Mercer International Inc (MERC) 2014 Q2 法說會逐字稿

Good morning, and welcome to Mercer International's second quarter 2014 earnings conference call. On the call today is Jimmy Lee, President and Chief Executive Officer of Mercer International and David Gandossi, Executive Vice President, Chief Financial Officer and Secretary. I will now hand the call over to David Gandossi. You may begin.

Thank you, Lisa. As usual I will begin with formal remarks, after which I will take your questions.

Please note that in this morning's conference call we will make forward-looking statements according to the Safe Harbor provisions of the Private Securities Litigations Reform Act of 1995. I would like to call your attention to the risks related to these statements which are more fully described in our press release and with the Company's filings with the Securities and Exchange Commission. I will now cover some of the key financial aspects of the quarter and then pass the call over to Jimmy.

In Q2 we achieved EBITDA of $41.9 million compared to $59 million in Q1. In Q2 pulp pricing was essentially flat in Europe and North America while at the end of the quarter list prices in China were down slightly to $720 per tonne. Also at the end of Q2 pulp list prices were $925 per tonne in Europe and $1,030 per tonne in North America.

However, relative to Q1 our lower Q2 results were primarily due to the impact of 12 days of major maintenance in Q2 compared to no major maintenance in the first quarter. The total EBITDA impact of our Q2 major maintenance was approximately $18.4 million.

In addition, a strengthening Canadian dollar negatively impacted Celgar's costs. These negative impacts are partially offset by lower German fiber costs. Our German mills achieved near record production this quarter while Celgar struggled with some mechanical issues. Our finished goods inventory volumes were down slightly relative to Q1 despite logistical challenges late in Q2 at Celgar as strong demand outpaced production.

We reported net income of $0.6 million for the quarter or $0.01 per basic share compared to net income of $21 million or $0.38 per basic share in Q1. Our Q2 2014 net income includes a noncash unrealized gain of approximately $2.5 million on the mark-to-market evaluation of our fixed interest rate swap.

The US GAAP, IFRS differences relating to major maintenance had an impact this quarter when comparing our EBITDA to those of many of our competitors. In Q2 we expensed direct costs of approximately $13 million on major maintenance, the majority of which would have been eligible for capital treatment under IFRS.

Switching to cash flow, our consolidated cash position was up almost $69 million compared to Q1, our cash balance is currently sitting at approximately $241 million. Quarterly working capital movements decreased cash by approximately $3.6 million on a net basis primarily due to an increase in inventory and a decrease in payables which were partially offset by a decrease in accounts receivable.

Capital expenditures, including intangible asset expenditures, drew approximately $6.9 million during the quarter. Of this total, the majority was spent on high return capital projects at Rosenthal and Celgar. In addition, $0.7 million was spent on the development of our new enterprise wide software system.

On the financing side, we received approximately $53.6 million of net proceeds from our recent equity offering. Stendal also received approximately $0.8 million worth of government grants for its Blue Mill project. The grant payment process tends to be a slow one, and as such, we expect Stendal to receive the final installment of grants in Q3 which we estimate to be approximately $2 million.

Our working capital in the 12 month period ended June 30, excluding cash and short-term debt, increased by approximately $37 million to $200 million. The increase is primarily due to higher inventories and lower payables.

In terms of our liquidity at June 30, 2014 we had approximately EUR28.4 million of undrawn revolvers available at Rosenthal, and approximately CAD38.3 million available at Celgar. Our $241 million of cash at the end of Q2 is comprised of approximately $157 million for the restricted group and about $84 million at Stendal. Net debt to equity on a consolidated basis at June 30 is down slightly from Q1 at approximately 1.7 times equity while the restricted group's net debt to equity was also down at approximately 0.4 time equity.

I would also like to provide a quick update on our project to implement a new enterprise resource planning or ERP solution. As I noted in Q1, we have selected SAP as it best meets our current needs and is flexible enough to meet our needs going forward as our business evolves. This project is going as planned and is on target to be completed in stages over the next two years.

As a reminder, on April 2 we closed on an equity offering and issued 8.05 million new common shares which included the underwriters full option of 1.05 million common shares. These shares were offered to the public at a price of $7.15 per share with the net proceeds from the offering totaling approximately $53.6 million. This offering was a strategic initiative to insure financial flexibility, and also to allow us to proceed with certain targeted high return capital projects.

I am also very pleased to note that in July Stendal received lenders approval to amend both of its credit facilities to provide the mill with greater financial flexibility. The amendments included loosening the financial covenant ratios, reducing scheduled principle payments under the Stendal project loan by 50% while keeping the cash suite mechanism in place.

In connection with these amendments, we will provide Stendal with additional capital of $20 million. I should also point out that these amendments are subject to the customary closing conditions, including execution and delivery of definitive statements.

So that ends my overview of the financial side, and I will now turn the call over to Jimmy.

Thanks, David. Good morning, everyone let me start by saying that overall we're satisfied with our second quarter results.

As David noted, compared to Q1 our EBITDA was down approximately $17 million, which was primarily due to our 12 days of scheduled maintenance downtime in Q2 compared to no scheduled maintenance downtime in Q1. On the positive side, we are pleased to see our German fiber costs continue to trend down, and I will also speak more about that in a moment.

In the second quarter, reduced Chinese demand pushed the quarterly average NBSK price down approximately $30 in that market to $730 per tonne. In Europe the quarterly average list price was essentially flat at $925 per tonne.

June, NBSK producer inventories were at 25 days, down three days from March. At these inventory levels, the NBSK market is considered to be the low balance.

Last quarter, I spoke about the logistical issues that certain Canadian producers were facing, including a truck driver strike at the Port Metro Vancouver and unreliable railcar service that were keeping producer inventories artificially high. The backlog at the port has, for the most part, been cleared, but pulp producers continue to be underserved by the rail companies.

In addition, June hardwood producer inventories are down six days from March at 42 days. NBSK list prices in July were $1,030 in North America, $925 in Europe, and $730 in China.

Despite the slightly lower Q2 prices in China, we continue to believe that low customer inventories will force buyers back into the market, which should create global upward pricing pressure in Q3. Adding to expected pricing pressure is the fact that NBSK production will be negatively impacted as certain mills take their annual maintenance shuts during the summer months. Overall, we expect these factors and steady European and North American demand will create upward pricing momentum in Q3 and through Q4.

In addition, when thinking about future demand for NBSK, it is important to remember that there are approximately 3 million tonnes of incremental tissue capacity coming online globally in 2014 with approximately 1.8 million of those tonnes coming online in China. In addition, there are approximately 1.3 million tonnes of tissue capacity scheduled to come online in 2015.

We are also seeing growth in certain packaging grades which has created incremental demand for NBSK since some of these grades rely on NBSK for their strength. As a result, we continue to be optimistic about the future demand for NBSK.

With regard to the approximately 1.2 million tonnes of new hardwood capacity coming online in 2014, certain analysts continue to predict that it will create a drag on the NBSK market. We don't necessarily share this view. We continue to believe that the paper makers ability to substitute hardwood for softwood is limited due to the fact that the modern paper machines require certain strength characteristics from the raw materials in order for the machines to run at the high-speed that they're designed for.

However, we do believe that the lower Chinese prices in Q2 are the result of psychology that believes NBSK pricing is closely tied to hardwood pulp prices. However, we anticipate that the low Chinese prices will be short-lived due to the strong demand in other markets, and low producer inventory levels. Consequently, we don't believe that a large price gap between hardwood and softwood prices will have a significant negative impact on NBSK pricing in the near future.

Turning to our pulp production for a moment, Q2 was a solid production quarter for us. Our German mills achieved near record production despite a two-day maintenance shut at Stendal. The strong production was partially offset by Celgar, which had a ten-day maintenance shut in June and lost some additional production as they struggled to start up following the shut.

In total, we produced approximately 354,000 tonnes of pulp this quarter, compared to approximately 382,000 tonnes in the first quarter, and approximately 350,000 tonnes in the second quarter of 2013. Our Q2 production was broken down as follows; Stendal produced 169,000 tonnes, Celgar produced 94,000 tonnes and Rosenthal produced 91,000 tonnes.

In addition, the mills produced approximately 446-gigawatt hours of electricity in the quarter compared to 466-gigawatt in Q1 and 406-gigawatt hours in Q2 2013. Our pulp sales volume was down in Q2 and totaled approximately 357,000 tonnes compared to 381,000 tonnes in the first quarter and 368,000 tonnes in Q2 2013. Our Q1 sales were high due to the near record sales at Stendal.

In Q2 Celgar was able to catch up on the sales lost in Q1, but these were partially offset by lower Chinese demand. The sales by mill in the quarter were as follows; Stendal sold 168,000 tonnes, Celgar sold 98,000 tonnes and Rosenthal sold 91,000 tonnes. While our Q2 sales by region were Europe, 231,000 tonnes; China, 87,000 tonnes and all other regions combined were 39,000 tonnes.

Now, let me take a moment to discuss developments in the wood market relative to the first quarter. Our per tonne German fiber costs were down in Q2, in Europe fiber costs remained at historic high levels. However throughout the first half of the year, there's been positive momentum in the fiber markets.

Steady harvesting rates have allowed sawmills to run at high rates which has increased the supply of chips. In addition, there is a reduced demand in Germany on German saw and pulp logs due to the availability of storm damaged wood in certain areas of Eastern Europe.

Looking forward, we anticipate that our German fiber costs will come down slightly in Q3. We continue to monitor this market closely, and are very focused on opportunities to reduce our German fiber costs going forward.

In British Columbia our per tonne fiber costs were up slightly this quarter relative to Q1, primarily due to increased demand from coastal mills and higher transportation costs. We anticipate that Celgar's fiber costs will increase modestly in Q3.

We're currently satisfied with each mill's fiber inventories and expect that we'll be able to continue to source the fiber that we need. We regularly get questions about the timing of our annual major maintenance shuts, so I'd like to highlight that our 2014 shuts schedules are as follows; Rosenthal will be down for 12 days in Q3 or approximately 12,000 tonnes and Stendal will have the second of its two-day shuts in Q4, representing approximately 3,700 tonnes of lost production.

As David noted, we issued roughly 8 million new common shares in early April. And as I highlighted last quarter, we're pleased with this common share offering. We added significantly to our financial flexibility, and we have added some new shareholders through this process.

I would also like to highlight that during the second quarter we began a joint venture partnership with Resolute Forest Products. This partnership is focused on developing commercial applications for a wood based product called cellulose filaments or CF. Both partners are confident that CF has significant potential, however, it will likely be several years before we'll know if commercialization is viable.

With respect to our NAFTA claim, we're working with our advisors to move this process forward and we continue to expect our case to be heard in mid 2015 with the decision several months after that. We'll provide regular updates as we move through this process.

In closing, we experienced downward pricing pressure in China through most of Q2 as buyers continued to highlight the price gap between hardwood and NBSK. However, we were able to achieve a modest price increase in July and expect to see increases in Chinese prices in Q3 due to the strong market fundamentals. We're expecting that the European and North American markets will remain steady through Q3 with pricing momentum also beginning in the third quarter.

We remain confident that the new hardwood capacity will not have a significant negative impact on NBSK pricing. We continue to be optimistic about the medium to long-term NBSK supply demand, fundamentals which we see as being driven by increasing economic standards globally.

That is the conclusion to my prepared remarks, and I'll turn the call back to the operator so we can open the call for questions. Thank you.

(Operator Instructions). Your first question comes from the line of Bill Hoffmann from RBC Capital Markets. Your line is open.

Yes, good morning. Jimmy, can you talk a little bit about the Rosenthal shut in the third quarter? Will it be as extensive as Celgar's just from a cost standpoint?

And then second question, I just wondered if you'd talk a little bit about your tall oil project and where you are from a sales standpoint and what you expect to be getting out of that?

Maybe David can address those questions directly for you, Bill?

Yes.

Hi, Bill. Yes, for Rosenthal, it's a significantly smaller maintenance shut compared to a Canadian shut. So to put apples against apples, if Celgar was $16.4 million of the $18.4 million in Q2, the comparable amount for Rosenthal in Q3 will be $4.6 million.

Okay.

And then Stendal in the fourth quarter, same comparison will be $3.2 million. So much lighter maintenance in the back half of the year.

Okay. And then the tall oil business.

The tall oil project is coming along. I think the guidance we've given is that it's a two-year pay back.

A little bit of an energy hit, but we obviously more than make that back on the tall oil sales, so it's just a stepwise addition. It's going as planned, and will be completed at the back half of the year.

Do you have any thoughts on like what kind of sales you'll get out of that?

Yes, I think it's between $2.5 million and $3 million per year of chemical sales, and there's some discount for energy which brings it in at around $2 million net on a $4 million investment.

Okay. Thank you.

Next question comes from Andrew Kuske from Credit Suisse. Your line is open.

Good morning. I guess the question is for Jimmy and it just relates onto the view on NBSK markets and your commentary on essentially the spread.

So if we look at pricing dynamics, we've really seen flattish prices in the last few months on the US list and the spread between NBSK and hardwood has widened. I think we're at a 14-year or 15-year all time high. So is your view really one of it's the psychology of that spread which is really depressing the price from moving up given how we look at just the fundamental tightness in the market at this stage in time?

Absolutely. If you look back in terms of the pulp cycles, when you had inventory levels at the producers at 25, we would be looking at monthly price increases, like $50. Right now we're so gun shy that we're barely even trying to push for $20, $30 increases, and even that, we're kind of like prepared to give back.

And this is completely irrational behavior when you consider that at these type of levels and continued reduction in producer inventories, considering all the logistical issues that many of the Canadian producers are faced with, it's surprising that clearly market psychology plays a significant role in terms of the pricing momentum. But the reality is through this cycle, we've seen clearly the inventory levels continue to drop, the price gap continue to widen. And therefore if this equation was relevant, then how come this is occurring?

And then if I may, just to clarify something. I believe you said in July you got a small price increase from your Chinese buyers, but I don't think you quantified it.

Yes. I mean we were targeting, as you know, like a $30 type of increase. But because clearly we didn't get a full support from many of our peers, so we were getting somewhere around a $10-ish type of increase.

Unfortunately, we were not able to achieve what we believe was justifiable. But we'll continue to focus as we move into the tail-end of the third and the beginning of the fourth because, of course, as you know, the second half of the year tends to be much better for pulp sales. So we are going now into a much stronger period with very low inventory levels, so I think that sets itself up for a pretty good foundation for further price increase push.

So you're really looking for an inflection point in say the fall for NBSK pricing to move upwards?

Well I mean typically, as you know, in the summer months you've always had prices which tend to give back prior increases. You're not seeing that this year, so that alone tells you something.

That's helpful. And then, if I may, just a question to David. I guess two things, just to follow up on.

If you could just once again go through your FX exposure into Europe. The euro, US dollar relationship, because we've seen a little bit of a pull back in the euro relative to where it was.

Yes. So as in our K, every $0.01 that the euro weakens is worth about $8 million of EBITDA to us, so we've seen a couple of $0.01 moves down to the $1.34 range. I think it's just a little above $1.34 today. But it feels like things are finally starting to move in that direction in Europe, based on the consensus of analyst estimates that I've seen, so that should be positive in the back half of the year as well.

And then just one final thing. You made a comment on your SAP implementation that you view this as suiting your needs today but also for how your business is going to evolve in the future, or words to that effect. Can you just give us some insight as to just the evolution of how you think the business and the SAP system taps into that?

Well, the system we're putting in is very robust and it's very flexible. So whatever strategic directions we may go, the system will be there for us, and so we see it as a strategic investment in a lot of ways.

It provides us with some advantages in data availability and so on. So I can't really go any deeper in terms of strategic direction when we're focusing on a system, but it's flexible and expandable.

Okay. That's helpful. Thank you.

Your next question comes from Andrew Shapiro from Lawndale Capital. Your line is open.

Last quarter you spoke of the intended injection of EUR10 million down into Stendal, and this quarter the plan now according to the loan documents that you're working on is to downstream $20 million. All in all, it's a greater amount than discussed.

Can you comment as to when you expect a finalization of the loan amendments and the down streaming of this money, the potential larger size of the money, and will the Stendal joint venture partner be contributing capital pro rata? And if not, what is Mercer's current and soon to be increased ownership percentage in Stendal?

Yes. Okay. I'll take that one, Andrew.

In the previous quarter we talked about EUR10 million because that's a commitment that the Company has -- that Stendal has under its amended loan facility that if we did an equity offering in Mercer, EUR10 million would be contributed to Stendal. And that was part of the amendment created in the amendment process in 2009.

So we did an equity issue in the previous quarter, closed it in April, so we were talking about EUR10 million going in. We were negotiating also with the syndicate to achieve the amendments that Jimmy spoke of earlier, and the number that we agreed to was $20 million, so that's the linkage there.

It's just that the $20 million is slightly more than the EUR10 million, and it's a function of a negotiation. Now if that goes in as registered capital, which is our intention, that would dilute our minority partner from 17% down to about 10%.

The discussions with that minority partner are still ongoing, and nothing has been resolved or settled at this stage. There's some indications that they may be ready to step out, but that hasn't been finalized or approved at the higher levels within their organization.

Thank you. The press release quoted Jimmy as saying, "after strong sales in the last two months of the current quarter"; I'm assuming that was Q2. Celgar sales volumes decreased year-over-year.

Can you clarify this? Is this a July post Q2 decline or what time period you were referring to? And then reconcile your reference to this weaker demand from China with your ability to impact even a 10% price increase. Did the price increase cause the decline in Mercer's demand? I mean, in China's demand of our product?

No. I think you had a combination of factors playing into that. One, of course, typically we're going into the weaker summer months so you do see reduced volume. That's one.

And second, of course, we also had logistical issues pretty much from the middle of the second quarter on where we weren't getting railcar supply. We continue to have that problem even now. Therefore from a shipment perspective, it's presenting a lot of logistical challenges which has created a backlog in inventory.

And so it wasn't because of the price increase announcement that we were losing sales, by any means. That was not it.

It's just a combination of a weaker seasonal impact together with the logistical issues which had, again, the problem in terms of the actual sales, the numbers in the quarter. But we believe as we go through the balance of the year like we did from the Q1 to Q2 that we will start to catch up on this lost orders, or at least shipments, anyway.

I'll back out into the queue. I do have some more questions, so please come back to me.

Next question comes from the line of Sean Steuart from TD Securities. Your line is open.

Thanks, good morning. Jimmy, just back to China for a second. Can you give us your impression of where buyer inventories, or I guess trader inventories are in China right now and how tight the supply looks on their end?

We think that basically the inventory levels are still quite low. It was really triggered by the fact, I think there has been clearly some credit tightening, as you know, and therefore there has been a resistance to build any inventory. Only those which have access to good liquidity like the tissue guys have been buying and taking advantage of low prices, which they continue to do.

But the others certainly in the printing and writing and coated type of grades, they've been very restricted in terms of access, and therefore their inventory levels because of probably a combination of demand, competition because there's a lot of capacity in certain segments. So that, coupled with financial constraints meant they all operate with fairly low.

Now with the gradual loosening of conditions, what we're seeing is I think a much better type of view in terms of buying. So I think that what we will likely see as China further loosens its credit, that you'll get that pent-up demand now being filled. Therefore our expectation is, yes, right now it's low, but as we move through the year they'll start to order the necessary volumes and therefore rebuild inventory over time.

Okay. And then wondering if you can also talk a little bit about the specialty paper side of this, or specialty packaging papers driving NBSK demand. I think everyone has decent visibility on the tissue side, but can you talk about what you're seeing in the specialty packaging side?

Of course, many of the Chinese paper mills have focused not just on the commodity end, but a lot of them also focus on the specialty grades, including these wrapping tissues. As you know, those are doing very well.

They consume a lot of NBSK. Of course, on a tonne basis, it's not a large quantity, but on a percentage of raw material, it's significant.

Liquid Board, as you know, there's a lot of expansion in that area; specialty luxury boards because retail and luxury products, again, globally is increasing. And so these are the areas and, of course, the core grades, et cetera, which require a lot of NBSK.

So, we're not talking about big tonnes here, but each of them require a significant, larger or higher component of NBSK than the traditional commodity products. So, we see that this is a good trend for us moving forward.

Okay. Thanks for that. Then just finally, David, I don't know if you've settled on 2015 CapEx guidance.

I know with the ERP and the tall oil project, you've got some things on the deck, but we've been at around $40 million. Is that a good number to go with?

Yes. For now I think that's a good proxy, Sean.

Okay. That's all I had. Thanks, guys.

Thanks.

Next question comes from Mark Kennedy from CIBC. Your line is open.

Good morning. Dave, just a clarification again on this $20 million of capital into Stendal. Do you have a time, is that going to go in Q3, do you know?

Yes, that's our expectation.

But at this point you're not sure if Mercer's doing 100% of it, or just your pro rata share?

I'm pretty sure our minority partner won't be contributing.

Okay.

So it's just finalizing the form of the injection. Our position is it all goes in as registered capital. I'm sure they'd prefer to avoid the dilution.

So it's an ongoing discussion with the minority that we need to resolve in the next few weeks. But the timing will definitely be third quarter. We'll have this all resolved one way or another.

But for modeling purposes we can assume you pay the full $20 million and then you'll have 90% of Stendal coming out the other end?

Yes. I think so, Mark. We'll put the $20 million in one way or another, and either we will own 90%, or something slightly less. It could be some of it goes in as something other than registered capital although that's not our intention, but we've got a negotiation we have to go through.

Okay. And then just to add on to Sean's question there, so CapEx for this year is also going to be in that $40 million neighborhood?

That's correct, Yes.

So it's $40 million this year, and again, another $40 million next year?

Yes. Mostly discretionary; as you know, high return projects, the mills, we have a long-term planning horizon and strategically those investments at each mill that we think provide the highest return and lead us in the right strategic direction.

Right. Okay. That's great. That's it for me. Thanks.

Your next question comes from Andrew Shapiro from Lawndale Capital. Your line is open.

A few follow-ups if you wouldn't mind. You've talked about the CapEx in terms of dollars and modeling purposes.

Last quarter you gave us some color on those projects you've identified, I guess would provide the highest return and earn on the decks. One of them was, I guess it was a wood treating -- you called it just a treating business, and another was a chip screen in Celgar, and then now you have obviously this CF business.

Can you talk about the relative amounts that would be going into these various projects and give a little color on -- still big picture, but a little color on if this is reducing costs, this is opening up a new revenue stream? What's the strategies behind some of these projects?

Well, yes. I'll start, if you like.

So there's a bunch of different things in play. One, for example, is in Rosenthal. We've had an opportunity to improve the yield which means you use less wood to make a tonne of pulp, so over the years they've strategically been moving down.

They did chip thickness screening a few years ago. They've been working on the way they manage their piles on the reclaim systems, get the track loaders off the piles and have it all automated and that kind of thing which improves the yield. So they've come a long way to the point now where they're using less than five cubic meters of wood to produce a tonne of pulp, and some of this is also in process enhancement.

That's been a real core strategy for Rosenthal. It makes a lot of sense considering the cost of wood over there, and a very successful group of projects.

At Celgar our focus is enhancing the reliability of the equipment. One of the really important steps in that we feel is chip thickness screening.

Although it's a very modern mill, one of the older pieces of equipment in it, it was the screen room. It was a combination of the performance of the screens themselves and some safety issues that we moved forward with a chip thickness screen.

That was just commissioned not even a month ago. It's up and running. It was a successful project, on time, on budget.

And I think we're going to see a much more reliable cooking processes. When you get uniformity in the fiber going in, it really helps the production stability further down the line, so we're already seeing the early benefits of that project.

And for Stendal, we've just completed Blue Mill. It's our youngest mill, obviously, so the projects there are just a multitude of smaller, smaller issues that have been identified over the years that either reduce costs or improve the efficiency of the operation. So all of them quite accretive.

None of these are like big noticeable individual buckets, like --

No. That's right. They're high-return, low capital, it's just good discretionary CapEx.

And also you can't really pull apart the actual numbers because the focus moving forward really is to look at the various cost areas. And of course, wood is a big component of our cost, and therefore the focus is being trying to strategically drive wood prices down through a combination of improved logistics, improved sourcing, make more wood availability of our sort. This type of thing.

So there's many activities going on, some of which are very let's say innovative and others which are just basically just doing something a little bit better than what we're presently doing. So a lot of different things, nothing significant in terms of capital investment at this point.

In terms of the CF development, we see this as the future. It's not going to play an important role, clearly, at this point, but we see potential innovative products coming out. And it's a joint venture with Resolute which also sees the future in a similar light, and therefore the combination of the two we believe will allow us to create products outside of the traditional pulp and paper industries and get into much more interesting areas. Whether it's in transport or aviation or any of these more high tech areas where interesting enough, cellulose, in the nano and the micro sizing actually has some very interesting characteristics and potential, as a result.

I appreciate that color. I was just actually trying to get at any of these projects, to call out if there's a decent amount. On CF, it's not a sizable investment requirement yet, either?

No. It's basically a very small immaterial investment from both sides, but there is a commitment on both sides to really focus on partnering and collaborating in regards to development of very innovative type of end use products. And there's many different areas that we are looking at, and therefore we do believe, over time, there could be some pretty interesting business that can come out of this.

I appreciate, again, that extra color. David, on the tax. It looks like the tax provision of this particular quarter in light of even the lower pretax income from last quarter was way up. Was last quarter enjoying some type of tax benefit and offset, or is there some extra items? Can you break out some color here on the large tax provision this quarter?

No. It's really just timing differences, Andy. In particular, coming out of the Rosenthal system we're just growing a deferred tax liability that's flowing through the P&L.

But from a cash tax point of view, as you know, we've got lots of loss carry forwards. Some level of current tax because there's minimum utilization rules, but generally we've got good shield, and there haven't been any other unusual adjustments in this current quarter.

And lastly what are your planned road shows and conferences in the coming season here? I don't know if you're coming out our way or not.

The Company's attending the Jefferies conference a little later in August. We'll attend the RBC conference and the Credit Suisse conferences in September. And I think that's about as much as we've got in the schedule at this point in time. I don't see ourselves in your neck of the woods in the coming month or two, but --

If I actually could, one last thing here and it's on the debt. You called out here now and highlighted how the restricted group is already down to a 0.4 debt-to-equity, and you have foresight here into, I would say, decent cash flow. Is there any thoughts here on doing a lower cost restricted group financing or refinancing in the near term, or are your thoughts to be waiting for a larger omnibus refinancing that takes the consolidated entity into account?

Yes, well, I think we've been pretty open about our strategic thinking. We've stated that, in our view, our net debt on the long-term interest-bearing debt side is getting down into that target range where we could do a global re-fi taking full advantage of the combination of the unutilized revolvers on our balance sheet, the cash on our balance sheet and the very liquid capital markets for debt financings that we're seeing right now. So, yes, that is strategically the direction we're moving, to do a global re-fi. Are you still there, Andrew?

Andy? Sounds like he got cut off somewhere.

Operator, could you let us know if you're there?

(Operator Instructions).

Okay? I guess we're not getting any further questions. So maybe if that's the case, I'd like to thank everyone again for attending today's call, and goodbye.

Thank you. Goodbye.

This concludes today's conference call. You may now disconnect.