Earnings Transcript for KRO - Q2 Fiscal Year 2011

Executives: Janet Keckeisen - VP, IR Steve Watson - Vice Chairman & CEO Greg Swalwell - EVP & CFO

Analysts: James Sheehan - Deutsche Bank Securities B.G. Dickey - Stephens Inc Sara Magers - Wells Fargo Securities David Begleiter - Deutsche Bank Securities Nicolas Walter - Colorado Water and Power Authority Edward Yang - Oppenheimer Baker Burleson - Fox Point Capital Management

Operator: Welcome to Kronos Worldwide second quarter 2011 earnings call. My name is Jasmine and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. I will now turn the call over to your host, Janet Keckeisen, Vice President of Investor Relations for Kronos Worldwide. You may begin, Janet.

Janet Keckeisen: Thanks, Jasmine. Good morning and welcome to the Kronos Worldwide 2011 second quarter earnings call. With me this morning are Steve Watson, Chief Executive Officer; and Greg Swalwell, Chief Financial Officer. The earnings release that was issued this morning can be found on our website at kronosww.com During the course of this conference call, we will make forward-looking statements. All statements relating to matters that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. Although the Company believes that exceptions reflected in such forward-looking statements are reasonable, it cannot give any assurance that these expectations will prove to be correct. Such statements by their nature involves substantial risks and uncertainties that could significantly impact expected results and actual future results could differ materially from those described in such forward-looking statements. We assume no obligation to update or revise any forward-looking statements. Please refer to the earnings release for a discussion of some of the factors that could cause actual results to differ materially. In an effort to provide investors with additional information regarding the Company's results of operations, we will refer to certain non-GAAP information. We ask that you refer to the earnings release for a reconciliation of this non-GAAP information to our GAAP financial statements. I will now turn the call over to Steve.

Steve Watson: Thank you, Janet and welcome to everyone participating on this conference call. In addition to Janet with me today are several members of our management team, Greg Swalwell, Executive Vice President and Chief Financial Officer; Rob Graham, Executive Vice President, Kelly Luttmer, Vice President and Global Tax Director; John St. Wrba, Vice President and Treasurer; Tim Hafer, Vice President and Controller, and Brian Christian, Vice President of Strategic Business Development. Rest assured, we do have people running the business while we chat with all the folks that called in today. On that point, I want to give special recognition to our exceptional operating management team. The leaders of that team, Doug Weaver, Dr. Ulfert Fiand, Klemens Schluter and Joe Maas led our business through the adversity faced by the TiO2 industry and global economy in 2008 and 2009 and positioned us to be able to quickly adapt the industry changes. Through the years, these leaders have also developed and managed a deep and talented group of managers and technical professionals who will serve our business very well far into the future. During the first and second quarters of 2011, we continued to experience strong global customer demand for TiO2 products. This allowed us to successfully implement further significant selling price increases. Our TiO2 segment profit in the first half of 2011 nearly quadrupled from the first half of 2010. We believe the global shortage will continue for several years due to the constraints to adding significant new production capacities especially for TiO2 premium grade produced through the chloride process. Major capacity addictions, both brownfield and greenfield require considerable investments of capital and time. It generally takes two to five years from the time of announced capacity expansion until the additional facilities are fully operational. As we have discussed previously, the mere announcement of capacity expansion such as those occurring in the last few months will do little to relieve the longer-term shortage of TiO2 products. We believe that higher long-term sustainable profitability levels will be needed to induce TiO2 producers to commit the capital and time needed for capacity expansion of the magnitude required to match future growing demand levels. The increasing raw materials cost and in particular the global shortage of ore feedstocks is also an impediment to capacity expansion. We anticipate the tightness in ore feedstock supplies will last at least for a couple of more years. As we have previously discussed, an extended period of low profit margins did not foster the investment in development of ore supplies that are now needed for an expanding TiO2 industry. The TiO2 industry cannot grow without the expansion or ore supplies and the ore industry needs the TiO2 industry to grow in order to justify its own expansion. We believe both sides of these relationships understand this co-dependency and that increasing cost of ore will remain in check so not to become a major factor in hindering profit margin expansion in the TiO2 industry, which could in turn hinder TiO2 capacity expansion. Although, the ore supply situation is tight, we believe our long-standing relationships with our key suppliers will allow us to have an assured supply of feedstock while the supply shortage continues. We do however believe our feedstock cost will increase significantly in 2012. We are partially hedged against these cost increases due to our backward integration. We supply 100% of our European sulfate production or feedstocks from our mine to Norway. Most TiO2 customers’ number one concern has turned from price to assurance to supply. We view our customers as partners and greatly value our long-term relationships. We make every effort to satisfy our customers’ most critical need even though allocations of limited TiO2 product supplies are expected to continue. We understand the increased burden our customers are experiencing and try to work with them to minimize disruptions to their business. I will conclude my prepared remarks with an observation that I believe deserves repeating for our new stockholders. Our style of management is from an owner’s prospective, I can say that authoritatively because I am also the CEO of the company that holds 80% of the stock in Kronos. Our focus is to provide the highest total return to our stockholders through the appreciation of the value of our stock and dividend distribution while maintaining strong financial liquidity and strategic positions. Our perspective is a long-term view. We do not play the quarter-to-quarter earnings game that many non-owner managed companies often play. I can report to the stockholders and those professionals who follow our company that the outlook for our business remains outstanding. We believe the current and anticipated TiO2 industry conditions will result in higher profit margins in cash flow for several years. Greg will now review our overall financial performance after which we will open this call up for questions.

Greg Swalwell: Thank you Steve and good morning to everyone on the call. We achieved record operating results in the second quarter and first six months of the year primarily due to the favorable impact of higher selling prices for ward to TiO2. We reported operating income or segment profit which is the term we use in our earnings release of a $146.6 million in the second quarter compared to $41.4 million in the second quarter of last year. For the first half of 2011, we achieved segment profit of $250.8 million compared to $64.3 million last year. Our average TiO2 selling prices in the second quarter were up 39% as compared to the second quarter of last year and our prices at the end of the second quarter were about 10% higher than at the end of the first quarter of the year this year. For the first six months of year, our selling prices were up 36%. As result of the global shortage of TiO2, we anticipate our selling prices will continue to increase significantly during the remainder of the year. As Steve mentioned, we continue to operate our plants at near full practical capacity utilization levels and our production volumes for the second quarter were up 6% from the second quarter of last year with year-to-date volumes up 7%. Our sales volumes for the first half of 2011 were up slightly compared to first half of last year and second quarter volumes were down slightly due to timing of shipments to our customers. Both our year-to-date sales and our year-to-date production volumes were new records for us. As we previously have said, our ability to achieve additional increases in our production capacity to debottlenecking projects is limited. And our current expectations is that global demand will remain strong in 2011 and that we expect our sales and production volumes overall in 2011 will increase slightly from the 2010 level. On the cost side and as we expected, our raw material cost were up 18.1 million in the quarter, 30.5 million on a year-to-date basis. These high raw material costs reflect primarily higher feedstock and petroleum coke. Our maintenance cost were also up slightly consistent with our higher production levels. Overall, we currently expect that our per unit metric ton cost of TiO2 will increase between 10% and 15% for all of 2011 as compared to 2010, which is consistent with our cost expectations at the end of the first quarter of this year. EBITDA for the quarter was 158 million, up from about 50 million in the second quarter of last year. Our year-to-date EBITDA was about 274 million compared to 83 million last year. Our interest expense for the quarter and year-to-date were lower primarily due to the redemption of EUR80 million of our senior secured note that we completed in March and a favorable interest rate on borrowings under our revolver. Our net income for the second quarter was $89 million or $0.77 per diluted share. This compares to 19.3 million or $0.20 per diluted shares in the second quarter of last year. For the first half of the year our net income was 149.3 million or $1.29 per diluted share. This compares to 62.1 million or $0.63 per diluted share in the first half of last year. And as a reminder our year-to-date results in the first half of 2010 include the impact of the previously reported first quarter non-cash income tax benefit of 35.2 million, which is $0.36 per diluted share related to a favorable development for some tax matters in Germany. In May of this year we implemented a two for one stock split and all of the per share amount that I've referenced this morning are computed on a post split basis including per share amounts from 2010. For the remainder of 2011 we expect that our segment profit and net income will be significantly higher as compared to 2010 as the favorable effect of higher selling prices will more than offset the impact of higher anticipated production cost. This concludes our prepared remarks and at this point we will open up the call for questions.

Operator: (Operator Instructions) Your first question comes from the line of David Begleiter. You may proceed.

James Sheehan - Deutsche Bank Securities:

:

Greg Swalwell: Included in our SG&A cost is our distribution cost so to the extent we have higher product sales volumes second quarter versus first quarter, you are going to see an increase in SG&A because that’s how we report our distribution cost. Much less significant but somewhat also an impact is we have a little bit higher R&D cost as compared to last year. If you look in our 10K on historical basis 2009-2010, we were running R&D on an annual basis around 12 to 13 million a year and we reported in our 10K last year that our expectations for full year 2011 R&D cost, we are going to be slightly higher around the $20 million range. So a little bit of timing of R&D efforts in the quarter would also be an impact for that as well.

James Sheehan - Deutsche Bank Securities: Okay. That’s really helpful. And just also on TiO2 selling prices, I see one of your competitors has just raised prices in North America by $0.10 a pound for August 15 implementation. Do you expect Kronos and other producers to have roughly equivalent price increases in that timeframe?

Greg Swalwell: We obviously can’t speak for what any of our other competitors might do in terms of price increase announcements or implementation and with respect to our own decisions about price increase, those are decisions that we make on an ongoing basis, considering all factors, market conditions, our expectations for production costs and things like that. We don’t give any guidance in terms of when we might be making an announcement of the price increase or what the magnitude or implementation dates of those would be. So I really can’t respond to that question at this time.

James Sheehan - Deutsche Bank Securities: Okay. Just on you know volume decline in the second quarter you referenced to timing of shipments. Could you just give a little more color about how the timing of shipments, how you expect that to play out in the next couple of quarters?

Greg Swalwell: As we said I mean you look at where our sales volume were for all of 2011 we have said, we expect they will be up sequentially compared to 2010 by a few 1000 metric tons and that just solely because generally we are selling everything that we produce and we’re feel pretty much constrained on our production volumes. So to kind of look at, if you look at what the expectations were for production volumes being up slightly on a year-to- year basis, that would track with our expectations for selling volumes.

Operator: Your next question comes from the line of Trey Grooms. You may proceed.

B.G. Dickey - Stephens Inc: Yes, good morning. This is actually B.G. Dickey in for Trey. Just a question regarding the tax rate. It looks like that came a little bit higher at 35% roughly. I think you guys have previously guided to a full year number of around 31 and 32%. Can you give us some color on what’s going on there and if you have any change to your full yeas outlook?

Kelly Luttmer: This is Kelly Luttmer. As part of the impact in the change in the effective tax rate depends on the mix of our earnings and so as the mix of our earnings changes sometimes that might impact the tax rate slightly on a go forward basis and my expectation is that we would have a 34 or 35% effective tax rate on an ongoing basis.

B.G. Dickey - Stephens Inc: Okay, so 34 to 35 for the back half you say?

Kelly Luttmer: Yes.

B.G. Dickey - Stephens Inc: Okay, great. Thanks. And then kind of a on the mix question, mix was down 6% I believe in the quarter, can you guys give some clarity of what kind of what was the driver there?

Greg Swalwell: We don’t really in – the question was the mix, the impact of the mix on our sales line. We don’t go into any detail on our disclosures about product and mix and things like that. Obviously, we sell a wide variety of products with different uses, different end uses that have a range of selling prices and just depending upon what the customers are asking for, demand for from period to period we can see some slight variation in our selling line as a result to what the relative mix of our products are. It’s generally nothing that on the long-term basis with anything terribly significant.

B.G. Dickey - Stephens Inc: Okay, great. And then just real quickly and the question would be just on the use of cash, Can you give us your thoughts there. Do you guys plan on using cash to pay down future debt or you’re comfortable with the current level cash that you have on the books?

Steve Watson: I’ll let John St. Wrba our treasurer answer that.

John St. Wrba: We did the redemption of the notes, earlier this year. We subsequently paid down the full revolver borrowing that, this is subsequent to June 30, paid down the full revolver borrowing, so our debt level is down on an absolute basis to €320 million. You know, we’ll evaluate whether or not we want to continue to reduce the 6.5% notes and make that decision this time.

Operator: (Operator Instructions) Your next question comes from the line of Sara Magers. You may proceed.

Sara Magers - Wells Fargo Securities: Great, good morning. I was wondering if can ask the sales volume timing issue and the mix question, you know a little differently. I know you have said that there were some sales volume timing issues within Q2 and I am just wondering if this timing did impact the pricing, the year-over-year pricing and then the mix in the quarter. And if so, does that mean that we should have some pull through into Q3 on both the sales volume and the mix benefit in for Q3?

Steve Watson: No, it doesn’t impact the price at all and the timing on getting shipments out is just a logistical issue that can get out the door and have a shift so you can record it; we don’t necessarily just try to rush things out. But it’s sometimes it’s hard to get these products out and I would say that whatever didn’t happen in the second quarter, immediately happens in the third quarter.

Sara Magers - Wells Fargo Securities: Okay, great. And then just a follow-up, within the press release you had an adjusted segment profit table and then within that you had added back what you termed corporate expense to get through and adjusted I guess segment profit line. Could you just kind of give us a little bit more color as to what is within that corporate expense line item and I guess then why it would be concluded from segment profit?

Greg Swalwell: Things such as the cost of this conference call not that is $4 million on the – but things having to do with being a public company that you wouldn’t necessarily incur if we were not a public company; those are some of the types of things that that would be going into the corporate expense line.

Operator: Your next question is a follow-up from David Begleiter. Please proceed.

David Begleiter - Deutsche Bank Securities: Yeah, change fee and I again, I just have a question on you know you mentioned that there is an outlook for or cost in 2012 to be significantly higher; could you possibly try to quantify that, would the increase be as large as we saw in 2011?

Greg Swalwell: Well, we would like to say that we had great insight into what the costs are. We just, at this time, we just don’t know. Those contracts are generally negotiated in the late fall of each year and we just don’t know.

David Begleiter - Deutsche Bank Securities: Okay. And just with respect to new capacity and the need for sustainably higher margins how much higher do you think TiO2 margins need to go before for you are ready to pull the trigger on some kind of capacity expansion?

Greg Swalwell: That’s a difficult question because it’s going to specific to each producer; obviously there DuPont has announced some capacity expansion that would – they have indicated I think will come online in the next two or three years. Our view is that those announced capacity expansions would you know be eaten up by increase in demand over that time frame such as they really wouldn’t have that significant of an impact on the supply-demand condition in the industry. From our perspective, you know it’s not necessarily achieving some kind of pro-rate that we might have internally on one day and saying, okay, now we are here, we are ready to start, because there is also a need in our view to have a reasonable assurance that there is going to be necessary profit margins that would be on a sustainable basis. And so that impacts the timing of when you would make a decision in terms of announcing and starting on some kind of a capacity expansion. You know, I will say that when you know if the point comes when we Kronos, because that’s all that I can speak for is that Kronos, when a point comes when, we Kronos decide that we would be prepared to start some kind of capacity expansion, we wouldn’t be starting from ground zero or ground negative because you know we constructed the last facility in the western hemisphere, our Lake Charles plant. So again my point is when we get to that point in time, you know we will be able to start that process. But we’ve made no announcements and our internal view is we are not at that point yet.

Steve Watson: I think, in addition to that too, just what Greg said is that we, Kronos we feel very comfortable that we have the ability in house. We’ve got a very distinguished group of technical people, Dr. Fiand who is now our Vice Chairman of our Management Committee actually brought Lake Charles plant online 27 years ago. We are prepared, we don't need to start engineering design, engineering work, site locations those types of things. I am not going to get into the detail on that, but we feel like, if we get to the point where all of the subjective not just the data points in the gross profit we had, but the subjective amount that Greg mentioned are met, we believe we can hit the ground running probably as quick or quicker than anyone else. DuPont is in the same position and they have a very good technical group. They are prepared, they obviously have announced some Brownfield type expansion and debottlenecking. But we do believe that most other players would have a longer timeline that they would need to get started basically they need to start from the very beginning, design work and that type of thing. We feel like we have probably at least a year work in our pocket, just because we have built the last plant and we still have the people, we have the design, we designed it virtually identical to our other core nation units in the world. So we do believe that we are fully prepared to move. When we think that we can do it, and increase returns to stockholders, we are very much in tune with, we only do things that we believe will give a greater return to stockholders, not just to get bigger for the sake of getting bigger.

David Begleiter - Deutsche Bank Securities: Thank you very much for a very comprehensive answer. Now just one more on demand, you know with this very steep increases in TiO2, can you give us a little color on what are you hearing from your customers about downstream demand in coding, you referenced that your customers are very concerned about assurances supply, but further downstream in the chain, do you see any evidence of demand destruction or an inability to absorb these increases for TiO2 costs?

Greg Swalwell: No. We are not – at this point we are not seeing any significant demand destruction. We obviously communicate with our customers on an ongoing basis particularly in the environment that the industry is in right now. We think our customers understand the dynamics of the industry and understand that that there need to be increased profitability on a sustained basis in order to induce the industry to have any significant increases in the capacity that in the long run would you know provide greater output to their products or input to the products.

Steve Watson: The other important thing to understand is that titanium dioxide pigments go into literally thousands of different products. The vast majority of which the TiO2 input costs are relatively minor to total manufacturing costs, total input costs. The paints and coding industry probably is the largest percentage of the input; they are effected the probably the more than any of the other industry segments. So that’s really may be the bell weather where do you start seeing as the pricing of input costs, raw materials are creating demand, destruction downstream. Most of the other industry segment, the percentage is much, much smaller, we do as Greg said we’re in very close contact with our customer base. I think some of the things we see is shifting within economies, the North American market is, no question we are in a economy slump. So that is creating less demand, it is not creating anything on the pricing side. The pricing is slacking off and we don’t anticipate that because it is a global market as Greg has pointed out and there is a global shortage. So there’s always a home for the TiO2 at ever increasing prices for the foreseeable future. So that’s something that we’ve been asked, we watch it very closely, we value our relationships with our customers and we do what we can to help alleviate the burden that they have on them. But the number one thing is, is that as Greg pointed out unless there is margin expansion in the TiO2 industry, the customers will be faced with a shortage forever. So there’s got to be capacity added and the only way the capacity of the magnitude needed to meet growing demand worldwide is that it’s got to have profits that will induce people to spend a very significant capital cost and the time involved.

Operator: Your next question comes from the line of Michael (inaudible). You may proceed.

Unidentified Analyst: Can you just talk about with volumes that were down just slightly, is that function at all of seeking any additional downtime at the plants, on plant downtime you know mainly these plants have not been running at the rates they are being run at now and I am just wondering as you are running the plants at these levels, are you seeing more maintenance issues?

Greg Swalwell: The timing of the shipment volume is not a function of the production level. In fact our production volumes were up from last year. So I mean that said, your point is well taken and that we are running our plants full out and have been for several quarters and that’s one reason that our maintenance cost are little bit higher. The plants were built and designed to run as much as they can and that’s obviously how we like to run them, to keep them going as much as we can but the answer to your base question was no, those are not related.

Unidentified Analyst: And if there were in the industry, have there been any unplanned outages in the industry in the quarter and generally that would be more favorable for pricing over time, will it be just more of a shortage on a short-term basis.

Greg Swalwell: We are not aware of any significant unplanned downtime in the industry that we are aware of and in terms of whether that were to occur and what the impact that would have on the pricing level I think it would probably be a function of the magnitude of the duration of that unplanned downtime.

Operator: Our next question comes from the line of Nicolas Walter.

Nicolas Walter - Colorado Water and Power Authority: Could you talk a little bit more on the context of feedstock prices. You mentioned you expect them to go up for 2012 and speaking to some of the ore producers, some of the ilmenite producers, they are talking about $300 to $400. And I am just kind of trying to understand one, what is kind of the pricing level where you see feedstock prices today because there isn’t a ton of transparency and two, at what price do you and you talked about sort of your margins getting squeezed to the point where you don’t want to expand capacity. If we use ilmenite as a proxy, the ilmenite producers will step to $700 as no problem. It sounds like that’s not true. So, I am trying to better understand a little bit about where these feedstock prices are and at what levels do you think that they are effectively too high and are going to put pressure on your business.

Greg Swalwell: We don’t disclose what our absolute feedstock ore cost are. So I am not able to give you any kind of a context or detail in to that. I would say the best way to answer your question is to refer back something that Steve said in that you know, there is a co-dependency relationship between on the one hand feedstock producers and on the other hand the TiO2 industry. They know that they are an essential raw material ingredient into our product and we know that as well. But the health of the TiO2 industry is, obviously should be a concern to the feedstock producers just as we understand that the health of the industry of our various customers bases are important to us. So, you know, what level of feedstock price as we said we don't know what they are going to be next year. But we do think that all these various players understand that whatever happens, that they have to be at a level that the various other participants in the supply chain can react to and can continue to run their businesses.

Steve Watson: We also recognize, again we value long-term relationships both upstream and downstream, our customer base. We have many of our customers that have been with Kronos for a long, long period of time and looking upstream, we have similar relationships with most all the ore suppliers. And when we talk about sustainable profits, to put in more TiO2 capacity, it’s magnified by the ore producers to actually develop and bring on line new ore deposits are a very expensive venture and it needs to be a very long-term perspective on it. And plain and simple, their profit margins were squeezed so hard over the last 20 years that there was very little development of ore bodies. So they are cautious as the TiO2 industry is. Not to jump the gun too far, they clearly see there's a shortage but they also know that if margins started to become compressed in the TiO2 industry which is their major customer, the TiO2 industry that that does not bode well for the capital costs that they were put into develop ore. So it is very interesting and as we use the word co-dependency type relationship, our wagons are hooked very close together and we believe that the ore businesses are managed by people that understand that really well. So we do not, as I mentioned in the beginning, we do not believe ore costs are going to get so far out of line that they hinder margin expansion in TiO2 industry. That would become a very self-defeating process for the ore producers. We do know that there has been an extensive amount of work done within the last year, few months on looking at expanding their capacity, some brand new deposits are being looked at, but these are long-term, several years to develop brand new ore bodies. So we feel comfortable not because there won’t be some kind of wild swings along the way, but those all can do level out over a period of months. So I think when we see the announcement which our customers say, what is this price increase? Well, you look at some of the announcements by the ore people and they look astronomical. But we understand what it is going to take for them to get to those profit levels that they need and if they don’t get there then we are going to live with an ore shortage for a very long period of time.

Nicolas Walter - Colorado Water and Power Authority: Right. Could you just comment then without talking about pricing levels but in terms of the nature of the contract and duration. Is the semi-annual or first half, second half pricing, is that going to be probably the standard metric going forward effectively what Iluka has been on and what some of the other ore producers are targeting first half, second half pricing for ore?

Greg Swalwell: Similar to what we said about price. Any other terms of the contract, we don’t know yet because that we just – we haven’t had those discussions yet.

Operator: Your next question comes from the line of Edward Yang. Please proceed.

Edward Yang - Oppenheimer: Hi, good morning. Looks like the supply situation on the manufacturing side looks quite good for the foreseeable future. But what about customer inventories, how do you in your estimation have customers changed buying patterns or are they accumulating inventory, destocking etcetera?

Steve Watson: We can’t see that any there is any change in our customer inventory levels. I think that it would be difficult in a period of industry shortage for them to increase their inventory level, when customers are asking for more products than what we are able to supply them. I think that tells me that their inventory levels are not really changing appreciably.

Edward Yang - Oppenheimer: Looks likely.

Steve Watson: And we actually it’s very intentionally watch that metrics. We have most of our customer based on our allocations system. We don’t have enough products to satisfy all of the requirements of our customers. So we watch closely that one customer isn’t basically buying ahead and building inventory and hoarding, which would prevent us from maybe satisfying the critical needs of another one of our customers. So we are watching that . We believe our customers understand that. We just don’t have enough products to satisfy all of the need and provide a cushion for the customers to basically build inventory. We are very in tune with the needs of our customers, so the last thing we want to do is not provide the critical amount of supply to our customers. Again, we value these relationships long-term view of things. So basically we believe have a good handle on that, some of them putting a few bags of TiO2 in the back warehouse if they can, of course if they can do it, it’d be a smart move and we just don’t believe there are that much products out in the market for them to do any significant inventory build.

Edward Yang - Oppenheimer: Okay. And we’re kind of kind of seeing what you’ve been able to do on the pricing side in a modestly growing and expanding economy and prices we’re up 39% year-over-year. Given the investor concerns about global slowing, macro slowing, how would you envision pricing to look under a scenario of flat GDP growth, so 0% growth or 0% demand growth or and or a modest decline in demand?

Steve Watson: I guess one simplistic look at it, would be that we had zero GDP growth, everything would be statues quo as of today, which means there would be a shortage of product for downstream customers, which is still a pretty good environment to be in. Obviously, if globally we got to a zero GDP growth a lot of really pretty major things have happened in the worldwide economies. We do have clearly the U.S. economy is lagging well behind both Europe and very far behind most of the export and the fast growing economies of the Middle-East, South America, Latin America, Asia. But as Greg pointed out earlier we feel the pain of the U.S. economy but for this particular product it is a global product that easy to ship, the shipping costs are low. Could we ship all the product out of North America in to export markets? Yes. Do we intend to do that? No. because there is always going to be customer needs in the country and we have these longstanding relationships that we are servicing. That doesn’t change the fact that we have global pricing, we believe that’s a imperative that we don’t have a miss-allocation of product and pricing of our product. But I think that to get to a zero global GDP growth, a lot of really bad things have happened in the world and it’s beyond our ability to project what would mean.

Operator: Your next question comes from the line of [Ashmin Tahr]. Please proceed.

Unidentified Analyst : Hi guys I again this following up on the last question. Can you comment on what growth you are seeing from emerging markets such as Latin America, Eastern Europe and China?

Greg Swalwell: I think the demand in those regions are fairly strong. I mean we are seeing good demand in those regions.

Unidentified Analyst : I guess I got it. I am trying to triangulate based on the numbers for the second half this year. And just based on I guess your cost inflation guidance, is it reasonable to assume like 25 million to 50 million type inflation in second half of this year?

Greg Swalwell: I mean I think understand your math and I understand how you are getting your math. We don’t give any kind of guidance or components of guidance and so I am not able to directly answer your question, but I understand your math.

Unidentified Analyst: But I guess, and your production is, I guess your sales are not really going up that much and you’ve given you know push on that inflation guidance, we have seen the first half numbers. And I guess you can even back into like a 50 million type or 25 million type number for second half of the year. And I guess, if you just spend a minute or two on I guess, if you – can you just comment on what portion of your raw materials are seldom contracted for second half of the year. I mean is there any room for inflation and any the others like feedstock buckets for second half or is everything just fully contracted?

Greg Swalwell: I think both significant inputs, we have contracts for you know our 10% to 15% inflation over 2010 I mean, that’s consistent with where we were at the end of the first quarter and we have seen nothing that would change that expectation through the end of the year.

Unidentified Analyst: And I guess, and looking at your price increases for titanium dioxide for the second half of the year. Do you think it’s reasonable to assume like $750 to $1,000 per ton of realized price increases in second half relative to first half?

Greg Swalwell: I will say that we do expect that we will have additional price increases that will be announced – some have already been announced to be implemented in this last half of the year. I think it’s reasonable to assume that there will be additional increases that we will announce that would be implemented before the end of the year. But the timing and the magnitude of those increases, we don't give any guidance. Those are things that we look at internally and make the announcement at the appropriate time, but we don't, we've never given that guidance before and we are not able to do it at this point either.

Unidentified Analyst: So I guess just to clarify that, I mean you've already announced about and so there is any idea of the European price increases on bringing out about €1,200 of price increases through the course of this year. In fact, I mean since you are always suggesting that we could see additional price increases to be implemented above and beyond €1200 for this year?

Greg Swalwell: As I said, it’s reasonable to assume that there would be additional price increases up and above what we have already announced that that would be implemented sometime during this year.

Operator: Your next question comes from the line of Charles Anderson. Please proceed.

Baker Burleson - Fox Point Capital Management: Hey guys this is Baker Burleson of Fox Point. Two questions for you that were sort of things that were popular topics I guess when you guys hit the road show and I just want to get updated thoughts on, one being potential capacity coming out of China, and two being thoughts on consolidation of the industry now that Tronox is out of bankruptcy and is a more perhaps freely trading asset? Thanks.

Greg Swalwell : As to the first question we have seen some additional supply of product coming out of China the last few months, but that said it’s been nothing that been any significant and it’s not been significant and its nothing that has changed our view that which we don’t think China in the near-terms going to have any significant impact on the global supply-demand relationship. As to consolidation in the industry and Tronox; Tronox is a public company now and they had a call recently as to what might happen to the Tronox or some of those assets, you know that’s something that I guess you will have to talk to Tronox about.

Steve Watson : Hi. I agree with what Greg just said is that we would, I think everybody been waiting around for Tronox to come out of bankruptcy because it was not realistic that anything would happen with those assets once they went down restructuring route versus the asset sale route. And you are referencing back to the road show, at that point in time we thought there was a realistic chance that the assets would be sold, the assets versus the whole company and that it would be an asset sales versus a restructuring. The creditors saw the same thing we saw which was incredibly low valuation at that time and we were able to get the court to swing it over to restructuring. It took them a long time to get out of bankruptcy, but they are out and we do expect that those assets are probably at the top of the list as the potential to be moved around in the industry, it is just because the vast majority of the shareholder group didn’t get their stock by buying it, they got it because they were creditors and normally they want to maximize the returns and then exit, because that’s not really why they are in the stock. The timing of that is difficult to tell, they – and Greg is absolutely right those questions are probably better post to Tronox. We do believe that there is other potential in the industry for consolidation it isn’t a large industry to start with and there is only five main players in the world and then there is a second tier of a handful of players so there is not a whole lot of industry out there to consolidate. We do believe that the industry most after they found a home on long-term basis we do believe that most of the owners are fairly financially disciplined from the days when there were making twice has many producers that there were, are now. But we are consistently interested in expanding our capacity either building something or buying something, we would still prefer to buy versus build. We just think that’s a better route and not all depends on valuations. And the main reason for that is you start earning money from day one versus four or five years of putting money out before you come online. But we’ll only do that if we believe we can improve our company, improve the profitability, improve the cash flows and basically improve the returns to our stockholders; that’s our perspective. But we do expect some changes within the next few months to a year; I know we’ve been saying for the last year, but we’ll still expect that to happen.

Operator: Ladies and gentlemen, this conclude our question-and-answer session on today’s call. Thank you for your participation and you may now disconnect. Have a wonderful day.