Bill McCarthy - Vice President, Investor Relations John O’Donnell - Chief Executive Officer Bonnie Lind - Chief Financial Officer.

Jon Tanwanteng - CJS Securities Steve Chercover - Davidson Dan Jacome - Sidoti & Company.

Good morning and welcome to the Neenah Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Bill McCarthy, Vice President, Investor Relations. Please go ahead..

Thank you. On the call with me this morning are John O’Donnell, Chief Executive Officer and Bonnie Lind, Chief Financial Officer. After our prepared remarks covering quarterly financial results and progress against key initiatives, we will open up the call for questions.

We released earnings yesterday afternoon reporting quarterly revenue of $256 million, up 5%. This reflected 10% growth in Technical Products, including acquired sales and Fine Paper and Packaging revenues that were in line with last year.

Both segments benefited from increased selling prices and Technical Products also reflected volume growth and a higher value mix. Earnings were down significantly in the quarter primarily due to higher manufacturing costs including costs related to additional downtime. GAAP earnings per share of $0.75 compared to $1.10 in the prior year.

These figures included net added costs of $0.01 per share in 2018 for additional impairment and restructuring charges that were mostly offset by a favorable adjustment related to the Coldenhove acquisition. In 2017, there was a net benefit of $0.08 per share largely for an insurance settlement.

Excluding these items, adjusted earnings per share were $0.76 in 2018 and $1.02 in 2017. Further detail on adjusting items along with reconciliation to comparable GAAP figures can be found in our press release. Finally, I will note that our comments today include forward-looking statements.

Actual results could differ from these statements due to uncertainties and risks outlined on our website and SEC filings. With that, I’ll turn things over to John O’Donnell..

Good morning, everyone. While I typically start my comments with sales and work my way down the P&L, costs clearly were the challenge this quarter, so I thought I would start here.

As most of you know, the third quarter for Neenah includes a predominance of our planned maintenance downs and also marks the start of a seasonally slower second half of the year.

Results were further impacted by $6 million of unusually high manufacturing costs in the quarter resulting from additional downtime and related operational inefficiencies and incremental spend. Of this $6 million, $4 million was due to one-time events.

This included $2 million for environmental maintenance work required every 3 to 4 years at one of our German facilities, another $2 million to manage global inventories primarily in filtration, we overbuilt our safety stock of Germany to ensure a smooth transition of grades to our US facility, and the remaining $2 million of higher cost resulted from operational inefficiencies in the quarter.

At the same time, we continue to experience a challenging inflationary cost environment for commodity raw materials compounded by large increases in freight rates.

Our teams have taken action to address these higher costs through selling price initiatives intended to offset raw material inflation, changes to our distribution policies and practices to mitigate higher freight rates, a heightened focus on improving our manufacturing performance especially in Technical Products where the largest variance was felt in the quarter, and longer term activities like optimizing our asset footprint and increasing filtration sales and operating efficiencies.

I will talk about these efforts later in the call. Our profits were negatively impacted in the quarter. Our top line grew 5% and reflected solid growth in our targeted markets of transportation filtration, premium packaging, and digital transfer media including sales from the Coldenhove acquisition.

In transportation filtration, our growth of 6% outpaced the market and we continue to ramp up our sales in North America. 2018 revenues from our Appleton plant are still projected to be in the $15 million to $20 million range we previously communicated. Customer support remained strong and next year we expect to more than double sales with U.S.

customers continuing to view Neenah as a qualified supplier and work with us on additional projects and opportunities that support our investment. Although our top line is on track, as mentioned on our last call, profitability and cost at Appleton have been depressed by suboptimal run sizes in numerous customer trials.

While trials have represented only 5% of production volume, they have accounted for more than 30% of our waste costs.

With focused improvement efforts by our ops team on increasing number of qualified grades and projected increases in demand, we expect to see meaningful progress as our utilization improves next year and each year thereafter as we ramp up to our total installed capacity.

Premium packaging also continues to be a very important source of growth as we transform Fine Paper and Packaging into an organically growing segment. We’ve successfully grown premium labels, folding board, and paper gift cards with well-known customers like Starbucks and Amazon.

Through September, premium packaging sales are up 11% and we expect 2018 to be our seventh consecutive year of double-digit packaging growth.

Finally, we just celebrated the November 1 anniversary of the Coldenhove acquisition and we’re very pleased with the expanded presence it’s given us in a fast-growing $200 million market for digital transfer media. Sales and profits from these acquisitions are well ahead of our original projections and providing us with an attractive return.

We continue to expand our customer portfolio and geographic reach as we execute our strategies and explore opportunities to grow in this category. To wrap up my initial comments, while we’re working through significant near-term cost challenges magnified by unusually high input cost inflation, our competitive positions remain sound.

We’re growing in targeted markets and our teams are diligently focused on restoring margins as we increase profit. More about this later, but I’ll turn things over to Bonnie to cover financial results for the quarter in detail..

Thank you, John and good morning everyone. We noted at the start of the call some of the unusual items included in the third quarter earnings, which on a pretax basis were a net cost of $700,000 in 2018 and a net gain of $2.3 million last year.

These adjusting items were allocated to segments and details are shown in our press release, so I will focus on adjusted results as I go through each of the segments and I’ll start with Technical Products. Sales of $138 million were up 10%.

In addition to acquired volume, this reflected solid organic growth in transportation filtration and labels, partly offset by lower sales in backings and other products. Revenues also benefited across most categories from higher selling prices and the higher value mix of products sold.

Technical Products adjusted operating income of $8.3 million was down $7 million from a year ago. As John mentioned earlier, we had about $6 million of increased manufacturing costs mostly related to added downtime and these costs were almost all in Technical Products.

In addition, we had almost $3 million of unrecovered input cost in the quarter that was only partially offset by improved mix and volume. We tend to have more of a lag in recovering input cost in Technical Products due to the structure of our customer pricing and John will talk about our ongoing price realization efforts later in the call.

Turning next to Fine Paper and Packaging, revenues of $113 million were about equal to last year. Increased selling prices, growth in premium packaging largely offset a decline in commercial print volumes and a lower value mix.

Premium packaging sales rose 6%, lower than our run rate due to timing of orders, but we remain on track for another full year of double-digit growth. Adjusted operating income of $13.2 million was down from $14.9 million last year. This was due mostly to higher manufacturing and freight costs and a lower value mix.

As is typical, the majority of our planned maintenance downtime occurred in the third quarter of both years. Turning to SG&A, on a consolidated basis, third quarter SG&A expense was $23.6 million, which is up from $21.3 million last year. This increase was primarily due to SG&A acquired with Coldenhove.

Adjusted unallocated corporate SG&A of $4.3 million was up from $3.7 million in the prior year. SG&A is below our guidance and prior run rates partly due to a reduction in the amount of incentive accruals in the quarter. Quarterly interest expense was $3.2 million in both years.

Incremental borrowings to finance last year’s acquisition were offset by lower interest rates as we changed our short-term debt composition to take advantage of lower borrowing rates in Germany. We benefited from a low tax rate this quarter due to the reduced U.S. statutory rate that took effect in January as well as initiatives we recently completed.

These included a study of our R&D activities, which allowed us to increase the amount of foreign tax credits available and accelerated pension contributions that allowed us to benefit from a larger deduction related to our 2017 tax return.

On an ongoing basis, we now expect our corporate rate to be 22%, this is down slightly from our prior guidance of 23%. Our cash tax rate should remain under 10% for the next couple of years as we consume prior period R&D credits. Following this, our cash tax rate will start to converge with our book rate.

We accelerated about $6 million of planned 2019 pension contributions in the quarter to generate the incremental tax savings that I mentioned above and overall, our post-employment benefits remain in great shape.

We expect total cash outlays to be around $23 million this year, up from $17 million previously communicated and in 2019, cash needs will drop back down by $6 million. Cash payments and contributions in 2018 are expected to exceed expense by about $11 million.

Turning next to cash flows, cash from ops was $24 million, that’s down from $36 million last year. About half of the decrease was due to the higher pension contribution with the remainder resulting from lower operating earnings that was partly offset by increased cash generated from working capital.

Capital spending was $12 million in the quarter, up from $8 million last year. The increase largely related to additional work during the maintenance down. Year-to-date capital spending is $28 million and we expect full-year spending of around $40 million right in the middle of our targeted range of $3 million to $5 million or 3% or 5% of sales.

Moving to our balance sheet, debt declined $4 million in the quarter to $250 million as we use available cash to pay down short-term borrowings. Our debt is made up of $175 million of U.S. bonds due in 2021 and $75 million of other low cost borrowing primarily against our global revolver.

We have a strong balance sheet and substantial available borrowing capacity which will continue to allow us to take advantage of attractive investment opportunities as they arise.

I’ll close by saying, while the third quarter was challenging, Neenah remains strong financially with businesses that generate meaningful cash flows, a conservative balance sheet, and a disciplined and successful approach to deploying capital to deliver added value. With that, I will turn it back to you, John..

Thank you, Bonnie. I will finish up with a few comments on the external environment and actions we are taking to address some of the current challenges. Most economies generally remain on sound footing although we are starting to sense more uncertainty in global demand with changes in duties and tariffs.

While customers may rebalance their inventories or order patterns during this time, our sales from the United States to China are not large as we have a global asset base. From a supplier perspective, our purchasing team has secured alternative vendors for affected inputs.

So at this point, we don’t expect significant impacts from proposed tariffs and I will update you if our outlook changes. From a currency perspective, while we have had a slight tailwind for the first half of the year as the dollar has strengthened, this has now turned around. In the third quarter, the euro is at $1.16 was about on par with last year.

Recent exchange rates are about $0.05 below prior year and would result in a negative fourth quarter impact of $2.5 million in sales and $0.5 million of EBIT. As a reminder, our Technical Products business is impacted by seasonality and second half demand is typically 8% to 10% lower than the first half.

The fourth quarter is usually our weakest quarter as customers manage year-end inventories. Last year, the seasonality was partially masked by the Coldenhove acquisition. As in the past, we will take a planned holiday downtime in the fourth quarter to align production with customer demand and manage our inventory levels.

So while there should be some improved efficiency with less planned downtime for maintenance versus the third quarter, the fourth quarter will still be negatively impacted by normal holiday downtime.

The biggest issue for many manufacturing companies this year including us has been the steep and prolonged rise in commodity prices which continues through today. In August, we indicated input costs would be up $24 million for this year with $14 million of that in the second half. We now expect the full year impact to be closer to $30 million.

This added $6 million headwind mostly occurring in the fourth quarter. We are actively addressing this cost inflation through pricing activities and other means. In Fine Paper and Packaging, most businesses sold via distributor pricing.

Consequently, we are able to implement increases more quickly in this business while being aware of potential trade-offs between price increase and volume loss due to the down-trading. We recently implemented a third increase on certain grades that will take effect in the fourth quarter.

As you would expect, we have generally been able to recover a higher percent of cost inflation in this segment within a quarter or two of experiencing it. In Technical Products, about 15% of this business has quarterly contractual adjusters with the other 85% of pricing discussions occurring on a customer-by-customer basis.

In performance materials, our pricing activities are ongoing. However, filtration pricing agreements are typically set annually with the largest change occurring in the first quarter of each year. Consequently, our ability to recover cost increases in Technical Products lags in years when costs are rising.

Our historical performance has proven that both businesses have the market strength to overcome rising input costs over time. Given the unprecedented rate of increase this year and the laggy nature of our customer contracts, it will take longer to overcome recent increases.

We still expect enough pricing to offset more than 75% of input cost increases in 2018, which suggest that our pricing efforts will clearly continue into 2019. I’d be remiss if I didn’t also emphasize the work our teams are doing to address costs.

While we expect improvements each year, we’re redoubling our efforts to drive cost reductions through improvements to our process both capital and non-capital and with larger initiatives like optimizing our footprint through the divestiture of the Brattleboro mill.

In May, we announced plans to sell this facility and worked actively to do so, but did not receive an acceptable offer. After reviewing alternatives, we decided in late October, that the best economic decision was to close the facility as it’s continued to negatively impact our financial results.

As you might imagine, the closure announcement generated additional interest mostly from companies interested in salvage of the assets.

While we remain open to the possibility of a sale unless we obtain an acceptable binding agreement quickly, we expect to satisfy the outstanding customer demand that we have on our order books and then close the facility by year end. We expect that such a closure will be modestly cash positive.

Without Brattleboro, our sales will be reduced around $30 million, but will contribute to improved operating income especially for Fine Paper and Packaging.

While this will be addition through subtraction, our focus has been on seeking acquisitions that can add value and help change our growth trajectory as we evolve into a faster growing and more profitable specialty materials company. Our balance sheet remains strong and allows us to act on attractive opportunities as they arise.

Yet we would remain cautious as valuations have been a bit steep. To wrap up, 2018 has been a difficult year with unprecedented increases in input and freight costs as well as operational challenges in the most recent quarter.

Our teams are actively addressing these issues and while their efforts are not yet reflected in near-term results, we are operating Neenah with a longer term definition of success.

As a company, our financial and market positions remain strong, our strategy is sound and our resolve to make the right long-term decisions that deliver value for our shareholders unwavering. Thanks for your time and we will now open up the call for your questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jon Tanwanteng with CJS Securities. Please go ahead..

Good morning. Thanks for taking my questions. Can you talk about the growth in the filtration and the premium packaging businesses? It seems to have slowed a little bit from the recent run-rates.

Is that just timing, normal variance or is something bigger going on?.

Yes. I will start with the filtration. It’s usually front-end loaded, more seasonal from that standpoint. So I think we are pleased with our current filtration growth. As we get towards the end of the year, there are lot of customers that continue to manage their inventory.

So I think that’s more timing related, up 6% is in the realm of where we would see that business. Packaging that’s really all timing I mentioned in our remarks that this will be our seventh year of double-digit packaging growth we are up on a year-to-date basis so timing of orders really affected the quarter.

I think Bonnie said 6% increase in the quarter we fully expect to exit 2018 with double-digit packaging growth so I believe that is it’s still healthy as well so, no real concerns on my part in regards to either of those growth categories..

Got it, that’s helpful.

And then Bonnie, I think either you or John mentioned, $2 million operational inefficiencies in the business what was that freight or production or something else, just a little more color there, please?.

Yes, I think it’s an easy assumption that if it’s not a positive thing I mentioned it, Jon so manufacturing inefficiencies, when we take majority of our downs at our facilities, there’s a lot of moving parts when we’re taking assets down and bringing assets up and so a good share of that really is happening just the fact that we’re a manufacturing company and we did not deliver on the downs to the level that we would like to see freight is something that’s completely different we talked about that on previous calls, but I think I mentioned in the past is that we had about a $2 million a quarter impact on freight that we’ve been able to offset anywhere from $0.5 million to $1 million of that each quarter so we’re still going to feel an ongoing $1 million to $1.5 million in freight in our Fine Paper business and that’s kind of doled adding that to the input cost has kind of doled the Fine Paper margins, but they’re working hard to find the cost reduction efforts because we believe that’s going to be a sustained cost for us long-term..

Okay, great and then finally, can you just give us a little more color on where you are in M&A? How does the pipeline look I know you mentioned valuations are a bit challenging, but they seem to have come in across the markets and it’s been a year since Coldenhove just what’s your level of activity there and are opportunities improving?.

I guess the best way to characterize it and say that, we haven’t seen the cadence of opportunities diminish significantly what we have seen is the owners are having a really good strategic fit for the premium that the companies appear to be going after from that standpoint so I think if you followed us for a long time, you know we’re probably a little more conservative there we do have a cadence of and a track record of acquisitions and we’ll continue to rely on that to change the growth trajectory of the company, but we don’t have an appetite of at acquisition at all costs just from a quarterly update, there is nothing new to announce this quarter as a result of that you know how this works, they all seem to show up on the bus together and recall the opportunities, but it’s still very important for us that process is it is separate from our managing and operating the business so it’s alive and well, Jon..

Okay great I will jump back in queue thank you..

Okay sure..

Our next question comes from Steve Chercover with Davidson. Please go ahead..

Thank you and good afternoon..

Hi Steve..

My first question is on the incremental $6 million in the input costs that you’ve encountered since August is it fiber or chemicals, can you give us a little color on what it is?.

Predominantly fiber we do have a rise in commodity costs, I think that’s the way I described it, but it’s predominantly fiber from that standpoint impacting the back half of the year from I think we updated in August, so that’s what it is..

So basicaly pulp got it..

Right, right and one of the things I mentioned in the call, I don’t want it to get lost in its subtlety is most of the pricing, annual pricing discussions happen in the very early part of the year and if you remember the early part end of last year and the early part of this year, the pulp increases weren’t nearly as significant of an impact for our Technical Products business so they’re just now lapping the opportunities to address that with customers and just to add more color to that, of the $30 million we are expecting this year, $20 million of it is going to be impacting the back half of our year this year so there’s a lot of market pricing activity and efforts underway, but what I think makes us unique is that we feel very comfortable, we can overcome input cost increases over time and have the market strength to do it so that work is underway..

Well, I think the pulp markets have surprised people with just how strong and resilient they are, but if they should reverse course next year, does that undermine your ability to pass through this year’s inflation?.

No, since typically in prices, we lag okay so I think by just that clear fact customers recognize that we’re taking the margin compression first and then they’re going to participate in that if in fact, if it drops in the first quarter, those conversations will sure be a lot harder I don’t anticipate that, but I’ve told you, I’m out of the pulp predicting business now, I think people recognize that since we lag once pulp starts to drop, then we should be able to finally recover all of that in pricing..

Yes, Steve, the ones we don’t get are the ones that run up in a quarter and then run back down so, like we had natural gas distribution issue one time and it was like $7 million higher in the quarter we didn’t get that, but then it went right away..

That’s a good nook the slope is steep, but it’s still fairly long and then, as a reminder, on the Fine Paper side, we’ve demonstrated sticky pricing, so we should over some semblance of time there, different from Tech Products, which again is customer-by-customer negotiation..

Well, you’re fortunate that you don’t have to feed your family by predicting pulp..

I’m fortunate my family is now out of the house and can feed themselves exactly right, you see me do this and you know how good I’m not..

Well, I mean, yes, I still have to, it’s a bummer let’s switch gears a bit if I could I think this is the first time I’ve heard you use the phrase manage global inventories so, did you overproduce in certain geographies or does it speak to slowing economic activity somewhere on the planet?.

So, the first place I went to is look at my filtration growth rate this is really around the filtration and it’s still hung in there at 6 so I mean the feel pretty decent about the market demand piece of it and yes, I think I’ve talked about the challenges I’ve had at Appleton, getting good qualification, and for years we have absolutely run every moment we could in our single facility in fact to the point where we were having trouble satisfying customer demand so we didn’t back that down until we were sure that we had the global demand address so that’s really what the third quarter uniquely held and that’s the first time we’ve talked about it because it’s really the first time we did it we always have the holiday downtime at the end of the year from that so I don’t see a filtration demand challenge on that piece at all..

With 6% growth, you still believe that you’re outpacing the market is that correct?.

Yes, we view this market as a 4% growth rate we have been higher than that at certain times, but 6% is a very acceptable growth rate what we said when we built the facility that it would support a 7% growth rate for 5 years so we remind people that was the runway we were looking for that doesn’t preclude us Steve and I am volunteering something here that you’re not asking me, but there are categories as we look I mentioned the tariffs, which I don’t really believe are going to be a financial impact to us today that I can quantify for you because we’re working on everything we can to minimize those, but they do have our customers really thinking hard about where they source products and so products that have more interchangeability and I’d look for my performance materials in the backings categories, those type of products, they can be a jump ball in this time of a lot of change..

Okay can you speak to the overall growth rate in Technical Products? I mean, absent Coldenhove, what was the organic growth?.

Yes, so organic in tech on a year-to-date, I think we’re up a couple of percentage points, okay, organically you can imagine that’s all predominantly driven by the filtration business itself.

So that’s what I’m referencing in some of the backings business has been more of a challenge from the volume the quarter was virtually no organic growth rate in the quarter..

Okay and then 2 more from me can you discuss what it is that you consider to be an attractive investment opportunity?.

I wish that had a single answer it is one that we feel very comfortable that the assumptions we have to make as we are looking at a business that we can truly add value by being the owner for that business, okay, not just paying for a business to get larger and so we’re really looking for strategic fit and ideally one would be, they could give us an entry into a category that through our organic investments or combinations with our other businesses gives us the chance to exponentially grow our business that’s why we liked Coldenhove we had a heat transfer business with their digital products, their emphasis in Europe, our emphasis in the U.S., if really we could uniquely do something to drive value other than just be pay somebody a premium and be the owner of that business so it’s unique to each opportunity that we have that’s why we take a really tough look at every opportunity we have, challenging the fact of how could we potentially add value in either geography the product, the technology or with the customers those are the areas that we put our energy..

Okay and my last question was about Brattleboro was it due diligence that prompted the revised offer or was it posturing, what do you think happened to the buyer to go away?.

I can’t always understand rationale from the people I love, let alone the people I negotiate with so I don’t know what drove the change I can just tell you that there was, I mean what they were offering was not an acceptable offer for us and then it was getting magnified by pulp and that scares people that are in that business are worried that they don’t have the defensibility and that was one of the reasons why this was on our list of assets to look hard at so I think that might have been the thing that pushed it over, a never-ending rising pulp environment, but either way, however, they got there, what our expectation is, we’re going to deliver the value that we talked about on the last call, we’ve communicated with our customers and if somebody in this short time period still believe that they can get more value from the facility by offering us a higher amount, we still talk with others, we’ll take advantage of that, but otherwise, to our customers, we’re going to satisfy the orders we have with them and transition from this facility by the end of the year either way, either through divestiture or through closure..

Okay, well, Bill, keep your cell phone charged. Thank you..

Our next question comes from Dan Jacome with Sidoti & Company. Please go ahead..

Hi good morning a couple of questions John, if I heard you correctly, I think you mentioned that you’re beginning to look at alternative vendors on the input side and if that’s so just very high level, how long do you think it will take you guys to scan the entire input vendor horizon and what you’re generally going to be looking for there?.

Yes, I might have thrown too much hope out there for you Dan so what I was saying is I think in previous calls, I might have said that the tariff impact might be $3 million to $4 million and when we looked at how we were sourcing our products, there was a more meaningful tariff impact our groups worked really, really hard to make sure that we’ve got alternate sources of fiber that will fit inside of there so what our goal of success was how do we deal with input cost, how do we make them indifferent to the tariff movements that we have underway so, it really was more of a successful purchasing organization initiative than it was changing anything around fiber..

Alright, so one-off okay, that helps.

And then let’s turn to logistics, freight rates, you talked about that I think on the last call you said you were working to just rework how the pooled trucks are operating, what percent are having surcharge headwinds, how much dead-weight you’re seeing on those trucks I mean any update there? What progress you’re making? How long that’s going to take? I think this is obviously another concern among investors..

Sure. That’s a fair one too.

When we initially I think at the peak of the freight issue, we were estimating about $8 million, I might have said that in previous call, about $8 million of costs as a result of the freight increases since then, we’ve been able to, as you highlighted change pooled trucks optimize lanes, even work with the customers who might be more indifferent on pickups to minimize our overall freight expense I mentioned on an earlier question that we are now about between $1 million and $1.5 million a quarter so we’re now between $4 million and $6 million a year, down from that $8 million and that’s probably going to be ongoing expense in the freight line that we’re going to need to continue to work through somewhere else on the P&L to offset..

Okay, so this will continue in 2019?.

Yes, that freight expense is going to continue in 2019 the team’s efforts to continue to minimize it will keep going, but I think they’ve really addressed some of the bigger things I highlighted on earlier calls..

Okay. And then, let’s see here so you’re cycling the Coldenhove, again high level, what are the sort of greatest the lessons learned so far you think for your enterprise as a whole, the challenges and then maybe surprise a tailwind..

On the Coldenhove?.

Yes..

Okay I think couple of the lessons learned that talent and culture is critically important for a fit we hit it out of the park there with this group they have been an absolutely great fit for us one of the changes that we made as we negotiated our way through that is that people have different perspectives of future value and there was a significant perspective that there was going to be a lot more growth from their standpoint than what we had seen in the marketplace so we did not build that into our valuation, we pulled that aside and we really structured an earnout that would pay for itself if they achieve that growth that they had, it easily added value to us in our acquisition as you would imagine, it wasn’t as high as they said, it wasn’t as low as we said from that piece of it, but we structured it in a way that shareholders would not be impacted by an unknown forecast that was a good learning I think from our standpoint as well..

Okay.

Right now, sounds like a good recipe okay then lastly housekeeping maybe too early to talk about 2019 CapEx, but historically, 3% to 5% as Bonnie mentioned for next year, just for modeling purposes, do you think more likely to be in the middle or at the high-end of that perhaps?.

Yes, I think using 3% to 5% is at the still very good for us what we are trying to do is work on the mix underneath it, continuing to press on low returning sustaining required capital and pushing more and more towards cost reduction to address some of these issues that we’ve talked about here if we end up on the high side, it’s because it’s returning this is a reminder, roughly $17 million to $20 million of it is required spending to take care of the assets all the rest of that is returning spend that we get better than a 20 IRR on so you’d love it if I can keep spending on the higher end because that’s really good for what’s providing the returns, but 3% to 5% is still a great target to have in there..

Okay if my math is right, your maintenance CapEx is under a little bit under 3% of sales in a normalized scenario?.

Right..

Alright, good. Helpful. Thank you very much..

Thank you..

This concludes our question-and-answer session I would like to turn the conference back over to Bill McCarthy for any closing remarks..

I’d like to thank everyone for your interest today. Please feel free to contact me if you have any further questions and I’d note that we’ll be attending the Baird Global Industrial Conference tomorrow in Chicago. Thanks again..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..