Neptune Insurance Holdings Inc (NP) 2010 Q2 法說會逐字稿

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 forecast.

A more detailed description of these uncertainties and risk factors is provided in Neenah Paper's earnings release and filings with the Securities and Exchange Commission, which you are 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 the regulations, if they 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.

Good morning. My name is Concheta,and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2010 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). Thank you.

Mr. Bill McCarthy, you may begin your conference.

Okay. Thank you, and good morning, everyone. With me today are Sean Erwin, our Chief Executive Officer, and Bonnie Lind, our Chief Financial Officer. Both our 10-Q and press release went out earlier this week, so hopefully you've had a chance to review these. I'll recap a few headlines before turning things over to Sean and Bonnie to discuss results in detail.

Earnings per share from continuing operations were $0.41 for the quarter, as both of our business segments performed very well, with double-digit top line growth, and benefits from actions we've taken to improve our cost structure and margins. Earnings were almost double last year's level of $0.21 per share, which excluded one-time costs of $0.79 per share to close the Ripon fine paper mill. Our strong operating earnings, coupled with sound management of working capital and capital spending, continue to translate into good cash flows, as Bonnie will talk about later.

And with that, let me turn things over to Sean.

Thank you, Bill, and good morning, everyone. In the second quarter, we were again very pleased with our overall results, and our teams' abilities to continue to deliver against our key objectives of achieving strong organic top line growth, especially in technical products, expanding margins in that segment to sustainable double-digit levels, delivering consistent earnings and attractive returns in fine paper, generating strong cash flows in both of our businesses, and improving return on invested capital.

Let me cover some highlights, and then discuss each of our business segments. Sales of $169 million were up 25% versus the prior year. Both fine paper and technical product sales increased by double digits, well ahead of estimated market growth, and demonstrating benefits from our strong market positions, new product initiatives, as well as seasonal strength and improved global economic conditions. With almost 50% of our sales outside of North America, global markets and conditions are increasingly important to us.

EBIT of approximately $14 million increased more than 80% from last year's level of around $8 million, when you exclude the 2009 Ripon closure charges. Profits reflect a strong top line growth, as well as bottom line benefits from ongoing cost controls, and improved operating schedules and efficiencies. In addition, selling price increases, and a strong mix, also helped to offset $9 million of higher input costs versus the prior year.

Operating margins continued to improve, with consolidated margins of 8.1%, up from 5.6% last year. Fine paper margins remained in the mid-teens, while our technical products margins in the first two quarters of this year had been at the highest quarterly levels in the past three years.

Cash flow from operations was $14 million, and we again were able to reduce our debt. Debt net of all cash balances was $211 million, down from $223 million in March, and more than $100 million below December's level of $314 million. Our credit metrics continue to improve, and this has also been recognized in our credit ratings, which as you know were upgraded earlier this year.

Finally, return on invested capital also improved. Capital spending remained low, and working capital expressed as a percent of sales was at a record low, as we continue to exploit our supply chain capabilities while maintaining excellent customer service. Our higher profits, coupled with these asset efficiencies, have increased year-to-date return on invested capital to double-digit levels. So overall, we made good progress against our objective, and built upon the strong start to the year we had in the first quarter.

Let me talk next about each of our segments. Technical product sales increased 35% from a year ago, and we achieved record quarterly sales for several of our products, including filtration, our largest product group. These gains reflect our supply positions with the recognized leaders in these markets, who are globally growing market share in expanding and developing economies.

Our mix also improved, reflecting rapid growth in many of our innovative higher value products, including those in transportation filtration, where the most advanced grades are a combination of proprietary melt-blown non-woven materials, and our saturated specialty papers. To meet forecasted growth in demand, our Board of Directors recently approved a $10 million project in Germany to expand our non-woven capacity. This project supports our strategy to lead with advanced materials in the transportation filter media market to support our customers, and the requirements of the new global engine platforms. In addition, it enhances our ability to expand into adjacent filtration market.

New business development efforts in other product lines remain active, and sales from these products continue to build. Examples include a special label product for Avery Dennison that will be commercialized in the second half of the year, and new abrasive [n-genes] label products developed for the Asian market. Demand for advanced fraud tape product that we discussed in May also continues to be strong.

From a bottom line perspective, both our US and German operations delivered good results with a combined margin of 8.5%, almost double last year's level. We continue to make progress growing technical products, as we said we would, through organic top line growth and margin expansion. Our teams are achieving this on both fronts.

Turning to fine paper, revenues increased 12%, with a 9% increase in volume, and a 3% gain in average prices. This is opposite of what we saw in the first quarter, where volume growth exceeded revenue gains due to a less favorable mix. Our 9% increase in volume was well ahead of the reported 3% market growth for uncoated free sheet papers, as we saw a strong demand for key brands like CLASSIC and SUNDANCE. In fact, sales of SUNDANCE increased more than 30%, showing the effectiveness of our product relaunch late last year, which added new digital and 100% post-consumer grades, and was supported by our typical great promotion pieces. In addition, we continue to see substantial increases in sales from targeted new revenue streams, such as international, food and beverage labels, especially for wine, and through new marketing programs for CRANE premium cotton papers.

While we don't expect selling prices to be able to completely offset impacts from spikes in pulp prices like we recently experienced, our teams did an excellent job maintaining margins despite the higher pulp costs, and our results show the benefit of our premium brand. We will continue carefully managing selling prices and controlling costs while pursuing niche growth opportunities. Our powerful brands and our paper's unique colors and textures, coupled with industry-leading quality and supply chain capabilities, help us maintain a strong and profitable market position. And we have shown we can deliver consistent and attractive returns, and cash flows, from our fine paper business despite a changing and sometimes challenging external environment.

With that, I'll turn things over to Bonnie to cover the financial results in a little more detail. Bonnie?

Thank you, Sean. Results in the second quarter reflected strong top line performance, coupled with an improved cost structure that we are leveraging across the higher volumes. Our earnings translate into significant cash flows we have used to reduce net debt and pay dividends. Consequently, our capital structure continues to improve, and provides us with good liquidity and flexibility.

Let me go through some of the numbers, starting with technical products. Sales volume, sales reached $100 million in the quarter, up from $74 million last year. Volumes grew 34%, with some of the more impressive gains in our biggest product groups, such as filtration, tape, and abrasives. As global economies have recovered, particularly the manufacturing sector, our business-to-business customers have seen good volume growth, and our strong positions in product development relationships with many of these customers have allowed us to participate with them in that growth.

In addition to the volume gains, average selling prices improved as we increased prices to offset rising input costs, and we're benefiting from a favorable mix with more rapid growth in higher value rates. Partly offsetting this was a weaker euro, which reduced sales by 4% as a result of currency translation. As we've said before, the euro has less of an impact on our bottom line due to both revenues and costs of our German operations being largely euro-denominated.

Operating income of $8.5 million for the quarter compared to $3.3 million last year. Higher volumes and commensurate operating efficiencies were the big drivers of the profit recovery. Past investments we've made in state of the art assets like our [Saturator] in Germany also contributed to our improved results. We are seeing the benefits of these investments, not just in advancing products, but in an improved cost structure for our sander grades. These volume cost improvements, along with the higher prices and more profitable mix, were able to more than offset $6 million of higher input costs.

Turning to fine paper, sales of $69 million increased 12% from $61 million in the second quarter of last year. The gains came from 9% volume growth, as well as higher selling prices. As mentioned in the last call, we increased prices on branded products by roughly 3% in December, and followed this with a similar increase in May to respond to increased fiber costs. This latter increase was fully implemented, and we will see some knock-on benefit in the third quarter. Our mix was also very good, reflecting strong sales in higher value grades, where our sales and marketing teams have been focused.

Operating income of $9.2 million grew 15% from adjusted income of $8 million last year. We implemented selling price increases to maintain margins, and continue to carefully manage costs, including recent actions taken to improve operational efficiencies and reduce transportation costs. Consequently, we were able to grow profits, despite $4 million in higher pulp costs, and also a charge to increase our bad debt allowance.

Let me cover each one of these separately. Hardwood pulp prices increased by more than $250 per ton from lows in the second quarter of last year. This translated into about $4 million in higher costs. With the price lag in some of our contracts, we will see prices for pulp increase by an additional $100 or more per ton in the third quarter. However, as market prices have now begun to decline, this will potentially result in lower costs for us in the fourth quarter.

Next, while I won't disclose the specific amount since we're still in discussions with the customer, our bad debt reserve in the quarter was increased to fully address our exposure to receivables from National Envelope following their bankruptcy filing. Envelopes are an important complement to our premium brands in the marketplace, and we've made sure our customers have not had any interruption in availability. Plans are in place to ensure that this reliable supply position continues in the future. So in summary, both of our businesses successfully executed strategies to maintain or improve our competitive position, while delivering top and bottom line growth.

Turning next to corporate items, consolidated selling, general, and administrative expense of $18.7 million was up $2.1 million versus last year. This amount included the previously mentioned increase to bad debt expense, as well as cost increases related to higher sales levels. Corporate unallocated expense, which is part of total SG&A, was $4 million, roughly in line with last year. On average, we expect SG&A expense for the year to be approximately flat with last year's level of $17 million per quarter.

Net interest expense was $5 million. This was $300,000 less than last year, and $700,000 less than the first quarter. The lower interest expense was due to lower debt, and is consistent with what we had indicated expense would be following the March Timberland sale. I would note that the quarterly expense of $5 million includes a combined $500,000 split between non-cash amortization charges and fees paid for the unused portion of our North American credit facility.

Our effective tax rate in the quarter was 28%. As we have said, the rate will vary, sometimes significantly, based on the overall amount and mix of income between tax jurisdictions. We expect the rate to remain at this level in the second half of the year. We are paying minimal cash taxes, essentially only taxes due on German income, as we have net operating losses of over $100 million to shelter income in North America.

Let me next talk about cash flows and capital structure. Free cash flow in the second quarter was $12 million, comprised of cash from operations of $14 million, less capital spending of $2 million. This was especially good, considering it included over $8 million for our semi-annual bond interest payment. All of our businesses generated significant positive cash flow through earnings and working capital efficiencies.

As Sean said earlier, our primary working capital in June, expressed as a percent of trailing sales, was 12.6%. This is a record low. Our teams continue to use our systems to build capabilities, and we were able to reduce inventory levels in the quarter despite higher sales.

We remain disciplined in our capital spending, and still expect to spend $15 million to $20 million this year, about half of our depreciation level. This spending includes a portion of costs for the new melt-blown capacity, which will start up in early 2011.

Contributions to pension plans are expected to be approximately $17 million in 2010, up from $12 million last year. Combined pension and OPEB cash payments this year would then be around $10 million higher than expense. While our plans have been reasonably well funded, funding requirements increased in 2010 with changes in regulatory requirements. Our planned contributions for 2010 were also increased to counteract declines in interest rates that will drive up future liabilities and funding requirements.

During the quarter, net debt was reduced by $12 million, and we ended the quarter with debt of $243 million and cash of $32 million. Our capital structure and debt metrics are well within our target ranges, with a ratio of 2.4 times net debt to trailing 12-month EBITDA. We continue to have nothing drawn against our North American revolving credit facility, and have over $90 million of available borrowing capacity.

Finally, return on invested capital remains a primary metric we use in making financial decisions. We are pleased with the increases that have occurred following our divestiture of Pulp, and with the strong performance of our core businesses. We will continue to focus on growing top line, expanding margins, and driving further capital efficiencies to support additional, sustainable improvements in return on capital.

With that, I'll turn things back over to Sean to comment on our outlook for the rest of the year.

Thank you, Bonnie. Let me first start with safety. This year, we continued to make improvements in our safety performance. Our year-to-date reportable incident rate is now 1.2, down slightly from March and last year. I continue to believe that all of our injuries were preventable, and our collective job is to eliminate them. We are making progress toward our world class objective of 1.0 or less, that we said a few years ago.

Let me turn next to our businesses. The second quarter marked a fourth consecutive quarter of recovery, and the strength of our businesses can now really be seen in trailing 12-month results. While global economies and US markets in particular began to slow compared with the rapid pace of recovery seen at the start of the year, our performance remains solid. Sales increases for both of our businesses outpaced the market through gains in share, and expansion into targeted new markets and categories.

Our backlogs are healthy, and indicative of such items as the recent news that some German auto makers are starting to reduce scheduled downtime in the second half of the year. However, we still expect to see a return to a more normal pattern of seasonality, with sales in the second half of the year historically 5% to 10% below levels in the first half. As we have now rolled off our last quarter of weak prior year comparative results stemming from the recession, we recognize that year on year comparisons will become more challenging in the second half, but we like the position our businesses are in.

As we have seen, along with the recovery in demand, the improving global economy has spurred a rapid escalation in commodity prices, with Northern bleach softwood pulp reaching a nominal all-time high price of $1,020 a ton in June. With the lags in some of our pulp contracts, these higher prices will be reflected more fully in our third quarter purchases. We expect price increases from the second quarter of $50 to $60 per ton for softwood, and over $100 a ton for hardwood, representing an increase in costs of approximately $2 million to $3 million.

However, the pulp market now appears to be turning, and initial reductions of $20 per ton for hardwood were announced retroactively in July, and we have seen announcements for further declines in August. As Bonnie mentioned, this potentially could result in lower costs for us in the fourth quarter. We are planning to take normally scheduled annual mill maintenance downs in the third quarter, and this will result in higher maintenance spending, and unabsorbed fixed costs as compared to the second quarter.

So while we will see a short-term impact from peak pulp prices and downtime next quarter, we are encouraged by our top line and bottom line performance. Our businesses are clearly on strategy, and our teams continue to be focused on driving profitable growth. We believe we have the brands, products, market leadership, technical capabilities, and most importantly, the people to succeed.

As a Company, we are now in a strong position as a result of our ongoing cash flow generation, and a capital structure that provides flexibility. We recognize organic growth will add the best returns, and are excited about strategic projects like the additional melt-blown capacity that will allow us to meet our customer needs and growing market demand through our high value filtration products. In addition, we remain committed to using available cash to reduce debt, while continuing to pay a meaningful dividend to our shareholders. We are confident about the potential of our businesses, and the direction we are headed.

Thank you for your time and interest this morning, and I would now like to open up the call to any questions.

(Operator Instructions). And you do have a question from the line of Fred Buonocore, with CJS Securities.

Good morning, Fred.

Yes, good morning, Sean, Bonnie and Bill. Just wanted to ask you about the technical products business. Particularly, the investment that you're making in the new melt blown capacity in Germany. Is that capacity that you feel that you're pretty locked up on, on orders, or demand for? Or is this something where you think you can develop this innovative product and then it should be marketable? Just looking at your motivation--

It's primarily to support the growth of existing business. And no, we don't intend to have it fully loaded the day we start it up. We do have a plan over a few years, but we're also going to [accrue it] along that line. So, it's an attractive investment for us.

We're actually -- in some of our commodity grades, we're currently buying melt blown material in the marketplace, and so it should be a very nice return. This supports, really, the highest value grades in filtration, because it's a combination. These are -- we take the nonwoven material and combine it with the saturated paper that we produce there.

That's helpful. And along that line, what's your longer-term -- say, 12-month, 24-month and beyond -- vision for technical products? In terms of how large it can become, how strong the margins can become? I mean, have you articulated any targets there? Or can you help us think about that over the longer term right now?

Sure. We -- as a matter of fact, in the second quarter, when you look at the breakout, technical products is now the larger of the two segments, with almost 60% of sales in the second quarter. We participate in very strong growth markets -- global growth markets. So, we look over time.

I'm not going to give you obviously a 12-month growth target for the business. But, we do see good growth potential in that business. We set objectives -- and we've publicly said this in the past -- that we would expect the business segment to get up to a double-digit operating profit margin level. And we have every reason to believe, with the change in mix and the operational improvements we've made, the segment can achieve that.

At the same time, with tech products growing, what we believe nicely, fine paper, we believe -- as they have shown in -- over the past quarters, even during a recession -- can deliver very strong, consistent results and a great cash flow that also helps the corporation. So, we like the combination we've got.

That's great. And then on the fine paper side, you mentioned strong demand for your CLASSIC and SUNDANCE brands. Are there specific applications and/or end markets that you're seeing such strong improvement from for those two brands? Thank you.

I think when you see the premium end do well, and its not by mistake or accident -- we've got a damn good team and great products.

But, we are seeing demand again in the economy for higher value products. As companies begin to advertise a little more and begin to communicate. And I think you see it in some of the other markets, even coated paper, there is more advertising that's under way. And the message still wants to be communicated on premium papers. We have gone after -- we don't believe the market will have significant growth. We expect our share to continue to increase.

But, we are looking, as I mentioned in the comments, in additional revenue streams. And we're very pleased with what the teams are achieving. Our international sales, which isn't a large part of the business, but we achieved a very nice growth rate again in the second quarter. As I mentioned, our sales of products into the wine label industry around the world, are going very well. So, we're pleased.

Okay, thank you. That's helpful.

You're welcome.

And your next question comes from the line of Mark Weintraub, with Buckingham Research.

Good morning, Mark.

Good morning. Two questions -- two quick questions. I'm showing that the share count, obviously, went up a little bit, and I believe that's just the effect of --

Of grant, yes.

Right, the stock compensation plan. How will that work on a go-forward basis? Can you give a sense of sensitivity? I assume it's -- is it driven by where the stock price is? Or -- how is that -- how do we figure out what that's going to be laying out as?

I think it's a safe bet that there's a good correlation between the two. But, there's also a -- the long-term grant, in our program, we do have some restricted stock, that we expect the employees to hold, and we do have some holding periods on that. But it -- the options, the big kickers, obviously depends on the stock price, Mark.

And is there any --

I think some of that -- if you take a look, we detail out the numbers in both our proxy and our K or Q. As to what's out there and what's vested in some average prices, both on the options and the restricted shares.

Okay, fair enough. And then second, obviously, you guys were at one point a pulp producer. And you're, obviously, a big pulp buyer, so you have insights into the market. What do you -- besides the fact that things are coming off a little bit now, are you willing to hazard a view on how you think the pulp cycle's going to be playing out for the next six to 12 months?

It will change. I mean, it always changes. I -- and despite for some logical reasons this year, including Chile that's back online. We're seeing some movements. I think you'll expect to see some more. We don't give a forecast, Mark.

We track four or five major guys that are doing it. And they're --the general trend is, it will be down. There's quite a range as to how much. I don't think we're going to enter 1996 sort of territory. But, I would expect some correction more toward historical trend lines.

And were higher pulp prices used as a rationale with customers on any price increase attempts? And if so, is there an expectation that they are going to come back and expect something given back if pulp does weaken? Or really, is it separate supply/demand driving?

Yes, I think as -- Mark, as we've said in the past, we do have a little bit of business, and it would be more on the commodity end of it in tech products, where we do have a couple pulp price adjuster clauses. But, it's not a significant part of our business. And as we've said in the past, especially in fine paper and in technical products, we sell premium branded products. And as we've said in the past, unlike more of the commodity producers, it's not unusual for us to have a margin compression with the prices going up. And we tend to see, or would expect to see, an expansion as they begin to turn.

I'm pleased -- we're all pleased with what our teams have been able to do as pulp's going up. But, we are also managing those as branded products in the marketplace. And so I don't -- we've never experienced the volatility in pricing, that you would see in a more commodity-oriented producer.

Okay, thanks, Sean.

You're welcome.

And your next question comes from the line of Ryan Rosenthal, with Sidoti & Company.

Good morning, Ryan.

Good morning, everyone. My question concerns the technical products division, and specifically, if you could provide some additional color on the dynamics that drove the improved results between the -- both the product lines, as well as geographic expansion?

Yes, and it's really a combination -- and I won't separate the US and Germany, because both improved very well. One, clearly volume. I mean, volume sure helped us. We had -- as we said last year, some significant downtime or unabsorbed fixed costs last year. So, the volume really benefited us.

We did well in the export markets, both out of the US and Germany. Our mill teams, as I mentioned in the comments and to an earlier question, did an outstanding job in terms of operating efficiencies and cost reductions. And we -- as we said during last year, really during some of the toughest quarters in the market, our teams were doing some extraordinary things to take costs out. And we said earlier in the year, we expect to just sustain those. And I think you're seeing the benefit of that.

Last, but not least, a good mix of products. We've focused on the products and the customers in the markets, where our products are differentiated and we can get a good return. And we're seeing that, and that's reflected in some of the price and mix benefits that you see in our Q, that we filed earlier this week. So, a litany of good things.

Thanks. And then turning to your fine paper division, the uncoated free sheet markets, from my understanding, was flat year-over-year in the second quarter, that you were able to post a 9% increase in revenue. Curious there as well, if you think that's sustainable in terms of the premium to the overall market? Especially, if the market were to remain flat going forward?

Yes, it's -- we won't -- we'll never be totally divorced from how a market performs. And yet at the same time, we're in a premium niche. And are focusing in other areas that don't live or die by the uncoated free sheet market. As I mentioned in the comments, the international portion of our business, which I believe grew at 30% in the second quarter, now it's off a percentage of the total, a small base. But, that adds a few ticks to your growth rate.

Our focus in new niches, as we've talked about in the past, the beverage and food label, including wine, is doing very well. We are moving into luxury packaging markets. That's doing very well.

And we continue to invest in our brand. These are premium brands that in the design community have some of the best names out there. And we continue to support our brands to create that demand and really to pull through the marketplace.

So, I'm not going to guarantee that we're always going to hit at a 9% click. But, we are not going to just wait and say we'll do what the market does.

And then one final question concerning seasonality, could you address the seasonality with -- among both your two divisions? And, I think, you mentioned before an expected 5% to 10% decline in revenue during the second half. Is that evenly distributed between the two segments?

Yes, it's a good question and a tough question, at least from the last two years. You know, what is the new normal? I mean, last year the back half was really good. But, it was -- you know, we were in the recovery mode. And historically, if you go kind of prerecession -- and it does apply to both businesses, a little more in technical products than fine paper. But, that split of 5% -- in the range of 5% to 10% swing front half, to back half has been a historical number.

But, it all depends on the markets. We went into the third quarter with order books that we were pleased with. And as I mentioned in the comments, the German auto industry is doing well. So, we just wanted to highlight, here's our historical numbers and just to give you a little help with that.

Thanks for your time. Congrats on the recent results.

Well, thanks.

And your next question comes from the line of Matt Sherwood, with Cooper Creek.

Good morning, Matt.

Good morning. Great quarter.

Thanks.

Just had one quick housekeeping question. I don't know if you had mentioned it. What's the Dollar impact of the maintenance shot in the third quarter?

We tend to spend $1.5 to $2 million, incremental maintenance costs. And then there will be -- as the mill is down for maintenance, you get a little -- relative to the second quarter, there will be a little more unabsorbed fixed costs.

About less than that $1.5 million to $2 million, or -- ?

Yes, well -- yes, yes.

Okay. And then, just had a question on the margins in the fine paper business. I was pleasantly surprised to see the incremental margins you're getting on your volume there. Despite the fact that it sounds like you've downgraded the mix a bit. Can you walk through how we should look at that on a go-forward basis?

I don't think in the second quarter -- and I'm sorry if I came across that way. We're very proud of the mix that we have.

Okay.

We have--

It just said that in the Q. That's why I was referring to that.

Yes. It's one of the downsides of leading with the Q. You know?

Right.

We're as conservative as we can be.

Okay.

Year-on-year, it's more of it. But, the focus in the business is on the premium brands --

Okay.

-- and they are seeing good performance.

Great. So sounds like it's more of an issue of conservatism in the Q, because it did impact the first quarter. But, it sounds like you've sort of turned the mix back around in the second?

And the Q comment is more of a year-on-year comparison.

Okay.

And it is turning, and the first quarter to second quarter, we saw very nice demand for our branded products.

Great. Well, great work. Keep up the good work, there. Thanks.

Thank you.

And your last question comes from the line of [Wy Nole], with Oppenheimer.

Good morning, Wy.

Hi, how are you guys?

Good.

Could we talk about price increases? I know that you guys have like 3% to 5% increase in your branded products. And like pulp, do we get some spill-over of that into the third quarter, as well? Or is it just that it's --

Yes, in fine paper, the price increase -- the most recent one, which was close to 3% -- went in, in May. It was fully implemented during the month of May. And I think, as Bonnie said in her comments, there will be a little knock-on effect to that in the third quarter.

Okay.

We got about half of it, let's say, in the second quarter, just due to the split of the months. So, there will be a little benefit in the third quarter.

Okay, and then for your pulp, I think I might -- tell me if I'm wrong. I think I have an estimation of like a 10% shift in pulp prices, equates about $19 million in EBITDA shift. Is that about right, or --?

An easier way for us, is we're about, on an annual basis, using a round number -- and keep in mind it's a mix of pulps, and pulps tend to move together. Figure about 150,000 tons.

Okay.

Bit of ball park. A little higher than that, but --

Okay. That's good to know.

Round number.

And also on seasonality, is there any -- what's the seasonality, especially that you see working capital in the second half?

We tend to manage our working capital really tight. We don't build working capital for seasonality.

Okay.

That's why we do everything we've done with the systems. And it's why -- we -- I've been around a while, and 12.6% is, if you look at working capital in a manufacturing company, is a hell of a good number. So, we feel good.

Okay, great. Thank you.

And at this time, I would like to turn the call over to Mr. Sean Erwin for closings remarks.

That's me. Thanks, again, for participating in the call. By the way, we will be presenting at the CJS Securities' New Idea Conference in Westchester next week on the 17, and I do hope to see some of you there. With that, thank you very much.

Thank you for participating in today's teleconference. You may now disconnect.