Rayonier Advanced Materials Inc (RYAM) 2015 Q2 法說會逐字稿

Welcome and thank you for joining Rayonier Advanced Materials second quarter 2015 teleconference call.

(Operator Instructions)

Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

Now I will turn the meeting over to Ms. Beth Johnson, Vice President of Investor Relations and Planning.

Thank you and good afternoon.

This is Beth Johnson, Vice President of Investor Relations and Planning.

Welcome to Rayonier Advanced Materials 2015 second quarter earnings call and webcast.

Joining me on today's call are Paul Boynton, our Chairman, President, and Chief Executive Officer, and Frank Ruperto, our Chief Financial Officer.

Our earnings release and presentation materials were issued this morning and are available on our website at Rayonieram.com.

I would like to remind you that in today's presentation, we will include forward-looking statements made pursuant to the Safe Harbor provisions of federal securities laws.

Our earnings release, as well as our filings with the SEC, list some of the factors which may cause actual results to differ materially from the forward-looking statements we may make.

They are also referenced on slide 2 of our presentation material.

At this time, I would like to turn the call over to Paul for his opening remarks.

Paul?

Thank you, Beth, and good afternoon, everyone.

This morning, we reported second quarter pro forma earnings that put us firmly on track to achieve our full year EBITDA guidance of $210 million to $225 million, primarily due to the progress we are making on our $40 million cost saving initiative.

More importantly, we announced a strategic repositioning.

As many of our investors know, over the last two years the global supply and demand imbalance has adversely impacted the prices for our cellulose specialties products and in turn, our overall profitability.

In response to these unfavorable market dynamics, we are changing our strategic direction.

Most significantly, we are reducing our cellulose specialties capacity, increasing our commodity production, and lowering our overall cost position.

Shortly, I will share additional details on our strategic repositioning and our outlook.

But first, I'd like to turn it over to Frank for a review of our second quarter financial results.

Thank you, Paul.

Let's look at slide 3 to review our financial highlights for second quarter and year to date.

Sales for the quarter totaled $221 million, 4% above second quarter 2014.

Sales for the six months were $442 million, 3% below the prior-year period.

Pro forma operating income was $34 million for second quarter 2015 compared to $42 million for second quarter 2014.

Our year-to-date pro forma operating income was $59 million compared to $89 million for the prior-year period.

The pro forma adjustments exclude one-time separation and legal costs.

The 2015 periods also include a $28 million write-off associated with the asset realignment announced today and a $1 million insurance recovery.

The variance analyses for operating income relative to the three and six months ended 2014 are provided on slide 4 of the financial presentation material.

As you recall, the 2014 periods presented are reflective of carve-out accounting treatment.

As such, the overall 2014 results are not comparable to the standalone Company's costs.

As you can see on slide 4, quarter and year-to-date variances have similar drivers.

Cellulose specialty prices were down 8% from the prior-year periods, reflecting the 2015 price negotiations.

Aggregate prices for commodity products were relatively unchanged between the periods.

Volume variances and sales mix contributed an additional $2 million to the second quarter of 2015, while year-to-date results were $1 million unfavorable to the prior year.

As referenced on slide 14 of the appendix, second quarter cellulose specialty sales volumes of 111,000 tons were 2,000 tons below the prior-year period.

Year-to-date cellulose specialty volumes of 219,000 tons were approximately 8% -- 8,000 tons below the 2014 period, primarily due to timing of customer sales.

Commodity volumes for the quarter and year to date 2015 were 55,000 tons and 113,000 tons, respectively; an increase of 42,000 tons and 50,000 tons from the prior-year periods.

The increase in 2015 volumes reflects the extended shutdown of the Jesup plant in 2014 and improved run rates in 2015.

For the six month period, the benefit from higher commodity volumes in 2015 was offset by lower cellulose specialty sales volumes.

As a reminder, we expect full-year 2015 cellulose specialty volumes to be comparable to 2014 and 2013 levels.

However, given the improvement in our commodity run rates coupled with increased days of operation, we now expect commodity sales volumes to be north of 220,000 tons, approximately 70,000 tons over full-year 2014 volumes.

Costs for the quarter and year-to-date periods were favorable: $4 million and $3 million, respectively.

Lower operating costs from our cost reduction activities and reductions in wood, chemical, and energy prices more than offset higher costs from labor, depreciation and SG&A.

During the quarter, we continued to make progress on our $40 million cost savings initiative.

Year-to-date, we have achieved roughly $14 million in savings.

Approximately $9 million is reflected in operating results, with $5 million capitalized in inventory as of quarter end.

Given the ramp-up of savings initiatives throughout the year and the acceleration of sales volumes in the second half, a significantly disproportionate amount of savings will be realized in third and fourth quarters.

We are currently targeting at least $30 million in cost savings to be realized in 2015 operating results, with an annualized run rate approaching $40 million.

We still have a significant amount of work to do on this initiative and we remain committed in driving sustainable savings throughout our business.

Based on our performance to date and the progress we've made on our cost savings initiatives, we expect to achieve results in the upper half of our full-year EBITDA guidance of $210 million to $225 million.

In addition to maximizing our earnings, we remain focused on our liquidity and capital allocations, prioritizing debt reduction and investing in our business.

As shown on slide 5, in the first six months of 2015, we generated $101 million of pro forma EBITDA and $47 million of adjusted free cash flow.

As a result, since the beginning of the year, net debt has been reduced by $45 million to $835 million.

Since our separation 12 months ago, we have reduced net debt by $94 million.

We ended the second quarter with $308 million of liquidity, including $235 million available under our revolving credit facility, after taking into account outstanding letters of credit.

At this point, let me turn the call back over to Paul.

Thank you, Frank.

Now let's turn our attention to the markets and our strategic outlook.

We believe that the growth in the cellulose specialties end markets will be lower than previously anticipated.

In acetate, we believe that demand will be soft in the near-term, driven by continued inventory de-stocking and recent public policy changes in China.

In the ethers markets, while there are pockets of good growth, the broader category has been pressured by both a softer European economy and depressed pricing for cotton-based alternatives.

Markets for high-strength viscose, engine filtration media, and casings remain relatively stable and we expect these trends to continue.

On the supply side, cellulose specialties capacity has increased as a result of our 2013 expansion, the expansion of others, and improvement in product quality from certain competitors.

The combination of slow demand growth and increased available supply has created a supply/demand imbalance and negatively impacted our cellulose specialty prices, declining by 14% over the last two years.

As you recall, the CSE project was initiated in the 2010/2011 timeframe when the market had been sold out for several years and the goal was to provide security of supply and stability to an expanding cellulose specialties market and support our customer-stated growth expectations at that time.

We did not perceive the subsequent increase in supply nor the slowdown in the broader cellulose specialty end markets.

In light of these dynamics, we are reducing our capacity, improving our cost position, and shifting our strategy to deemphasize volume growth in cellulose specialties.

We believe these actions will position us for greater future profitability.

Earlier this morning, we announced a restructuring of our Jesup, Georgia facility to better align our assets to current market conditions.

The central component of this initiative is the permanent modification of the Company's 190,000 ton C-line to the production of commodity products, namely fluff and viscose.

Slide 6 shows the current configuration of our Jesup facility.

As part of the cellulose specialty expansion, Rayonier Advanced Materials installed the newest technology and most efficient process for fiber purification of cellulose specialty grades on our C-line.

As seen on slide 7, this fiber purification technology will be decoupled from our C-line and repositioned to our A-line, replacing less efficient equipment.

As a result of these changes, A-line's cost position will improve and its operational flexibility will increase, allowing it to produce a broader range of products for customers interested in higher value and performance.

As shown on slide 8, once implemented, our strategic repositioning will allow us to save an estimated $14 million annually, driven by both improved operating efficiencies and reduction of personnel.

Commodity production capacity will increase by 11% to approximately 245,000 tons annually.

While improving the Jesup facility's competitive position and reinvigorating our commitment to our commodity customers, this initiative will also reduce our cellulose specialties capacity by 190,000 tons or 28%.

We have already begun implementing these actions.

We expect the project will require $25 million in additional capital expenditures and be completed in early 2016.

Please note, the capital expenditures for 2015 are anticipated to be approximately $80 million, in line with the higher end of our guidance, with the majority of the $25 million expected to be spent in 2016.

We also have a one-time, non-cash write-off of $28 million reflected in our Q2 2015 results.

Looking forward, we will be well-positioned to support our cellulose specialty customers with the highest quality products, superior technical service, and security of supplies that are critical to their operations.

As a result of our asset realignment, we will have 485,000 tons of total cellulose specialties production capacity, roughly matching our current sales volumes.

As shown on slide 9, these actions are in-line with our previously announced strategic priorities.

First, we are aggressively reducing our cost position through cost-saving initiatives and implementation of continuous improvement processes.

At the beginning of the year, we announced an initiative to realize $40 million in annualized run rate cost savings during 2015.

As we reported earlier, we are well on our way to achieve this goal.

Today's actions will further our ability to reduce costs in the future.

Second, we are leveraging our assets to achieve their greatest value in today's market conditions.

Earlier in the second quarter, we announced a non-binding letter of intent with Borregaard to produce natural, lignin-based products used globally in construction, agricultural, and other industrial applications.

This project will allow us to lower our overall cost position at Fernandina Mill, while providing an opportunity for growth in new and attractive markets.

We will continue to explore similar opportunities to grow our business in wood-based and natural chemicals.

The asset realignment announced today furthers this asset initiative with a specific focus on our Jesup facility.

And finally, on our third initiative, we remain committed to our innovation effort which focuses on improving existing products, as well as developing new products.

We look forward to updating you as we progress further down this path.

In conclusion, we continue to take the actions necessary to compete effectively and position ourselves to improve profitability and long-term success.

Now, I'd like to open up the call for questions.

(Operator Instructions) George Staphos, Bank of America Merrill Lynch,

Thanks.

Hi, everyone.

Congratulations on the progress.

My question to start is just with Jesup C now.

You're going to wind up with 280,000 tons of fluff and viscose.

What factors give you confidence that these will be markets that wind up being better from a supply/demand standpoint into the future than the specialties market?

Hey, George, thank you.

George, it's 245,000 tons off of our C-line into that fluff and viscose market.

As we look at it right now, those are the markets we're serving today off that line.

We are just making a commitment to that set of markets going into the future because we don't see an opportunity to push cellulose specialties volumes into the market.

In fact, that's what we felt like we were doing is pushing in and we decided we were better off recommitting and capturing the efficiencies of our new equipment and attaching it and putting it into our A-line, than having it inefficiently being used or not being used at all over on our C-line.

Where would you see C in terms of the cost curve, whether it's on fluff or viscose?

Again, do you have any pause relative to continuing to run it, given that there's been a fair amount of fluff capacity announced here in the last year and there seems to be more coming on as well?

I'll start with the latter part.

First of all, it's a 5 million ton market.

Our position in it is 4%, the additional capacity is obviously a fraction of that.

It's a quality asset.

We've got a rich history in making fluff materials as well as viscose.

We know the markets well.

The asset's competitive out there in the market place, so we feel good that it will continue to be competitive into the future.

And then lastly, I know it's hard to forecast forward pricing, but what are your thoughts on viscose relative to what's been certainly a declining overall commodity environment in things like cotton and the like and what that might mean for that business and its prospects going forward?

Thanks and I'll turn it over.

Again, thanks.

Again, viscose has been a small part of our total mix on that line since the last couple of years, but we have seen a meaningful recovery in the viscose staple fiber prices in the marketplace.

And it's happened that as we look at it with declining inventory and steady operating rates out there in the market.

We've also seen China import prices for viscose pulp increase over the last several months.

So again, we haven't seen much activity in the last couple of years, so we're encouraged by this recent activity.

We believe it could be the start of a lifting market and we'll continue to serve that market and we can switch back and forth.

As we see a greater opportunity, we'll serve that market or the fluff market while we maintain a commitment to large and significant customers with fluff products.

One last one, I apologize, and I will turn it over after this.

Suppose two years from now you find that the specialties market is back and you feel like you want to reenter -- or not reenter but regrow your share there.

In theory, how hard would it be to take the C-line and get it back to specialties?

Yes, George, we're about to spend $25 million to permanently convert the C-line production and we're taking a $28 million write-off.

So obviously, we're not doing these things with the intent to switch back at anytime in the near future at all.

I don't know what it would cost to do that work.

Obviously, there's a lot of planning and consideration to make that happen.

We don't see that happening anytime in the near future at all.

So I'd have to delay that question to some point in the future.

But I think right now, we are well-positioned to where we need to be for the coming years.

All right.

Thank you very much.

Roger Spitz, Bank of America Merrill Lynch.

When you said that the viscose was a small part of the C-line, is that on the order of 25% of the volume of the C-line or was it much less percentage of that of the C-line?

Right now, the vast majority of our production is in the absorbent materials fluff market.

So it's less than that 20% level.

Okay.

And how much, in this past quarter, how much of the fluff is contracted or the prices are contracted, if any at all?

Roughly half of our fluff of volume on an annual basis is contracted and so I would just assume that is pretty consistent over the course of the year.

Okay, that's volumes and price or just volumes?

Volumes.

Okay.

In terms of the CS volumes, is essentially all of that volume contracted and is essentially all of the price of those contracted volumes fully contracted or (multiple speakers)?

Predominantly all the price and the volume of the CS product is contracted on an annual basis.

Perfect.

Thank you very much.

Chip Dillon, Vertical Research Partners.

Good afternoon.

I want to make sure I heard this right.

I think Frank mentioned that, I think it was mentioned that, less than 20% of the commodity volume is in dissolving?

Did I hear that right?

What we're currently selling is predominantly fluff off of our C-line.

Got you, okay.

I got you, all right.

Then I guess the next question is, I was just looking at what you made in 2010, which was 480,000 tons of specialties and 237,000 tons of mostly fluff at that point.

And it looks like you're going to be exactly back to that by next year at some point.

I just was wondering why if you spent $400 million or actually it would be $410 million when you add the $25 million, well, let's just leave it to the $385 million you spent on this first conversion, why would the write-off only be 15% of that?

I'm just wondering how you -- is 85% of that investment, is that being moved over to the A-line?

I wouldn't say 85% is being moved over to the A-line, but effectively, the asset write-off consists of the assets that will no longer be used in production.

So when you look at that investment, a big chunk of it was on equipment on the C-line, which will continue to be used, a big chunk of it was on the assets that are going to be moved over to the A-line, and then there's significant investment on the facility-wide basis in the backend, which is used amongst all three lines.

So the asset write-off relates just to those assets that are no longer being utilized.

Keep in mind, Chip, those assets that aren't being utilized, some of those have been existing for some time.

So, their write-off levels are --

So like the CS technology on the A-line that is not being used.

Okay.

When you -- getting back to earlier questions, based on what you're saying, it would seem like if you did decide to go 100% high alpha in the future, you certainly wouldn't be talking about once again spending $300 million to $400 million, it would just seem like based on what you said with the movement, it would maybe be something closer to roughly $100 million.

Is that probably a ballpark?

We have no idea, Chip, with that would be and that's not something we'll be looking at anytime in the future.

Okay.

And then if you could talk a little bit about the specialties volume that you expect in the second half.

And you might've mentioned this, but when you look at the acetate market, as you all have talked about, there was a big inventory correction among your customers and further down the line.

Has that taken -- has that worked itself through and sort of how should we expect volumes to compare sequentially in the second half to the first half, both in commodities and specialty?

So when you look at the specialties volumes, Chip we've got, for the six months, and this is on page 14 of the presentation materials, for the six months ended this year, we've got about 219,000 tons of CS volume.

We've said for the full year, that number would be consistent with 2013 and 2014 levels which is roughly 480,000 tons.

You'll see significantly more volume in the second half of the year than you've seen in the first half of the year.

In part, that's driven by the shutdown, in part, that's just the normal order cycle that we typically see with our customers.

As I said before, predominantly all of that volume is contracted.

Additionally, we've said you'll see roughly -- well, you'll see north of 220,000 tons of commodity sales in the second half of the business -- of the year.

So that is a good chunk higher than we've run historically.

If I heard you right, you said 220,000 would be the commodities, just in the second half?

No, north of 220,000 on the full year.

Full-year, right, got you.

And then shifting back to the -- I had a question about the [divested] volumes and I guess the price negotiation takes place late in the year.

That's correct right?

That is correct.

We will have those discussions here in the third and fourth quarter, principally in the fourth quarter.

Okay, I see.

Thank you.

Bill Hoffman, RBC Capital Markets.

Great, thanks.

Just a little bit further on the commodity side of the equation.

You talked about some of the inventory destock and we heard from guys like Celanese in the market that they saw their customers starting to reenter more normal order patterns in the acetate business.

Can you talk about whether you're hearing the same thing and as we go to the second half of the year?

Yes, I'm sorry, Bill, I think you're talking about on the CS side of things and acetate tow out into the marketplace.

I believe and we believe that our acetate tow producers continue to see the impact of the destocking efforts for tow in China.

We think that is ongoing.

The magnitude and the duration are certainly uncertain, but at this point, I think it's fair to say that it's not complete and it will continue here.

But it's largely not very visible from our perspective and we'll continue to watch it.

Thanks.

And in the viscous market, I just want to get a sense of talking about placing that product into the market in the second half of the year.

Do you do that on a contractual basis as well?

No, as we said, most of that volume coming off the C-line is going to the fluff market and the majority of that is contracted out there.

We do have some smaller amount of viscose volume off the C-line that's going into the marketplace and some of that is contracted, as well.

But again, it's a pretty small part, overall, to our mix.

Right, but as you look forward in the viscose market, is there any thought of trying to get more contracted business or are you better off at running fluff as a product?

Yes, right now, as we do the analysis, we feel we're better off running fluff across that C-line and we'll continue to monitor the dynamics out there and if that shifts we'll make sure we talk about it.

Okay thanks.

Just last question, on the Borregaard JV, could you just talk a little bit about the timing, one, from the investment standpoint, but also, two, when do you expect to see that ramped up and generate cash?

Yes, so what we've said out there, we announced the letter of intent June 1 and then we've said we've got a couple of key things to do: one, the definitive agreements and then, two, finalize engineering.

We've estimated that those two initiatives should be complete in the first half of 2016, but we'll keep you posted as we've got anything to report out there in any interim time before then.

Any thoughts on dollar investment this might require on your side?

Yes, the dollar investments, as you know, it's a $110 million estimated total investment.

We're roughly ?- we're 45% owner in that.

Our contribution will be slightly less than that.

So that contribution is in the 40 -- in that range from a proportional perspective on the $110 million.

We're looking at ways to finance that.

It may be financed off of our own balance sheet, it may be financed at the JV level, it may be financed in a combination there, too.

Most of the capital will not be expended until the engineering is completed, so that we can -- because that is a go/no go decision.

If the engineering comes back at materially higher levels, then obviously, the returns don't look as good and both parties probably would not move forward on that opportunity.

Right now, though, we feel good about the work that's been done.

We feel good about our estimates on the engineering and I believe our partner also feels good about their estimates.

We look forward to this moving forward, but that is going to be a consideration as we move forward here.

So again, Bill, that decision is a first half of 2016 with a plan to be operational on that asset in 2017.

Great, thank you for the update.

(Operator Instructions) Paul Quinn, RBC Capital Markets.

Thanks very much and good afternoon, guys.

Just following up on Bill's question on Borregaard JV, just the timing of that CapEx.

You say the majority is going to be done after engineer, what's going to be done in first half of 2016?

Very little will be done now in 2015 and until we get the engineering done, it's hard to tell exactly how much will be spent.

There'll be some investment in our own facilities, but overall most of it will be spent and the timing of that engineering is unclear.

So, if it happened earlier in the 2016 timeframe, then we'd be spending more in the first half.

Okay.

And then just help me reconcile -- before we did the conversion on C-line, the capacity on the fluff was 260,000 and then we spent at $385 million to get the 190,000 CS and now we're spending another $25 million and we're getting back to 245,000.

I'm just trying to understand why we lost 15,000 tons of capacity.

Is that something with the process?

So Paul, we did a lot of changes when we put in this investment and then we've made, obviously, we're planning to make some other changes here.

Right now, our estimate is that the line, once converted back, will be 245,000 tons.

With time, potentially, and capital investment and/or capital investment, it could go back to those levels, but right now, we're saying it's 245,000.

Okay.

Just the rationale for the strategic shift here, is this to try to signal to fluff customers that you're going to be permanently in the market and you're trying to get ahead of some of these capacity additions that come to the market?

Is that a consideration?

First, let's just say we're going to put in $25 million to get a $14 million return.

It's a good cost positioning for us to make this change.

It does increase our commodity production and it makes a full commitment to those commodity customers, particularly the fluff customers.

Because at one time, we had relayed to the folks in that market that we were moving away and now we're saying, actually, we're here, we're here permanently and we've got contractual volume in there and we want to work with you and continue to develop products that serve your needs.

It is a commitment to the market and that's an important part of it.

But, again, it's the financial opportunity that we're gaining here.

And then obviously, we've got 190,000 tons of product on the CS side that's not needed out there.

Instead of pushing rope uphill, we'd rather roll up the rope and put in our pocket and let's move on.

Let's get some cost savings and run the assets in a better way than we're doing today.

Sounds fair enough.

Last question I had was -- getting a lot of questions just because of your share price weakness of late and on potential take-outs.

And I just recall when you did a spin out, there was some kind of freeze period between that, whether that was able to be done and my understanding was that was a two year.

Maybe you could just refresh my memory?

Yes so it's a two-year period if you entered into substantial negotiations with another company prior to the spin.

We've been consistently saying since the spinoff, in our case, we're unaware of anything that would prevent or restrict us from pursuing partnerships or combinations.

So administratively, we need to require or provide a tax opinion to Rayonier that any transaction would not impact the tax-free nature of the spin.

But we don't see any preclusion or waiting time period for a potential transaction.

Okay, that clears it up.

Thanks, Frank.

Steve Chercover, DA Davidson.

Thanks, good afternoon.

In the context of acetate, you mentioned a public policy change in China.

Is that the crackdown on graft or push back on cigarette consumption or can you elaborate, please?

Yes, so really two components to that.

First, it's really been a tax and there's been two separate taxes, they accumulate to about 8%: there's a producer tax and there's a consumer tax.

But that tax, in full, is about 8% on a pack of cigarettes and so that's obviously one element.

The other is just a smoking ban in public places, particularly Beijing.

So it's changing, what we believe, habits of the consumer there.

So we think both of those things combined, along with the more significant issue in the short-term is destocking, is trading it by a more softer environment in acetate than what we've seen in the past.

Okay.

I guess several people have already discussed the conversion of the C-line and now going backwards.

It seems almost like a nuclear option in terms of capacity management.

Do you believe that this will balance the market, Paul?

It certainly, as we said, several factors made that market over capacity.

Number one was our expansion, number two was some expansion of others, and three is some quality levels of certain competitors.

Taking 190,000 tons, that's what we can do and we will do that.

We think, obviously, it's a significant effort in putting in some balance to the market.

When you speak to your clients, one of the reasons why you were able to grow evidently or apparently why you expanded so much is that -- was this perception that you were the premium product.

Have people been telling you now that the other guys' product is fungible with yours?

We think our price is appropriate and in line with the value we supply in the market.

Last year, as you know, we had a contract that was up.

We had that same customer renew with us, as we previously reported.

I think it gives us good testament that our value equation is good out there in the marketplace.

We think there's been a quality rise with some of our competition, there's no question about that.

But we also offer a lot of additional value, we think, in terms of quality, consistency, in terms of just actual redundancy in our product, the fact that we have three now lines that can produce an acetate product.

The value equation has a lot of components into it and one of them is price.

But certainly, we've seen some improvement in quality of our competition, but we think we still have a very high-quality product in the market.

Okay, and so finally getting back to the manufacturing, first of all, I assume that there's no qualification that has to occur on the A-line.

You're swapping out equipment, but the stuff is already qualified.

Yes, exactly.

It's a proven technology already.

We've already actually tested the C-line out on this equipment with all of our customers that we would like to serve with it.

So attaching to A-line we'll now go back through a requalification.

You don't have to ask for permission to tweak your equipment?

Okay, and then the terms of the cost savings, $14 million on the A-line, is there any impact on the cost structure of the C-line or is it simply the volume?

So of the $14 million, the cost efficiencies on A-line are the largest part of that $14 million, but there's a lot of other components with that.

Some off of C, some in other areas.

It's that whole strategic repositioning project together that gets us to that $14 million.

The A-line efficiencies are one component of that.

There are some C-line efficiencies that are components of that.

There's some other efficiency components of that including the headcount reduction in Jesup.

Got you.

Final question, even though the $25 million is spent primarily in 2016 and you said the project is complete in early 2016.

For all intents and purposes, when you go to negotiate this year, that 190,000 tons is not available to sell next year?

It's not available.

So, right now, we essentially have matched our current sales volume to our capacity.

Okay.

Thank you very much.

Chip Dillon, Vertical Research Partners.

Yes, thank you.

Just could you give us -- a couple quick ones -- I think you mentioned the CapEx guide this year still $80 million.

Obviously, next year is going to really depend on how you finance and capitalize the joint venture and if you go forward.

But if we leave that aside, since you're going to spend most of the $25 million or $28 million on the switch back next year, should that number approach $100 million or how should we think about 2016 CapEx before the joint venture?

Yes, we're thinking -- and again, we haven't gone through our budgeting cycle, so there's a lot of capital that we'll have to look at, but I think at this preliminary stage, looking at a number of $90 million to $95 million for 2016 is probably a reasonable view for modeling purposes.

Okay, and then maybe [17] goes back down toward [80] again?

We would hope it would go down below 80 materially.

Okay, okay.

If you remember, we had the boiler MACT in 2016 and 2017, so that goes away in its entirety.

In 2015 and 2016, I mean, so in 2017, it goes away in its entirety.

Right, right.

Now let me -- last question is on the cost-cutting.

You said you've gotten -- I think you said $15 million or $14 million of which $5 million is capitalized in inventory.

So as I measure it, I don't want to be too precise and hold you to this, but you probably, therefore, realized $9 million of this $30 million in the first half of the cost save, so we should expect around $20 million or so in the second half?

It sounds to me that you're looking for an incremental $10 million next year.

Is that fair?

Yes.

That's fair.

And if you think about these cost savings programs, as you take these actions, one, you get the cost savings.

And when you take those actions, the timing of that impacts when you get it.

Secondly, first, on the manufacturing side, it rolls through the inventory, so you've got the sales timing cycle.

So it becomes more like a wave that grows over time over the course of the year, this cost savings program.

So that $40 million annualized run rate is what we're hoping to get approached by the end of this year.

And then next year, as we've said before, we're looking to hold costs flat.

I think some of the cost savings and initiatives that we've discussed here today go a long way to getting there.

I see.

Thank you.

I would now like to return back to Paul for the closing remarks.

If there are no more questions at this time, I just want to thank you guys for joining us today.

In summary, we're pleased with the steady progress we've made against the goals that we shared with you at the beginning of the year.

And we feel confident that the strategic steps that we're taking best position our Company to serve our customers with the highest level of quality, service, and security of supply; therefore, enabling us to drive long-term value for our stockholders.

We look forward to updating you on our progress in a timely manner as we move forward.

Thank you.

This is Beth Johnson.

I'd like to think everyone for joining us.

Please contact me with any follow-up questions.

Thanks, again.

Thank you for participating in today's conference.

You may now disconnect.