Neptune Insurance Holdings Inc (NP) 2008 Q3 法說會逐字稿

Good morning, my name is Jennifer, and I will be your conference operator today. At this time I would like to welcome everyone to the Q3 2008 Neenah Paper earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS)

I would like to remind everyone that the presentation today contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's beliefs and assumptions regarding future events based on currently available information. Listeners are therefore cautioned not to put undue reliance on forward-looking statements, as they are not a guarantee of future performance, and remain subject to a number of uncertainties and other factors that could cause actual results to differ materially from forecasts.

A more detailed description of these uncertainties and risk factors is provided in Neenah Paper's earnings release, and the filings at the Securities and Exchange Commission, which you are encouraged to review. Except to the extent required by the applicable securities laws, Neenah Paper undertakes no obligation to update or publicly revise any of the forward-looking statements that you may hear today. In addition, the Company may make certain statements during the course of this presentation that include references to non-GAAP financial measures as defined by SEC regulations. As required by those regulations, if that were to happen, a reconciliation of these measures to what management believes are the most directly comparable GAAP measures would be posted on the Company's website at www.neenah.com.

Thank you. At this time I would like to turn the conference over to Bill McCarthy, Vice President Financial Analysis and Investor Relations. Mr. McCarthy, you may begin.

Thank you. Good morning, and thank you for joining us on Neenah Paper's third quarter earnings call. With me today are Sean Erwin, our Chief Executive Officer; and Bonnie Lind, our Chief Financial Officer. I'll briefly cover consolidated results, and then Sean and Bonnie will discuss our strategic progress and business performance for the quarter.

As usual, earnings were released yesterday afternoon, and our 10Q was filed this morning, so hopefully you have had a chance to read through one or both of these.

Consolidated net sales from continuing operations in the third quarter were $186 million in 2008, and $195 million in 2007. Growth in Technical Products was offset by lower Fine Paper sales, the latter due to continued weakening market demand for premium papers in 2008. Quarterly operating earnings increased from $10 million in 2007 to $12 million in 2008, as a result of both improved Technical Products results and a gain on sale of surplus Fine Paper assets.

Earnings per share from continuing operations was $0.34 in 2008 and $0.87 in 2007. Both periods included unusual items, with benefits in 2007 of approximately $0.66 per share from reduced tax expense, mostly as a result of the change in German tax rates, and a $0.15 per share gain in 2008 from asset sales.

third quarter net income from discontinued operations, which includes our timberlands operations and the Pictou pulp mill prior to its June 2008 sale, was $1.5 million in 2008 and $2.1 million in 2007. 2008 results reflect income from timber provided to Northern Pulp, the new owners of the Pictou mill. Let me now turn things over to Bonnie.

Thanks Bill, and good morning to everyone on our call. Before getting into segment results, let me comment on a few general topics.

First, input costs remain substantially higher than last year, and for some items, like latex, coal and pulp, prices continue to increase from what they were in the second quarter. In the third quarter input costs in total were almost $9 million higher than last year. This represented about half of the $20 million year-to-date increase. While we have successfully increased selling prices, and reduced controllable manufacturing costs over the past few years, this does not fully offset the dramatic rise in input costs.

However, with more recent selling price increases, coupled with pulp and certain energy prices that are now in decline, we should see this come back into balance and support margins going forward.

Second, we took our annual maintenance downs at virtually all of our mills in the third quarter, this was the same timing as last year, so it didn't distort year on year comparisons, but it does impact the sequential quarterly results.

And finally, I'll cover this in more detail later, the credit market turmoil has not affected our ability to finance our operations, as we have strong credit facilities, ample liquidity and a solid balance sheet.

Moving on to segment results; in Fine Paper net sales were $82 million in the third quarter versus $95 million last year. Sales decreased 14% versus last year, reflecting an unusually weak market for premium papers, which continued through the third quarter. End uses for our paper, such as advertising and corporate identity documents, particularly for the financial, housing and automotive industries, have declined with the economy. Our green portfolio products continue to be a bright spot, and sales for these brands were up in the quarter, despite the difficult market conditions.

Late in the quarter we relaunched our CLASSIC CREST and CLASSIC Linen brands. These are two of our most important and well known brands, and we are excited about this major relaunch. In addition to new colors and promotion materials these brands are now fully SSE certified to meet the growing demand for green products. We also expanded digital offerings for these brands, and now offer a one of a kind service guarantee on all CLASSIC CREST sales, reinforcing our commitment to supply chain and service excellence.

The past year and a half it required a lot of time and effort to complete the integration of Fox River. We can now totally focus on a regular cadence of product news, insuring that all of our key premium brands maintain their market leading positions. The changes to CLASSIC have been well received by merchants and printers, and this has been a very successful relaunch.

Operating income of $11 million, which included $3.6 million from gains on asset sales, compared with income of $9 million a year ago. In the quarter we sold a surplus Fox heritage facility in Wisconsin, and the Housatonic Massachusetts mill. As part of our footprint consolidation and site rationalization we generated almost $14 million in cash this year from sales of assets, helping to offset integration and other costs.

Excluding the gain on sales, Fine Paper profit declined almost $2 million due to higher input costs and lower volumes, and reduced mill operating schedules, that were only partly offset by cost improvements and higher selling prices. For the quarter input costs increased almost $5 million, and we offset about half of this with higher selling prices. We implemented a significant price increase on most products in late September to restore appropriate pricing versus our competitors, and recover some of the increased costs experienced this year.

Moving to Technical Products, quarterly net sales were $104 million, increasing from $100 million in 2007. Sales benefited from translation of German results due to a stronger euro, as well as higher selling prices and a more favorable sales mix. While volumes in total declined, this was principally due to lower exports from Germany to Asia, which would not have been profitable this year with the stronger euro. We continue to achieve substantial volume gains in key products such a transportation filtrations, abrasives, and heat transfer. Growth in these businesses has been supported by new products, including the recent introduction of our Iron Man heat transfer paper for offset printing, expanding this important product line into a new channel.

Operating income increased from $3 million in 2007 to $4 million this past quarter, despite input costs that increased by almost $5 million. These increases were offset by improved manufacturing efficiencies, higher selling prices, and more profitable sales mix. We also implemented further selling prices increases in the quarter, driven by continued rises in latex and energy costs. The latest price increase took effect for most products in September, except certain markets and customers covered by contracts or negotiated individually.

Unallocated corporate expense was $2.9 million, which is somewhat lower than our run rate this year, but up from an unusually low third quarter last year, which included currency gains on a Canadian inter-company loan. We continue to carefully control administrative spending and the current quarter also benefited from reductions in incentive and benefits expense. On an ongoing basis, we expect quarterly unallocated expense of $3.5 million to $4 million, based on total SG&A spending of $18 million to $19 million.

Next I'll cover some financial items; we continue to have a very efficient tax position, and year-to-date booked tax rates are 24% in 2008 and were 28% last year. The lower rate in 2008 is mostly due to a decrease in German statutory breaks. As I mentioned in the last call, it's important to remember, in addition, that as a result of losses associated with the Pictou mill, our cash tax position is very attractive. We will receive a refund in the first half of 2009 of over $12 million, and expect to pay minimal income taxes in North America in the next several years as we utilize these operating losses.

I'll spend some time on liquidity and capital structure, which I know has been on many people's minds these past few months. First let me say I remain very comfortable with Neenah's position. Our debt load is manageable, we have plenty of remaining borrowing capacity on our existing credit facilities, our covenants are not an issue, and there are no major refinancing needs on the horizon.

As of the end of the quarter we had debt of $374 million and cash on hand of $9 million. This includes $225 million of bonds due in 2014, with a very attractive seven and three-eighths percent coupon rate. The second largest piece of debt is our US revolving facility, which is comprised of some of the strongest US banks, including JP Morgan, B of A, and Wells Fargo. This revolver is not due for renewal until November of 2010. At the end of September we had $110 million drawn and $60 million of remaining availability, which we believe is more than enough to cover our needs.

Our remaining debt of $39 million is comprised of $23 million of asset backed loans in the US and Germany, and a $16 million draw against an unsecured revolving facility in Germany. Our variable rate debt carried an average interest rate of 4.8% for the quarter, and quarterly net interest expense of 6.3 fell from 6.5 in 2007 due to the lower rates in 2008.

I'll talk briefly about pensions next. While our US pension plans have been relatively well funded, we've contributed over $15 million to the Canadian plan since 2004. With the sale of our pulp mills we no longer have funding obligations in Canada. Our German pension plans do not require advanced funding, and cash costs have typically been less than $2 million a year. This year we expect to contribute $9 million to our pension plans, and in 2009, following a change in the pension regulations, and dependent on plan returns and where year end discount rates settle out, we expect to fund $9 million to $12 million. We will update this number after year end when performance of our plan assets and the discount rates are known.

Overall our balance sheet remains in sound shape. While debt levels are slightly above our targeted range, we expect this will be reduced by surplus operating cash flows and obviously any proceeds from the timberlands sale. Both receivables and payables declined by over $20 million from June levels as a result of ending the tolling agreement related to the Terrace Bay Pulp sale. Assets and liabilities also decline overall due to translation of German assets and liabilities with a weaker euro.

Next let's take a look at capital spending. For the first nine months we invested approximately $24 million compared to $37 million last year when we were investing pretty heavily in Germany for added filtration capacity. Total spending in 2008 is projected to be $30 million, which includes $5 million for Fox River integration activities. We expect capital spending in 2009 to decline to $25 million.

Year-to-date cash from operations is slightly positive, but includes a $25 million use of cash due to pulp. Pulp includes the impact of the receivable for the tax refund that we will collect next year, as well as the $5 million payment to settle litigation related to Terrace Bay retirees. Other unusual items negatively impacting cash flow this year have been a $4 million tax payment in Germany related to the period prior to the acquisition, for which we will be reimbursed; and about $5 million of payments related to the Fox River integration.

Finally we paid, as planned this quarter, approximately $11 million for the Pictou sale. These payments were largely offset by cash proceeds from Fine Paper asset sales. I'll now turn things over to you, Sean.

Thanks Bonnie, and good morning everyone. As usual, let me start off with a comment on safety.

Through September, our overall reportable incident rate was 1.9 and we've had facilities like our mill in Ripon, California that have gone well over one year without a safety incident. Safety performance for Neenah continues to be well above industry standards and has improved from last year. However, we won't be satisfied until all of our facilities and employees are 100% safe.

We've recently updated our strategic plans and I reviewed these with our other board members. We believe there is ample opportunity to create value in our organic businesses while improving our credit metrics. We remain committed and are excited about these opportunities and I'll share some thoughts with you this morning.

But before we look forward, let's briefly look back. As a new company, one of our key strategic priorities was to transform Neenah Paper, from the 50/50 combination of pulp and paper businesses we inherited, to a pure specialty papers company. With the sale of Pictou in June, we have essentially accomplished that and have divested each of our pulp mills in a cash positive manner.

By shedding those volatile commodity, capital intensive businesses, we have become more profitable, less volatile and, most importantly, able to deliver better returns on capital.

We have been actively involved in discussions about the sale of our timberlands. While the recent credit and housing crisis, global economic conditions and changes in exchange rates have not helped the process, our timberlands remain a profitable, cash positive cash flow operation with a long-term fiber contract. And we remain confident in our ability to sell this valuable asset.

I believe our strategy to transform and divest the pulp was the right one and now we can move forward as a premium and specialty paper business with leading positions in most of our markets. Let me comment briefly on each of our segments.

Fine Paper remains a cornerstone of Neenah Paper and its role in the Company is to continue to deliver strong cash flows to help fund growth opportunities within Neenah Paper. We are now the clear leader in the premium rating text and cover market. We believe our planned products and supply chain initiatives will help us with our strategy to gain share in the declining market as customers look to consolidate with us. We have a great foundation, with market leading brands, which are well known, often specified and supported by excellent advertising and promotional programs.

We have unparalleled paper quality, with a wide selection of colors and textures to meet designer needs, including the growing demand for green papers and digital offerings. And we have the ability and experience to provide unique supply chain capabilities.

We will continue to invest in our brands, such as the recent Classic re-launch, which represents more than a quarter of our volume and in programs and initiatives that support our customers and our ability to grow with them.

In addition, we'll explore growth opportunities in markets such as wine labels and luxury packaging, the latter of which has grown more than 20% so far in 2008.

We are also focused relentlessly on improving our cost position. A recent example is a reduction in shipping costs per unit we have achieved through better planning and utilization of system capabilities and in spite of record high fuel costs.

In addition, our assets have clearly shown they can run more efficiently with enhanced loadings. We will continue to take actions as needed to balance our manufacturing footprint with demand and optimize our cost positions. At the same time, we are carefully controlling SG&A and other spending to insure we are as efficient as possible.

As I said at the start, Fine Paper will continue to be a very important part of Neenah Paper with its outstanding reputation in the market and its ability to deliver strong cash flows.

In Technical Products, we have an array of products and technologies that can support growth in existing and in adjacent markets. Filtration is our largest product line and now represents about one-third of our sales. Year-to-date volumes are up over 10%. Most of our products are in high performance engine and cabin air filters for cars and trucks. While we will be impacted by a slowdown in new car production, only about 15% to 20% of our filter materials end up in new vehicles. And the rest are sold in the after market, which provides a very stable base.

With more advanced engine requirements in the future, due to alternative fuels and more efficient engines, the need for specialized and advanced filters will continue to grow. This business is largely European but has the potential to expand globally and our position as innovation leader in this market will benefit us.

We also have products like specialty tape, abrasive papers and nonwoven wall coverings that are key businesses and represent over 40% of our sales. While products such as abrasives and tape tend to grow with the economy, we were generally only in specialized niches of these categories and are continuing to work to leverage our technical know-how into new segments. Nonwoven wall covering has been a fast growing market in Europe, although this has more recently attracted new low cost capacity and our teams are focused on responding to this challenge.

Our remaining businesses represent about one-fourth of our Technical Products sales and are comprised of many different specialized product lines; key transfer papers, medical packaging, casting release papers and others that deliver good margins. And we are excited about the opportunities to grow in these markets.

In all of these categories, it's our technical knowledge, customer relationships and process capabilities that are keys to success. And we are focused on driving innovation and investing in process capabilities that will deliver enhanced returns.

Before moving on, I'd like to recognize, in particular, the work done by our US business team in utilizing information now available to drive cost reductions, price realization and a more profitable product mix. As a result, we have been able to make progress towards targeted margins and returns in this business, despite the challenging external environment.

In terms of outlook, let me make just a few comments on it. Demand and our order book are clearly reflecting softening economies. Consequently, we are adjusting operating schedules in the fourth quarter and asset utilization will be lower in order to insure inventories are at target levels by year-end. While this will have, obviously, a positive impact on working capital, we will have higher costs due to fixed cost absorption levels.

At this point, it is difficult to assess how severe or extended this downturn might be. But it will continue to represent a risk to our demand and we will carefully manage our costs and schedules as needed.

An offset to this are the lower input costs that are beginning to take hold. We will benefit from a decline in pulp prices. Most of our pulp contracts have a one-month lag so the most recent declines won't be fully reflected in the fourth quarter but will have a positive impact in 2009.

In our US operations, we consume approximately 150,000 tons of pulp annually. In Germany, we consume an additional 60,000 tons. However, we do not expect to realize similar benefits due to exchange rates and fixed price contracts for specialty pulps.

In other key materials, while latex has not fallen to any significant extent at this point, there are signs that it should decline. In energy, in additional to local electricity purchases, our costs are tied to natural gas per fine papers in German operations and coal for our US Technical Products business. While the falling energy prices will more immediately benefit the Fine Paper business, our Technical Products units are locked into longer-term contracts and will not benefit as much in 2009.

Finally, as Bonnie mentioned, operating cash flows next year will benefit from reduced capital spending and our very favorable tax position and we intend to use free cash flow to reduce debt.

In summary, we have done a lot in the past year, implementing necessary cost and pricing initiatives to offset rising input costs. Our Fox integration plan was completed and acquisitions of both Fox River and Neenah Germany have strengthened our existing businesses. The benefits from these acquisitions have been countered by a challenging external environment, but we recognize the need to deliver on these investments.

Finally, with the sale of Pictou in June, we will now fully benefit as pulp prices decline to more normal historical levels. While the short-term is likely to be challenging with weakening global economies, we believe our actions and strategy were the right long-term move for shareholders and will allow us to deliver modest top line organic growth and more rapid earnings and cash flow growth as we leverage our recent investments and benefit from our tax position and falling commodity prices.

I remain confident in our people, products and plans and continue to believe that, as we execute these plans, there is significant value that will result. I appreciate those shareholders that share in this belief and continue to invest in Neenah Paper.

I'd like to now open up the call for some questions.

(OPERATOR INSTRUCTIONS)

Your first question comes from Joe Stivaletti, with Goldman Sachs.

Good morning, Joe.

Good morning. I just had a few things; I was wondering, just following up on your timberland sale comment. I mean, are you still expecting that as something that will happen in the near-term? Or, I guess I just wondered what guidance you might be able to give us, given the change in the financing markets.

We'll, obviously, announce it once we have a definitive purchase agreement signed. But we're not seeing a major change in the market for it. TMOs continue to be well financed as you know and, with the predictable cash flows that come out of timberlands, especially ones like we have in Nova Scotia with a long-term contract. It remains an attractive asset category. (Inaudible).

Okay. I guess you had said something about selling, you know, expecting a transaction within 12 months and that was mid-year. So, should we still be thinking along those lines?

We still believe that we will be able to sell the timberlands within a reasonable time period; so yes.

Okay. And, can you talk a little bit more about your current thinking on fourth quarter down time and volumes? I mean, you mentioned -- you know, we know things are weak and downtime costs a lot of money and I'm just trying to see if we could get a little bit more color on your current thinking. I realize you're only partway through the quarter.

Yes. You know, unlike some large commodity mills, Joe, or pulp mills, we tend to not necessarily run on seven day operating schedules. This is also a quarter where we have quite a few holidays where the mills are typically closed. We may load the front end or back end of that up because there'd be a more efficient time to take downtime. Most of the mills, the paper mills, are operating on a three-crew schedule, so a five-day operation is a very efficient one.

We will, in some mills, take more downtime as the quarter flows through. But it may not be dramatic. Our labor contracts are very flexible. I was in Germany last week and the response to what's happening now to the economies there, I think you've read that car manufacturers are taking some downtime so our filtration business may adjust our operating schedules this quarter. And all of our teams are very focused and responsive to this.

And then just one last numbers question; Bonnie you mentioned the pension contribution estimates for '08 and '09, how do those compare to what you're expensing? Are they fairly similar, or do we need to be adjusting our -- just curious about that.

Joe I think you should do a bit of an adjustment. So in 2008 we would expect expensed to be 6 versus the 9 contribution, and then right now with our preliminary estimates for '09 we have expense in that $8 million to $9 million range versus the contributions in 9 to 12.

Thanks.

Your next question comes from Jonathan Lichter with Sidoti.

Good morning Jonathan.

Good morning. Would you expect Asian demand to pick up now that the euro has come back down?

We spent a lot of time talking about that last week when I was in Germany, and they are taking a good hard look at that. So I would expect the opportunity to increase.

Okay. Which areas, you just mentioned filtration before, but which areas in particular are you expecting particular weakness in? In the Technical Products division.

As we mentioned in the comments, we're seeing strong growth in filtration this year, built into our strategy and business plans. We expect that to continue. We do see a slowing down this quarter. Long-term our forecast is still very strong. We are seeing some weaknesses in the wall cover markets in Germany, and what we've experienced throughout the year is some declines in products that we sell into the furniture industry. We don't expect that to recover any time soon, but we've lived with that now for two or three quarters.

Okay, and then just a little technical question; there was $3.9 million in other income, did the other $300,000 also flow through the Fine Papers portion?

Yes, it did.

Okay, thank you.

Your next question comes from Mark Weintraub with Buckingham Research.

Hi Mark.

Hi Sean. First you talked about the very difficult demand environment; you also talked about the input environment getting a little bit more favorable for you from a cost perspective. How about on the pricing side? What, if anything, are you seeing so far, and what should we be looking for to figure out the pricing side in your various businesses?

We, as I said in the comments, in Technical Products we've taken prices throughout the cycle, if you will, that lag the input costs, the most recent round was in September of this year. If input costs continue to decline future increases obviously will slow. Our margins in that business, even with the decline in input costs are not at or above our targeted level. So we don't see any significant need to make movements on that. It is more of a contract business than Fine Paper, and with some large industrial customers we have annual price discussions and those are underway right now. We still see some opportunity and need, with customers that haven't gotten increases this year, to make adjustments at the end of the year to get margins at a reasonable level.

In Fine Paper, as we've said, Mark, on prior calls, we haven't taken the increases at the levels that some competitors have. We took some at the end of the September that was at the higher end of the increases, and we think the gap, the price gap with competitors is back now to a more historic level.

Okay. Can you give us any sense, if it's not too early, in terms of the tenor of the conversation with the Technical Products customers?

It's been positive. I mean nobody ever thanks you for a price increase, but we're providing very important products in the supply chain to these customers, and as we review what's happened to latex prices and other commodities, we didn't have to hang our head to ask for the increases. And we're bringing good value to them, and they've been positive negotiations.

Right. And then on the pulp cost side, you indicated you buy about 150,000 tons in the US. So can we basically assume what we see as changes in pulp prices feeds right through in the US first off? Is that fair?

Yes. I'm not going to tell you how to work your model, but you know there's a lot of things right now, Mark, in play in the economy. So yes, pulp is coming down. Where it's going, I believe it will move more toward that trend line, but we are seeing some changes in demand. We're seeing some other increases, so you'll have to use an estimate on that. Our contracts on pulp tend to be tied to the RISI price, and we lag a month, and then we'll individually negotiate our discount rates from RISI.

Okay and it sounded though like in Germany that because of exchange rates and fixed price contracts, that really one shouldn't expect big positive shifts.

Germany is a little bit different, we use a lot of mercerized pulp in our filtration products, and those are more tied to long-term contracts that aren't adjusted in line with guides like RISI. And also in the northern softwood and hardwood that we're using there, I think some of the declines that we're currently seeing will be offset by the euro. Because as you know, the purchases are in dollars.

Okay. And then lastly, just seeking a little clarification, on the timberland sale, on the one hand in responding to Joe's question I think you said that really there hadn't been a whole lot of change in interest levels and the way the [TMOs] were looking at timberlands. Yet on the other hand I certainly got the sense during the prepared remarks that there had been some impact and that you were perhaps at a different point in the process than you might have expected to have been in. Can you just clarify and help me understand which of those reads was right?

Both of them. To be honest, some of the early discussions that we had were with specific strategic buyers, and as you know, there are various firms that have been impacted in different ways. So we're now taking an alternative path, and I have every reason to believe that there's still strong interest, but some of the early discussions the potential buyer couldn't proceed.

Okay. I don't know if it's in an appropriate forum, and if you feel comfortable, so are you now going through an auction process at this point?

No, when we have a definitive agreement we'll talk through the transaction.

Okay.

But I'd rather not get into that.

Fair enough, thank you.

Your next question is from Peter Ruschmeier with Barclays Capital.

Good morning.

Good morning. Thanks for taking my question. Most of my questions were answered, but I wanted to follow up on the timberlands, and if you could remind us on what you've been willing to share on the attributes, qualitative attributes, whether you've shared anything on stocking levels and HBU acres that may be available there. Any characteristics that we can help to understand.

It's a similar size as the earlier sale, and we get somewhat of a mixed shift. The first half obviously had much more HBU land. We have a nice inventory, a better inventory of softwood on the remaining land. So you've got some puts and takes on it, but it's a good piece of timberland in Nova Scotia.

And how would you characterize saw timber versus pulpwood in terms of the maturity of the stand?

It's a good, mature stand; it's primarily softwood, a little bit of hardwood in there. We use Sewell and we've done the wood stock models, and the inventories are available for all of the potential buyers to go through on that.

Okay, that's helpful. And how do you think about your priorities for cash flow going forward? I think you mentioned your debt levels are not far off of where you'd like, and I think you also suggested over time being inquisitive in some of your other businesses that you want to grow.

As we said in the prepared comments, we've just updated our strategic plan, and we're excited about the organic opportunity that we see going forward. The plan that we've developed does generate significant cash flow and we will obviously apply that to existing debt, while at the same time, and as we've shown in the past, we will evaluate other strategic alternatives as they come along, if we believe that it will generate value for shareholders.

Okay, that's helpful. And just lastly, I guess on the pulp markets, outside of the contracts, which may cause a lag or delay in your benefit of lower pulp costs, do you use any caps or collars in your purchases? Or do you view it as best to be more of a spot buyer?

Well we're contract buyers in terms of the commitments for the most part. We've hedged in the past, but we hedged when we owned pulp assets to really protect us while we figured out what we were going to do with mills like Terrace Bay. We currently don't have any hedges outstanding. We obviously evaluate opportunities and watch the market, talk to folks like Om Bhatia at your company and others. But right now we haven't proceeded on any.

Very good, thanks very much.

Your next question is from Robert Howard with Prospector and Partners.

Hi, good morning. Just a quick thing, you mentioned the German refund that you might be getting from that tax payment, and that you might have a $12 million refund from other taxes coming up. Do those get reflected on the balance sheet at all? Or is that sort of another asset, is that something that doesn't really show up there.

No, it shows up on the balance sheet, other current assets.

Is that other current assets, okay, I just wanted to see if that would be in there. Okay great, thanks.

You're welcome.

At this time there are no further questions. I'll turn it back to the presenters for closing remarks.

Well thank you for joining us this morning, and we look forward to updating you on our progress at the end of the year. So thank you very much.

This concludes today's conference call, you may now disconnect.