Clearwater Paper Corp (CLW) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Clearwater Paper first quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to Miss Linda Massman, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to Clearwater Paper's first quarter 2011 conference call. On today's call with me is Gordon Jones, Chairman, President and CEO. Our press release this morning includes the detail regarding our first quarter, and you will find a presentation with supplemental information posted on the Investor Relations area of our website at www.Clearwaterpaper.com.

Additionally, we provide certain non-GAAP information in this morning's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the supplemental material provided on our website.

Before we get started, I would like to remind you that this presentation will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements.

Factors that could cause actual results to differ materially include those expressed or implied by risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31st, 2010. Any forward-looking statements are made only as of this date, and we undertake no obligation to update any forward-looking statements.

I will begin today's call with financial highlights for the quarter, and will be followed by Gordon, who will provide commentary on the different business segments before we take questions.

Let's start with a bit of context regarding our financials. First quarter 2011 is the first full quarter in which Cellu Tissue's operating results have been included in our financial statements. Therefore, variances when comparing the first quarter of 2011 versus first quarter of 2010 will be driven primarily by the inclusion of Cellu Tissue results. To assist you in analyzing the business on a comparable basis, we will discuss pro forma pricing and volumes as if we had owned Cellu Tissue during the first calendar quarter of last year.

Net sales for the first quarter of 2011 were $465.8 million, as compared to $330.6 million in the first quarter of 2010. EBITDA for the first quarter of 2011 was $41.7 million, versus $22.4 million for the first quarter of 2010. This resulted in an EBITDA margin for the first quarter of 2011 of 9%, versus 6.8% in the first quarter of 2010.

Net earnings for the first quarter of 2011 were $5.6 million, or $0.47 per diluted share, compared to net earnings of $0.5 million or $0.04 per diluted share for the first quarter of 2010.

The first quarter 2011 results included a net tax charge of $1.9 million, or $0.16 per diluted share, related to a mixture of discrete tax items, and we also incurred scheduled major maintenance, pre-tax costs of $11.4 million, or $0.62 per diluted share, in the quarter.

The first quarter 2010 results included a one-time tax charge of $4.4 million, or $0.37 per diluted share, resulting from the passage of the Patient Protection and Affordable Care Act of 2010, and we also had scheduled major maintenance pre-tax costs of $16.9 million, or $0.95 per diluted share in that quarter.

Our Consumer Products segment had net sales of $269.3 million in the first quarter of 2011, versus net sales of $137.8 million in the first quarter of 2010, with the increase primarily due to the acquisition of Cellu Tissue.

Statement operating income was $13.8 million for the quarter, compared to $26 million for the first quarter of 2010. The lower operating income was primarily due to lower average profit margins resulting from the inclusion of Cellu Tissue products and higher pulp and transportation costs.

Our Pulp and Paperboard segment reported net sales of $196.6 million for the quarter, an increase of 2% versus first quarter 2010 net sales of $192.8 million. This segment had operating income of $15.6 million versus a loss of $7.9 million in the first quarter of last year. The increase in operating income was largely attributable to higher net selling prices, lower wood fiber costs at our Arkansas facility, and lower major maintenance costs, all of which were partially offset by lower paperboard volumes and higher purchased pulp and chemical costs. Other expense of $0.5 million is related to foreign currency fluctuations associated with our Canadian subsidiary.

Net interest expense of $11.3 million in the first quarter of 2011 was up from $4.3 million in the first quarter of 2010 primarily due to the $375 million of senior notes issued in connection with the Cellu Tissue acquisition.

The effective income tax rate for the three months ended March 31st, 2011, was 52.2%, compared to a rate of 92.7% for the same period of 2010. The higher tax rate for the 2010 period is primarily due to the passage of the Patient Protection and Affordable Care Act, which required us to reverse $4.4 million of deferred tax assets relating to the elimination of an income tax deduction for prescription drug benefits provided to retirees and reimbursed under the Medicare Part B retiree drug subsidy.

The first quarter 2011 results included a net tax charge of $1.9 million related to a mixture of discrete tax items. The annual effective tax rate for 2011 without discrete items is estimated to be 35.8%.

Regarding our balance sheet for the quarter, we had $23.5 million in capital expenditures, including $11.4 million from our North Carolina expansion, compared to $5.3 million of total capital expenditures in the same period last year.

As stated last quarter, at December 31st, 2010, our pension plans were $55.4 million underfunded, compared to $95.9 million underfunded at the end of 2009. During the three months ended March 31st, 2011, we contributed $8.5 million to our pension plans. Our remaining contributions, due in 2011, are estimated to be approximately $6 million.

With regard to our liquidity, we had $159.2 million of unrestricted cash and short-term investments at March 31st, 2011, representing an increase of $14.2 million from December 31st, 2010.

Our ratios remain very strong. Total debt to total capitalization, excluding the accumulated other comprehensive loss, was 48.5%, while EBITDA to net interest expense for Q1 2011 was 3.7 times.

As indicated on our fourth quarter 2010 call, we have changed the way we account for pulp transferred from the Pulp and Paperboard segment to the Consumer Products segment. Historically, the transfer amount was based on the price of pulp sold externally. It is now based on the cost to produce pulp. This was done because we expect to consume the majority of our pulp internally as we fully integrate the Cellu Tissue operations, and was a substantial driver of the 43.3% reduction in pulp volume sold externally in the first quarter of 2011 versus the first quarter of 2010. Please note that prior periods have been revised in our supplemental materials to reflect this new cost transfer methodology.

I will now turn the call over to Gordon.

Thanks, Linda. Our Consumer Products segment revenue grew substantially due to the addition of Cellu Tissue. When including Cellu Tissue volumes in the first calendar quarter of 2010 for comparative purposes, total tissue tons sold in quarter one 2011 were 129,566, slightly lower than the 130,357 tons sold in quarter one 2010. The slight decline in volume was primarily due to the reduction of [parent] roll sales that were used internally for converted cases and a fire in the pulp storage warehouse at our Wiggins facility that resulted in decreased production on our two paper machines there.

Pricing on this same pro forma basis, including Cellu Tissue, was up 3.4% to $2,078 per ton in quarter one 2011 from $2,010 per ton in quarter one 2010 due mainly to mix shifts. As a reminder, these volume and pricing figures are available on our website as supplemental materials in the Events and Presentations section of the Investor Relations page.

Our Pulp and Paperboard segment net sales were 2% higher than the same quarter last year. The increase was attributable to an 11.6% increase in both paperboard and pulp pricing as compared to the first quarter of 2010.

As Linda mentioned, in the first quarter 2011, we increased the amount of pulp used internally by starting to supply former Cellu Tissue facilities, and we've utilized internal pulp during our maintenance downtime, thereby reducing our external pulp shipments by 43.3% versus the first quarter of 2010. Paperboard shipments were down 9.7% compared to the first quarter of 2010 due to the strong shipments supporting customer restocking last year versus this year.

Major maintenance expense this quarter was $11.4 million, associated with work at our Idaho pulp and paperboard facility, versus major maintenance expense in the first quarter of 2010 of $16.9 million.

Regarding our outlook for the business, I will provide some commentary that will be reflective of our new combined business. In our Consumer Products segment, two market leaders recently announced price increases involving retail bath tissue and paper towels. We are also pursuing price increases to help cover production cost increases. We anticipate instituting price increases for bath tissue and paper towels in the third quarter, consistent with our customer commitments. We continue to expect stable tissue volumes. We have also begun instituting price increases on machine-glazed paper, parent rolls, and away from home tissue products.

In the Pulp and Paperboard segment, we expect paperboard shipments to be stable with lower external pulp sales compared to last year due to planned use of pulp in our tissue operations. We also expect transportation and chemical costs to increase with the rise in oil prices.

We are moving forward very rapidly with our Shelby, North Carolina, tissue operation expansion. The warehouse is up and running. The initial two converting lines are being installed and prepared for startup as we speak, and we expect to begin producing converted products for sale from that facility by the end of second quarter this year. Our plans for the remaining converting lines in the TAD paper machine remain on track, with the additional converting lines expected to begin production in the fall of 2012 and the paper machine starting up at the end of 2012. Our customers continue to express their excitement over this project and are anxious to see it completed. We continue to receive excellent cooperation from the city, county and state governments.

We continue to estimate that our new paper machine and tissue converting facilities in North Carolina will cost approximately $260 million to $280 million, which includes the capital already deployed. We expect to spend approximately $133 million related to the North Carolina facility in 2011.

Including the North Carolina expansion, we expect total capital expenditures to be $175 million to $180 million this year. We expect the remaining scheduled major maintenance costs in our Pulp and Paperboard segment to be approximately $7 million in the third quarter of 2011.

Interest expense in 2011 will increase significantly compared to 2010 as a result of a full year of interest expense on the 375 million notes due in 2018 and, to a smaller extent, the industrial revenue bonds that we assumed as part of the Cellu Tissue acquisition. Interest expense will be partially offset by the capitalization of interest during the construction phase of our North Carolina papermaking and converting facilities, which we estimate will be $22 million over the construction phase of the project, including an estimated $6 million in 2011. We anticipate that net interest expense during 2011 will be approximately $42 million.

Regarding the Cellu Tissue acquisition, we are on track to deliver $15 million to $20 million in net synergies by the end of 2012. In addition, upon further analysis of Cellu Tissue's unaudited financials, Cellu Tissue achieved an estimated EBITDA of $48 million in calendar year 2010. We expect that 2011 EBITDA contributed by the Cellu Tissue operations will be slightly higher than this figure.

Generally, we are facing some significant headwinds on input costs. We had expected pulp costs to moderate or go down slightly during 2011. However, we now expect it to steadily increase through year-end. Chemicals such as polyethylene and caustic are also expected to be higher, while transportation costs continue to increase as the price of oil increases.

In summary, we remain positive about our business, with several price increases pending that we expect to help partially offset high input costs.

Before we move to questions, I also wanted to mention that we'll be presenting at the Stephens Spring Investment Conference in New York on Tuesday, May 24th. Details are provided on our website, and if you're interested in meetings, please contact Sean Butson or [Steven Serange].

Thank you for tuning in to our prepared remarks, and operator, we will now take some questions.

Thank you. (Operator Instructions). Our first question is from Kevin Cohen of Imperial Capital. Your question, please?

Good morning. Thanks. I dialed in a little bit late, I think. It took a little bit to dial in. I might have missed it, but are you able to quantify at all, Gordon, the size of the price hikes that you are seeking in the various grades of tissue away-from home consumer (inaudible), any color you can furnish on that front?

Well, let me try not to dodge that question too much, but we have the same cost pressures against us, Kevin, that everybody else does, and our plan is to raise prices consistent with how the market is moving, so when we take a look at it and we see the price increases that go up, I mean, we will definitely be moving our prices up. The hard part about this particular increase, and let me be frank, is that the brands are a little bit different. They're varying. One major branded competitor had announced a 5% average plus some changes in their promotions. Another major branded competitor announced 7%. The one that announced 7% didn't announce towels, et cetera, et cetera. So it's a bit of a mix, and it's hard for us to quantify that, but we're going to be very competitive and we're going to move with the market.

Do I still have you, Kevin?

I'm sorry, sir. I'm no longer showing him in queue at this time.

Okay. Thank you.

Okay, we'll move to our next question. Steve Chercover with D.A. Davidson. Your question, please?

Morning, Gordon. Morning, Linda.

Morning, Steve.

First of all, so are you currently shipping pulp from Lewiston to Cellu Tissue's East Coast facilities? And are there -- I mean, A, how is the pulp working there, and B, will there be opportunities to do some trading at some stage?

Yes, Steve, we are. We are shipping from Lewiston, and that's part of what our trends say and our explanation there as to why that pulp is down. Also, the other part of why the pulp sales are down in the first quarter is that we used a lot of pulp to help us through the maintenance outage that we had at Lewiston. But we're shipping pulp from Lewiston to other Cellu Tissue operations. In fact, more than one, and it's going very well, so we anticipate being able to incorporate a significant portion of that pulp, if not all of it, inside of our system. The questions that we have, of course, is that if we're shipping pulp from Lewiston, Idaho, all the way to the East Coast, could we buy it more cheaply off the East Coast and take advantage of selling some of that pulp off the West Coast? But in general our direction is to try to integrate all that pulp over the year.

Okay. And it's still fairly early days, but have you identified any additional synergies from the facility tissue assets?

We see additional synergies. We're not ready to quantify them, Steve, but we feel very comfortable about the numbers that we promised to deliver. We feel extremely good about that, and as soon as we're able to quantify any differences, if we can, then we'll certainly let you know.

Can you remind us what the original synergy target was?

Yes, it was $15 million to $20 million of net synergies achieved by the end of 2012.

Okay. And two more quick ones. Cellu Tissue was bringing up a converting facility in Oklahoma City. How is that running?

It's doing very well. It's doing very well. I mean, that's one that, of course, we inherited with it, so we feel good about it.

Great. And finally, switching gears, we've focused so much on tissue, but you've got a good bleached board business, and how is that going? How are the backlogs and pricing environment?

Bleached board is doing well. We are very happy with that business, continue to be very happy with that business, and both operations are performing quite well. There have been, as you know -- just a quick historical reminder -- price increases that were executed during 2010, a number of increases across all the different grades. In 2011, there has been a cup and plate increase of $40, which has gone very well. So, I mean, that business looks good. The backlogs look fine to us. We feel really very good about that.

Great. Thanks very much.

Okay. Thanks, Steve.

Thank you. Our next question is from Kevin Cohen from Imperial Capital. Your question, please?

Yes, thanks. Sorry, I think I just got cut off a little bit earlier. I was going to follow up, Gordon. In terms of the marketplace acceptance of various price hikes -- I know it's early, but what is your early read or how does it look so far? I mean, given the massive input costs inflation and their tissue price hikes broadly speaking for about two years, what are your senses to how customers are thinking about it at this point?

We feel very positive here when we think about it, because, you're right, there hasn't been a tissue price increase since 2008, and of course pulp prices went down in '09, back up in '10. They're up in '11. We expect them to continue to be up in 2011. But it isn't just pulp. Pulp is part of it. There are also oil price increases, there are caustic increases, there are polyethylene increases. There are a number of increases. So we feel very positive about the move in tissue pricing.

And if the tissue price hike were to be fully implemented, would that catch the Company back up to the near mentioning of all the various input costs, the side pulp that has gone up, or where do you think that would leave the Company?

Of course, it depends on what assumptions you make about what those input costs are going to be over a period of time. At this point, the only thing I think that we should say is that we feel good about getting those prices back up. We're going to do everything we can to try to stay in front of the curve on the cost situation and try to work on our margins that way, but we certainly need these price increases associated with tissue. And of course, we feel good about the other price increases that we announced also that were relative to things like the machine-glazed and the hard roll parent roll market, and away from home and that type of thing, so all of those things are going to be very helpful to us.

And then in terms of pulp prices, you mentioned in your view that they might be steadily increasing throughout the remainder of the year. Any sense in terms of quantifying that how material of an increase we might see in pulp? And I assume you're referring to just sort of benchmark NBSK?

Yes. Kevin, if I take a look at benchmark NBSK and I use the RISI kind of numbers, one of their most recent things that they just put out in one of their World Pulp Monthly things talked about the prices continuing to creep up, and when we look at it, we see the same sort of thing, that they're slightly creeping up and that there was no real movement necessarily in the first quarter, at least in January and February, and then prices started moving up after that, and then they're going to creep up moderately. But there doesn't seem to be any down curve forecasted in pulp market between now and the end of the year as there was from some previous forecasts, so I don't know that they're going to go astronomically high. I think that RISI's numbers, in fact, say that for April, if that NBSK number is 1020, then they're saying by the end of December it's 1050. So if it's an additional 30 between April and now to the end of the year, based upon history, that's fairly moderate, but it still doesn't have the down curve in the second half of the year that was forecast previously.

In your view, in terms of Cellu Tissue having slightly higher EBITDA in calendar 2011 versus calendar 2010, I assume that incorporates your comments about pulp over the rest of the year?

Yes, it does.

Great. Thanks a lot, Gordon, and good luck.

Thank you. Our next question is from Graham Meagher with TD Newcrest. Your question, please?

Morning. It's Graham Meagher from TD Newcrest. Just a couple of questions, the first one on the Lewiston outage. You noted $11.4 million in maintenance costs. Were there any just sort of opportunity costs, lost opportunity costs, or startup costs or anything else associated with that?

No. The Lewiston costs -- I mean, we are on a schedule at our two large facilities, between Lewiston and Cyprus Bend, where we had a large maintenance outage because Lewiston is a bigger operation than Cyprus Bend. It happens every year, but we're really on an 18-month cycle at Cyprus Bend, and so all of these things get planned out over time. We try to take advantage of that to do some smart things on the machines or in the pulp area when we can, but all those costs are all well forecasted costs.

Okay. Now, would there be a breakdown between the Consumer Products and the Pulp and Paperboard segments?

On the maintenance costs?

On the maintenance costs, yes.

No, not really, because our largest paper machines are in Lewiston, and the pulp operation that we have in Lewiston is bigger than the one in Cyprus Bend, so it's hard for us to delineate what goes to the paper machines and what goes to the board machines, because we have both those operations in Lewiston. So we think of it in terms of basically pulp mill shutdown costs.

And the maintenance cost was associated with the PPB segment, so that wasn't related to the CPD segment at all.

Okay, so it was all in PPB. Okay.

Pulp and Paperboard, yes.

Yes, which is the, by our definition, the pulp mill.

The pulp, okay. And then scheduled maintenance downtime for the remainder of 2011, you noted there was some in Q3. Was there also a small amount in Q2?

No, we just expect about $7 million in Q3.

Okay, great. And then the fire at the Wiggins facility, are you able to quantify -- was there a significant loss of tonnage or cost? Is that $1 million, $2 million, that sort of range?

Well, it was fully insured, but, of course, we had deductibles associated with that. I don't know that we've really quantified exactly how many tons there, or are ready to quantify that publicly, but there was some tons lost in storage, and of course there was some machine downtime loss. That's just one of the factors on why the tonnage that we try to show as a combined Cellu Tissue coldwater number ended up being that 129,000 number as opposed to 130,000, for instance.

And the fire was immaterial from a financial perspective to us. It was just more of an impact on the tonnage produced.

Okay, great. And then are you able to break out the EBITDA between the Consumer Products and the Pulp and Paperboard segments? I know we'll be able to do it in the 10-Q.

Yes, I would say just wait for the 10-Q to come out, which will be no later than tomorrow.

Okay, great. And then just thinking about the Consumer Products segment, the first full quarter with Cellu Tissue and excluding the fire at Wiggins, would you classify this as a relatively normal quarter thinking about modeling going forward and volumes and pricing? Was your sales mix relatively normal this quarter?

Yes, I would say that it was normal. I think that you wouldn't be that far off if you looked at that as kind of a normal quarter. Remember, what's not normal, of course, is the paperboard outage that you asked me about in Consumer Products. So if you were trying to model the Company, it's different from a paperboard perspective because we don't have that large outage going on. We finished the large outage at Lewiston. Consumer Products is normal. We're going to try to redefine normal, however, as we go throughout the year and work on our synergies and work upon our transportation costs and how we're integrating this particular business, so we're very optimistic about our opportunities to do that throughout the year. But I think if you modeled it as normal, you might not be that far off.

Okay, great. And then just thinking about pricing on the paperboard side, prices were up almost $40 quarter over quarter. Was that the cup and plate price increase going through, or was there mix or catch up from 2010?

Basically, a little bit of everything in there. It was about the cup and plate increase, and that was probably the majority of it. I think I would think of it that way. But there are always some orders that don't get out on time that end up getting shifted into that particular period for shipment later, but basically that's the movement in the market, and that was the cup and plate stock increase.

Okay, great. And pricing on the tissue, can you just remind us what is a -- what your expectations might be for the implementation of the tissue price increase sort of thinking generally across all the different grades? Is it a three months, six months sort of implementation?

Yes. Well, we mentioned in the script that we're certainly moving it. We're going to be competitive. We have the same headwinds costs that many of our competitors are facing, and so we're going to be taking those prices up. And Kevin, I don't know if you had dropped off the line by this point, but the hard point in figuring this one out is you've got two major producers that are out at different numbers. In fact, one of those major producers has not announced on towels, and neither major producer has announced on either napkins or facial tissue. So what we have is one major producer at basically 5% on average and some changes in promotion, another major producer at 7% without towels, and neither one on the napkins and facial. So what we will do is we will, as aggressively as we can, raise those prices on all those SKUs that we can where the market is moving. So it's hard for us to tell you across the board what that particular increase is going to be, but we are not bashful about it, and we believe that we have lots of input costs that are driving us to this particular mode, and we have been talking to customers about our need to get prices up. So it's not as simple, frankly, as if there was a 5% market movement across every single SKU and all that. There are different numbers by different people, so it will be more of a range of implementation based upon where we are in individual accounts with customers, but we're going to be pushing our prices up.

Okay. I guess more just thinking on the timing, obviously it takes some time to get these through, get the prices through, right onto the shelf, and maybe looking back historically at other price increases going back several years. Does it just take one quarter, two quarters? We'll come up with our expectations for what the net realizations will be, but I guess maybe another way of asking is by sort of January 1st, if successful, do you think it would be fully in by January 1, 2012?

Oh, yes. In fact, it ought to be in before that. There is a bit of a delay that's associated with this. I mean, the two major brands that have moved announced these increases for June, so there is some implementation time associated with that, and then we have customer commitments that allow us to move at different times relative to that. Some are right on the money, and there may be a little bit of difference with others, but most of it the issue is to figure out exactly how has the market moved and then to keep our customer base competitive with that market move so that if the price isn't moving somewhere for a little bit of a period of time, then it won't move for us either. We really pay attention to what our customers need. If it moves right away, we're going to move it right away.

Okay.

But I would say, as I said in the script, that this is a third quarter implementation kind of thing.

Okay. Great. That's helpful. Thanks very much.

Yes, thank you.

Thank you. (Operator Instructions). Our next question is from Eric Hollowaty with Stephens. Your question, please?

Hi, guys.

Good morning, Eric.

A couple questions here. Good morning. In terms of the progress that you've made on insourcing your pulp production to use for your tissue, is there any way to help us understand how much that might have supported your tissue margins versus if you had otherwise been required to go out to the open market and purchase that pulp?

Yes, it's difficult because at this point, there hasn't -- as I'd answered on Steve's question earlier, we have done some of the internal movement of that particular pulp, but that's been more on a test basis -- how is it running, how does it fit with the qualification of products that we need, because we want to make sure that we're providing those same quality products on using our internal pulp. So we have transferred some pulp, but, frankly, we haven't transferred a heck of a lot of pulp, so I think it would basically be at this point a good end material on what savings will be associated about using it internal versus buying it external. We would expect over time that that changed. I mean, if you look at our supplementals that were attached to the webcast, in 2010 we shipped 60,000 tons of pulp externally. In this particular quarter, we only did 7,800, but we would have done more had we not had the major maintenance outage at Lewiston. So we're just going to do it as fast as we can, and we're going to do it where it makes sense, but I wouldn't build in any extra dollars for this past quarter based upon how many pulp tons were moved internally versus what we saved from outside sales.

Okay. Great. That's helpful, Gordon. On the maintenance outage, is it possible to give us any direction on how much of your paperboard and/or pulp production was affected by that, if any, and what we might expect for the third quarter outage that you plan, or do you expect to build inventory ahead of that to the degree that your sales volumes won't be affected?

Yes, we had -- on the paperboard side, we were basically down with about, well, seven to eight days of machine time, and that took us down. What we try to do, and of course, this relates to my comments earlier about internal pulp, is that we try to keep the board and tissue machines running as much as we can with external pulp and internal pulp while we have that pulp mill down. So the pulp mill was down significantly longer than that, but the machines were not down that long because we were supplementing it with pulp. So if you look at just pure loss of machine time, there's some associated with that, but with the pulp mill being down longer, you're also, of course, generating less pulp that you could do something with, either take it to the inside or sell it to the outside, so there's almost kind of a dual effect there. I think the way to think about it is that it's a one-year event, frankly. It's over. We're delighted that it's over. It went very successfully. No one was hurt. We had a great safety record. The mill did a very nice job, and we're looking forward to everything continuing to run full from here out, so that's really where we are.

And Eric, with regard to third quarter, there really shouldn't be an impact on production. It's really focused on the boiler in third quarter, so you shouldn't see any production impact.

Okay, great. Thanks, Linda. That's very helpful. Going back to the paperboard pricing, has the cup and plate increase that we suspect contributed to the pricing growth in the quarter, has that been fully implemented, or should we expect some continued implementation to spill over into subsequent quarters?

I would call it fully implemented, and by fully implemented, meaning that we have full acceptance in the marketplace. There may be some spillover from some late orders that get shipped at different times, but that's a fully implemented increase.

Okay, great. And my final question, most of the attention in the marketplace and the investment community seems to be focused on the prices of benchmark NBSK when we talk about pulp pressures, but RISI recently -- in fact, today -- is also noting that fiber markets at the chip level are up, particularly in the U.S. west, and I'm wondering to what degree you can comment on whether you're seeing those pressures as well and, when you talk about your outlook with respect to pricing pressure on pulp, whether it does incorporate that source of fiber in addition to the bleached pulp that you might be buying on the open market.

Eric, let me give you a couple perspectives on that. I guess, first of all, when we look at chips and sawdust prices -- and we look at that, of course, as it relates to our Pulp and Paperboard division -- on a year-over-year basis, basically it's really not moving, and the way to look at that is that it was higher, let's say, in the first and second quarters of 2010 because, remember, all the floods and the rains and things like that that happened in the market, and then it got lower in the summer. There are some predictions about it might be creeping back up a little bit through the second and third and fourth quarter of this year, but basically if you thought in terms of chips and sawdust prices as basically flat, that that's where we are. There is some increased pressure coming from China demand relative to saw logs, but, frankly, that hasn't had a big effect on it. We've tried to incorporate a little bit of that into our numbers, but we're waiting to kind of see if that raw demand in China really is sustainable.

Right. And Gordon, just to clarify, when you talk about flat, do you mean on a year-over-year basis or a sequential basis?

On a year-over-year basis.

Okay, great.

Sequentially, it might be crawling back up through the remainder of this year, but when you put that against a lower first half and against also a lower second half of last year, it basically averages out about the same.

Okay, great. Thanks very much. Good luck.

Okay, thanks, Eric.

Thank you. I'm currently showing no further questions in queue at this time. I would now like to turn the conference back over to Gordon Jones for any further remarks.

Okay. Well, we thank everyone for participating today. We appreciate it. As I mentioned in my script, we remain very positive about our business with the several price increases pending to help us partially offset the high input costs. So we do have some headwinds, but we also have some price increases, and we feel great about our business. So thank you very much for participating.

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect, and have a wonderful day.