Rayonier Advanced Materials Inc. (RYAM) Q3 2015 Earnings Report, Transcript and Summary

Welcome and thank you for joining Rayonier Advanced Materials Third Quarter 2015 Teleconference Call. At this time, all participants are in a listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will turn the meeting over to Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Sir, you may begin. Mickey Walsh - Vice President-Investor Relations & Treasurer: Thank you and good morning. This is Mickey Walsh, Treasurer and Vice President of Investor Relations. Welcome to Rayonier Advanced Materials 2015 third 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 last night 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 two of our presentation materials. At this time, I would like to turn the call over to Paul for his opening remarks. Paul G. Boynton - Chairman, President & Chief Executive Officer: Okay. Thanks Mickey, and good morning, everyone. I'll start with a few brief comments about the quarter, before turning it over to Frank to review our financials. Yesterday, we reported third quarter results ahead of expectations. At the beginning of the year, we laid out three strategic initiatives: number one, reduce costs; number two, optimize our assets; and three, drive value through new and enhanced products. We continue to make significant progress across the board in all of these platforms, and most immediately, on our cost reduction initiative. As a result, we are on track to realize a substantial portion of the targeted cost savings in 2015. I'm proud of our employees. As a result of their focus on reducing costs and operating more efficiently, we now expect to exceed the upper end of our previously announced full-year EBITDA guidance of $210 million to $225 million, and as a consequence, are raising our pro forma EBITDA guidance to approximately $230 million for 2015. Shortly, I will share details on market conditions and talk more about our strategic initiatives. But first, I'd like to turn it over to Frank for a review of our third quarter financial results. Frank? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Thank you, Paul. Let's look at slide three to review our financial highlights for third quarter and year-to-date. Sales for the quarter totaled $257 million, 1% above third quarter 2014. Sales for the nine months were $700 million, 1% below the prior year period. Pro forma operating income was $60 million for the third quarter 2015 compared to $47 million for the third quarter 2014. Our year-to-date pro forma operating income was $118 million compared to $135 million for the prior year period. The pro forma adjustments exclude one-time impairment, separation and legal costs. The operating income variance analyses for the three and nine months are provided on slide four of the financial presentation material. As you recall, the 2014 nine-month period presented is reflective of carve-out accounting treatment for the first six months. As such, the year-to-date 2014 results are not comparable to the standalone company's cost. As you can see on slide four, quarter and year-to-date variances have similar drivers. Cellulose specialties prices were down 6% and 7% from the prior year three-month and nine-month periods respectively, reflecting the 2015 price negotiations, which account for the majority of the decrease in operating income. Aggregate prices for commodity products were also down 7% and 3% respectively as a result of customer mix. Volume variances and sales mix contributed a positive $10 million to the third quarter of 2015, while year-to-date results were $11 million favorable to the prior year. As referenced on slide five, third quarter cellulose specialty sales volumes of 133,000 tons were 4,000 tons above the prior year period. Year-to-date cellulose specialty volumes of 352,000 tons were down approximately 4,000 tons to the 2014 period, primarily due to the timing of orders. On the commodity side of the business, the manufacturing team has made great strides optimizing our run rates. As a result, commodity volumes for the quarter and year-to-date 2015 were 61,000 tons and 174,000 tons respectively, an increase of 22,000 tons and 72,000 tons from the prior year periods. The increase in 2015 volumes reflects both the efforts of the employees to improve run rates in 2015 and the extended shutdown of the Jesup plant in the second quarter of 2014. As a reminder, we expect full-year 2015 cellulose specialties volumes to be comparable to 2014 levels. However, given the improvement in our run rates, coupled with increased days of operation, we now expect commodity sales volumes to be north of 250,000 tons, approximately 100,000 tons over full-year 2014 volumes. Costs for the quarter and year-to-date periods were a favorable $21 million and $27 million respectively. Lower operating costs from our cost reduction activities and favorable market conditions helped reduce cost across wood, chemical and energy inputs. SG&A for the quarter and year-to-date periods were negatively impacted by $1 million and $6 million respectively. For the nine-month period, the increase reflects costs of being a public company for the full period as well as higher professional fees. During the quarter, we continued to make progress on our $40 million cost savings initiative. Year-to-date, we have achieved roughly $27 million in savings; approximately $21 million is reflected in operating results, with $6 million capitalized in inventory as of quarter-end. Given the ramp-up of the savings initiatives throughout the year and the acceleration of sales volumes in the second half, a disproportionate amount of savings are being realized in the third and fourth quarters. We're currently targeting at least $30 million in cost savings to be realized in 2015 operating results, with an annualized run rate approaching $40 million. Beyond 2015, our goal remains to hold costs flat by continuing to identify and implement savings to offset typical cost inflation. We still have a significant amount of work to do on these initiatives and we remain committed in driving sustainable savings throughout our business. As Paul stated, we are increasing our full-year EBITDA guidance to approximately $230 million. The actual results will largely be driven by the timing of revenues as we close out the year. In addition to maximizing our earnings, we remain focused on our liquidity and capital allocation, prioritizing debt reduction and investing in our business. As previously communicated, we anticipate capital expenditures for 2015 to be approximately $80 million. On slide six, in the first nine months of 2015, we generated $183 million of pro forma EBITDA and $92 million of adjusted free cash flow. As a result, we have reduced net debt by $86 million to $793 million through the first nine months. Since separation, we have reduced net debt by $136 million. Our net debt is expected to continue to decline in the fourth quarter. We ended the third quarter with $336 million of liquidity, including $236 million available under our revolving credit facility after taking into account outstanding letters of credit. We continue to focus our free cash flow on repaying our debt. We have a flexible capital structure with $550 million of long-term capital at an attractive 5.5% interest rate and $343 million of term loans with current interest rates less than 2%. Under our credit agreement, we currently operate with ample cushion within our two financial maintenance covenants with net secured leverage of 0.9 times versus a maximum covenant of three times and interest coverage of 7.4 times versus a minimum covenant of three times. At this point, let me turn it back to Paul. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks, Frank. Now, let's turn our attention to the markets and our strategic initiatives. The industry has experienced softness over the past couple of years due to increased capacity and lower-than-expected demand side growth. In acetate markets we believe demand will be depressed in the near-term, driven by continued inventory destocking and recent public policy changes related to smoking in China. In ethers markets, while there are pockets of growth, the broader category remains under pressure, mainly driven by the state of the European economy. Markets for high-strength viscose, engine filtration media and casings remain relatively stable and we expect these trends to continue. Exasperating these market conditions, we see competitors continue to benefit from weaker local currencies versus the U.S. dollar. Regarding commodity products, fluff prices remain stable to slightly down, while viscose prices have improved over the course of the year. As we've discussed previously, we have the ability to flex our manufacturing to produce either commodity, depending on market conditions. As a result of industry oversupply and weaker end demand, we continue to focus on our three strategic initiatives. First, reducing costs. We continue to generate solid cash flows and focus our cash flows reducing net debt and reinvesting in our business. The $40 million cost savings plan, which is the first step in an ongoing continuous improvement initiative, is positively impacting results in 2015 and puts us in a better position to manage the future. Second, we are taking steps to optimize our assets. Our C-line repositioning announced last quarter better aligns our capacity in the current market conditions. This will help us to further lower cost and maximize cash flow. Third, we continue to work on enhancing value for our customers. As such, we will drive product innovation to differentiate the value proposition between us and our competitors, as well as develop new products for current and future customers. As you can imagine, this initiative will take more time before we will see the benefit of our efforts. Since our last quarterly update, we have disclosed significant events with our two top customers. On September 23, we announced the extension of the contract with our second largest customer, Nantong Cellulose Fibers Company. The agreement extended the term of the contract for an additional four years through 2019. We anticipate annual volumes to be comparable to recent historical levels. Consistent with past practices, pricing will be set annually. NCFC has been a valued partner for 25 years and we thank them for the opportunity to continue our partnership. In August, Eastman Chemical Company, our largest customer, filed a lawsuit against us in Tennessee and we served Eastman with a similar lawsuit in Georgia. Both cases are currently under seal and are being treated as confidential by the respective courts. We and Eastman continue to work constructively towards a mutually agreeable resolution and we'll update our investors when we have information to report. We recognize that a dispute with our largest customer creates uncertainty. However, we value our more than 85 years of history with Eastman and we look forward to many more years to come. I am proud of how our employees have responded to our critical strategic initiatives. With their ongoing engagement and dedication, we will continue to positively impact results. In an environment that remains challenging, we are pleased with the steady progress we've made. We feel confident that these actions we are taking best position us to control costs and maximize cash flow in the near-term, while we remain vigilant in providing long-term value creation for our stockholders. Now, before I turn the call over to questions, I like to remind everyone that 2016 pricing negotiations remain ongoing. So, as with past practice, we intend to update investors as to our pricing and guidance on our Q4 earnings call in January. Now, I'd like to open up the call for questions.

Yes, thank you. We will now begin the question-and-answer session. Our first question comes from Mr. George Staphos with Bank of America Merrill Lynch. Your line is now open.

Hi, everyone. Good morning. Thanks for all the details. Congratulation on the quarter too and the progress on the cost side. I guess first question, Paul and Frank, why do you think perhaps – well, let me phrase it differently. You've done so well on the cost reduction program and the productivity improvement program. Why might there not be more in the future years? Why would you only look to offset inflation in subsequent years? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. George, this is Frank. We will absolutely look to lower costs across the board wherever we can. And so, as we go through our 2016 budgeting program and other areas, we're going to look for all the cost savings initiatives that we can put in place for this upcoming year. But layered on top of that is our continuous improvement programs, which Paul has talked about before, that have the goal of keeping cost at best flat, or at worse, flat and taking out the inflation piece.

Okay, Frank. So to be clear, you could have another program that's comparable to the $30 million to $40 million that you're generating this year in subsequent years once you're done with your budgeting program this year? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: I wouldn't put any parameters on it at this time. But I think we'll tell everyone when we get through our 2016 budgeting on the January call. The $30 million to $40 million – the $40 million cost savings initiative was a pretty big initiative on our part. But again, we will look to find more cost savings over and above just the continuous improvement programs.

Okay. One question on Eastman and recognizing that you might not be able to say much of anything, is there any update or view on when perhaps you might have a resolution? As you said – I'm not trying to put words in your mouth. You said you've been working constructively with them to try to mutually acceptable resolution. Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. George, it's Paul. No, we really can't say more than that, other than just what you repeated. We're working constructively with them and we do hope to have a resolution as soon as we can.

Okay. Switching gears a bit, and I'll turn it over after these last two, and perhaps we're misreading. But you mentioned a number of issues in terms of the markets that have been discussed in the past in terms of oversupply and demand being somewhat soft. Is your sense that these issues have intensified in the last quarter or are they more or less running at the same level as beginning of third quarter and earlier in the year? And then the other question that I had, if I look at your guidance, admittedly you raised your EBITDA guidance for the year. Your comparison of EBITDA 4Q versus 4Q, I think you're looking for roughly around $50 million of EBITDA in the fourth quarter versus $70 million to $80 million in last year's fourth quarter, which is a bigger drop relative to the year-to-date figure. So, does that suggest that there's more intense pressure going forward and that's being reflected in the guidance? Thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. George, let me take the first part of that, and I'll let Frank take the second part on the EBITDA. Just on are we saying anything different than we did in the past – and to be clear, in acetate, we are saying that the destocking continues. At one time, we had indicated we thought that this could be largely consumed, finished by mid-year, third quarter of 2015. From what we can see – and of course, you can ask our customers additional questions and they would have a much better answer than this, we see this continuing now. So we're just saying that is ongoing in the acetate area. I'd say in ethers, we talk about the state of the European economy. But if anything, I'd say that it's – if we see anything is a little more light there and a little more improvement. But still, it's not to where it was before the European downturn. But I would say, if anything, it's probably picking up a bit. The other comment I made out there is on the broader viscose market, which is a commodity market that we don't largely play in. But we did talk about we're seeing prices continue to improve in that area. I think pricing from May is up maybe 10%. And that's on healthy demand for viscose staple fiber as well as limited supply or more limited supply. And to us, again, it's not a market that we largely serve, but it's a good backdrop to the markets that we do serve. And we think that that improvement will ultimately certainly help the markets that we serve. So hopefully, that gives you a little more color there.

Yeah. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: George, on the guidance piece of the question, two things. One is this year's results really don't impact pressures in the CS market. Those volumes are priced and they're set from a volume perspective. So, I think what you're really seeing is we had a very good fourth quarter last year. We've had a good – very strong third quarter this year. And so, we may see a little bit come off of the fourth quarter back into the third quarter of this year. But we don't see – it's not a pressure-driven issue at all.

So Frank, that's just more timing on volumes, is that what you're referring to? Thanks. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yes, yes.

Okay. Very good. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks George.

Thank you. Our next question comes from Roger Spitz of Bank of America. Your line is now open.

Thank you. Good morning. Paul G. Boynton - Chairman, President & Chief Executive Officer: Good morning.

I'm not going to ask you about 2016 CS pricing, but are you able to say what percent of your acetate dissolving wood pulp sales you've already negotiated 2016 pricing with? Paul G. Boynton - Chairman, President & Chief Executive Officer: No, Roger, unfortunately, we can't give that at this time. We're midstream on all our negotiations with customers around pricing, and of course, volume comes to play to that to some degree. So, we'll have full disclosure on that as we typically do. Our intent is to do that in our January call.

Can you say – and maybe you can't talk about this either, but can you say in your general contracts with your larger customers, do you typically have most favored nation clauses on pricing, such that if someone else – if pricing changes for someone else, it might change for that particular contract customer? Paul G. Boynton - Chairman, President & Chief Executive Officer: Look, Roger, we have never given details on any of our contracts like that. Our customers have a host of different pricing mechanisms or pricing negotiation plans. And so, we don't give any specifics on any given ones, so sorry.

That's fine. Lastly, in Q4 of 2015, can you speak about working capital inflows or perhaps outflows and the materiality of them? You did speak about net debt going down further. So, I guess you're hinting at something. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. I think what you saw last year, Roger, is last year we had an increase in working capital. Specifically, we had an increase in inventory. And that increase in inventory was really driven by, as we started running specifically the C-line on commodity product, run rates got better and better. And you've seen that continue through the year. The difference between last year and this year is they ramped up very quickly and we ended up with more inventory. We've now put in place sales plans to better match the estimated production coming off those lines on the commodity products. So we would be hopeful that the inventory levels would stay more in line, and therefore, we would be able to gain year-over-year working capital benefits.

Thank you very much. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks Roger.

Thank you. Next, from Chip Dillon of Vertical Research Partners. Your line is now open.

Yes. Hi and good morning. First question is I want to make sure I understand a couple of things. If I think about it, you guys said that you've gotten $21 million of the cost saves this year, which is good. And so, we would guess that with the $30 million, you're going to get – or at least $30 million, you're going to get $9 million or more in the fourth quarter. So when I look at that and then I think, well, the full-year guidance for EBITDA would suggest a near halving of the EBITDA from the third to the fourth quarter. So, you'd go from $83 million to $47 million to hit the $230 million. Yet, you're going to show us more cost savings. Can you just help us understand why it comes down so hard in the fourth quarter? Or is that just a very conservative EBITDA guidance? In other words, are you slated to do even better? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: The guidance is $230 million, Chip. I think we are, as we always do, a manufacturing business with big assets, and so we've got a couple of things going on. One is the timing of sales, which we talked about on George's question. And then the second piece of it is, obviously, we've got all of our just general manufacturing components. Some go up, some go down. So, I think the $230 million we feel very good about from a guidance perspective, but we'll have to see where it plays out by the end of the year.

Okay. And maybe I missed this, but where did you slate the – I know you said that the commodity volumes could come in at around 250,000 tons. Did you say what you thought the full-year specialties volumes would likely come in at? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: They would come in – we're roughly consistent with 2014 level, so that is in the 479,000 tons last year.

Okay. Okay, that's helpful. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: In that range, plus or minus.

Okay, got you. And then if we – and so is there any downtime – so, it's really the timing of sales that's really impacting this EBITDA variance third to fourth. It's not that you're going to take – you have special outages in the fourth quarter that you didn't see in the third in the mills. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: No, Chip. And what you see, and we see this every year, is as we ship things later in the year – as you know, many of our customers are pretty far away as well. And so, there's always some risk on timing of receipt of those products and the recognition of revenues around those. And we talked about that in the past.

Got you, okay. And then could you update us on the – I think it's the lignin JV that you talked about with Borregaard. And could you just tell us where that stands and how that spending – how it might be financed or how that spending might flow out? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. So Chip, thanks for the question. We previously announced I guess, I think, June 1 that we're working on this joint lignin project with Borregaard at our Fernandina plant. We said we're going to take most of a year to do the engineering and cost estimates for this JV before we'd actually make a joint decision with Borregaard whether to move forward or not. So, we're right in the middle of that. The progress is going really well. So, we expect to make a decision of investment in the first half of 2016 and then with a significant portion of that cash investment on our side occurring shortly thereafter. So, that's kind of where we sit right now. We are long ways to a decision on it. But again, it's progressing very nicely and great cooperation with them.

Okay, that's helpful. Let's say if we don't count the CapEx that would be tied to that or any of the investment, what's sort of a good range of CapEx to use for 2016 as you look out at this point? And how – and let us know if that's something that you're still kind of working around or if that's a pretty solid number at this point. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. I'll tell you what I said on the last call was it was $90 million to $95 million range. But we are still working on that and we'll give an update on guidance on that. Obviously, as we look to pay down debt and be as efficient as we can with our capital, we look at that capital spending very closely as we get through our budgeting process.

And would that – Frank, would that be kind of a normal number, so like if – again, just excluding any footprint changes or the JV with Borregaard, would that sort of be an ongoing number to consider like in 2017 and 2018? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: No, that number is high. And that's high for a couple of reasons, one being is we've got to finish out the boiler MACT project and then we have a couple of other large projects, replacement projects on the maintenance side that we need to deal with. I think going forward, the number is more in the $50 million, $55 million range from a maintenance perspective.

Got you. And then could you just update us on the – I think you're switching a line back to specialties. If I remember, you announced something a few months ago. Could you just remind us where that stands? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. So Chip, Paul again. In fact, that's one of the capital expenditures we have in the plan making up that $90 million to $95 million for next year and that's the repurposing of our C-line. And we're making a lot of progress in that regard. A lot of action items have been implemented. But I'd say for the most part, we're still right in the middle of a lot of engineering on that. And of course, post engineering, we've got to get our permits in place. So, we're still on schedule to make that happen. Our target is to have that happen prior to the spring shutdown in 2016. But it is dependent on this engineering work and it's dependent on the permits that we got to receive.

Got you. And the last question, I'm sorry, is I believe the issue with Eastman is something that is for post-2016. So that, in a sense, is not to expect, if I recall, 2016 volumes. And therefore, when you give us the pricing – I guess the earliest, as you said, we should expect a pricing update would be on the first quarter – on the fourth quarter call. I guess if there were some kind of settlement that impacted 2016 ahead of time, you might tell us if your auditors might suggest that or if you feel that's a good thing to do? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yes. So Chip, again all pricing, all perspectives on 2016, you are correct, we put that into our fourth quarter call, which will be in the January timeframe. We have nothing more to add about Eastman with regard to that in any way. When we have information to share, we'll certainly share that.

Okay. And again, their issue starts in 2017 and that's what the issue is, it isn't next year? Paul G. Boynton - Chairman, President & Chief Executive Officer: No, we've never said that. It's an immediate discussion on the current contract that we have with them, and we're going through that now with them. And as soon as we have some guidance, we'll provide that.

Okay. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Chip, what we did say is it there is no impact on 2015.

2015? I'm sorry. I must have missed it. Yeah, that's exactly right. Okay. Well, guys, thanks for all the details. I appreciate it. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Sure. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks Chip.

Thank you. Our next question comes from Bill Hoffmann of RBC Capital Markets. Your line is now open.

Yeah, thanks. Good morning. Paul G. Boynton - Chairman, President & Chief Executive Officer: Good morning.

Paul, I wonder if you could talk a little bit about the mix in the commodity side, viscose versus fluff. And then also with your guidance to do 240,000 tons this year with the C-line conversion, what are your expectations volumetrically to be able to sell next year? Paul G. Boynton - Chairman, President & Chief Executive Officer: So first, just on the mix of our fluff versus viscose, I think we've consistently said, which is we are largely running our line – our C-line into the fluff market. So we will continue to plan to operate that way. We haven't given any guidance, of course, on what that would look like for next year I did indicate that viscose prices are moving up and that fluff prices are steady, if not slightly down. So, we continue to do that analysis, because we can switch back and forth and make sure we're getting the optimal mix off of that line. But I think you can assume that we're going to be in that 80% to 85% range of absorb materials or fluff pulp versus viscose. Frank indicated that this year, we are now looking at running over 100,000 tons more commodity than we did last year. So, the team's done a great job. That puts us at 250,000 tons or above off that into the commodity markets, and I think we can expect, provided any kind of changes in downtime, that that type of run rate will continue at that level, if not more, in the future.

And then with the conversion, what's the potential there? Paul G. Boynton - Chairman, President & Chief Executive Officer: I'm sorry, Bill. Restate the whole question then, maybe I missed your...

Sorry about that. Just with the C-line conversion that you're working on right now, will that provide you incremental capacity on top of the (31:07)? Paul G. Boynton - Chairman, President & Chief Executive Officer: Well, we're capturing a lot of that right now.

Okay. Paul G. Boynton - Chairman, President & Chief Executive Officer: What we said in the repurposing of the C-line that a lot of those moves – and we talked about this in our last call, when we thought we would get about 11% additional incremental volume out of making these changes. And quite honestly, the team – even though we're still doing a lot of the engineering, the team is able to push up a bit now on the volumes, but we'll continue to work on that. But we don't have any further guidance other than what we already provided in the July call.

Okay, thank you. And then just regards to the acetate markets, we heard from some of the downstream customers that they were still seeing some inventory destocking, obviously, mostly over in China, Asia, but thought that the acetate markets elsewhere were reasonably balanced. Can you talk at all about what the impact that this inventory destocking might have had on your overall volumes in the acetate – in the specialties market this year? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. So – and first of all, just to confirm your comments, and that's consistent with some of the comments I made earlier, we continue to hear and see destocking happening out there in the market, particularly in China. Of course, we listen to our customers as well and what they're seeing out there. So, I'm kind of just repeating some of the things that they have shared with us. So, that is continuing and hasn't been completed yet from our perspective. And maybe it's getting closer. So, we're hopeful to that. With regard to our volumes and the impact on that this year, really not a lot. Again, most of our volumes are put into contracts where we can kind of keep them fairly consistently. And so, we haven't seen a change from our guidance that we provided at the beginning of the year to now relative to this destocking. So, I'd say overall our volumes for the year have been consistent to what we had shared with everybody in our January call. And so, we don't anticipate to have that be an impact on our business for 2015.

Great, thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: You're welcome.

Thank you. Our next question comes from Paul Quinn of RBC Capital Markets. Your line is now open.

Yeah. Thanks very much. Just a couple clarifications, one on the 2016 CapEx guidance of $90 million to $95 million. That includes the $25 million for the, I guess C-line and A-line conversion, but doesn't include any spending on the joint venture with Borregaard? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: That is correct.

Okay. And then just some comments on the outlook, the precision and balance in supply-demand. Just getting back to this, it was only last quarter that you repurposed C-line 190,000 tons, and I would have expected that to largely put that CS market in balance with the exception of a competitor with additional capacity – potential capacity that hasn't been proven out. Has the market gotten weaker in your mind in terms of supply-demand balance from last quarter? Paul G. Boynton - Chairman, President & Chief Executive Officer: No, I wouldn't say that, Paul. I would say that to your point that we did reposition our assets and what we did is the only thing that we can do is control our own assets and how they're matching to the market. So we think we're much better positioned and matching roughly what we can produce on CS to what we think the demand is for our product out there right now into the CS markets. I don't think much else has changed out there. But we don't have a lot more to report other than what we've shared with you in the July conference call. So again, we made our change and we think we, as a company, are much better fit for the market that we're serving today.

Okay. And then just a question on the destocking comment; destocking sort of suggests a one-time inventory change. Is it really destocking or is this actually demand decline? Paul G. Boynton - Chairman, President & Chief Executive Officer: So first of all, it's largely, in our belief, is destocking out there. But we did reference and acknowledged that there are some demand decline, particularly around public policy in China. Our belief still stands that we think, in the acetate market when it comes to acetate tow, that this is relatively a flat world out there, that we may still continue to see some slight positive growth out of some regions and some probably negative growth out of others. And overall, it's a relatively flat market. But we got to get through this destocking before we kind of get back to what we think is slightly up type of market.

Okay. And then just on the guidance for 2015 pricing with CS prices down 7% to 8% (35:46), is that across the board or is that your average price through all the contracts; i.e., are all the contracts coming down at 7% to 8% (35:53) from 2014 or is it your average price? Some are going significantly higher than that, some are going probably flat? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: That's our average pricing. There's some variance around that average, but it's not wild variance. Paul G. Boynton - Chairman, President & Chief Executive Officer: (36:10).

Okay. And last question, because I know you want to talk about it, just this Eastman issue on the timing of it. I guess both cases are sealed, so you have – have you received any indication from your lawyers as to timing referencing other cases? Is it a six-month, a year-long timeframe? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. Unfortunately, Paul, I can't comment. The only thing I can say is that again we are constructively working together to get to a resolution. And so, we believe sooner than later is better. So, we are working in that regard. But I really can't offer anything more than that, sorry.

Okay. Well, can you confirm that you're constructively working together with Eastman outside the court process? Paul G. Boynton - Chairman, President & Chief Executive Officer: I really can't say that. I can say we're constructively working together.

Okay, fair enough. Best of luck, guys. Thanks. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks Paul.

Thank you. Our next question comes from Steve Chercover of D. A. Davidson. Your line is now open. Steven Pierre Chercover - D. A. Davidson & Co.: Thanks and good morning. Could you actually discuss what the policy changes in China are vis-à-vis smoking? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yes. There are several issues we talked about before. Some of those policy changes include, Steve, some incremental tax. I think the WHO came in and basically had an opinion of all industrialized nations out there that China has probably lower tax on cigarettes than most countries. And so, they've implemented some higher taxes. So, that's kind of one policy change. Another certainly we talked about quite a bit is kind of the cut down on graft, which really hits a lot of gift exchanges and alcohol and cigarettes included in that. And that's a small part. And then probably the most notable of recent times is just an overall curbing of public smoking and specifically in Beijing. And so, that's changed I think the dynamic of smoking a bit on the demand side. But I would say from what we hear, those are relatively small impact kind of things, but they are having a slight impact. That's why the feedback we get says that we think there's still positive growth in China when it comes to cigarette consumption once we get through the destocking. But I think it's a little bit more subdued growth than what we saw in previous times. Steven Pierre Chercover - D. A. Davidson & Co.: As I recall, I thought the length of the filter plug was actually going to increase. I'm thinking, from 7 millimeters to 11 millimeters and the benefits of that were twofold, A), it mitigated the smoking risk, but B), because the filter tow was actually cheaper than the tobacco, it was accretive to the manufacturers. Has that already happened? Paul G. Boynton - Chairman, President & Chief Executive Officer: Certainly, some of that has happened and I would say certainly it is also continuing from what we see. I can't quantify that unfortunately for you. But going from I think lengths either of 25 millimeters to 29 millimeters, there's several different obviously versions there. But that we continue to see happening, but I can't tell you what the total impact or quantify that for you. But yes, that is true and that is happening. And from our standpoint, certainly that's a benefit. Steven Pierre Chercover - D. A. Davidson & Co.: Okay. And then we're pretty familiar with what the Brazilian currency has done. But does your intelligence tell you that your competitors are actually using that as a lever to grow their share or would they not be smarter just to say this commodity is denominated in U.S. dollars and our margins will expand? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. So, I can't tell you exactly what their actions are. What I can just tell you is I reported that we can see what the benefit is. Obviously, they're getting a benefit of currency here. I don't know and I can't comment on whether that is actually being used out there in the marketplace. So, I can't unfortunately, Steve, speculate on that. But I can just say certainly we can see, in some of our competitors that report publicly, they are getting a benefit of that currency. Steven Pierre Chercover - D. A. Davidson & Co.: Okay. And then your friends at Borregaard just announced another lignin partnership or acquisition in Wisconsin. And does that have any implications to your project together? Paul G. Boynton - Chairman, President & Chief Executive Officer: No, it doesn't. And keep in mind that that is lignin that's already out in the market today. So, they are acquiring that business from the company that they're working with there. So, it doesn't change anything that's out in the market. It's just, I think, another footprint for Borregaard in this area. Steven Pierre Chercover - D. A. Davidson & Co.: Okay, good. And then I guess getting back to the most important element, which is the fourth quarter guidance, so to speak, I think a lot of us are kind of perplexed. Should we be – because the margins evidently come down substantially, is there a leg down on the specialty mix and maybe a leg up on the cost structure? Paul G. Boynton - Chairman, President & Chief Executive Officer: So, I'll let Frank take a shot at that. But again, our guidance – and we feel good about it. This is approximately $230 million, and I know you're trying to kind of piece that all together. And there's several different components there between cost and price. But maybe Frank can comment on that further. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. So as you see the biggest component of it, obviously price is going to impact. Versus last year, price is going to impact the margin significantly. That's been the biggest impact we've had this year. We had a great terrific third quarter. Everything went well, but price is going to be the biggest impact of that as we kind of normalize. And then, as I said before, there are certain risks associated with fourth quarters that we always deal with, which is timing of shipments on the water, and as companies get to year-end, the order patterns around those shipments. Paul G. Boynton - Chairman, President & Chief Executive Officer: And just to be clear, even pricing coming down is still within our guidance that we gave you... Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. Paul G. Boynton - Chairman, President & Chief Executive Officer: Last January, so very consistent with that. But year-to-year, relatively yes, it's coming down. Steven Pierre Chercover - D. A. Davidson & Co.: Yeah. It just seems like the pricing has come down gradually through the year, but it looks like there is a step function in the fourth quarter, which would actually get the full-year average to that kind of minus 7%, minus 8% (42:33) range. And just to clarify, Frank, you said that your 2015 fluff, viscose or let's just call it commodity production will be a little north of 250,000 tons? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: That's our estimate today, yes. Steven Pierre Chercover - D. A. Davidson & Co.: So, 75,000 tons or so in the fourth quarter. Okay, thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks Steve.

Thank you. Our next question comes from Chip Dillon of Vertical Research Partners. Your line is now open.

Hi, just a quick one. Can you just give us a little feel for the commodities? My guess is that you are – I think I heard you say that the low alpha grades pricing was up a bit, if I heard you right. But I guess could you give us – verify that, clarify that? But also are you still more tilted toward fluff than the low alpha grades of dissolving? Is a two-thirds, one-third split in the right zip code? Paul G. Boynton - Chairman, President & Chief Executive Officer: So Chip, just again the comments around just specifically on the market for viscose pulps out there, that has moved up through the course of the year, mainly from May. So, I was commenting on that. And again, that's a small part of our commodity mix. And then commented that – the other comment I made was that fluff pulp price is relatively stable but has come down a little bit as well. And some of that, by the way, is mix. As we produce more for the commodity market, we've got to go place that in the market. And some of those are kind of on the fringe of pricing, because it was a little bit at the lower end of the mix. So I was talking more broadly about the market, viscose price is going up, fluff price is relatively flat, if not down a little bit. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. What you see if you look at page five of the materials that we put online, Chip, you can see that there's been some material change this quarter over the same quarter last year and then this quarter versus the nine-month period in the overall commodity pricing. So, you've seen some change in the commodity pricing. And our mix is, for the most part, AM, absorbent materials. We do have some viscose in there, but it's not material. So, we're seeing more price decrease because we're more on the commodity side, but we have made some viscose.

Got you. And it looks like your total production for the year will come out at around 730,000 tons, if you – let's say 480,000 tons for high alpha and 250,000 tons for the others. And is that – I guess is that sort of maxing out the mill? Maybe not totally, but you're running, I would imagine, pretty close to full for the year, not that you can't get creep or more benefits of productivity in the future. But I guess you're not really slowing the mill back much this year, the mills. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Two points, Chip. One is I've referenced earlier on a conversation with I think Roger on working capital, we had a significant amount of inventory build in the commodity side last year, which we're not anticipating this year. So, some of those sales volumes are going to be commodity sales from production last year. So, that's one piece of it. The other piece though is you are right, the mills are running very well. Right now, they're running very well. They have run better. As we've been ramping up the sales volumes, they've obviously been running better quarter-over-quarter from a run rate perspective. So right now, they are running very well.

And because of the inventory issue, it's probably reasonable to see the sales volumes next year overall probably not up, maybe down slightly, because you don't have that inventory situation repeating? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. I don't know if it will be that material. We haven't looked at that yet. But I think that's a fair point.

Okay, thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks Chip.

Thank you, everyone. Now, I would like to hand it back to Paul Boynton for his closing remarks. Paul G. Boynton - Chairman, President & Chief Executive Officer: Great, thanks Norrie. So if there's no more questions at this time, I'd like to thank you for joining us today. We look forward to updating you on our progress in a timely manner as we move forward. Thanks and have a good morning.

Thank you. And that concludes today's conference call. Thank you all for participating. You may now disconnect.