Clearwater Paper Corporation

Thank you, and once again good afternoon and welcome to Clearwater Paper's second quarter 2012 conference call. Our interim CFO, John Hunter, will walk you through our quarterly financial results.

Thanks, Gordon. Our press release this afternoon includes details regarding our second quarter results, and you will find a presentation and supplemental information posted on the Investor Relations area of our website at clearwaterpaper.com.

Additionally, we provide certain non-GAAP information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release and supplemental material provided on our website.

I would like to remind you that this presentation will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements.

Factors that could cause actual results to differ materially include those expressed or implied by risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission, including our form 10-K for the year ended December 31, 2011, and our quarterly filings on Form 10-Q. Any forward-looking statements are made only as of this date, and we undertake no obligation to update any forward-looking statements.

For the second quarter of 2012, we reported net earnings of $21.5 million, or $.91 per diluted share, compared to net earnings of $13.9 million, or $.59 per diluted share, for the second quarter of 2011. Second quarter 2012 earnings before interest, taxes, depreciation and amortization, or EBITDA, was $64.2 million, compared to $52.4 million in the second quarter of 2011.

Second quarter 2012 adjusted EBITDA, which excludes approximately $1 million in legal expenses associated with the First Quality/Metso Paper litigation, and a $1 million loss associated with the sale of our legacy Cellu Tissue foam manufacturing assets, was $66.2 million.

Net sales in the consumer product segment increased 5.2% versus second quarter 2011, to $283.1 million, primarily attributable to higher net selling prices and increased volumes. Consumer products operating income for the second quarter of 2012 nearly quadrupled to $25.7 million, as compared with the second quarter of 2011, primarily due to higher net sales and lower external pulp costs.

Operating income for the second quarter of 2012 also included the $1 million loss on the sale of the foam manufacturing assets, and $6.7 million of net cost savings from synergies associated with the Cellu Tissue acquisition.

Net sales in the pulp and paper board segment decreased 15.5% versus second quarter 2011 to $190.5 million. The decrease in net sales was primarily due to the sale of our Lewiston, Idaho saw mill last November.

There was also a reduction in the sale of external pulp due to increased internal usage as well as lower paperboard volumes, down from the second quarter of 2011.

Operating income for the quarter declined 7.1% to $32 million, compared to $34.5 million for the second quarter of 2011, primarily due to the decline in pulp and paperboard net sales, partially offset by reductions in pulp, energy and transportation costs. Pulp and paperboard operating margins increased to 16.8%, compared to 15.3% in the second quarter of 2011, due to the benefits from the sale of our wood products operation.

Net interest expense of $9.1 million declined $1.8 million from the second quarter of 2011, primarily due to the capitalization of $2.8 million of interest associated with our TAD project, which includes the construction of our Shelby, North Carolina facility and updates to our Las Vegas, Nevada facility. We expect capitalized interest associated with our TAD project to be approximately $9 million for the second half of 2012, and approximately $19 million over the entire construction phase of the project.

Regarding taxes, we recorded a 39.2% tax rate for the second quarter of 2012. Excluding discreet items during the quarter, our effective tax rate was approximately 35.3%.

We expect our annual effective rate, excluding discreet items, to be approximately 35% for 2012.

We had capital expenditures of $53 million during the second quarter of 2012, which included $43 million related to the TAD project, bringing total project-to-date expenditures to $191.9 million. Capital expenditures in the second half of 2012 are expected to be $95 million to $100 million, which includes an estimated $65 million to $70 million associated with this project.

We currently estimate that the entire TAD project will cost approximately $275 million, excluding capitalized interest, with all but approximately $15 million to be incurred by the end of 2012.

As of the most recent measurement date of December 31, 2011, our company-sponsored pension plans were underfunded by $89.1 million. Although we did not make any contribution during the second quarter of 2012, we contributed $2.1 million to these plans in July, bringing our annual contributions to-date to a total of $17.6 million.

We expect to contribute approximately $3 million more to our company-sponsored pension plans during the remainder of 2012.

With regard to liquidity, we had $37.2 million of unrestricted cash and short-term investments on June 30, 2012, representing a decrease of $12.3 million from March 31, 2012. This decrease was primarily due to the capital expenditures associated with our TAD project, partially offset by strong operational cash flows in the second quarter of $50.9 million.

Our long-term debt outstanding at June 30, 2012 was $523.8 million, which was consistent with the amount at March 31, 2012. Our financial ratios remain strong.

Our total debt-to-capitalization, excluding accumulated other comprehensive loss, was 46% on June 30, 2012, compared to 46.8% on March 31, 2012.

Adjusted EBITDA to net interest expense for the second quarter of 2012 was 7.2x. During the second quarter, we repurchased 238,482 shares at a total cost of $7.5 million, pursuant to our previously-announced $30 million share buyback program.

Since announcing the program in July 2011, we have repurchased 571,782 shares at a total cost of $18.8 million for an average cost of $32.91 per share.

I'll now turn the call over to Gordon.

Thanks, John. Following our solid first quarter results, we posted even stronger second quarter results.

Our second quarter EBITDA of $64.2 million, and adjusted EBITDA of $66.2 million, is a record quarter. Further, the cost synergies associated with our acquisition of Cellu Tissue are coming in ahead of schedule, and our TAD project remains on-track.

I will now walk you through some of the operating segment details.

Consumer products net sales of $283.1 million were up 5.2% versus the second quarter of 2011, due to a 3.3% increase in volumes, to 132,978 tons, and a 2% increase in net selling prices to $2,129 per ton. The increase in volumes above our previous estimate of 128,000 to 130,000 tons per quarter resulted from improved production and excellent sales.

Higher net selling prices were driven by higher retail pricing, with a price increase implemented in the fourth quarter of 2011 and the first quarter of 2012. As a reminder, these volume and pricing figures are available on our website as supplemental materials, in the Events and Presentations section of the Investor Relations page.

Consumer products operating income for the second quarter of 2012 was up significantly to $25.7 million, as compared with the second quarter of 2011, primarily due to higher net sales and lower operating costs, with decreased external pulp costs being the biggest driver. The TAD project contributed $1.6 million to second quarter 2012 operating income, and we realized approximately $6.7 million in net cost savings from synergies associated with the Cellu Tissue acquisition in the second quarter.

Pulp and paperboard net sales of $190.5 million were down 15.5% compared to the second quarter of 2011, primarily due to the sale of our Lewiston sawmill, a reduction in sale of external pulp due to increased internal usage and lower paperboard volumes. Paperboard sales of $188.4 million declined 4.8%.

This was primarily due to a 4.3% decline in paperboard volumes to 193,285 tons, compared to record volumes in the second quarter of 2011. Paperboard net selling prices were down only slightly versus the second quarter of last year, due to market pricing and mix.

Pulp net sales of $2.1 million declined from $8 million in the second quarter of 2011, primarily due to using more pulp internally, and to a lesser extent, a 30% decline in selling price per ton as the pulp markets have come down off of record highs in 2011. Pulp and paperboard operating income for the quarter declined 7.1% to $32 million, compared to $34.5 million for the second quarter of 2011, primarily due to a decline in net sales.

Before I talk about our outlook, I want to express how pleased we are with the outcome in regards to the lawsuit brought by First Quality against Metso Paper, related to the delivery of our new TAD paper machine in Shelby. In short, the court denied the request for injunctive relief sought by First Quality, and dismissed their amended complaint with prejudice.

While we had continued construction at Shelby, the court's decision clears up any uncertainty about the project resulting from the litigations. The project remains on budget, on schedule, with production expected to begin by the end of the year.

Now I'd like to spend a few minutes on our outlook for the balance of 2012. We are still expecting annual net cost savings from synergies from our Cellu Tissue acquisition to ramp up during 2012 to an annual run rate of $35 million to $40 million by the end of the year.

Specifically, net cost savings from synergies for the remainder of 2012 are expected to be approximately $7.4 million in the third quarter, $8.6 million in the fourth quarter, for a total of $28 million estimated for the entire year. This is up from our previous estimate of $20 million.

We expect the consumer product segment to sell approximately 128,000 to 130,000 tons per quarter on average for the remainder of 2012. Further, we believe our pricing will continue to remain strong during the remainder of 2012.

The TAD project in both Shelby and Las Vegas is proceeding as planned. The first 2 Shelby converting lines, which were operational in 2011, are expected to contribute $2 million of operating income per quarter, beginning in the third quarter.

In addition to the first 2 converting lines, we are installing 2 additional converting lines that we expect to start up in the fourth quarter of this year. Offsetting some of this benefit will be an estimated $2 million to $3 million of additional costs associated with the start-up and construction of the paper machine and the new converting lines, which will be incurred in the second half of the year.

We expect an additional converting line will be added in 2013, and anticipate this will meet our stated goal of matching converting and papermaking capacity.

We anticipate the start-up of the paper machine at Shelby in December of 2012, and estimate that it will produce approximately 70,000 tons per year when fully operational, with approximately 75% of that amount in 2013. Also, as part of this project, we expect the work currently being done to improve our TAD capabilities in Las Vegas to be complete in the third quarter of 2012.

This project will allow us to supply the full range of TAD products, including paper towels and bath tissue, to customers across the United States, by minimizing transportation costs, and establish us as the only private label tissue products company to offer a full line of consumer paper products to our customers.

As for our pulp and paperboard segment, we continue to expect 2012 paperboard volumes to be similar as 2011, and selling prices to be stable. We also continue to expect pulp sales to be minimal, as we anticipate utilizing almost all of our pulp internally.

Our scheduled major maintenance expense in pulp and paperboard segment is now estimated to be approximately $4.3 million during the fourth quarter of 2012.

Regarding total company sales, we believe the cost structure will not change significantly during the remainder of 2012. And finally, we continue to expect corporate expenses to be approximately $12 million per quarter.

In summary, we had an excellent quarter driven by strong results, and remain confident that we will continue to be on track to meet or exceed expectations on all of our key initiatives. With the Metso lawsuit now behind us, we look forward to the completion of our new TAD paper machine later this year.

I would also like to take this opportunity to mention that John Hertz, whom we recently hired to serve as our senior vice president of finance and CFO, will be assuming his CFO responsibilities on August 6. Mr.

Hertz brings 23 years of experience to Clearwater Paper, including accounting, auditing, finance and investor relations, and we are delighted to have him join our company. His most recent role was the CFO of semiconductor manufacturing equipment supplier, Novella Systems.

Thank you for listening to our prepared remarks. Operator, we'll now take some questions.

Gordon, just a couple of questions on paperboard to start -- have you seen any softening in demand through as far as mid-2012 here, or have you been inflated with your exposure to food?

Well, I guess you could say there is a little bit of softening, but I mean, we still have a very good market and we feel very good about the business. You can probably notice from our results that we are performing quite well, but I think the way to think about the paperboard business is how does -- how's the economy going, and with the economy still stumbling a little bit, that probably gives the impression of some softness in paperboard, but overall, we still feel very good about it.

We're -- our pricing remains stable, and it's still an excellent business for us.

And just on the pricing there -- quarter-over-quarter it was up a little bit, is that more just a mix issue?

Yes, it is. It's -- you're looking on our supplementals back there where it says we went from $968 to $975?

Yes.

That is exactly what it is. We -- that whole number, I had kind of talked last time on the call that, that was a mix issue of why it only went down $2 when there had been some pressure in the first quarter really at the end of the fourth quarter, but in the very first part of the first quarter it only went down $2 because of some mix changes.

Those mix changes have continued. So we continue to run a higher level of extrusion versus our non-extrusion products, and that's helping with our paperboard price, but our prices remain stable.

Got you, and then just shifting gears to tissue with some of that softening in the economy. Have you seen any significant shift within your tissue grades in -- and you participate in pretty much all the different grades?

Right, you are absolutely right, we are in all the grades, and no, we really haven't. I mean, the one of the very fun things about being in the tissue market is that the demand is -- continues to go up.

So we haven't seen any reduction in demand, and we haven't seen any major shifts between the different categories.

Got you, and then on the synergies, obviously moving those upwards in 2012, and leaving the total the same. Is that more a timing issue?

Things have been coming in a little bit quicker, or have -- where there's some new savings that were identified?

No, it's just very much timing. You're right on the money, Graham, it's all about timing.

We're just getting them faster than we had originally indicated to the market that we would do, and one of the things that we promised everyone is that we would give these updates on synergies, and when they change, they change. So if you remember when we started with $15 million to $20 million when we went to $35 million to $40 million, we let the market know that, and we thought it's appropriate for the market to know we're going to do better than $20 million this year.

So that's where the $28 million comes from.

Great, and just last quick one on the foam business sale -- any material impact on earnings with that?

No, not -- it was just a term to be non-core for us, and we decided that it was time to go ahead and remove it from the mix.

First of all, you bought back almost 240,000 shares, but the share count is still up nearly 400,000. So were those options that were granted to management, and does that happen every quarter, or is that just an annual event?

Yes, Steve, good comment. In the first quarter, if you go back and look, is when that increase really happened.

We do -- we have an annual [indiscernible] program that's documenting our proxy statement, and you can see it out there. So in the first quarter of each year, you will see going forward, assuming there is a grant that will happen in the first quarter, so that is really offsetting the repurch activities [indiscernible].

And that was -- we called that out when we put that $30 million share buyback in place, we called out that we wanted to do that -- one, to show we believe in the stock and 2, to offset that managed equity that we were giving up.

So assuming that you carry out the remainder of the program, we should see a modest decline versus [indiscernible] decline the second half of the year?

Yes, correct, we -- the program is still out there, and we'll continue to buy depending on the price on the stock.

Okay, and I just wasn't writing fast enough -- could you clarify your maintenance schedule and expenses for the remainder of the year? Was there anything in Q2?

Yes, in Q2 there was not, and there will not be in any Q3, but in Q4 at [indiscernible] we'll have $4.3 million, and that's up from the $3.3 million that we've said at the beginning of the year. We just looked at it, and there are some other things we can do while we are down, so we're going to spend a little bit more on some projects to get that done in the fourth quarter.

Okay, and at risk of touching the third rail, has there been any dialog with SAC since they wrote their letter?

We continue to talk to all of our shareholders, Steve. That's -- we got their letter, we're continuing to analyze it, taking a hard look at all of their suggestions, and we do talk with them, and we talked to all of our shareholders.

On the price increase -- on the price increases, how much longer is it going to take [indiscernible], and then it's an opportunity to raise prices even more?

On the price increases for -- well, the tissue price increase, if that's the one you're talking about, that was really a fourth quarter, first quarter event. That was the one that was going to be, and was actually fully implemented, Ian, that was a 2.5% increase across that total period about 1.25% and maybe a little bit higher than 1.25% in the fourth quarter of last year, and then the remainder of that 2.5% was in the first quarter.

That's the only tissue price increase that is out there right now, if that is the one that you are referring to, but those are all implemented, and those were finished up in the first quarter.

And what about the potential to take prices up even more? What are you seeing in the market place, or at least is there an opportunity to reduce some of your spend and your promotional activity?

Yes, I think that the market continues to be nice and solid, we've talked in our script about we expect the prices to remain stable for, for this year. I mean, we see no reason to have pressure on tissue prices at all, and as you know, the market is very much dominated by the brands, and as the brands choose to take up their prices, those are the ones that are typically leading price increases.

But where I think where we are right now, having not heard anything from the brands or the rest of the market, we want to keep our customers very competitive, and we'll take price up wherever we can, but it's who -- we just don't see any change in price at least for the short term.

Okay, and the other question is with the pulp curve kind of pointing downward, what do you think is going to happen with price? Is it going to -- I mean, do you keep it fixed and take the margin, or [indiscernible] back?

Well, for us, and it's always been difficult to model us, as I know you know very well, but for us we have about this 3-month lag relative to what happens in the pulp market -- and just a quick thought about that is the pulp prices were still up high throughout the second quarter here, and the pulp prices really only started going the other direction in the third quarter this year. So any benefit of this most recent drop in pulp prices that you are hearing about today and in July, are going to hit us more as a fourth quarter event and not in the third quarter.

Having said all of that, it's hard to know exactly where pulp prices are -- RECE is talking about pulp prices going down, and certainly that's happened as northern softwood, and a number of suppliers have announced that 2 stages down -- $20, followed by $30 to take NBSK 850. So that appears to be happening now.

They're also forecasting that it might bubble up a little bit in the fall and then go back down. I would leave you with this thought, that for the tissue business, which is pretty hardwood oriented kind of business, there is almost 5 million tons of hardwood coming on in the world between now and early 2014.

So I will let you make your own assumption about what is going to happen to the pulp market, particularly the hardwood market with that kind of vast added capacity coming on in pulp.

First on the consumer product tissue realizations on your supplemental material, pricing, you're showing pricing quarter over quarter down about $30. Was that just a mix shift and if so how -- what was the shift due to?

Yes, that's a good question and it's higher parent roll sales and parent roll sales, of course, per-ton basis, which is all its reported in, is what's pulled that down. The retail side of our business is just fine.

I mean, it's gone very well, in fact, it's up a little bit on a finished-case basis. But that number is very reflective of just higher parent roll sales, that comes from higher production and that's all good news for us.

And then on that production number, you had a pretty strong volume number on the tissue on the consumer side in the second quarter. Is there any reason that's not sustainable into the third and fourth quarter?

Well, we're kind of reflecting back across some comments we made in previous earnings calls, James, where we said that we would typically be in the 128,000 to 130,000 range of selling and we provided that as comments to folks so that they would know that if we were more than that, then either we had a very good production month, highly productive on our machines, or we were buying in some tissue rolls to take advantage of some logistical situations. For us, this particular number this quarter is about our operations are running very, very well and those results are excellent as a result of it.

But that's where it's from and that's why we just kind of fall back to 128,000 to 130,000, but certainly we hope we'll continue to run very well and we'll do whatever best we possibly can there. But we just didn't want to come off of that initial 128 to 130 number.

Okay, and lastly, how much net gas do you buy a quarter and do you have any hedges in place?

I'm going to pass that one to John, but while he's pulling that number out, we don't actually call it hedges, we do a little forward buying is the way we look at it because we don't want people to think we're some kind of financial company trying to hedge something, per se. So -- but we do a little bit of forward buying.

John, do you want to talk about that?

Yes, James, we do hedge and we do that on a spot basis that we look at to see where we're at. So for the remainder of 2012, we've got about 29% of our net gas purchases hedged at the moment.

We look at that regularly so that can change, but we do report that each quarter, so we look at the needs, we look at where we think it's going and we make our decision.

And how much do you buy a quarter?

We haven't put out the volumes for our natural gas.

There's been a lot of attention in the investment community lately on the struggles of Super Valu and as I last understood, they were one of your top 3 customers on the consumer tissue side. And so I'm wondering if you can just opine on the potential implications of their struggles, particularly as it concerns potential loss of market share to competitors or to the mass channel where they seem to have an increased focus on grocery these days?

Sure, Eric, thanks. I don't have a lot to say about it, honestly because the -- certainly it's for them to talk about what's going on with their particular company.

But let me just say that they're a very highly valued customer of ours. The way to think about Super Valu, I think, for yourself and others that are modeling us is the demand associated at the Super Valu sites doesn't go away, no matter what happens with Super Valu, what they do or don't do or whatever choices they make.

I'd also mention to you that many of their marquee banners like Jewel Osco and Shaws and Acme and Albertson's in Southern California and those kind of places are just terrific properties and we're delighted to be working with them in partnership to get them the tissue paper that they need. So they're -- so lots of very good relationships between the 2 of us, but if something were to happen to them and I don't know what it would be or what the -- maybe restructuring or any kind of options that they might consider, we feel very confident that the tonnage that we have going to them would be displaced and that it's very highly likely that it would continue to be ours at the next location.

But it's hard to opine on what's in their future strategy. I'll just leave you with, they're a very good customer of ours and they're highly valued and we appreciate that long-term relationship with them.

And just as a corollary to that in terms of the market share grab that a lot of the mass retailers are aiming for, if you walk into any Wal-Mart or Target, you can see that. How are you guys thinking strategically about that part of the market and whether it's from a diversification standpoint or a more offensive business development standpoint in terms of developing opportunities within that channel?

Well, that's another good question and we are interested in those channels. I mean, we're interested in all the channels that purchase tissue and prior [indiscernible] acquisition we were very grocery-store centered and -- but that was based upon limitations of paper supply.

And now with having a -- coming up on 1.5 years or more of Cellu Tissue having joined into the Clearwater family, we're now paper long. So we have the ability to participate in those other kinds of forums to sell our tissue paper and we're doing that.

So we very much want to participate in all those. We're not saying no to any category or any option where it makes sense for the company.

So your comments about business development are probably the ones that are in most alignment with where we are. We need to continue to develop our business and we are, as I mentioned in the script, really the only company out there that's going to offer this full range of products all the way from an ultra-soft and ultra-strong product all the way to recycled and of course, the many grades of conventional paper as well.

We've got it all. We think we're the only one that can do that.

I just wanted to -- talk about the paperboard again. Your volume was down, I guess, over 4% of the quarter and another major producer reported somewhere within that sector today.

And if that business is mostly in food, why would the economy be having that kind of an impact on volume?

Well, that's also a good question but it depends on who you are and what segment you're selling into. We do sell into food and -- but we also sell in a bunch of other segments as well and I -- I would say the thing to watch when you look at our supplement back there, that's the Page 3 supplement that I know you're referring to, is the all-time record quarter that we've ever had in paperboard was the Q2 2011.

That's a 201,000 number. The 193,000 that we just sold in Q2 this year is the second all-time best that we've ever done in paperboard.

So we don't look at it as though our volume is off in paperboard, we look at it more as though our volume is up. One of the things that we had said in previous calls is that kind of like we gave some forward feel to the 128,000 to 130,000 tons of our tissue business, we think of paperboard as more like 185,000 ton kind of business and in the first quarter when we reported 182,000, there was an outage in that particular quarter and they did quite well even with that outage.

And 193,000 of course, even better. So if you're modeling it, Stuart, think of us as about 185,000 tons and every time we're there or above, we've done very well.

Okay. And on the new TAD machine, you said it's going to 70,000 tons and 75% capacity next year.

But how fast do you expect that to ramp up?

We don't have -- aren't frankly giving the slope of the curve associated with that. We're just trying to give people a feel for what it looks like for the total year because there are so many variables that go into that, I mean, do you come -- just a quick example, do you come up at a slow speed and ramp up or do you -- how fast you take the speed of the paper machine back up, how quickly do you get to the quality parameters that you want to get to and those will take us a while.

But there's also the fact that although we're going to get paper on the reel in the -- yet this year and that means we're starting up that paper machine this year, but it's going to take us a while to make sure that we get the inventories built to the levels and organized with -- we've done a lot of pre-organizing with customers but we want to make sure that we get into their distribution warehouses what they need to have in there. So that means that some of the billings associated with this TAD paper machine don't happen instantaneously with the beginning of the first quarter.

So it's kind of a combination of building up inventory, getting that all distributed where we want it, but the -- kind of the overriding factor is how quick can we get paper on the reel, how fast can we come up and still meet all the quality requirements that we so desperately want.

So as you go from construction to production, I guess really in the first part of next year, then these expenses will be expensed right? It will be a negative?

Yes. Yes, those start-up costs, we try to call out for the rest of this year, some of those costs of that $2 million to $3 million in the second half of the year.

Those are those costs in training, getting people up to speed and getting everything set up. We'll continue to have those in 2013 as we ramp that machine up.

Okay, and your corporate expense was up significantly in the quarter. I think up about $6 million and I guess $1 million of that was for legal expenses and then $1 million for the loss of the [indiscernible] assets.

What accounted for the remainder?

Okay, I'm actually -- I guess I need -- on your numbers, I'm looking at the expense, I'm showing 13 in Q2. Oh, from Q2 '11, I'm sorry.

Yes. 7.5.

Yes. I apologize.

In first quarter, we talked about this year we are planning on running at that $12 million level. What we're -- where that's going is really with the integration of cellu tissue in 2011, we were just getting started on that in 2011.

We have integrated a lot of the corporate functions. We also talked -- and the biggest one of those being IT, that was spread throughout the company so we consolidated that into the corporate expenses.

We're also still spending quite a bit of money on integration and spending a lot of money to get those synergies. The net numbers that we're reporting are net of the cost but you see the benefit of those in the business unit and you see the cost of those are running mostly through corporate for a lot of these synergies.

So that's been -- we said this year would remain at $12 million as we continue to finish that integration, get those synergies and work towards those. So that $12 million rate is what we expected and it is consistent with prior quarters.

Stuart, this is Gordon. I might just mention that one of the things that we've been working very hard on here is driving out all of the non-value added costs.

So I would give you the comment that rest assured, we're trying to drive those numbers down as fast as we can. One of the programs, for instance, which we have implemented across the company is really a lean program.

We call it Continuous Improvement. But it's about taking out ways to [indiscernible] and about getting our cost down.

We're looking at that [indiscernible] areas part of that whole thing, not just the operating side.

One last one. So CapEx is going to be $275 million for the plant for the TAD machine this year so the total is what?

Going to be $325 million for the year?

Yes, I think the way we look at that, Stuart, is -- I think I'm going to pass it to John because we gave some of those specific numbers but we had Shelby the second quarter was $43 million. The rest of the year at Shelby, about $65 million to $70 million.

And that means the total CapEx -- so that would be our normal CapEx, not counting the Shelby or and Las Vegas TAD project is $53 million in the second quarter. We'd given that and the rest of the year about $95 million to $100 million, $105 million kind of range.

So that's how we finished for the year and -- but the $275 million that you mentioned -- there's about $15 million of that $275 million which is going to carry over that we'll actually spend during 2013, just by the nature of what we have coming in and when we owe it.

So Stuart, if you're looking for just 2012, that $195 million to $200 million number for just 2012.

Total. Total or?

Total for the year.

And how about any guideline for -- I'm sure it's going to be down in 2013 but like half or..

We haven't put that out there yet. What we've said is we look at that every year as part of our budget process.

Clearly it will go down. We have ran for the non-TAD project capital.

We've been about $50 million for the last couple of years. We're bigger and so there'll be more projects in the future but $50 million is the baseline we've had for the last couple of years.

But we'll look at all the available projects and look at our free cash flow for next year and make that decision and we'll give you that number at the end of the year.

Yes, Gordon and John just really quickly. Gordon, as you were reviewing the performance of the consumer products segment you referenced a $1.6 million contribution.

I think it may have been operating income contribution? Could we just revisit that?

I wasn't able to get that when you first ran through it. Could you just repeat what you said there?

Yes Eric, I'll jump in. This is John.

Yes, we called out -- the last 2 quarters, we called out the contribution from the TAD project and that's the 2 lines at Shelby. And last quarter it was about $1.1 million, this quarter it's $1.6 million.

So that machine makes its way up the cost curve -- start up curve. It's generating more and we thrown out there that it will be to that run rate that we've previously said of $2 million per quarter of operating income.

And remember that that also includes depreciation. So if you're looking at EBITDA, that's a larger number.

I was just going to say, Eric, sorry. The $1.6 million is operating income, too.

That's what my statement was.

Are you making TAD converted product on those lines? Or is this still conventional product that hasn't yet shifted to TAD?

Yes -- on those converting lines will do both. They will convert conventional paper and they will convert TAD paper.

They are doing both right now but any paper that's going into Shelby that's TAD happens to be coming from one of our other 2 facilities, whether it’s up in Canada at Saint Catherines or it's from Las Vegas. So if you looked at Shelby -- walked into Shelby now, you'd see converted conventional tissue and you'd see converted TAD but none of that TAD of course, is being made in Shelby.

It's all coming in from our other 2 sites.

Okay, thank you very much. As I said in my remarks, we had an excellent quarter driven by strong results and we remain very confident that we're going to be on track to meet or exceed expectations of all our key initiatives.

We very much appreciate everyone's interest in the company and look forward to talking again next quarter. Thank you very much.