Packaging Corporation of America (PKG) Q3 2011 Earnings Report, Transcript and Summary

Thank you for joining Packaging Corporation of America's Third Quarter 2011 Earnings Conference Call. Your host for today will be Mark Kowlzan, Chief Executive Officer of PCA. [Operator Instructions] I will now turn the conference call over to Mr. Kowlzan. Please go ahead when you are ready.

Good morning, and welcome to Packaging Corporation of America's Third 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 third quarter 2011 net income of $42 million or $0.42 per share, which included after-tax charges of $1 million or $0.01 per share from asset disposals related to major energy projects. Results excluding these charges were net income of $43 million or $0.43 per share compared to the third quarter of 2010 net income of $62 million or $0.60 per share, which excludes income from cellulosic biofuel credits and asset disposal charges. Higher volume improved earnings by $0.04 per share compared to last year's third quarter but was more than offset by inflationary driven cost increases totaling $0.18 per share, sales mix of about $0.02 per share and price changes of $0.01 per share. The cost increases were in transportation, $0.04 per share; recycled fiber, $0.04 per share; labor and benefits, $0.04 per share; energy, $0.02 per share; chemicals, $0.02 per share; and other items, $0.02 per share. Excluding special items, net income for the first 9 months of 2011 was $122 million or $1.21 per share compared to $113 million or $1.10 per share in 2010, an $0.11 per share increase. The earnings increase was driven by pricing mix of $0.41 per share, increased volume of $0.15 per share, lower interest expense of $0.03 per share and lower energy usage of $0.03 per share. These items were partially offset by inflation and other cost increases of $0.51 per share for essentially the same areas noted in the third quarter. Net sales in the third quarter were $671 million, up 4.4% compared to the third quarter of 2010, and year-to-date net sales were a record $2 billion, up 8.7% over 2010. Overall, we had a very good quarter operationally with record corrugated shipments and mill production, and we continue to make significant progress on our major energy projects at our Counce, Tennessee and Valdosta, Georgia linerboard mills. Higher input costs, however, continued to be an issue, significantly reducing earnings. Looking at the specific details of operations, our corrugated demand was very strong throughout the quarter, up 6.6% over last year. Acquisitions added 1.4% of the 6.6% volume improvement. But even after adjusting for these acquisitions, we still had record shipments. Our outside sales of containerboard also remained strong, equal to last year's third quarter and up 3,000 tons over the second quarter of this year. Increased volumes in both containerboard and corrugated products improved earnings by about $0.04 per share compared to last year's third quarter. Our mills produced 650,000 tons, setting a quarterly production record, up 4,000 tons from the third quarter of 2010. Each of our 4 mills ran extremely well, taking advantage of the normal efficiencies following an annual outage. We ended the quarter with our containerboard inventories down about 22,000 tons below the 2010 year-end levels. So you can see we're in good shape here. Moving to price and mix. Our prices were down slightly compared to last year due mainly to changes in our sales mix. The change in mix reduced our earnings by $0.02 per share, and other price changes reduced our earnings by about $0.01 per share. As stated earlier, higher input costs and other inflationary cost pressures reduced our earnings by about $0.18 per share compared to last year's third quarter. Looking at these cost increases, higher outbound transportation costs reduced our earnings by about $0.04 per share, compared to last year's third quarter. The increase in costs was driven by higher diesel prices and fuel surcharges, as well as increased demand on the nationwide truck fleets and rail systems. Published prices for recycled fiber or old corrugated containers, excluding delivery costs, were up about $55 per ton compared to the third quarter of 2010. The higher recycled fiber cost reduced our earnings by about $0.04 per share. Last year's third quarter was the low point of recycled fiber prices in 2010. And since that time, prices have increased above 50%. Recycled fiber prices in the third quarter were also up about $15 per ton over the second quarter of this year. Prices for recycled fiber fell in October and are now about $5 per ton below the third quarter average. We do expect recycled prices to fall further in November. Labor costs were $0.02 per share above last year's third quarter, driven by annual wage increases and fringe benefit costs were $0.02 per share higher, primarily in medical and workers' compensation costs. Energy cost increases reduced earnings by about $0.02 per share compared to last year's third quarter as costs for coal and purchased bark increased, and electricity rates were also higher. Chemical cost increases reduced our earnings by about $0.02 per share compared to last year's third quarter. Caustic soda prices experienced the largest increase and were up about $70 per ton or 20% compared to the third quarter of last year. I'm now going to turn it over to Rick West, our CFO, who will give you an update on certain financial matters.

Thank you, Mark. Capital expenditures were $70 million during the quarter, which included $31 million for normal capital expenditures, $31 million for the Counce and Valdosta energy optimization projects and $8 million for strategic projects at our box plants. On September 10, we also acquired with cash Packaging Materials Company, a corrugated products manufacturer in the Huntsville, Alabama area, with sales of $20 million in 2010. During the quarter, we repurchased 2 million shares of our common stock for about $24 per share or $48 million and paid our regular common stock dividend that amounted to approximately $20 million. Our diluted shares outstanding at the end of the quarter were 98.7 million, down from 105.2 million at the beginning of 2008. As we reported on October 12, we made some significant changes to our credit agreements. We increased the line of credit under our existing asset securitization or receivables revolver from $150 million to $200 million, of which only $109 million is drawn. We entered into a new 5-year bank credit facility, which increased lines of credit under our undrawn bank revolver from $150 million to $250 million. And we also borrowed $150 million in a 5-year term loan at a current interest rate of less than 2%. We elected to replenish our available cash now with a very low cost term loan and also increased our available liquidity, giving us significant financial flexibility. As of October 17, cash on hand, including the proceeds from the term loan, was $160 million, and our total debt was $808 million. During the quarter, we utilized $4 million of our available biofuel tax credits, and at quarter end, we have estimated tax credits remaining from between $73 million to $175 million, with the final amount to be determined based upon the current IRS review of our amended 2009 tax return, which was filed in December 2010. With that, I'll turn it back over to Mark.

Thank you, Rick. Before moving to the fourth quarter outlook, I want to update you on the status of the energy project at our Valdosta, Georgia and Counce, Tennessee linerboard mills. We completed the rebuild of the Counce #1 recovery boiler as planned with no major issues. The rebuild of the #2 recovery boiler at Counce began on September 27 and is expected to be completed in mid-November. Work is proceeding on the recovery boiler and turbine at Valdosta. And if everything goes well as we expect, the energy projects at both Counce and Valdosta will be completed and operating as intended no later than December 1. We expect final project capital expenditures to be at our original approved amount of $295 million. Looking ahead to the fourth quarter, we expect lower corrugated product shipments and mill production compared to the third quarter as a result of normal seasonal changes in demand, plus 4 less corrugated product shipping days. The last time there was a 4 day difference in shipping days between the third and fourth quarter was in the fourth quarter of 2005. The lower corrugated shipments and mill production will increase production costs, and there will be the normal seasonal increase in costs with colder weather. Our interest expense will also be almost $0.02 per share higher with our recent refinancing and reduced capitalized interest with the start up of the energy projects. Recycled fiber costs should be lower, and we should receive additional benefits from the energy projects, assuming that we start up without incident, which we expect to be the case. Considering these items, we currently expect our fourth quarter earnings to be about $0.37 per share. With that, we'll be happy to entertain any questions, but I must remind you that some of the statements we've made on this call constituted forward-looking statements. These statements were 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. Operator, you can open up the call for questions, please.

[Operator Instructions] Our first question comes from Phil Gresh from JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: What was the downtime in the quarter? And are you still expecting -- I believe you said a similar amount would be in the fourth quarter, so I just wanted a quick update on that.

Yes, Phil, as we've talked about all year long, we anticipated about 10,000 tons in the quarter, which was pretty much right where we were, right at the 10,000-ton mark with the Counce slowed back with the recovery boiler rebuilding activities. In the fourth quarter, we expect the same amount. Phil M. Gresh - JP Morgan Chase & Co, Research Division: And then I know your volumes typically outperform the industry, but just kind of looking at the organic volume outperformance, it's really accelerated these past 2 quarters. So I was wondering if you could talk about -- give any color about what's driving that.

Yes. Tom's with us. I'm going to let him go ahead and shed some light on that.

Phil, let's just go through the math first, I think, just to make it a little easier. We're up 6.6% for the quarter. Acquisitions, as Mark mentioned, added 1.4% to our quarterly results. The remaining 5.2% of growth came from our existing plants. Now as I mentioned in previous calls, we've been out of capacity at numerous plants where we have additional business available. We've made the investments in those plants as part of our integration strategy, and we now are able to handle that business, and we're seeing the results from those investments. In addition to growing with our long-term customers, we have added some new customers as well. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay. And can you give any color around maybe specific end markets that you're targeting for these businesses?

No. No, by that I mean it's pretty broad-based. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay. And then just on the price mix issue in the quarter, what was the driver of that? Was some of that seasonal, or was there anything in particular there?

Phil, there are a number of items which impact our mix: changes in customers and product mix, export versus domestic, linerboard sales, big swings as well as the percent of value added products. I think when you're growing the business as fast as Tom's been growing it from both the acquisitions and the organic growth, the $0.02 change in mix is not really large. It represents only about 0.5% of the total sales. And on the price side, our prices were down slightly, primarily in the export market, plus we did have some timing impact quarter-over-quarter in the domestic containerboard prices as a result of pulp and paper rescinding last year's August price increase in September. Other than that, prices have remained very stable.

This is Paul. On the price, the biggest price changes, very small if any, but pulp and paper did raise the price. We announced price increases. We got price increases last August. Pulp and paper came out with only 40 instead of 60, and then at the end of September, they rescinded to 40. But we had that bubble in there in August and September when we got higher prices. And back to October, it went back to the original price. So you see that in this year-over-year comparison, and that's the biggest difference. That's the biggest contributor to that $0.01 difference. But again, $0.01 is a pretty small number.

Our next question comes from George Staphos from Bank of America.

I guess the first question I have, as we think about the remaining work you have to do on the projects and the downtime that you need to take, do you have a peg, an estimate thus far on where inventory might be for the fourth quarter either up or down? It looks like, from my math, third quarter, you're up a few thousand tons versus 2Q sequentially. Would you agree with that as well?

Yes, we're up to 3,000 tons. We're right where we wanted to be, and we're down 22,000 tons from the beginning of the year. And we expect the inventories to remain at this level, so ending up the year flat from where we are right now.

Yes, the other thing I'd add, George, is we're going -- we're up about 3,000, and I wish we were up 5,000 because we're going into October first half and November, which, in a six-week period, is a busy six-week period of the year. And so we're really pretty close to where we want to be on inventories, especially for these next 6 weeks [indiscernible] about 3 to go.

I guess the next question I had, Paul or Mark, as you look at the projects, I know you've been asked this question before, but do you have any further update on what return you expect from Counce and Valdosta? Do you still think you're trending at 20% after-tax? And related point, as I look out to next year, it looks like input cost could be a tailwind for a change for you. Would you agree or disagree with that past fourth quarter?

Well, we think the original project returns in the same category, in the same area, 20% to 25%. And in terms of tailwinds and costs, who knows. I don't think we can speculate at this point. The economy seems to want to change on a dime either up or down. We are going to have to wait for that. But I think Mark is prepared to give you an update on the project, so why don't we let him do that.

Yes. If you assume the normal growth in volume and the current energy crisis, we expect the total benefits from the project to be about $0.35 per share impact. And the number is lower than the original estimate from a -- when we talked about the project, the $0.40 per share, because energy costs has not risen as much as we originally estimated. However, we do expect energy prices to increase as we go forward. We did realize $0.03 per share of benefits from the project last year in 2010, and we expect to realize an additional $0.11 this year 2011 as we've talked about during the year. The remaining benefit is $0.21 per share expected next year as the year unfolds from projects at fully running capacity. In addition, the project downtime we incurred this year would be eliminated, which would contribute an additional $0.10 per share to the earnings in 2012. And that will partially be offset by the $0.05 per share non-cash increase to interest expenses. And then, in accordance with accounting guidelines, a portion of that 2011 interest costs were capitalized in relationship to the energy project. And finally, if the energy project qualifies for energy reinvestment grant, we would receive about $60 million in 2012 after-tax, which would reduce the cost of the project from $295 million to about $235 million.

I guess last question I had and I'll turn it over after this, if we look back over time, Packaging Corp.'s had a great track record both in terms of absolute and relative, in terms of capital returns and relative performance versus your peers in the market, although the last few years, that relative gap has not really widened much. It's been relatively flat. Maybe the answer is the returns in aggregate that you expect to get from the Counce and Valdosta projects, but, Mark, what are you and the team think from your strategy in operations that's kind going to lead to sort of a reemergence, if that's the way you'd put it, in terms of your relative returns versus other paper and forest stocks and cyclicals more broadly.

I think the answer to that question is we've always invested for the long term. There will be ups and downs. We widen our lead at times, it shrinks at times. We had a very strong quarter volume-wise this term because of investments, and those investments are just starting to pay off in the box plant. So there's not a knee-jerk answer to that question. It's just that our focus has always been the long term. We think over the long term. We have a superior strategy, and the results will speak for themselves, kind of like the stock market. It always gets it right in the long term, but it's wrong a lot of times in the short-term.

Our next question comes from Anthony Pettinari from Citigroup.

Following up on your box plant performance and the investments you've made there, I think you spent about $40 million in 2010 and plan to spend about $40 million in 2011 on planned improvements and bolt-on technologies. As you look forward to 2012, are there comparable opportunities for box plant improvements? And would they require kind of a comparable level of capital spend, or how should we think about that?

Yes, Anthony. This time, I'll answer that question for you. It's -- things are -- we take advantage of the opportunities when they present themselves. And last couple of years, we've had those kind of opportunities. Now 2012, I expect it to go down a little bit in terms of our capital expenditures. The opportunities aren't there. And plus, we really have a job to do with the investments we've made and taking advantage of the opportunities that that's presented. So if things change, then we'll change accordingly. But right now, I think it's going to go down a little bit.

Yes, I think Tom has put it quite well. We don't let the money burn a hole on our pocket, CapEx-wise. If we had an opportunity, we spend it. But we don't feel compelled to spend capital in the hopes of growth. When we see an opportunity, we jump on it. And I think the illustration to that is our CapEx next year is going down from $260 million this year back to $110 million, which is our normal CapEx. And so the other thing we've done long term has been be pretty disciplined about our capital spending because that's something in this industry, if you're not careful, you really don't create shareholder value. So capital discipline is still important to us, and that's why we'll only be at $110 million next year.

Okay. And then just kind of following up on the capital allocation, I mean, for M&A, clearly, your focus has been on box plants. But given the shape of your balance sheet, are there circumstances under which you'd consider looking at mill assets in the future? Or is that not really on the table?

That answer has not changed in 10 years. We always are open to any deal that would produce a lot of shareholder value. And where we have been finding deals that produce the most has been on the box plants side. If things change, then we'll obviously be willing to look on the mill side.

Our next question comes from Mark Weintraub from Buckingham Research.

You noted that your cap spend is going down $110 million this year, and obviously, benefits from the energy projects are going to start kicking in. So presumably, you're going to be generating, hopefully, a lot of cash in the coming year. At the same time, if I caught you right, I think you said you now have $160 million of cash on the balance sheet with the new financing that you've put in place and a lot of additional liquidity, too. And I guess the question is, first, are you intending to run with a lot more cash on the balance sheet, or are you likely to be targeting that cash for either M&A and/or share repurchase or some other use? If you could kind of help us understand the thinking there, please.

If you looked at the cash, Mark, that we generate, fourth quarter is a very good quarter for cash generation. And when we looked at the refinancing, at the end of the quarter, we were down to $40 million and then we had a dividend payment of $20 million the first week. So we had to look at it at that point, but we do expect our capital expenditures in 2012 with our energy project behind us to go back, as Paul said, to $110 million, which is a $150 million decrease. But until we complete the energy project in the fourth quarter and also make our normal beginning of the year payments in the first quarter of 2012 when we have the most cash drain, our significant cash generation will not start until the second quarter of 2012. And we did take the opportunity to buy back the stock, as I said, which brought our cash down to $30 million -- $40 million at the end of September. But we felt it was more important to keep more cash on hand right now to give us more immediate financial flexibility, and that's why we took out the term loan. Also, the term loans facilitated getting a higher bank revolver. You really -- in this market, it's hard to get an increase in your bank revolver unless you take out a term loan at a reasonable rate. And so, we did that also. So when you combine the liquidity on the balance sheet from the revolvers as well as the cash, we think we're in very good shape with long-term financial flexibility, whatever opportunity avails itself.

Mark, to say it even simpler, you can buy a lot of financial flexibility for very little money these days. That term loan after tax is about 1% interest. We bought back 2 million shares during the quarter right at $24. So we're getting the 3% savings there on the dividend. That's our dividend paydown, and it's only costing us 1% for the interest expense. So the world is a tricky place. Things are difficult to predict, and we've always believed in flexibility. And what we've been able to do with this refinancing is put ourselves in a position if we want to accelerate a share buyback, if we want to make some acquisitions, we can. But with the increase in the revolver, we also protect our financial well-being going forward. So this is a very unusual period where you can borrow money this inexpensively and increase your financial flexibility and give you the ability to take advantage of certain things if they happen.

That makes a lot of sense. And I guess the follow-up, given that you now do have the liquidity in place, and you pointed out that your cost -- the cost of debt has come so low relative to the cost of equity. Has that caused you to rethink the amount of financial leverage that you think is optimal to have all else equal? And would that direct you to potentially be more aggressive on share repurchase?

I wouldn't read that into it. We just thought that this was a good value at this time. As things evolve, we may move more conservative, less conservative, but what's happening in the world will determine that more than anything else.

And one last real quick follow-on. I think, Mark, when you were running through the effects from the energy project, if I did my math right, it was $0.21 and then another $0.10 with less downtime, and then you said an offset of $0.05 from interest expense, so the net effect was $0.26, is that right?

Yes, that's correct.

Our next question comes from Chip Dillon from Vertical Research.

My first question is on the EBITDA from the project. I know that, obviously, there's going to be some step-up in depreciation, and I think on the last call, Paul, you mentioned it was about $90 million all in. And with the guidance that it's going to be $0.35 versus $0.40, does that mean that EBITDA -- is that a new -- first of all, is that a new number? And so should we take our EBITDA, I guess, down $7 million, $8 million for that?

What we said on the last call, the $90 million was the original, and I think I did mention energy costs had not moved up as much. And so as things evolved, where we stand right now is that, that EBITDA is probably going to drop down, if you just do the math, somewhere around, off the top of my head, $75 million from $90 million.

Got you.

That could vary a little bit if we get the energy grant because it's less capital, that means less depreciation. But you're talking maybe $2 million, $3 million, $4 million, $5 million there, but we'll have to wait and see.

And that will come through on the per share number, of course. With EBITDA, it doesn't impact with the -- less depreciation, but it would give you a little bit more on EPS from the project that grant comes through.

Got you. And I think, Rick, you mentioned something about $60 million. Did you say that was the amount of tax credit you expect to get realized next year, or did I miss that?

Well, the grant is about anywhere from $55 million to $60 million is what we're looking at. You don't pay any taxes on the grant. In fact, you don't reduce your taxable depreciation by the full amount of the grant. So you get a little bit of more benefit on the tax side even above the amount of the dollar grant that you receive. So it nets out to about $60 million of benefits to the bottom-line in cash.

But you get it right away.

And you should get that next year?

Well, if we applied for the grant and if it's approved. We expect to apply for the grant in the fourth quarter when the project is completed. And of course, it'll depend upon the Department of Treasury approving the grant. But from everything we can see, we think we fall within the guidelines for approval, and we'll know that hopefully by the end of the first quarter.

Okay. And then 2 more quick ones. I know, Paul, you did a good job of sort of explaining to us how the biggest bang from the energy project could be if energy at some point really takes off. And as we think about the future, sort of where -- how should we think of the relationship there? Let's say, for example, oil hit $120 or $150, and maybe you have a number in mind when you did the project, and I guess gas goes up to $7, $8, $9, is there sort of a relationship where we see how much you feel you'll benefit versus the competitors and that you wouldn't expect prices to go up to reflect what the pain that competitors would feel that you would not feel?

Well, Chip, as I said on earlier calls, we thought, going forward, that the biggest inflation liability in energy lie in electricity, because there's not many coal-fired power plants being permitted -- although it looks like the EPA is loosening up there a little bit -- and the grid is going to be stressed over time. And so purchased electricity is the thing that we think will escalate the most over the next 5 to 10 years. And of course, we went from basically 50% self-generation to 100%. So that's the number one driver. We don't burn much oil, so we're not that affected by that. And the second thing in line would be natural gas. But again, we don't burn that, and that leads you to the third energy source, purchased wood waste bark, and we eliminate -- we don't buy any purchased bark. We basically eliminated all of that at Valdosta. So when you really get down to it, electricity is by far the most important variable in our energy savings.

Got you. Okay. That's very helpful. And the last thing for Rick is, Rick, could you just remind us how much is left on the repurchase authorization? I see it's 2 million shares. That's a big chunk for one quarter. That's good. And also if you could just give us some guidance on interest expense next year in terms of the swing and capitalized interest. I would imagine there's -- I don't know if it's a couple of million a quarter now, and that obviously goes away, but if you could verify those numbers.

Okay. As far as the first thing, we have about $33 million left on the existing share repurchase authorization. And our total interest expense next year will be about, if you take into consider no capitalized interest plus the refinancing, about $38 million.

Our next question comes from Mark Connelly from CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Just 2 questions. Curious what you think you're seeing in virgin fiber costs for the rest of this year. I mean, obviously, it has a lot to do with the weather at this part of the year, but with housing not coming back, I'm wondering if you're seeing any structural changes in your chip supply, or if you're thinking about sourcing fiber differently for 2012?

Mark, right now, we're seeing virgin fiber, say, in the southern sector flat due to summer into the fall. Barring any unforeseen weather phenomena as far as winter weather, we're seeing everything pretty stable. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: So no changes that you'd expect in where you're getting your chips from?

No. Again, the supply is still down considerably, and so we really don't depend on the outside market for a very big volume of our chips, a couple of percent at the end of the day. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Okay. And Mark, just one more question. When you look across your box plants, I'm trying to get a sense of whether customers are pulling back. And Paul used to say, "You don't paid for easy." So are clients asking you to make easy or hard stuff these days?

As we've said before, I mean, we've talked many times about our strategy around customers and our willingness to do the hard to do. And I would say at this stage of the game, the hard to do is what customers are demanding of us virtually every day. And we're fortunate to be positioned with customers who are also willing to do the hard to do on their side, and I think they benefit from that as well.

Our next question comes from Mark Wilde from Deutsche Bank.

I wondered, Mark, is it possible to get from either you or Tom just get a sense of kind of how box volumes seem to be moving here in October? And also, with boxes, are you benefiting at all from a little of this consolidation that's taking place among the bigger guys?

Yes. For the first 8 days, as we always talked during the call, we're up 9% in our box volume. And so, again, having a great start for the quarter, and so we don't see anything changing. We had the same trend develop in the third, and again, October is very strong. Tom, do you want to add anything to that as far as...

No. I would just say, Mark, that do we benefit anything from the consolidation that's going on in the business? I mean, there may be some, but it's early to tell, I think, certainly regarding the IPM with the potential merger. But it's one of those things that I think we're well positioned in the marketplace for the things we do very well. And as we talked about, we made some investments with, especially with current customers, that allowed us to take advantage of the opportunities that they presented us. And that's primarily what's driving our growth.

And the one benefit that you do get, Mark, is that if a particular customer, usually, this is mostly the bigger customers, if they have supplier a and b as their 2 suppliers, and a and b merged, and the company still had the purchasing philosophy that you need 2 suppliers, then you have an opportunity to pick up some business that you might not have picked up because they already had 2 suppliers in the past. But there aren't that many of those.

Okay. All right, one other question. Mark, I'm just curious with the energy projects. You've given us already the $110 million capital number for next year, but I just -- I wondered whether these energy projects have opened up any other options for either kind of cost savings or ultimately moving up volume at either Valdosta or Counce?

Nothing that -- as far as anything new, we're talking about mill production. We're on track to have a record production year this year, if you include the extra downtime we took because of the energy projects. But the year has been driven by exceptional performance in the 4 mills, and also, we did receive the benefits of the energy project. Part of the project at Valdosta was the dryer efficiency improvements, which was done in 2009. And so we've been seeing that benefit. But all in all, nothing is changing as far as capacity and so...

Our next question comes from Steve Chercover from D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: First of all, could you please elaborate on the Alabama assets that you purchased? How will they impact your integration levels, and would they be accretive by $0.01 or $0.02 next year?

It's way premature to comment on that when -- we own the assets for a couple of weeks now, so -- we think that we bought the assets at a price that is accretive to earnings, yes, but that's about all we're going to say. We're not going to quantify that at this point. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. Well, if I could push you to look perhaps at a 5-year perspective, where do you see growth coming from? Because, obviously, you'll hit your integration target of 90% within the next 2 years or so.

We'll cross that bridge when we come to it. To be honest with you, we're not big believers in looking out 5 years. We're just not that smart to be able to predict the future, so we concentrate on the next 2, and that's a tough target getting to 90% integration level in 2 years. So we get to that, we'll comment beyond that at that time.

Our next question comes from George Staphos from Bank of America.

One last follow-on, just a technical question. Thinking about the price rescission and the trade publications from last year and realizing this is only a small amount, less than $0.01 of impact, the fact that the rescission occurred within the quarter, would you have -- wouldn't you have rebated that amount, so it really wouldn't have been in your revenues last year? I was just thinking about that out loud during the Q&A.

Well, if you were on pulp and paper, you would've gotten rebated. But if you were not, and we had raised prices, then those prices stop. But eventually, you have to give it back because you want to treat all customers fairly, and that's why it's not the full amount, it's a much smaller number, but that's basically the number that the price is off by.

[Operator Instructions] Our next question comes from Andrew Feinman from Iridian.

So just talking about the earnings numbers you mentioned, $0.21 from the project, $0.10 from last downtime. So that's $0.31, and then minus $0.05 for higher interest, so that's a net of -- improvement of $0.26. So if I assume that the price of containerboard doesn't change, then the only other things I got to estimate in here are the increase of all your other costs and the returns that you're getting on all the box plant money that you spent. Maybe I could call those 2 things a wash and just say that you're going to have $0.26 of improvement next year.

Andy, we don't give forecast for next year. I think the 2 other factors you have to look at is inflation and demand, but we're not going to comment on next year's earnings.

What we will comment on for you, Andy, is that if you look at the last -- and I don't disagree with anything you've said in terms -- you've added the numbers up to get to $0.26, and that's correct. If you look at last 10 years -- and it varies -- but because the first quarter is a shutdown quarter, it's our biggest shutdown quarter and it's the coldest weather quarter, historically, our earnings fall about 7% going from the fourth quarter to the first quarter. Okay? About $0.07 a share from first -- from fourth to first. And so in addition to looking at what you think we might be able to make, you have to factor in seasonality, which means that the first quarter-- has always historically been our lowest and the third, historically, our best quarter. That's no prediction for next year, but it's happened the last 10 years in a row is all that I can tell you. So you need to factor that type of thing in also in your thinking. This is a seasonal business exacerbated by the fact that maintenance downtime is seasonal also.

Great. I appreciate that. I have one last -- one other thing, and that's just to say that if you get the $60 million grant and you get the $175 million of receivables, and my estimate for your free cash flow next year is about $250 million. So if I'm right and you get those other things, then you're going to be getting close to $5 a share of cash coming in. Am I doing that right?

Andy, you know we don't give yearly estimates. And so I just want to say for the record on this call, we're not validating anything you said. If anybody's misled, you misled them, not us, because we only give quarterly forecasts.

Our next question comes from Chip Dillon from Vertical Research.

Just a quick clarification, I guess, for either Mark or Rick is you mentioned the CapEx was $8 million in the quarter for the box plants, I believe. What was the amount -- I think you said it for the energy projects, in the third quarter and for the year-to-date?

For the third quarter, for the energy project was $31 million, and of course, $8 million for strategic to the box plants and then our normal capital was also $31 million.

Got you. And do you have those numbers for the fourth quarter?

For the fourth quarter, we expect to spend about, on the energy project about $20 million. And then our normal capital, if I remember correctly, it's about, in the third quarter, about $30 million to $35 million, which includes any additional for the box plant integration also. So we're looking at capital in the fourth quarter of about $60 million.

Our next question comes from Phil Gresh from JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: I don't think anybody asked about the export markets, so I just want to get your thoughts there in terms of what trends you're seeing in light of some of the pricing weakness in Europe and Asia right now. And obviously, the trends with the dollar, have you seen any uptick in the fourth quarter given the re-weakening of the U.S. dollar?

Phil, this is Tom. I'll just comment that it has weakened a little bit over in Europe, both in demand and price, and that's all we see right now.

[Operator Instructions] Our next question comes from Phillip Marriott from First Eagle.

Just given your expected reduction in CapEx of $150 million and the other comments about cash, I'm just wondering if you could at least give us some indication of your priorities for the use of cash going forward? Are you comfortable with your -- the debt on your balance sheet? Do you need to prioritize paying that down, or would you put more emphasis on either a dividend increase or incremental share repurchase?

Well, the -- as we've said in the past, really, we got 3 uses for cash: dividends, share buyback and acquisitions, and they're interrelated. If you have a lot of good acquisition opportunities, that affects how much you have for share buyback and dividend. This past year, we've put, obviously, more money into share buyback than we have the dividend increases. And that's a function of a lot of things, including where your stock is trading. And obviously, if you think your stock is undervalued, that seems to be a good investment as opposed to dividend increases. But all 3 of those things are in play. And it changes, but right now, we've obviously put more emphasis on share buyback over everything else.

[Operator Instructions] If there are no other questions, I would like to thank everybody for participating in today's conference, and you may now disconnect and have a wonderful day.

Thank you.