Cabot Corp (CBT) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2015 Cabot earnings conference call.

My name is Julie, and I will be your operator today.

At this time, all participants are in listen-only mode.

We will conduct a question-and-answer session toward the end of this conference.

(Operator Instructions)

And now I would like to turn the call over to Jim Kelly, Interim Vice President of Investor Relations.

Please proceed, sir.

Thank you, Julie.

Good morning.

I would like to welcome you to the Cabot Corporation earnings teleconference.

Earlier today, we released results for our third quarter of FY15, copies of which are posted in the Investor Relations section of our website.

For those on our mailing list, you received the press release either by e-mail or fax.

If you're not on our mailing list, and are interested in receiving this information in the future, please contact Investor Relations.

The slide deck that accompanies this call is also available in the Investor Relations portion of our website, and will be available in conjunction with the replay of the call.

I'll remind you that our conversation today will include forward-looking statements, which are subject to risks and uncertainties, and Cabot's actual results may differ materially from those expressed in the forward-looking statements.

A list of factors that could affect Cabot's actual results can be found in the press release we issued this morning, and are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly in our last annual report on Form 10-K.

These filings can be found in the Investor Relations portion of our website.

I will now turn the call over to Patrick Prevost, who will discuss the key highlights of the Company's performance.

Eddie Cordeiro will review the business segment and corporate financial details.

Following this, Patrick will provide closing comments and open the floor to questions.

Patrick?

Thank you very much, Jim, and good morning, ladies and gentlemen.

We experienced another challenging quarter, as the global macroeconomic environment and the downturn in the oil and gas sector continued to negatively affect our reinforcement materials and specialty fluids segments.

While our volumes held up well across most segments, in reinforcement materials, we continued to experience margin pressure from lower contract pricing, feedstock-related effects, and high competitive pressures in Asia.

On the positive side, we have seen the markets for reinforcement materials in North America and Europe strengthen.

However, South America, and especially Brazil, remain weak.

The China market is experiencing strong competition, as growth in that region has slowed, due to weaker local demand and diminished export opportunities for the tire industry.

In specialty fluids, we continue to see lower project activity, as a result of the oil and gas industry's adjustment to the current oil price environment.

Results in the performance chemicals and purification solutions segments improved both year over year and sequentially, with performance chemicals achieving record results this quarter.

Both segments benefited from improvements in volumes, while purification solutions also delivered improvements in margin and costs.

At the corporate level, we had another quarter of strong cash flow, mainly from operating performance.

We are maintaining our focus on returning cash to shareholders, and used a portion of our cash flow generation to repurchase 574,000 shares during the quarter.

This brings our year-to-date repurchases to 1.8 million shares, for a total spend of $80 million, and this represents a 3% reduction in our total share count.

Lastly, we were disappointed with the Supreme Court's MATS decision.

While there are a number of possible scenarios going forward, we have assumed a two-year delay in our impairment analysis.

As a result, we recorded a non-cash impairment charge of the purification solutions segment of $482 million during this quarter.

I will now turn it over to Eddie to discuss the financial results in more details.

Eddie?

Okay.

Thank you, Patrick, and good morning.

Adjusted EPS for the third quarter of FY15 was $0.64, and total segment EBIT from continuing operations was $86 million.

Including the impairment charge that was recorded during the quarter, diluted EPS was a loss of $7.04.

Volumes held up well overall, with sequential improvements across all segments.

As expected, we continued to experience margin pressure in reinforcement materials and lower project activity in specialty fluids.

On the positive side, we delivered record results in performance chemicals, and doubled purification solutions EBITDA results, compared to the same quarter of last year.

Performance chemicals benefited from higher volumes and lower fixed costs, while purification solutions experienced improved pricing, higher volumes sold to mercury removal customers, and lower operating costs as compared to last year.

In addition, the Company delivered strong cash flow from operational performance during the third quarter.

We also continued to aggressively manage costs, resulting in $10 million of lower costs as compared to the prior-year quarter, and a $25 million reduction year to date.

We also continued to tighten our capital spending program.

I will now discuss the details at the segment level, beginning with reinforcement materials.

During the third quarter of 2015, EBIT for reinforcement materials decreased by $30 million, as compared to the third quarter of 2014.

The decline in EBIT was principally driven by continued pressure on unit margins, including many of the headwinds that we experienced in the prior quarter.

Specifically, we continued to see lower contract pricing and negative feedstock effects, which reduced earnings by approximately $20 million as compared to last year.

In addition, we saw lower benefits from our energy efficiency investments, and the result of an unfavorable sales mix, with lower sales in North America and higher sales in Asia, totalling approximately $10 million as compared to last year.

Volumes were flat during the third quarter of FY15, as compared to the third quarter of FY14, driven by lower contractual volumes in North America and weaker markets in South America, partially offset by increases in other regions.

Sequentially, reinforcement materials EBIT increased by $5 million.

The increase was primarily driven by a 7% increase in volumes, partially offset by an unfavorable regional mix.

As expected, we benefited from the absence of higher cost inventory, offset by more price pressure in Asia and higher seasonal costs.

The sequential volume increase in the quarter occurred in China, Japan and North America, with declines in other regions.

Our global utilization was approximately 80% in the third quarter.

Now turning to performance chemicals, EBIT increased by $4 million as compared to the third quarter of 2014, due to 7% higher volumes in specialty carbons and formulations, driven by increasing customer demand in Europe.

This was partially offset by 3% lower volumes in metal oxides, and a $5 million negative impact from foreign currency.

Sequentially, performance chemicals EBIT increased by $6 million, primarily due to 6% higher volumes in specialty carbons and formulations, and 1% higher volumes in metal oxides, as well as a $3 million improvement in unit margins.

These benefits were partially offset by higher fixed costs of $2 million, largely related to maintenance costs, as well as an unfavorable impact from foreign exchange of $1 million.

Adjusted EBITDA in purification solutions for the third quarter of 2015 was $14 million, which compares to $7 million for the same period last year.

The adjusted EBITDA increase of $7 million was due to higher pricing and volumes, lower variable costs, and improved operational performance.

These benefits were partially offset by an unfavorable sales mix, and the absence of a fixed royalty payment of $2.5 million that was received last year, but did not repeat.

Sequentially, purification solutions EBITDA increased by $1 million compared to the second quarter of FY15, with benefits from higher volumes and lower operating costs partially offset by an unfavorable sales mix.

As Patrick discussed, we recorded an asset impairment of $482 million during the third quarter, which reduced goodwill by $353 million and intangible and fixed assets by $209 million, with a tax benefit of $80 million.

As a result of this, we expect depreciation and amortization expense to decrease by approximately $15 million annually.

We began recording this decrease in June, recognizing a $1 million benefit.

Now moving to specialty fluids, EBIT decreased by $7 million from the third quarter of FY14, and increased $4 million as compared to the second quarter of FY15.

The decline in EBIT compared to the prior-year quarter was driven by a lower level of project activity.

Although both quarters were weak, the EBIT increase in the sequential quarter was due to an increase in rental days and a favorable job mix.

I will now turn to corporate items.

We ended the quarter with a cash balance of $84 million, and our liquidity position remains strong, at $693 million.

During the third quarter, we generated $120 million of adjusted EBITDA.

Uses of cash during the third quarter included $19 million for working capital, $33 million for capital expenditures, $14 million for dividends, and $24 million for share repurchases.

We recorded a net tax benefit of $64 million for the third quarter, which included $81 million of benefits from tax-related certain items, of which $80 million is related to the purification solutions impairment.

Excluding the impact of certain items, our operating tax rate on continuing operations for the third quarter was 27%.

We also recorded a $2 million benefit related to our LIFO accounting reserve, principally driven by the decline in oil prices compared to last year.

This benefit was $4 million lower than we had expected for the third quarter, due primarily to increases in oil prices that took place between the end of the second and third quarters.

Based on the current outlook for feedstock costs, and our anticipated inventory levels, we expect a $19 million benefit for the year, with approximately $5 million remaining to be recorded in the fourth quarter.

If feedstock costs move up or down from where they are forecasted to end the fiscal year, this estimate could change.

This quarter, we experienced a $6 million negative impact due to foreign currency.

Year to date, the impact due to foreign exchange has been $11 million.

We anticipate capital expenditures for the year to be approximately $150 million, and our operating tax rate for FY15 to be between 27% and 28%.

And I'll now turn it back over to Patrick.

Thank you, Eddie.

I would now like to transition to our outlook in somewhat more detail, and what to expect as we manage through this difficult environment.

And I will start with the segments.

In reinforcement materials, we are dissatisfied with the decline in profitability this year.

There are many forces that have pressured the profitability of this business.

Negative feedstock effects, last year's contract negotiations outcome, high competitive intensity in Asia, as China slows, and finally, the impact of lower oil prices on our energy efficiency investments.

As such, we are focused on margin restoration in the business, and therefore near-term actions being implemented to achieve an improvement.

First, our plan remains guided by our value over volume approach.

Carbon black is an essential performance ingredient in tires, and there is no doubt that carbon black's cost of compliance and sustainability are rising, and must be supported by appropriate pricing.

Second, the tire industry continues to grow, given overall mobility trends, and much of this investment is geared towards strengthening in North America and Europe.

We are entering the contract negotiation process for calendar year 2016, and we are seeing signs of an improving market.

And we expect that this will translate into improved outcomes, compared to last year.

Third, we have suffered this year from negative feedstock effects, and the cost of procuring carbon black feedstock have increased.

And this is independent of absolute oil prices.

There are many factors behind this shift, but we believe it will persist, and these higher costs must be recovered in order to have a sustainable business.

In that respect, we have recently announced a price increase, on September 1, for all non-contracted business, to recoup the lost margin from the change in feedstock conditions.

We expect to see some benefit from these price increases in the first quarter of FY16, and are aiming to achieve the full impact in calendar 2016, as we adjust contractual agreements to reflect the new feedstock environment.

Finally, we are tightly managing costs and CapEx to maximize free cash flow, as we work through this [malgene] restoration process.

The reinforcement materials business is key to the performance and profitability of Cabot Corporation.

Our technology and quality in service leadership are recognized globally.

Our assets are in the right places to serve our customers, and we will continue to invest in building lasting strategic relationships with the global rubber industry.

Value pricing remains a key component of our business strategy, as we strive to deliver value to our customers through operational support and new technology.

We expect to grow at market rates, and we believe that global demand should improve as the overall economic environment rises in the future.

We also continue to believe that the global fundamentals behind this business are sound, and the business provides a strong long-term foundation for Cabot.

Moving to performance chemicals, this segment is performing well.

The building and automobile sectors are showing signs of recovery in developed economies, and we continue to grow in new applications with our differentiated product lines.

Margins have also been positively affected by the drop in feedstock costs.

We expect this improvement to continue into next quarter, and we are working on various projects to expand our capabilities, from a technical market and capacity perspective.

Our corporate commercial excellence efforts have yielded material benefits in this segment, and we will continue to focus in this area, going forward.

In addition, we will prioritize the development of commercialization of new high-value products, leverage our broad portfolio of silicas and specialty carbons, and ensure that we have sufficient capacity to meet the long-term growth expectations of the segment.

Moving on to purification solutions.

Despite the recent supreme court ruling, and the ongoing uncertainty in how MATS will play out, we believe that we have a significant opportunity for growth in purification solutions.

The global focus on improving air and water quality will continue to intensify over time, and activated carbon is a proven solution.

We continue to believe that the demand for activated carbon in food, water, pharmaceuticals and air and gas applications will grow at above GDP rates.

We are focused on restoring the business profitability to achieve the EBITDA margins in excess of 20%, and we'll do that following the following plan.

First, we'll grow the margins of our non-MATS-related business, through volume growth in high value segments, pricing actions and new product development activities.

Second, we are realigning our cash cost structure by $25 million cash by the end of 2016, from 2014 levels.

And this is an effort in raw material purchasing, yield improvement, fixed costs and SG&A savings, and we expect that half of the savings will be delivered this year.

Third, we are strengthening our position in the Asia-Pacific region, where population growth and increasing environmental rules are driving demand for our products.

And finally, we firmly believe that the MATS regulation will eventually be implemented, and we continue to respond to and win MATS-related contracts.

We are targeting to capture between 40% and 50% share of this business.

Of course, in the meantime, we are realigning our capital expenditure, cost structure and inventory levels to the -- to reflect the anticipated delay and its implementation.

In the near term, we expect EBITDA levels to be in the similar range to quarter 3, as we await clarity on the MATS rules from the DC circuit court.

Moving to specialty fluids.

In specialty fluids, our current pipeline for jobs through the end of the calendar year remains weak, as low energy prices have resulted in extreme cost management in the oil and gas industry.

Although we have a pipeline of potential projects over the next 24 months, the current project delays will likely continue to impact us for at least the remainder of this calendar year.

As a result of the market downturn, we recently announced a restructuring in this business, which is expected to reduce costs by approximately $4 million to $5 million annually, beginning in 2016.

Over the long run, our cesium formate provides a unique solution to the industry, and we will primarily be using gas wells for drilling and completion.

The value proposition remains intact, and the key drivers are reducing cost or rig time, and increasing reservoir recoveries.

We continue to work to broaden our customer base, and are seeing good results from that effort.

We have been successful over the last year in improving our cesium reserve position, and ensuring that we have access to Raw Materials to support the business in the future.

At the corporate level, we will continue to focus on generating cash by improving our operating results, closely managing working capital, and spending prudently on capital expenditures.

We remain committed to returning cash to shareholders, through both dividends and continued share repurchases.

While FY15 has been a challenging one, including the impact of a number of macroeconomic headwinds and business-specific issues, we believe that the actions that we are taking, and the fundamental strength of our business sales, will drive improved performance.

I thank you very much for joining us today, and I will now turn the call back over for our question-and-answer session.

(Operator Instructions)

The first question comes from the line of Jim Sheehan, SunTrust Robinson Humphrey.

Please go ahead, sir.

Thank you.

Patrick, could you go over what are the signs of improving markets in the calendar 2016 contract period?

What are you seeing that's giving you some optimism there?

Good morning, Jim.

Yes, I mentioned that we were seeing some improvement in the market environment, and this is essentially occurring in the western part of the world.

We're seeing demand for carbon black increasing, both in Europe and North America.

And this bodes well, in terms of improving the supply/demand environment and leading to, potentially, a stronger contracting position and increasing the margins in the coming year.

Very good.

And on the utilization rate, you mentioned it was 80% this quarter.

What is your outlook for utilization in the fiscal fourth quarter?

We do not provide an outlook on utilization.

But I would say that there is a -- I would say, a chance for slight improvement.

But in general, we are believing that this may reflect the global situation fairly well.

Great.

And on performance chemicals, you mentioned a potential for margin expansion in the fiscal 4Q.

Could you give us some quantification of how much of a benefit you expect?

We are certainly very bullish on the performance chemicals segment.

We see -- this is a business that's application- and technology-driven, and we provide solutions to our customers here.

So we're continuing to see growth in sectors such as adhesives, batteries, silicones, electronics, that make us confident in the growth.

We believe this is a business that will grow in the low to medium single-digit numbers, on an annual basis.

Thank you.

Thank you for your question.

The next question comes from the line of Ivan Marcuse from KeyBanc.

Hi, thanks for taking my question.

The first is, you talked about cost savings in purification solutions and fluids.

Is there any opportunities to take out some of your fixed costs within reinforcements, then, to improve profitability?

Such as a plant in Asia?

It sounds like demand over there remains fairly weak, and I don't know what your outlook is for that.

Right.

Good morning, Ivan.

I think you're certainly touching on a key point.

And the way we're looking at the reinforcement materials business right now is that we're -- we believe that margin restoration is the key driver of profitability.

And we believe that in the short-term, that's where we need to focus our efforts.

We think that capacity will be tightening, going into next year.

Let me just remind you of the actions we're taking in the short run.

First of all, we've taken action to increase prices at non-contractual customers, and we will be increasing these prices on September 1. There's been a publication of the action, and it's available on our website.

Secondly, we, we have been successful, and continue to be successful, in capturing volumes in various geographies around the world, to offset some of the contract losses of last year.

Of course these are not of the same quality, which has resulted in some mix effects.

But in general, we're successful with that action.

Thirdly, we're now into 2016 contracting season.

And I mentioned that we are seeing the markets tightening in North America and Europe.

And clearly, in that respect, we're going to be driving our value over volume strategy, and we believe that there's going to be some benefits coming from that.

And then finally, on your point on costs, we have been active reducing costs, which we have indicated that our costs in general for the Company have been down by $25 million, this year over last year.

And then we've also been much more prudent with regard to CapEx, with the objective of improving our free cash flow.

So I think all in all, and reinforcement material being a large part of the Company, I think we've got the right actions in place.

Of course, if the environment does not improve for reinforcement material, we will have to look at additional measures.

Great.

You mentioned $10 million cost reduction in the quarter that benefited results.

What segments did that lie primarily in?

Was that all in reinforcements?

It's across the whole Company, that $10 million, Ivan.

Okay.

So then if you look at purification, you mentioned that you're going to be taking out, I believe -- I may have missed it -- but $25 million or so over the next year, with depreciation and amortization coming down.

And you think EBITDA is going to sort of stay at this level.

If you look at, at least taking you to next quarter, with all else equal, would your operating profit within purification rise $4 million for disappeared depreciation, lower depreciation?

And then would you also see -- and then when do you start seeing the cost savings flow through?

And how would you expect the trajectory, looking out the next three to five quarters?

Yes, so maybe I could take that one, Ivan.

So on the purification, the $25 million of cash costs.

So the program there was started early this year, and the expectation is, we would achieve about half of those in 2015, the current year, and about half in 2016.

So you're already seeing half of that $25 million in the current EBITDA run rates.

And so we'll expect, as Patrick mentioned, I think we expect EBITDA run rates to stay approximately the same for the next couple of quarters, until we get greater clarity from the DC circuit court, as to whether there will be a delay in MATS, or how long that might be, et cetera.

And then on the depreciation benefit, we saw $1 million in the third quarter.

And based on the way that plays out, we should expect to see about $3 million to $4 million, close to $4 million per quarter, going forward.

So next quarter, for example, it should be about $3 million higher -- or a greater benefit than it was this quarter.

Does that answer your question?

Right.

So then if you're -- it does.

So then if you're going to 2016 within purification, then you get, all else equal, you get the second half of the $25 million --

Yes.

Then you expect to see an additional $3 million on top of that.

So all else equal, operating profit should be at that $10 million operating run rate, taking out the effect of whatever demand does, up or down?

Yes.

And I think the way I would think about it, Ivan, is just -- we just want to be a bit careful about how many quarters out we can really see.

It just really depends on what happens at the end of this calendar year, with whatever court decision is made.

And how, as you said, demand plays out thereafter.

Thanks.

Thank you for your question.

We do have another question, and it comes from the line of Laurence Alexander with Jefferies.

Please go ahead, sir.

This is Dan Rizzo on for Laurence.

How should we think about the [our risk] to 2016, 2017?

You said that you're going to be prudent with CapEx this year.

Is that going to continue into 2016 and 2017?

Or are you still just waiting and seeing?

Certainly, Laurence, we have adjusted our CapEx profile to deal with the current environment.

And you may -- as you may know, we're looking at depreciation levels in and around $200 million a year, slightly more, I think $210 million.

And we are going to be at about $150 million of CapEx this year.

I think this is an adequate number for us, considering the current environment.

We have the possibility to increase on that number next year, and the years ahead, but it is, of course, hinging on the quality of the projects and the opportunity set.

So right now, I think $150 million is adequate.

But certainly, we'll be looking at the picture on a regular basis, and we'll let you know how we foresee 2016's envelope.

Of that $150 million, is that mostly maintenance?

How much of that is maintenance CapEx?

I would say maintenance is somewhere around $100 million to $120 million of that $150 million.

Okay, thanks.

And then final question.

With regards to the MATS ruling, I understand that the write-down is with the assumption that MATS will be delayed for two years, which I guess would be until the spring of 2017.

Is there a number which you think about another potential write-down if it gets delayed even longer than that, or even indefinitely?

I'm not sure I understood your question, Laurence.

You said that -- I think in the press release and in the comments, you said that the roughly $5 million to $10 million impairment that was taken in for Norit was with the assumption that MATS would be delayed until 2017.

What if it's delayed beyond that?

So yes, no, I understand the question now, Laurence.

Yes, of course if, for example, the court decides to vacate the regulations, we're potentially in a much longer delay, because the EPA would have to reconsider the whole MATS situation.

And then, of course, we will have to reconsider the impairment analysis, and its potential impact on the business.

Right now, we have decided that, in our best judgment, the two-year delay would be the best reflection on what we can see.

We're, of course, in a waiting period now.

We believe that -- and what we've heard is that the DC circuit court will potentially take three to six months to come back and provide guidance to the EPA.

And we'll know better, in that respect, where we're planning for a delay of about two years, at this stage.

All right.

Thank you.

Thank you for that.

(Operator Instructions)

We do have another question, and it comes from the line of Christopher Butler from Sidoti & Company.

Please go ahead, sir.

Hi, good morning, everyone.

Good morning, Chris.

Sticking with purification and MATS, could you give us an idea of what that business looks like, if the lower courts decide to nullify MATS for the next two years?

And what are we looking at from that business?

So I think -- what's important to understand is that we're continuing to supply the -- our customer base.

There's been actually no cancellation of orders, no cancellation of contracts, as a result of the Supreme Court decision.

Of course, most of the potential customers and players that would have started using product in the future seem -- are certainly sitting on the fence, waiting to find out what the decision is.

But the base business is intact, and we believe that, that will provide us an EBITDA level that is akin to what we have today.

The big question will be, when will the business ramp up to the expected volumes that we see still, in the future, to be around 350 million to 400 million pounds.

This is roughly in line with what we've said in the past.

And we believe that will happen, of course, a couple of years later than we had originally estimated.

Does that answer your question, Chris?

It gets to it a little bit.

With the asset write-down, I have to expect that you're assuming that MATS gets formally delayed at some point here, in the next three to six months.

And if that is to occur, I don't know that I have a good idea of what this business looks like.

Right.

So we're as we had mentioned in the speech, we're looking currently -- and this is what the impairment has been based on -- at a two-year delay.

And you may remember that we had indicated that we believe that the purification solutions segment had the potential of achieving about $100 million EBITDA in the future.

We believe that's still a valid assumption, but will be occurring at a later stage.

We think 2019 may be a good target for that.

And just changing directions a little bit, I guess, is this still a core part of the portfolio?

Or is this something that you might think about strategically down the road?

Right.

First of all, I would say we've disappointed, of course.

We were -- when we acquired this business, we were expecting a business with a lot more growth potential.

And clearly, quite a bit of that potential was linked to the mercury removal market in North America.

Now that the situation has changed, we are, of course, looking at the impact on the business.

But fundamentally, we still believe this is an attractive business for Cabot.

There's a number of markets that this business serves that are expected to grow above GDP.

We think the general trend toward stricter air, water and food standards will drive the activated carbon business.

It's still the -- one of the most efficient and effective ways to purify.

And as we look at the profitability potential of the business, we see a business that has in excess of 20% EBITDA margins in the future.

And taking all those factors in, and looking at the technology that we apply to make activated carbon, and our global reach, and our customer connectivities, we believe this is a good fit for Cabot.

But of course, we will -- as with any business, we'll hold that business to some targets and standards.

And if we believe we can't achieve those, we'll certainly have to reconsider the strategy.

All right.

Appreciate your time.

Thank you, Chris.

Thank you for your question.

We do have a question, and it comes from the line of Ivan Marcuse from KeyBanc.

Please go ahead, sir.

Real quick, and you may have said this and I missed it.

In terms of the price announcement that you did in reinforcements for the spot business, have you done this before in midyear.

And how successful has it been?

And do you -- would you anticipate the industry to follow?

Are they still -- are they seeing similar type of costs?

Of course, Ivan, I can't speak for the industry, but we have done some of these in the past, and we have been successful.

I think this one is slightly more structural in nature, because it's linked to the way the feedstock markets have developed.

They have developed against us, in a multitude of ways, where we're seeing a tightening environment.

Both driven by some differences in feedstock between Asia and the rest of the world, but also, we are seeing some alternative use for fuel oils in the Gulf Coast, creating a tightness.

And so we have indicated price increases.

It's on our website, and we will be increasing at different rates, I believe between 4% and 7%, with perhaps an exception in Brazil, where the number is going to be higher because of the currency effects that we're experiencing there.

Got you.

And in total -- and that 4% to 7% would be on roughly 50% of the reinforcement business?

Is that how to think about it?

I think it's going to be slightly lower.

It's going to be roughly around 25% of the business that will be affected.

Okay.

And then last question.

In terms of, on a year-over-year basis in EBIT for the reinforcement, how big of a headwind was pricing and the higher feedstock costs?

I believe we mentioned that we had a $30 million headwind on year-over-year quarter, and $20 million of that was linked to contract pricing and feedstock.

So about two-thirds, if you think about pricing and feedstock effects.

So two-thirds would be in pricing -- of the $20 million, two-thirds of that would be pricing?

Or two-thirds would be (multiple speakers) on pricing and feedstock?

Of the $30 million.

(multiple speakers) No, the quarter-on-quarter comparison of $30 million, two-thirds of that was pricing and feedstock effect.

Okay.

Thank you.

Thank you for your question.

We do have another question, and it comes from the line of Jim Sheehan from SunTrust Robinson Humphrey.

Please go ahead, sir.

Thank you.

You said the currency impact was about $6 million in the quarter.

At current exchange rates, do you see the foreign exchange impact being roughly about the same, or a little bit different?

I'm going to ask Eddie to take that question.

Yes, I would say it's probably going to be in that range, Jim, based on when currency started to move last year.

So you're talking about the fourth quarter now, Jim?

Fourth quarter, yes.

I would say it's probably a similar impact based on when rates really started to move last year, which I think was at the end of September, and going into October.

So probably in that range, depending on how, quite frankly, rates evolve between now and then, and specific rates.

Great.

And can you also update us on the surcharge that you have imposed for environmental purposes?

Some of your competitors have started to adopt that.

I think you updated us last quarter.

Can you talk about any further adoption of such surcharges in the industry this quarter?

Yes, I would be happy to do so.

And so this is the EPA action on the carbon black industry in the US.

And we -- as you may remember, we entered into a consent decree last year.

And as a result of that, decided that, because of the capital imposition that this consent decree required on us, we would have to apply an environmental surcharge starting in 2015.

We have been implementing this surcharge.

Of course, the success of the surcharge, and the reaction from the customers, is dependent on the whole industry proceeding with us.

And we were pleased recently, a few weeks ago, to hear that one of our competitors had actually entered into the second consent decree.

And we are also hearing that all the other players are engaged with the EPA, and hope that we will see the complete industry having adopted and agreed with the EPA on a path forward, in the coming months.

Great.

Thank you very much.

Thank you.

Thank you.

I would now like to turn the call over to Patrick Prevost for closing remarks.

Please go ahead, sir.

Thank you very much, and I thank everyone for joining us today.

And we look forward to speaking with you again next quarter.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.