Packaging Corp of America (PKG) 2011 Q1 法說會逐字稿

Thank you for joining Packaging Corporation of America's first-quarter 2011 earnings conference call. Your host today will be Mark Kowzlan, Chief Executive Officer of PCA. Upon conclusion of the narrative, there will be a Q&A session. I will turn the conference over to Mr. Kowzlan. Please go ahead when you are ready.

Good morning. And welcome to Packaging Corporation of America's first-quarter earnings release conference call. I'm Mark Kowzlan, CEO of PCA, and with me on the call today is Paul Stecko, Executive Chairman of PCA, Tom Hassfurther, who runs our corrugated business, and Rick West, PCA's Chief Financial Officer. Thanks for participating in this morning's call, and after the presentation, we will be glad to take any questions.

Yesterday, we reported first-quarter record net income of $37 million, or $0.37 per share, which included after-tax non-cash charges totaling $2 million, or $0.02 per share, from asset disposals related to major energy projects. Reported results for the first quarter of 2010 were $19 million, or $0.19 per share, which included income of $9 million, or $0.09 per share from alternative fuel mixture tax credits, and asset disposal charges of $2.5 million, or $0.02 per share. Net sales were a first-quarter record, $630 million, up 14% compared to first-quarter 2010 net sales of $551 million.

Excluding income from asset disposal charges, net income was $39 million, or $0.39 per share, versus the first quarter of 2010 net income, excluding both income from fuel credits and asset disposal charges of $12 million or $0.12 per share. This $0.27 per share increase in earnings was driven by higher container board and corrugated products mix and price of $0.35 per share, and higher volume of $0.06 per share. These increases were partially offset by lost volume and higher costs from severe weather of $0.02 per share, and by increased costs for transportation of $0.03 per share. Chemicals, $0.03 per share, medical and worker's compensation costs of $0.02 per share, labor of $0.02 per share and incentive compensation accruals of $0.02 per share.

Our first quarter earnings were $0.03 per share lower than the guidance we provided on January 24, due in large part to unusually severe winter storms that impacted both our mills and box plants. These storms, which involved heavy snow, ice and rain, caused us to lose the equivalent of one workday during the quarter across the entire box plant system. Wood harvesting costs and energy consumption at our mills were also higher, with the extreme cold as well as heavy rain in the south. Finally, at our Counce, Tennessee linerboard mill, severe storms disrupted a supply of purchased electricity from TVA to the mills, resulting in about half a day of lost paper machine production. Once the major energy project is completed later this year, we will be able to sustain operations without purchased power from TVA.

Operationally, even with the exceptionally bad weather, and 2 annual maintenance outages, we performed quite well during the quarter. Our corrugated product shipments were the highest since our record first-quarter 2006 shipments, up 3.1% over last year for total shipments, and up 1.5% for workdays with one more FBA workday this quarter. However, as we said during our fourth-quarter earnings conference call on January 25, most of our box plants did not work on January 23, which is counted as a workday by the FBA and as mentioned earlier, we lost the equivalent of one additional workday in our box plant system due to severe snow, ice and rain storms.

First-quarter 2011 volumes were also up against a very tough comparable, with total shipments of 14% in the first quarter of last year. The quarter ended strong, with marks setting a new total shipments record for any month, outperforming August of 2005 shipments by about 1%. As reported by the FBA last Friday, industry corrugated shipments for March were also up 4.1% in total and per workday, and industry container board inventories dropped 166,000 tons to 2.3 million tons, which is the second lowest level in 30 years.

Our outside sales of container boards compared to last year's first quarter were up in total about 1%. Increased volumes in both container board and corrugated products improved earnings by about $0.06 per share, compared to last year's first quarter. All of our mills had an outstanding quarter, producing 602,000 tons of container board, up 33,000 tons over the first quarter of 2010, driven by strong productivity, lower annual outage production losses, and no wood fiber shortage downtime.

We did have production losses of about 22,000 tons due to annual maintenance outages during the quarter, with both of our linerboard mills in Counce, Tennessee, and Valdosta, Georgia, each down for 5 days. The Valdosta annual maintenance outage continued into the second quarter, and work was scheduled to be completed on April 6. However, due to an electrical outage, the mill did not start back up until April 11. The outage results from a fire at the mill, which was confined to wiring in the ceiling of the turbine generator room. There was no damage to major equipment or other areas of the mill, and the fire had no impact on the major energy project at Valdosta.

We will be filing an insurance claim for the total cost of the fire, including asset write-offs, repair costs, and production losses, which will be subject to a $3 million deductible. We expect to settle the claim in the second quarter and record a charge of $0.02 per share for the deductible. We ended the quarter with our inventories down about 8,000 tons below 2010 year-end levels, which is lower than we would have liked, considering the production downtime we have scheduled in the second quarter.

Looking at pricing, our container board and corrugated products prices were up significantly year-over-year, reflecting higher container board prices. Both domestic and export, plus bulk pass-through to boxes of our container board price increase, which along with mix, improved earnings by about $0.35 per share compared to last year's first quarter. With regard to costs, we are seeing inflationary cost pressures continue in several areas. Cost acceleration is up about $200 per ton since the first quarter of last year, which together with other chemicals, reduced our earnings by about $0.03 per share.

Outbound transportation costs were also up about $0.03 per share, compared to last year's first quarter. Driven by higher diesel prices, as well as increased demand on the nationwide truck fleets and rail systems. On average for the quarter, diesel costs were up about 25% over last year's first quarter, and exiting March, up an additional 10%. We currently expect these costs to continue to increase and be higher than the first quarter average costs.

Other significant year-over-year cost increases included medical and worker's compensation costs, which can fluctuate based on the timing and nature of the claims of about $0.02 per share, and higher incentive compensation accruals of $0.02 per share. We accrue an estimate of our annual incentive costs based on quarterly earnings, and with significantly higher earnings this quarter than last year's first quarter, accruals were higher.

Labor costs were also up $0.02 per share over last year as a result of annual wage increases. Industry published prices for old corrugated containers, or OCC, excluding delivery costs, were up about $25 a ton in the first quarter of 2011, compared to the first quarter of last year. The higher recycled fiber costs reduced our earnings by about only $0.01, due to our relatively low usage of OCC, and that was offset by wood fiber costs, which were down by about $0.01 per share compared to last year. We were able to reduce the normal winter wood increases by building additional wood inventory during the second half of 2010. I'm now going to turn it over to Rick West, our CFO, who will give you an update on our cash position and our biofuel tax credits.

Looking at cash, PCA generated cash from operations of $64 million. Cash from operations was seasonally lower, with about $44 million in beginning-of-year payments, including incentive bonuses and our semi-annual interest payments on our notes. Capital expenditures were $65 million during the quarter, which included $25 million for normal capital expenditures, $33 million for the Counce and Valdosta energy optimization projects, and $7 million for strategic projects at our box plants.

During the quarter, we repurchased 618,000 shares of our common stock for about $27.88 per share, or $17 million, and paid our regular common stock dividend that amounted to approximately $15 million. We ended the quarter with $173 million cash on hand. On April 14, we acquired Field Packaging Group, a Chicago-area corrugated products manufacturer, with sales of $35 million in 2010. The acquisition was made with cash on hand.

Our total long-term debt at quarter-end, excluding capital leases, was $658 million. On March 1, we extended our credit agreement for our receivables securitization program to February 28, 2012, at a slightly lower interest rate. During the first quarter, we did not utilize any biofuel tax credits to offset federal cash tax payments, as no tax payments were due until April 15. At quarter-end, we have estimated tax credits remaining from between $100 million to $200 million, with the final amount to be determined based upon the IRS review of our amended 2009 tax return, which was filed in December, 2010. The review of our amended return began this quarter. With that, I will turn it back over to Mark.

Thank you, Rick. Looking ahead, the second quarter will be difficult from an operations standpoint. This is the first time I can recall that the annual maintenance and capital project-related work we need to do requires us to have all 4 of our mills down for planned outages in the same quarter.

The portion of the Valdosta annual maintenance outage completed in April reduced production about 8,000 tons. Our Tomahawk, Wisconsin, and Filer City, Michigan, medium mills, are planned to be down for their annual maintenance outages will which reduce production by 12,000 tons. Or number one paper machine at Counce is planned to be down for a week in June to install a new electrical drive, and the mill will be slowed back after that, as we start rebuilding the 2 recovery boilers, which together will reduce production by 19,000 tons.

Total planned downtime and slow-backs in the second quarter will reduce production by about 39,000 tons, or 17,000 tons higher than in the first quarter. And it will also increase production costs, and annual outage-related maintenance costs. We expect inflationary cost pressures to continue as chemical, transportation, and energy costs are currently higher than the first-quarter average. And we expect them to increase further. Our corrugated shipments are expected to increase, and we also expect a richer mix. Energy usage should decrease with the warmer weather. Considering these items, we expect the second quarter earnings of about $0.35 per share.

With that, we would be happy to entertain any questions, but I must remind you that some of the statements we made on the call this morning constituted forward-looking statements. These statements are based on current estimates, expectations, and projections of the Company and involve inherent risks and uncertainties, including the direction of the economy, and those identified as risk factors in our annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in these forward-looking statements. With that, we will be happy to take any questions. Operator?

(Operator Instructions).Our first question or comment comes from the line of Mr. George Staphos from Banc of America. Your line is open.

Thanks, hi, everyone. Good morning. A couple of quick questions to start. Was there any effect at all from the project outages in the first quarter? And as you look to the second-quarter guidance, and the 39,000-tons, do you still expect outages to be -- the project-related outages to be roughly around $0.10 as I recall from the prior quarter's conference call?

Good morning, George. During the first quarter, the work that was done was just the normal annual shutdown work. And some tie-ins related to the Valdosta new boiler. But the second quarter, we will see the remainder of the annual shutdown work and then the beginning of the Counce recovery boiler work. And again, we saw the 22,000-ton impact in the first quarter from annual shutdown work. And going into the 39,000 tons for the second quarter, up 17,000 tons over, but again, primarily the annual energy project work at Valdosta and Counce will be the second, third and finally the fourth quarter impact.

And George, this is Paul. There is another little wrinkle here that we might not have made perfectly clear in the last earnings call. Although we've talked about it in the past, and it changes the way you amortize for maintenance costs. The annual outages in the first quarter cost us $0.06 a share. That was the hit. In the second quarter, these annual maintenance outages and the major energy project work is going to cost us $0.13.

Okay.

So that's a $0.07 differential. And that's broken into two pieces. And I think maybe one of the pieces is well understood. The first piece is simply the effect of the more tons, and the normal maintenance costs. That would be $0.04 more. And that is in proportion to say, 22,000 tons of downtime in the first quarter compared to 39,000.

But there is another $0.03 of maintenance that we also take in the quarter, because we have to then amortize the first-quarter maintenance costs over the entire year. And then we will have to amortize the second-quarter maintenance costs over the entire year. And since we did the first quarter maintenance so late in the quarter, there was hardly any maintenance, hardly any amortization, so we really get a double hit this quarter. The normal $0.04 plus we pick up $0.03, and we will so each subsequent quarter for the amortization of earlier maintenance work. So really, it is a $0.07 hit compared to the first quarter as a result of these shutdowns.

Okay. That's very helpful, Paul. I guess the second question I had, when I look at the first quarter results, and I look at the -- if you will, the revenue benefits that you called out on an EPS basis, if I multiply by the share count and gross up by the after-tax amount, it winds up being around I guess $65 million or so. Yet the revenue grew by a greater amount. I was wondering if you could remind us, what might drive that variant? And similarly, cost of goods moved more than the line items per share that you called out again. Could you remind us what might cause that variance in the quarter?

George, it is all related to the volume. So that is the key.

Okay.

Pricing was pretty stable. As you would expect, quarter over quarter. And we had one terrific quarter volume-wise.

Yes, well that's --

And the cost of goods sold line, you also get the impact of inflation in addition to the higher volume.

Okay. Last one, I will turn it over. To the extent that you could go back, say three months ago and look out to the second quarter and what your inflation expectations were, how much more negative is inflation running right now on input costs and freight, relative to what would have been in your guidance coming out of the fourth quarter? Thanks, guys. Good luck in the quarter.

Well, let me just say it another way in terms of inflation. Inflation is higher than we thought. In fact, if you look at our $0.03 miss in the earnings compared to our guidance, $0.02 was the bad weather that was obviously unprecedented and unpredictable. The other $0.01 came from inflation. About $0.005 in transportation and $0.005 in medical. So if you look at it that way, you can say we missed inflation by only a $0.01, but we actually missed it more than that, because chemicals were higher, and we offset some inflation with higher volume.

Right. Okay. Thanks.

Our next question or comment comes from the line of Chip Dillon from Credit Suisse. Your line is open.

Yes, good morning.

Good morning, Chip.

As we look at the next, we're beyond the second quarter and we look at the second half, obviously it is going to be, we're coming to a head here on the energy projects, and I thought maybe, given that we're getting close, could you give us sort of your latest on how we will see both the expenses in the third and fourth and maybe even the first quarter flow, and how the benefits and how you expect them to start to kick in, as we go through again the third, fourth and first quarter of next year?

Again, if you look at the way the second quarter will play into the third, all the annual shutdowns are done, but we're right into the Counce recovery boiler rebuild, and again, that will impact us roughly 14,000 tons in the third quarter. And 14,000 tons going into the fourth quarter. So we will have the impact of the boiler rebuild. Now, that being said, the first recovery boiler goes down in June. That will be completed by the latter part of July, into August. So August will be a month that we will have an opportunity to run hard. And take advantage of that clean running, if you will.

And then the second recovery boiler goes down in September. Now, the other point is that the turbine generator was completed in December, and that also will receive the benefit of the incremental steam from the recovery boiler, once it is completed at the end of July, so there will be incremental benefits there. And then again, with the fourth quarter work, wrapping up, we will see the number two recovery boiler completed, and then the startup of the Valdosta turbine and boiler.

And that's going to be like in October, November?

Yes, Paul, would you like to elaborate on it?

Yes, I think you covered it quite well, but the thing I would point out is, Chip, and I know you like to model things, everybody likes to model things, this is an incredibly difficult year to model, even for us, because of the annual outage and the timing of things. You do something that you get a benefit for, but you may not get it today, and let me give you an example. Because Mark alluded to this. In order to balance our inventory, we will take that recovery boiler down at Counce in June. It will be down the last half of June, all of July, and for the rebuilds. And that will cost us maybe 300, 350 tons a day.

And then we're going to -- then we have no downtime of any type in August. 31-day month. And we have the ability, since it is so close to the shutdown, to run beyond our rated capacity on equipment that fresh. So you know, let's say we can run at 104%. That certainly would be our goal, to balance our inventories. And run like crazy in August.

The problem is, we will just be building inventory with those tons, and we won't get the benefit of those tons, until we sell them over the busy fall season. So although we made the tons, we will get the fixed cost part of that, that will flow into our results, but the profit will be delayed. A similar concurrence is in building this inventory plant for the years, we trade for tons, and we have the ability to vary the tons during the year. In other words, throw our tons out of balance early in the year and pay the tons back later when we've got the production capacity. So for every ton of trade, ton we took in now, we don't make any money on it. It doesn't cover any overhead. But when we pay those trade tons back in the second half of the year, we will get both the LIFO benefit from reducing the inventory, and we get profit on those tons.

So it is hard to model out exactly where all of these things are going to happen. But it's got to happen by the end of the year. We got to zero these balances in, and balance our inventory. So it is a quite a complicated story, and I'm just really trying to give you a little perspective on it.

That's very helpful. And just real fast, shifting gears, as you look at the OCC market, I can't remember it being so stable at such a high level for so long. And it seems like, maybe my perception is wrong, that it is a little bit tighter or stronger in Europe than it is here. Do you think that the inability or the challenge in getting ships and containers is influencing the market whereby, you know, we're long bore OCC here, so there is sort of plenty here but there is not plenty in other places?

I really don't have any knowledge. I mean that's a good question.

There are two things that are unexplainable. The Cubs and the OCC market. And I'm not going to even attempt the Cubs. But OCC, you just can't seem to predict it. My own gut feeling, and I have just anecdotal evidence, the Chinese are trying to throttle back, have slowed back a little bit, and the one thing that drives the OCC market more than anything else is how much the Chinese are buying. So they obviously have backed off a little bit. And I think the only thing that is certain is just a matter of time that they're going to pick it up again. When they do is -- who knows.

Got you. Well, thank you very much.

Thank you.

Our next question or comment comes from the line of Mr. Rich Skidmore from Goldman Sachs. Your line is open.

Good morning. Could you maybe just have Rick talk to when you would expect a tax credit resolution to come through? And then on the recovery boiler spend, does that end in the fourth quarter? Or will you have some carry-over into 2012?

On the second question, for the most part, all of the capital spending related to the major energy project will be completed by the end of the fourth quarter. And I would say anything that would be going into the first quarter of 2012 would be minimal, Rick. As far as the resolution of the tax situation, as far as the biofuel credits, I really can't give you an answer. It will depend upon the IRS. I can tell you that we're already working with the IRS to review the amended tax return for 2009. And we hope that it will go expeditiously. But that will be based on the IRS' time line.

Okay. And then just one other question. In terms of just your normal seasonality in the business, if I recall, usually second quarter is better than the first quarter, because you use less energy, and other things. What is that normal seasonal change historically? Is it about $0.04 to $0.05 from the first quarter to the second quarter?

Not that much. It really depends. One of the things that if you look at seasonality, you normally see some better wood costs in the second quarter, third quarter, but fortunately, for us, we didn't have an increase in wood costs. So it is not as much as you would have normally had in the past. Second, we do expect energy usage to go down with warmer weather. But that is more of a $0.01 to $0.02 per share item.

But on strictly volume, I think you're thinking of volume, Rick, if we're usually up $0.02 on volume first quarter to second, maybe up $0.02 to $0.03, on volume, second quarter to third, as the volume builds, and so business does get better, volume-wise, and our expectation, as Mark reported, is for higher volume in the second quarter. Which we think will be the case.

Thank you.

Our next question or comment comes from the line of Mr. Anthony Pettinari from Citigroup. Your line is open.

Good morning.

Good morning.

Can you elaborate a bit more on your current inventory situation? You drew inventories down in the first quarter. Are you comfortable with where you are and I guess what steps you need to take to make sure you're supplying your box plants ahead of the rebuilds in the summer?

Good question. We had planned to build inventory ahead of the shutdowns, and as we went into the January, February period, obviously, volume was very good. Mills ran strong. But box plants also ran well, in spite of the winter weather issues. And so we actually drew down some of that inventory.

That being said, we got to run well and continue to take care of business in order to meet the demand. But to your point, we were anticipating to build, where we actually drew it down 8,000 tons. So, as we also mentioned in the call, in January, we have some options. In fact, our domestic volume is that strong, as far as cut-up, we continue to have the ability to take tons out of export as an example, in order to supply our own needs. So again, right now, the high class situation with higher volume and box plants will set the pace for us, and the mills will have to run to meet that.

As I said earlier, this is Paul, our basic plan now, is we're pretty close to where we want to be. The key is when we got that five or six-week period in August, our plan is to run at 104% of capacity. If we do that, we're in good shape. If we don't, then we either have to cut back in some area, primarily exports. But our track record shows we can do it.

Now, we said we had about 50,000 tons related to the shutdown. We pre-built 25,000 tons. That is 25,000 above our optimum inventory level. Now, we can run lower than optimum. 15,000 tons or so. It costs you a little more money to do that, because of your freight costs, but that is also a solution. We will just run a little leaner and it can cost us. If we really had a problem, which we're not anticipating, we could always push that second recovery boiler shutdown out another two, three, four weeks, and build more inventory. But we don't think it will come to that.

Okay. Thank you. That's very helpful. And Rick, you had confirmed that the energy product capital spending would basically conclude at 4Q. Are you still targeting about $295 million, and with the 25% return?

Yes, that is still in the ballpark for both capital as well as return.

Great. Thank you.

Thank you. Next question?

Our next question or comment comes from the line of Mark Weintraub from Buckingham Research. Your line is open.

Thank you. First question was, just you had referenced, Mark, I think $0.06 and $0.13 for the impact from both the annual maintenance and from the energy projects in the first end quarter respectively. Roughly how much of that would be the energy versus the annual maintenance?

You've got a third item, too, in the second quarter, which is the number one machine being down at Counce for the drive replacement, Mark. So we really haven't differentiated it. But normally, we said the first quarter was about $0.06 with the Tomahawk and Filer City outages are much smaller outages, so they would probably be about $0.02. And then the remainder would be the extra energy work in the Counce.

Okay. And in the second quarter, how much would your normal annual maintenance charges -- would it be $0.04 or $0.05 typically in an average year?

Including the annual outage repair cost amortization, yes.

Okay. And then just totally shifting gears, April, you can give us a sense as to how the first few days in April have stacked up?

Yes, if you look at our first 10 days, shipments have been very good. We're up about a percent over March, which was an all-time record. And actually up 3% over last year's April, which was also a record. So we're feeling pretty good right now with what we're seeing in the market.

Yes. And both of those -- so that is a pretty tough comparable being up over your all-time record.

Okay. Thanks very much.

Thank you. Next question.

Our next question or comment comes from the line of Mr. Phil Gresh from JPMorgan. Your line is open.

Good morning, guys. Most of my questions have been answered, but I just want to follow-up on the acquisition. What was the EBITDA contribution to try to get a sense of the multiple, and any kind of synergies you would expect from that?

We don't typically get into the financials when we disclose an acquisition. Rick, do you want to add any more?

No, at this point, we don't have anything to add related to the acquisition. Of course, the sales were about $35 million. It fits all of our criteria, as we said earlier. And it is going to be beneficial to us and accretive to earnings from the first day.

And basically, we're not trying to be evasive, but anything we shared with you on that would be sharing with our competitors, and that's just not something we would like to do.

Fair enough. And then just to clarify, the guidance in the second quarter I assume does not include that insurance deductible charge of $3 million.

That's correct. Right.

All right. Thanks.

Thanks. Next question?

Our next question or comment comes from the line of Mark Connelly from CLSA. Your line is open.

Hey, Mark, just coming back to the comment about being able to pull back from the export market, how much tonnage is going into export right now? Actually, I'm just trying to get a sense of how much leeway you have on this inventory situation. And then second, as you look at that laundry list of incremental costs this quarter, as we look for our model, how many of those costs were incremental to your expectations? I mean, obviously some of it is related to your -- to the operating issues, and the tons you produced, but how much of those costs were a surprise to you in the quarter?

On the first question, with the exports, we are down 3%, on the first quarter. And again, that was planned. Again, as we finished up the year 2010, and went into the first quarter, we had mentioned that on the January 25 call. The next question --

I think we were down from about 10% to 7%. So you got a couple hundred thousand tons to play with, Mark.

Perfect.

Which is a lot of tons.

Yes, exactly. And the second question was just on costs. Just trying to get a sense of how many of those things caught you by surprise in the quarter. Or weren't something that you could predict, based on the operation issues you had.

Really very little. As we said earlier, we missed our guidance by $0.03. $0.02 of it was in severe weather, both in terms of volume and increased costs. You had people working but were not shipping. The other cent was essentially in transportation, which was inflation-oriented with the higher diesel costs, and the other $0.005 was in medical, which, it was either a combination of claims or increased costs for the benefits that were rendered.

So from our guidance, it was not that much that we didn't expect. But it did go up during the quarter, which leads to the fact that for many items, the first quarter average is lower than what we had exiting the quarter, which has more impact in the second quarter.

And to be fair, Mark, we probably missed inflation by another penny, but that got wiped out by a penny of volume, it was better than we thought, so we had two misses that offset each other, which happens every quarter.

Sure. That's very helpful. Thank you.

Thank you. Next question?

(Operator Instructions).Our next question or comment comes from the line of Andrew Feinman from Iridian. Your line is open.

Thanks. So I just would like you to tell us a little bit more about the acquisition. Not the numbers, I know you don't want to talk about the numbers, but was it a box plant or how many box plants, what does it do to your integration? I think you said something about manufacturer. So do they have any paper?

All we're prepared to release today is we bought a box plant located in Chicago, which is a big market, where we need capacity, and it has about $35 million in sales, and you can do math, and make an estimate yourself on how big that might be in terms of tonnage, but again, we don't normally disclose this information. Down the road, once it is integrated, then we talk more about it.

Are they capable of doing the hard stuff?

You didn't hear my first answer apparently.

I'm sorry. Okay. That's good enough.

Apology accepted.

Thanks.

Our next question or comment comes from the line of Mr. Eric Seeve from GoldenTree. Your line is open.

Hi, I was hoping you could provide a little bit more color on the expected timing of the ramp-up of the energy projects, and also, you've talked about what the returns will be. Are those the returns that we should expect in year-one of the projects being operational? Or is there a ramp-up period?

As an example, when we complete the recovery boiler rebuild at Counce, into the fourth quarter, we expect to see the benefit taking place during that fourth quarter. And then Valdosta, with the new recovery boiler and turbine generator, we expect to see that benefit beginning at that point in time. And then seeing full benefits though, in the first quarter of 2012. So again, there will be some start-up. But full benefit, first quarter 2012.

Yes, the question is, we're not sure when we're going to start up in the fourth quarter. I mean it is planned for December the 1st. You never know. If I had to make a big bet, I would bet that we will probably be two weeks early as opposed to two weeks late. The project is going well but we don't want to jinx it. But in terms of 2012, yes, this thing, we get the benefit in 2012. The only other thing I would say on return is that we're confident, at the return, whether we get it above the line or below the line, is yet to be determined, because part of the return involves credits, energy credits, and we can take those in various forms, some of them in revenue, or we can opt to take, if approved, investment tax credits, where you get the cash up front. And so that is the -- but they both will translate into the same return. But the complete nature of the return hasn't been defined, because there is still energy legislation going on that we will participate in, and we are just trying to find out the best way to participate.

Okay. Thank you.

Thank you. Next question.

Our next question or comment comes from the line of Mr. Joe Licursi from BMO Capital. Your line is open.

Good morning, Joe.

It is Stephen Atkinson actually. But good morning, accepted. In terms of the Tomahawk and the Filer City, where their energy balance obviously is not as good, is there anything you can do there?

We always have plans in our portfolio as we look forward at opportunities, but currently, again the bigger projects, obviously are at the Southern mills, but we have the biofuel process at Filer City which was started up in 2008. And so again, when you look at Filer, we have significantly improved the energy position, and eliminated the use of natural gas in our boilers, and supplemented that with methane gas that is generated on-site from the bio process.

Okay.

The opportunity, we also have at Filer, it is not on the immediate drawing board, but it is a down the line consideration, if electricity costs do what we think they're going to do, we could, instead of burning that in a boiler, put it through a gas turbine, and generate electricity. It would be a small investment. And that's something that we will look at down the road.

In terms of your share buybacks, what is your status, and what is still left?

Well, we're finishing up essentially the last part of what we had. But we just had another authorization last quarter for $100 million, so we've got $100 million left and a little bit from the previous authorization.

Okay. Thanks very much.

Thank you. Next question?

(Operator Instructions).I'm showing no additional audio questions at this time, sir.

With that, operator, we will conclude the call. And thank you. Appreciate it very much. See you on the next call.

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect. Everyone, have a wonderful day.