Cabot Corporation (CBT) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Cabot Earnings Conference Call. My name is Dominique, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to Ms. Erica McLaughlin, Vice President, Investor Relations. Please, proceed, ma'am.

Thank you. Good afternoon. I would like to welcome you to the Cabot Corporation earnings teleconference. Last night, we released results for our first quarter of 2014, copies of which are posted in the Investor Relations section of our website. For those on our mailing list, you received the press release either by email or fax. If you are not on our mailing list and are interested in receiving this information in the future, please, contact Investor Relations. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of the call. I remind you that our conversation today will include forward-looking statements, which are subject to risks and uncertainties, and Cabot's actual results may differ materially from those expressed in the forward-looking statements. A list of factors that could affect Cabot's actual results can be found in the press release we issued last night and are discussed more fully in the reports we file with the Security and Exchange Committee (sic) [Securities and Exchange Commission], particularly in our last annual report on Form 10-Q -- 10-K. These filings can be found in the Investor Relations portion of our website. I will now turn the call over to Patrick Prevost, who will discuss the key highlights of the company's performance. Eddie Cordeiro will review the business segment and corporate financial details. Following this, Patrick will provide closing comments and open the floor to questions. Patrick?

Thank you, Erica, and good afternoon, ladies and gentlemen. We are pleased to start our fiscal 2014 with a strong first quarter. We achieved record EBITDA for the company, and this was the second best quarter in the history of our Reinforcement Materials segment. We also saw robust performance in Advanced Technologies and Performance Materials. The main driver for this performance was improved volumes across many of our geographies. We were able to commercialize new capacity in our various businesses. We benefited from the addition of our Mexican carbon black acquisition and saw a welcome recovery in global demand. Advanced Technologies delivered another excellent quarter driven by solid rental revenue in Specialty Fluids and a record quarter in Elastomer Composites. The latter was due to a combination of ongoing royalties as well as a technology milestone payment. In Performance Materials, we experienced high demand year-over-year mainly driven by improvements in Europe. We completed the acquisition of NHUMO in November. The acquisition was accretive to the quarter's performance, and we're on track to deliver the expected $0.15 of accretion in the first year. We also started up 130,000 tons of capacity at our new China carbon black plant during the quarter and shipped commercial volumes to several customers. We continue to work through the qualification process to our broad customer base and are pleased with the early successes of the commercialization phase. Moving to the Purification Solutions segment. We experienced another difficult quarter due to lower volumes and operational issues. This business has disappointed us for the last year, and as you can imagine, I'm not happy with its performance. To make this business a success, we will need to run the plants reliably and capture the growth of the North American coal-fired utilities market. Due to the operational issues, we need to reposition expectations for the 2014 Purification Solutions EBITDA performance. We now expect it to be in line with fiscal 2013 with some potential upside. We have mobilized our engineering team and resources from our extended manufacturing organization to provide sustainable solutions to the problems encountered. The recent contract wins for activated carbon supply and equipment gives me more confidence in the MATS implementation and that our preparations in these areas are progressing nicely. I can assure you that everyone in the business is very focused on improving its operational performance. As we begin calendar 2014, we're experiencing growth in a number of the end markets we serve. Tire and automotive industry demand is expected to improve this year. We should -- and this should result in higher volumes for our Reinforcement and Performance Materials segments. While 2013 was a somewhat muted year in terms of infrastructure-related spending, we anticipate that this will also improve in 2014, albeit at a modest pace. We already saw some of this effect in our first fiscal quarter as demand increased in many of our key infrastructure-related applications, such as plastics, and wire and cable jacketing. This should translate into higher volumes for our Performance Materials segment, whose business sell into these applications. We're also expecting that this trend will provide better market potential for our Aerogel business. We look at the global economies around the world, we believe Europe is recovering. And a number of manufacturing indices have shown this positive trend in recent months. In North America, replacement tire demand has started to pick up along with miles driven, and auto production remains solid, although local tire production continues to be under pressure from import competition. As I turn to emerging economies, we experienced higher Reinforcement Materials volume in China this quarter as we had our new capacity coming onstream. Despite the somewhat muted view in those mentioned markets about emerging economies, we expect continued growth in 2014 due to a combination of continued local demand and recovery of exports to developed markets. I was in China a couple of weeks ago and can report back that all the customers I met were more optimistic about 2014 as compared to 2013. As such, I remain optimistic as well about the coming year. I will now turn it over to Eddie to discuss the financial results. Eddie?

Thank you, Patrick. For the first fiscal quarter, we experienced a record adjusted EBITDA of $150 million. Total segment EBIT from continuing operations was $113 million, which was $24 million, or 27% higher, than last year's first quarter. The increase compared to the prior year was driven by higher volumes across many of our segments. Sequentially, total segment EBIT increased $15 million driven by improved performance in Reinforcement Materials as a result of higher volumes and lower costs. I will now discuss the details at the segment level beginning with the Reinforcement Materials business. During the first quarter of 2014, EBIT for Reinforcement Materials increased by $14 million, or 28%, as compared to the first quarter of 2013. The increase was due to 15% higher volumes as compared to the prior year. Volumes improved due to the commercialization of our new China capacity, the addition of our Mexican carbon black plant and recovering global demand. Higher costs associated with the new capacity and lower pricing in Asia and Europe were offset by raw material purchasing savings and $3 million of one-time benefits that lowered fixed costs. These benefits include proceeds from land sales, and VAT and customs refunds. Sequentially, EBIT increased by $17 million due to 7% higher volumes driven by the commercialization of our new China capacity and the addition of our Mexican acquisition. We also experienced lower costs from raw material purchasing savings and the one-time benefits I previously described. With the increase in volumes, our utilization rates increased to the low 80% range in the first quarter. While we are happy to see this increase, industry utilizations are still relatively weak, and we continue to see a competitive pricing environment. We believe that volumes will continue to improve as compared to the prior year, however, it is likely to be a slow recovery. Longer term, we are optimistic about the industry trends and our global leadership position in the carbon black industry. In Performance Materials, EBIT increased by $7 million as compared to the first quarter of 2013. Volumes in Specialty Carbons and Compounds increased 16% and volumes in Fumed Metal Oxides increased 5%. The volume improvement was seen globally, but it was especially strong in Europe. We were also pleased to see growth in the infrastructure-related segments, which was the sector that suffered the most in fiscal 2013. Sequentially, Performance Materials' EBIT increased by $1 million. Volumes decreased 8% sequentially in both Specialty Carbons and Compounds and Fumed Metal Oxides due to normal seasonality. These volume declines were offset by lower costs associated with the increase in inventory levels in the first quarter of fiscal 2014 as compared to the decrease in inventory levels in the fourth quarter of fiscal 2013. As we look ahead, we expect to see continued recovery in Europe and growth in emerging markets. The automotive sector is forecasting growth in 2014, and we expect infrastructure-related spending to increase as well. We are well positioned with our recent capacity expansions and new product introductions to capture this expected growth. Advanced Technologies' EBIT increased by $17 million from the first quarter of fiscal 2013. The EBIT increase was driven by higher rental activity in Specialty Fluids and higher royalties and a $4 million technology milestone payment in Elastomer Composites. Sequentially, Advanced Technologies' EBIT decreased $2 million as compared to the fourth quarter of fiscal 2013 due to lower sales in Specialty Fluids. This was partially offset by the technology milestone payment in Elastomer Composites. Specialty Fluids' activity levels remained strong this quarter, resulting in business EBIT of $13 million. The longer term pipeline of project remains robust for this business. However in the coming months, we expect to see a lower level of activity as compared to recent quarters. For Elastomer Composites, the royalties will continue, but the technology milestone payment will not repeat. Moving to Purification Solutions. Adjusted EBITDA for the first quarter of 2015 (sic) [2014] was $5 million, which compares to $18 million for the same period last year. The adjusted EBITDA decrease of $13 million year-over-year was driven by lower volumes from declines in the air and gas end market, the timing of water projects, and supply constraints due to operational issues. The segment also experienced higher costs associated with increased maintenance activity and the higher allocation of functional and indirect costs. Sequentially, Purification Solutions' EBITDA decreased $2 million driven by lower volumes due to seasonality and supply constraints as a result of operational issues. The segment also experienced higher costs associated with increased maintenance activity and a higher allocation of functional and indirect costs. These unfavorable impacts were partially offset by our ability to raise prices and lower costs associated with maintaining stable inventory levels for the first quarter fiscal of 2014 as compared to a reduction of inventories in the fourth quarter of fiscal 2013. As we look ahead, we expect our quarterly performance to improve. The improvement should come from higher volumes, further benefits from price increases and improved operational performance that will allow us to rebuild safety stock inventory. I will now turn to corporate items. We ended the quarter with a cash balance of $105 million, which was an increase of $10 million from September. Our liquidity position remains strong at $464 million. During the first quarter, we generated $150 million of adjusted EBITDA. Uses of cash during the first quarter include $42 million for capital expenditures and $66 million of cash used to complete the acquisition of NHUMO. The $66 million was net of a $14 million dividend received from the Mexican joint venture prior to the closing of the transaction. Net working capital also increased by $164 million. The increase in net working capital was across all categories. Accounts receivable increased $62 million due to the inclusion of NHUMO as well as stronger sales. Inventory increased by $55 million due to the inclusion of NHUMO and as we replenished inventory levels in anticipation of upcoming maintenance activities and future demand levels. Accounts payable and accrued expenses decreased $47 million due to the timing of payments made related to accounts payable and accrued expenses as of September. We recorded a net tax provision of $24 million for the first quarter, which included benefits for tax-related certain items. Our operating tax rate on continuing operations for the first quarter was 28%. We anticipate our operating tax rate for fiscal 2014 will be between 26% and 28%. And we expect capital expenditures to be between $200 million and $250 million for fiscal 2014. And I will now turn the call back over to Patrick.

Thank you, Eddie. We are increasingly optimistic about fiscal 2014 after seeing the recent positive demand trends in our Reinforcement Materials and Performance Materials segments. Tire and automotive industry demand is expected to improve in 2014 along with infrastructure-related spending. We continue to focus the organization on operational excellence with particular emphasis in our Purification Solutions segment. We have been actively engaged with customers in the North American mercury removal sector for carbon injection equipment and supply of activated carbon as you can see by recent contract wins we announced this week. This gives us increasing confidence in the implementation of MATS regulation and that Cabot is a preferred supplier to the utilities. In addition, the company continues to be actively developing new products for many markets, including silicones, environmental solutions and insulation materials. And we're also investing in technologies for applications such as high-performance tires, energy storage and toners. We have a clear strategy that has delivered EBITDA growth over the last 5 years, and we're confident that we'll continue to deliver future earnings growth for our shareholders. Thank you very much for joining us today, and I will now turn the call back over for our Q&A session.

[Operator Instructions] And your first question comes from the line of Ivan Marcuse of Keybanc Capital Markets.

First, you mentioned how pricing remains fairly competitive in -- even though you're seeing utilization rates in your Reinforcements business continue to improve. Could you sort of talk about the regions, in sort of North America, Europe, how the contract prices sort of flowed out for the year and how the Asian market and South America in the spot market is trending at this point on a quarter-to-quarter basis?

Okay. So first of all, as you know, we have our annual contract negotiations that are structured on a calendar level with most of our customers around the world. And we continue to have approximately 50% of our business in the Reinforcement Materials that is under contract. This year, as in -- as we expected considering the low utilization rates that we'll continue to see in the industry, we had some competitive pressures in these discussions. Overall, I would say that we had a balance of contracts, some went towards price increases, some contracts we actually saw some declines. Now this needs to be seen in the fact that most of these contracts are for multiple products, so we have a certain amount of complexity built in this. But overall, I would say the result that we achieved was within our expectations, and it resulted in something that I would call a stable margin environment. If you'd like me to speak about the various geographies, I would say that we're -- starting with Asia, we continue to see a steady pace. I mentioned earlier that I was in Asia a few weeks ago. We -- I was somewhat positively surprised at the optimism of the customers there. Demand seems to be improving. I believe that exports are also improving, perhaps linked to improved economic activity in Europe and North America, and so that was positive. Japan is moderating somewhat, but we were very positively impressed by the growth in Southeast Asia. Here, we believe that some of that is also driven by stronger export opportunities for these countries. If I move to Europe, we see improved demand. And you can see that in the numbers we published yesterday. And this is in spite of the fact that the last quarter was -- or is normally a seasonally slower quarter. So we think it will continue at this pace, but I think the rate of growth will remain somewhat muted. And then on the North America front, perhaps to close, as I mentioned in my speech earlier, we see miles driven improving, auto production remaining solid, and this should drive replacement tire growth in the region. We're monitoring this, of course, very closely. And we're also monitoring very much the risk that could be seen from increased imports from Asia. So hopefully, that gives you a sense for the general environment that we're facing.

Then -- I appreciate it. Also then, you mentioned, I think, $3 million for the fixed cost benefit. What was the benefit on -- for the raw materials, and why is that more of a short-term thing relative -- or not continuing out through the year? Could you give a little more detail on that?

On the -- we tend not to provide that information, Ivan, because of its competitive nature. We constantly manage purchasing in an aggressive fashion. I mean, it's part of us managing our margin. We had some opportunities that we seized in the past quarter. But I would say it's difficult to say if it's -- if this will continue in the next quarters. But I would say, in general, this is part of our strategy to drive purchasing. And I would say, more important for us is the margin comment that I made earlier.

Okay. And then $200 million for the Supermetal sale. That's still expected to hit this quarter, correct?

That's correct. We're expecting the final payment end of March.

Will that be used to pay down debt, or has it been earmarked for anything else?

I think in the short term, of course, we're going to be working at our debt-to-EBITDA metric, that is clear. And as you know, we're continuing to invest in the business, so -- but in general, I would say, that's the -- that will be the main driver of the use of that cash.

Great. Then the last question, I know this is difficult to model, but on the Specialty Fluids business, you say it's going to be -- get weaker for the next couple of months. So is that to think that gets back to sort of that high single digits type of run rate you've been at for the quarter, then go back up to where you've been the past few quarters, or could you talk to how exactly do you see that flowing? I know it's a guess, but...

I think it's a good guess. I -- this is certainly, as usual, one of the comments that I make is that it's extremely difficult to forecast this business. What we know is that we have less projects in the pipeline for the next 2 quarters, but it's also dependent on how long the fluid remains in the well and different other factors. So -- but I think your assumption is a good one.

Your next question comes from the line of Kevin Hocevar of Northcoast Research.

It was nice to see some contracts for equipment and activated carbon announced recently. We do have a shipment of the carbon wouldn't start until 2015. I guess, I'm wondering, as you go on through these contract negotiations with these utilities, are most of them looking like they're going to wait until 2015 and so they actually start injecting the carbon regularly to be compliant with MATS? Or are you getting a sense that there might be some early adopters that might start injecting in 2014 kind of ahead of that deadline?

Yes. I think we're taking a conservative assumption, meaning that we believe that consumption will only start in 2015 once the MATS regulation is in place. We may see some sales to test some of the injection equipment, but I would say the best case is that things will start in 2015.

Okay. And does anything change in terms of the 400 million pound or so expectation in the 2017 timeframe when all states and everybody's in compliance?

No, we're still on the basis of the 400 million to 500 million pound range in terms of demand in 2016.

Okay. And in terms of the carbon black organic volume growth, looked like it was 10%, 15% when you include NHUMO. What can we think about for the year? Is that level sustainable or are we going to probably see some growth but at a lesser extent? How should we think of that for the balance of the year?

I would say that we're cautious about the growth for the rest of the year. We've been pleased with the latest developments. We think there was pent-up demand in terms of the need to rebuild tire inventories in the chain in most geographies around the world. But I would say that we're currently looking at perhaps low single-digit growth rates in the -- for the rest of the year.

Okay. And then just final question. In terms of M&A activity, I just -- curious, it sounds like that's the top priority with your cash. But as you look at M&A, wondering what you be looking at just kind of bolt-on there? Would you be -- would you look at larger acquisition, if it was the right fit? Just one at a time. And what segments you might be looking to add on to? Just trying to get a sense for what you're looking at in terms of M&A potential.

So portfolio management is part of our strategic envelope. But I would say what we're doing right now is focusing on the integration of our more recent acquisitions. So clearly, the Norit acquisition and the NHUMO acquisition are driving where we're spending our time. We certainly continue to look at opportunities, but I would say that most of the look is going to be around businesses that we're currently in and close adjacencies, perhaps. But we certainly would be looking more at acquisitions in the size and scale of NHUMO rather than anything larger.

Your next question comes from the line of Laurence Alexander of Jefferies.

Two quick questions. First, on the Purification Solutions, can you give a little bit more detail on what's been driving the pressure on the business? And when you think that the sequential rates will flatten out, or have they already? And then secondly, can you give us an update on how you're thinking about productivity across the carbon black businesses, say on a 3- to 5-year horizon, like how much more you can extract from that?

Okay. So starting on the Purification Solutions side, we -- what we saw last quarter was certainly, one, the continuation of the weak demand in the air and gas sector. And this one is driven by the changes that occurred in terms of how our customers are using activated carbon. So instead of injecting fixed amount, they've been allowed to -- through the use of better measurement technology but also because the states have given them that space, they've been allowed to operate towards the 90% elimination of mercury level, which has allowed them to increase efficiency. And that plus somewhat the natural gas price effects have brought the volumes down by about 30%. And if we look at the comparison right now, we -- the decrease really only started in the second quarter of 2013. So the comparison looks fairly stark right now as we look at this. The second factor with regard to the business was related to our European business and, specifically, water projects where we've seen a negative comparison because some water projects that were sizable in the first quarter of 2013 did not reoccur this quarter. So the combination of those 2 factors, I would say, in general, were what drove the bad comps here. The -- I think the other factor that we highlighted in the call was the fact that we had some operational problems where -- we're working through those right now. The operational problems that we had the previous quarter, we fixed, but we had some new ones developing. And we're working very diligently with the engineering and manufacturing teams to fix those as we speak. Is -- does that answer your questions on the Purification Solutions side?

Yes. Well, that's very helpful. Yes.

Okay. The second question was around the Reinforcement Materials business, I believe. And you were asking about continued improvement in -- with regard to margin expansion, is that correct, or efficiencies?

Exactly. Either margin expansion or efficiencies as you think about -- you have the energy efficiency initiatives that's been going on for quite some time. What the larger productivity story looks like?

So we're continuing to work both the energy savings and efficiency activities and investments as well as yield improvement activity. And we have -- on the energy side, we have earmarked something like -- I'm trying to remember -- Ed, did you -- is it -- $50 million of capital over the next 3 years. So this is ongoing. These are smaller projects that are spread across our 18 sites around the world -- or 19 sites around the world. And we're continually adding improvements at the various sites. So that's one activity. The second one relates to our yield, and this is around process technology investments that are potentially drop-in investments. And here we have 2 technologies that we have developed. One that we have implemented in one of our assets and that we're looking at implementing in other assets over the coming years. And then the second that we have just proven at another one of our assets that we'll also be adding some potential value to the business because it will be drop-in technology to a good portion of our assets around the world. So these are the 2 paths that we're driving across the carbon black business worldwide that should continue to provide margin expansion that will be independent of market forces.

Your next question comes from the line of James Sheehan of SunTrust.

Quick question on Purification Solutions. What do you think the trajectory of earnings will be during the course of the year? Is this the bottom -- you see very gradual improvement, or just how does the trajectory look?

So we -- because of the operational problems that we have suffered during the last quarter and the work that's going on right now and the impact it had on our ability to supply, we have had to reduce the expectation in terms of EBITDA generation for the business in 2014. So we're now looking at numbers that are going to be closer to 2013. We believe there's upside to that. But at this stage, I would say, we're cautious about the rest of the year. We believe that the demand will be there and will improve. We've seen some of the signs of that in January, especially in Europe. And we're continuing to forecast that the business will reach the $150 million to $200 million of EBITDA range in 2017 as we see the MATS regulation effect start affecting the business as of the middle of 2015.

And you mentioned some price increases in that business this quarter. What was the magnitude of those, and how do you see pricing going forward?

So we're continuing to drive price increases in this business. We have a technology edge in multiple applications, and we have been successful in a range around 5% price increases for the business. And was that -- another question. I'm sorry here, I...

Just what do you think pricing is going to be doing for the rest of the 2014? Is it going to maintain that type of pace?

We -- yes, we believe that's a good normal pace for us in terms of what we're looking for in this business.

And last one on the inventory levels, you mentioned some changes in inventory that were beneficial. What's your outlook for inventories in the current quarter?

Did you -- yes. So we're looking at inventories staying in and about the same levels as we're at today.

Your next question comes from the line of John Roberts of UBS.

The sequential change in North America and Europe in Reinforcement Materials, the 1% to 2%, what would be the normal seasonal drop you see kind of on average?

I'm not sure I...

Is this unusual for that business to be up in volume sequentially?

Yes. Absolutely, yes. So we had a -- we saw a pretty strong December, which is quite unusual. We -- in Europe, we usually see a drop because of the Christmas period, Christmas-New Year period. I'm not sure I have a sense for the magnitude, but...

Low to mid single digits.

Low single, mid single digits.

Yes. So that's kind of what I would think. So do you think this was an inventory issue or -- that's a pretty big gap versus a normal seasonal sequential change. I mean, it's very encouraging if it's the end markets out there. Do you think they actually snapped back that strong?

I think we've seen inventory replenishment, and I believe there's demand pickup. But I'm not sure that the demand pickup is to the magnitude of the delta in sustained [ph] improvement, but perhaps it's a 50-50. I -- here, I'm just guessing.

Okay. And then the milestone payment for the Elastomer Composites, was that just a volume milestone, or was there some performance measure that was exceeded?

No. This is more of a volume, I assume [ph]...

It was achieving a certain -- I wouldn't describe it quite as volume, but it was achieving a certain performance milestone, probably.

Quality related or...

It was really -- I don't want to sort of get too detailed, but it was really just sort of what I describe that's more sort of the delivery of completed technology.

Okay. I can take this offline or maybe you already mentioned this and I missed it, but did prior allocation of functional and indirect cost, Purification, did you discuss that yet? And if you did, I'll just get back in the queue and...

We discussed it last quarter, John. It's essentially the ramp-up of respreading allocations to the Purification Solutions business as it's been more and more integrated into the company.

Your next question comes from the line of Christopher Butler of Sidoti & Company. Christopher W. Butler - Sidoti & Company, LLC: Last quarter, you had indicated that you are going to be looking at probably about $5 million of excess cost from the new Chinese facility each quarter and that the first quarter, it wouldn't be offset, but the second quarter, you should reach breakeven. Are those numbers still on track for your expectations, or have they changed at all?

No. I think the -- this is more or less what we're forecasting. Christopher W. Butler - Sidoti & Company, LLC: And also, with China, there was sales that were diverted from China to Southeast Asia. Did that reoccur at all during this quarter, or is it a relatively clean Chinese number?

I would say that we have some of our business in Southeast Asia that is delivered from our Chinese assets, but it's a small portion. So I would say, this is going to be a normal occurrence as we optimize the use of our assets around the Asian platforms. Christopher W. Butler - Sidoti & Company, LLC: And anything unusual this year about the Chinese New Year or par for the course there, too?

I think par for the course. The country shut down for a week, at least. Christopher W. Butler - Sidoti & Company, LLC: And then just finally, the press release in the last couple of days on the shared service center, could you talk to that and where you expect the savings to come from?

Yes, so we announced that we were going to be moving our European trade service center from our current base in Belgium, in Leuven, to a new location in Latvia, in Riga. We believe that this will allow us to provide higher quality of service and certainly at most competitive costs. And the current estimate is that this should provide us about $6 million of year -- a year of savings, and we'll start, I think, end of -- yes, it will start end of calendar 2014. Christopher W. Butler - Sidoti & Company, LLC: And are we just looking at labor and overhead costs, or are you going to be able to do new things in the new facility that you couldn't in the older?

I think it'll be more about labor and overhead.

Your next question comes from the line of Jay Harris of Goldsmith & Harris. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: Going back to Norit, how do you divide the penalty between disappointing revenues and operating inefficiencies?

I would say it's about 50-50. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: And were there -- is this a process problem, or did you lose key people in the transfer of ownership? Have they had these kinds of problems prior to the acquisition?

I would attribute it to a lower level of standards and with regard to operating -- operations of assets and maintenance, especially. I think as you have had 2 back-to-back private equity owners, we're finding out that beyond the issues that we had identified during the due diligence process, a few other issues are popping up that we did not have enough visibility on. In terms of the people that we have, we have strong people that understand the technology and the manufacturing processes, but they are somewhat shorthanded with the issues that we've seen popping up at several of our units. We have 8 manufacturing sites across the world and multiple units at each of them, and we've had a few problems with several units on these sites, so we're in need of getting the support of the Cabot broader resources to fix these problems as quickly as possible. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: And once they're fixed, does that require a higher staff level or -- and/or a more frequent maintenance schedule?

I think the maintenance schedule is going to change. I don't think that staffing will be affected. We will have to apply a little bit of capital to this as well, but it's going to be mainly around maintenance costs, at least in the short term. I think we should see that in -- abating as we get a better handle on this. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: And could I get Eddie to give us sort of a review of where your cash is, where your capital spending is? In other words, how much cash do you have in the United States? How was the generation of cash in the U.S. relative to your dividends and capital expenditures in the United States? And what is the outlook for that pool of cash flow?

I guess, the way I would answer it, Jay, is we have pretty sophisticated ways of moving cash around the world. Like any multinational company, we'll have certain places where we have more cash, generate more cash. We'd like to move it. We've been very successful, quite frankly, over the last 18 months of instituting a cash-pooling system that allows us to pretty flexibly move cash without having to get into a lot of complexities. So we feel like we're pretty well positioned, which is why we've been able to reduce the cash balances from about $250 million down to about $75 million to $100 million. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: And so the focus of my question is should not be of concern?

It's always of concern, but we're able to manage it well, I think.

There are no additional questions, and I would like to hand the call back over to Mr. Patrick Prevost, President and CEO.

Thank you very much for attending the conference today, and I'm looking forward to speaking with you again next quarter. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a wonderful day.