Packaging Corporation of America (PKG) Q4 2011 Earnings Report, Transcript and Summary

Thank you for joining Packaging Corporation of America's Fourth Quarter and Full Year 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 Fourth Quarter and Full Year 2011 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 fourth quarter 2011 net income of $39 million or $0.40 per share. Reported results for the fourth quarter of 2010 were $53 million or $0.52 per share, excluding income from biofuel tax credits and asset disposal charges. The reduction in earnings per share compared to last year's fourth quarter were driven by cost inflation, $0.10, lower containerboard export prices, $0.03, increased depreciation, $0.02 and higher taxes and interest expense, $0.02. These items were partially offset by lower energy and chemical usage, $0.03, related to the energy project and higher corrugated products volume of $0.03. Excluding special items, full year earnings were $162 million or $1.61 per share compared to 2010 earnings of $166 million or $1.62 per share. Price and mix, $0.38, higher volume $0.17, and cost reduction benefits, $0.06 improved earnings, but was offset by cost inflation of $0.56 and higher depreciation expense of $0.05. Net sales in the fourth quarter were $654 million, up 4% compared to the fourth quarter of 2010 net sales of $627 million and full-year net sales were a record $2.6 billion, up 8% over 2010. Regarding operations, we had an exceptional quarter with record mill production and corrugated product shipments. In addition, we also accomplished several strategic objectives. We completed the major energy projects at our Counce, Tennessee and Valdosta, Georgia linerboard mills as scheduled and on budget, started up a new corrugated products plant in Reading, Pennsylvania and acquired a box plant in Denver, Colorado. Looking at the specific details of operations, our corrugated demand was very strong throughout the quarter, with shipments per workday up 9% over last year and total shipments up 7.2% with 1 less workday. The 9% per workday improvement and 7.2% increase in total shipments included 2.3% from 2011 box plant acquisitions. Excluding these acquisitions, we still had record shipments. The increased corrugated products volume improved earnings about $0.03 per share compared to last year's fourth quarter. Outside sales containerboard also remained strong equaling last year's fourth quarter. Our mills produced 640,000 tons, up 2,000 tons from last year. All 4 of the mills ran extremely well, especially our Counce and Valdosta mills, considering the start-up of the new recovery boiler and turbine at Valdosta and also the #2 recovery after the rebuild at Counce. We ended the quarter with our containerboard inventory down about 11,000 tons below 2010 year end levels, and on plan to support our containerboard needs during our annual maintenance outages at both Valdosta and Counce in the first quarter. Valdosta will be down for about a week in February for their outage and at Counce, one machine will be down for 4 days in March, with the shutdown continuing into April. Moving to price, our domestic pricing for containerboard remained essentially unchanged from last year's fourth quarter and this year's third quarter. But pricing for export linerboard did fall during the fourth quarter with reduced earnings by about $0.03 per share. As stated earlier, higher input costs and other inflationary cost pressures reduced our earnings by about $0.10 per share compared to last year's fourth quarter. But on a positive note, the rate of inflation was less than in previous quarters. Higher outbound transportation costs reduced our earnings by about $0.03 per share, labor-related costs, including fringes, by about $0.025 per share, chemical cost increases, $0.015 per share, energy cost increases, $0.01 per share, and other cost increase items by $0.02 per share. Published prices for recycled fiber or old corrugated containers, excluding the delivery costs, were down about $15 per ton compared to the fourth quarter of 2010. The lower recycled fiber costs improved our earnings by only about $0.01 per share with our low usage but was essentially offset by lower recycled fiber sales prices out of our box plants. I'm now going to turn it over to Richard West, our CFO, who will give you an update on financial matters.

In the fourth quarter, PCA generated cash from operations of $109 million, our uses of cash included total capital expenditures of $65 million, $18 million for the Counce and Valdosta energy projects, $13 million for strategic projects at our box plants and $34 million for normal capital expenditures. For the year, cash generated from operations was $346 million, total capital expenditures were $280 million, including $120 million for our major energy projects, $35 million for strategic box plant projects, and $125 million for normal capital expenditures. During the quarter, we also repurchased 1,271,000 shares of our common stock for about $25 per share or $32 million, and paid our regular common stock dividend that amounted to approximately $20 million. For the year, we paid common stock dividends of $76 million and repurchased 4,824,000 shares of our common stock at $25.50 per share or $123 million. As of December 31, 2011, our diluted shares outstanding were 97.6 million shares. On November 30, 2011, we acquired with cash, Colorado container, a corrugated products manufacturer in the Denver, Colorado area with annual sales of $27 million in 2010. We ended the year with $156 million cash on hand and total debt of $808 million. During the fourth quarter, we used $8 million of our available biofuel tax credits to offset cash taxes; and as of year end, we had estimated tax credits between $65 million and $167 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. We also applied for a Department of the Treasury Energy Reinvestment grant of $57 million last Thursday. If approved, we should expect to receive the funds in the second quarter. In terms of 2012 guidance for taxes, we expect our effective combined federal and state tax rate for income reporting purposes to average 36% for the year, and our cash tax rate to average about 21%. The difference driven by fuel tax credits and other tax deductions. Depreciation expense for 2012 is expected to be $170 million, up $6 million from 2011. A preliminary estimate of pretax pension expense and funding for 2012 is $39 million and $32 million, respectively. With pretax pension expense up $10 million over 2011 and funding up $10 million, driven by both expected lower discount rates and asset rates of return. With that, I will turn it back over to Mark.

Thank you, Rick. Before I move to the first quarter outlook, to sum up 2011, we knew it would be a difficult and challenging year. Our entire organization responded well to those challenges. At our mills, we set an all-time production record despite having about 40,000 tons of project-related downtime and machine slowbacks during the year. And we completed our energy project on schedule at our original estimated project capital of $295 million. In corrugated products, we set an all-time record for corrugated product shipments, plus we acquired 3 box plants, started up a new box plant and completed major equipment installations and start-ups at 3 other box plants. Despite significant inflationary cost pressures, our earnings of $1.61 per share were only $0.01 per share lower than our all-time record results set last year. Entering 2012, we are well positioned to benefit from the strategic efforts we completed in 2011, both in terms of earnings and reduced capital expenditures. From a cash standpoint, capital expenditures for 2012 are expected to be about $110 million, down $170 million from 2011. We plan to continue to make strategic box plant acquisitions and also return excess cash to our shareholders through both common stock dividends and share repurchases. Moving to the first quarter outlook, corrugated product shipments should be higher with 4 additional workdays compared to the fourth quarter, and we also expect a full quarter's earnings benefit from our major energy projects. We expect normal first quarter cost increases from colder weather, annual maintenance outages at our Counce and Valdosta mills, timing-related employee benefits, a higher tax rate and pension expense. Average export container board prices are expected to be lower, reflecting the full impact of the fourth quarter price changes. Considering all of these items, we currently estimate our first-quarter earnings at about $0.40 per share. With that, we'll be happy to entertain any questions but I must remind you that some of the statements we made on this call constitute forward-looking statements. The 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 operator, I'd like to open the call for questions.

[Operator Instructions] Our first question comes from Mark Weintraub from Buckingham Research.

Thank you. Just one question on the energy projects. It sounds like they've gotten off to a very good start. So does that mean that in the first quarter, we will see all of the benefits kind of on a run-rate basis showing up? Or would there be potentially be incremental benefits as the year progresses?

As the year winds on, we'll see the continued benefits accumulate. The projects are complete and everything is running as we expected. So from that point of view, the first quarter benefits that we would expect, will be there. But again as the second and third quarter are compiled, we'll see the biggest benefits from the project through the summer months into the early fall. Those being our best months in terms of the shutdowns are behind us, all 4 mills are running. But in respect to Counce and Valdosta, theoretically they'd be in their most optimum run position.

Okay. So operationally everything is in place and it's just because second and third quarter, you've got more volume and so there is more benefit?

Yes.

Mark, this is Paul. What I said on the last call, when we got through everything, we gave what we thought the benefit would be, but it's not linear. I think when you net-netted everything, between the project and the increased and lack of shutdown, we got to about a $0.26 number, but it's not linear because it follows volume. The more you make, the bigger the benefit because you need more energy to make it, you need more chemicals and that's what -- and more electricity, and that is what the projects saves. And so our biggest production quarters has historically been the second and third quarter, you'll get a bigger benefit from the project there than the first quarter. But we're up and running, we expect the full first quarter's benefit because we've come up so well, and -- but as I said and Mark said, the benefits are not linear. They are a function of the total production that's made in that quarter.

Got it. And one other, the share repurchase authorization, obviously, you're generating lots of cash. Where are you in terms of how much you have left on that, repurchase authorization?

Mark, we have $1 million left from our prior authorization, plus the full 150 from our current authorization. So in total we have $150 million -- $151 million of share repurchase authorization remaining.

Our next question comes from Anthony Pettinari from Citi.

You referenced weaker export markets throughout the quarter. Can you talk about what you're seeing in January, whether you're seeing any kind of stabilization there? And then with domestic demand, how has the market shaped up so far?

Tom, go ahead and why don't you shed some light on that.

Okay, Anthony, let me first mention export. I think, both in demand and pricing it's pretty much bottomed out. Now of course, currency has a lot to play in that role so we'll just have to see what happens. And on the domestic side, I mean, things are relatively stable. And it's, you see the numbers that's happening in the industry. And our domestic customers have fared quite well with the economy moving forward although at a slower pace than we'd like.

The only thing Anthony, that I would add to that, Paul mentioned currency, and that's very important. But it's most important in Europe where the euro is, as you know, because of the banking crisis over there, the debt crisis, their currency has really come down against the dollar. Rest of the world currency is not as big a concern as Europe. But the euro has gone from roughly 145 at a high to 125, that's a huge swing. And that affects the price realization. So that's the most important market in the world, currency-wise.

And can you remind us roughly how much of your exports are going to Europe? Or are euro-based?

What we've said basically, historically, 1/3 of our -- we have 3 big markets in the world. Europe, South America and China, and it'll vary year-to-year. But 1/3, 1/3, 1/3, and that can vary up or down, but that's the order of magnitude description of our export business.

Okay. Thank you, and with the Reading facility on line and your recent acquisitions, can you estimate roughly what your current box plant integration level is? And if 90% is still the target, what is the bridge that kind of gets you from here to there looking at expansions versus acquisitions versus outperforming the industry?

With the current status, with the success of the energy projects and the mill's performance, we're still at the 80% level of integration even with the 3 acquisitions and the Reading plant. So the goal is still 90, and so that's the goal. But we're still down at that lower 80% area on integration.

But we didn't get of course, the full benefit of the acquisitions, nor the Reading plant in 2011 which will help us going into 2012.

If you think about 2011, of the gains that were made on the corrugated products out of the business, a little more than 1% for the full year was contributed from the acquisitions. So about 1% out of the 5% improvement for the year.

It's Tom Hassfurther's job and it's his job to increase the integration level by selling more boxes. It's getting increasingly difficult because our mills continue to be more and more productive. And so doesn't -- not only does he have to gain, he has to also offset the increased production of a couple of percent a year that we usually get out of our mills. We've got his treadmill on about a 45-degree angle but he's hanging in there.

Our next question comes from Chip Dillon from Vertical Research Partners.

One thing that I noticed that -- seems quite impressive and just wanted some color on this is, if you look at your corrugated shipments in the fourth quarter this year, just looking at the percentages over the 4 years, it's about 10% above what it was in the fourth quarter of '07 when we started to really step into the great recession. And I noticed, that most likely depending on what they report for December that we're probably down 7% over the same period for the industry. So that's quite a phenomenal difference that you guys have generated. And I was just wondering simply, is this only because your customers are growing faster than the more national account-oriented customers at your competition or is there something more going on here? Do you feel you might be actually taking some customers from other people and that might account for it as well?

If you look at the last 10 years, you will see the trend that has built that performance. And then also as we've spoken for the last 2 years, the strategic activity in the box plants with the -- where we identified about a half dozen of our key box plants that could utilize capacity enhancements. We've concluded all but one of the box plants. So last year, we completed 3 of those strategic upgrades along with the Reading plant. So we've enhanced, over the last 2 years, 5 out of our 6 box plants to take advantage of demand that was there that we could never fulfill. And with that, Tom why don't you shed some light on some of the details across the board, because I think we've got -- again this is a nationwide volume.

Well, Chip, I would just add that when our sales approach is really a -- really requires a long sales cycle because we're out selling value as opposed to price. And it takes quite a while to get those accounts and prospects online. And we've been very fortunate that many of those opportunities have come together. And of course as I mentioned before, we've spent a lot of time selecting our customer base and who we're going after so that we can grow with them over the long haul. And yes, in fact, they did weather the recession and the downturn, better than some of their competitors. And as a result of that, we've been able to take advantage of some of the opportunities that they've allowed us with regard to growth. And of course they've grown their export markets and they've grown their domestic markets. And as Mark mentioned, we have spent our capital and strategic investments including the Reading plant in areas where we were literally out of capacity and we needed to add capacity to be able to take advantage of that. And of course -- and then finally, of course this year and going into 2012, the addition of the acquisitions will give us a 2% to 3% bump and we're -- and they've quite frankly exceeded our expectations. So I think as long as we continue down this path of hard work, we're well positioned for the future.

And this is Paul. Just to amplify, give you some numbers on the comment Mark made. What you cite is true since 2007 and those numbers we're obviously pleased with. But this has been a decade-long phenomenon. If you go back 10 years, the beginning of the decade to the end of the decade, basically our volume, these are rough numbers, are up 30% and the industry was flat over that same time period. So this is not a recent phenomenon, this has continued for long time and I think it's a testament to what Tom just said, our business model is finding customers who appreciate value and who we think will grow, and then we work very hard to give them value which, in the end is, more important than anything.

Got you. Also one could say it even might have accelerated some in recent years versus the progress you had early on. So congrats on that. And then just, I would ask secondly, as we look at 2012 and you look at the various cost items, it would seem like obviously you're not buying really that much natural gas any more which is going to help people. But what about wood costs? Are you seeing a continued sort of edging down of wood cost especially in the south or are there other factors that might cause that to reverse or head back up?

Wood cost has been flat. And I think again everything you read supports that. But 2011 was from a weather point of view, was pretty tame, so as we finished up the year, wood stayed in a relatively close trading range. And with regard to natural gas, we have taken advantage of some below spot prices over the last couple of months now. And one example of that was at Counce mill, during the Christmas holidays, we had a boiler outage on the big power boiler. And we were able to burn that natural gas in the newly rebuilt recovery boilers and take advantage of that. But again, we do have that flexibility, just to remind everybody, in many of our locations.

And Chip, just to amplify a point Mark brought up, a very important point about our energy project. We've given guidance on how much it should contribute to EPS over the year. And that comes in the category of cost savings, that the project is saving us money. But there's another category and we had a really -- Mark just brought up a very good example of it, called cost avoidance. Now cost avoidance doesn't contribute to EPS but it prevents it from going down. And we had a tube failure in a power boiler in December and we had planned to replace some panels during the annual shutdown and unfortunately we didn't make it all the way, we missed by a couple of months. And when it's our biggest power boiler, burns wood waste and when we lost it, normally in the old days, we would have to run the mill at half capacity. One machine. And we needed tons, but with the rebuilt, the recovery boilers, their steam generation capacity is a lot higher. We actually put load burners in that recovery boiler and we burned liquor and natural gas at the same time. And instead of losing 1,500 tons a day of production, we only lost 300 tons a day of production. And so that roughly 7,000, 8,000 tons of production that we made probably prevent -- if we figure out what it's worth, it probably prevented earnings from going down $0.03 a share. It didn't improve them, but that's the other big benefit of this new project. We have a lot of flexibility now that when you get into upset conditions or maintenance outages, you're much better able to cope and offset cost that otherwise we could not have done in the past. So we were very surprised how well we could run that mill without that big power boiler.

Our next question comes from Mark Wilde from Deutsche Bank.

Mark, I'm just curious with these energy projects finished now. Does that debottleneck these mills at all and really give you the opportunity over the next few years to look at actually increasing capacity at either Counce or Valdosta?

Yes, and a good example of that, Mark, as the projects were coming to completion through the fall, in parallel, we had been performing other capital work projects in the pulp mill, caustic plant at both Valdosta and Counce. And when the boilers were completed, we were able to take advantage of a new level of optimization in the pulp mill and caustic plant areas that give us more pulping capabilities. And so the paper machines are able to take advantage of that. So I think to answer your question, yes, we are in a position now to take the mills to a whole different level of optimization. And continue to creep that capacity with minimal expenditures.

Mark, can you give us any sense of sort of what a timeline might look like on that or what the incremental volume might be over the next few years?

Well again if you look at 2011, we produced 2.5 million tons in a year that we actually had about 40,000 tons of extra planned outage capacity out. So we did have productivity improvements during the year from the energy projects and the efforts. But based on current machine production capabilities, if you think about it, the capacity is probably 2.575 million tons or up about 3% from the 2011 production. And if you think about where we go from there, 2% to 3% productivity improvements per year is not to be -- that would be expected from the activity we have.

Okay, that's very encouraging. Second question I had. On the export side of the equation, can you just ballpark for us how much of your open market sales go into the export market? And then also give us a sense of whether export pricing kind of is varying by those different markets you talked about. Because I was always under the impression that, that heavyweight product you sold into places like Latin America might be a little more stable versus some other export markets?

Yes. I think, traditionally, if you look at our volume, about 20% of what we produce in the mills goes to outside sales. And of that 20%, historically, about half, 10%, is going offshore and 10% is staying domestic. That number has been pretty consistent. On the second part of your question, I think you are -- with the issues in Europe, we saw bigger declines of pricing in Europe. But some of the regions such as South America and Central America, prices have been more stable relative to that.

Yes. But Mark, I would say that, that's not correct, that you're assumption is not correct. Our demand in Europe and South America, I would say, the stability has been the same historically because we're not really spot players. We've had long-term customers, long-term relations in both Europe and South America. Wood cost is the volatility now, and in Europe it's this huge swing in currency. And I would have said that without the currency swing, Europe is just as stable for us as South America. And the market that was the more volatile of the 3 was the Far East.

Okay. And that's both from a volume and from a pricing side?

Yes.

Our next question comes from Mark Connelly from CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Mark, I'm just wondering if you could help us -- remind us what your strategic view of integration levels really is. Your capacity is growing, you're struggling to keep up there, but you are going out and picking up new box plants on the outside. You've always talked about sales into the independent market being a strategically important piece. Can you give us a sense of what those targets are as you think about buying new box plants?

Well, the target remains 90%. And as we've spoken at different times over the last 2 years, part of the effort to get to the 90% included at least one acquisition a year. So it's interesting that Tom was able to accomplish 3 acquisitions last year, plus the start-up of the new Reading plant. So we added 4 new box plants last year. And still, with the dramatic improvement seen at the mills, we held at that lower 80% integration. But still, to answer your question, the target remains 90%. We're going to continue as we are right now, looking at opportunities for acquisitions and continuing to enhance the existing box plant capabilities.

And Mark, this is Paul. There's nothing magic about 90%. We kind of picked that number because it's higher than 80% and it's less than 100%. But there's a reason for that. As you know, we make money at both our box plants and our mills. So every time that we sell into the outside market, does not avail us the opportunity to make money in the box plant on those tons. So we don't like to lose that piece of the profit. So you can then say, well, why not go to 100%? And the reason for that is, as Tom has further pointed out, we're outselling value to our box customers, and there's a lot of things that constitute value from performance of the product to service, but also on dependability of supply, both when things are good and bad. So we would never get to 100% because our customers know that we offer them supply assurance, and that 10% buffer is sufficient to be able to always make that statement that we can supply all of our domestic box customers. And that's why it's 90%. Now if it ends up 88% or 92%, there's really not that much difference. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: So presumably, you don't have a specific export target because you think of it in terms of every individual piece of business and whether it makes any money?

That's right. That's exactly right. We're very customer-centric.

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

I just want to continue on that last sort of line of questioning. As you look at the strategy over the last 10-plus years, it's clearly been successful, at least looking at your returns. And you continue to have the opportunity to grow your mill production, apparently at very high margins. How long do you think you can continue with the existing strategy, Paul or Mark, in a containerboard market that overall remains flat? What hope do you have? What signs do you see that perhaps kind of domestic manufacturing will be rebounding in the next few years such that the containerboard market overall, which has been flat over the last 10-plus years, actually sees some growth in the upcoming years, which would help you in turn grow even more profitably?

The first part of your question, we believe that our strategy can continue on where we're looking at opportunities within the box plants that are available to us. We continue to believe that we can make good acquisitions as we go forward. And along with that, support those acquisitions with volume improvements within the mills. And we think that the market, as far as whether it's -- you're saying flat, we don't think it's flat. We think there is improvement in the North American footprint. So we're encouraged, and we think we can continue on with this trajectory.

Back on that point about growth, it has been flat for a decade. But we think with what's happening in the world, some of the perils of doing business in China and Mexico is forcing some business back to the U.S. I think if the U.S. is to solve its deficit problem, there will be some recapitalization of American enterprise involved. And we think the fundamentals for corrugated growth as we enter the new decade appear a lot better than entering the previous decade once we get through the volatility of the financial situation in Europe and the deficit. But our prognosis is long-term. This next 10 years is going to be a lot better than the previous 10 years. And now of course, you can say anything's better than 0, and you'd be right. But we are optimistic about the future.

Paul, I know it's hard to project this sort of thing, but if we think about the next 2 to 3 years, on the one hand, for now anyway, it sounds like you have completed most of the strategic investments that you had expected to do within your box system. On the other hand, you may have a domestic market that's recovering. Do you anticipate the use of cash being more or less balanced as it has been in prior years? Or do you think you have the opportunity to do more buyback since the strategic investment cycle maybe is decelerating for you?

Well, this is Paul, let me take that question. Mark and Tom Hassfurther, their primary job is to generate as much cash as possible. And I let them do that for the last couple of years and they're doing well. Me and Rick, we look at how we're going to use that cash. So not that they're not involved, but they got to make it, and we got to figure the best use of it. And we had a terrific year cash-wise as far as I'm concerned. We purchased almost 5 million shares of stock, and it gets us down to 97 million and change in the number of shares. We've paid out almost $80 million in dividends, and we've made 3 very good acquisitions. And what we've said is that once we feel more certainty about the long-term prospect for earnings, the projects are online, we'll see what happens with this debt crisis in Europe and how it might or might not affect the economy in the U.S. and where's the next move on pricing in this industry, has it stayed the same, is it up, it's down. The next thing we got to take a hard look at, and we're already taking a hard look at, is where we move the dividend. And that's something that we will evaluate on a continuing basis because as we said last year, we see both share buyback and dividends as the 2 primary vehicles to return value to shareholders. And we still think that while we're adding box plants, the capital required for box plants is modest compared to these megaprojects in the mills. And the good news is we're done with the big CapEx in the mills. This energy project, as Mark said, puts us at a new status, and his conversation with a previous questioner, it gives us some flexibility in the mill in terms of productivity improvement. So we're really down to 3 things. Share buyback, which we've done a lot of. Dividends, which we raised once since the recession, and that's something we're going to look at. But there's the 3 primary vehicles for cash usage.

Paul just last one. Early January trends, if you can comment on that, that'd be great.

Yes. If you look at the first 12 days of the box plant cut of activity, on a bookings and billings point of view, we're up a strong 10% on both bookings and billings for the first 12 days. So things are looking very good for January and trending along with the same pace that we ended the year.

Our next question comes from Phil Gresh from JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Just want to follow on George's question about return of cash to shareholders. Would you say at this point you guys are at an optimal leverage? Or would you consider raising the leverage to return more cash to shareholders? Or would it have to be, perhaps, for some other kind of opportunity? How are you thinking about that?

Well, I think most people -- we think we're leveraged about right. And of course, we've said that for the last 5 years. And I would say, a lot of the people that follow us probably would say we're under leveraged, that we could take on more leverage. But we do have a conservative bias to us. So we don't see our leverage changing very much. And so that's one thing I didn't mention, that we had no plans to take on debt or pay down debt. We're kind of happy with where we are, which means that the decision with regard to box plant acquisitions against small capital, debit increase and share buyback won't be affected by our leverage. They will be more affected by external factors in terms of how much cash we think we can generate going forward. But the debt doesn't play virtually any role at all on those decisions. Phil M. Gresh - JP Morgan Chase & Co, Research Division: And then just the second question is, could you share with us your maintenance downtime plans, kind of by quarter for this year?

Well, we only give one quarter at a time. But if you look at the first quarter, we're taking Valdosta down for about a week. And then one of the machines at Counce, the #2 machine, will be down in the second quarter. But the first machine will be down, #1 machine at Counce, for approximately 5 days. But the tonnage impact for Valdosta and Counce for the first quarter is a little over 17,000 tons. So it's a little lighter than normal first quarter because we had shifted part of the Counce effort into the second quarter. But that's the impact. A little over 17,000 tons of planned outage for the first quarter.

Yes. And when we talked to you on the last call, we had planned to take the full Counce downtime in the first quarter, as is our normal practice. But when we had that power boiler tube failure in December, we had had a plan to continually to replace panels in that boiler. But when we had a tube failure, we decided to pool up next year's replacement into this year and not take any chances. And so we had to get a few more extra panels, and we couldn't get them delivered until the beginning of April. And so we simply then extended that shutdown, half in March or so and half in April. And that's why it got pushed to the second quarter, to best maximize the use of downtime with regard to that boiler. And so that's why it's a little different this year. There'll be a touch more downtime in the second quarter than normal and a touch less in the first quarter than normal. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay, that's helpful. And then Just one last question. I think you said in the fourth quarter the year-over-year impact of labor and benefits was about $0.025. So if I annualize that, that'd be about $0.10 annually. Is it fair to say that's kind of the right run rate this year, and then you have pension on top of that in terms of the incremental $10 million expense that you talked about? Is that the right way to think about that?

That is combined. It includes both labor and fringes, and we would expect essentially the same thing going into 2012. However, you never know what's going to happen to medical. That's the real one that could be anywhere, an increase from -- it can run anywhere, increasing from 10% to 20% in a given year. So that's just -- that's the open. But in general, I would expect it to be about the same going into '12.

Our next question comes from Al Kabili from Credit Suisse. Albert T. Kabili - Crédit Suisse AG, Research Division: I just wanted to talk a little bit on the box plants. And you mentioned you were able to do kind of an above trend, 3 acquisitions this year. What are you seeing out there? Is the pipeline and what you're looking at indicative that you can continue to go above trend this year? Well, understanding it's hard to predict? And the follow on to that is at the current stock price, do you have sort of a preference in terms of share buybacks versus acquisitions incrementally, which way you want to lean towards?

Well, let me answer the first question regarding acquisitions and that predictability going forward. I can tell you, it's not predictable. These things, when they present themselves, you have to be prepared to be able to take advantage of it. And some of them we even try to create on our own to some extent. But we're very disciplined in terms of what we want from an acquisition. We obviously want very talented people. We want a great customer base, and we want to have them immediately accretive to earnings. So it's a pretty high standard for what we set regarding acquisitions. And if enough present themselves and it's the right opportunity, we take advantage of it. So it's very difficult to predict.

And the second part of your question, the amount of capital in the box plants really is not -- we figure, $40 million a year, we'd be happy if we could get that much done on box plant acquisitions. And we did a little better than that this year. But that's normally -- you find 1 in a year, or 2. Good ones, they're hard to find because of all of the reasons that Tom talked about. But that does not really affect the biggest piece of the cash, which has been going to share buyback and dividends. And in terms -- both share buyback and dividends have advantages. And our share count's now down from 104.5 million shares to 97 million in change. That has a nice effect on EPS. It gives us more leverage, if you've got faith in the business going forward. The fewer the shares, the more leverage. And we like that at dividends. And if you feel that your stock is undervalued, then it's a good deal for shareholders. And so that all plays a part in it. Dividends, on the other hand, shareholders like dividends. Successful companies pay dividends. And even though our return is one of the higher in our industries right now, I would argue that a higher return is good for shareholders. And so it's a balance, and the answer changes at different times. It depends where your shares are valued, et cetera. But the dividend is important to shareholders, and we recognize that. Albert T. Kabili - Crédit Suisse AG, Research Division: Okay. And I was trying to get a sense of which way you're leaning towards right at this moment. If you have a view.

When we have a view on that, we'll make an announcement. That's not something we normally discuss at an earnings call. Albert T. Kabili - Crédit Suisse AG, Research Division: Okay. And then I wanted to also follow up and clarify the energy project. Are you still looking at an incremental $0.21 for 2012, if I have that right?

Yes. What we said at the end of the -- at our third quarter earnings release conference call, we said we would have about $0.21 per share and direct benefits from cost reduction, as well as some productivity. Then we would expect -- if we do not have the downtime and slowbacks that we had in 2011 for project-related activities, which would add another $0.10 to get us to $0.31, and then we would not be able to capitalize interest as it relates to the project. So that would take away $0.05. So we gave an indication of about $0.26. Of course, the $0.10 on the demand will depend upon demand going throughout the rest of the year. The $0.21 in direct cost reduction and productivity, we really still -- we feel good about that, might be a little bit higher. Albert T. Kabili - Crédit Suisse AG, Research Division: Okay, great. And to clarify that, I know that -- you noted earlier it wasn't linear. Is there a way to think about the first quarter, what we're getting on energy project, if there's a way to quantify that?

No, we're not going to get into that. There's so many factors that can influence, how much the energy project benefits are, whether it be prices, fuel prices, whether it be production. That's not something, Al, that we'd like to get into. We do think we're getting good benefits, especially by the fact that you don't have to buy as much fuel in colder weather. And that's a real positive.

Bottom line on that question with the number, we think if everything continues to run as well as we're seeing it run, there's actually upside to that number as we go forward.

Our next question comes from Philip Ng from Jefferies. Philip Ng - Jefferies & Company, Inc., Research Division: Inflation was obviously a headwind for you guys in 2011. It looks like the rate of change is declining and certainly what is working in your favor. How should we be thinking about inflation for 2012?

Well, it's hard to say. Who knows what's going to happen with weather conditions and how it impacts starch? That's a big component of our chemical cost, so that's going to be a big factor. Whatever happens to recycled fiber is going to be a big factor. And I would say third, transportation, what happens to oil prices can really impact our transportation costs. All I can say is from the cost that dropped significantly during the economic downturn, they're back, from our standpoint, more in line with pre-economic downturn levels. So intuitively, you would not expect the inflation to be as much in 2012 as you had in 2011. Philip Ng - Jefferies & Company, Inc., Research Division: Okay, that's helpful. And then some of the other paper packaging companies, not necessarily in containerboard, have set a de-stocking. It doesn’t seem like you saw any of that impacting Q4, but just want to get your -- any incremental color on that. And it looks like demand is off to a good start the first quarter. Are you seeing any restocking from your customers?

No. I mean, we're not seeing anything to that effect. Philip Ng - Jefferies & Company, Inc., Research Division: Okay. And then lastly, you quantified the export impact -- export price incoming impact for Q4. I think it was a $0.03 number. Can you quantify what the full quarter impact would be in Q1?

No. We don't break out the differentials. We'll report on that after we get our results.

[Operator Instructions] Our next question comes from John Tumazos from Very Independent Research.

The recent natural gas prices in the low $2 are a big surprise. Would your energy-saving investments have paid off at current gas prices? And presumably, those investments are a necessary state in business, replace and update equipment nonetheless?

I think, even at the lower natural gas prices, the fact that the recovery boilers have improved their efficiency to convert liquor into chemicals and steam have improved so dramatically, the benefits still far outweighing the lowering gas price. So lower gas prices is just an incremental benefit in the entire picture right now. But the projects are still generating the returns that we would have expected.

Yes. Because you can't burn -- you'd have to burn so much liquor. You can't replace liquor with natural gas, or you couldn't make paper because you've got to recover the chemicals. And so the heart of our project has been in the recovery boilers, and we're just simply generating twice as much steam with the same amount of liquor. Now to make it -- and we're making electricity out of that steam, so we get another benefit. But the savings would have been less because we theoretically could have bought a turbine and made that electricity. But that remains to be seen because when utilities start burning gas, well, that means electricity prices are going to go up or down, and that natural gas is going to stay where it is. So it's a complicated question. But I would say, if we were on 100% gas, the return would have been less. But it's academic as we burn very little gas to start with. So we wouldn't have saved that much because we weren't burning gas anyway.

You have a follow-up question or comment from Mark Weintraub from Buckingham Research.

Just one clarification. Totally understood on the energy reinvestment grant that, that could come in the second quarter. In terms of the Black Liquor credits, does -- if that money comes to you, is that by way of lower cash taxes? Or is that additive? Is it a payment that you would get that would be separate from the cash tax rate being at 21%? Or what have you?

Yes. Rick, why don’t you go ahead?

Yes. It's not additive. What's built into the 21% cash tax rate is the continuing usage of the biofuel credits, getting from whether it be the 65 to the 167 dependent upon the IRS audit, it would just mean a continuation of that 21% cash tax rate longer. So it's just an additive amount to the amount of funds that we would have available to retain the 21% cash tax rate over time. Now that -- once again, just for clarification, the grant is separate. That is a cash payment from the government that we would receive all at once.

We have a follow-up question or comment from Mark Wilde from Deutsche Bank.

Yes, just 2 real quick ones. Rick, that grant, you said you'd find about it in the second quarter. Is that also when you would receive the cash in all likelihood?

Yes. If it is approved, we would receive the cash, hopefully in the second quarter. That's not a guarantee, but that's what we're looking at.

Okay. And then the second question. Tom Hassfurther, I think you mentioned the you thought that the export volume and export pricing had bottomed or was bottoming, and I wondered if you could put any color around that?

Well, it's really hard to put a lot of color around that. It's just speculation based on what we hear and that sort of stuff. Now keep in mind though that, as Paul mentioned earlier, our target markets in export have to do with long-term relationships, some specialty markets, heavyweights, some other things like that. So we're basing it on a customer base that we have and what we see going on with our customers. But of course, the big wild card, as we mentioned earlier, is currency. And depending on what goes on with the currency and the stability of the currency can dramatically impact what goes on certainly in Europe especially, but also obviously in South America and Central America.

Okay. All right. And I had been picking up a little bit recently that maybe there were some moves afoot to try to start to restore export pricing later here in the first quarter?

Well, we don't comment on quotes.

[Operator Instructions]

If there are no more questions, thank you for joining us today. We look forward to seeing you on the next call. Thank you.

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and have a wonderful day.