Packaging Corporation of America (PKG) Q1 2011 Earnings Report, Transcript and Summary

Thank you for joining Packaging Corporation of America’s First Quarter 2011 Earnings Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. [Operator Instructions] I will now turn the conference over to Mr. Kowlzan. 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 Kowlzan, 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'll 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 noncash 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 (sic) [$3 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 containerboard 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 workers' compensation cost 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 involve heavy snow, ice and rain, caused the facility equivalent of one work day during the quarter across the entire box plant system. Wood harvesting cost and energy consumption in 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 the supply of purchase electricity from TVA to the mills resulting about 1/2 day of lost paper machine production. Once the major energy project is completed, later this year at Counce, we will be able to sustain operations without purchase power from TVA. Operationally, even with the exceptionally bad weather and two annual maintenance outages, we performed quite well during quarter. Our corrugated product shipments were the highest since our record first quarter of 2006 shipments, up 3.1% over last year for total shipments and up 1.5% per workday 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 1 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 last year. The quarter end is strong with March 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 containerboard inventory dropped 166,000 tons to 2.3 million tons, which is the second lowest level in 30 years. Our outside sales for containerboard compared to last year's first quarter were up in total about 1%. Increased volumes in both containerboard 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 containerboard, 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 five 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 before April 11. The outage resulted from a fire of 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 insurance claims for the total cost of 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 report a charge of $0.02 per share for the deductible. We ended the quarter with our inventory down by 8,000 tons below 2010 year-end levels, which is lower than what we would've liked considering the production downtime we have scheduled in the second quarter. Looking at pricing, our containerboard and corrugated products prices were up significantly year-over-year, reflecting higher containerboard prices, both domestic and export, plus a full pass-through to boxes of our containerboard price increases, 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. Caustic soda is up about $200 per ton since the first quarter of last year, which, together with other chemicals, reduced our range 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 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 cost. Other significant year-over-year cost increases included medical and workers' 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 and estimate our annual incentive cost 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 cost, 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 range 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 increase 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 bio-fuel tax credits.

Working 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 semiannual 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 Fuel [ph] 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 bio-fuel 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 returns, which was filed in December 2010. The review of our amended return began this quarter. With that, I'll 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 correlated work we'll need to do requires us to have all four of our mills down for planned outages in the same quarter. The portion of 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, which will reduce production by 12,000 tons. Our #1 paper machine accounts 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 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 will also increase production costs and annual outage-related maintenance costs. We expect inflationary cost pressure 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 second quarter earnings of about $0.35 per share. With that, we'd be happy to entertain any questions. But I must remind you that some of the statements we've made on the call this morning constitute 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 risks 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'll be happy to take any questions.

[Operator Instructions] Our first question or comment comes from the line of Mr. George Staphos from Bank of America.

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?

During the first quarter, the work that was done was just the normal annual shutdown work, some tie-ins related to the Valdosta new boiler. But the second quarter, we'll 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.

George, this is Paul. There's 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 the change in the way you amortize for maintenance cost or the annual outages in the first quarter cost us $0.06 a share. That was the hit. In the second quarter, this annual maintenance outages and the major energy project work is going to cost us $0.13. So that's a $0.07 differential, and that's broken into 2 pieces. And I think that may be 1 of the pieces isn't 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's in proportion to, say, 22,000 tons of downtime in the first quarter, compared to 39,000. But there's another $0.03 of maintenance that we also take in the quarter because we have to then amortize the first quarter maintenance cost over the entire year, and then we'll 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's 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 looked at the first quarter results, and I look at the -- if you will, the revenue benefit that you called out on an EPS basis. If I multiply by the share count and gross up by the after-tax math, it want of 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's all related to the volume. So I mean, that's the key.

Okay.

Yes, pricing was pretty stable, as you would expect quarter-over-quarter, and we had one terrific quarter volume-wise. And the cost of goods sold line will also get the impact of inflation in addition to the higher volume.

Okay. Last one then I'll turn it over. To the extent that you could go back, say, three months ago and look out to the second quarter, what your inflation expectations were, how much more negative is inflation running right now on input cost and freight relative to what would have been in your guidance coming out of 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 could say we missed the inflation by only $0.01, but we actually missed it more than that because chemicals were higher. And we offset some inflation with higher volume.

Our next question or comment comes from the line of Chip Dillon from Crédit Suisse. Chip Dillon - Crédit Suisse AG: As we look at the next -- beyond the second quarter and we look at the second half, obviously it's 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'll 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...

A bit of 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 weather 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 the turbine generator was completed in December, and that also will receive the benefit of the incremental steam from the recovery boiler once it's completed at the end of the July. So there'll be incremental benefits there. And then again, with the fourth quarter work wrapping up, we'll see the number 2 recovery boiler completed and then the start up of the Valdosta [indiscernible] boiler. Chip Dillon - Crédit Suisse AG: And that's going to be like in October, November?

Paul, would you like to elaborate on that?

Well, yes. I think you've cover 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. It is an incredibly difficult year to model even for us because of the annual outage and the timing effects. 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 it. In order to balance our inventory, we're going to take that recovery boiler down at Counce in June. It will be down at the last half of June, all of July and for the rebuild. 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's so close to the shutdown to run beyond our rated capacity when equipment's that fresh. So let's say we can run it 104%. That certainly would be our goal to balance our inventories and run like crazy in August. The problem is, we'll 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'll get the fixed costs part of it. That will flow into our results, but the profit will be delayed. A similar concurrence in building this inventory plan for the year is 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 to pay the tons back later when we've got the production capacity. So for every ton, that 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'll get both the LIFO benefits from reducing the inventory and to get profit on those tons. So it's hard to model on exactly when all these things going to happen. But it's got to happen by the end of the year. So we got to zero these balances in and balance our inventory. So it's a quite a complicated story, and I'm just really trying to give you a little perspective on it. Chip Dillon - Crédit Suisse AG: That's very helpful. And just real fast, shifting gears. As you look at the OCC market, I can't remember it being sort of stable at such a high level for so long. And it seems like, maybe my perception is wrong, but it's 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 -- we are long OCC here so there's sort of a plenty here, but there's not plenty other places?

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

Chip, there's two things that are unexplainable, the Cubs and the OCC markets. And I'm not going to even attempt the Cubs. But OCC, you just can't seem to predict it. My own gut feeling, I have just anecdotal evidence that the Chinese, they are trying to throttle slow back a little bit. And the one thing that drives the OCC market than anything else is how much the Chinese are buying. So they, obviously, have backed off a little bit. And I think the thing that's certain is just a matter of time that they're going to pick it up again. When they do, is who knows? Chip Dillon - Crédit Suisse AG: Got you. Well, thank you very much.

Our next question or comment comes from the line of Mr. Rick Skidmore from Goldman Sachs.

Could you just maybe have Rick talk to when you'd expect the 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 carryover 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 bio-fuel 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's timeline.

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's that normal seasonal change, historically? Is it about $0.04 to $0.05 from the first quarter to 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's 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's more of a $0.01 to $0.02 per share item.

But on strictly volume, I think you're thinking of volume, Rick, we're usually up $0.02 on volume, first quarter to second, maybe up $0.02 to $0.03 on volumes 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.

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 do you need to take to make sure you're supplying your box plants ahead of the rebuilds in the summer?

It's a good question. We had planned to build inventory ahead of the shutdowns. 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've 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. We're, instead, 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 export, as an example, in order to supply our own needs. So again, right now, tight [ph] class situation with higher volume in the 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 -- 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 plants are run at 104% of capacity. If we do that, we're in good shape. If we don't, then either have to cut back in some areas, primarily export. But our track record shows that we can do it. We said we had about 50,000 tons related to the shutdowns. We have pre-built 25,000 tons. That's 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 freight cost, but that's also a solution. We'll just run a little leaner and this can cost us. And then if we really had a problem which we're not anticipating, we can 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.

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

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

Great. Thank you.

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

Thank you. First, question was just -- you 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, second quarter, respectively. Roughly how much of that would be the energy versus the annual maintenance?

The third item, too, in the second quarter, which is the #1 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, where the Tomahawk and Filer 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.

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

Including the annual outage repair cost amortization, yes.

And then just -- so we should figure April, can you give us a sense as to how the first few days in April have stacked up?

Yes, if you'll hit our first 10 days of shipments have been very good. We're up about 1% 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

So that's pretty tough comparables being up over your all-time records.

Okay. Thanks very much.

Our next question or comment comes from the line of Mr. Phil Gresh from J.P. Morgan. Phil Gresh - JP Morgan Chase & Co: Most of my question has been answered. But I just want to follow up on the acquisition. What was EBITDA contribution? Just trying to get a sense of the multiple. And kind of 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 are about $35 million. If fits all of our criteria. As we said earlier, and it's 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 like to do. Phil Gresh - JP Morgan Chase & Co: Okay, fair enough. And then just to clarify, the guidance for the second quarter. I assume it does not include the insurance deductible charge of $3 million?

Yes, that's correct. Phil Gresh - JP Morgan Chase & Co: Okay. All right. Thanks.

Our next question or comment comes from the line of Mark Connelly from CLSA. Mark Connelly - Credit Agricole Securities (USA) Inc.: Mark, just coming back to the comment about being able to move back from the export market. How much tonnage is going into export right now? 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 through our model, how many of those costs were incremental to your expectations? I mean, obviously, some of it is related to the operating issues and the tons you produce. But how much of those costs were a surprise to you in the quarter?

On the first question, on 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 have mentioned that on the January 25 call. The next question…

I think we were down from about 10% to 7%. So you've got a couple of hundred thousand tons to play with, Mark, which is a lot of tons. Mark Connelly - Credit Agricole Securities (USA) Inc.: Yes, exactly. And then the second question was just on cost. 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.

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, when you've had people working but you were not shipping. The other $0.01 was essentially in transportation, which was inflation-oriented with a higher diesel cost 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 $0.01, but that got wiped out by $0.01 of volume was better than we thought. So we had two misses that offset each other, which happens every quarter. Mark Connelly - Credit Agricole Securities (USA) Inc.: Sure, sure. That's very helpful. Thank you.

[Operator Instructions] Our next question or comment comes from the line of Mr. Andrew Feinman from Meridian.

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 a 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's 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. Thanks.

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

I was wondering if you could provide a little 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 returns that we should expect in year 1 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 and turbine generator, we expect to see that benefit beginning at that point in time and then seeing full benefits go in the first quarter of 2012. So again, there will be some start up, but full benefit, first quarter of 2012.

The question is we're not sure when we're going to start up in the fourth quarter. I mean, it's planned for December 1. You never know. If I had to make a big bet, I'd bet that we'll 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's the -- but they both will translate into the same return. But the complete nature of the return hasn't been defined because there's still energy legislation going on that we will participate in and we're just trying to find out the best way to participate.

Okay. Thank you.

Our next question or comment comes from the line of Mr.Joel Lekerski[ph] from BMO Capital.

It's Stephen Atkinson, actually. In terms of the Tomahawk and the Filer City where the 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 bio-fuel process at Filer City, which was started up in 2008. And so again, when you look at Filer, we've significantly improved the energy position and eliminated the use of natural gas in our boilers, which we supplemented that with methane gas that's generated on-site from the bio processing.

Okay.

And the other opportunity, we also have at Filer -- it's not on the immediate drawing board, but it's 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 we put it through a gas turbine and generate electricity – it would be a small investment. And that's something that we'll look at down the road.

And in terms of the 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.

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

With that, operator, we'll conclude the call. And thank you, appreciate it very much. See you on the next call.