Rayonier Advanced Materials Inc. (RYAM) Q4 2015 Earnings Report, Transcript and Summary

Welcome and thank you for joining Rayonier Advanced Materials Fourth 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. Now, I'll turn the meeting over to Mickey Walsh, Treasurer and Vice President of Investor Relations. 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 fourth 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: Hey, thanks, Mickey. Good morning, everyone. Let me start the call with some comments regarding our 2015 performance before turning it over to Frank to review the financials. Afterward, I'll ramp up with a perspective on market conditions and our strategic path forward. In 2015, we planned and executed upon three key strategic objectives. First, we focused our team on reducing cost and driving cash generation. Second, we optimized our assets to more effectively match market demand as well as capture greater value from our existing infrastructure. And finally, we drove a much greater focus on innovation through research and development. A year ago when we addressed you in our January call, we remarked about the significant challenges facing our business due to both weakness in our end markets and oversupply, which resulted in continued pressure on the pricing of our products. In the face of a $62 million negative pricing impact on EBITDA, we challenged our organization to take $40 million of costs out of the business. Today, I can say that each and every employee stepped up to the challenge as we delivered on this significant initiative. For the year, we achieved $35 million of cost reductions and ended the year at our targeted run rate of approximately $40 million. As a result, we mitigated more than half of the cellulose specialties pricing impact and delivered $238 million of EBITDA, well above our beginning year guidance of $200 million to $220 million. In addition, our focus on improving cash flows allowed us to exceed our working capital improvement goal and generate $124 million of adjusted free cash flow, an $11 million improvement from 2014 cash flow. In our efforts to optimize assets, we announced a significant plan to reposition our facility in Jesup, Georgia to improve cost, better balance our cellulose specialties capacity to market conditions, and provide for additional commodity volumes. Also, in June, we announced a potential lignin chemicals joint venture with Borregaard at our Fernandina Plant, and by December we entered into definitive agreements with our new partner, subject to final approval in midyear. The venture will allow us to diversify our earnings into lignin-based products and improve our overall cost position. And against our innovation objective, we made great strides aligning our efforts to accelerate the identification and production of new products for existing and new markets. Also in 2015, we announced new, long term contracts extending through 2019 with our two largest customers: Eastman Chemical and Nantong Cellulose Fibers. These agreements underscore the unique value Rayonier Advanced Materials' products bring to our customers even in this very challenging environment and reinforces our position as the leading supplier of highly purified cellulose fibers. Finally, as we highlight the achievements of our team in 2015, I'd be remiss not to share with our investors an achievement in our continued effort to build upon our culture of safety. After 2014's record safety performance, our team surpassed that milestone in 2015 and recorded the safest performance in our 89-year history. This achievement maintains our position as one of the safest companies in our industry and continues our goal of everyone going home safe every day. The substantial accomplishments of 2015 prove that we can achieve what we as an organization set out to do. Shortly, I'll share additional comments on both market conditions and strategy, but first, I'll turn it over to Frank to review our financials and provide an outlook for 2016. Frank? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Thank you, Paul. Before we begin, please note that the presentation materials we will be referencing are available to view on our website, rayonieram.com. Now, let's look at slide 3 to review our financial highlights for fourth quarter and year-to-date. Sales for the quarter totaled $242 million, 2% below fourth quarter 2014. Full year 2015 sales were $941 million or 2% lower than the prior year. The full year sales decline was primarily driven by lower pricing in cellulose specialties with a modest impact from lower cellulose specialties volumes. This decline was largely offset by stronger commodity volumes, as full year commodity sales reached 247,000 tons. Pro forma operating income was $30 million from fourth quarter 2015 compared to $47 million for fourth quarter 2014. Full year pro forma operating income was $149 million in 2015 and $181 million in 2014 with a significant portion of the negative impact from cellulose specialty price decreases offset by our cost cutting initiatives. The pro forma adjustments exclude one-time separation and legal costs, non-cash impairment charges, and certain insurance recoveries. The full year 2014 period also excludes a $95 million charge for environmental reserve adjustments. The variance analysis for operating income relative to the fourth quarter and full year 2015 are provided on slide 4. As you recall, the first half of 2014 period reflects the impact of carve-out accounting treatment due to our separation which occurred midyear. As such, the full year 2014 results are not comparable to the standalone company's costs. Quarter and year-to-date variances have similar drivers. Cellulose specialty prices were down 6% and 7% from the prior year three-month and full year periods respectively, reflecting 2015 pricing. Aggregate prices for commodity products were also down 3% in both periods. Total price impact on operating income was $62 million. Volume variances and sales mix contributed $1 million to the fourth quarter of 2015, while full year results were $13 million favorable to the prior year. This reflects increased production days and improved run rates for our commodity products throughout the year. As referenced on slide 5, fourth quarter cellulose specialties sales volumes of 116,000 tons were 7,000 tons below the prior year period. Full year 2015 cellulose specialty volumes of 467,000 were down approximately 12,000 tons or 2% from 2014. We worked closely with several key accounts during the fourth quarter to allow them to better balance their acetate pulp inventories. Commodity volumes for the quarter and year were 73,000 tons and 247,000 tons respectively, an increase of 27,000 tons and 99,000 tons from the prior year periods. The 2015 volume increase reflects continued efforts to improve operational run rates and reduce the commodity inventories as well as the impact from the extended shutdown of the Jesup plant during 2014. Returning to slide 4, costs for the quarter and year were favorable $1 million and $27 million, respectively. We made excellent progress throughout the year reducing our costs. We achieved roughly $35 million of our $40 million cost savings initiatives, including lower manufacturing expenses, planned improved operating efficiencies, enhanced supply chain management and lower labor costs. Additionally, we are already seeing the benefits of our previously announced asset repositioning in Jesup in our 2015 results. Favorable market conditions for certain raw material inputs further helped reduce expenses across chemicals and energy, offsetting other areas that saw more typical inflation. SG&A and other costs for the quarter and year were negatively impacted by $6 million and $10 million, respectively. The increases are primarily driven by an increase in non-cash environmental reserves to maintain the required 20-year projected levels, along with higher legal and professional fees being offset by cost savings. Similar environmental reserves were not included in 2014 pro forma operating income. Additionally, for the full year, the increase in SG&A reflects costs of being a public company not reflected in the first half of 2014. In addition to maximizing profitability, we remain focused on driving cash flow, prioritizing debt reduction and investing in our business. As shown on slide 6, we generated $238 million of pro forma EBITDA and delivered $124 million of adjusted free cash flow. As a result, we reduced net debt by $112 million to $767 million. Under our credit agreement, we currently operate with significant cushion within our two financial maintenance covenants. We also remain well positioned with $337 million of liquidity, including $236 million available under our revolving credit facility after taking into account outstanding letters of credit. Looking ahead to 2016, on slide 7, we anticipate pricing to be down approximately 6% to 7% with cellulose specialty volumes down 4% to 5% from 2015 levels. Commodity sales are expected to be higher than 2015 as commodity volumes displace the reduced cellulose specialty volumes. As a result, we estimate 2016 EBITDA to be $175 million to $190 million and free cash flow of $75 million to $85 million. Additionally, we expect to spend approximately $90 million of capital expenditures, which includes our last phase of spending to meet EPA Boiler MACT regulations. As depicted by the chart on slide 8, the impact of the lower prices equates to an approximately $50 million decline in EBITDA, while changes in volume and mix has an $18 million impact. In addition, estimated inflation of approximately 2% to 3% on our operating costs and the incremental cost of operating the new boilers required by the Boiler MACT regulation will have an additional $20 million negative impact. To partially offset these issues, we have implemented an initiative to improve cost by $25 million in 2016, which is year one of our three-year transformation initiative. This $25 million of cost savings will be in addition to the remaining $15 million of savings expected in 2016 from initiatives put in place in 2015. At this point, let me turn the call back over to Paul. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thank you, Frank. Turning over to slide 9, let me comment on market conditions and our strategic objectives. The industry has seen softness over the past couple of years due to increased capacity, coupled with lower-than-expected demand side growth. In ethers, growth from higher-value applications like food and pharma remains solid and we see some improved demand for plastering compounds and cement for construction. In engine filtration, sausage casings, and tire cord applications, our customers continue to see modest growth. In acetate, while we believe that the demand in sales acetate supply chain will return to flat or slight growth in the near future, it currently remains under pressure as a result of two critical issues we discussed in recent periods. First, inventory destocking. Inventories of acetate tow accumulated both in China and at global tobacco companies due to overproduction from new assets and accumulation of inventories in anticipation of then forecasted higher demand. We have commented beginning in late 2014 and through 2015 that destocking at all levels of the supply chain was underway and in our last analyst call in October, we said that we doubted the process was complete. Conversations with our customers since that time have led us to believe that the drawdown of this excess inventory by global tobacco companies is largely finished. But we expect to see more destocking in China throughout 2016. Therefore we expect demand for acetate tow to be below 2015 levels. Second, public policy changes in China along with general global smoking trends have led us to believe that we've entered into a period of flat global demand for cigarettes for the near term and therefore we anticipate a corresponding flat demand for acetate tow and pulp after the current destocking process is complete. In addition, the decline in global currencies against the dollar has improved our competitors' costs and thereby placing pressure on cellulose specialties price for 2016. As Frank noted, we expect 2016 prices to be down 6% to 7% on average with a more significant decline in acetate and less reductions in other segments. Looking forward to 2017, we have contractual commitments for the majority of our acetate volume and now have a better visibility into our 2017 acetate prices which we expect to be down approximately 2% from 2016 levels. On page 10, we lay out specifics for our major objectives for the coming period. First, we must continue to improve our cost and cash flow. In 2016, we will be expanding on the $40 million cost savings initiative that we completed in 2015. As Frank discussed, we expect to capture another $25 million of cost improvements in 2016. These 2016 savings are the start of our new three-year transformation initiative to put in place cost improvements totaling $75 million to $90 million by the end of 2018. Combined with the remaining $15 million of cost savings expected in 2016 from 2015 initiatives, we are targeting total run rate cost reductions of $90 million to $105 million for the three-year period between 2016 and 2018. And if you include the $35 million of cost savings achieved in 2015, the four-year period targeted cost improvement will approach $125 million to $140 million as shown on slide 11. This cost improvement initiative will also enhance our parallel objective of improving cash generation. We believe a focused cash generation effort will provide us with greater flexibility to invest in our business and pay down debt. The second part of our strategy is that we will continue to work on enhancing value for our current customers and engineering new products to extend our market reach. Many of these objectives are longer term in nature, and therefore, it is unlikely we will provide quarterly updates. However, our goal to have 20% of our revenues derive from new products within a decade, and we feel confident on achieving this target as well. Look, we're going to do everything in our power to transform our business and drive stockholder value. We set forth aggressive initiatives and have a management team with experience, expertise, and urgency required to achieve these results. Now, I'd like to open up the call for questions.

Thank you. We will now begin the question-and-answer session. Our first question is coming from Steve Chercover with D.A. Davidson. Your line is open. Steven Pierre Chercover - D. A. Davidson & Co.: Good morning, everyone. Paul G. Boynton - Chairman, President & Chief Executive Officer: Hey. Good morning, Steve. Steven Pierre Chercover - D. A. Davidson & Co.: So a couple quick questions. First of all, can you remind us what proportion within the specialty cellulose business is represented by acetate? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. I think we haven't updated that recently, but we've had it out there in the past, Steve, and I think it stays pretty consistent and I think it's right around that two-thirds level. Steven Pierre Chercover - D. A. Davidson & Co.: Okay. That's what I thought. So within 2015, the 7% decline, did acetate, viscose and ethers all kind of move by the same magnitude or did acetate underperform those other grades? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. So Steve, we've commented that the price decline for 2015 into 2016 is 6% to 7% on average. Acetate, being a little bit – we're soft in that so a little bit greater than the 6% to 7%. And everything else, slightly better than that. Steven Pierre Chercover - D. A. Davidson & Co.: And it seems like the other ones are firmer, so the world can change rapidly and we've seen that. But it looks like if acetate is the weakest of the three, then given your contracts, 2% is a pretty good number for 2017? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. I think your observation – first of all, yes, we think the other segments are, from our perspective anyway, a bit firmer than acetate. But that's also why we provided that guidance into 2017 since we have it with the majority of our volume in acetate being committed that we said, okay we can see some stabilization at least into the following year. So, we're pleased with that. Steven Pierre Chercover - D. A. Davidson & Co.: I'm glad you did that, because otherwise, the question would have been, okay, what about 2017? Okay, switching gears then, the cost initiatives on slide 11, so we've got $15 million in hand so to speak because they're really trailing from 2015. Does that mean that the range, I guess for the second bar in 2016 is $10 million to $25 million? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yes, Steve. This is Frank. We've got the improvements on the $50 million we put in place in 2015. We've got to stay after those throughout the entire year. So some of those are permanent, some of those we just have to monitor and stay after as we did last year on the $35 million cost save. The other $25 million – our target is clearly $25 million in cost savings. That's our internal target for this year. But we've put in a range of $25 million to $40 million on both of those bars combined. Steven Pierre Chercover - D. A. Davidson & Co.: But I recognize you are going to refine the future periods – it says that in the asterisk, but do you have more confidence in the $30 million and $35 million in 2017 and 2018? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: We have confidence that we're going to be after these cost savings initiatives in a hard way. So we worked very hard, both internally and using external resources to benchmark where we stand in regards to our cost and where we have opportunities to reduce those costs and we feel very good that we're going to go after that $75 million to $90 million number that we've put out there for the Street. Steven Pierre Chercover - D. A. Davidson & Co.: Great. Paul G. Boynton - Chairman, President & Chief Executive Officer: Yes, Steve. This is Paul. Just to add to that. That range is – a lot of it is as run rate, right, and what can actually be achieved this year and captured. And so, yeah, Frank's right. We're going to stay after it. We've got the target for 25%. The question is, of that, what's going to be in a run rate. Last year, if you remember, we indicated a range of $20 million to $40 million and the team did a great job and we pushed most of that through and had it actualized in 2015. Steven Pierre Chercover - D. A. Davidson & Co.: Okay. Two more quick ones and I'll get back in the queue. Within that $90 million CapEx budget, is the Borregaard project in there? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: The Borregaard project is not in the $90 million CapEx budget. Steven Pierre Chercover - D. A. Davidson & Co.: Okay. Thanks. And finally, using the midpoint of your free cash flow guidance, you've got a free cash flow yield better than 25%. So at what point can you maybe allocate a bit of free cash flow towards share repurchases? Are there some sort of covenant limitations? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: There are no covenant limitations. We discuss this with our board every quarter. Our focus is on deleveraging the company and investing in the assets that we have. You are correct. We've got – the midpoint of our cash flow is $80 million, and that includes after CapEx from Boiler MACT which is one-time and some one-time initiatives associated with the Jesup positioning. So our go forward CapEx is more in the $50 million to $60 million range on a maintenance basis. So that cash flow for this year is negatively impacted by both Boiler MACT and some of the repositioning activities that are going on in Jesup. Steven Pierre Chercover - D. A. Davidson & Co.: Yeah. Because I mean, your dividend is 4%, so there must be a point where after you've gotten rid of the higher coupon debt where the repos got to be compelling? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: We look at that with our board. Right now our focus is on reducing that leverage for the long term and then invest in our business and we'll consider other opportunities after those two priorities. Steven Pierre Chercover - D. A. Davidson & Co.: All right. Go get it. Thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks, Steve.

Thank you. Your next question comes from Chip Dillon with Vertical Research. You may now proceed.

Yes, good morning. First question is on the tax rate. I know in 2015, I think you said that there was some non-deductibility. So what should we expect for 2016 and maybe the years thereafter? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. I would look at 2016 in the statutory rate level the 34% to 35% rate, probably closer to the higher end of that one.

Okay. Got you. Okay, in 2016-2017, got you. And then, I might have missed this but I think on the third quarter call that you all said you had gotten $7 million in the cost saves and year-to-date was $21 million. And now you are saying that you got $35 million for the year. So that would imply, if my math is right that you had $14 million in the fourth quarter which, of course, if you annualize that, that's well over $50 million. Is that the right way to look at it? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Well, that's not the right way to look at it, Chip. What I would tell you is, we achieved $35 – we said we would do north of $30 million in cost savings on the last earnings call. We ended up generating $35 million of those savings that actually hit the P&L. The remainder of that we run rate at the $40 million level. So there is $5 million of that carrying over to the next year. But it's not correct just to annualize all of those savings.

Okay. Okay. I got you. And then you – I thought you mentioned that you have $90 million in CapEx, not counting Borregaard. I guess the first thing is, have you committed to the Borregaard project and when sort of – and how much are we talking there will you be investing off of your balance sheet? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: The Borregaard timing is, it's subject to final engineering and board approval midyear. So that decision will be made midyear. We did enter into definitive agreements, but that is something that both boards of both companies will need to look at from that perspective. In regards to the capital that comes off our balance sheet, we are still looking at other financing alternatives at the JV level and otherwise. So we haven't finalized what that potential number is off of our own balance sheet until we complete those other exercises.

Okay. So really nothing is committed till midyear. So that's kind of the way that stands right now? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: That is correct.

Okay. I got you. And then I guess my last one is on the volumes for next year. You are saying about two-thirds of your volume in specialties is acetate, and I would assume that if you say the majority was struck that maybe roughly half of your overall specialty volumes have been kind of – the price has been set for 2017, and so the other half is going to – I know the last question suggested that might not be as onerous, but the point being that about half is still out there. So, the price will be determined later? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah, I think that's fair math, Chip.

Okay. And then on the non-specialty sales, is it fair to say more than half of that continues to likely be in the absorbent area vis-à-vis the low-alpha grades? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. We haven't really give guidance on that. We didn't – and obviously in this call. I think it likely could be – end up that way. But we'll let you know as we kind of talk going forward. It is something that we move around all the time. As we look at pricing in the market, we look at our cost. We've got a great ability to take our C mill asset in Jesup and move that and flex that to the market. So we don't have that guidance out there, but as you know last year we reported that most of that – the majority of that was fluff. My guess is, it's going to move more towards viscose-type products in 2016, but I can't give you a final number saying that that's 50/50 or where that will end up at. And again, we've got a lot of flexibility and we're going to try and optimize and leverage that flexibility in the marketplace.

Okay. And I guess just to make sure I understand this. It sounds to me that if you take your free cash flow guide for the year, the $75 million to $85 million and let's say, you said, okay, well, let's take 20%, a mere 20% of that or $13 million. I mean, right now, you could retire 5% of your shares with just 20% of that and eliminate a dividend that, on a pre-tax basis, costs more than your debt. I mean, is there a price at which you will buy back your stock if it fall to $0.03 a share? I mean, at what point would you at least say, hey, maybe if you are not restricted, maybe it makes sense to buy-in all the shares and I'll keep the only one. But I'm being facetious when I say that way. But seriously, why not take a bite at it here, given that the dividend now costs more than your debt, just a little bit, or especially if your covenants are not restricting you from doing that. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. Chip, we review that every quarter with our board and it's something we will continue to review with our board on every quarter. It has not been a priority to-date, deleveraging and investing our assets have, but it's something we will continuously review with our board on each quarter.

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

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

Yeah. Thanks. Good morning. Paul, I wonder if you could just talk a little bit more, and without getting too specific, but just to give us, kind of what the tone of the conversations was on the acetate side with customers. I mean, obviously, you've locked in the customers and keeping the same structure of the business. Prices are coming down, kind of what we would have expected. But I just want to get a sense of what the real tone and relationship is between the customers and yourselves, as well as competitors from a competitive dynamic. Can you just give us some more color on that? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. Sure. I mean, we've got great relationships with our customers. Obviously, if you've seen some of them who've reported out there into the market, they are taking on this destocking head on as well. So, they got a lot of pressure in their business. And of course, that generates a lot of conversation with us and of the corresponding price decreases that we're facing with. But you know, it's a good dialog. We announced out there that we've anteed-up on two of our largest contracts extending into 2019. And again, I think that goes to the quality of the product we supply and the quality of the relationship we have. But I think any time you've got a business that's under pressure, you are going to feel that pressure coming back to us. And of course, we put that pressure back on some of our suppliers as well. Again, it doesn't mean a relationship's bad; it just means that's where we are in the current cycle of the business.

I mean, I guess, just to take it one step further though, if you think of that business over the next couple of years, clearly on the acetate side, I think you are as comfortable with – once a business does normalize let's say with the competitive landscape, i.e. percentage per the different suppliers, or do you think they want to start to change things if you look further out? Paul G. Boynton - Chairman, President & Chief Executive Officer: When you say change things, Bill, you mean in terms of their supply positions and where it comes from?

Exactly. Right. Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. I mean, I think they are always going to be asking us to deliver value to them. And we've got to make sure that our product is in line with the value equation out there. And so I think it's fair for them to ask that, as they have asked it the last couple of years and we're going to have to continue to respond that way. And so, I can't predict the future periods going forward. I think as long as we provide a value to the market and value to our customers, we'll have a nice position with them. And if we get that out of line, we'll get pressure to do something different.

Okay. Thanks. And then when we talk about the commodity side of the business, you obviously – production rates were much higher in the year. And I think for you it indicated on the commodity side production capacity of call it 245,000 tons, 250,000 tons. What's your expectation in 2016 of your production capabilities or volume capabilities? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. Bill, this is Frank. We believe this year we did 249,000 tons of commodity volume. We'll do in excess of the 249,000 tons next year is our current forecast. I'd just be – some of the 249,000, we actually had run some inventories up last year. So some of that volume that you see in sales was the drawdown of inventories if you look at year-end last year to year-end this year on some of that commodity volume. Additionally, we don't make commodity – we don't have the ability just to make commodity on one line. We have the ability to make commodity on all of our lines or several of our lines. So we can make viscose on a number of the lines as well. The last thing I'd tell you in regards the volume is that we've moved to an 18-month outage on Fernandina Beach, and so we have an extended outage beginning in the fall, roughly a little less than twice as long as typical. And so that will impact some of the overall volumes. And obviously, given cellulose specialty is fixed and commodity is the swing volume, that will impact some of the commodity volume production this coming year.

Okay. So, just to the outage, that's similar sized and scale to the one you had in, I guess it was Q2 2014 – or Q2 2015, I mean? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yes, but in the other facility.

Right. Okay. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: It will be roughly 30 days or so.

Okay. And then just with regards to the cost reduction program, as you look into the $25 million incremental in 2016, could you just give us a little bit more color on where you see the low hanging fruit on the cost takeout? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. I wish there was a lot of low hanging fruit, Bill, but we've got to roll up our sleeves. And again, just like the last cost savings initiatives, it's across the organization; it is in G&A, it is in the manufacturing assets, all of the levers that you think you could pull in the manufacturing assets. It's in supply chain. It's in procurement – wood procurement. So it is roughly spread relatively – I don't want to say evenly, but it's spread across all of the asset base and we're going after everything that we can get in the near term with also the focus on continuing to identify those cost savings initiatives that we're going to need to deliver 2007 (sic) [2017] and 2018 cost savings.

Excellent. And thanks. And, Frank, just a last question for you. Do you have a target for debt reduction in 2016 and in 2017? Like where do you want to get to, baseline? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. I haven't put out a target for debt reduction. As you know, we're forecasting $80 million in cash flow, and debt reduction is our number one priority, so it's going to be a significant portion of the cash flow will go to debt reduction.

Great. Thank you.

Thank you. Your next question will be Paul Quinn with RBC. Please go ahead.

Yeah. Thanks for – very much and good morning, guys. I'm confused a bit. Just on – Paul, you mentioned earlier that your proportion of acetate is two-thirds and I'm just trying to understand how that's moved so much since where you were previously were? I thought on the specialty side you were over 80% acetate. So is that two-thirds number that you are giving out, is that of your total production, i.e., of the 708,000 metric tons or is that of the 467,000 metric tons that you shipped in 2015? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. Thanks, Paul. Good clarification. It is of the total production.

Okay. So then of the CS volume that you've got, maybe you could give us an idea how that proportion breaks out, because you gave us some good detail about the end markets between acetate, ethers, and strength products. Maybe you could give us a percentage of what you produced in 2015 on that basis? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. We've got some of that in our past literature and perhaps you should update. It really hasn't changed too much in the mix over the last couple years. It may be a little bit more weighted to some of the non-acetate segments. But I think if you went out there and looked at our – what we have posted out there in terms of our analyst coverage, you've got on page 9 a breakdown of – sorry – we've got – I guess maybe I'm wrong on the page out there, but we've got some guidance out there on terms of how it breaks down over the different segments. I think the last one we gave an update out there was 2013. And we said last year that it really hasn't changed too much from that. And I think I just use that as guidance and if we think it's important, but that out again, we certainly will, but I think for right now, let's – it should be good enough guidance to help you understand where we're at in the different segments.

Okay. Great. That clarifies that. And just on the three-year cost initiatives, understand that you are looking at everything and uncovering every stone. But if you could parse out your power steam agreement at Fernandina Beach and what you expect to save over the next three years under that and what that breakdown is in 2016? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, I mean I think that's a really nice project for us. I think the savings there is relatively modest, but everything counts. I think we're going to look at probably $1 million to $2 million of opportunity out of that as we – I think, we reported that in the past. So that's where it sits. It's probably not a huge amount. I'm looking at Frank just to make sure I've got those numbers correct.

Okay. Paul G. Boynton - Chairman, President & Chief Executive Officer: So that's where it is, Paul, in that range.

Okay. So, $1 million or $2 million there. And then, just on your SG&A, just trying to understand – and markets haven't been great over the last year, a number of years. But if I look at that SG&A line, I'm at $36 million in 2013, $40 million in 2014 and $48 million last year. What's going on there and where do you expect that to be in 2016? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. You can't look historically at those numbers because they are based on carve-out accounting, Paul. So last year was $48 million. This year, we're forecasting $45 million. We'll try to get that inside of that if we can. And one of our cost cutting initiatives will be a continued focus on driving that G&A line down lower over time. But it's not – you just can't look because it's not comparable figures between 2013, 2014 and then, 2015. So, 2015's the only – the first full year that are actual costs.

Okay. And just last question I had was, I've been covering you guys for four years now and it seems like every year, we got to wait to the end of the year for pricing for the next year. But it is the first year you've given 2017 guidance of down 2%. Just – is the reason you're able to do that because of the contract extensions with Eastman and Nantong that have got pricing attached to 2017? And that's given you a level of confidence that you are giving us that 2% because...? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. Paul, I won't say specific to what customers, but certainly it is our contractual commitments that we have that for the first time we're able to provide that type of visibility into the following year. And we have typically not had that type of transparency available to us that we could give that out.

Any idea what 2018 looks like? Thanks very much, guys. Best of luck. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Thanks, Paul.

And your next question will be Roger Spitz with Bank of America Merrill Lynch. Please go ahead. Chris Ryan - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Hi. Yes. This is Chris Ryan sitting in for Roger. Thanks for taking my questions. My first question is, did you lose contractual volumes in 2016 versus 2015? Or is the cellulose specialties volume decline of 4% to 5% your expectation of industry volume decline? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: So, yeah. Our 4% to 5% guidance on volume decline is directly related to the destocking that we see out there in the marketplace. And so, if you look at what other – what manufacturers of acetate tow – so these are our customers or potential customers have already stated, they are talking about a pretty significant level of decline in their customer base of volume and that's just translating back to us. And so, that is across the board for our business, mostly, of course, out of acetate that you are seeing that kind of 4% to 5%. It's not one particular customer. It's across the board. And that's either reflected in contractual or otherwise. But that's – as it all adds up, it's 4% to 5%. Chris Ryan - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Thank you. And so the volume decline, do you believe that that's due to market share losses or do you think that's due to underlying industry demand decline? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. I think, it's underlying industry demand decline. Again, you've got one producer out there, he is already of – customer base type producer of acetate tow talking about – in China alone, they would typically import 120,000 tons of tow and they thought that – in past year 2015, that number was more like a 50,000 tons to 60,000 tons – and they thought that 2016, you could have another repeat of that. So that is just fundamental decline out there due to this destocking. And again, we think the underlying demand hopefully is flat to slightly above that in the coming period. But that's one-time destocking, although it's taking a couple years to make it happen. It's certainly out there, and that reflects back into not only in our customers' business, but our business as well. Chris Ryan - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. And for the 2016 cost savings, what is the 2016 cash cost to achieve the $25 million of the new cost savings initiatives and what do you expect to be the 2017 cash cost? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. We don't have – I don't think any of the 2016 initiatives have any material cash cost to achieve those as we've identified at this point. 2017 may include certain capital and some modest cash cost. But I think for the most part, the numbers that you see in 2016 are pure cash cost savings as we move forward here. Chris Ryan - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Thank you. That's all my questions. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks, Roger.

Thank you. Your next question will be George Staphos with Bank of America Merrill Lynch. You may proceed.

Hi, everyone. Good morning. Thanks for the details. Thanks for taking my questions. I guess the first question I had recognizing it's a little ways out, the 2% decline that you are forecasting for pricing in 2017, how certain are you in that number? Could that number change reasonably if you had a change in fundamentals either for the better or for the worse? Or do you feel pretty certain that that's the number for 2017 on acetate? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah, George. I think all we can say is, like given the fact that that is based on the majority of our volume in the acetate segment that is under contract, we feel that that 2% is pretty stable. Obviously it can move from that with the minority of that volume still out there, but we feel pretty good that that 2% is a pretty viable anchor point.

Okay. So definitely if on one side, either yourselves or your customers might have more leverage because of market fundamentals, nonetheless the way the contracts are struck, that number is the number for what's under contract? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. I feel good that that number is the number for what's under contract, yes.

Okay. Now, if we move to destocking, you are obviously in a period where prices are declining , that kind of environment is typically associated with declining volumes, not increasing volumes. So how comfortable are you that, again, the destocking has more or less reached its maximum in light of, again, the pricing backdrop for this year? And what one or two reasons would you relay to us in terms of why that's the case? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. I mean, I think, again, the destocking is ongoing. We, at one time, thought it would run its course through 2015. At the end in our last call, we said, you know what, we are doubtful that has happened. We talk to, of course our customers. We talk to tobacco companies. And I think the consistent perspective out there is that the global tobacco companies have largely depleted their inventories and they are more in steady state now. But we do believe, and we think this is a consistent perspective from our customers that there is more to be done in China and we believe it's probably another repeat of 2015 amounts of destocking. And our thought right now is that it should play out through the course of 2016. We'll keep you updated as we learn more and have better visibility, but that's the best perspective we have right now.

Paul, is there a way to size the amount to be further eliminated our of stocks in China for 2016? Paul G. Boynton - Chairman, President & Chief Executive Officer: Yeah. And I gave the numbers just a minute ago. And I'll repeat them from what one acetate producer has said out there, and we don't have any reason to think that our perspective is any different than that. In past periods, China has imported 100,000 tons to 120,000 tons of acetate tow. This producer said they thought last year that was more in line with 50,000 tons to 60,000 tons and they think that that could be a similar type of level. So in the terms of tow range, that's anywhere – as you can do the math is 50,000 tons to 70,000 tons, in kind of that order of tow. And that would translate back to us – two-thirds of that would be roughly in pulp terms. So you can see that kind of magnitude. We've guided – this year, we think our volumes are going to be down in the 20,000 ton range. That 4% to 5% translates to that. So you can see where our key component of that, but there's much more out there. And I think it's affecting and will affect everybody in the marketplace.

That's helpful, Paul. If you had mentioned that earlier, I had missed it. Now, on the cost saves, the $25 million to $40 million target broadly for 2016, is there a volume environment that would make that number much more certain – and really where I'm going is, is there a volume environment where – we get it; you take out fixed cost, if you're not selling as much as you thought you don't get the benefit of that lower unit cost, where you would start to risk even the low end of that figure or do you feel pretty comfortable on the $25 million for 2016? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. I think we – we've put this in $25 million to $40 million. We're fully targeted and have identified the $25 million that we're going after. It's not volume dependent in going after that $25 million per se. Obviously, operating efficiencies do play into that. So the more we make, the more we lower the overall fixed cost per ton. But again, that swing tons that we're making are going into either commodity viscose or into absorbent material. So we believe that those markets are there and available to take whatever we make, given how small a player we are in those overall markets.

That's fair, Frank. I guess one question related to that. You or Paul mentioned that you are beginning to see the benefits of the Jesup realignment. Could you provide a little more granularity on what you meant by that? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: We gained a very little bit of the targeted save, so call it roughly $1 million to $2 million of the targeted save in the Jesup realignment. So just very, very little, but we've started to put in place a number of those initiatives and so we feel pretty good that a big chunk of that run rate should start to flow through that next year. And remember, a lot of that is, as we replace the C machine, some of that is being able to run at higher volume levels. So, there is some efficiencies there. There is also other asset realignments within Jesup that also contribute significantly to that cost savings initiative. So the way I put it before, George, was $5 million run rate on our current $40 million cost save and then $10 million incremental. Most of that predominantly is related to Jesup and the asset repositionings we are doing there.

Okay. Thanks for that. My last two and I'll turn it over. On free cash flow, so we have the EBITDA guidance that you're targeting. We know the capital spending target right now. I assume that interest expense will be more or less in line with this year, probably down a bit as you are paying down debt. Can you help us bridge from the EBITDA to your free cash flow guidance? Are there any other significant puts or takes in cash flow that we should be mindful of? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Working capital, we...

Because I'm winding up more around $50 million right now. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah, working capital, we're very focused on working capital and driving working capital efficiencies in our business. That's the biggest chunk.

Okay. And the question was asked earlier in terms of capital allocation broadly. So to the extent that debt is the superior decision right now from your standpoint, from the board's standpoint relative to reducing your stock outstanding, is it more a function of, you're trying to build in some shock absorber because of the uncertainty in the volume and macro environment that's causing you to maybe not buy back as much stock as people would like? Or is it that there are other cash costs that you know are associated with the restructuring and the realignment, even though 2016 doesn't sound like you have much in the way of that, that is going to be a cash call that we aren't necessarily thinking about or seeing from where we sit here today? Thanks, guys. I'll turn it over from that. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. George, I think it's two things. First is, the markets have remained uncertain. We've been saying this for the last year. And given that level of uncertainty, we want to make sure that we have a very flexible capital structure. And we came out with significant amount of debt. We've worked hard to get that down, and we're going to continue to do that. We want to make sure we stayed levered in the low 3s at this point. I think long term, our goal is below that to create some financial flexibility to allow us to do other things like repurchase and the like. But right now, it really is all about building enough flexibility to take advantage and protect the asset base that we have.

If you had to do it all over again, would you come out maybe a little bit less debt or you think that was the right structure going forward? I'll stop there. Thanks, guys. Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: Yeah. George, I think we would have come out with less debt had we had a crystal ball and known what the outlook would be on pricing for the last several years.

All right. Thank you. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks, George.

Thank you. Your next question is Roger Spitz with Bank of America Merrill Lynch. Please go ahead. Chris Ryan - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Hi. Thank you. Yes, this is Chris Ryan sitting in for Roger again. I just had a few follow-up questions. For non-cellulose specialties, do you have any outlook on 2016 prices? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: For non-cellulose. Chris, no, I think and – because we can flex that line between fluff type products and viscose products and they have very different pricing associated with them, it's really going to be very mix-dependent on what that net combined price looks like. So, no. Now, we have talked in the past that there are incremental capacity coming into the fluff space, and with that, we would think that would pressure fluff prices a bit in 2016. We haven't quantified that, but that was kind of our perspective. We also commented in the past that viscose prices through 2015 had increased, but we saw at the very end of the year that it gave a little bit of that back, but we don't have any guidance on what that looks like. There's a lot of folks out there and project that, but we don't have anything out there that we'd say – and again, we're going to flex our asset to make sure we just get the best return from either of those two product lines. Chris Ryan - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Got it. Okay. So the 2017 cellulose specialties pricing that's from your contractually committed acetate volumes. Can I assume 2016 is the same? That's from your contractual changes? Paul G. Boynton - Chairman, President & Chief Executive Officer: So, yeah. 2016 is across the board all cellulose specialties. The comments we've made on 2017 was from specifically contracted acetate volume which happens to be the majority of our acetate volume. Chris Ryan - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Thank you. And last one is just do you have any 2017 CapEx guidance? Frank A. Ruperto - Chief Financial Officer & SVP-Finance and Strategy: We have not given out CapEx. But what we have said is, after this year with the larger CapEx spend at $90 million, we'd typically be more in that $50 million to $60 million range on a maintenance basis. Chris Ryan - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Thank you. That's all my questions. Paul G. Boynton - Chairman, President & Chief Executive Officer: Thanks, Chris.

Thank you, participants. One moment for the next question. One moment for the next question. Paul G. Boynton - Chairman, President & Chief Executive Officer: Well, operator, if there's no more questions, why don't I go ahead and just wrap this up and thank everybody for joining us today. In summary, we're pleased with the steady progress we've made against the goals we shared with you at the beginning of the year. The team's done a great job. 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, security of supply, and thereby, enable us to drive long term value for our stockholders. Thank you for your time today and have a good day.

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation. You may now disconnect.