start-and-stop applications. Are you – do you guys – are you guys doing everything on that front? Do you guys see that technology take off? And what are your thoughts on that?

Jim Bolch

I guess what I would say is that there are quite a few different potential systems being discussed by the OEMs to serve the stop/start market. The system you describe is one of many. We’re participating across a number of fronts, as we talked, AGM, but also the MHF solution, which has been very strong with our customers in Europe, certainly at the lower cost point. But also a standpoint of we’ve done some work with Maxwell, with a supercapacity solution. So I think this is going to be a long-term solution and it’s going to depend a lot on the manufacturers and individual applications. But we’re participating across a broad spectrum of them.

Andreas Körner – Nomura

Okay. One last question, what were your proceeds from the Australia business sale?

Phil Damaska

Yeah. We’re not going to disclose the terms and conditions of that transaction at this point.

Andreas Körner – Nomura

Perfect. Thank you.

Operator

Your next question comes from Seth Yeager of Jefferies & Company.

Phil Damaska

Seth.

Seth Yeager – Jefferies & Company

Hi, good morning, guys. Appreciate taking the question- most of my questions have been answered at this point, but you’ve mentioned a few times the higher-than-optimal inventory level that you guys have currently. Just looking year-over-year, it looks like it’s up roughly $30 million or $40 million. Can you just give us a sense either on a day’s basis or dollars basis what you would describe it as more optimal at this point, given your level of sales?

Phil Damaska

You know it’s in the $25 million to $30 million range, and it’s mostly in the Americas at this point in time. As you can hopefully understand with shutting down facilities and moving products around, there’s a lot of moving parts and that included the recycling plants where we had to set up these tolling arrangements that Jim talked about and we had to get cores in front of those tollers. So it’s an issue that we certainly think we’ve got an understanding of and it’s just going to take a quarter or two to get it back to more optimal levels. But $25 million to $30 million is the answer.

Seth Yeager – Jefferies & Company

Okay, great. Thank you. And then just to – if I recall from this time last year or for the fiscal fourth, and I believe that you guys had characterized the winter impact being a little unusual in terms of coldness and it was an impact of something like $15 million to $20 million of EBIT, is that the right number to think about?

Phil Damaska

That was the number we put out last year for the full winter period. I think it was something north of a million batteries. And, again, as we said, that has come back to a degree this year, unfortunately, not at the margins that we would’ve expected, driven to a great degree by higher costs and the mix change that I have spent a bit of time talking about this morning.

Seth Yeager – Jefferies & Company

Sure. Okay. Fair enough. Thank you. And then just last one, just can you – as far as cash costs on cash taxes and pension, can you just give us an update on what the expectations are there, either for the end of the year or looking forward into next year?

Jim Bolch

Yeah, we expect cash taxes to be slightly under $10 million this year and we expect to make another pension contribution to offshore plans of about $2 million, $2.5 million for the rest of this fiscal year. As we move forward into fiscal 2014, again, I would expect cash taxes to be certainly under $15 million, probably under $13 million and I would expect pension contributions to be no more than about $6 million to $10 million.

Seth Yeager – Jefferies & Company

Okay. Great. Thanks a lot. Good luck.

Jim Bolch

Thanks. Last question.

Operator

Your next question comes from Tony Venturino of Federated Investors.

Phil Damaska

Hey, Tony.

Tony Venturino – Federated Investors

Hey. How’re you doing? Thanks for letting me get in here – at the end here. Actually, a lot of my questions have been answered, so let me just see if I can find one to ask you here. But you talked about Europe, the problems that you’re having there and it sounded like these may be more structural problems, right? You said they were labor, and there was I think you said electricity or production costs. Assuming that this mix shift continues, I mean, what types of things can you do there to get your costs down?

Jim Bolch

Well, I think it’s two-fold. Clearly, we continue to attack the cost side and we’ve talked in prior calls about a lot of work around Lean Six Sigma, as an example. We have a program across all of Europe that goes after energy costs, energy efficiency. We’ve made some pretty dramatic moves there and that’s taking energy costs down by actually using less energy; same thing applies on productive labor and the like. The other, though, is we have to continue to look at pricing opportunities and we will certainly do so, both in the customers we select, the markets we choose and existing customers.

Tony Venturino – Federated Investors

Okay, so in terms of the costs, how long do you think you can – how long do you think it will take to be able to offset that? And then also can you completely offset that? And in terms of price, it seems that pricing is difficult now, what makes you – what gives you confidence that you’d be able to get these – this price increase?

Jim Bolch

Well, I think we’ll continue to make progress on the cost side. We have to-date a piece of its lead and there’s some timing as the lead escalators roll through the like, but all the other components of cost is we have plans in place to go after that. I do think there is an opportunity on pricing. We saw very strong demands in this past quarter and so that gives us some horsepower to go after some pricing.

Phil Damaska

Yeah, I’ll just add one point to that. I mean, costing pressures, whether they’d be wages under collective bargaining agreements, which are common in Europe or higher utility taxes as governments try to generate additional revenue aren’t unique to Exide, right? They’re cost pressures that all of our competitors also face, so I have an expectation that they want to continue to improve their profitability as well and we’ll see how it rolls out.

Tony Venturino – Federated Investors

Okay. And then just one last one, someone I think asked this before. In terms of non-core assets, yeah, you said you wouldn’t – you didn’t really want to comment, but I’m just curious, how much you had and if you could give us maybe a number about – do you have $50 million, $100 million, 5 or 6, 10 assets that you could tell? I mean, would you be able to give us any color surrounding that?

Phil Damaska

Okay, we’re not prepared to make any more remarks than we already have at this point.

Tony Venturino – Federated Investors

Okay, appreciate it. Thanks a lot.

Phil Damaska

That’ll wrap up the call for today. We’d like to thank you for your interest and, obviously, there were a lot of questions and hopefully we answered everybody’s pertinent questions. Have a good day.

Operator

Thank you. That concludes today’s conference. You may now disconnect.

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