Good morning. My name is Celeste, and I will be your conference operator today. At this time, I would like to welcome everyone to the Graphic Packaging First Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn today's call over to Mr. Ankerholz. Please go ahead, sir.

Thank you. Good morning, and welcome to the Graphic Packaging Holding Company First Quarter 2011 Earnings Call. Commenting on results this morning are David Scheible, our President and CEO; and Dan Blount, our Senior Vice President and Chief Financial Officer. To help you follow on with today's call we have provided a slide presentation. This can be accessed by clicking on the Q1 earnings webcast link on the Investor Relations section of our website at graphicpkg.com. Please note that in this presentation when we refer to EBITDA we are referring to results adjusted to produce comparable financial reporting. The adjustments generally relate to prior year integration charges. The attachments to the earnings release and a slide presentation appendix both of which are posted on the previous website have the tabulations of these and other non-GAAP measures. I would like to remind everyone that statements of our expectations in this call constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements including, but not limited to statements relating to fiber and other raw material prices, consumer demand and pricing trends, capital expenditures, cash pension contributions and pension expense, depreciation and amortization, interest expense, debt and leverage reduction, performance improvements and cost reduction initiatives, including a closure of facilities, are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from company’s expectations. These risks and uncertainties include, but are not limited to, the company’s substantial amount of debt, inflation of and volatility in raw materials and energy costs, cutback in consumer spending that could effect demand for the company's products, continuing pressure for lower cost products and the company's ability to implement its business strategies, including productivity initiatives and cost reduction plans. Undue reliance should not be placed on such forward-looking statements as such statements speak only as of the date on which they are made and the company undertakes no obligation to update such statements. Additional information regarding these and other risks is contained in the company’s periodic filings with the Securities and Exchange Commission. David, I'll turn it over to you now.

Thanks, Brad. We're pleased with the first quarter results. Adjusted earnings per share doubled to $0.08 from $0.04 last year and net cash from operations increased by more than $31 million same period 2010. The strong storms throughout the Midwest in February forced the closure of a number of our facilities as well as our customers placing pressure on volumes for the quarter. However, volumes began to recover in March and it continue to return to more normalized levels. The other significant headwind that we faced this quarter was higher input costs, particularly externally purchased board and bag paper. The cost for secondary fiber and petro-based chemicals also increased. Despite all of this, we were able to deliver relatively flat sales in adjusted EBITDA. Pricing continued to be positive in the quarter and should remain so for the remainder of the year. We continue to take cost out in the quarter, achieving over $20 million in cost take out, and we reinforced our original target of $80 million for the full year. We are also in the process of implementing a number of additional steps to further combat inflation. As a result, we remain comfortable with our original 4-year debt reduction target from operations we laid out on our last earnings call. During the quarter, we made a few structural changes to the business as well. An important element of ongoing cost-reduction is optimizing our converting footprint by closing less profitable plants and consolidating into newer better capitalized facilities that are located closer to our mills. The best way to offset fuel cost is to simply eliminate the freight entirely. Earlier this week, we announced the closure of our Cincinnati beverage carton plant. While it's always a difficult decision to close a facility, in this case, it was necessary in…

Thanks, David, and good morning, everyone. David took you through the operational highlights of the quarter. I'll focus on financial results. My comments follow the flow of our presentation and we start on Page 10. Overall, the first quarter was in line with our expectations and we remain on track for the full year performance we guided to you on our last call. In particular, we continue to forecast net debt reduction from operating cash flows in the $200 million to $220 million range. Note that this reduction is in addition to the debt reduction that will result from our recent equity offering. Taking a look at first quarter highlights, we see operating cash flow improved as we generated $6.1 million in the quarter compared to a use of $25.2 million in the first quarter last year. Income from operations at $68.6 million is $9 million higher than Q1 last year. Net income for the first quarter improved to $26.7 million from $6.3 million. This represents an improvement of $0.06 per share. And EBITDA for the quarter was $142.7 million versus an adjusted figure of $144.8 million in the prior year. February weather disruptions that David talked about impacted EBITDA by an estimated $3 million. Adjusting for these disruptions, EBITDA would have come in slightly better than the prior year. I'll provide further comments on EBITDA shortly. The largest year-over-year improvement was in net income, which benefited from continuing reduction in interest expense as we reduced net debt by $224 million over the past year and improved Q1 cash flow generation. Q1 interest expense dropped $5.7 million, or nearly 13%. Income tax expense was reduced to $5.7 million as we utilized the NOL and reduced non-cash charges. And lastly, completion of Altivity integration benefited 2011 results as $8.5 million of…

[Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Robert W. Baird. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: Hey, Dan, just to clarify on your pricing structure commentary, the 9-month lag is on a rolling basis, correct? And so by the end of the third quarter of 2011, you should be cycling through pricing from early '11, is that the right way to think about it?

That's correct. The 1 other item that factors with that is terms of when it rolls and normally, we have a heavily concentration rolling at the end of the first quarter than we do at the end of the year. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: Okay. And the 9-month lag you referred to, how much of the Paperboard Packaging portfolio does that encompass? Is that 80%, 90%?

What I would say is, I think, what we've said is the 9-month is sort of the arbitrage between those that are 12-month and those that are immediate. So I would think across the paperboard space 9-month is on average about when we would see a paperboard across the entire space. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: Okay. And then the cost savings from Cincinnati, was that part of the $80 million-plus in productivity that you gave us initially for '11 in terms of guidance?

It was. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: Okay. And can you just quantify that number just specific to Cincinnati ?

We really don't quantify that kind of individual stuff for a whole bunch of legal reasons in the process. But rest assured that the guidance for the $80 million includes the shutdown of that facility.

So what we're saying is you're going to get some benefit in 2011. You're going to get most of the benefits in 2012 because a lot of the benefits in 2011 offset the costs.

So it wouldn't be if that's exactly right. When you shut it down, you look at severance and you look at the shutdown cost they tick -- when you do it in the middle of the year, you tend to get about balances where you are. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: And just 2 final questions if I could. First, on DNA, I think initially you said $285 million to $305 million when you gave guidance on your 4Q conference call. Now it looks like $285 million. What's behind the revision towards the lower end?

We just got more specific as we've already had a quarter of activity in the year. We generally start the year out with broader ranges and as we see actual results, we tighten up. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: Okay. And just finally on Sierra Pacific, it seems like a very nice fit for you, but it does have a fair amount of expense, like it has a fair amount of exposure towards beer, which has been pretty weak through the course of the recession. How did EBITDA track for this company over the last 3 years?

Well, we haven't given individual results for that. But let me see -- remember that the only portion of beer business they’re in is the craft beer segment, which has been growing about 10% a year over the last 3 years. So what I would tell you is their beer business is – they’re in the space of beer that you want to be. And in fact right now, if the recovery continues, you're going to see premium and we've already seen in the large brands, premium come back in that bottle 6 pack in models and that's exactly what we're seeing in that business. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: Got you, that's helpful. Thank you so much.

Your next question comes from the line of Phil Gresh with JPMorgan. Phil Gresh - JP Morgan Chase & Co: I just want to clarify on the inflation side, you're kind of talking about $25 million ex of deflation for the first quarter. So it is right to think of that $25 million as the right run rate for 2Q and then the comps space will get easier from there in the second half, or all else equal at this point?

I'm not in a position to predict the inflation, but I can tell you that if you take out the impact of the deflation, we estimate it's in a $25 million range and we've applied a lot of math to get that number. If you look at the comps going forward, like I said, 80% of our inflation in 2010 occurred in the second half of the year, so if you take that $107 million number, you got 80% in the second half and you can see the 20% of that number occurred in the second quarter. So our comps in terms of inflation will get easier as we move through the year.

I think the other thing, Phil, as Dan said, 50% of that inflation in the first half, in input inflation, materials was really an externally purchased board, right? So if you sort of think about the price deltas that we dealt with, with things like SBS and kraft board, bag paper in the first quarter, SBS was like $170 to $180 ton delta quarter-on-quarter, but there's not been an SBS price increase announced since then and our projections right now is that there's not likely to be SBS increases based on the market. And so as you move to the second half of the year, your delta on what we will pay versus what we paid last year drops down significantly, so you start to see a different comp ratio. I think the inflation for us is going to be really 2 areas: it's how you feel about OCC and how you feel about what oil is going to do. Right now, not so much on the freight side, but oil-based chemicals. And so whatever projections there are on those two probably drive the inflationary change for us. As you know, OCC has been, right now, actually pretty stable. But our projections for the end of the year is it will go up which just remains to be safe. Phil Gresh - JP Morgan Chase & Co: Got it. Okay, that's very helpful. The second question would just be kind of on the productivity front, obviously making very good progress there. Can you just give us some thoughts longer term, beyond 2011 how you're thinking about it? I mean, do you -- I'm not trying to pinpoint $80 million or anything like that but do you see continued productivity increases, 2012, 2013 that we can kind of model in from here or how are you thinking about that?

Well, we've been averaging, if you forget the synergies that were associated with Altivity deal and look at those two standalone companies historically. On a combined basis, those two companies over a long period of time were averaging somewhere in that $70 million a year of cost take out on a standalone basis. So we had a ramp-up in the last couple of years because clearly we had $150 million of synergies or so and so for whatever the numbers were right where we expect on a go forward basis is a more normalized level and we would expect to see around sort of in that $60 million to $80 million cost take out for the foreseeable future. Now we've also made some pretty significant capital investments as we mentioned the bio-mass project comes up in 2013. So I think your point was what do you think about '12, '13 and '14? Well, that bio-mass project in of itself is going to have a pretty significant contribution to cost take out, if you will, energy component cost take out. So I'm pretty comfortable with where we are over that 3- or 4-year timeframe that you asked about. Phil Gresh - JP Morgan Chase & Co: So should I think of the biomass is incremental to the 60-80 or is part of the $60 million to $80 million?

It's part of -- I would think all of our continuous improvement including those of comment as -- to be a part of that $60 million to $80 million for the take out. I mean, that's where it's going to come. It's going to come from using less energy, less fiber and less water and those are the kind of investments predominantly we're making now. Are we going to shutdown the Cincinnati facility? I'd like to tell you that over the next three years, we won't shutdown any additional carton facilities but as we become more efficient and some cartons facilities become less effective or we make small acquisitions to make it necessary, we'll certainly continue to optimize our cost base on a go-forward basis. So if you look at my dashboard going forward and would sort of say, what kind of numbers do I think sort of that $60 million to $80 million feels like the right sort of cost take out for Graphic Packaging in next 3 years or so annually. Phil Gresh - JP Morgan Chase & Co: Okay. Excellent. Very helpful. Thanks.

Your next question comes from the line of George Staphos with Bank of America.

Good morning. I wanted to piggyback on the productivity question maybe one last time. The extent that you have your laundry list of products that you've been considering, pretty much anything that you would have looked at implementing for this year is baked into the $80 million or so. And so the way we should think about is if there's any upside as the year progresses or a downside for that matter, it's really truly predicate on what kind of volume, throughput and its effect on productivity would be. Would that be a fair assessment? If not, how would you characterize it?

So what I would say is that we are going to have a number of countermeasure opportunities within our business. What I would do and what I'm really hedging more anything else, George, is to say that I don't know what inflation I'm going to see. I think this $80 million makes a whole lot of sense. Are there incremental opportunities for evaluating the business? Of course, there are. Do I believe there's going to be incremental inflation that I don't know about? I'd be a fool to suggest otherwise because that's not been the history with what's going on globally. So what I would say is that I believe the net sort of increase where we got the -- the $80 million feel is about right. It doesn't mean there won't be different projects in the process between now and the end of the year. It's just means that I think when all nets out, that's about where you end up.

Okay. And maybe one last question on the last question. As you're projecting out new productivity projects, what's the lead time on them, Dave? Typically, I know this year's activity, did it start a year ago in terms of the when they decided to go ahead with it? What's the lead time typically on project, if there is such a thing?

Well, there is. Of course, a lot of it depends -- I mean, the bio-mass project is something we announced last year and really will be operational in the first quarter of 2013. The said facilities that we built are on a much shorter term basis and with the acquisition of Sierra Pacific that will give us a different footprint and we'll be looking at that quickly as well, right? So it really depends upon the size and the scope. But I would tell you with the lean sigma and policy deployment what it forces the organization to do is have a long laundry list of projects that makes sense. Some of those restrictions and the honest answer with Graphic Packaging is one of our biggest opportunities was to pay down debt because as highly leverage as we are we trade off a little bit -- every time I look at a new capital projects that takes our cost reduction, I have to hold it up against paying down debt because that really ends up being the most leverage in for Graphic Packaging. Now as you -- if you we sort of do what we expect to do in terms of debt reduction, as you go out for the end of that 3 year what we call LRP, a long range planning, more of that capital money is probably going to go towards cost reduction of the mills and the converting plants because at some point in time, paying down additional debt becomes not as leveraging as some of the capital projects that we've just decided not to pursue at this point in time. So when I look at my base and realize I’ve got $3.6 billion to $3.7 billion worth of cost in my business, it's not a huge, huge stretch to believe we can take 1.5% to 2% out a year, it's not even world class. It's just that we have chosen some things that we put off because honestly for Graphic Packaging one of the best things we could do over 2008, '09 and '10 was use the cash for debt reduction and that's what we've been doing. That pendulum will change as we head into '12 and '13.

Thanks for the thought process on that Dave, it was very helpful. I guess 2 end-market questions, if you will. One, the CMI numbers for the first quarter were a little bit off, I think they were down 2% or so, you mentioned that beer's doing well. How did you see that involve within your business if you can comment at all in that? And on the new products side, how would you evaluate this year's level of new product activity in the types of packages your customers are now looking at, well, to say a year or two ago?

So here's a really good question. What I would say is that when you look at CMI numbers, you're looking at total consumption. I only care about take-home, right? So on premise beer, for example, or even on premise soft drink that's consumed, while it's -- I'm a consumer as well and I can go to a bar too -- from a business standpoint, I care more say about what people are doing at home. That sector of the market did better in the quarter and beers than the on-premise. How that's going to affect on a go-forward basis? I don't know. Traditionally, George, what happens is that if the oil price continues to be $4 gas, people will stay closer to home that generally, generally, benefits our business remains to be seen. The other question was around -- yes, it's been a lot more on substitution. I think we talked about the fact that in SUS alone within the last 2 years, we probably substitute it 50,000 to 60,000 tons of board from other substrates, in terms of corrugated or other even plastics in some cases for SUS board. That predominantly -- so lighter caliber is downgrading or down-calibering if you will, our customers trying to get smaller boxes, smaller grades and replacing alternates and that has been a much bigger driver of our new product activity that historically has been the case. So less really new stuff and more, how do we make -- we use the solid fiber stuff to take cost out of our supply chain. And with corn, sugar, grain is going up, I suspect that trend is not going to change.

Your next question comes from the line of Joe Stivaletti with Goldman Sachs.

I just had a couple little follow-up on the cost inflation front. So I was just curious if you could tell us of that $35.5 million year-over-year cost inflation. What portion of that roughly was the chemicals?

Hold on just a second. I know I have it, if you could just give me a second here to figure it out. So chemicals was about what? $2 million or something like that. Our chemicals was about $2 million. Majority of it -- so if you think about it, let me just -- $30 million was what you would call input inflation, the other $5 million to $6 million were just labor and benefit cost. Right, Dan? It's sort of the way it works out.

Right. And then freight is just about $5 million.

So that's sort of the way it broke out. OCC was $4 million or so, $4 million or $5 million, and most of it was board. $15 million, half of it, over half of it or I'm sorry, roughly half of that was just buying a multi-wall bag paper in SBS and then you got the chemicals break down the process. So that's why I’m saying when we look on a go-forward basis, we're not as exposed as we are to just pure chemicals we care about it but it's really OCC we buy or use. We use 850,000 tons a year, roughly 900,000 tons of OCC. So that's really a more leveraging thing for us, right?

Yes. And Joe, just to make sure those numbers tie out for you, the chemicals that David cited does not include instant coatings. So if you put that on top of us, you'll get our number pretty close.

Okay. And then just -- I don't know if you have this number handy, but can you talk about that delta on a sequential basis from a cost perspective going from Q4 to Q1?

I don't know that we've broken it out directly. We'll have to get back to you on that. I don't know that we have it -- Dan's looking at it.

I'm looking at it here and if you look at it, the areas that are affecting us are really the oil-based areas and you're talking about latex, you're talking about resin, you're talking about fuel.

So on a directional basis, the price we paid for external board in the fourth quarter was the same we've paid in the fourth -- it's just about the same we paid in the first quarter, right? So if you did sequentially, that element of inflation would be not very significant quarter-on-quarter, if that's helpful. So about half of that input inflation would be sort of moderated based on board pricing.

Right, okay. And then the final question that I had and still on this topic was have you talked or have you shared or will you share what you think what you're assuming full year cost inflation will be when you look at all the guidance that you've given for debt reduction and all that for the year, I don't know if you're...

Yes. We haven't given that out. I mean the only guidance we really predominantly is sort of the where the cash flow comes from, pension, CapEx, we really haven't gotten into it. And look at the end of the day, no matter what I would say, Joe, you know it would be wrong. Because as I sit here today, I have no idea. I'm looking at Goldman's forecast. Over the last two weeks, oil is going to be $200, now, it's going to be $110. I've got JPMorgan with a different look at that as well. I mean the reality is that it's very difficult for me you to sort of -- and I suspect if I asked on this call, the range on OCC pricing would be interesting. But difficult for us just to give you a hard number on, right?

Sure. Yes. Okay, thanks a lot.

Your next question comes from the line of Philip Ng. [Jefferies & Company] Philip Ng - Jefferies & Company, Inc.: Just a quick question from a demand perspective. Looks like February was obviously weak, it sounds like it normalized in March, whereas volumes is up year-over-year in March?

Yes. Philip Ng - Jefferies & Company, Inc.: And how should we be thinking about volumes at least on the Paperboard's side for the rest of the year like the [indiscernible] digits?

What I would like -- what we're looking at is to assume that volume is relatively flat for the year. I'd love to see some of the trends continue but if consumer continues to move discretionary income from whatever they're buying to just putting gas in the tank, what I would say is the historical look on that is it impacts volume on every sort of consumer staple and we would say the same thing. Philip Ng - Jefferies & Company, Inc.: Okay, that's helpful. And in terms of pricing and obviously it accelerated in Q1 from Q4, how should we be thinking about 3Q and 4Q? I know you've mentioned 2Q was going to accelerate.

That's right. We've looked at the timing of when our contracts reset and the guidance we've giving right now is that Q2 will be higher than Q1. The other thing that's going to impact pricing favorably is that we've announced price increases before and when you bake those into the formula you can very clearly see that Q3 should be a good quarter in terms of pricing as well. Philip Ng - Jefferies & Company, Inc.: So Q3 should improve sequentially and you guys obviously announced some surcharges as well, right?

That's right. Philip Ng - Jefferies & Company, Inc.: Okay. Alright, thank you, guys.

[Operator Instructions] Your next question comes from the line of Mark Kaufman with Rafferty Capital.

I'm just had a quick question really about the second quarter. What will the charge before the equity offering? And is there a price that you're buying the stock back from the Coors Trust?

Well, the first question, in terms of the equity offering that needs to be paid, it was in the [indiscernible] around $10 million, 4.5%.

That would be a charge in the quarter.

Yes, it goes against equity, so it won't be a charge in the quarter. No. We'll have certain other fees, but it won't be the big hit like the $10 million.

Okay.

And then of course, we're trading at the same price of our neutral. They were neutral to the deal.

[indiscernible]

Yes, and they pay their own fees.

Okay. Thanks for that.

Your next question comes from the line of Phil Gresh with JPMorgan. Phil Gresh - JP Morgan Chase & Co: Yes, I just want to ask one more question. Just kind of around productivity and inflation. When you talked about the inflation side you obviously didn't mention labor. So is this kind of right to think about labor as a -- somewhat of a negative offset the standard kind of labor inflation year-over-year to that $60 million to $80 million in productivity that you're thinking about, is that how you look at it?

Well, I think that's exactly what we look at. I think we said in the first quarter labor was around $5 million, labor and benefits, so all labor and all benefits, those kind of settlements, right around $5 million on the quarter. So you can assume that our inflationary rate on a year for labor and benefits is going to be right around that, around $18 million to $20 million or something like that. So the way our model usually works is on a high-level basis is price resets go to recover inflation from the previous year, productivity needs to cover our cost of labor and benefits and then it exceeds that number, so that's how the margins get improved and that's exactly really what we've seen since the acquisition of Altivity. And I think our margins are up 300 to 350 basis points, it’s really that model. Inflation recovering -- pricing recovery inflation, productivity outstripping the costs of doing business margins improving. Phil Gresh - JP Morgan Chase & Co: Okay, excellent. That's it.

I will now turn the call back over to management for closing remarks.

Well, we thank everybody for listening on the call and we'll talk to you again at the end of second quarter.