Welcome to the Graphic Packaging Holding Company Second Quarter Earnings Call. I would like to now introduce the conference, Assistant Treasurer, Kevin Crum. Mr. Crum, go ahead.

Good morning, everyone. Welcome to Graphic Packaging Holding Company's second quarter 2012 earnings call. Commenting on results this morning are David Scheible, the company's President and CEO; and Dan Blount, Senior Vice President and CFO. To help you follow along with today's call, we have provided a slide presentation, which can be accessed by clicking on the Q2 earnings webcast link on the Investor Relations section of our website at www.graphicpkg.com. 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 the effect of business combinations, completion of the Macon biomass boiler project, raw material inflation costs, consumer demand and pricing trends, capital expenditures, cash pension contributions and pension expense, depreciation and amortization, interest expense, income tax rates, debt and leverage reductions, performance improvements and cost reduction initiatives, are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the company's present expectations. These risks include, but are not limited to, the company's substantial amount of debt, volatility in raw material and energy costs, cutbacks in consumer spending that reduce 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 SEC. David, I'll turn it over to you.

Thanks, Kevin. Good morning, everyone. We're very pleased with our second quarter results and the strong benefits of our strategic initiatives are generating across the business. While demand in some of our key end-use markets was down in the quarter and the overall operating environment remains sluggish, we successfully drove increased volumes, better margins and cash flow through a combination of new business wins, productivity enhancements, better asset optimization, acquisition synergies and of course, lower cost debt. We continue to successfully invest in new innovative packaging that helps our customers differentiate their products, lower their distribution costs and improve the sustainability metrics throughout the supply chain. Our solid CUK fiber carton, that was recently implemented in the juice pouch sector, continues to gain momentum and is clearly a viable substitute to traditional litho-lam structures. We're excited about additional customer wins this quarter in this space and a long-term potential of substrate substitution for our solid CUK fiber carton. The convenience of our microwave packaging continues to experience strong consumer acceptance in new business sectors, leading to new sales and margin contributions. We have also capitalized on some of the sector trends across the food and beverage industry by making strategic acquisitions and investments in growing markets such as craft beer, pasta and away-from-home markets such as fast food. In total, new business activity generated nearly $40 million of revenue in the second quarter versus the same period last year. Productivity enhancement and asset optimization are driving improved margins, even in a less-than-robust demand environment. We generated $29 million of performance improvements in the second quarter. Cost saving initiatives to reduce the use of energy, fiber and wood, and chemicals, as well as plant consolidations are reducing our total operating costs. Key investments, including the expansion of our Perry, Georgia plant…

Thanks, David, and good morning, everyone. David covered operational highlights of the quarter. I'll focus on financial results. My comments follow our posted presentation. Let's start with financial highlights on Page 8. Taking a look at second quarter operating performance, we see net sales improve nearly 3%, or $31 million. EBITDA increased 17.5% to $176 million. EBITDA margin increased by almost 200 basis points to 15.9%. And after normalizing the income tax rate, adjusted net income increased $19.5 million to $0.11 per share, $0.05 per share better than the prior year. The quarter itself, as you can see, is pretty straightforward, but understanding how our tax rates have changed is a little more confusing. So I want to spend some time upfront on that explanation. You'll remember, in the fourth quarter of 2011, we have recorded the value of our NOL tax shield on the balance sheet. In conjunction, beginning in 2012, we started recording normal income tax expense. To provide comparative financials, we adjusted quarterly results to compensate for the tax treatment change. While the P&L reflects tax expense on a cash basis, we will continue to benefit from our $1.1 billion NOL and not pay U.S. income taxes until the NOL is consumed. I hope that overview has been helpful. Let's turn to the core financials. Overall, you will see during the review of sales and earnings, the main drivers of the bottom line improvement include revenue growth, improved operating performance and lower interest expense. Please note, as has been our practice, we adjusted results for certain nonrecurring charges. The adjustment in this quarter was the add back of $5.2 million of expense, primarily related to the integration of the Flexible Packaging acquisition. Moving to sales comparison on Slide 9. We see 3% growth to over $1.1 billion…

[Operator Instructions] And at this time, you do have a question from the line of Alex Ovshey.

Just a question for you around the SBS pricing. It seems like that market is teetering on the edge of potentially maybe going out of bounds in the near term. Do you have an outlook for SBS pricing for the back half of the year? And I know there's a lot of capacity in Asia that's coming online that could potentially be a competitive product to SBS. Do you see any potential in the future to source some of your SBS needs out of Asia?

Well, I think, our -- we're a net buyer of SBS, as you well know. So I mean our forecast for the second half of the year is that most board prices will be pretty flat. So we really don't expect SBS pricing to be escalating. I'm not particularly worried about the China stuff coming on board. We do source some already but it's not really projected to be a huge impact here in the United States. I've seen all the Rissy [ph] reports and so on and so forth. We have a little bit different view. Most of our stuff is food and beverage applications. Most of our customers are not at all that excited about sourcing board from China in the food and beverage applications to the United States. So while that may affect other things, it doesn't really affect our business very much.

That's helpful, Dave. And then just on the productivity, clearly coming in out of expectations for '12. Is there any initial read that you have on what productivity will look like for you in '13 relative to what you're seeing currently in '12?

Well, I mean, I think we've been pretty consistently in that $70 million to $80 million range. You're going to have to think about the Delta Natural Kraft synergies, which will come in. And we've said those will be about $20 million. Won't start really until January but they should come on pretty quickly in January, not really much of a ramp up for them. So I would say, based on the investments that we're making, that feels good. I think Dan made some comments about the second half of the year. We're doing some downtime in the mill. We're taking a little bit of extra time to put some additional things in our mills to be able to continue drive productivity. That's why there's a little extended downtime, and that will all manifest itself in 2013. So I feel good about $70 million to $80 million worth of cost takeout in '13.

Good to hear, Dave. And then last question for me, as you approach the high end of your leverage range, how do you see your capital allocation priorities changing next year?

Well, we're certainly talking about that internally. I think Graphic, as you well know, is pretty conservative about that approach. My comment to Dan is, "Well, let's get there." There's a lot of uncertainty in the forward markets. I love our cash flow right now, but we're going to sort of address that when we get closer to it. I made in my comments, we will continue to look to be acquisitive, at least on the bolt-on side. So we hope to be able to spend some of that cash like we have in the last year or 2 on smaller bolt-ons that work. The remaining part of that cash flow for -- after debt reduction, we'll have to talk about.

And at this time, we do have a question from the line of Philip Ng. Philip Ng - Jefferies & Company, Inc., Research Division: The downtime you guys are taking in the back half, any of that economic-related?

No. It's all around the planned maintenance. I think you've been covering paper for long enough to know when you take a mill the size of Macon and West Monroe, we've got to take the recovery boilers off-line cold and do the inspection every other year. And that is extended downtime, as you can well imagine, going from it and coming back up. So it will all around that. Philip Ng - Jefferies & Company, Inc., Research Division: Okay, that's helpful. And then, in terms of the initiatives as a whole, I mean they've done a pretty good job matching supply with demand for CRB, but prices are down. So I just want to get a sense, are you concerned there is little more downside risk going forward? And just help me understand what the P&L impact is this year? I mean given the lag, is it more of a 2013-ish impact with the recent drop in CRB prices?

Well, I mean, CRB pricing is down $30, $40 a ton, I suppose. And we will see -- we all some of that in our open market already. In our current -- the carton pricing will probably not reflect any of that until the late fourth quarter, or 2013 at best. I mean we're still a net buyer of CRB so we haven't really had -- we have taken some downtime in our paperboard mills but it's really been around maintenance and that type of thing. We really haven't had any extended downtime for market-related CRB or -- and certainly not for SUS. Philip Ng - Jefferies & Company, Inc., Research Division: Okay. But I mean, overall, I guess your comments earlier, you feel pretty good that prices are stable and the market's still fairly balanced I think you said there [ph]?

Yes. I think it's pretty disciplined. It's pretty balanced at this point in time. And look, I mean if it gets out of balance, then I think we'll do the same thing. I'm not going to build -- let me put it this way, I am not going to put the inventory on the balance sheet that I don't have any reasonable expectation to sell in that quarter. So we'll monitor that very, very closely. Right now, I like the forward looks. We're busy. But it's a difficult economy to read right now. I think you would have to agree. Philip Ng - Jefferies & Company, Inc., Research Division: Okay. And just one last question. Beer demands have been quite strong but CSD continues to be weak. There is some hope that a big CSD guy was stepping up promotions this year, it doesn't seem to have much of a lift yet. And I think based on some of the recent comments, they're looking to do like everyday lower prices rather than discounting in the big holidays. Do you think that's having any impact on volumes currently?

Well, we care a lot about take-home, not so much what goes on the C-stores. So actually take-home buying has not been that bad. People are buying. So we care about that and that's been okay. I listened to the same PepsiCo call yesterday and look, they're doing -- I mean, the CEO is right. They're continuing to promote. They're continuing to put power behind their brands, and I feel good about where CSD is heading. Beer has been strong. It's been hot. And again, take-home is important to us and take-home beer has been good. Craft has been good. As I mentioned in our call, we were up a couple of percentage points just on core big beer, big beer brands. And that's good for our business, and I don't really see any major slowdown right now.

And your next question comes from the line of Phil Gresh. Phil M. Gresh - JP Morgan Chase & Co, Research Division: One question on the maintenance numbers, just so I'm clear. 2013 versus 2012, how much is in this every-other-year bucket that -- do we get added back? Is it the $15 million?

About $10 million, or something like that. If you go back and look at our 2010 -- if you look at sort of '09, '10, '11, '12, you see the every other year, it's probably in that $10 million range. It also may depend upon -- if there is something -- when we do a cold outage like that from that from some time, we will do some extra work. Because when it's down, we want to take the extra day or so to be able to do something in the mill that we just cannot do when it's running, and we may add a day of downtime, or something like that, but it's really around increasing forward productivity. This year, it's a bigger outage because we've been building up some time to do some things, particularly in our West Monroe mills. So we're going to -- it's going to be a little longer. But generally speaking, year-on-year, in a year when we have cold outage versus not, it's in that $10 million to $12 million range is what is sort of normalized. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Got it, okay. And then, because you had such a big outage -- or you had such a big outage planned in the second half, is it reasonable to think that you did build a little bit of inventory ahead of that because of the outage and that might have helped your productivity in the quarter? Or what was the real driver of such a strong productivity number?

Inventory was down, as you know, year-on-year, so we didn't actually really build inventory. We will -- our inventory will drop, there is no question about it. In the third quarter when we take that downtime, we'll lose some production, and our inventory will drop even further. I don't know that we're actually going to get a head to sort of put it on the balance sheet. We'll run and we generally don't. We may run a little higher and maybe, I figure, 10,000 tons or something like that but nothing that's measurable. You got to remember, we're a net buyer of board, right? So the fact of the matter is we produced more board. Even though our tons were slightly down, and I mean, a couple of thousand tons, we just -- we produced more, which meant we bought less externally. So when you look at Graphic's numbers, you got to remember that not every ton is the same ton. So for us, we had better productivity because we made more tons and we sold those tons and bought less external tons. That's one of the reasons why. And we talked in the past about operating leverage, I think you all have asked me to explain, how do you really see operating leverage in the business? Well, look at the second quarter. You saw a better throughput, more throughput through our existing asset base and therefore, the operating leverage and the margins increased. Because we really don't get anything on pricing. I mean the fact of the matter is our customers do not allow us to improve our margins on pricing. We hope to break even on pricing and what we really see as an improvement is when we are more productive in our facilities and operating less facilities. That's what drives our margins. But certainly, not through pricing. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Yes, now that certainly was impressive this quarter. The highway bill, is there any impact in how you're thinking about pension contributions for next year?

We're taking a close look at the highway bill. But in terms of our practice, we're focused in on really continuing to contribute at the rates we have published before. I mean we're talking, I think it's $60 million, $80 million this year, and we're still planning to do that. In 2013, we'll take a closer look at the highway bill and what we want to contribute. But we're focused in on funding our pension obligations. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay. And then just my last question, following up on the capital deployment being at 3x by the end of the year. And kind of addressing it then, is it fair to say the high end of the range is a place for you would think -- where you're willing to discuss potential plans? Or is it more kind of the midpoint or low end? I'm just trying to calibrate, is this 6 months away or 12 months away?

Now you sound like our Board. listen, what I would say is that I'm more comfortable getting that 2.5x. The fact of the matter is we're getting there pretty rapidly, as you guys saw, we made a pretty big dent in the ratio this year already. So I think Dan's right. We'll be right around that 3x, but we won't be very far after that to 2.5x. You're probably talking in the shorter range as opposed to 12 to 18 months. That's probably not -- we'll have to be dealing with that issue certainly by this time next year.

[Operator Instructions] And we do have a follow-up question from the line of Alex Ovshey.

A couple of quick follow-ons. I'm sure you're aware that there's a containerboard price increase out there, and in '12, you did take some share from corrugated with the CUK substrate. I mean, are you seeing any customers coming to you and potentially doing more conversions out of corrugated into CUK?

Well, we had a number of other wins this quarter. I didn't detail them all out for the brevity. But we're not really -- but regardless of pricing in the containerboard, there's a lot of other advantages. The sustainability metrics are particularly different. With freight costs going up, that's as big a driver as anything else. The thing on containerboard pricing is, it will have to translate to carton pricing or box pricing for it to make a difference to me, right? Because my customers don't really buy board. They buy boxes. So I don't expect a material impact on those economics this year.

Okay. And then in the Flexible business, is there much exposure to the residential U.S. housing market?

Yes, I mean, there is. I mean, don't forget that the good part of our multi-wall bag ends up in concrete bags. And -- so that's smaller projects, do-it-at-home, those kinds of things. Any pickup there would be welcomed. We don't -- we really have no forward outlook -- none of our forwards as we gave you guidance, has any market improvement in any of our sectors, because I'm growing weary of trying to forecast what the U.S. economy is going to do and certainly, on individual sectors. It would be great if it happened but we're not expecting it. Look the improvement in Flexible for us is going to be the integration of the Delta Natural Kraft synergies as we go into 2013. If market comes back, that will be a bonus but not expected.

Your next question comes from the line of Ghansham Panjabi. Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division: It's actually Matt Wooten sitting in for Ghansham. So your volume is clearly outperformed the industry and competitors. And obviously, forecasting is very difficult, but can you at least comment on the trajectory throughout this past quarter month-to-month?

You mean for the 14 days to -- or 26 days of July? What... Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division: No, I was talking about 2Q.

Oh, Q2. Yes, I mean look, food and beverage was good. What can I tell you? I think the volume was where we expected it to be. And I told you at the end of the first quarter, I thought the second quarter trends would be pretty good on food and beverage and the change in -- the focus on pouch carton and pasta and food service has served us well and our volume is good. It's good but it's not great compared to where you would think we would be historically from a recovery of the kind of recession that we saw. So I'm happy versus where we are, but disappointed in sort of what we would expect on a historical basis. I would expect volume to be much stronger than it has been. But we're busy. We're making -- we're okay. Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division: Understood. And then, you've just talked about bolt-on acquisitions. Can you talk about how robust that pipeline is right now for these opportunities?

I would tell you, we have -- we are actively involved or actively engaged in a number of bolt-on sort of looks. Small acquisitions are almost as difficult to get done as big ones. Integration is of course less complex, but we look at a lot. And we'll get some things done if they make sense for us.

And there are no further questions at this time.

All right, operator. Thank you. We'll talk to you all next quarter.