KapStone Paper & Packaging Corp. Q3 2008 Earnings Call Transcript

KapStone Paper & Packaging Corp. (KPPC)

Q3 2008 Earnings Call

November 11, 2008 11:00 am ET

Executives

Roger Stone - Chairman of the Board and CEO

Andrea Tarbox - VP and CFO

Analysts

Jeff Miller - JMG Capital

Michael French - Morgan Joseph

Steven Chercover - DA Davidson

Jack Ripstein - PCAP

Bob Young - William Smith & Company

David Ratliff - Doucet Asset Management

Matt Sherwood - ZS Fund

Ron Gutfleish - Elm Ridge Capital

Tony Tristani - Astro Capital

David Sandberg - Red Oak Partners

Todd Cowen - NTC Advisors

Presentation

Operator

Welcome to the third quarter 2008 KapStone Paper and Packaging Corporation earnings conference call. My name is Fantine and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions).

Statements in this call that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such as may, will, should, would, expect, project, anticipate, intend, plan, believe, estimate, potential, outlook or continue, the negative of these terms or other similar expressions.

These statements reflect management's current views and are subject to risks, uncertainties and assumptions, many of which are beyond the company's control that could cause actual results to differ materially from those expressed or implied in these statements.

Information regarding certain of these risks and uncertainties is provided under the caption Risk Factors in the company's annual report on Form 10-K/A for the year ended December 31, 2007 and the quarterly report on Form 10-Q for the quarter ended September 30, 2008, which is incorporated herein by reference, and elsewhere in reports that the company files or furnishes with the SEC. These filings can be found on KapStone's website, at www.kapstonepaper.com, and the SEC's website, at www.sec.gov.

Forward-looking statements included herein speak only as of the date hereof and the company disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.

I would now like to turn the presentation over to your host for today's conference, Mr. Roger Stone, Chairman and CEO.

Roger Stone

Thank you all for joining us. As usual Andrea Tarbox, our CFO is with me. Yesterday, after the market close, we released our third quarter earnings. We believe we had a good quarter confused as usual by acquisition accounting and acquisition cost. Andrea will give you an in-depth look at the numbers and I'll return for a few comments, and then we'll take questions.

Andrea Tarbox

Good morning. Financially, this was a very active, complex and interesting quarter for us. We tripled the size of our company with the acquisition of Charleston on July 1. The net purchase price of Charleston was approximately $472 million.

Our third quarter revenue soared to $208 million from $66 million. We completed our nine day annual planned maintenance outage at our Roanoke Rapids mill as compared to the last year when the outage was in the second quarter.

The third quarter of 2008 generated $36 million of adjusted EBITDA despite the significant inflationary pressures on our energy and raw material.

With the acquisition of the Charleston operations, we will now be evaluating our results as one segment, unbleached kraft, which will include our Charleston and Roanoke Rapids mill. In addition to this reporting segment, we will report as other the combined results for our dunnage bag operations and our lumber mill.

As you can imagine, with the full quarter of Charleston's operations now being included in this quarter, there are significant changes to our financial results over prior period. Also related to the acquisition this period, we have impacts from purchase accounting to report as well as several one-time start-up costs.

Because of these very significant events in the quarter, we've prepared some rather detailed schedules included in the press release highlighting the one-time charges, the impact of the outage timing change, non-cash charges and unusual items.

Our reconciliations will guide you from our GAAP reported numbers to our adjusted numbers, enabling meaningful comparisons of our results and better understanding of our new combined operations.

Total company net sales for third quarter of 2008 increased 214% to $208 million from $66 million, mainly due to the acquisition. Unbleached kraft segment sales were up $136 million or 230% to a $195 million compared to $59 million in 2007. The acquisition added $136 million.

For the existing business, the outage reduced production by approximately 10,000 tons. Therefore, volume sold was down $5 million, primarily on the loss production, but was mostly offset by $4.5 million benefit from higher prices.

Average revenue per ton increased to $605 per ton, up $54 or 10%, benefiting from price increases implemented during the second and third quarters. The full implementation of these price increases on kraft paper, Kraftpak, rollwrap and domestic linerboard are anticipated to add over $6 million to fourth quarter's revenues.

Net sales for our other operating segments consisting of dunnage bags in the Summerville lumber mill increased $6 million year-over-year to $14 million, primarily on the addition of the Summerville business. Summerville added $5 million to our sales in (inaudible) dunnage bag sales added the remainder from realizing higher average revenue per bag.

Unbleached kraft operating income increased by $5 million or 30% to $20 million. The Charleston acquisition contributed $13.4 million.

Purchase accounting yielded some interesting results that need to be noted here regarding Charleston's performance. Depreciation and amortization increased about $10 million for the quarter due to the acquisition. Our Charleston acquisition included a coal contract, which gave us quite favorable pricing, as coal prices reached a peak in early July.

Unfortunately, purchase accounting and fair market value treatment required for such contracts obligated KapStone to record a $14 million intangible to be amortized over the contract's life, which terminates December 31, 2009. Therefore, included in Charleston's operating income is a $2.3 million quarterly charge for the amortization of this intangible.

Also included in Charleston's results is a $1 million non-cash purchase accounting charge, adjusting finished goods inventory to fair value.

The timing change of the outage had a significant impact on comparisons to prior year's quarter. In addition to the $6 million of expenses associated with the outage, lower volume from the nine day shutdown resulted in a $2 million reduction of operating income or a total impact in comparison with the outage for about $8 million.

In addition, after the shutdown, the mill experienced some difficulty in resuming the high operating performance experienced prior to the shutdown. However, now the operations are back to their previous level.

Inflation on energy, raw materials and freight resulted in a $5 million decrease in operating income mostly offset by a pricing gain. Operating income from our other operating segments decreased by a $100,000, or 6% to $1.3 million. The decrease was due to the $300,000 loss for the acquired lumber business partially offset by higher operating income from dunnage bags.

Corporate expenses of $7 million were $3 million, or 83% over the prior year. The Charleston acquisition added $1.5 million for startup expenses and $1.8 million for the transitional support services provided from MeadWestvaco.

We anticipate that we will continue use MeadWestvaco's transitional support services throughout most of 2009, but expect the cost to gradually decrease as we transition certain services to our own systems and staff. Offsetting these costs was the elimination of the transitional support services from International Paper of $700,000.

Soon after we completed the Charleston acquisition, the dollar rapidly began growing its strength against the Euro. This rapid increase in the dollar negatively impacted our European sales and receivables, of which a significant portion is denominated in Euro.

Therefore, we realize a $600,000 loss on foreign exchange translation and transactions. We've since begun hedging our Euro account receivable positions to mitigate this exposure.

On July 1, we paid off our previous loan of $38 million. To finance our Charleston acquisition, we close on a new $515 million five-year senior secured credit facility and issued $40 million of seven-year senior notes.

Interest expense was up $7.8 million to $8.8 million for the third quarter on the increased borrowing and was comprised of $7.8 million of interest in fees, $0.8 million for amortization of financing cost and $0.2 million for the one-time write-off of the deferred financing fees related with the previous credit facility.

Interest rates for the third quarter on the new term loan approximate 6.1% and is in effect until January 2009, when the rates will be reset according to the pricing grid. The interest rate on the $40 million senior note is fixed for the seven-year term of the loan at 8.3%.

The effective tax rate for the quarter increased to 52.2% due to a lower expected benefit from the federal domestic manufacturing deduction and impacted our diluted EPS by $0.02. The anticipated effective book tax rate for the full year of 2008 is expected to be approximately 39%.

The lower manufacturing deduction resulted from a substantial increase in tax depreciation over book depreciation. This increase in depreciation expense for cash taxes provides a substantial reduction in our cash taxes for this year. In view of this, we currently anticipate a tax refund of $8 million in early 2009.

Diluted earnings per share for our third quarter was $0.06, down $0.15 from $0.21. However, adjusted diluted EPS was $0.27, up $0.06 over the prior year as adjusted net income rose 29% to $10 million, up from $8 million.

We adjusted our diluted EPS for the following, non-cash stock compensation, $0.01; timing change for the planned outage, $0.10; purchase accounting including both inventory revaluation and amortization of the core contract, $0.05; post acquisition book tax rate change, $0.02; one-time Charleston start up expenses, $0.02; and the foreign exchange loss, $0.01.

Our EBITDA for the third quarter of 2008 was $26 million, up $10 million, or 65% from the prior year's quarter and adjusted EBITDA was $36 million including adjustments of 500,000 for non-cash restricted stock compensation; $6 million to normalize the Roanoke Rapids annual outage; $700,000 for the purchase accounting inventory revaluation consisting of $1 million charge for the Charleston mill; and a $300,000 benefits from the lumber mill; $1.5 million for the one-time Charleston start up expenses and 600,000 for the unhedged foreign exchange loss.

Cash flow for the third quarter reflects our completion of the Charleston acquisition on July 1st 2008. Net cash from operating activities for the nine months ended September 30th, totaled $28 million. Third quarter was an intensive quarter for cash usage, primarily related to the acquisition.

In addition to the $470 million, we used over $20 million of cash for transaction cost that were either capitalized offsets the working capital adjustment to our purchase price over one-time expenses.

Accounts receivable increased $17 million on higher sale. Our DSO is approximately 37 days. Our accounts remain correct, and thus far we have not experienced deterioration in our receivables due to market conditions as we continue to closely monitor our accounts.

Inventories remained relatively flat throughout the quarter. Capital expenditures of $8.1 million in the quarter were primarily used for equipment upgrades for the paper mill and were higher due to the capital spend at Roanoke Rapids during the shutdown.

During the quarter, we received $14 million from exercises of 2.8 million common stock warrants, of which the majority of cash received was used to pre-pay principal on the new credit facility as required by its terms.

The company ended the third quarter of 2008 with approximately $42 million of cash on hand and debt of $490 million. Working capital at September 30 was $108 million.

Because of the extreme financial distress in the markets near the end of the quarter, we borrowed on our revolver to ensure cash availability for our operations. Since then we have paid down approximately half of that and are maintaining lower cash balances.

At quarter end, we were in compliance with all bank covenants, and at this time we are comfortable with complying with our covenants in the foreseeable future.

And at this point, I'd like to turn it back to Roger.

Roger Stone

All right. Thank you, Andrea. All operations are running well. Except for linerboard, prices are firm and achieving our expectations. Export prices are suffering because of the strong dollar and the economic slowdown in the world economy.

As we move into next year, we expect price improvements in saturating kraft and linerboard, because new domestic customers will reduce our reliance on export orders. We feel we have strong commitments from new large customers for this mix change.

Linerboard demand has slowed in November far beyond the normal seasonal slowdown. Other companies in our industry have announced considerable domestic downtime and capacity closures.

We plan to remove about 15,000 tons of linerboard production in this quarter, which is about 12% reduction in our normal quarterly production. This will be accomplished by taking machine downtime during a boiler maintenance project and thereby, purchasing less outside energy and by other machines..

We believe domestic prices will remain firm. I can remember only one time when demand dropped as significantly and as quickly as today. That was in the late '70s, I believe 1975, when the world seemed to stop in November. Orders were due and backlogs were nonexistent, yet prices held firm.

I remember my analysis at the time was that no one could steal enough orders to make any difference, and therefore, prices were stable. While today's conditions are similar, but we have quite a different industry.

It is more concentrated with less decision makers. It doesn't own cheap trees [ph] anymore. It is highly leveraged, and in some cases, has less traditional ownership and management. It also has a decade of experience in balancing supply with demand, and it seems to share my philosophy that if you can't sell it or you can't use it, you shouldn't make it.

So I feel this segment of the industry should get through this downturn, I think, in relatively good shape. Although, I am not in the prediction business, our fourth quarter should be okay.

Helping to offset the cost of downtime and the lower export pricing will be the full implementation of the price increases of our other product lines plus some relief in energy, chemicals and transportation costs. Financially, we're in good shape, but I look forward to receiving that large tax refund early next year.

The war against plastic bags continues as I see Mayor Bloomberg plans to tax them in New York. The fact is that the paper industry has seen little benefit from all these initiatives to remove or penalize plastic bags, but always hopeful.

All in all, given the difficult uncertain times, I believe our company is positioned to do well, not as well as I'd like, but that's always the case.

Now, we'll be glad to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Jeff Miller of JMG Capital. Please proceed.

Jeff Miller - JMG Capital

Thank you. I know you mentioned that there is about $20 million of cash used during the quarter for transaction costs, but just looking over -- and I have to go into it further, obviously -- looking over the year-over-year difference in gross margin, just EBITDA margin on operating income, there are some big differences there. Can you just talk to me about that going forward now that we have the larger company?

Roger Stone

Well, there is no question that the operating margins that we had from just kraft paper business in the new company will not be as good. I think that we will improve the operating margins historically of the Charleston businesses experience. I think we are improving them and we will improve them. But the two mills have had different margins. I think all together our margins will compare very favorably to the industry.

Jeff Miller - JMG Capital

Okay. Thank you.

Roger Stone

Yeah.

Operator

Our next question comes from the line of Michael French of Morgan Joseph. Please proceed.

Michael French - Morgan Joseph

Good morning, everyone.

Roger Stone

Good morning.

Andrea Tarbox

Hi.

Michael French - Morgan Joseph

Hi. First question is on the price increases, if you could provide a little more detail on a specific number if possible, and which exact product lines we're talking about?

Roger Stone

You mean for the fourth quarter?

Michael French - Morgan Joseph

Yes, that's right.

Roger Stone

For the fourth quarter you are going to see linerboard increases. That's we only partially initiate it in the third quarter. We'll get from the whole fourth quarter on domestic linerboard. You'll also see some price improvement and things that we are done relatively in our saturating kraft business and these are modest, and in our Kraftpak business. And we will see the full implementation of the kraft paper increase, which was $90 from beginning to the year to the end of the year.

Michael French - Morgan Joseph

Okay. All right. Thank you. And --

Roger Stone

As I said by the way, I don't want to -- I should say this will also see a deterioration in the export prices.

Michael French - Morgan Joseph

That's right. I got that point. On SG&A, is this the level where we could expect to maintain or might have be adjusted somewhat going forward for various factors?

Andrea Tarbox

Well, as I mentioned in there is $1.8 million right now for the transitional services for MeadWestvaco. We expect to see that gradually dwindle down until we're completely off the services at the end of 2009, and our costs to replace those aren't anywhere close to the $1.8 million. So, I mean that's something that you would expect to see.

Michael French - Morgan Joseph

And nothing else being added in there?

Roger Stone

I think there aren't.

Andrea Tarbox

In the SG&A?

Michael French - Morgan Joseph

Yeah.

Andrea Tarbox

Well, there's I mean a lot of costs like I said which I think are minimal relative to the $1.8 million. But I think the run rate that you're looking at is pretty close.

Michael French - Morgan Joseph

Okay. And just a quick one about Roanoke Rapids, after the shutdown, you mentioned you had a little difficulty getting back up, if you could you just provide a little color on what happen there.

Roger Stone

Well, we had to put in some capital improvements on the machines and we had trouble with the start up of those capital improvements.

Michael French - Morgan Joseph

Okay.

Roger Stone

And [separate] production I would say three weeks up and downs, we did okay but now as well. Now the mill is running taking advantage of those capital improvements and coming in there as, I think, as advertised. Okay. And the mill is running very, very well.

Michael French - Morgan Joseph

Okay. Good. Glad you have fixed everything. And the last question, before I turn it over. You mentioned a couple of new potential customers domestically coming in on the kraft side. I was assuming if you could give us any kind of background, I mean, I think you wanted to identify and you would have, just if you could describe their industry or their size or just the details.

Roger Stone

Well, part of our plan was always at the beginning and in public that we were going to reduce our export, not knowing that export was going to be hurt when we made this plan. We're going to reduce our export and increase our domestic take and that was with old relationships that we've had for a long time. And we've done that.

And I mean they will be coming in on schedule. We believe in January. There are large container manufacturers and they have many suppliers, we'll just be one of them. We're not taking a 100% of anybody's business. And these are people that have been with us as strong container and with us elsewhere.

So, we're very happy about it, and we're happy with the relationship. We believe that we will add obviously higher revenue for our linerboard sales because of pricing and the opposite, less volatility because of the dollar and export pressure. But that was always part of our plan and we're executing it.

Andrea Tarbox

Mike, just one more thought back on your SG&A question.

Michael French - Morgan Joseph

Yes.

Andrea Tarbox

There was one point $4 million, $1.5 million of one-time expenses included in this quarter that you won't see ongoing. So, that comes out.

Michael French - Morgan Joseph

Right. I saw that from the acquisition.

Andrea Tarbox

Okay.

Michael French - Morgan Joseph

Okay. So, last thing I'll say, it's not a question just a quick comment. I just wanted to thank you for having us down to Charleston. Normally, in this business, 99% of what we do is numbers. It's a real treat to get out and see people operating, and actually see the human side of the story. In this case, it was very impressive to see the team down there and how enthused and encouraged they are by being part of KapStone. And I just think that's a real tribute to your ability to generate very loyal workforce. And so, congratulations and thank you.

Roger Stone

Thank you, Mike. I appreciate. That's very nice and we're going to invite you to all these calls. Thank you.

Operator

The next question comes from the line of Steven Chercover of DA Davidson. Please proceed.

Steven Chercover - DA Davidson

Good morning and thanks. First question, can we get the volume data by product lines, saturating kraft, linerboard, and also for dunnage bags that you used to give us?

Roger Stone

No, we're not putting that out. I mean, frankly, when we were just a one segment company it really bothered me that we published a lot of data that was very useful to our competitors, even customer names in some cases. So we have no plans to do that.

Steven Chercover - DA Davidson

Okay. Well, now that you are a one segment company and I guess Andrea did give us a little bit of color on the contribution from the various mills, are you going to be able to help us to track the EBITDA at Charleston and Roanoke Rapids so we can determine, first of all, whether IP is going to get there [earn-out] and how the margins are closing?

Roger Stone

Well, the earn-out question is a good one and we anticipate that IP will get their earn-out without any problem and we're happy about that. We gave more information this time than -- because it's an acquisition, okay, then we will in the future, and it's really not that we are hiding anything. We are a one segment company, but we really don't wish to give any information that will help our competitors and hurt us.

Andrea Tarbox

Right. I mean we really want to think of this and we think of this as one segment that's unbleached and we think of those operations combined. I think that because there are numbers of synergies and things that we're going to do with it, so I think, as we go down the road, we all need to think of it that way, not Roanoke Rapids versus Charleston.

Steven Chercover - DA Davidson

Okay. I understand. So as long as I guess if you keep on giving us a little status report on that earn-out…

Roger Stone

All right. That's a good question and we will try to give that. At this point in time we feel IP will earn 100% of their earn-out.

Steven Chercover - DA Davidson

Got you. And just want to make sure I understand the way you are thinking of the impact of the shut at Roanoke Rapids, $6 million cash. And was it $5 million foregone revenue or $2 million foregone operating contribution?

Roger Stone

That's what she said.

Andrea Tarbox

Right. $2 million foregone operating contribution, right.

Roger Stone

Right.

Steven Chercover - DA Davidson

Got you. Okay, that's great. I'll get back…

Roger Stone

Relatively conservative number.

Andrea Tarbox

Right.

Steven Chercover - DA Davidson

Thank you.

Operator

Our next question comes from the line of Jack Ripstein of PCAP. Please proceed.

Jack Ripstein - PCAP

Thanks for taking my call. Question about -- Roger, its sounds like that's truly is an unique November timeframe that you saw and taking down production by 12% linerboard, do you expect to take up production in another line or pricing to make up the difference? I know you are not in the guidance game, but I'm just trying to make sure I understand clearly the implications for revenue, at least, in the fourth quarter.

Roger Stone

Well, the answer is right. Price increases will occur in the lines that I said in the fourth quarter over the third quarter. So we'll have additional revenue per ton in every [pay], but export linerboard. All the other product lines will be running full. We expect no downtime in any other product line at this moment. So we believe the new pricing as well as the lower costs in energy, chemicals and freight will help mitigate the cost of that shutdown.

Jack Ripstein - PCAP

Okay. But it's not going to be made up in volume somewhere else?

Roger Stone

No, because we're running full every place else. It's really out of the linerboard side.

Jack Ripstein - PCAP

Okay. And that's not the swing machine that can do some other product. Is that correct?

Roger Stone

No. It's both the swing machine and the number three machine. It's both those machines depending on our energy balance (inaudible). But both the swing machine and obviously number three, broad linerboard, so it's all out of the linerboard side. So when we need to run our normal product mix on machine number three, we will be running it -- on machine number one, we will be running it.

Jack Ripstein - PCAP

Okay. So revenues would come down a little bit, and maybe they don't because you are also getting back some of the production at Roanoke. Is that a fair assessment?

Roger Stone

Well, revenues would be down a fair amount with that 15,000 tons, okay, of taking it out. Contribution to profit will be mitigated by prices and other cost savings from the lost contribution that we get from not running the 15,000 tons. So top-line will be affected by the 15,000 tons.

Jack Ripstein - PCAP

But the EBITDA margin or actual EBITDA dollars should be about the same, which one?

Roger Stone

We're not forecasting that. We're just saying that we'll be happy with the quarter.

Jack Ripstein - PCAP

Okay. Lastly, you made the comment that linerboard increases on domestic, even though the liner -- I mean, it sounds -- I'm just trying to get my mind around the fact you're taking down production, but the pricing is going up.

Roger Stone

Well, the pricing is going up from being -- it went up at the end of the last quarter. It's just saying all the tons that we make this quarter for the domestic market will be going up, okay? It's not like we're increasing the prices to a higher level than existed at the end of the third quarter. It's just that we'll have the benefit of those prices for the full three months.

Jack Ripstein - PCAP

Okay. And then not to forecast prices, but given that there's been a contraction, some of the input prices in oil, et cetera, has there been some pushback on how long those prices can stay where they are?

Roger Stone

I wish I knew. No, we are getting obviously what we had surcharges on fuel, for example, they are down substantially. That was getting some chemical relief on chemicals prices increased extraordinarily during the year. We're getting some relief back on that.

Clearly, energy is moderating. So, we're getting some benefit of course on that. I am not giving you a mathematical formula where prices increases and cost savings equaled the loss of the shutdown, okay. I am just saying that there is an offset, but I am not saying that one offsets the other, okay?

Jack Ripstein - PCAP

Okay. Fair enough. I appreciate it. Thank you.

Operator

Our next question comes from the line of [Bob Young] from William Smith and Company. Please proceed.

Bob Young - William Smith & Company

Hi, good morning.

Roger Stone

Good morning.

Andrea Tarbox

Good morning.

Bob Young - William Smith & Company

Congratulations on the quarter in a difficult environment.

Roger Stone

Thank you.

Bob Young - William Smith & Company

So, I just have a couple of questions on -- with, dealing with Charleston. How does given the environment, how does the Q4 look for saturating kraft just a market demand?

Roger Stone

It looks normal. In truth, I should have said this and the demand for other than linerboard products looks seasonally normal.

Bob Young - William Smith & Company

Okay. And then relative to just aggregate geographic mix, with the new company coming in, how does that stand right now? And then, going forward any idea on the projection going forward?

Roger Stone

Our geographic mix…

Bob Young - William Smith & Company

Yeah.

Roger Stone

… where our customers are?

Bob Young - William Smith & Company

Correct. There's just kind of an allocation of revenue based on geography.

Roger Stone

I am not sure we have to do that. I think that saturating kraft is a global product line with more but sold outside of United States than sold inside United States and we think the growth areas of that product line are faster outside United States than in the United States. And we believe that's still valid and will continue.

Our Kraftpak has been primarily a US product, but we see growth potential outside of the United State and we're beginning to explore that, because it's a unique and good product. And kraft paper, the bulk of it, we had exported some in the industry exports some and this year was -- for the industry was a good export year at least through the first nine months of the year -- 10 months of the year. But it's primarily a North American product.

Bob Young - William Smith & Company

Okay. And then how should we be looking at CapEx in fiscal year '09 and then just going forward just with free cash flow?

Roger Stone

Our CapEx, I don't have the number, but it's probably $30 million. And we don't have any major project, we have some good projects that which we think have some excellent payoffs, which were on a -- obviously, are going to try to get those in places as soon as we can. A lot of those related around energy, okay, but our capital mix for maintenance and growth will be about $30 million.

Bob Young - William Smith & Company

Okay. And then how is that spread throughout the year?

Roger Stone

Most heavier when we take shutdowns.

Bob Young - William Smith & Company

Great.

Roger Stone

Okay. But from a cash point of view, there are no great quarters that will drain us on capital.

Bob Young - William Smith & Company

Okay. And then Andrea, I was hoping you could just talk a little bit about share count going forward and how that impacts [debt] and possibly the acquisition strategy?

Andrea Tarbox

Well, again, as you can see we did have 2.8 million warrants exercise that are going to be added, they are in our basic shares now. And its depends, I mean, obviously, if the price of the stock goes up higher -- the higher the stock goes up, the more dilution we have. But in August, the warrants expire. So, one way or the other, I mean we'll either get to almost $200 million from those warrants exercises or the dilution will go away. Roger?

Roger Stone

And I am sort of indifferent on that. Clearly because we have good cash flow, we have good free cash flow, and we think we'll have good credit statistics. Obviously, the warrants come in, we have the dilution, and we have very much better credit statistics and less debt. But we're [trying] either way, and we're in business to enhance shareholder value. So, one way or the other we think it's good for the shareholder.

Bob Young - William Smith & Company

Okay, and then just one quick last one. Going forward on any possible acquisition opportunities, how does this most recent acquisition look relative to size of a future prospect?

Roger Stone

Well, the world is changing, and people are still sorting out their businesses. But we think looking forward, North American based acquisitions. We think that there is a substantial opportunity. We think that we have to tee them up, whether we will be able to fund them and have the credit ratios that we like, okay?

Obviously, we'll deal with the size issue, but I'll tell you, you've got to go down that road and see what you can tee up. So when you have the ability to do something that we think is good for the shareholders, we can do it. So, that's kind of how we operate.

Bob Young - William Smith & Company

Thanks.

Roger Stone

Does that answer your question?

Bob Young - William Smith & Company

Yes, it does. Thank you very much, and as well I appreciate going down to Charleston I thought that it was a great educational experience. So thank you very much.

Roger Stone

You're welcome.

Operator

Our next question comes from the line of David Ratliff of Doucet Asset Management. Please proceed.

David Ratliff - Doucet Asset Management

Hey, good morning.

Roger Stone

Good morning.

David Ratliff - Doucet Asset Management

Sorry, I wasn't able to attend that Analyst meeting. It sounds like the feedback that I got, would have been worth my time. We're not too far from Charleston here in Alabama.

Couple of direct questions; I know you don't give a lot of guidance. But related to your adjusted EBITDA of $36 million, I mean you had the outage in there, in start-up cost, but the amortization that sounds like its going to be continuing. With the improving gross margin that you expect in Charleston and then some of the energy savings or energy cost reductions and other synergies as you integrate Charleston and [Rono].

Do you think this $36 million is a good number going forward or do you expect that to be maybe on the low end going forward?

Roger Stone

In normal times, I would expect that to be on the low end. We're going to have to tell you that. But we are not predicting.

David Ratliff - Doucet Asset Management

Okay.

Roger Stone

We think the company in normal times, does have the ability to do much better the $36 million.

David Ratliff - Doucet Asset Management

Okay. In the past then, have you provided a EBITDA number -- any kind of EBITDA guidance?

Roger Stone

No.

David Ratliff - Doucet Asset Management

No, okay.

Roger Stone

The very beginning when we made the acquisition of (inaudible). Okay, so, it's in SEC filings. No, we just had pro forma.

Andrea Tarbox

We haven't done with Charleston in the past year ago.

Roger Stone

Okay. With Roanoke Rapids…

Andrea Tarbox

Yes, right.

Roger Stone

We -- right. But before when we were the other company, we had previous guidance and we stopped. We stopped at the other company. But we felt because it was a new company at that time and we have no record at all, it was important for investors to have some guidance.

David Ratliff - Doucet Asset Management

Okay. This is probably something I could look up, but since I have, I'll ask you. The $0.10 that cost a shutdown to Roanoke Rapids this past quarter; is that comparable to what it cost in the previous year? It obviously was in the second quarter but --

Andrea Tarbox

No, the cost were lower the prior year, it was about $4.6 million, $4.8 million something like that. This year they did some extensive work turbine generator, which really increased the cost.

David Ratliff - Doucet Asset Management

Right. Is that supposed to be so as to translate into better margins in Roanoke going forward or is that just cost of doing business.

Roger Stone

Well the capital projects we did during their shutdown that is sort of suppose to translate in to better margins. The turbine work is just so have more reliability and it's something that you have to do on a periodic basis.

Andrea Tarbox

I think we do it once every four years.

David Ratliff - Doucet Asset Management

And you said that in the last call Charleston doesn't require these types of shutdowns?

Roger Stone

Charleston doesn't -- has coal shutdown I think every four or five years. As Charleston has extra recovery boiler capacity, they have multiple backup systems, so Charleston generally 365 days a year.

David Ratliff - Doucet Asset Management

Okay. My only other question was, the last caller kind of asked what I was going to ask, I was trying to keep up with Andrea, on all those different moving parts this quarter. But you did receive once some exercise warrants this quarter and it was 2.8 million warrants.

Andrea Tarbox

Right, that's 2.8 million warrants were exercised.

David Ratliff - Doucet Asset Management

Those weren't the $5 warrant, were they?

Andrea Tarbox

Yeah,

David Ratliff - Doucet Asset Management

Okay, that's all they were. All right. You said that whether or not these warrants are exercised, they expire in August, that $200 million, maybe I haven't spent enough time with the story, but I was thinking that that $200 million was critical to you guys handling this debt load. Is that not the case?

Roger Stone

No, it's not the case. Obviously, and our lenders wouldn't mind it to be case, right. It's something that we all feel was going to happen. We still feel it's going to happen. That just improves our ratios and our borrowing costs and everything else on that base. But, no, we calculated our capital position without the warrants and to be comfortable with this acquisition.

David Ratliff - Doucet Asset Management

Okay. I hope it happens too because we have a lot of them.

Andrea Tarbox

We personally do too. We don't want to see it go away.

David Ratliff - Doucet Asset Management

Exactly. Well, thanks and keep up the good work and have a great fourth quarter.

Roger Stone

Thank you.

Operator

Our next question comes from the line of Matt Sherwood of ZS Fund. Please proceed.

Matt Sherwood - ZS Fund

Just had a couple sort of housekeeping question. What's the differential rate now between the domestic and export prices for linerboard?

Roger Stone

It's all over the map. Okay, we actually improved export pricing when we put in the $55 a ton domestic price increase.

Matt Sherwood - ZS Fund

Right.

Roger Stone

And that's just about one. And depending on market, prices are lower. You hear stories that don't make any sense at all. In my judgment, people are reaching for that marginal order at some subtly prices. On the other hand, the majority of the export business is going at reasonable prices.

Matt Sherwood - ZS Fund

Right. So on stuff that you would think consider doing, it will be like $100 differential or less?

Roger Stone

Well, remember, we don't, generally speaking, have any rate.

Matt Sherwood - ZS Fund

Yeah.

Roger Stone

On export. So that -- yes, $100 would be the right number.

Matt Sherwood - ZS Fund

Okay.

Roger Stone

But I don't want to mislead you. Export prices are different in different countries and different geographies…

Matt Sherwood - ZS Fund

Correct.

Roger Stone

…and some aren't taking -- going for the low price stuff, we're not.

Matt Sherwood - ZS Fund

Right.

Roger Stone

And some are.

Matt Sherwood - ZS Fund

That makes sense. And then, you're using right now some of your downtime in the liner machine to do this boiler project, which will help efficiencies long run, but obviously it doesn't make sense to be doing a project every quarter for downtime. Are there any markets where you feel like you have an ability to use a swing capacity to fill some of that lower production on the liner side or not really?

Roger Stone

We feel that there's far more benefit in maintaining prices than there is for the marginal ton.

Matt Sherwood - ZS Fund

I agree with that.

Roger Stone

Right. And we feel that the project on the boiler was happening anyway.

Matt Sherwood - ZS Fund

Yeah.

Roger Stone

So by tying the downtime to it, we have to purchase less outside energy. So it reduces the cost of the downtime. So it's good timing for us, but the project itself was going to happen anyway.

Matt Sherwood - ZS Fund

Right. So none of your other lines are tight enough that you feel like you could comfortably increase supply, and then to offset the downtime that you're doing on liner to keep the market down?

Roger Stone

No, once the downtime is gone, it's gone. You can't put it back.

Matt Sherwood - ZS Fund

Yeah. I'm just saying on a go forward basis are there any product lines that are sufficiently tight that you think could handle more tonnage or not really?

Roger Stone

No. I think demand at this point, I think, as I said, is seasonally, which is normal.

Matt Sherwood - ZS Fund

Right.

Roger Stone

It's not robust, but it's seasonally normal and -- on the other product lines. And obviously, we're going to satisfy every ton we can do in that case.

Matt Sherwood - ZS Fund

Okay. Great. Well thanks a lot and keep up the good work.

Roger Stone

Thank you.

Operator

The next question comes from the line of Ron Gutfleish or Elm Ridge Capital. Please proceed.

Ron Gutfleish - Elm Ridge Capital

Hi, Roger.

Roger Stone

Hi, Ron.

Ron Gutfleish - Elm Ridge Capital

I got two quick questions. I didn't understand the refundable tax issue and when you get it, and then I've got one more on the coal contract. So can we do the refundable tax first? I know it's quick.

Andrea Tarbox

Okay. When we acquired Charleston, they have -- since there's a huge depreciation deduction, accelerated tax depreciation deduction that we're allowed to take for them. And so, by being able to take that, what else is happening is that for book taxes we lose good share of the manufacturing credit that we had anticipated earlier in the year.

Roger Stone

Cash taxes.

Andrea Tarbox

Yes. But on the cash tax side, what else is happening, is that because of the deduction we basically will be paying almost no taxes and we get a sizeable refund back for the taxes that we paid earlier in the year.

Ron Gutfleish - Elm Ridge Capital

And so, you get that at beginning of the year?

Andrea Tarbox

We're fine for one of those quickie tax refunds. What happens though is with tax accounting and the way it is, you have to run that whole impact through the quarter in which it occurred, which is why the rate for book -- the book rate is so high in the third quarter.

Roger Stone

We think twofold -- and Andrea, correct me, if I'm wrong. One, we have tax credit from the cash taxes we've already paid.

Andrea Tarbox

Right.

Roger Stone

And we feel that in the near term, although we will be providing for taxes on the books…

Andrea Tarbox

Right.

Roger Stone

…we will not be paying.

Andrea Tarbox

Right. There will be a timing difference. Right.

Ron Gutfleish - Elm Ridge Capital

Okay. And then on the call, I imagine, that a deal in coal prices were up a lot this summer. I don't -- one I wanted to just understand when you put that through, was that based on price like for spot pricing at that point.

Roger Stone

The Charleston mill has a coal contract which expires at the end of next year. But we did this transaction unbelievably so, which we by the way we didn't value. I mean that -- we just revalued, no, we didn't put any value on a coal contract, but we are not accountants. And when we did the transaction and closed it, closed despite it was at the highest level of the year and since come down considerably.

But the accounting rules require that value with that favorable contract at that particular price and that differential, which is about $14 million -- $13 million, $14 million. And we have to amortized that, again, it's not cash, okay, but we have to amortize it over the 18 months when the contracts expires.

The new contract might be better than what we got and worse than that on -- depending on conditions at that time. But it might be sort of silly accounting, process accounting adjustments that they have to make. So, EBITDA is up but it's up in the wrong reasons.

Ron Gutfleish - Elm Ridge Capital

I understand. And so, what I was concerned with if that really was sort of a favorable in terms of what coal will go for the day, then that should be amortized because you're going to have pay more later. But it's based on that sort of spiky spot price; we have our view on coal anyway that is comfortably down. The other piece is then -- so when that's over -- this was in your regular DNA, so when this is over DNA goes down then.

Andrea Tarbox

Right.

Roger Stone

By about $2.3 million a quarter.

Andrea Tarbox

Yeah.

Ron Gutfleish - Elm Ridge Capital

Okay. All right, thank you very much.

Roger Stone

Welcome, Ron.

Operator

Our next question comes from the line of Tony Tristani of Astro Capital. Please proceed.

Tony Tristani - Astro Capital

Just a couple of questions, I am just trying to summarize in my own mind the -- from the pro forma $36 million of EBITDA in the quarter, the pluses and minuses kind of in the fourth quarter, as the plus you got $6 million of extra price, as a minus you got the variable cost from a 15,000 ton shutdown which is $9 million, the variable cost, the cost associated with that -- the fixed cost from that obviously, you won't have the variable cost. And then you should have lower transition cost as you go forward from the mid-transition cost and are those the main plus and minus offsets?

Roger Stone

The cost of the shutdown and the loss of the revenue for that shutdown, you have the pricing improvements on the remainder of the linerboard business and some others -- for some other product lines. And you have lower costs relative to the third quarter on energy, transportation and chemicals. So those are the offsets.

I don't want to imply -- in variable cost if you consider, some people look at no cost and say they are all fixed, but they are not, okay? But whereas, if you don't use the wood, you don't have the wood costs and that's truly variable. But if you don't use the energy, you still have a fixed aspect of the energy and so it impacts the cost of other tons as well.

Tony Tristani - Astro Capital

Okay. I think I the rough offset. Next question Roger is kind of valuation here, four times EBITDA, considering the mix of your businesses you experience in the industry, I mean what do you think of valuation here versus vis-à-vis your competitors? And that's a question I could ask you just thoughts on that right now. I mean…

Roger Stone

Well, it's hard. If you look at competitors today, I mean, our prices are awful, okay. So I am not an expert on my competitors. But if you look at this on a normalized basis, I think we are of great value. And if you look at -- what hopefully investing for what the future will bring, we think we're a great value. So I like it. I am a very happy shareholder, and I will continue to be.

Tony Tristani - Astro Capital

Okay, next question is, going into 2009, you mentioned you had some opportunities, pricing on saturating kraft is also -- is Kraftpak in that category too?

Roger Stone

Well, we are not budgeting any improvement in Kraftpak. I think Kraftpak will be as we develop more markets for that. But we aren't budgeting it. But saturating kraft, yes, because saturating kraft historically has been priced in January. Now we're not doing a one-year price with our customers. They know that that's over, but they all expect a price increase in -- early in the year.

Tony Tristani - Astro Capital

Okay. And last question is for Andrea, I guess. It would seem like, if you guys could -- I mean I don't know, I guess your credit agreements could hamper this. But it seems like some kind of dividend of $0.10 or $0.15, $0.20 a share would obviously, highlight the tremendous free cash flow you guys have. And also, maybe put the stock you know harder to bring in some of those warrants maybe mid-year or before. Just wondering, are you limited on paying a small dividend on the (inaudible) by your credit agreements.

Andrea Tarbox

Yes, yes, you are absolutely right. We can not. And you know probably not a good time to be going and asking for an amendment

Roger Stone

No, we should, I think our money should go to pay down our debt.

Tony Tristani - Astro Capital

Sure, I agree. Okay, thank you very much.

Operator

Our next question comes from the line of David Sandberg of Red Oak Partners. Please proceed.

David Sandberg - Red Oak Partners

Sorry, it maybe a little choppy, I am actually calling from my cell, I am on the road. What sort of 10-Q earlier today, and I had a few questions, I am really trying to get an understanding on the breakup between Charleston and Roanoke. What was said in the 10-Q was, it did a good job of breaking out some of Charleston revenues and cost. And what I got to was a 141 in revenues, one or two in COGS, $13 million in freight and 2.2 in SG&A. And that sums up to $24 million in EBITDA.

You mentioned that adjusted EBITDA of 36.5, would that mean that on adjusted basis Roanoke is 12.5 for the quarter. Do those numbers end up sinking?

Andrea Tarbox

Well, I mean you can pretty much as you've gone, back into those numbers. Like I said, we're not…

Roger Stone

But there is overhead cost created by Roanoke if they are not in the Roanoke numbers.

David Sandberg - Red Oak Partners

Well, you know what guys didn't do on your adjusted basis, for Roanoke. So, you added back to the $6 million cost for doing it in Q3 versus Q2 last year. I think what you didn't do, right or wrong was add back the $5 million of lost revenue coincident with that shutdown, presuming it's around 50% incremental margin, which my guess is pretty close. That would add $2.5 million back or so. That wasn't in there, but I am just trying to get a flavor for how Charleston's performing now that we have the full solid quarter in here, including the some of the price increase from earlier in the year in liner.

Bit of pro forma on Roanoke, as to how that's doing. And largely that's because I am comparing versus last year in the Q3 where it did 15.7 in EBITDA. And I though would some of the price increases we've had in the past year, that 15.7 would have been higher on a normalized basis for this quarter.

Roger Stone

Well Roanoke for this quarter had to be shutdown.

David Sandberg - Red Oak Partners

Right.

Roger Stone

So that obviously hit -- it's the big hit to the EBITDA and the shutdown and the ramp up. Yeah, to answer your question, in general, Charleston operated very well on the quarter. We were very pleased with Charleston operations and did well. Roanoke eliminating the shutdown and the ramp up after the shutdown did very well from the production point of view. But clearly that's a big hole in the quarter. It was a big hole last year in the second quarter, but it was big hole this year in the third quarter. Beyond that I am not sure I can answer anything else. Andrea?

Andrea Tarbox

Right. I mean we didn't include the lost production as a calculation of that lost operating income because the SEC frowns on you assuming that you could have sold it. But we thought we could, so we felt we could talk about it. But I mean that's why it wasn't included in the numbers. But for your comparisons, you can probably certainly, fairly add that in because it clearly makes the difference when you look at the comparison between the two quarters. And I think you've done a pretty good job of backing into what are the numbers and sort of their --

David Sandberg - Red Oak Partners

Okay. And let me just ask little more simple and I'm not trying to put you guys on the hook here at all, but just so I can understand it. Roanoke, is your impression that if we didn't have the shutdown on the third quarter, when we're looking at Roanoke with the $15.7 million EBITDA from year ago to Q3 and given we have some prices, just in the past year since then, would Roanoke probably have done a higher EBITDA number versus a year ago had it not been for shutdown?

Roger Stone

Yes, if Roanoke did not have the shutdown in the third quarter, it would have had a better EBITDA number than the last year's number.

David Sandberg - Red Oak Partners

Got you, okay. Well listen that was it, and I want to add on and chime in with some other people that Charleston visit was great and I appreciate you guys doing that for us. And that's it, thanks a lot.

Roger Stone

Okay. Well, thank you.

Operator

Our next question comes from the line of [Todd Cowen of NTC Advisors]. Please proceed.

Todd Cowen - NTC Advisors

Good morning. On the cost side, freight and distribution was close to $20 million. And I'm just curious as to -- and I don't think that we had the full benefit of the decline in energy prices that we've seen here recently or subsequent to the end of September. Was wondering kind of what that number looks like going forward on lower energy costs that we're now seeing?

Roger Stone

It looks better. Diesel fuel costs have been slower to decline, than other fuel cost. Fuel surcharges are down substantially. Rates here are not down not as substantially, okay, but the fuel surcharges are. So transportation cost is moderating reasonably well, and clearly, will be lower per unit shipped in the fourth quarter than they were in the third. And inbound rate also where it's important where we are buying stuff, like coal, for example, not on a delivered basis, but plus the freight, obviously, will fair better in the fourth quarter as well. So we should get some benefit, as I said, in freight, but I don't think we can put a number on it.

Todd Cowen - NTC Advisors

And then, in cost of sales, that component that is raw materials purchased outside of the company, because I know you utilize some of your own sources internally, how big of a number is that of the cost -- what is that component of cost of sales?

Roger Stone

Freight?

Todd Cowen - NTC Advisors

Well, just your chemicals and…

Roger Stone

Material cost is a -- I don't want to go into those details. Frankly, we don't do that. We don't break those down. But clearly, wood, energy and chemicals are the big purchase costs. And wood in the quarter -- in some quarters, in some areas, wood ship prices are up because of the construction industry being down, so -- whereas pulpwood has generally been very stable.

Todd Cowen - NTC Advisors

And then chemicals?

Roger Stone

Well, chemicals I didn't think could get any higher than they were in the third quarter. So we don't give out the percentages really for competitive reasons, although competitors really understand the issues.

Todd Cowen - NTC Advisors

Well, they've got to be buying the same stuff, so…

Roger Stone

Right. They've got the same stuff and it's a question of efficiency and how well you use it -- and special chemicals for special products. But they are all significant in the monthly cost.

Todd Cowen - NTC Advisors

Right. And are you estimating that the chemical costs will start coming down meaningfully?

Roger Stone

I am estimating that some chemical costs will come down. Some don't. Caustic soda has been a real problem, and hopefully, we'll get some relief in that. But a lot of that depends on chlorine. And chlorine heavily depends on piping and so on in construction. So there are other issues that drive costs rather than just reduce demand.

Todd Cowen - NTC Advisors

Okay, thank you.

Roger Stone

Okay.

Operator

Our next question comes from the line of Jeff Miller from JMG Capital. Please proceed.

Jeff Miller - JMG Capital

I wanted to have just a couple of quick follow ups here. Can you go into your kind of free cash flow generation? Looks like it was down 600,000 for the quarter. I know there was a lot of noise given the acquisition. But it looks like you are going -- I think it was just under $9 million for Q2 and just over $7 million in Q1. Can you give us some guidance about what kind of free cash flow you like to generate going forward for the larger company?

Andrea Tarbox

Well, I mean I think you are going to see from one, I mean the taxes. Certainly, the increase in tax expense you're going to see the interest expense decrease, and…

Roger Stone

And we had during the quarter, for example, we paid $17 million for bank [raise] and so in the quarter which is cash, I mean we amortized the bulk of it, but its cash.

Andrea Tarbox

Right. And as I said, this was very sort of unusual and sort of cash intensive quarter for cash because of those costs.

Jeff Miller - JMG Capital

Right. I kind of understand that. I am just saying going forward, can you give us some rough idea about what'd you hope to generate now that you have a larger company under one roof going forward?

Andrea Tarbox

Well, I mean we don't forecast, so I mean if you think starting with EBITDA like you said, that in the major component you are adding back interest and the taxes, if you think…

Roger Stone

We feel the company will generate a great deal of free cash flow and obviously greater than it would have, if we haven't done the acquisition.

Jeff Miller - JMG Capital

Fair enough.

Roger Stone

Okay

Jeff Miller - JMG Capital

Okay, thanks guys.

Roger Stone

Okay.

Operator

Our next question comes from the line of the Steven Chercover of DA Davidson. Please proceed.

Steven Chercover - DA Davidson

Thanks again. Two quick clarifications. First of all with respect to interest expense, there is $200,000 one timer in the third quarter. The $800,000 amortization, does that go away or how long that will that persist?

Andrea Tarbox

That will go over the life of the financing, so it's a five-year thing.

Steven Chercover - DA Davidson

Okay, thanks. And then just to make to sure I fully understood Roger, with respect to the linerboard pricing increase, we've got carryover from the Q2 price increase and better realization as you repatriate tons but no benefit for the fourth quarter increase.

Roger Stone

No, no, there is a benefit for -- of linerboard pricing increase in the fourth quarter. And we only got small part of it in the third quarter and we will get the entire amount in the fourth quarter of that domestic.

Steven Chercover - DA Davidson

Sure, but we're talking about the $55 from nothing from the (inaudible).

Roger Stone

We'll get the whole $55 dollars in it in the fourth quarter where it didn't have it in the third quarter.

Steven Chercover - DA Davidson

Okay, but the $60 for October, we can stick towards that?

Roger Stone

That's good.

Andrea Tarbox

Yeah.

Roger Stone

That's good, Mike and we were able to get some of that in the export market, but of course that's good.

Steven Chercover - DA Davidson

Great. Thanks again.

Operator

Our next question comes from the line of Tony Tristani of Astro Capital. Please proceed.

Tony Tristani - Astro Capital

Thank you. Just a couple of questions. I know if you see your CapEx of $30 million that hasn't changed, I think you said half of that would be maintenance CapEx, the other half would be ROI project. So obviously, you're not cutting that back. Do you have a lot of quick pay back kind of -- can you talk about the $15 million non-maintenance of kind of pay backs you expect on that? And the second question I guess is on Charleston, 16% EBITDA margin when you acquired it overtime, do you still think you can get that over 20%? Thank you.

Roger Stone

I don't think I can get it to 20%, okay. I think we can get close to it. But in terms of CapEx, yeah, our feeling for that is about the same and we're looking for obviously projects with great payback or either through cost savings and/or through products that we can make more profit on, okay, on that base and throughput. And we're having -- are having our annual community meeting next week, I guess and we'll finalize our capital budgets, obviously, our standards may have gone up a bit.

Tony Tristani - Astro Capital

Okay. Last question is on your shutdown that as you move in to next year, I think you guys had said that you may not have -- probably you won't have to shutdown any major shutdown in Charleston and Roanoke. Does that move may be in to Q4 or in to 2010.

Roger Stone

Yeah, Roanoke is going to stay -- be in the third quarter most likely next year in the same quarter. You get dangers of weather complicating shutdowns, and so you don't want to take that risk in the mill that's, that's not a [northern] mill but it's in the middle there. And so Charleston's shutdown will be in the third quarter next year.

Tony Tristani - Astro Capital

Okay. So both shutdowns in the third quarter and Roanoke will be about –

Roger Stone

I am sorry Roanoke -- Charleston does not plan to have a coal shutdown next year.

Tony Tristani - Astro Capital

That's good. And Roanoke we should estimate kind of a similar kind of nine day outage kind of a thing or do you think it should be.

Roger Stone

Eight or nine day outage seems to take care of all our needs, right?

Tony Tristani - Astro Capital

Okay, all right. Thank you very much.

Operator

You have no further questions.

Roger Stone

Great. Thank you all very much and I am sure I will talk to you soon.

Operator

Thank you for your participation in today's conference. This concludes the presentation.

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Comments

[Packaging:]

Thats a big acquisition and will take time to integrate before the full benifits filter through to the bottom line.

Feb 09 06:50 AM

[ClvrPkg:]

The corrugated industry has forecast volume growth for recycled Test Liner grades. It will be interesting how this affects bleached kraft usage.

Oct 03 12:37 PM