Clearwater Paper Corporation

I would now like to turn the conference over to John Hertz, Chief Financial Officer. Please begin.

Thank you. Good afternoon and welcome to Clearwater Paper’s third quarter 2012 conference call.

Our press release this afternoon includes details regarding our third quarter results, and you’ll find a presentation of 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 may 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.

With that, now I’ll report on the third quarter results. Net sales for the third quarter came in at $480.2 million.

That is down approximately $21 million versus the third quarter of 2011, primarily due to the sale of a sawmill in the fourth quarter of last year. Sequentially, from the second quarter, net sales increased approximately $7 million, as the Consumer Products division shipped a record of approximately 139,000 tons of product in the quarter.

That volume increase was partially offset by the effects of an approximate 5% decline in Consumer Products non-retail average selling prices and a 3% decrease in Paperboard average selling prices. Note that retail tissue volumes and pricing were both flat to slightly up versus the second quarter.

Third quarter gross margin was 15%. That's versus 10% in the third quarter of 2011 and primarily due to a 24% decline in the price of external pulp.

Gross margin was down 1 point from second quarter 2012 primarily due to the price decline in non-retail tissue and paperboard.

SG&A expenses, up $30.6 million or 6% of the third quarter net sales versus 5% in the third quarter of 2011, and that's largely due to $1.3 million in incentive plan accruals for the Consumer Products division, which did not participate last year, and a $1.4 million increase in director compensation associated with cash-settled common stock units and the mark-to-market impact of the 21% increase in our stock price in the quarter on the associated expense. On a sequential basis, SG&A is consistent with the second quarter.

Let me also talk for a second about the corporate and eliminations line that you see on our segment reporting disclosure. Note that those costs are a subset of total SG&A spending.

Corporate spending was $13.1 million of the total $30.6 million SG&A spend in the third quarter. That is up $5 million versus the $8 million of corporate spending in the third quarter of 2011.

Approximately $2 million of that year-over-year increase is due to a reallocation of certain G&A spending from the divisions in '11 to the corporate bucket in '12. Then about $1.5 million of that increase is due to a combination of increased incentive comp based on improved profitability versus last year as well as the addition of the COO role and, finally, you have the mark-to-market impact of the Director stock units.

Q3 corporate spending is flat versus second quarter.

Third quarter earnings before taxes, depreciation, amortization, or EBITDA, was $59 million, or 12% of net sales, compared to $46.2 million, or 9%, in the same quarter last year. That improvement is due to lower pulp, transportation and maintenance cost.

Third quarter EBITDA margin was down 2 points versus the 14% that we achieved in the second quarter, primarily due to the lower pricing within paperboard and non-retail tissue as well as higher maintenance, transportation and labor costs within the Consumer Products division, and then, finally, the mark-to-market impact of Director stock units.

Third quarter net interest expense of $17.9 million declined $4.2 million from the third quarter of 2011, primarily due to the capitalization of $4.1 million in interest associated with the construction of our Shelby facility and the improvements to our Las Vegas facility. Compared to the second quarter of 2012, net interest declined $1.2 million.

We expect capitalized interest associated with Shelby to be $4.9 million for the fourth quarter of 2012 and approximately $18 million over the entire construction phase of the project.

Our effective tax rate for the quarter was 40.2%. That's up slightly from the 30.92% that we reported in the second quarter.

Now effective tax rate for the first 9 months of the year stands at 46.7% and we expect our full year effective tax rate to be in the range of 43% to 44% for 2012. That includes the impact of discrete items throughout the year.

Net earnings were $19.1 million, or $0.80 per diluted share; that’s compared to $8.6 million and $0.37 per share, respectively, for the third quarter of 2011. Compared to the second quarter of 2012, net earnings declined $2.4 million, or $0.11 per diluted share.

Non-cash expenses in the quarter included $19.2 million of depreciation and amortization and $4.1 million of equity-based compensation. Employee headcount at the end of September was approximately 3,800 employees versus approximately 3,700 at the beginning of 2012.

Capital expenditures were $55.4 million in the third quarter of 2012, which included $39.3 million related to the construction of our Shelby facility and updating our Las Vegas TAD paper-making and converting facility, bringing total TAD project expenditures to date to $231.2 million. Capital expenditures in the fourth quarter of 2012 are expected to be approximately $50 million, which includes an estimated $23 associated with the TAD project.

We continue to estimate with the TAD paper machine and tissue converting facility in Shelby as well as the modifications being made at our Las Vegas facility will cost approximately $275 million; that excludes capitalized interest. Approximately $21 million of that amount is expected to be carried over into 2013.

Long-term debt outstanding at September 30, 2012 was $523.9 million, which is consistent with the June 30, 2012 balance. As of the most recent measurement date of December 31, 2012, our company-sponsored pension plans were under funded by $89.1 million.

We contributed $2.1 million to these plans in the third quarter of 2012, bringing our 2012 contributions through the third quarter to the total of $17.6 million. We contributed an additional $3 million to our company-sponsored pension plans in October and do not plan to contribute anymore this year.

With regard to our liquidity; we ended the third quarter with $56.6 million of unrestricted cash and short-term investments. We generated $72 million of cash from operations in the quarter, or approximately 15% of net sales.

And that’s primarily from positive earnings and working capital changes, as strong tissue volumes drove a $13 million decrease of inventory, while payables and accrued liabilities were $19 million higher due to timing.

During the third quarter, we repurchased 50,300 shares of our common stock at an average cost of $37.48 per share for a total cost of $1.9 million; pursuant to our previously announced $30 million share buyback program. Since announcing the program in July 2011, we have repurchased approximately 622,000 shares at an average cost of $33.28 per share, equating to a total cost of $20.7 million.

We expect to continue stock purchases pursuant to the program. Our leverage ratios remain strong.

Our total debt-to-total capitalization, and that's excluding accumulated other comprehensive loss, was 25.1% on September 30, 2012 compared to 46% on June 30, 2012.

EBITDA-to-net interest expense for the third quarter of 2012 was 7.5x. So all in all despite the continuing challenging environment, we produced solid earnings and EBITDA and generated $72 million of cash flow from operations.

I will now turn the call over to Gordon Jones, who will discuss the company's segment performance and outlook.

Thanks, John, and by the way, welcome to your first earnings call as Chief Financial Officer at Clearwater Paper. We are absolutely delighted that you are here.

Consumer products net sales were $293 million for the third quarter of 2012, up 2.7% versus the third quarter of 2011, due to record shipment volumes.

Compared to the second quarter of 2012, net sales increased $9.8 million, primarily due to a 4.4% increase in product volumes to 138,848 tons, our highest ever. The record tonnage was the result of increased non-retail demand that we met via a strong production quarter as well as by drawing down inventory.

Partially offsetting the increased shipment volume was a slight decline in average net selling price per ton to $2,110 a ton, which was a result of price decline within non-retail. As a reminder, these volumes 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 third quarter of 2012 more than doubled, to $18.5 million as compared with the third quarter of 2011, primarily due to higher net sales and lower operating costs, particularly pulp costs. Compared to the second quarter of 2012, operating income declined $7.2 million.

Of this amount, $2.6 million was due to the lower pricing within the non-retail shipments, while approximately $5 million was due to incremental maintenance and transportation costs. Inventories were of course tight, as well as training and start up expenses for Shelby.

Net cost savings synergies associated with the acquisition of Cellu Tissue were $8.6 million for the quarter. Pulp and paperboard net sales of $187.3 million for the third quarter of 2012 were down 13.3% compared to the third quarter of 2011 net sales of $215.9 million.

The decrease was primarily due to the divestiture of the company's sawmill last November and the reduction in the sale of external pulp due to increased internal usage. Standalone and paperboard net sales increased 3%, to $184.9 million, due to higher volumes that more than offset lower net selling prices per ton.

Now, compared to the second quarter of 2012 standalone paperboard net sales decreased 1.9% due to a 2.8% decline in paperboard average net selling price, to $948 per ton. The decrease in average paperboard pricing was caused by a mixed shift away from extruded product, which has a higher sales price, and was partially offset by a 0.9% increase in shipping volumes to 195,097 tons.

Compared to the second quarter in 2012, pulp volumes rose by 500 tons to 4,593 tons, while net selling price per ton was essentially flat. We continue to sell very little pulp externally due to increased internal usage to make tissue and paperboard.

Pulp and paperboard operating income for the quarter increased 31.2%, to $34.4 million, compared to $26.3 million for the third quarter of 2011. The improvement was primarily due to lower operating cost, including no major maintenance this quarter versus major maintenance expense of $3.1 million in the third quarter of 2011.

Compared to the second quarter of 2012, operating income increased 7.6%, primarily due to lower wood fiber chemicals and maintenance cost. Regarding our outlook, we expect tissue volumes to be 128,000 to 135,000 tons for the fourth quarter.

Further, we believe that retail and non-retail pricing will remain consistent with the third quarter. We expect annual run rate, net cost of saving synergies from our Cellu Tissue acquisition to be in the $35 million to $40 million by the end of the year, with $8.6 million in the fourth quarter and $29 million achieved in 2012.

We also expect fourth quarter Shelby start-up cost to be in the range of $3 million to $4 million. Regarding the new paper machine at Shelby, the project remains on time and on budget with tissue expected to be produced by the end of this year.

For 2013, we expect the new paper machine to produce between 50,000 to 55,000 tons of tissue, with a full annual run rate of 70,000 in 2014. We also expect to finish the improvements to our Las Vegas TAD machine in the fourth quarter, which will entail 16 to 18 days of paper machine downtime at that facility.

We remain excited about Shelby and Las Vegas projects, which will allows us to supply a full range of TAD products, including paper towels and bath tissue to customers across the entire United States. As for our pulp and paperboard segment, we expect paperboard volumes to be 185,000 to 190,000 tons in the fourth quarter of 2012.

Our paperboard mix shifted in the third quarter to more normalized levels of extruded product and we expect that mix to continue next quarter. External pulp sales will continue to be minimal, as we anticipate utilizing almost all of our pulp internally.

A portion of our scheduled major maintenance in the pulp and paperboard segment has been deferred to the first quarter of next year. We now expect to spend $2 million in our fourth quarter compared to the previously reported $4.3 million and will not take any associated down time, the remainder will be spent in the first quarter of 2013.

Regarding total company costs of sales we believe the cost structure will not change significantly during the remainder of 2012. We see minor changes in pulp prices, as some price increases have been announced; slightly higher natural gas prices; lower major maintenance costs, due to the deferral of pulp and paperboard maintenance in the first quarter of 2013; and, of course, the 3 million to 4 million in start up cost for Shelby.

Further out, assuming commodity cost remain stable we are on track to deliver on our 300 million EBITDA target which includes $50 million to $60 million from Shelby.

Lastly, as you know I will be retiring from Clearwater Paper at the end of this year. It’s been a pleasure working with our employees, customers, investors and analysts and I am very pleased with the results we have achieved.

Although, I will no longer be CEO of this great company, I look forward to remaining a member of the Board and a stockholder. I would also like to congratulate Linda Massman on her appointment as Clearwater Paper’s new CEO effective January 1, 2013.

Linda has the perfect blend of broad financial expertise, operations background, leadership capabilities and drive to take Clearwater Paper to the next level. And I look forward to working with her to generate additional value for all stockholders.

I will now turn the call over to Linda, to make some closing remarks.

Thank you, Gordon. I am honored to take on the role of CEO of Clearwater Paper next year.

Given the market dynamic with a private label and our track record of success and strategic plans and growth, I believe we are well positioned to continue to enhance stockholder value. I look forward to working with the board, our stockholders and our dedicated employees to further enhanced Clearwater Papers position as a leading supplier and value creator for our customers and investors.

On behalf of the Clearwater executive team and all employees, I would also like to personally thank Gordon for his leadership over the last 4 years. Gordon and I were 2 of the first employees with Clearwater Paper in 2008, and I have very much enjoyed working with him.

During that time, Gordon successfully led Clearwater Paper's spin-off and we actively grew the tissue business via the acquisitions of Cellu Tissue and the construction of a new paper machine.

Also during his tenure, I might add, the company's stock price has more than tripled. Congratulation Gordon, we wish you all the best and a well earned retirement and look forward to working with you as a member of our Board of Directors.

Thank you for listening to our prepared remarks and we will now take questions.

It’s Graham Meagher, TD Securities. Gordon, maybe a first one for you.

Just thinking on the retail tissue pricing side some of your competitors, I have noticed, pricing pressure on the shelf and in your prepared remarks you noted that the retail tissue pricing was stable to up in Q3 and expectations were fairly stable in Q4. Are you seeing any of that pressure come back from the retailers?

Just a very little, Graham, not an enormous amount. Maybe some additional promotional activity that's out there, but nothing that worries us.

I mean, we are still very confident in saying that our retail prices are stable and as you can see by our volumes, our business is really good. And I think John Hertz mentioned in his comments about the stableness of the retail side of the business.

So we still feel good about it, but there are probably are a few more promotions heading out there now, but nothing that gives us any cause for concern.

And then on the product mix between parent rolls and converted cases, the last 2 quarters, it seems to be rolls have gone up significantly as a proportion of that mix. Is this the sort of a mix that you are happy with now or was that more just opportunistic opportunities that came along?

Well, it really starts with how well our operations are running and the folks on the production side of the consumer products division are doing a terrific job in getting those parent rolls off and getting our machine glazed business running well and those types of things, so that's where it really starts. That provides us those extra rolls to sell.

So to the extent that we can continue to do that, we probably will end up with a little bit different mix of non-retail to retail, but I think it’s important to note that that's all just positive for us. That just brings additional tons to the party and in the meantime our retail business continues to be very good as well.

So we really feel very good about both sides of that. Those extra rolls of tissue as we sell them as parent rolls, actually gives us more of an opportunity to dig around and create better customer opportunities on the retail converted side.

And then just on Shelby. I'm not sure if I caught it or not, did you disclose the contribution in Q3?

I don't think that we did. No, we didn't have that in there, but we can probably talk about that a little bit.

I don't know that we have it available for you right now but we really concentrated on the fact that we wanted to get the thing up and running before the end of the year. So we haven't put that number in there.

One of things that's happening for us at Shelby is that we do have our third converting line up and running at Shelby, our brand new third converting line. We have a fourth line that's going to be coming up very soon.

We also have an offline cleaner that will be coming up very soon, and then our fifth converting line, which will queue up all those 70,000 tons that’s coming up next year. So given the way we schedule that operation, it’s probably not all that helpful to talk too much about what's going on with the EBITDA for those converting lines because we are in the midst of moving products around, all of them, trying to get them all up and going.

And you've talked about your expectation for full run rate in 2014, should we think about the EBITDA contribution in 2013 to be fairly similar to, say, the production that will come out of that facility?

Well, let me give you a bit of a political answer, yes and no, I mean, the – certainly, it's not going to be 75%. I mean we are going to have 75% of the production up and going but we are going to have to make sure that we get all the customer qualifications done, and those are doing quite well, and we have to do some building of inventory in advance of those shipments.

So there is going to be some lag time there. So although I would like to say just take 75% of that $50 million to $60 million EBITDA number and plug it in for 2013, but that wouldn’t include the lag time associated with getting these products up and going and the inventory at all of our customers.

So if you did it without lag time, it would probably be a good number. If you put in normal kind of lag times, then it won't be as high as 75% of the – well, the production will be 75%, but it won't equal EBITDA for that same amount of time.

Got it. That’s helpful color there.

And then just on the waterfall charts in Slide 5. Maybe this is a question for John, but you noted the low purchase pulp cost and then think about the quarter-to-quarter bridge.

I understand where there is typically a lag as pulp works its way through the inventory and then just looking back to what pulp prices did in Q2, we would have expected that perhaps an increase this quarter. And I just want to make sure that we're looking at the pulp flows and the cost properly there?

Yes, I think we saw probably the bulk of the increases coming through the second quarter, end of the second quarter with that lag. And so I think what we're seeing is as we move through the kind of final month of the quarter and that lag playing itself out, that kind of fairly minor benefit to the pulp.

Okay, so we could even see a decline in Q4?

I mean, if you follow the company and kind of the seasonality and how that flows, I think that’s probably a good assumption.

And that same slide again, just on the pulp log costs. Those were down in Q3.

Can you just give a little bit of the expectation for those costs in Q4 and even to 2013?

Yes, hard to predict and forecast where we are going there. So let me kind of just stay in the moment with the existing quarter, if I can, Graham.

What’s happening is that as the pulp market remains, frankly, pretty soft, which is a situation for bleach pulp mills that even though they have been trying to raise the price and they're being a little bit successful on softwood and maybe not quite as successful on hardwood, there is still relatively low demand for some of those pulp logs. And what happens is because of those bleach pulp mills don’t want those pulp logs those become available to us to use for our own purposes and that drives our price down.

So I think that you really have to consider what’s going to happen in the overall pulp market. If the pulp market were to get really robust and there would be a greater demand for pulp logs, our wood costs would go up.

But if the pulp market stays kind of down, then our wood costs, we would anticipate, would stay down with it.

Okay, great. And then maybe just one for John on clarifying the CapEx.

Was that $50 million for Q4 total and $23 million for Shelby?

That’s correct, yes.

And then 2013, there is 21 left at Shelby and then Las Vegas TAD. And do you have a total number for 2013 or a range to use?

No, we are going through that process right now. I would say when we put out our deck with RBC conference in September, we implied a $75 million CapEx, but we still have to go through the process and if we don’t have to spend that much, we won’t.

But that’s what we implied in the RBC deck.

And $75 million, that's sort of a normalized number and Shelby would be an addition to that?

Yes, that would just be the maintenance CapEx, that’s correct.

And then last one for Gordon or I am not sure if you want to turn this over to Linda. But just updating your thoughts on capital allocation as the Shelby CapEx line is down into 2013 and with thinking about debt reduction, CapEx and of course shareholders returns?

Yes, no real decision made there, Graham. I mean, we continue look at all those options.

I mean, in many of our handouts and our decks, we've talked about multiple of options, which include, obviously, more share repurchasing and the dividends and things like that, that are all on that list. And all those decisions have yet to get made.

We did in our deck that we released on the 15th of September, kind of talk a little bit about whether or not CapEx ought to be more like $75 million and that would, of course, be up from this particular year. So that's an option, but we really are not ready to say that's what we are going to do yet because we are still developing those budgets and, obviously, we have to work with the Board in order to make sure that makes sense.

My question would be on the tax rate. It ticked up.

Was there any explanation for that, and are you doing anything to lower it?

Well, that’s pretty flat, I think, from Q2. When you look at it for the entire year, we have the impact of what we did with the black liquor to try to protect our maximum rebate with that.

So that caused kind of a discreet spike in the second quarter and so you are seeing that playing itself. If you do the math on where we are at through the year and what we gave you for an effective tax rate for the year, you can see that we expect lower tax rate in the fourth quarter.

And then, I guess we haven't seen any type of contract or compensation arrangements for Linda yet. I was just more curious about are there any specific goals in that contract as far as maybe EBITDA target or a return target that we could look at?

Just if you can give us a little color there, that would be very helpful?

Actually, we filed an 8-K, so on our -- I think that's available on our website. If it's not, it would be on the SEC site.

I think it might even be on both, that talked about what Linda’s compensations will be effective on the 1st of January when she takes over as CEO. But the way we do it relative to the EBITDA targets and those types of things is we have our plans and those plans, the bonus plans and the long-term incentive plans and stuff are all written with those kinds of things in mind and we really haven't got the target yet fully developed and approved by the Board to what the target EBITDA is going to be in 2013.

So once that's done, of course, that would be the target that drives the AIP program portion of that, but all of those plans are all available there and the competition is going to be driven same way that it has been for me. You've got a base salary, you got annual incentive plan and you got a long-term incentive plan also.

And now that the spending at Shelby has wound down, given the cash flow, what are the intentions maybe of buying back a few shares this past next quarter, but what are you going to do prospectively if you take them out maybe a year out? Are we going to see any new paper machines or is there going to be kind of return of cash to shareholders?

Well, I guess similar to the last question we got from Graham, we really haven't got that all ironed out yet and those are the kind of things that we want to work with the Board is what do we do with the cash flow. It’s a high class problem, because you are absolutely right, we are going to stop spending our money on Shelby next year, we only have, only, but compared to the $275 million we spent, we have $21 million left to spend in next year on that in CapEx and as we reported very openly in this call, we have very positive cash flow.

So we have a number of options. We are going to continue to look at which way that we ought to go relative to that and we are really at this point leaving all the options on the table.

But our major concentration with all those options on the table would be to effectively continue to run the business and the assets we have and concentrate on getting Shelby up and going and all of our converting operations and other paper machines running the way we want to run. So I'm not saying no to anything but I can tell you our focus is very much on executing our existing plans.

I guess I am just a little perplexed, given relatively flat pricing and record production and benign input costs why EBIT would have gone down in Consumer Products. Can you elaborate on that a bit please?

Steve, this is John. I think it's largely to do with what we talked about when we saw the price decrease within the non-retail space within the Consumer Products Group.

And so that's the parent rolls, that’s contract manufacturing, that's away-from-home. And we saw basically a kind of a mix shift within contract manufacturing away from facial to bathroom tissue, higher ASPs and better margin on the facial, and so that’s really what kind of drove the majority of that.

And do you indicate that you are happy to do non-retail because -- and by that do you mean away-from-home products or are you selling parent rolls to third-parties?

It's all of that and when we talk non-retail, we talk in terms of contract manufacturing. We talk in terms of our parent roll tissue sales, our machine glaze business, all that away-from-home and all the other things that we do kind of in one big group.

When we say retail tissue, we're talking about cases that are heading out of the door to, like, grocery store is an example or mass merchandisers, so finished cases of the 4 major tissue lines. And then everything else, parent rolls, machine, glaze, away-from-home and those are all really tucked in to the non-retail side, Steve.

Contract manufacturing is actually on that non-retail side.

And this might be an inappropriate terminology but do you look at that as a bit of almost a loss leader, because I think, Gordon, you said that, it's going to help you win business down the line?

Well we don’t. Honestly don’t see it as a loss leader.

I mean, we feel good about the businesses that we are in over there and those are contributing, but it does help us a little bit when we're able to go to customers and say that we're long on paper. So we're delighted when our paper machines are running the way they are running and have those kinds of parent rolls to sell, because that sets the deck for us with customers to not just sell parent rolls, but sets the deck for us to be able to convert for those customers that want finished cases, all the products that they need.

And can you discuss where you stand with respect to having sold out Shelby; you will get 55,000 tons next year or you got to qualify it. Do you have to buy your way into the market with those tons and do you feel that it is all basically placed in the market?

Yes, we feel very good about where we are and we are right in the middle of a very intensive plan and lots of discussion with existing customers and new customers about what do their shells look like and we feel very, very comfortable that all the tons that’s come up out of Shelby are going in the direction we want them to go at the price we want them to go in.

No, we don’t think that we have to buy ourselves into the market. We are going to take advantage of kind of this wonderful tissue market that’s driven from population which increases demand, and that kind of demand is what, of course, brings paper machines on like ours and others, but that demand is the thing that helps us it hold or raise pricing as we bring on additional capacity, and we are going to do exactly that.

So no, we are not planning on buying it anywhere and we feel very good about our selling position on all of those tons.

And a final question from me, the channels that you are trying to address some of the, I guess, the -- not the supermarkets, but the big boxes and whatnot, are they still heading along very well in the…..?

Yes, they are and in fact that’s one of the advantages of the Cellu Tissue acquisition, frankly, is that, as you know, we were very heavy in the grocery stores and we weren’t much into the mass side of the business or the discount stores and that gave us openings into those places. So as we run and bring on our additional converting capacity and paper-making capacity, we are building bigger relationship in those categories.

We’re not as begin those categories as we are in the grocery category, but we are certainly growing our business across all the categories of tissue.

Most of my questions have actually already been answered, but first-off on the corporate expense, the last few years has jumped around in the fourth quarter, but it’s been pretty stable this year. Could you help us, will there be any true-ups or any adjustments in the fourth quarter on the corporate expense line?

James, this is John. We are not necessarily looking at anything for sure that's going to happen to cause a true-up.

Gordon, seasonally from year-over-year is there anything that…

Yes, I mean, there’s probably been a little bit of jumping. We tried, James, when you at look at what John Hertz was saying there in the script.

We try to put a lot more color around the corporate eliminations and SG&A line there than we had in the past where people could see. I mean, there was some questions about how that was down, then it's up, it's down, then it's up.

But there is a lot of things in that number that's why we try get more specific about what a couple of components there were. But, no, we really see those things same flat as anything, where I think anything going down.

I think last year, James, you had some true-up of bonuses and I talked about one of our divisions didn't participate and set up comp. So we are sitting right now not expecting anything like that to happen.

Switching gears, as Shelby ramps up in the fourth quarter, should we expect any tonnage coming out there or will that be pretty benign as it comes up late in the fourth quarter?

Well, I really don't want to jinx the situation. I know I have all the people from Shelby listening in on this line.

We would love to get that machine up at the earliest possible moment but at the same time, that paper machine's going to be there for a 100 years plus and we want to make sure that we start it up in the right way with fully trained people, feeling very comfortable about what we are doing. And that's how we are going to start it up.

So if we get paper on the reel there before the end of the year, it will only be under the premise that it was started up in the right way. But our commitment should remain that we are going to get paper on that reel before the end of this year.

If I were you, in your words, how should you think about it, I wouldn't think about putting any EBITDA relative to Shelby paper in for the fourth quarter.

And then your downtime schedule. You are delaying downtime until the first quarter of next year.

Do you have a plan for your downtime schedule as you go into '13 yet?

We really don't. We usually announce that with the year end call.

The only thing we were saying on this call was is that we did have some downtime planned. That was that $4.3 million number, I think, that I gave in my script, that we are taking it down to a lower number, taking it down to a couple of million.

And it's just – it's not because we are trying to push things around in different quarters. This was the right thing to do.

Our paperboard guys are doing a good job of managing their business. So they are pushing it back into the next year.

It fits good with us to do it then, so that helps us in the fourth quarter but, of course, adds some more cost in the first quarter next year. So as far as what are we going to do next year, that kind of stuff we usually talk about that all on our call, talking about the 10-K.

Okay. Switching gears one more time.

Did you see any -- there's a good bit of ivory board scheduled to come online in Asia. Do you see any of that competing with the products you make or is it too much of a lower grade relative to the bleach board?

Well, some of it is okay. I'm not saying that it's as good as ours.

You can never get me to admit or think that they can make as good a paperboard as our people can make it at our 2 mills, but the situation for us, I think, is more of indirect one, where as those mills come on, and first of all, we have to figure out will they really come on. But if they do come on, a lot of the common knowledge is that they might stay in Asia and continue to ship that board around Asia a little bit and so the impact on us is more indirect.

For the North American bleach paperboard market it's more indirect, because there might be less opportunities for export, if indeed, the Chinese machines came on and started shipping into some of those export markets. But having said all that, we don't do that much and our company doesn't do that much into the export market and where we do, we do a very high end into Japan.

So we think other than being somewhat indirectly impacted by some of the competitive nature of the global market there, our customer base in the U.S., we think, is solid and we think that our customer base in Japan is solid.

Just a few follow-ups on tissue. Gordon, in your remarks I think you said that you now have the third converting line of the 5 running in Shelby.

Can you just remind us when that came on. Was any of it in the third quarter?

Just like 10 days ago. It’s a real recent startup, and I just meant to say that it's up and running.

I want to give great credit to the folks and Shelby forgetting that thing and going and wanted everybody to also know that we're going to have another lined up pretty quickly and another line, which is a really a converting line but integral to the process down there, is the offline printer line. So those, whether you count them as 2 or 3 is open to interpretation, but we're going to have those lines all up and going here pretty quickly.

And then the last pure converting line will be installed early next year. That will be the fifth line.

You take those 5 lines. That equals 70,000 tons, but there is still offline printer line there in addition to that.

The tissue that's currently rolling off of those lines, is that conventional, non-TADs; you are buying conventional parent rolls and you are converting it there and selling it to the retail customers?

Yes, it's mostly conventional, but it could also be TAD from our same St. Catharines mill or if we had to ship something there from our Las Vegas operation.

So, those lines at Shelby are capable running both conventional and TAD NR. The fun part of Shelby coming up and the fun part of Las Vegas being able to get to running TAD bathroom tissue is that we won't have to take those TAD bathroom tissue roles from Las Vegas and ship them east, and we won't have to take the Shelby bathroom tissue or towels or anything else and ship it to the west.

I think St. Catharines will continue to make TAD, Shelby will make both towel and bathroom tissue and then Las Vegas will make both towel and bathroom tissues.

So the sooner we can get that machine up from that aspect, really helps our logistics picture.

Right, understood. Just maybe asking it in a different way, if you were to look at the total TAD parent roll tons that you are cutting up today versus before the first Shelby converting line started up, you are not -- it’s the same company wide, would you say?

In other words, you are not buying -- you are not increasing your overall volume of TAD that you are producing on a consolidated basis today, are you?

No, we are really not, because trying to buy these TAD parent rolls is a pretty doggone hard thing to do.

Right, that’s why I was asking. Okay.

So the thing -- what we have in TAD at St. Catharines and what we have in TAD at Las Vegas and what we will have at Shelby will be what we have relative to TAD.

Understood. And on the pricing outlook, just to clarify when you say that you expect it to be stable, do you mean on a like-for-like basis or do you mean on a what you'd call a consolidated net selling price per ton basis, if that make sense?

Well, actually a little bit of each, because on a like-for-like basis, I mean, we expect the retail side of the business to stay stable. In fact, that’s actually in our hand upwards and that’s more of a mix and good job by our sales folks there, but the retail side, it looks to be stable.

And then the parent roll selling and machine glaze is, of course, a little bit different market, but some of the parent roll selling gets pressured when pulp prices are down on some of the parent rolls. So that’s one of the things that can change, but it’s still our expectation, given kind of where we are now in pulp markets and things that we will be pretty doggone on similar on both the consolidated basis and, of course, that implies that we will be pretty similar on like-to-like basis at the same time.

Okay, and just to revisit your comments on Vegas as well. I know you mentioned some downtime been taken in 4Q to finish up the TAD transition there.

Can you just run through the metrics on how long it’s going to be down and can you remind us maybe what the tonnage impact might be there, if any?

Sure, that's the range of 1,600, 1,700 tons of downtime on the paper machine and that's to get that machine so it will run bathroom tissue as well as towels. Right now it was just running towel.

So that 1,600 to 1,700 tons total out of the system. Remember, that’s a single-wide machine.

It's only 100 inches as compared to, for instance, Louis [ph] in machines, which are much wider, and Shelby, which is much wider. So the impact is important to us and we want to have that machine up as soon as we possibly can but that’s the amount of tons that will be down handling that kind of change to the equipment.

Okay, and then one final one just to clarify, your 128,000 to 135,000 tons of tissue that you said you expected to produce in 4Q, that is net of that Vegas impact as well as whatever you produce off of Shelby in 4Q?

Right, that's net evident and, Eric, I am glad to brought this up because we have been saying that we would produce generally a 128,000 to 130,000 total tons across the system or have that kind of shipments, and you can see that we are significantly higher in the third quarter. And as we talked about, that was from very healthy demand, a lot of that on the non-retail side and pulling down those inventories, but we really do anticipate in the fourth quarter to be kind of back a little more in line with that 128,000 to 135,000 number.

And I'm making it that wide because I want to challenge, on this call, my production people to make it that big number not the little number.

Just a couple of quick things that are left, one is did you, if I missed it I apologize, did you say what the working capital investment you expect to put into Shelby as you ramp that up to full production?

While we have disclosed the capital expenditure, we've never really talked about any kind of working capital blip. We haven't discussed that publicly.

So that's not something that you are prepared to talk about just to give us a feel of what kind of cash that might involve as you ramp-up?

That's correct. Joe we did talk about it a number of $3 million to $4 million here of…

That's start-up spending.

That's kind of start-up spending for this.

Not working capital.

Yes, it’s not really related to working capital, but it's increased cost to us.

And then the only other thing is, I was wondering if you -- you touched on pulp a little bit in terms of what's been happening. I was wondering if you could talk a little bit about your outlook as we look into 2013 and how you see -- for the pulp market?

The folks around at this table are all wincing because they know that you just added an hour to this call, Joe, because I love to talk about pulp. But let me -- I'll make it really brief.

I think that pulp prices are down. There has been some movement, as everybody has seen to try to take softwood up this $20 movement and there's been little movement on hardwood, which is having a very hard sell to get that up another $20.

This would be, without trying to be too facetious, this is sort of a last sip of water a pulp producer is going to take before he walks across the desert. So I think that pulp prices, with the extra capacity coming online, and you knew about the El Dorado project and all the other projects that are out there that add almost 5 million tons between now and the first part of 2014, it’s hard for me to imagine they are going to get absorbed.

So even though there are some attempts to raise these pulp prices, we are going to be a very strident buyer to make sure that we get our lowest possible pulp price as we can. And in the midst of this oncoming capacity it’s hard to imagine pulp prices are going to go very far.

Even Reese says that they are kind of little bit up, little bit down, little bit up. I don't know that they know exactly where they are anymore than I do, but I do know that there's plenty of pulp capacity out there.

Okay, well, thank you all very much. As I mentioned in my remarks, it's been a great honor and I'm very excited about the retirement opportunities for me, excited about the future of Clearwater under Linda’s leadership and really look forward to going forward from here.

So thank you all for all of your help along the way and for all of many good things that we believe we've accomplished at Clearwater Paper. Thank you.