United States Steel Earnings Call Nuggets: Deferrals Outlook and Maintenance Expense
United States Steel Corporation (NYSE:X) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Brett Levy – Jefferies & Co.: (Go Mall) got a very favorable pension deferral and you guys obviously have the Stelco assets, is there any chance that you could potentially get some deferrals as well?
Gretchen R. Haggerty – EVP and CFO: Well, we do – we currently actually have – operate under which are known as the Stelco regulations. So, we have been – it’s actually beneficial regulation that was in place when we acquired those assets. So, I think we already have an arrangement that’s perhaps different than what the requirements of some others might be.
Brett Levy – Jefferies & Co.: And the other question relates to the back half of the year. A number of firms have said that there is higher potential for better profits in the back half of the year. Are you guys thinking similarly, and if so, why?
John P. Surma – Chairman and CEO: Sorry, what was the first part of the question, Brett?
Brett Levy – Jefferies & Co.: A number of other firms have said that the first half of the year is going to be lower and the second half of the year is going to be higher, and I’m just wondering kind of beyond the second quarter if you guys have some visibility. Do you have the same sort of optimism, and if so, why?
John P. Surma – Chairman and CEO: Yeah, I haven’t read anything that suggests much optimism, but no, our visibility isn’t that far out. I mean, we do our best to give everyone an outlook into the next quarter, but the back half of the year depends largely on macroeconomic factors and that we see any will forecast from World Steel and AISI and those sort of things and a variety of different price tags that one could visit and see. And in terms of what we actually know through the later part of the year, really nothing that would be of consequence that would be based on anything except conjecture. So, I wish we could help on as to where – we’re essentially expecting us to be a year of some stability and if things would improve in the latter part of the year that’d be great.
Shneur Gershuni – UBS: My first question is related to the elevated maintenance expense that’s occurring this quarter. Last year was a pretty elevated year kind of across the board, and you’re having an elevated expense this quarter as well too, whereas we thought it was going to be more normalized year. How are you looking at maintenance right now? Is it running according to plan? Is this a quarter where it’s seasonal, it’s going to be higher this quarter, lower in the next few quarters? If you can sort of give us some color and flavor on how to be thinking about maintenance and whether it’s going to be elevated again or whether it returns back to a normal level as we think out for the rest of the year?
John P. Surma – Chairman and CEO: That’s a very fair question, Shneur, I’ll do my best. The way we measure it and we include the actual cost of projects that are not capital but just cost projects and include some measure of the inefficiencies that go with that. So we try to have a reasonably good measure of what the overall cost is. And this second quarter because we had two fairly sizable projects that need to get done for physical reasons; regulatory and (indiscernible) reasons, et cetera, in all probability, the second quarter of 2013 will be highest maintenance cost quarter for us. Current scheduling indicates we’ll probably have a couple of projects to do in the third quarter. That would be lower cost but still it would be a good size cost in the third quarter and then the fourth quarter would be probably the lowest of the year and that all would come to pass. Our overall cost for the year would still be somewhat below what the cost was last year. These are big projects and when things need to get done on a (harsher), on topper, on down-comers or on (Bosch) linings and we have to shotcrete for longevity; we do other things, we do the steel shop hood; at the same time, we try to put all that together and do work on the strip mills at the same time. There could be a pretty good cost. There is no really good way to smooth that out at all. When it comes, it comes and we can plan it with some precision, but we move it back and forth for physical as well as market reasons. So, the best I can tell you is this should be the highest quarter of the year. It could always change, but that’s our current thinking. Next quarter, down, and they still have some work to do. Fourth quarter should be the lowest of the year.
Shneur Gershuni – UBS: My follow-up question, I understand it’s hard to speculate as to what’s going to happen with respect to the lockout, but that thing said, I was wondering if you had something for us to think about in terms of weekly, monthly or quarterly cost sort of like what the operational cost it will be to run, or related to the facility kind of as we think about if this extends for an extended period of time, how we should think that it’s going to impact earnings on a go-forward basis, any metric you have would be helpful…
John P. Surma – Chairman and CEO: I’ll just remind you that we went through this, incredibly some two year ago, I forgot exactly when it was. Now, I think, when we get to the point we are now, where we essentially have facility preservation program that we’re implementing to make sure that the equipment is cared for property and the coke batteries stay warm and the equipment is lubricated and exercised and we’ve got power where we need it. There is a certain amount of cost, and I think the last time we got that 45 million or 50 million bars, a quarter, a large portion of which is depreciation and property taxes and pension charges and rest is actual operating cost. I don’t know where we’ll be this time, but I’ve used that as a rule of thumb that probably wasn’t a bad number last time. That’s the number we used last time. It wasn’t a bad number this time. This quarter it would be only for part of the quarter, but we were down for most of the quarter anyway on the (indiscernible) project, so it’s going to be a carry cost quarter, either way you look at it, so I’d say 45 million to 50 million, and we hope that that’s not a subject we have to discuss for a long time, but that’s probably where it would be.
Shneur Gershuni – UBS: And one last (part of) question, are there any maintenance covenants that we need to be thinking about when we think trailing EBITDA and so forth?
Gretchen R. Haggerty – EVP and CFO: We don’t have any financial covenants that way. We do have a kind of fully loaded fixed charge covered ratio in our credit agreements which have the effect if we don’t meet that. So as long as we have maintained a certain level of liquidity on the facilities, I think, it’s $87.5 million, then there is no – it has now effect.
John P. Surma – Chairman and CEO: And just Shneur, one more point on while we’re talking about it since you mentioned it, and we’re not making steel today in Canada regrettably, but we are selling steel in Canada. Our finishing facilities, our pickle lines, our cold mills, and our galvanizing lines, one construction one, really high-end auto line, are running fine. We are fulfilling all of our customers’ requirements. We have a plan to do that, plenty of inventory in the line to do that. So, we intend to continue to operate commercially as we had before this unfortunate circumstance.