Global Brass and Copper Holdings' (BRSS) CEO John Wasz on Q2 2014 Results - Earnings Call Transcript

Aug.10.14 | About: Global Brass (BRSS)

Global Brass and Copper Holdings, Inc. (NYSE:BRSS)

Q2 2014 Earnings Conference Call

August 7, 2014 09:30 ET

Executives

Scott Hamilton - General Counsel

John Wasz - President and Chief Executive Officer

Robert Micchelli - Chief Financial Officer

Analysts

Brian Drab - William Blair

Phil Gibbs - KeyBanc Capital

Sal Tharani - Goldman Sachs

Operator

Good morning, ladies and gentlemen, and welcome to Global Brass and Copper’s Second Quarter Results hosted by Scott Hamilton, General Counsel. My name is Benny and I will be your event manager this morning. (Operator Instructions)

And now, I would like to turn to Scott Hamilton. Please go ahead.

Scott Hamilton - General Counsel

Thank you. Good morning, everyone and thank you for joining us to discuss Global Brass and Copper’s second quarter 2014 financial results. My name is Scott Hamilton and I am Global Brass and Copper’s General Counsel.

Joining me on the conference call today are John Wasz, our President and Chief Executive Officer and Robert Micchelli, our Chief Financial Officer. For anyone who is not able to listen to today’s entire call, an archived version of this call will be available later this morning. Please visit the Investor Relations section of our corporate website at www.gbcholdings.com to access the replay.

Before beginning our discussion, we want to make you aware that our prepared remarks and responses to questions may include forward-looking statements that involve risks and uncertainties. These may include statements about our current expectations or forecasts of market and economic conditions, our business activities, prospects, strategies and future business and financial performance.

Actual results could differ materially from any forward-looking statements made by us. Information concerning factors that could cause actual results to differ from those in the forward-looking statements may be found in Global Brass and Copper Holdings’ Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 19, 2014 and the company’s subsequent quarterly reports, including the quarterly report on Form 10-Q filed with the SEC this morning under the Risk Factors sections of each filings and in other filings with the SEC.

In addition, our comments today refer to non-GAAP financial measures such as adjusted EBITDA, adjusted sales, and adjusted diluted earnings per common share. Reconciliations to the most directly comparable GAAP financial measures are provided in our earnings release for the fiscal quarter ended June 30, 2014 that we furnished with the SEC and is posted to our website. We believe these non-GAAP measures provide useful information for evaluating our business performance. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.

Please be advised that the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast on August 7, 2014. Global Brass and Copper Holdings, Inc. undertakes no obligations to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call except as required by law.

Now that we have covered these cautionary comments, I would like to turn it over to John Wasz.

John Wasz - President and Chief Executive Officer

Thank you, Scott. Good morning, everyone and thank you for joining us on today’s call. I am going to begin by providing a brief overview of our performance for the quarter, some general comments on what we are seeing in the marketplace and provide an update on our go-forward strategy. Afterwards, Robert Micchelli, our Chief Financial Officer will provide a detailed review of our financial results.

During the second quarter of 2014, shipment volumes were lower across all three business segments given some inventory correction and near-term softness in demand, which we anticipated and highlighted during last quarter’s earnings call. Collectively, volumes were down 2.6% year-over-year across select end-markets, including electronics, electrical components, munitions and building and housing. The decreases were partially offset by higher shipments in the transportation and coinage end markets.

Adjusted sales for the second quarter, our non-GAAP revenue measure which reflects our value-added premium over metal replacement cost recovery was modestly lower declining 3.3% on a year-over-year basis. While year-over-year financial results were weaker due to reduction in shipments and as anticipated operational challenges at our East Alton strip facilities, our focus continues to be on managing the factors within our control to position the business for long-term success. The operational inefficiencies within our Olin Brass showed slight improvement in the second quarter and we continue to take actions to implement quality cost and productivity improvements to restore this segment to 2013 performance level.

Moving on let me provide detail around each of our three business segments, Olin Brass, Chase Brass, and A.J. Oster. Olin Brass second quarter 2014 shipment volumes declined which were driven by lower shipments in the munitions and electronics segments, partially offset by slightly improved shipment volumes in the coinage segment.

During the quarter Olin Brass is cupping operations continue to run at full capacity levels and no products operational performance showed signs of improvement, but was negatively impacted by equipment uptime and reliability issues in the casting facility, which impacted product flow in the later part of the quarter and subsequently impacted productivity and costs. Additionally, we experienced an unexpected furnace outage resulting from an explosion on one of our five casting decks, which further impacted production material flow through the facility in the later part of the quarter. These issues in the casting plant have been largely resolved and the product flow through the operation is expected to normalize as we move through July and the third quarter.

Also as we moved through the second quarter, we began to experience improvements in equipment uptime and availability at critical equipment centers and the significant work associated with yield improvement has stabilized our plant yield performance, and showed slight improvement in June. As indicated in the last earnings call, our operational performance in our Olin Brass mill products business is one of our most significant challenges. We continue to be disappointed by our performance, but I am encouraged by the work being performed by the various teams in East Alton. And I believe we will improve our operating performance to 2013 levels, as we move through the balance of the year. This renewed focus and energy across the business is evident with the launch of the comprehensive total preventative maintenance program, which we believe will continue to improve operating performance.

Additionally, as a result of management’s efforts to find all the root causes of our performance setback, we have determined that the levels of complexity of our current product mix in mill products, which has the high volumes of light gauge product for the automotive and electronic connector market is negatively impacting our costs and productivity. As a result, we have initiated product specific initiatives to improve productivity and cost, and taken a broader look at how to further reduce the operational complexity in casting and brass mill facilities. These efforts, coupled with our full implementation of previously announced price increases in our light gauge products, will help improve our ability to meet the critical demand of our customer and improve our returns on these complex products.

Looking ahead, we will continue to aggressively drive corrective actions at Olin Brass, which includes such actions as the recent leadership, organizational, and structural changes within the operations group and across mill products, to provide more leadership and a further intensified sense of urgency and focus on our key improvement elements and critical issues.

Turning to Chase Brass, second quarter 2014 shipments were down marginally year-over-year driven by previously communicated share loss in the electronics, electrical components, resulting from a customer sourcing their finished products offshore, as well as a decline in building and housing shipment volumes, as our customers rebalance their inventories after strong first quarter purchases. Excluding sales to the customer sourcing their finished product offshore, volume at Chase Brass would have increased 2.8% as opposed to the 2.2% decline reported. Margins were down slightly resulting from compress metal margins for the quarter. Eco Brass volumes were solid and we believe they will continue to provide growth for Chase Brass, as we anticipate further conversions from leaded to lead free products from our customers.

A.J. Oster’s second quarter 2014 shipment volume decline 2.9% driven by lower demand in the electronics, electrical components end markets and inventory destocking by select customers in the automotive end market. While volume was down year-over-year, we remain encouraged on an uptick and expected demand in the second half 2014, as A.J. Oster end customer demands improve and as the various A.J. Oster growth initiatives initiated late last year and early this year deliver results.

Let me now take a moment to provide an update on our key strategic imperatives that we are implementing across our GBC businesses, which we believe will drive further growth profitability and shareholder value. As a reminder, the four pillars of our value creation strategy can be broken down into the following. Manufacturing excellence, supply chain optimization, commercial growth and innovation, and creating value through people. First, we remain steadfast in our focus on improving operational efficiencies, specifically, in the East Alton facility to maximize profitability.

Despite some setbacks, we are slowly yet steadily gaining traction with our initiatives. We remain acutely focused on quality, costs and productivity improvements to drive operating earnings and are committed to identifying and executing productivity initiatives at our manufacturing facilities to offset any inflationary effects. The leadership team at Chase Brass in Montpelier, Ohio is making solid progress in this area. And given the operating leverage inherent in our business, we believe we are well-positioned to expand profitability as marketing conditions improve.

Second, along with the sharp focus on manufacturing excellence, initiatives are ongoing to optimize our supply chain management. We have conducted thorough value stream analysis at each of our manufacturing businesses and they have a variety of strategic initiatives, which cut across purchasing, manufacturing, sales, marketing aimed at improving our customer performance and improving the velocity of our inventory throughout the entire supply chain process.

Copper and Brass are some of the most expensive industrial metals, as inventories expensive for us and our customers. That said, we believe that we can create significant customer and shareholder value by having the best supply chains in the industry and we will continue to drive our focus and resources to achieve that objective. We believe our delivery performance at Chase and A.J. Oster already creating competitive advantage and I am encouraged by the efforts to improve our value streams and inventory velocity.

Third, we continue to actively seek opportunities to bolster our industry leading product portfolio and introduce products and services that will further enhance our customer value proposition and expand our capabilities and performance. CuVerro, our antimicrobial product line, continues to make commercialization products. Although this product line has a long runway for growth, CuVerro alloys are versatile enough to be used in almost limitless touch surface applications beyond just healthcare. And we continue to be encouraged by the interest level from our affiliate partners and select end customers.

Our Eco Brass offering continues to gain traction and we believe it represents a great opportunity to further penetrate existing markets as customers seek to leverage the advantages of lead free products. In addition, each one of our commercial organizations Chase, A.J. Oster, Olin Brass and various commercial organizations within our specialty products group have several interesting commercialization opportunities in their product development pipeline that will complement their existing product portfolios.

And lastly, the foundation to achieving our strategic objective is to have a dedicated and committed group of talented, knowledgeable, capable and motivated employees in our plants, in our offices, and in the field working together to improve the value of our company. Although we continue to work towards our desired culture, I am encouraged by the progress and the dedication and commitment of employees across GBC.

Finally, I would like to take to briefly outline our capital allocation priorities. Overall, our priorities remain unchanged as we strive to maximize long-term shareholder value. As we accumulate free cash flow, we will evaluate ways to de-leverage the company, reduce our borrowing costs and identify accretive bolt-on acquisitions that makes strategic sense and which will be acquired as attractive valuations. Looking ahead, we anticipate that the second half of 2014 will be better when compared to the first half with improved volumes in building and household, automotive and other segments. We are closely monitoring the activity levels in the munitions segment and we are seeing signs of demand level softening in our commercial rifle and ammunition cups.

Lastly, we anticipate progress and will remain resolute in our efforts to improve the operational execution at Olin Brass, casting and brass mill facilities and across the entire GBC business. We will continue to seek opportunities to maximize operational efficiencies, deliver best-in-class service and products to customers and strengthen our market leading positions.

With that, I will turn the call over to Robert Micchelli, our CFO for a more detailed view of our financials.

Robert Micchelli - Chief Financial Officer

Thank you, John and good morning everyone. Overall, as John provided color on earlier, our second quarter results reflect near-term softness in key end markets and some ongoing operational challenges, notably within our Olin Brass segment. Despite these challenges, we are still on track to achieve results within our previously provided full year 2014 guidance.

Looking at our results more closely, unit volume decreased 2.6% from 138.4 million pounds to 134.8 million pounds in the second quarter 2014 due to lower demand in the electronics and electrical components, and building and housing end markets. The decline in volume was also impacted by lower shipments to munitions end market, resulting from operational issues which adversely impacted production at Olin Brass. These decreases were partially offset by higher demand and the transportation and coinage end markets.

Net sales decreased by $21 million or 4.6% from $461.5 million for the second quarter of 2013 to $440.5 million for the second quarter of 2014. The decline in net sales was driven by lower volume, lower sales of unprocessed metal, lower metal prices and a shift in product mix, partially offset by an increase in average selling prices. Metal prices reflect replacement cost recovery from the customer, whereas the sales prices represent the pricing component of adjusted sales, which is a non-GAAP revenue measure we define as the excess of net sales over the metal cost recovery component of net sales.

Adjusted sales, decreased by $4.7 million or 3.3% from $142.3 million in the second quarter of 2013 to $137.6 million for the second quarter of 2014. Lower shipment volume decreased adjusted sales by $3.7 million. Gross profit decreased by $7.5 million or 14.5% from $51.7 million for the second quarter of 2013 to $44.2 million for the second quarter of 2014. SG&A expenses decreased by $32.9 million or 62.3%, from $52.8 million for the second quarter of 2013 to $19.9 million for the second quarter of 2014. As a reminder in 2013, we had $29.3 million in non-cash compensation expense related to profits interest as well as management fees of $4.8 million that no longer apply in 2014.

Net income attributable to GBC increased by $26.1 million from the loss of $17.1 million or $0.81 per diluted share for the second quarter of 2013 to income of $9 million or $0.42 per diluted share for the second quarter of 2014. This improvement was the result of the decrease in non-cash compensation expense, management fees, and other selling, general and administrative expenses, partially offset by a decrease in gross profit. Adjusted diluted earnings per common share of $0.49 was down from $0.75 in the second quarter of 2013, adjusted EBITDA decreased by $6.7 million or 18.5% from $36.3 million for the second quarter of 2013 to $29.6 million for the second quarter of 2014.

The decrease was due to higher manufacturing conversion costs, lower volume and a shift in product mix, partially offsetting the decreased were increases in average selling prices and a decrease in other selling, general and administrative expenses. GBC end of the second quarter with – of 2014 with cash of $19.4 million, borrowings of $16.5 million under our ABL facility, senior secured notes of $375 million and $183 million of borrowing availability under our ABL facility.

During the second quarter of 2014, net cash provided by operating activities was $16.6 million driven by earnings and improvements in working capital. Looking at GBC’s three reportable segments, second quarter performance was as follows. Olin Brass volumes decreased to $72.2 million or 2.2% during the second quarter, while adjusted EBITDA decreased by $6.2 million compared to the second quarter of 2013.

As we discussed during last quarter’s earnings call, our East Alton facility was again challenged by operational issues, largely associated with equipment reliability, which impacted our productivity and costs. Chase Brass volumes decreased to $56.8 million or 2.2% during the second quarter, while adjusted EBITDA decreased by $1.2 million as compared to the second quarter of 2013. The decrease in volume was driven by lower demand in the electronics and electrical components of end market. Partially offsetting this decrease was higher demand in transportation end market. A.J. Oster volumes decreased to $16.6 million or 2.9% during the second quarter, while adjusted EBITDA decreased by $400,000 as compared to second quarter of 2013. The decrease in adjusted EBITDA was due to higher supplier prices, lower volume and product mix.

Before I turn the call back over to John for a few closing comments, I want to briefly discuss our 2014 outlook. As a reminder, we are focused on positioning our business for success over the long-term and our ability to provide guidance is constrained by our short lead times and a tendency of our shipment volume to lag published market indicators. GBC is reaffirming its full year 2014 guidance. For 2014, the company expects shipment volumes to range from 536 million pounds to 542 million pounds. Adjusted sales are expected to range from $568 million to $570 million and adjusted EBITDA is expected to range from $118 million to $123 million.

With that, I will turn the call back over to John Wasz.

John Wasz - President and Chief Executive Officer

To conclude, we have great confidence in the underlying strength of our business. Looking ahead, our focus is to execute our strategy and to make prudent investments across the GBC enterprise to drive growth and profitability. We will remain a sharp focus on cost containment and continuous improvement initiatives that position us for long-term success. We have faced some operational challenges in the past few quarters, but I firmly believe we are on the right path to address these issues and ultimately continue our transformation as a stronger company. This concludes our prepared remarks for today. Operator, we will now begin our question-and-answer session.

Scott Hamilton - General Counsel

Yes. Operator, hold on one second.

John Wasz - President and Chief Executive Officer

Yes, before we do that, I was just informed that I misread the guidance section. So, let me read it again. GBC is reaffirming its full year 2014 guidance. For full year 2014, the company expects shipment volumes to range from 536 million pounds to 542 million pounds, adjusted sales are expected to range from $568 million to $575 million and adjusted EBITDA is expected to range from $118 million to $123 million.

Scott Hamilton - General Counsel

Okay, operator. We can turn it over to you for the question and answer.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Okay, we have a question. Your question comes from Brian Drab from William Blair. Please go ahead.

Brian Drab - William Blair

Good morning.

John Wasz

Good morning.

Brian Drab - William Blair

So, I guess the key question here is just around the guidance. It doesn’t seem like that long ago when we were discussing the second quarter 2013 results and we were looking at guidance that was for about a 20% decline in EBITDA in the second half of the year versus the first half. And when I look at the guidance as it stands today for the second half of 2014, we are looking for an increase in EBITDA that the midpoint of your guidance, we would have to see about $62 million in EBITDA in the second half of the year compared with $58 million in the first half. And you gave some brief comments around what would look better in the second half or what’s expected to look better. Housing and auto I think were the two end markets you pointed to, but if you could just elaborate a little bit more on the second half, what gives you confidence that will see this uptick in the second half of the year?

John Wasz

Yes. Brian thanks for the question. I will give some overview comments and then Bob can provide a little bit more analytical detail, but first of all, when we revised guidance last earnings call and last earnings release anticipating operational challenges at Olin Brass to continue through the second quarter as well as some near-term volume correction issues as a result of strong purchases in building and households in the first quarter and some inventory de-stocking with specific customers and other end segments. As we progress through the second quarter, I think our anticipated outcomes largely came to fruition. We did make good progress in the Olin Brass operational issues. We fell slightly below the expected performance levels. But as we look at where we stand today relative to that, we are encouraged by the actions and activities and result that we are experiencing. And as we look into the second half of the year, we are anticipating our efforts resulting in improved manufacturing efficiencies, improved operating performance at the brass mill and casting operations in East Alton.

So, I would say that’s probably the most, more significant sequential change that we are anticipating experiencing. And in addition to that, we are anticipating volumes to improve in the second half of the year late cycle. But we are anticipating volumes to improve and a good portion of that is the result of the slow and steady improvements across the market segments and the slow and steady improvements anticipated in automotive, as well as improvements late cycle in building and household, as our customers anticipate activity level to – in both existing home sales and new home construction to steadily improve as we move into 2015. Bob you’ve anything else you want to add?

Robert Micchelli

No, I think you said it right. I mean, look, sequentially, the primary driver of the increase, the implied increase in EBITDA as you pointed out, Brian, that is largely the cost improvements in second half versus first, okay. And in addition, compared to last year, I think were looking at the fourth quarter of last year in particular as exiting on a fairly soft note, whereas this year, we are contemplating exiting the fourth quarter on a strong note.

John Wasz

And Brian, let me use this as an opportunity to talk a little bit more about Olin Brass, I mean the punch line is this is our product cost per pound were higher than standards, higher than last year, higher than what we expected or what we think is achievable in the first half of the year, okay. And it’s the fundamental overarching issue is, we planned and managed to produce X number of pounds and we produced X-minus, okay. The key issues there, as I said before equipment uptime and availability and then all the yield and quality issues. The combination of those two things really created poor flow and inefficiencies from a labor cost standpoint, from a maintenance perspective and from a supply perspective. As we have continued to peel this onion in a way and drive to find all of the root causes, we have also identified that our first half product mix compared year-over-year has a more significant portion of some of the very light gauge complex alloys in the automotive segment and electronics segment.

So, in addition to everything we are doing, we are zeroing in on those particular products that are extremely light gauge in order to drive specific improvement in the complex processes associated with that. We continue to add resources on the total preventative maintenance and are seeing progress there. And we continue to add resources in the – all of the issues associated with yield. So that coupled with the organizational changes, coupled with the work that’s going on, bode well for what we are seeing and what we are anticipating to occur as we move through the second half of the year.

And lastly, we are going to continue to look I mean we have run a very complex mix down in East Alton with 40 to 50 alloys a month. And we run some very tough product specific products. And as we further dug into these, in addition to operating performance, it’s really taking a very hard look at the – how we are costing and how we are pricing these products in the marketplace. And it has reinforced our focus on implementing the published price increases on the light gauge product line that were announced late last year and early this year.

Brian Drab - William Blair

Okay, great. So that’s a ton of detail. And just two quick follow ups related to this. You mentioned the inventory correction. And I think you mentioned that, that was specifically in auto, do you sense that, that’s behind you at this point?

John Wasz

Well, I think you are talking about the second quarter, Brian.

Brian Drab - William Blair

Yes, yes.

John Wasz

It was actually…

Brian Drab - William Blair

Whether that headwind is gone now as we move into the second half?

John Wasz

Yes. It was actually a select automotive and then it was building and household, okay. And building and household predominantly with customers that we are anticipating exceptional growth in new home construction and remodeling, but then the weather and as we both bought based on those assumptions in the first quarter of the year. And then subsequently because of the weather, it didn’t come to fruition and they had to peer back their purchases in the second quarter. And I would say that’s largely behind us.

Brian Drab - William Blair

Okay. And then the other follow-up is…

John Wasz

Let me just make one more…

Brian Drab - William Blair

Yes, I am sorry, yes.

John Wasz

Yes. On the automotive side, it’s very select customers and we have had that largely behind us. As we look out into the balance of the year, I would – I anticipate our automotive business continue to improve. And so we will go forward from there.

Brian Drab - William Blair

Okay. And then can you comment on the run-rate activity in July compared with what you are seeing in the second quarter, maybe even just roughly or broadly speaking?

Robert Micchelli

In what perspective, Brian, are you talking about?

Brian Drab - William Blair

Is July better or worse than April, May, June in terms of volume shipment revenue run rate? Just what’s – I am trying to…

Robert Micchelli

Yes, got it.

Brian Drab - William Blair

Sense what the trajectory is coming out of the first half of the year, as you have already got one month in the books. And I don’t know if you are prepared to comment on that, but that kind of comment could be really useful in getting more confidence about your second half guidance?

John Wasz

Yes. Brian, I would say this that what brings me encouragement about the second half of the year is what we are experiencing regarding operational and manufacturing improvement at Olin Brass. As we move through the second quarter, we saw improvement in April – we saw further improvement in May, June not so much as a result of what I previously mentioned. But as we have gone through some of the changes that have occurred there as well as the further driving these initiatives, we like what we see from an operational standpoint as we move through July. We are not going to achieve, where we need to be, but as we move through the third quarter, I am confident and we will get there. Regarding activity level, I just – I remind you of the short lead times and everything else we have, that inhibits our ability to really project guidance, but suffice it to say that what we are experiencing as we move through the first part of the third quarter is consistent with what we have guided to for annual basis.

Brian Drab - William Blair

Okay, thanks very much.

Operator

Thank you. Next question comes from Phil Gibbs from KeyBanc Capital. Please go ahead.

Phil Gibbs - KeyBanc Capital

Good morning, John. Good morning, Bob.

John Wasz

Good morning, Phil.

Phil Gibbs - KeyBanc Capital

I had a question just on your inventory levels and how we should be thinking about those heading into the second half?

John Wasz

I think as we continue to move through the second half, Phil, our inventory levels will be flat.

Phil Gibbs - KeyBanc Capital

Okay. So, flat in terms of just the absolute dollars, because your business right now is relatively stable versus the first half?

John Wasz

Correct.

Phil Gibbs - KeyBanc Capital

Okay. And then just looking for a little bit more color on the comments you made about a bit of weakening in commercial munitions which business was that in? Was that largely the downstream fab business that you saw that? And when did you start to see signs of that I guess or anything you could elaborate on?

John Wasz

Yes, yes. It’s we look at it holistically from just the Olin Brass perspective and it is the commercial rifle products, it’s a product that we sell into the commercial rifle side of that, the munitions commercial business. And this is after, as I have said before, from a fabricating and cupping standpoint, we have been running at full capacity for the last several quarters. And as we look out to the future as a result of this feedback we are getting from customers on the commercial rifle I would anticipate us coming off the feeling.

Phil Gibbs - KeyBanc Capital

Okay. And anything you could give us just as far as maybe an absolute number or a feel for how much inefficiency in Olin was baked into the first half of the year, how much you would expect to clean out over the next couple of quarters, just some sense of the operational inefficiency there?

John Wasz

Yes. I think as a rule of thumb Phil, you can – you ought to be thinking about $5 million.

Phil Gibbs - KeyBanc Capital

Is what you – is what you kind of an annualized hit in the first half or that was an absolute hit in the first half?

John Wasz

Absolute.

Phil Gibbs - KeyBanc Capital

Okay. Thanks very much.

John Wasz

Sure, thanks.

Operator

Thank you. Next question comes from Sal Tharani from Goldman Sachs. Please go ahead.

Sal Tharani - Goldman Sachs

Thank you. Good morning.

John Wasz

Good morning.

Sal Tharani - Goldman Sachs

I wanted to just ask just a housekeeping question. In the previous releases, you used to give our operating margins and depreciation for each division, we didn’t see it this time?

John Wasz

Yes. I am sorry, can you repeat that question again.

Sal Tharani - Goldman Sachs

In the previous press releases, you used to give operating profits and depreciation for each of these divisions, I didn’t see it in this – I think you have changed the press the way you are reporting?

John Wasz

Yes. I have to run that down, but just I don’t believe we have ever given depreciation expense by business unit.

Sal Tharani - Goldman Sachs

Okay. We can take it offline later. That’s fine. Also the – that particular customer which has off-shored some of its products and you are having this issue, how long – the year-over-year comp, how long is it going to last, and then it will disappear, is it going on for like, what three quarters or two quarters?

Robert Micchelli

I think there is one more quarter left, and then we will lapse it beginning in the fourth quarter of this year.

Sal Tharani - Goldman Sachs

Okay. And last question I have is any comments on the import side, what you are seeing, what your expectations are, we have seen quite a bit of rate cases on the steel side, is there anything in the industry going up that you may be looking into?

John Wasz

Well, I will tell you what, on the Brass rod standpoint, the – it’s interesting, Sal. The Brass rod is imports are down about 6% year-over-year. So that’s a bit encouraging. As I have mentioned before, it creates an upper control limit on our pricing regarding that product line at Chase Brass. But it’s good to see that those have stabilized and they actually dropped on a year-over-year basis. On the strip side, I just make mention of the fact that we already have some tariffs that are in play relative to the Brass product line and we continue to see the various strip products come in at somewhere between 15% and 20%. And we don’t – and we have seen no change from that perspective.

Sal Tharani - Goldman Sachs

Great, thank you very much.

Operator

Thank you. (Operator Instructions) Okay, thank you. There is no further question. Ladies and gentlemen, that concludes your call for today. You may now disconnect.

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