Neptune Insurance Holdings Inc (NP) 2009 Q4 法說會逐字稿

Good morning. My name is Regina, and I will be your conference operator today. At this time I would like to welcome everyone to the Neenah Paper fourth quarter and full year 2009 earnings conference call. All lines have been place 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 but in 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 filings with the Securities & Exchange Commission, which you're encouraged to review. Except to the extent required by 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.

I would like now to turn the call over to Mr. Bill McCarthy, Vice President Financial Analysis and Investor Relations.

Okay, thank you. Good morning, everyone, and welcome to Neenah Paper's 2009 fourth quarter earnings call. With me today are Sean Erwin, our Chief Executive Officer, and Bonnie Lind, our Chief Financial Officer.

I'll summarize a few items before turning things over to Sean and Bonnie to discuss business conditions and results in detail. And, as usual, we'll have time for questions at the end.

We were pleased to report adjusted earnings per share of $0.33 for the quarter. This was a dramatic turnaround from the fourth quarter of last year when we reported an adjusted loss of $0.62 per share in the midst of rapid declines in global demand and commensurate downtime.

While recent results reflected some benefit from lower input costs, the bulk of the turnaround resulted from actions we took in 2009 to improve our cost structure and also from higher volumes.

As we have seen in each quarter of 2009 sales, operating income, and margin sequentially improved from the prior quarter.

As a reminder, adjusted earnings is a non-GAAP measure, and a reconciliation to GAAP was included in our earnings release, which is posted on our website. The primary adjustments in the most recent quarter was to exclude $1.4 million of interest expense which resulted from refinancing and extending our revolving credit agreement.

In the fourth quarter of 2008 adjusted results excluded a $54.5 million pretax impairment charge and an adjustment to tax expense of $3.9 million.

With that, I'll turn things over to our Chief Executive Officer, Sean Erwin. Sean?

Thank you, Bill. And good morning, everyone.

As you saw in the figures in our release, quarterly results were encouraging and continued to show the success of our actions to reduce cost, improve margins, and generate cash flow to pay down debt. We are also achieving top line growth through increased share with customers and new market opportunities. Let me touch on a few consolidated highlights and then discuss each of our segments.

Sales of $155 million were up 5% versus the prior year and increased 3% versus the third quarter despite typical fourth quarter seasonality. Both Fine Paper and Technical Product sales grew sequentially in the quarter as markets continued to stabilize and the end use demand began to pick-up. We also began to see benefits from product launches and revisions.

Adjusted EBIT was $11 million in the quarter, up from $10 million in the third quarter, and up $20 million from 2008. The EBIT growth versus the third quarter reflected gains in volume, as well as ongoing cost controls and improved price end mix that more than offset the impact of higher input cost. With quarterly depreciation and amortization of around $9 million this represents EBITDA of around $20 million in each of the last two quarters.

Operating margins continued to improve. Consolidated margins reached 7% as Fine Paper maintained a 14% margin, despite rising fiber costs, the Technical Products margins grew to 8% of sales, the highest level since early 2007.

We used cash flow to reduce debt further and maintained an attractive dividend. During the quarter we were able to pay down debt by $6 million despite cash requirements for our semiannual bond interest payment and refinancing our revolver. And this brought our year-to-date debt reduction to $48 million and our lowest debt level in more than three years. The lower debt coupled with higher earnings has also brought our credit metrics back towards targeted ranges.

So overall results in the fourth quarter showed we are successfully doing what we said we would, improving margins, de-levering, and delivering on targeted growth initiatives.

Let me talk next about each of our segments. Starting with Fine Paper, volumes were up 5% versus the third quarter, and we saw growth in a number of areas, starting with our important core classic brand. In addition, this was our first complete quarter as exclusive manufacturer and marketer for Crane Business papers, and volumes were also sequentially much stronger for these products.

Finally, as I mentioned in the last call, we repositioned our Sundance brand, adding new product solutions in post consumer, 100% post consumer, and digital, and also introduced a new green brand called Conservation. In the fourth quarter sales increased nicely for each of these brands.

We continued to leverage our industry-leading supply chain capabilities with extensions of our service and working capital guarantee programs. We also expanded the use of our proprietary database that helps customers understand turnover and demand for different SKUs to optimize their stocking efficiency.

So while market demand may still be challenging, we're pursuing ways to use our supply chain capabilities to increase our share. We also remain focused on expanding our reach in international markets and in market applications, such as beverage labels and luxury packaging.

While printing and writing paper demand remains lower than a year ago, it has stabilized in the past month. Capacity utilization for the industry remains reasonably balanced and consequently prices have increased, especially more recently as fiber costs have began escalating.

In mid-December we increased prices 3% on the majority of our premium brand. Much of our unbranded business is made to order and prices for these products also tend to rise with increasing cost for fiber.

Finally, I'd like to note the excellent work done by our Fine Paper Team in controlling costs, both at a mill level and with SG&A. The benefits of these actions were apparent in the quarter as we were largely able to maintain our margins and offset the rapid run-up in fiber costs.

Turning to Technical Products, sales also grew versus the third quarter, and more notably EBIT and margins increased significantly despite yearend seasonality. As I have said, getting margins for Technical Product segment to double digits remains a key objective. The 8% level achieved in the quarter demonstrated good progress toward this goal.

In the fourth quarter growth in our tape and abrasives businesses versus the third quarter helped drive results and offset our normal seasonal slow-down in Europe, as well as weakness in wall covering due to excess market capacity.

In total volumes in Technical Products continue to reflect strengthening global economic conditions, as well as an improved mix from increased sales of some of our more advanced filtration and abrasives products.

To support ongoing margin improvement we're taking selling price increases as a result of rising cost for pulp and latex, and to continue to execute on additional opportunities to improve operating efficiencies and reduce costs.

At the end of the call I'll talk about our outlook as we move forward in 2010, but now I'll turn things over to Bonnie to discuss the fourth quarter financial results in a little more detail. Bonnie?

Good. Thank you, Sean.

The fourth quarter of 2009 reflected a $20 million turnaround in adjusted EBIT compared with the prior year, with the majority of that coming from improved operations and cost reductions, much of which will be sustainable.

It also marked the end of a year that demonstrated how well our Teams could respond to challenging conditions. Despite weak markets for much of the year, which resulted in lower full year sales, we were able to significantly increase operating income and margin.

In addition, we stayed highly focused on cash and liquidity and paid down $48 million of debt, maintained good liquidity throughout the year, and successfully renewed our revolving credit facility on favorable terms.

So overall we are very pleased with what we accomplished last year. Let me provide some more detailed comments on fourth quarter results, and I'll start with Fine Paper.

Sales of $67 million were up from $63 million in the third quarter but below $72 million last year. As Sean mentioned, the sequential quarterly growth this year was due to higher volumes and improved pricing and mix across most of our key brands and products. The shortfall versus prior year reflects the sustained market reductions in 2009, but the fourth quarter was the smallest year-on-year decline as the market began to stabilize.

Operating income of $9 million was down slightly versus the third quarter, mostly as a result of $100 per ton increase in average pulp prices between the third and fourth quarters. Compared to 2008 fourth quarter operating income increased by $8 million, mostly due to significant cost reductions and improved operating schedules, but also reflecting $2 million of lower interest cost.

In total we are pleased with how the Fine Paper Team has responded as challenging conditions and with the level of operating income and margins that the segment continues to deliver. Our cost structure is much leaner than it was a year ago, and capacity utilization rates are coming back closer to desired levels.

To provide more stability in pulp cost, some of our contracts now lock-in prices slightly longer than previously. Pulp prices have continued to rise in 2010, and we would expect first quarter prices to be about $25 per ton higher than what we saw in the fourth quarter.

In Technical Products, quarterly sales were $88 million, up from $87 million in the third quarter, and 18% above the $74 million reported last year. We delivered strong sequential quarterly volume growth in tape and abrasives, and also saw improvements in release paper, wash tag, and synthetic label. Filtration and medical packaging also remain on solid footing with volumes for the quarter up significantly year-on-year.

Operating income for the fourth quarter of almost $7 million was up from both $5 million in the third quarter, and an adjusted loss of $6 million in 2008. In fact, fourth quarter segment profits are best ever as a public Company.

Improvement versus prior year is largely due to the cost reduction actions our Teams have taken, increased sales and less downtime, and $4 million from lower input costs, the latter which reflected new lower cost contracts for energy in both the U.S. and in Germany.

Compared to 2008 we also benefitted from currency translation as the Euro to dollar exchange rate averaged 1.48 in the fourth quarter 2009 versus 1.32 in the prior year. The translation impact on sales was about $6 million. Since virtually all of our sales and costs are in Euros we have minimal transactional currency exposure.

Turning to Corporate items, selling, general and administrative expense of $18.1 million compared to $19.8 million in the prior year. Lower costs in 2009 resulted from the many reductions in spending we enacted this past year. Similarly, the full year SG&A of $69 million compared to $75 million in 2008. Unallocated Corporate expense, which is part of total SG&A, was $4.5 million for the quarter and $15.5 million for the full year.

Net interest expense was $6.8 million but included $1.4 million for noncash accelerated amortization expense and fees related to refinancing our revolver in November. Net of these costs, interest expense was $5.4 million, down from $6.4 million last year as a result of lower borrowings and lower interest rates.

Our effective tax rate in the quarter was 9%. As we've said in the past, this rate varies widely based on the overall amounts and mix of income between tax jurisdictions. In 2010 the rate is expected to return to the mid 20s.

As a reminder, we have substantial net operating loss carry forwards, which we plan to use to offset cash taxes due on income in North America. In the fourth quarter we utilized losses of about $7 million (offset) by taxes due following recently completed audits. A recent change in the tax law allowed us to use these operating losses instead of paying cash.

Free cash flow, which we define as cash (inaudible) less capital spending, was over $8 million in the quarter and over $56 million for the full year, as both businesses generated significant positive cash flows.

In addition to higher earnings, cash flow reflected improvements in working capital efficiencies, which as a percentage of sales we were able to reduce from the high teens to under 15% by yearend.

Capital spending was $2 million in the quarter and $8 million for the full year, within the $10 million target we had communicated.

We paid approximately $15 million this year for pension and OPEB plans, and 2010's cash payments are expected to be about the same or slightly higher. In 2009 we also had a onetime cash refund of $3 million in the second quarter related to our Ontario plant. In 2010 expense is likely to decline and would, therefore, be lower than cash payments, but amounts are still being finalized with our actuary.

Finally, we ended the year with debt of $319 million compared to debt of $365 million a year ago. Debt includes $225 million of 10-year notes that are due in 2014 and borrowings of $68 million against our North American credit facilities, which are now due in November of 2013. The revolver amount includes $40 million for a term loan that is classified as short-term debt, since it will be paid off with proceeds from the sale of our Timberlands expected to occur in the next 12 months.

Based on recent EBITDA levels our capital structure metrics are returning to more normal ranges, and with proceeds from planned asset sales we expect to be very good shape.

So to recap fourth quarter profits, as predicted, were a dramatic turnaround from the prior year and marked another quarter of sequential improvement. We are delivering on the areas we said we would, generating cash to pay down debt, improving margins, and pursuing growth opportunities in all of our businesses. The actions we've taken to improve our cost structure will continue to benefit us as the economy recovers.

Return on capital also improved significantly in 2009, helped by higher profits, tight control over capital, and the affect of our first full year without pulp mill operations.

Finally, we remain committed to driving shareholder value, and our cash flow and dividend yields remain very attractive.

With that, I'll turn things back over to you, Sean.

Thank you, Bonnie.

Let me wrap-up with a few comments, including some thoughts about 2010. First, I'd like to recognize the progress our Teams have made again this past year in safety performance. For the full year we reduced our reportable incident rate by almost 20% from 1.7 to 1.4. We were pleased with this improvement and continue to work toward the world-class objective of 1.0 that we set a few years ago.

Let me wrap-up 2009 by repeating what I've said to a few people. I think last year without a doubt was the least fun I've had in my working career and, candidly, I'm glad it's over. Many tough but necessary decisions were taken and done quickly.

That said, it is also a year we're very proud of as it showed what our Teams are capable of achieving, and the quarterly performance was a direct result of their efforts. As I've kidded about in a prior call, there are no black liquor subsidies in these numbers, they are good quality earnings in a still tough economic environment.

Looking at 2010, while the demand is stabilized and begun to recover in most markets, it's still well below where it was prior to the recession. As reflected in our fourth quarter results, the recovery is coming quicker in some of our Technical Products industrial markets, and this business is also more international in scope.

While Fine Paper markets have been slow to recover, we are seeing the stabilization that has been reflected in recent [AF and PA] data. We expect markets to continue to reflect a modest recovery, and we will look to achieve additional growth through gains in market share and continued expansion into new markets and categories.

As mentioned in earlier calls, R&D was one area where we did not reduce spending. Our Research & Development Teams in both Germany and the U.S. continued to stay close and committed to our customers. They are also working on new applications for our technologies, and we are encouraged by the new market opportunities that this represents.

We knew going into the year that it would be an unusual one in 2009 and that customers would remember good or bad how we behaved. We feel positive about what we achieved with them.

With an improving global economy certain commodity prices and notably pulp are increasing. As Bonnie mentioned, we expect costs to rise $25 per ton in the first quarter from the fourth quarter. Based on recent announcements, the increase in pulp cost in the second quarter is likely to be even steeper.

Increases we are taking in selling prices will help offset some of this impact, and we will continue to deliver new cost reductions, while sustaining most of the benefits from actions we have already taken to our cost structure and footprint.

Finally, this leaner structure will, of course, especially benefit us as volumes continue to recover. We will remain disciplined in 2010 in our control over spending and in our management of capital. We expect capital spending of around $15 million, and we'll continue to manage working capital tightly. Cash is still King.

So overall there will be short-term challenges with rising (inaudible) cost in what still appears to be a fragile economic recovery. We remain confident about where our businesses are heading. As I said last time and hopefully you have seen with our results, our transformation into a premium specialty paper company has been successful.

Our focus is now on driving profitable growth. We believe we have the brands, products, market leadership position, technical capabilities, and most importantly the people to succeed. We remain committed to delivering value to our shareholders, including maintaining an attractive dividend, and look forward to continuing to build on the momentum we have achieved in recent quarters.

I'd like to thank you for your time and interest this morning, and I'd now like to open up the call to any questions you may have. Thank you.

(Operator instructions.)

Our first question comes from the line of Mark Weintraub with Buckingham Research.

Good morning, Mark.

Good morning. Could you give us an update of where the Nova Scotia Timberland transaction stands at this point? I think you were hopeful last time we spoke to get something done in the not too distant future, is that still a reasonable possibility or have things changed?

No, nothing has changed. It's, you know, we are continuing to work on the opportunity. And, as I've said before, Mark, as soon as we have a definitive and binding agreement including financing, trust me, we'll announce it as soon as we can.

Okay, great, that's helpful. And I guess just one other question I'm trying to wrestle with, on the Technical Products business the improvement that was shown, is there any -- what's the seasonality in that business? Was that just conditions getting better from a demand perspective? Can you help us understand what's driving that improvement?

Sure. It's actually why we mentioned how pleased we were on the quarter-on-quarter growth, because if you look back in past years the fourth quarter is typically the lightest for us, especially in Europe with the vacation downs at the -- taken at the end of the year. So we were pleased to see sequentially a build in Technical Products third quarter to fourth quarter. It -- so we are, as we highlighted in the call, Mark, we are seeing improvements in most of the key categories within the Technical Products business, both here and in Germany.

And historically I believe the first half of the year has typically been better in Technical Products than the second half of the year?

Yes, that's true.

And yet in 2009 we had a very dramatically different, inasmuch as obviously you barely made money in the first half of the year, and you made $12 million or so in Technical Products in the second half of the year. Was there -- can I say, well, that was just because there were exceptional circumstances in the first half of the year, and the second half of the year is more representative of the base level of earnings, and if anything that would suggest that if I double that and I get $24 million that's probably a low level of what you can anticipate earnings power to be? Or was there push-back from the first half of the year and the earnings showed up in the second half of the year? So using that line of logic doesn't necessarily work?

Yes, it's -- I mean as I think everyone knows the end of 2008, beginning to all the way through 2009 was an unusual period, which is why we're giving comments in the call, not just on year-on-year but quarter-on-quarter. And if you look at our results in 2009 it builds every quarter, we would build both in terms of volumes, that the margins were improving. I think over time you will see seasonal patterns begin to emerge again, but I think they were overwritten by the economic situation in 2009.

Okay, and just I'll say it one last time, so the second half of the year, that $12 million, do you think you've benefitted much, if at all, from what could have been monies more typically made in the first half of the year? Or is that a genuine base of performance for second half 2009 and going into 2010, we can use that as a kind of run rate base?

Yes, if -- I mean we're tracking with our backlogs, watching the businesses, and obviously as I look forward I would want and expect to emulate more of the second half than the first half of the year. It's -- the second half of the year was, if you go back a year or two, was not well above any patterns in those years. You saw a combination of demand coming back, our backlogs building, and the benefit of the cost reduction programs that we've taken and the improvement in the sales mix of our product category. So I'd much rather build from the second quarter, the second half of the year going forward in Technical Products.

There were no major unusual items that hit us in the fourth quarter in Technical Products. As we've said on past calls, our energy contracts, especially for coal and the German contracts we benefitted from that. Those will roll forward. I think our -- most of our energy costs in Europe are now set for well over the next year, especially in southern Germany.

We had about $4.5 million (inaudible) cost benefits.

Year-on-year?

For fourth quarter that --

Well, and a lot of that's energy, though. So I hope that, you know, I'd much rather you use the second half than the first half looking forward, Mark.

Okay, and just to clarify, though, your fourth quarter in Technical Products actually was the best performance from an operating earnings basis, at least as far as the facts in my records go, and --

We said that in the comments, yes.

Right. And the second half, too. So again I'm just trying to understand whether there's been real underlying improvement in this business so that we really should be quite optimistic about what can happen?

I mean and I'm to a certain extent, and I apologize, being redundant in what I've said on past calls, but if we go back to the earlier in 2008, what I was saying at that time is using some of our capabilities through Oracle and our R&D Teams what we were seeing is an expansion of the margin of the business while we were getting a combination of operational efficiencies, and the focus on higher valued products where we got attractive margins.

A lot of stuff happened at the end of last year or end of 2008 and the beginning of 2009 when the economic crisis hit. And now we're back on strategy, Mark. And this is a business that we think we can sustain higher margins and continue to grow, and that's our strategy that and our focus that we expect to deliver on.

Okay. Thank you.

You're welcome.

Our next question comes from the line of Fred Buonocore with CJS Securities.

Morning, Fred.

Good morning. This is actually Jason Ursaner calling in for Fred.

Oh, hi, Jason.

Congratulations on the solid results.

Well, thank you, sir.

Can you give us a general sense of the expected magnitude that higher pulp prices could have on operating margins? What percent of COGS is made-up from raw material cost?

It's, you know, not nearly as much as in some businesses. It's more so in our Fine Paper business, where it's the highest cost of the business, which is about 50% of our cost within Fine Paper. Our [hype] in Technical Products, latex actually represents a higher percentage of our cost. In total we expect to use about 160,000 tons of pulp a year. About 130,000 of that would be your commodity pulps, the northern softwood, hardwood, some of the eucalyptus that follow industry prices. We also use quite a bit of specialty pulp, including mercerized pulp that are tied to longer term contracts without the volatility in price.

So pulp is something we're going to keep our eye on. The first part of this year some of the analysts are saying that the prices may not be sustainable. I think we're seeing dynamics in the market that I haven't seen in a number of years. For instance, if you take what's out on the street today, we had northern hardwood price, maple pulp priced above eucalyptus pulp, which I've never seen happen in the marketplace. So I think there's a lot of noise, and as the year progresses we'll get back to normal pulp market dynamics.

Okay, that's great. And the selling price increases, I think you said it was a 3% increase basically across the board?

In Fine Paper it's -- I said it was 3% on our premium products, that represents roughly 70% to 80% of the portfolio, and our non-branded products we tend to have a little more volatility in the prices because those are more on a bid basis. So as price goes up our quotes tend to do go up on that also.

Okay, and you mentioned that this is an indication that industry capacity feels fairly aligned with demand. Do you have any sense of inventory levels at customers?

Yes, as we -- and it depends on the business area. I think in a lot of our customers, especially in the Technical Products market, which is more international on a just-in-time approach we are hearing from some customers that they did get a little low, and they are increasing inventory levels. At the same time we have a lot of customers where our relationship is on a just-in-time basis, especially filtration, and so there it reflects the increase in their production levels. And in most of our Fine Paper customers we work directly with them on inventory, and they're not increasing their inventory levels. So increases would reflect an increase in their book of business.

Okay, and just can you remind us which currencies the business has the most exposure to?

Well, the U.S. dollar primarily. In Europe it's primarily a Euro. They do sell some in dollars where they're exporting into certain markets, but most of their business is Euro based and almost all of their costs are Euro based. So, as Bonnie mentioned in her comments, really the only risk we have is in the translation of the European earnings versus any transactional risk.

Okay, and the cost reduction initiatives, you mentioned sustaining most of those benefits. But how should we think about the nonrecurring part of the $20 million from '09 that might come back?

It won't be dramatic next year. I think we've gone through our budgets and our plans, and we're not doing -- and we didn't do anything last year that was crazy, so we don't expect to see big increases this year. We will spend more on maintenance than we did last year, and yet at the same time the performance of the mills was very good last year, so we're not seeing issues with any of the equipment. We deferred some major maintenance, you know, wait a year to repave a parking lot or whatever. So we'll see an increase in maintenance spending, but other than that I don't see major changes.

And kind of following up with that, the CapEx forecast of $15 million kind of on top of a lower year of $8.5 million and significantly less than some of your -- the previous years. Do you think this level can sustain you for the development and growth that you really want to be investing in?

Yes, we have a very good asset base, and I think as we've said on past calls we think the $15 million is more than enough to sustain our present operation, and even within that $15 million we target a range of 65% of that to be efficiency improvements that we get nice returns on, including some payback criteria. So this isn't just replacement spending.

As we evaluate the business, and we're looking at the growth and experiencing success in some areas, there are some strategic investments that we will most likely evaluate, where we're out of capacity, and we have to support the growth of the business in the new technologies. But I think the $15 million number is a good solid one to use for our business as it exists today.

Sure. And I think you were asked a little bit about the Timberlands, but whenever you eventually do sell it can you maybe just explain how you'd be able to apply some of the North American NOLs to offset a gain on that, if that was possible?

You bet. Now, with the Timberlands, we've got a pretty high tax basis on the Timberlands, themselves. So I think when we complete the transaction that, itself, won't have a significant tax impact. I wouldn't expect to use up a lot of the NOLs with it, and but we will give you as much detail because I look forward to that discussion.

Has the strength of the Canadian dollar played into the timing of the sale, at all, in terms of interest?

No.

No?

No.

And then just a last question in terms of acquisition environment, do you see opportunities and are sellers becoming more reasonable now that '09 results are kind of getting into those, you know, the historical estimates there?

Yes, we're -- actually, we're updating our strategic plan right now, but we've had our head down the past 12 months. As we've said, our objective was to pay down debt, get our credit EBITDA numbers, debt to EBITDA numbers back into a range where we're very comfortable. We're moving down that curve, obviously, a Timberlands transaction would have a significant impact on that.

I think there are going to be plenty of opportunities and we will evaluate them, but our focus has been organic.

Okay, great. Congratulations, again, on moving towards those objectives. And thanks a lot for taking all my questions.

Thank you.

Our final question comes from the line of [Hine Go] with Oppenheimer.

Good morning, Hine.

Hi (inaudible). A question, first, can you talk about seasonality for Fine Papers? I think it's supposed to be a little bit higher in the first quarter because of the annual report production, is that right, or is it moderate?

Yes, a good question. It's -- annual reports doesn't represent a major part of our business, but it does -- where it does come in, it comes in in the very end of the year and in the first quarter. So you're right, we tend to have a pretty good first quarter, but we don't see nearly the seasonality in Fine Paper that we do in Technical Products. You tend to see the July, August period as some of the lightest of the year as printing plants and others take some vacation shutdowns in the summer. But aside from that it's not nearly as dramatic as we've seen in Technical Products in past years.

And then also for your Technical Products the margins are very high. In the fourth quarter they were at 8%, and I know the goal is to go to double-digit margins for Technical Products. Do you guys have a timeframe that you think you'll get there? Is it next year or is it a couple of years, or--?

Well, I think my timeframe of working with the business units is mine is a lot shorter than theirs. Well, actually, because you said the margins were very high in the fourth quarter.

Yes, they're very good. Congratulations, yes.

They're getting there. I don't think 8% is very high. I think if we're going to be a leader in a specialty business, not a commodity business --

Sure.

-- those are margins we should expect to get. So I want to get it up there as soon as we can, and we're focused using Oracle and using the capabilities of our Team, we know where we can and should make good money and we expect to.

Okay, and then my last question, Bonnie, you had mentioned that you'd moved some of your long-term debt to short-term debt to account for the potential divestiture in the year. And I think you said $40 million was the right number, is that -- so am I assuming, can I assume that, Okay, you're going to get at least $40 million for a divestiture that you're estimating, and then what would you do with any extra proceeds?

Yes, well, when we did our new ABL we added a component for a term loan, a $40 million term loan that was secured by the Timberlands asset. Obviously, we would expect to sell the Timberlands for more than that but that was the value that the banks would loan on that.

Okay, okay, that makes sense. I assume that you'd get more than that, so I was just wondering why you gave that number. Okay.

Well, we reclassed it because we are obligated to pay it off with proceeds from the Timberlands sale, so since we expect that to happen within the next 12 months we just reclassed the term loan to put it up there in the next 12 months.

Perfect, that answers my question very well.

Okay.

There are no further questions at this time. I will turn the conference over to Sean Erwin for any final comments.

Well, thank you for joining in the call today, and I look forward to our next call in May where we cover the first quarter of 2010. So thank you, again. Bye-bye.

Ladies and gentlemen, this does conclude today's conference. Thank you for participating. You may now disconnect.