Welcome to SWM's Second Quarter 2013 Earnings Conference Call. Hosting the call today from SWM is Frédéric Villoutreix, Chief Executive Officer. He is joined by Jeff Cook, Executive Vice President, Chief Financial Officer and Treasurer; and Mark Chekanow, Director of Investor Relations. Today's call is being recorded and will be available for replay beginning at noon, Eastern Standard Time. The dial-in for the replay is 1 (800) 585-8367, and enter pin number 16707638. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Chekanow. Sir, you may begin.

Thank you, Lori. Good morning, I am Mark Chekanow, Director of Investor Relations at SWM. Thank you for joining us to discuss SWM's second quarter 2013 earnings results. On today's call, Frédéric will share some high-level comments about our second quarter performance and priorities. Jeff will then take you through a more detailed review of our financial results. We will then take your questions. Before we begin, I would like to remind you that the comments included in today's conference call include forward-looking statements. Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in the company's Securities and Exchange Commission filings, including our annual report on Form 10-K. Certain financial measures discussed during this call exclude restructuring and impairment expenses and are, therefore, non-GAAP financial measures. Reconciliations of these measures to the closet GAAP measures are included in the appendix. I will now turn the call over to Frédéric. Frédéric P. Villoutreix: Thank you, Mark, and good morning, everyone. Late yesterday, we reduced our second quarter earnings. And this morning, we are pleased to present our results, our near-term outlook and update you on our long-term initiatives and opportunities. As shown on Slide 4, we had solid second quarter earnings. Revenue grew 2% as we experienced sales growth in both our paper and reconstituted tobacco segments. Within the paper segments, LIP volumes grew 4% despite challenging tobacco industry conditions, evident from the earnings announcements on some of our customers. Within the RT segments, we saw volumes decline 2%, but positive mix changes versus second quarter last year yearly revenue growth. While our RT volumes decreased in the second quarter, the decline was much less pronounced than the results reported in the first quarter. We are very…

Thank you, Frédéric. Moving to Slide 8. Second quarter net sales increased about 2% versus the prior-year quarter. Paper segment volume and revenue both grew. Our key segment volumes declined, but mixed changes resulted in 3% revenue growth in that segment. There was minimal impact from currency translation on the year-over-year comparison. Turning to Slide 9. Tobacco paper volumes, including CTM, our joint venture in China, were up 3%, with LIP volumes up 4%. Overall, SWM volumes, including CTM, were up 4% from the same quarter in 2012. Nontobacco paper volume was strong, specially shipments of wrapping materials for drinking straws. Second quarter 2013 reconstituted tobacco volumes were down 2% compared to the prior-year period. Our key segment volume is tracking slightly below our expectations due to the higher-than-anticipated cigarette smoking attrition rates, and as Frédéric indicated, we now expect 2013 RT volume to be somewhat lower than 2012. As you can see on the slide, on a chart on Slide 10, year-over-year operating profit was essentially flat for the second quarter at nearly $43 million. While we did experience volume increases across our paper business, the decline in our key segment volume and mix issues in our non-LIP paper products drove a slightly negative impact on profitability. There are sizable differences in pricing and profitability over our various paper products, and during the quarter, we saw a significant volume growth in some of our lower margin products. This contributed to the volume pricing mix profit impact shown on the chart. These mix issues were offset by improvements in cost of sales, supported by the increased volume and again, demonstrating our ability to preserve margins through operational excellence. As you will see on Slide 11, paper segment profits grew on higher volumes and LIP products, and excellent manufacturing cost performance.…

[Operator Instructions] Your first question comes from the line of Alex Ovshey of Goldman Sachs.

Just looking at in 2014, you highlighted several potential headwinds, specifically on the volume side and on the cost side. But as you think about the opportunity to continue to take more cost out of the business, this year you're tracking really well there. I mean, as you think about '14, what is the run rate to continue to take cost out of the business? And do you think that would be enough to offset some of the other headwinds that you guys have talked to where you can potentially keep the earnings run rate flat up a little bit even if you don't see LIP conversions play out next year. Frédéric P. Villoutreix: Yes. Let me address your question, at least on the business side and Jeff, you may want to add comments on his perspective as well. Clearly, we are embarked on a company-wide program, Lean Six Sigma 3 years ago, and we are still gaining momentum. So I see it's tough work, but we advocate the ability to continue to lower our cost base through operational excellence, initiatives, getting into 2014. You mentioned the headwinds, we should not forget we also have opportunities in terms of introducing new products, continuing to gain market share and potentially the effect of new LIP markets opening up with adoption in '15 that could drive some additional revenue and earnings in the tail end of 2014, just to name a few.

That's a helpful detail there, Frédéric. And then on the market share front, can you just update us where you see your current market share position in Europe, and the runways there to potentially take incremental share over the next 12 months? Frédéric P. Villoutreix: Yes. I mean, obviously, as our year-to-date reserves, support the fact that we are gaining market share in Europe. I mean, our customers are reporting consensus is around the 9% attrition rates in smoking year-to-date in Europe, and we are pushing some growth, 3% to 4% growth in our LIP. Now, again, we have to be cautious here. We are achieving goals through the value proposition that we offer to our customers and this could change, but right now, we feel good that we have increased marginally our share in Europe from what it was last year. And in terms of the outlook for next year, I mean obviously, there's a lot of uncertainly within the industry as to whether attrition rates will recover, will improve in the second half of this year or next year. A lot of that has to do with the economic situation in Europe. Tax measures that government may or may not take. And also effective are some of the measures to counter illicit trade in the region tend to be. But clearly, we anticipate that attrition rates will remain probably slightly higher than historical levels, which puts more pressure on us to lower cost and through new product introduction, our commercial initiatives continue to increase our market share in the region to stay ahead of where we are today.

Last one on capital allocation. The free cash generation has been really solid. Stock is up a lot this year to the extent that the stock continues to work and may not necessarily be such a great opportunity to be buying it back and acquisition doesn't necessarily present itself by the end of the year. What is the appetite for potential special dividend in order to make sure that the cash flow doesn't just build up on the balance sheet and doesn't utilize effectively?

Well, I mean, we're always looking at what would be potentially an opportunity to any future adjustments in dividends. I mean, we do want to stick with returning at least 1/3 and there's always the chance that we could make a change there. But again, with the opportunities we're looking at in terms of growth of the business, both organic and inorganic, we want to retain the dry powder there and the opportunity to do something. So I think, what we've been doing in the past, from a dividends standpoint and continuing to improve the yields, we'll try to stick with that kind of moving forward.

Your next question comes from the line of Ann Gurkin of Davenport. Ann H. Gurkin - Davenport & Company, LLC, Research Division: I've got to just start with like customer orders for both paper and RTL. Are you seeing a change in the second half? Are customers changing their expected orders for the second half of '13 or even going into '14 at this point? Frédéric P. Villoutreix: Not really. I mean, I think what we have said in our prepared remarks, clearly, we have seen a softening of the demand for RTL products, which clearly, we see as an adjustment of inventory levels and our customers to reflect more of the ongoing demand for cigarettes. I think there has been an improvement in the second quarter of -- no, the first quarter in terms of the market conditions in Europe. I believe our customers have restated in their earnings release are cautiously optimistic that this improvement will at least continue and may improve -- and may further open up the situation in Europe. But again, this is -- a lot of that is driven by the economic situation in Europe. And the fact that there are alternative tobacco products to cigarette smoking that today are less taxed in Europe, which only creates headwind in terms of our customers -- in terms of pushing their sales of cigarettes. Ann H. Gurkin - Davenport & Company, LLC, Research Division: So RTL volume for the year now, do you think down low-single digits for you? Is that what you are indicating?

I mean, I think you can see our run rates year-to-date. We are down from what was an exceptional year last year. I think we are still, in terms of run rate, probably would be the second best year ever for our French RTL facility, so it's certainly not a bad, terrible situation, but it's only a start to the growth and we have seen in the past few years. And the current demand is one thing. I think it's important to mention. And as you probably know, Ann, Europe is going through some revisions to their tobacco product directives, which is kind of the body of laws that are regulating the tobacco industry. Those directives date from 2001, and it's up for revision, expected to be finalized next year. And I think that is creating a lot of pause for our customers. They want to see what will be adopted, what will not be adopted among the many propositions. And it's certainly slowing down the rates of innovation, introducing new cigarette designs, which is an important factor for RTL growth. And obviously, on the paper side, we are able to more than mitigate the softer market conditions. Whether that can continue over the next 18 months, remain to be seen. So it's hard work and it's our goal, but the reality is that the market is shrinking in Europe at the moment. Ann H. Gurkin - Davenport & Company, LLC, Research Division: And with RTL volumes down, are there any concern about capacity utilization for the RTL business? Is that softer than expected now? Frédéric P. Villoutreix: No. I mean, the capacity utilization remains very high. And obviously, it's putting some burden on our overhead absorption cost. We continue to invest heavily in research and quality development, because we…

Yes. The start-up cost, there's nothing unusual about it. I mean, it's typical when you open a mill, it's just in the timing of when we think we'll open versus when the profits start to grow. It's just you'll see the profitable overall come in 2015, but the start-up costs are typical just in the common thing where you have to take the hits from when you first start up. Ann H. Gurkin - Davenport & Company, LLC, Research Division: That's great. And then I'm not asking specific details, but are there M&A opportunities that you're still reviewing out there for potential use of your cash? Can you comment on kind of what that pipeline looks like? Timing? Any kind of detail you could give us there. Frédéric P. Villoutreix: We certainly don't have anything to discuss specifically at this point. As we have said in the previous quarter calls, we are investing both in developing organic growth opportunities, leveraging paper assets and knowledge in reconstituting fiber materials. And we continue to invest heavily in this area. And as we also stated that we are looking very selectively in organic opportunities, but really nothing that we expect to see coming in the immediate future. And for us, it's a matter of thinking long term in terms of the growth profile for SWM. And we believe, and I think it's confirmed, with the recent outlook on tobacco that it is the right thing to do mid- to long-term to look at diversifying our product portfolio with non-tobacco reputations added to the very strong core that we have for the past several years. Ann H. Gurkin - Davenport & Company, LLC, Research Division: And then just let us get the pulp cost that you're including for the second half?

Yes. We haven't specified a particular number. As you can see in the first half, we were able to offset some of the higher costs with some purchasing activities and also some currency benefits from locations where we buy it, but I think as we start to consume more of the inventory we bought in the first half, just start to see more pressure and some headwinds on that in the second half. Not a hugely material number, but certainly higher cost than we've seen in the past.

[Operator Instructions] Your next question comes from the line of Larry Stavitski of Sidoti & Company. Lawrence Stavitski - Sidoti & Company, LLC: I just had a couple of questions on the -- you spoke about the uncertainty with the attrition rates in Europe and North America, and also the LIP adoption in some of the -- Brazil, Russia and China. Would you have any idea of when you would get a better grasp of these -- of when you get a better outlook on these concepts? Would it be towards the end of 2013? Would it be '14? Is there anything you could expand out of that? Frédéric P. Villoutreix: Okay. So to answer the question on the market conditions in North America and Europe. I think it's fair to say that North America attrition rates, around 4%. Today our kind of [ph] of know normal outlook. So there's really nothing unexpected there. In Europe, we -- this has been the -- somewhat of a surprise to many stakeholders in the tobacco industry to see the drop 10% in the first quarter, 8% in the second quarter. I mean, historical level, that was more 4% to 6% in recent years. Again, whether value is going to continue to improve, we can't comment. I mean, we'll take the news as it comes, but we are certainly planning for pursuing the slow economic recovery in EU for somewhat of a depressed market for the next several quarters. But again, we take the news as it comes. And in terms of the new LIP market adoptions, I mean I mentioned Russia because we see -- we have seen a movement towards getting ready for adopting LIP regulation. And Russia and some of its surrounding markets, and I just want to remind everybody,…

At this time, there are no further questions. I will now return the call to management for any additional or closing remarks. Frédéric P. Villoutreix: Thank you, Lori, and thank you, all, for attending the call. And we certainly appreciate your interest in the company. Mark, Jeff and I would be in our offices today and if you have any follow-up questions, please give us a call. Have a nice day.

Thank you. That does conclude today's conference call. You may now disconnect.