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Kaiser Aluminum Corporation (NASDAQ:KALU)

Bank of America Merrill Lynch US Basic Materials Conference Call

December 10, 2013 11:00 ET

Executives

Jack Hockema - Chief Executive Officer

Melinda Ellsworth - Vice President and Treasurer

Analysts

Timna Tanners - Bank of America Merrill Lynch

Timna Tanners - Bank of America Merrill Lynch

We are going to get started. Okay, hi good morning. My name is Timna Tanners. I am the Bank of America Merrill Lynch US Metals and Mining analyst. And we are new to joining this conference. So we are delighted to be here. And with us today we have Kaiser Aluminum and the CEO, Jack Hockema up here. I have been covering Kaiser since 2007 since they are secondary. Kaiser is a processor of aluminum and has insights also into the aerospace and auto end markets.

So with that, I would like to introduce Jack Hockema. Thank you.

Jack Hockema - Chief Executive Officer

Thanks Timna. Starting with the first slide here, just an overview of the company, as Timna said, we are a processor. We pass through the cost of metal and we are focused on downstream mill products applications. We are very focused in terms of the applications that we serve, where we have chosen to serve in demanding applications in aerospace and defense, automotive and general industrial applications, where we do participate. We have a very strong market presence and competitive strength, where we are generally the supplier of choice and a low cost producer in those market segments, where we compete. We have excellent earnings growth historically and expect good potential going forward as I said positioned in an attractive growing market, 70% of what we do is in aerospace and automotive, both of which are strong growth markets for us. We have invested more than $500 million over the past six or seven years. And only a portion of the benefits from those investments have been realized. So a significant opportunity going forward to benefit from those investments as well as being a good platform for additional organic and acquisition growth going forward.

We have financial strength and flexibility to fund our growth, strong liquidity, moderate leverage. We are a little over two times gross debt to EBITDA, but about 0.2, 0.3 times net debt to EBITDA. We have a little less than $800 million worth of tax attributes as of the end of last year and we have had consistent cash flow generation through the cycle. We are in a cyclic business. Left hand side here of this chart is value-added revenue. Value-added revenue we use – we take out the contained metal, because we pass through those costs. Our profit opportunity is on the value-added revenue above contained metal. You can see that bottomed out in 2009 during the downturn moving up to record value-added revenue in 2012 and by the time 2013 is complete, we expect it will be a virtual image of 2012. The right hand side our EBITDA, you can see the strong cash flow through the significant downturn in 2009 with $70 million of EBITDA and then record EBITDA in 2012 and again we expect a mirror image virtually in 2013 when this year is complete, so strong earnings growth as well as the strong performance through the prior downturn.

Looking at 2014 on our last call, we said we expect 2014 to be another excellent year following two very, very strong step change years from where we have been historically. Headwinds, we have some inventory overhang in the aerospace supply chain. It’s impacted us in 2013 on our non-plate products. We said on the last earnings call, we have talked actually in the last three earnings calls about situation-specific plate inventory overhang. We expect that, that’s going to hit in 2014. In our case, we don’t expect that, that will have a significant impact on our volume. However, the second item you see on the left hand side, we are beginning to see some impact on our – on spot prices for our Heat Treat Products, both general engineering and our aerospace plate that goes, that’s non-contract the spot business.

Offsetting that we have tailwinds, strong automotive demand and builds, we expect builds will be up again next year. We had a significant increase on our content in the third quarter. We expect to continue increasing our content as we move into 2014 and we have two major investments at our Trentwood facility, our Phase 5 expansion of our heat treat plate capacity that’s ramping up as we speak at Trentwood. We think it should be online by the end of the year. And our new casting complex at Trentwood that should be fully online by mid year both giving us some benefits as we move into 2014.

Well positioned for future growth in both our aerospace and automotive which represents 70% of our product mix, the other 30% being general applications. Both aerospace and automotive are stories of build rates and content for our products. This Slide #9 shows on the left hand side the order backlog at Boeing and Airbus. The last bar on the right hand side of that chart is 2012 which was a record backlog representing about eight years worth of builds. 2013, the orders are already booked by Boeing and Airbus will exceed what will be record builds again in 2013. So we fully expect that that backlog is going to bump up again at the end of 2013. So huge backlogs supporting build rates which on the right hand side the last red bar is 2012, 2013 will be a record build for the industry and we expect record builds each year as we go forward. So strong build rate growth going forward.

From a content standpoint, two real stories there in terms of our content as the subtitle shows both larger airframes and the impact of monolithic design. The larger airframes more and more of the mix is shifting to twin-aisle aircraft because of the longer hauls with the growing global economy, see that the amount of plate consumed which is the Y-axis on this bubble chart as we call A380, the new 747-8, the 787, the new 777 that Boeing is about to launch here will be about the same as the 777. So you can see the amount of content they have versus down the left hand side the traditional single-aisles the 737 and the Airbus 320.

The second part of that story is monolithic design and I won’t go into the details unless someone wants me to follow-up in the Q&A. But there was a change in manufacturing methodology about 10 years ago that increased the amount of plate consumed to build an airframe and is best illustrated on the right hand side by the 747 the traditional 747-400 the plane they have been building for the past 30 years or 35 years is being replaced by the 747-8. Virtually the same airframe 10 or 15 feet longer, but virtually the same airframe, but the amount of plate consumed to build that plane has increased by a factor of about 3.2 times and that’s a function of the monolithic design.

Similarly if you look at the 787-8 the blue ball on this chart which has a heavy composite design is about 20% metallic compared to the 767 that basically its replacing which was roughly 80% metallic but because – even though it’s a less – has less metallic content in the final airframe, the amount of plate consumed actually increases the amount of plate for a 787 compared to the 767 or even look at that big 747-400 the traditional metallic the composite airframe actually consumes more plate to build that airframe. So we are very bullish long-term about the content growth as well as build rate growth.

We have a strong track record 13% compound growth rate in our vale added revenue which is our measure of sales into aerospace applications over the past 10 years and we expect to have a strong growth rate going forward based on both the content and build rates and our position in the marketplace. Similar drivers in automotive, its builds and content builds this year will be about 16 to 16.3. We expect that they will be up again next year up in the high 16s, strong growth going forward and we expect the build rates to get up close to 18 as we are having some on-shoring in terms of builds and as the economy continues to build in terms of sales here in North America and also exports from North America into the Middle East and into South America.

Content, a big story here, we focus on aluminum extrusions. These are the industry estimates the Aluminum Association estimates of content growth from 2012 to 2025 essentially doubling over that 13-year period 5% compound growth rate. It has been growing at about a 4% compound growth rate over the prior 10 years to 15 years. So we have seen strong growth. We expect strong growth going forward. Kaiser, we have a strong track record with industry growth of about 4%, we have been growing at a 6% compound growth rate in terms of both content and our total value added revenue over the past 10 years. We expect to continue to outperform the industry growth rate. We are the premier supplier of automotive extrusions in North America and are well-suited to continue to benefit from the significant growth in this marketplace.

Investing for growth as I said at the opening slide, we have invested more than $500 million over the past few years, spread across the platform. The largest portion going into heat treat plate capacity expansions driven by the builds and the shift to monolithic design, we have more than doubled our capacity over the past 10 years for heat treat plate. We have a new facility in Kalamazoo, Michigan a state-of-the-art aluminum extrusion plant that’s focused today on general engineering, but then in the future we will fund a significant portion of our growth in automotive extrusions. We did two acquisitions a couple of years ago in the aerospace sector that have been good for us.

And we have made major investments in the bulk of our platform over the past five years and have virtually everyone of our 12 facilities and our footprint positioned as the supplier of choice and as a low cost producer in the market segments that they serve, which leads us to the wrap here before we go into the Q&A. Well-positioned in strategic markets where we have chosen to participate markets that have high barriers to entry and where we are extremely well positioned. We have excellent earnings growth at both the track record and earnings growth potential going forward with the investments, with the growing markets that we participate in and good platform for organic and acquisition growth. And we have financial strength and flexibility to fund that growth going forward. Questions?

Question-and-Answer Session

Timna Tanners - Bank of America Merrill Lynch

I am going to kick off.

Jack Hockema

Sure.

Timna Tanners - Bank of America Merrill Lynch

Can you hear me? Okay, on page 28, I want to highlight I just thought this is an interesting slide, because there is a lot more slides that you have the background, I think are helpful. So how do we think about auto growth if 8% of your value-added revenue, so there is a lot of upside there, how would you – can you give us little more specifics about general engineering because that had been a drag, auto is certainly strong. And how do you think about the mix of growing aero, but pressure on prices, what do you think the net result of those would be?

Jack Hockema

Well, that was a lot of questions.

Timna Tanners - Bank of America Merrill Lynch

It’s all the same concept. Thank you.

Jack Hockema

Okay. From an automotive standpoint, I think your question was do we see that as a growing portion of our profile here?

Timna Tanners - Bank of America Merrill Lynch

Yes, how do we think about it, it’s 8% how big sort of it…?

Jack Hockema

We think it will be in the 10% to 15% range as you look at over the next five years or so because we expect that aero will grow as well, but auto is going to grow more rapidly. So it’s going to become a bigger and bigger portion of our pie. From a general engineering standpoint our growth there really is predicated on the growth of the U.S. industrial economy, which today has now reached 2005 levels, the non-recovery, recovery and manufacturing. But there is good potential there if we see the U.S. industrial economy begin to take off. We have a lot of capacity there to participate in that growth, although we are still expecting relatively anemic growth 2% to 3% per year in that market going forward.

And then in terms of aerospace we are extremely bullish about aerospace over the long-term. However, I showed the chart, the build rate chart here in an earlier chart and you can see the build rates are pretty linear historically and going forward, but our demand is not linear. On the charts that I talked about headwinds in 2014, one of the headwinds in 2013 was non-plate inventory overhang in 2014 will be plate inventory overhang. And that’s a nature of the business we are at the very front end of the supply chain. So while the amount of content is increasing steadily year-by-year on the planes that they build, the inventory can get out of the sync in the supply chain and affects us. We have a chart in our book for those of you who have the book on Page 52, I think it is Melinda. Page 52 has a chart and I will see if I can get this thing to page down there, but I will speak while I am getting there, while you find it. We have estimated on this chart, the change in plate supply or plate inventory in the supply chain as a percentage of real demand and real demand. And real demand is our calculation of how much aluminum plate go back to that bubble chart, how much aluminum plate we believe is required to build the planes that were built that year.

And if you look at 2012, there actually was restocking in the supply chain. The mills supplied more plate to the supply chain than was required somewhere in the 5% to 10% range and these are our estimates. So I am not going to say they are precise, but we think it was 5% - we had 5% to 10% artificial demand in 2012 due to restocking. This year, we think there is a slight restocking although it’s relatively close to equilibrium with the build rates. Next year, we believe we are going to see 5% to 10% less demand than real demand, because we are restocking and one could say that’s just making up for the restocking that happened in 2012. So we see ups and downs here. As we get to 2015, there maybe a little bit of destocking we are hearing from some OEMs that there may still be some reduced demand in 2015. Our view is it’s going to be relatively close. If we build this chart for 2015 right now, it will probably show negative similar to the positive, we are showing in 2013. So what basically if you put four years on there, we think that the restocking in 2012 and 2013 is probably going to be offset by destocking in 2014 and 2015 with 2015 being back close to equilibrium and then seeing equilibrium type demand going forward if that answered the question?

Timna Tanners - Bank of America Merrill Lynch

I think just the one thing was so I thought this is going to affect price, but the impact of this destocking…

Jack Hockema

Yes, this is industry demand, this is industry demand. And what I have said on the headwinds chart, the impact on us while we expect even though there is strong destocking next year, we believe that we are going to have plate aerospace, plate shipments similar to or stronger than we have this year. The primary impact on us of this destocking is we are seeing pressure on spot prices per plate and we are positioned with a higher percentage of our plate volume being on a spot pricing basis than most of our competitors in part because we have a much higher percentage of general engineering in our mix than competition does and we have a much higher percentage going through service centers of our mix in the aerospace plate than our competitors do. So what we are seeing is with some flat demand here we are seeing more competitive pressure on spot prices, which is having that’s the primary impact on us as we see it in 2014. We don’t think we will see a big impact on volume.

Timna Tanners - Bank of America Merrill Lynch

Okay. I don’t have a question, but I think I should be polite and let you all ask a question and open it up a little bit. So anybody in the audience have a question for Jack?

Unidentified Analyst

Jack, any updated thoughts on utilizing the balance sheet to unlock value of Kaiser shares?

Jack Hockema

Yes, Melinda will correct me if I get the numbers wrong. I think we have acquired $48 million.

Melinda Ellsworth

$44 million.

Jack Hockema

$44 million worth of shares through the third quarter and we still have $78 million left on the repurchases authorized by the board. So we have a repurchase program in place and we believe Kaiser’s stock is a good investment without going beyond that. We think it’s a good investment.

Melinda Ellsworth

The only company in our coverage universe it’s buying back shares, but that’s probably an anomaly in the market.

Unidentified Analyst

I assume you have a lot of overlap with Alcoa and some of their downstream operations may be if you could touch on that and also maybe highlight you, what are your advantages versus Alcoa and they are of course also have the upstream operations. Do you feel their disadvantage by that is there, do you see opportunity maybe working with Alcoa or even some M&A, some of the attractive deals, that’s something you think about?

Jack Hockema

Well, let me start with the last question first, where we overlap with Alcoa is primarily in aerospace applications. And so I think for either of us to do a transaction would have significant regulatory issues related to it. So there is really very little prospect that something would happen there either way from an M&A standpoint. And where we do compete with them is in heat treat plate, aerospace plate primarily and aerospace sheet as well as aerospace extrusions. And those are really the three primary areas, aerospace, rod and bar. So basically, aerospace products a little bit in general engineering is pretty much where we overlap. If you look at the two companies in terms of business model, Alcoa has been an R&D intensive business model and they have proprietary alloys and Constellium, which used to be Pechiney, the French aluminum company, both Pechiney and Alcoa in the aerospace market have proprietary alloys and that’s portion of their mix. It’s roughly 20% of the total demand for plate. So it’s relatively small segment of the market, but it’s very important to both Constellium and to Alcoa.

Our strategy has been different. We are a high-tech company but in terms of our development we characterize it as making existing products better so we believe we go to market with superior products in the traditional alloys and we have case studies, documented case studies you can see customers giving testimonials on our website to the performance they get with our products compared to Brand X, I’m not going to say that’s Alcoa, we compete with lots of folks but our product is superior, we have a whole brand that we call KaiserSelect that is our plate product, it’s our rod and bar products.

We don’t call it select in automotive but all of our automotive products are KaiserSelect and that’s a combination of metallurgy in some cases it’s the alloy development or specifics in the alloy but it’s also what we do from a process control and a processing standpoint to manage those molecules in a way so that performs better for the customer, typically they will see up to 15% or 20% increases in machining rates with our product versus a Brand X. If the statics are important they get better surface quality for anodized quality for those kinds of applications. Residual stress is when they machine plate when you take away 90% to 95% of the material machining that away the plate will work and we have processing that minimizes the residual stresses so that the customer after they machine it at higher rate and after they’ve machined it they have no rework or a minimal rework compared to extensive rework or scrap when they process Brand X.

So that’s really the differentiation of the models from a technology standpoint and the other thing and I said this earlier, we are very disciplined in where we go to market. We only serve about 5% of the global flat-rolled products market and only about 25% of the North American Extrusion market we are in very demanding applications but from a business model we challenge and expect every one of our facilities with specific market segments that they supply we expect them to be the unquestioned supplier of choice from a quality lead time and on-time delivery standpoint and to be if not the low cost producer, a low cost producer where they are and we basically have achieved that in virtually every platform in the company.

Unidentified Analyst

I think the question was also addressing the vertical integration and..

Jack Hockema

Yes.

Unidentified Analyst

I mean you could maybe shed some light on your history there?

Jack Hockema

Yes. We made a decision in 2003, 2004 to divest our upstream operations. My history in the industry is has a mill product SKY and has a mill product SKY it never made sense to me why you would have a commodity company and a customer related highly technical products company together and when I became the CEO of this company and saw them together I determine that I was right they are two completely different businesses that have absolutely nothing in common except for the molecules that are in the metal. So we divested all of our upstream operations and others have made that the copper industry made that choice decades ago, Alcan made that decision shortly after we made that decision. So a lot of people have migrated in that direction, I’m not going to speak for Alcoa and where they are going to go but my personal belief is that the company is much stronger with those two elements segregated rather than being integrated.

Timna Tanners - Bank of America Merrill Lynch

If you want to see more on the upstream side, we will have Century related today. So we have both sides of the business separate today actually.

Unidentified Analyst

So can you talk about just industry wide plate capacity growth and what the current inventory situation is going to affect that?

Jack Hockema

Yes, from an industry capacity standpoint in plate they are basically four what I characterizes the Tier 1 producers, these are very demanding products with very high barriers to entry, very difficult products to manufacture. In those Tier 1s, we are adding a smallest sliver of capacity roughly 10% this year. Constellium has announced that they have a mill, their (indiscernible) mill that there has been general engineering, but they are now qualifying to supply heat treat plate to Airbus. And I don’t know how much that will add capacity, but it’s a small increases in capacity. There were some second tier producers who are seeking to get in this who either have existing capacity or new capacity and they may have some remnants in this industry, but is basically Alcoa, Constellium, Kaiser and Aleris are the four major suppliers here with small incremental increases in capacity.

Timna Tanners - Bank of America Merrill Lynch

Can I ask if you could comment on aluminum lithium and you are positioning and what you think of the value and what’s the feature?

Jack Hockema

Yes, as I start the story because Alcoa and Constellium both have announced major investments in aluminum lithium. The primary thrust of aluminum lithium is to counter the threat of composites in future designs and you recall when I characterize in the answer what’s the difference between Kaiser and some of the other folks in the industry, I talked about them having proprietary alloys. The largest impact of composite design is attacking the proprietary alloys. So what has been the golden goose for Pechiney/Constellium. And Alcoa is more susceptible and is more impacted by composites although it affects everything, it’s more impacted there. So, it is a strong proactive initiative on their part developing and as it has been their plan developing new alloys, they moved into that area. So that’s why you read so much about them making major proactive investments for aluminum lithium. We have the capability to supply aluminum lithium and are working with folks with customers down the stream. On aluminum lithium we have not made major investments there, but if it does become a major developing market we are certainly prepared to move into that arena.

Timna Tanners - Bank of America Merrill Lynch

It requires a big investment or what would it require?

Jack Hockema

We can do some with, basically what we have now are with modest investments, but to become big and it would be quite a large investments and we don’t see that being justified at this stage.

Unidentified Analyst

Just as a follow up to that point, given that kind of difficult to achieve once material has developed and also certified and now there is a process that goes through it, then how would you – how competitive would you be in a situation where aluminum lithium are on top of alloy with Constellium and Alcoa has betting on, becomes the standard in the aerospace industry would it – I think the competitor knows that for your company because you may not have and have got the regulatory approval and the certification?

Jack Hockema

We are confident we can participate in that market if when we choose to participate in that market.

Timna Tanners - Bank of America Merrill Lynch

I will ask in different way, can you have just two suppliers or would the industry want a third supplier?

Jack Hockema

Well, I think it depends on how much demand is there. But go back to the proprietary alloys there are roughly 20% of the market order magnitude today is proprietary alloys. So there are applications today that are proprietary, but again we think if this becomes a market of consequence, we believe there will be pull for us to come into that market and or push from us to get into that market. So at this point we are doubling with it I will characterize, doubling with it, but if becomes big we will make a bigger move there.

Unidentified Analyst

You mentioned Kaiser Select, the strength of your brand, can you talk about what percentage of the overall business that represents what kind of the premium in terms of value and revenue is there?

Jack Hockema

Let me answer the last first. The premium sometimes comes as price and sometimes comes as share or position. So we get value for it, but we get value in a variety of ways. In terms of what percentage of the portfolio it’s – I am sorry in general engineering, it’s probably close to half of our value-added revenue in general engineering is KaiserSelect and I would say it’s more close to half of our aerospace in total. And automotive, we don’t call it KaiserSelect, but 100% of our automotive essentially is KaiserSelect. We just don’t call it that, because it’s direct sales for individual components, but it’s the whole KaiserSelect process and technology that goes into our automotive products. So I think I just said more than half.

Timna Tanners - Bank of America Merrill Lynch

May I ask a question? Jack, can you comment on the state of the aluminum market more broadly, I know even if there is an impact to you like the Midwest premium or the regional premiums what’s happening more broadly.

Jack Hockema

Yes, but the premium is the big point of discussion now. The Midwest premium got up to $0.12, $0.125 probably middle of the year or early this year where historically it’s been in the $0.06 a pound to $0.08 a pound range, so a substantial expansion primarily related to what’s been going on with warehousing. I think that’s the industry consensus as the root cause for what’s going on there. And then when the LME announced the regulations looking to break that log jam if you will, it created some downward pressure. I think the premium the bottom out at around 10% a month or six weeks ago it’s we just had a meeting on Friday reviewing that I think it migrated back to up $0.11 or so. Our guy who is our metal buyer and metal trader who is close to that does it all day along everyday. He was pretty much getting mixed views. He has got a lot of people, a lot of brokers who are predicting that it was going to go up, maybe which we are thinking but he has got lot of them predicting as going to go down which says maybe we are closely equilibrium now and in terms of where it’s going, I have no clue.

Timna Tanners - Bank of America Merrill Lynch

That makes lot of it, that’s helpful, lot of us we are a little pitch, we are doing the comments we kind of aluminum and nickel and we are I think in the same boat, do you any more questions out there?

Unidentified Analyst

(Question Inaudible)

Jack Hockema

Melinda wants to remind you Slide 2 says don’t believe in anything that I have said sort of disclaimer slide.

Timna Tanners - Bank of America Merrill Lynch

I will ask another question.

Unidentified Analyst

(Question Inaudible)

Timna Tanners - Bank of America Merrill Lynch

Thank you. Jack, what keeps you up at night and when you have a pretty stable business model relative to others, you seem confident in the aluminum end market demand you are talking about some headwinds here and there. What do you think are the biggest opportunities or risks for Kaiser in particular?

Jack Hockema

Well, the big risk that we always talk about and we just had a Board meeting last week and we talked about again in every Board meeting, we show them our projections, but we also show them our risk case which is the economy. So that’s always the downside for us and we are always alert to it and always based our financial plans and our liquidity plans based on our worst case scenario or a downside scenario of the economy going south on this. And in terms of the upside, it’s really these key markets that we are in. Hopefully this inventory overhang in aerospace especially the non-plate heals itself, we think it’s going to heal up next year, so that’s good upside for us. Automotive is tremendous upside. And again we have non-recovery, economic recovery in the industrial sector, so demand in that 30% of our market is still anemic, it’s still at 2005 levels, I mean, that’s where the U.S. industrial economy is. So if we can ever get the U.S. industrial economy back up on its feet. That’s tremendous opportunity for us as well.

Timna Tanners - Bank of America Merrill Lynch

Conceptually is that manufacturing is a non-residential construction, what kind of…

Jack Hockema

No, its manufacturing, the metric we use and it’s in our book in the appendix in the general engineering section, but it’s the index of industrial production for manufacturing. And in fact I did a correlation before the last earnings call and looked at industry demand is reported by the Metal Service Center Institute for rod and bar and I look at the last 12 months and it was basically right between 2004 and 2005 levels. And if you look at the index of industrial production slide for manufacturing in our book, you will see that write down which is right between 2004 and 2005. It’s almost the direct correlation between the U.S. manufacturing economy and demand for our general engineering and general industrial products. So it’s really the industrial economy.

Timna Tanners - Bank of America Merrill Lynch

That makes sense and still we have four minutes and I cannot think one more question that’s on the queue. Okay, I wish to ask so on and what Bob said you talked about buyback let me think about other uses of cash if you could just kind of run through how you think about it. And then we have always talked about M&A from different perspectives in the past and recently when you did the debt offering you actually – I was impressed, I always like companies that don’t do deals if they don’t see any deals to do that, that’s Kaiser’s discipline as well, but how are you seeing the M&A environment and where are thinking about this.

Jack Hockema

Yes, priorities for cash number one is organic investment and we are investing – kind of just continue to invest heavily in organic investment and see good opportunities organically going forward, not to the magnitude that we are spending this year, but good opportunities probably in the $50 million to $60 million pace over the next few years per year. Second priority is acquisition growth and as Timna said we did a couple two years ago I referred to those on the slide when we raised the debt a year and a half, two years ago, we were very close to doing a deal, but as Timna just said we are very disciplined in what we do, we don’t go chase deals and while we were very, very close to having one ready to go some factors developed that caused us to back away from it. And again we don’t chase them if situation changes, we back off. However, while the inventory of the prospects for us is not huge like a re-alliance but has this massive inventory of opportunities for acquisitions, not the case for us as we are very disciplined, but we are disciplined, there are potential targets out there. And you go back to the two that we did back in 2011 we have been working on both of those for 10 years and we have others that we have been working on for multiple years. So it’s really when the opportunity develops or the when lines cross how we want to characterize it, we believe there are assets out there that will eventually be in the Kaiser portfolio, it’s a question of when that is rather than if that will be.

Timna Tanners - Bank of America Merrill Lynch

(Indiscernible)

Jack Hockema

Yes. And then after organic and acquisitions then we go to dividends. We have a good strong track record on our regular dividends of maintaining those through the downturn and growing those we bumped our dividend by $0.20 or $0.05 a quarter, $0.20 for the year at the beginning of 2013 and we continue to be committed to our regular dividends. And then additional excess cash we have been repurchasing shares as we talked about earlier continue to see when we have excess cash with no good home for it or no – nothing that we see in the foreseeable future, we will repurchase shares and or consider special dividends.

Timna Tanners - Bank of America Merrill Lynch

Excellent, if you don’t have any further questions, I would definitely like to thank Kaiser for leading Southern California and coming to Boston for the day. So thank you very much.

Jack Hockema - Chief Executive Officer

Okay, thanks Timna.

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