Packaging Corp of America (PKG) 2005 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter and full year earnings conference call for Packaging Corporation of America. At this time all participants are a listen-only mode. Later we'll conduct a Q&A session, and instructions will follow at that time. [OPERATOR INSTRUCTIONS] As a reminder this conference is being recorded. I would now like to turn the conference over to our host, Mr. Paul Stecko, Chairman and CEO.

Thank you and good morning and welcome to PCA's fourth quarter and full year earnings release conference call. With me on today's call is Rick West, our CFO, Mark Kowlzan, who run ours mill operations, and after we complete the presentation, as always, we'll be more than happy to take any questions you might have. I have got a little cough and to save my voice, we're going start and Rick is going to take you through numbers and then I will pick it up with details when he is done. So Rick, I will turn it over to you.

Thank you, Paul. Yesterday we report fourth quarter earnings of $2 million or $0.02 per share. This compares to fourth quarter 2004 earnings of $38 million or $0.36 per share, which includes income of $17 million, or $0.16 per share from a dividend paid to PCA by Southern Timber Ventures. PCA's earnings in the fourth quarter of 2004, excluding the STV dividend, were $21 million or $0.20 per share. The decrease in quarterly earnings was the result of higher transportation, and purchase fuel and electricity cost, which together reduced earnings by $0.09 per share. Lower pricing, which reduced earnings by $0.06 per share and higher labor and benefit cost of $0.02 per share. In addition, fiber cost and a positive tax benefit each improved earnings by $0.0 1, which was offset by higher chemical and corrugated converting costs.

Full year net income for 2005 was $53 million, or $0.49 per share compared to $69 million or $0.64 in 2004. Adjusted full year net income as detailed in the table that we provided as part of our press release, was $47 million or $0.44 per share in 2005, compared to adjusted net income of $52 million or $0.48 per share in 2004. The adjusted results exclude STV dividend income, recorded in the second quarter of 2005 and the fourth quarter of 2004 and costs associated with the closure of a corrugated products plant recorded in the third and fourth quarters of 2005. Lower earnings for the full year compared to 2004 were driven primarily by the same cost items which impacted the fourth quarter, and for the most part we're offset by higher pricing and volume.

Next sales for the fourth quarter were $473 million, compared to $493 million in the fourth quarter of 2004. Full year net sales for 2005 and 2004 were $2 billion and $1.9 billion respectively.

Cash generated from operating activities during 2005 was $243 million, and capital expenditures were $125 million. Capital expenditures were about $10 million higher than we originally planned as we accelerated some projects, primarily energy from 2006 into 2005. As a result, looking forward, our 2006 Cap Ex will be about $10 million less than normal or about $100 million.

We started the year with $213 million of cash on hand and incurred no additional debt during the year. We paid out $97 million in dividends, spent $49 million in acquisitions. We spent $125 million on Cap Ex and we ended the year with $206 million cash on hand, excluding the cash required for the December share repurchase. The December share repurchase of 4.5 million shares used $93 million in cash. Therefore we ended the year, after the share re-purchase with $113 million cash on hand.

And I will turn it back over to Paul.

Thanks, Rick and let me move right into operations. Our corrugated products volume per work day was up 4.8% compared to last year's fourth quarter, and up for the year, 4.6%. Our volume was strong the entire year, up 5.7% in the first quarter, 2.7 in the second quarter, up 5.4% in the third quarter, and we finished the year as I said up 4.8% in the fourth quarter. Excluding our April 2005 acquisition of Middleland Container, shipments were up 3% for the fourth quarter, and 3.4% for the full year.

With our low inventory levels and a strong corrugated products demand, we did meet outstanding productivity from our mills in the fourth quarter and our mills delivered by producing 596,000 tons and that would translate roughly to an operating rate of about 100%. This is a remarkable performance, since we did run slow at times to minimize natural gas consumption. The mills ran very efficiently and even in this high energy cost environment we're in, our cash costs, which include variable costs, plus salaries, labor and benefits were up only 1.3% compared to last year's fourth quarter. And that in our opinion is outstanding.

For the year we produced 2.347 million tons of containerboard and that is up 1.2%, compared to 2004. If we look at prices, our box prices did continue to slide a little during the beginning of the fourth quarter, as a result of industry publications lowering the price of containerboard last summer. Box pricing then began to improve as we implemented our announced November box price increase. This implementation has been completed, and we expect to receive the full pass-through of the October containerboard price increase, effective with January 3rd shipments. By historic measures, this was a very rapid pass-through for us.

As widely reported, we have also announced the $40 per ton linerboard and $50 per ton corrugated medium price increase effective January3rd, 2006. Since we're about 84% vertically integrated to boxes, a large majority of this increase will not be fully realized until the second quarter, when the pass-through of the containerboard price increase into boxes is completed.

In our mills and box plants combined, outbound transportation costs were up 14%, compared to the fourth quarter of 2004 and for the year, they are up 13%. Higher transportation cost lowered fourth quarter earnings by about $0.04 per share and that's a pretty big number.

With the significant run-up in natural gas prices in September after the hurricanes, our goal, as we started the fourth quarter, was to try to run our mills using less than 5% natural gas as a percent of total purchased fuels. We ran 5.3% natural gas in October, 2.6% in November, and even with a very cold December, we ran at only 2.3% natural gas, which gave us an average of 3.3% for the quarter. This compares to fourth quarter 2004 natural gas usage, which we thought was quite good at 9.1%, so I am going have to say that in my opinion, just an outstanding job by our entire paper mill team. They knew a lot was riding on their performance and they delivered.

I would add further when you look at overall fuel mix in our mills, which is 80% bark and coal, we're in a pretty advantageous, and I think quite unique position within our industry. With very low natural gas usage and continuing improvements in overall mill efficiency, even with energy prices at all times high, all-time highs, higher fuel cost in our mills impacted fourth quarter earnings by only $0.015 a share. I should also mention that higher labor and benefit cost was for the most part the result of annual merit increases, reduced earnings by $0.02 per share in the fourth quarter and energy costs in our box plants, which unfortunately have to burn gas and oil, but fortunately, consume only about 0.1 as much energy as our mills reduced fourth quarter earnings by $0.015 per share.

Looking back at 2005, I think we did okay in what turned out to be a pretty tough year. We continue to grow our box volume at a healthy rate, up 4.6% and that was in the face of less than robust demand for the industry for a good part of year. The higher energy costs we faced put a real focus on our mill system, and gave us the opportunity to demonstrate the offering benefits we possess because of our fuel flexibility. We also completed the important projects at Valdosta and Counce that now allow us to run lightweight liner board grades on every single machine in our system. This is especially important and timely in the tight market we're currently in.

Finally, we're pleased about the secondary offering, and share repurchase in December. These actions allowed us to increase our public market float by about 17.8 million shares and allowed us to pick up shares at we thought were a pretty attractive price and cut the so-called Madison Dearborn overhang in half. We're pleased that Madison Dearborn has still retained a sizeable investment in PCA, as well as representation on our board as we hold them in high regard both as investors and as advisors.

Entering 2006, industry fundamentals appear quite encouraging. Inventories at the end of November were at their lowest level in 11 years. December box plant inventories won't be reported by the SBA for about a week but AF and PA did report that containable inventory at mills dropped by 17,000 tons in December. Demand has also picked up and high energy costs continue to foster supply rationalization, as has been reported in the publications over the last few months.

Our biggest challenge going forward will be to maintain adequate containerboard inventories in our box plants in order to support corrugated products growth.

Normally we take both our Counce and Valdosta maintenance outages in the first quarter. This year, we plan to delay our Valdosta outage until the second quarter, to help us maintain and stabilize our containerboard inventory levels. This spread out will help in that regard.

Looking at first quarter earnings, our October price increases should be fully realized in the first quarter as I said earlier, while our January price increase will not be fully realized until the second quarter, as the flow-through of box prices is completed. Our accounts Tennessee liner board mill annual outage will reduce production and increase costs in the first quarter and we also expect seasonally higher energy consumption with colder weather. All in all, we currently expect first quarter earnings of about $0.08 per share.

With that, we'll be happy to entertain any questions, but I must remind you that some of the statements we have made on this call constitute as forward-looking statements; these statements based on current expectations and involve inherent risks and uncertainties, including those identified as risk factors in our annual report on Form 10-K and S4. Actual results could differ materially from those expressed in these forward-looking statements And with, that I would ask the operator to take any calls that we might have.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question is from Edings Thibault with Morgan Stanley.

Good morning, Edings.

Good morning Paul, and congrats and your ability to run this efficiently in the quarter.

Thank you.

I did have a question on sort of your overall costs. One of of the things that struck me look at the quarter and I would love you to shed some light on is that your total costs were down, particularly your cost of goods sold relative to the third quarter, despite production being as strong as it was, essentially being flat, relative to 3Q. Can you talk about the cost elements, either seasonal or otherwise, that declined in your favor in the fourth quarter relative to the third?

Well, I did report fourth quarter over fourth quarter and our cash costs were up about a $0.015. Compared to the third quarter, of course, we had higher volume in the third quarter and if I look, let me take a quick look at versus the third quarter, go ahead Pete, what were you going to say.

Cost of goods sold was down from the standpoint that we made less volume in the fourth quarter as we normally do sequentially from the third quarter, we still have very good volume, but that is the primary reason that is the cost of goods sold is down and then we did control the other costs from 3Q to 4Q from what you would normally expect with the higher energy prices.

Yes.

But our cost per ton was up a touch, but not total costs. We simply made less tons.

So it was really in the box plant system where the costs were just lower?

The cost of the lower volume sequentially third quarter to fourth quarter as it seasonally is.

Paul, on the inventory issue, would it be fair to say -- and obviously we don't have the industry data, would you want to comment on Packaging Corporation of America box plant inventory relative to November levels, are they lower? Are they higher?

About the same.

About the same.

Yes, usually we pick up -- we have got an extra mill day in December and so we were up a few thousand tons from November, only because you have one more mill day than you have in November, and that is normally the case. But you know, as I said, we with had a run at 100% operating rate to basically maintain our inventories. And that is our challenge going forward. I mean, how long can you sustain this kind of operating rate? I kidded Mark at beginning of the quarter and said "look it's real easy, just don't have any breaks on the paper machine and you'll do fine. " He laughs, but he didn't have many breaks. I wasn't too far off.

Just a quick comment on the productivity in the first quarter of 2005, as I recall you had a very strong first quarter as well. Is that on the mill side? Does that make the comps seem more difficult?

Well, we had a very good first quarter last year, despite the mills being down, and the thing that really drives how good productivity will be in the first quarter is how successful was the shutdown and how well do we start back up after the shutdown? And last year we had two big shutdowns and we did a lot of work at both Counce and Valdosta. What we have going for us this time is it's a smaller shutdown at Counce than it was last year, because we did all of work on Number 1 machine to go to lightweights. So it's a fairly easy, I hate to say it and the mill guys get excited when I say easy shutdown, because none are easy. And we moved Valdosta to second quarter. So we're positioning ourselves to have a very good productivity quarter in the first quarter, because we need the tons.

Got it. Thanks very much.

Thank you.

Thank you. Our next question is from Chip Dillon with Citigroup.

Good morning, Chip.

I was wondering, you mentioned that you had to run pretty darn full to keep your system going. Are we going to see you, probably in '06, reduce further to a large extent like maybe a third or fourth your open market sales? And when you look at your open market sales, is there any shift taking place with respect to what is being exported and what is being shipped to domestic box independents?

We have priority. We are not big open market players, as you know, Chip. Because of our high integration level, but we do have a solid core of long time customers. We're planning on supporting those. What we are going to do and what we did in the fourth quarter is that we will continue to pull some tons out of export, because export does tend to be more of a spot market for us than our domestic market. That is not to say that we don't have some good long-term customers in export and we'll continue to support them, but we'll do less "spot" business in the export market to support our domestic customers.

Okay and when you look at the rapidly improving board pricing picture, in the past we have typically seen it preceded by or certainly concurrent with OCC prices jumping up, and given that the industry is even more and more recycle-based we haven't seen that. We've seen the opposite. I don't know if there's anything you can let us know that you think is different that allowed OCC to weaken here.

I think the thing you have to look at what made OCC go up and it was a heavy influx of Chinese buying, and I think that will continue to be the long-term driver of OCC prices. I think what has helped OCC in the short run is that we had a fairly good lump in the last half of year capacity removed. And in the short term, that can drive up inventory, so I think that is one of the reasons that they dropped, eventually they are going to stabilize at some level and I think the buying patterns of Chinese, more than anything else, will influence where OCC prices are going long term. If you believe China is going to continue to grow like they have been growing, we do think long term that trend line will continue to move up.

Got you. And when you look at your customer base in 2006, is it changing a lot versus when it might have been two or three years ago, or is it roughly the same in terms of national account exposure or lack thereof?

I think when be look at -- I think in general, the answer is no, it has not exchanged dramatically. But in 2005, our local business grew faster than our national account business, and you know, for us, we think that is a good trend. We like smaller runs and things where you have more opportunity to add value. So from that point, that would be the only change that we grew faster in that regard.

Okay. And great. Thank you very much.

Chip, one other thing while you are on the phone, might as well take care of this, save me a phone call. I saw your write up and you talked about the change in other expenses?

Right.

I'm going to let Rick comment on that and you just jogged my memory.

That was really because we have some capital projects planned during the second quarter with Valdosta and we have to dispose of some assets, so Chip, of that amount that you referenced, $2.5 million and of that efficient number, $2.4 million was the non-cash charges for the disposal of assets.

Early retirement of assets.

And that charge would have been applied to the tax rate in the quarter, is that right?

That is correct.

Thank you very much.

Thank you. Our next question is from Richard Skidmore with Goldman Sachs. Go ahead, please.

Thank you and good morning, Paul. First question is on the -- comparing the fourth quarter results where your actual guidance was when you started the quarter, what were the main drivers of delta versus what you initially thought in the quarter?

Really three things that drove it. Number one was price. And quite frankly, the price increase was completed faster than we originally thought. We basically, for us, it's historically been a three-month process. A third, a third, a third, and you don't get the final third until the end of third month. And as I reported on this call, at the beginning of the third month, which is January we basically got it all. So we're about a month ahead of what we have done historically and that is why I termed it a rapid increase. So more people paid quicker than they have in the past. That was number one.

The second one is, we forecasted a loss of a couple of cents and we actually, once you get into the black, we had some tax benefits that you can't claim when you lose money. So when we got into making money, there was a few tax benefits that we didn't think would be available and that helped us by about a penny.

And the third reason is that we only use 3% natural gas and you know, that stuff is like gold. You save a little bit of it and that generated a penny or so. So those were the three reasons.

As you look to the first quarter, in your guidance for the first quarter, would it be reasonable to assume that the Counce and seasonal increase in energy is $0.04 in terms of that negative offset to your improving pricing situation?

Historically we have said that the shutdowns cost us about $0.06, maybe $0.07 if they are really big. Last year we had some big shutdowns. So I think between Valdosta -- Valdosta shutdown is actually a little bigger in accounts this year. I would say each of those shutdowns is going to cost us about $0.03. So the short answer to your question is $0.03, but we'll have another $0.03 in the second quarter when we take Valdosta down. We pushed that $0.03 into the second quarter just because we want to try to build a little inventory. We couldn't take two shutdowns back-to-back, I was worried about the inventory level.

And the seasonal pick up in energy sequentially first to fourth at a $0.01 or $0.02?

I would say it's probably a $0.015 would be a good number.

And just lastly, could you comment on how you are seeing box demand situation as you're sort of mid-way through January and looking out into February?

I was afraid you were going to is ask that and I don't really want to answer that question, but I will, and I'll tell you why. As I said last year, the numbers at the beginning of January are very volatile. You don't know if the whole month's going to hold up, because you've been down over Christmas, and they tend to be good. Basically what we have seen, we have got some very tough comparables. We were up 7% and 7% the last two Decembers. So I'm up 14% over the last two years and that is my comparable. But with that said, after about 12 days into the month, we're a little over 2% above those numbers. And so, I'm pretty happy about that, because when you are 2% above back-to-back record quarters, we think we're off it to a really good start.

Thank you, Paul.

Thank you. Our next question is from Mark Weinberg with Buckingham Research. Go ahead, please.

Thank you. Paul, you indicated that you were able to get the price increase through a little faster than perhaps a historic norm. You also sometimes can get a little less than the board increases and sometimes a little bit more, and in particular in this case in point, we have had a lot of cost pressures at the box plant so I think the motivation to get a little more would be high. What do you think is the potential in the first and second increases to potentially get a little bit more than the board increased through to the boxes?

Well, you have to get more than the board increase to cover yield, in other words, as that box plant runs at 92% yield and you know, you had a $40 ton price increase, you use more than a ton of containerboard to make a ton of boxes because of the yield. So if you are not 40 you really have to have 44 to break even. We would hope to at least cover the yield, which means we hope to get more than the $40 for example.

Okay. Great. Thank you.

Thank you. Our next question is from Mark Connelly with Credit Suisse First Boston. Go ahead, please.

Mark are you there?

Can you hear me?

Yes, loud and clear.

Sorry about that. Just two things, Paul. When you look at your volume growth across all of 2005, is there any way to characterize that growth in terms of the kinds of business it represents? Whether it's by product category where you seem to be gaining or if it's by geographic or anything like that on the mix basis?

I would say there hasn't been a dramatic change in the mix. We are very big in food and food service packaging and that's where predominant growth has come. I would say that the one thing, and I mentioned this earlier, the one change is that we did grow our local business faster than our national account business last year, and that was in concert on what one of our objectives was. So that would be the only pattern. More local, less national business.

Okay that's helpful. And with respect to the energy products you talked about accelerating them. Where do you stand timing-wise in terms of pretty much finishing and when you get to start reaping benefits?

The biggest single piece of them was Valdosta over fire air project and we burn a lot of bark and we improved the efficiency of those boilers that basically on each boiler with the same amount of bark we get about another 50,000 pounds per hour of steam. So it's one of these projects that is $5 million total and we're close to 100% return, we got some of that in the fourth quarter. That's another reason I should have mentioned as the part of reason our costs were so good. We did reap some of the benefits of that in the fourth quarter. And we had a couple other projects in terms steam-savings on a paper machine that were put in during the year. They were accelerated, but we had those in the third and fourth quarter, but I would say the over fire air project at Valdosta was the single biggest item.

We have probably seen most that benefit now. Is that fair to say?

You got a full quarter's benefit of that in the fourth quarter.

Thank you, Paul.

Thank you. Our next question is from George Staphos with Banc of America Securities.

Thank you. Good morning. Couple of questions. First of all, in prior quarters you have talked about the need to run with a little higher than normal inventory given the logistic issues that we have seen and transportation the last couple of years and I think the number you used in the past was maybe 10%. I don't know if that is right, but can you tell us where that buffer stock, if it still exists, is right now?

We don't have any buffer stock. Our inventories are too low to the point that we have delayed one of our shutdowns and you know, we have got a whole quarter to run really well to get us in position to take Valdosta down in the second quarter. So what I meant was that when you look at inventory levels compared to ten year ago, I think inventory levels naturally have been to higher today because of transportation. I would say this situation got exacerbated over Christmas and New Years and it was very hard to get trains. We were able to finally get them, but the transportation system situation is not getting any better. But it's not buffer stock, it's just simply and when we count of inventories, we count within the pipeline also, and if the pipeline is taking you 14 days instead of 10, that is just more you have in the pipeline. That is where the additional inventory is going. It's not in the box plants.

I understand.

It's tied up in the pipeline.

And that leads into my next question, Paul. Is there anything that you can do to manage the transportation issue any more effectively into '06? I think your performance was pretty good in '04, but a lot of other players from what I recall had a lot of difficulty in '04, so if it took away the impact of pricing and profit and what can the industry do? What can you do better in '06 as you get more of the demand and price to the bottom line, given that environment?

I think one of things we can do is work better with the railroads. I will say that our trade association AF&PA on behalf of all the suppliers is talking about what we can do to improve rail transportation. There are some things going on, but in the short-term, you have just got to really stay on top of things, and we will go to probably more trucks at times. Now that's a little more expensive, but that is the trade-off you pay when inventories are low level. You don't have the luxury of having that 10% buffer stock, if you will, at your box plant and that just translates into higher transportation expense and unfortunately, in the short-term, you have to throw money at it to service your customers, and we're doing that. And on longer term, I hope we can make some improvements, but you know, that is as good as an answer I can give you on that one. It's a tough one.

When we look at fourth quarter production which flat to down and box shipments were up, I think you mentioned already that you saw a little bit less export and you pull the tons out to supply your box network. Any other reason why production wasn't running in line with box shipments other than the fact that the 100% utilization?

The problem is that I wish we could have made another 20,000 tons in the fourth quarter. It would have made life a lot easier in the first quarter, wouldn't have to delay the Valdosta shutdown. Cold weather, it's harder to run a papermill in cold weather. You got frozen chips, you get other problems. That is why your best productivity is in the second quarter and third quarter because of the weather is on your side. We had a remarkably productive fourth quarter, a run at 100% of capacity in the fourth quarter is -- I have been around a lot of papermills for a long time. This is as good a performance as I have been around and unfortunately for us, we have to do it again the first quarter.

You think anyone has been pulling back just because the marginal cost on the marginal ton relative to energy?

You know, my own opinion is probably so, because I read the same thing you do in the publications in terms of tight supply and the operating grade was around 95%. I would have expected maybe a touch higher, because with the market being as tight as it is and the only explanation I can give why it's not a little tighter is that somebody did try to save energy and didn't make as much paper. Because if you are on gas, you could be making paper above your cash cost, and that was certainly our case in Filer City. We could have made more paper at Filer City, but the cost to that would have been selling price below our cash cost as we entered the quarter. And Filer is a first quartile mill in our opinion. So I think there is some of that, and maybe as energy costs come down, if they come down, that could help on the supply side a little bit.

Thank you, Paul.

Thank you, our next question is from Rich Schneider with UBS. Go ahead, please.

Hi, Paul.

Good morning, Rich.

A couple of questions and I know you are small now in the export market, but I was wondering if you could talk about what the tone of that market is and what is happened with pricing in that market?

Well, pricing, I think has been widely reported in the publications as moving up, and it makes for an interesting phenomenon, because with high freight, the freight most of the export is FAS port, which means if you have a mill like a lot of people do near ports, you have a lot of freight savings. When you combine the freight savings with the increase in export prices, export business is a lot more attractive than it was a year-ago, and so it's a more difficult financial decision, if you will, to pull tons out of that market. But again, you have got to service your long-term customers, and you got and we at least think, we'll make the tradeoff to eliminate spot tons go to long-term contract tons. But I will tell you, financially it's not the no-brainer, it used to be.

There have been reports that export price may be, in some markets, above the domestic price is in have you experienced that?

We turned down some export business at very attractive prices because we need the tons for our home market.

In terms of the February box price increase that you are out with, what is the reaction you are getting, you know in preliminary discussions with your customers? I mean, this is coming on the heels of, I guess, the November box price increase, very short period of time between the two of them, what are the reactions that you are getting?

Well, we are talking to customers and until we're done with the full implementation, anything between us and our customers is between us and our customers. So I really can't comment on that further. We had a very rapid implementation of our first box price increase. We expect the same thing on this one.

And in your outlook for 2006, you know, we're starting the year with good box demand. You were in sort of the situation a year-ago, is there any reason that you feel in a box demand will hold up better in 2006 than it did in first part of, first-half of 2005?

I have to be honest with you, I really don't know what box demand is going to do. I thought it was going to be better last year and it wasn't. That is one thing that I really can't manage. I read the same things in the paper that that you do that the economy, despite energy bumps, despite other things, is chugging along, and in theory that should translate into better demand for boxes. But other than that, I really don't have anything that I think I can add to predicting where box demand is going to go. I'm sorry, but I just can't.

Just last question, when you look in the mess the industry was in in the spring of last year with trade publication pricing, et cetera and there was a lot of talk of moving off of the pulp and paper index or at least thinking about it. Now the market is very tight and there is not a lot of talk about it, because it seems to be reflecting what is going in the market. Is there still an effort on your part to try and move away to something that is a little more stable?

The only thing I would add on that and only thing I would say on that is when things are weak, it's hard to move away from anything. When things are stronger, you have a better chance to do that and that is about all I would say. I think what everybody wants is an index that most accurately portrays where prices are and I think there is some conjecture whether or not we had that in the past. I certainly hope that we can achieve that in the future, because I think it benefits both buyers and sellers. So that is about all the wisdom I can share with you there.

Thanks a lot.

Thank you. [OPERATOR INSTRUCTIONS] Our next question from Mark Wilde with Deutsche Bank. Go ahead, please.

I would like to come back to the natural gas question a little bit more. Would it be fair to assume that part ever what you have done is reduce the amount of recycled in your system and try to increase the amount of virgin fiber that you use and energy you can self-generate as a result?

No, there are pluses and minuses, for example, at a mill like Filer where we use most of our recycled fiber is in our medium mills. Valdosta uses no recycled fiber. Counce uses some, but most of it is in our semi-chem mills where you need to put a little recycled in, in semi-Chem, because you need some long fiber. It gives the sheet better strength properties. So we are required to put some there and actually using recycled fiber saves us on energy cost because as you know, semi-chem is called semi-chem because it's not cooked very much. You have 80-85% yield and generate very little black liquor. So recycled fiber actually helps the energy situation in a recycled mill. So no, that is not a consideration.

The 3.2 or 3.3% in the fourth quarter, is that sustainable?

I hope so. That is our goal for the first quarter, to see if we can stay at 3%. Getting below 3% is not sustainable, because you have to have pilot lights and something like that in your boilers, you burn gas in your line kiln and in certain situations. So you know, our new goal is to try to stay near 3%. I don't think we can get much lower than that.

Do you have any idea what the percent is across the entire containerboard industry?

I have purchased surveys that anybody can purchase and they give indications of what it is, but I'm reluctant to reference those surveys other than say much higher.

Okay. And finally, just the maintenance schedule for this year, Paul. You said Counce in the first quarter and Valdosta second quarter, would both Filer City and Tomahawk be in the third quarter?

We'll get Tomahawk right at the beginning of June. That is first quarter, but that is a pretty small shutdown compared to the linerboard mills. You don't have the recovery boiler systems, etcetera, etcetera, it's much less work and then we get Filer in the fall.

So that number you gave for the cost of Valdosta in the second quarter will also be some small cost for Tomahawk?

Yeah, probably $0.01.

Okay. Sounds good.

Mark, one other thing, I did also see one of your write-ups about cash flow. And you were missing some cash.

We caught it.

You caught the mistake?

Yes, it's the repurchase.

Right. Good. Okay.

Thank you. Our next question is from Andy [Steaman] with Ibannon.

Thanks a lot. I just wanted to ask you how many shares after you adjust for the repurchase at the end of the year, not the average for the quarter for average for the year, but the actually fully diluted at the end year number of shares, if you have that.

Rick has that information and I will let him answer.

You are looking at diluted shares outstanding of 104, Andy.

Okay.

104 even. Thank you.

Yeah, it's 104 million for those that don't follow us that closely.

Thank you. I'm showing no further questions at this time. Sir, you may proceed.

Thank you. Well, listen, I do appreciate your participation and looking forward to talking to you next quarter. Thanks again for participating.

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