Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Graphic Packaging Fourth Quarter and Full-Year 2013 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Brad Ankerholz, Vice President and Treasurer of Graphic Packaging. Sir, you may begin.

Thank you, Regina, and welcome, everybody, to the Graphic Packaging Holding Company's fourth quarter and full-year 2013 earnings call. Commenting on the results this morning are David Scheible, the company's Chairman, President, and CEO; and Dan Blount, our Senior Vice President and Chief Financial Officer. To help you follow along with today's call, we have provided a slide presentation, which can be accessed by clicking on the Q4 earnings webcast link on our Investor Relations section of our website, which is graphicpkg.com. I would like to remind everyone that statements of our expectations, plans, estimates and beliefs regarding future performance and events constitute forward-looking statements. Such statements 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. Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission. Undue reliance should not be placed on 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. David, I'll turn it over to you now.

Thanks, Brad. Good morning, everyone. We had a busy quarter including integration activities, business divestitures, stock repurchases and fighting some difficult consumer trends. So overall, I'm very pleased that our fourth quarter earnings and cash flow were in line with our expectations. Both volume and sales in our core Paperboard Packaging segment increased in the quarter, with volumes up 2.3% and sales up 7.2%. Adjusted EBITDA increased 5.4% to over $158 million. And margins at 14.7% were up 0.4 points from the same period last year. We did not see a significant change to the terms in our core end markets in the quarter. And we continue to drive volumes and margins higher through a strategy focused on new products, acquisitions and productivity initiatives. We've been very strategic in the way we are building this business. Graphic Packaging is designed to deliver long-term sustainable growth in both good and bad operating environments. Volume trends in many of our core markets have remained challenging for several years now, and there's no way to predict when or if those markets may improve. We are certainly not unique in struggling to anticipate new consumer trends in this environment, but we cannot wait around for a pickup in demand. Rather, it's our job to find a way to continue to grow this business and gain market share even in a flat to down volume backdrop. And that's exactly what we have done through a balanced strategic approach by investing in our core food and beverage business, developing new innovative products and making tuck-under acquisitions. And of course, Graphic Packaging always is working to improve the productivity across the operation. We're committed to investing in our core food and beverage business globally. One way to do this is by developing new and innovative solutions to…

Yes. Thanks, David, and good morning, everyone. To assist with our review, I will refer to our posted presentation. Let's begin on Slide 11 with the financial highlights. Overall, both Q4 and full-year results show solid gains. In our discussion this morning, we will cover the reasons for our improvement. But as I reflect on 2013, I think our work in 3 areas stands out. This work clearly benefited us this year, but also positions us well heading into 2014. One, we wrung another $100 million of cost out of the business through productivity improvements. Our cost structure is in good shape. And in 2014, we should build upon this work to improve margins further. Two, through acquisitions built a large-scale, well-capitalized European business that drove revenue growth. Going forward, Europe provides a strong platform for further growth and margin improvement. And then three, upgraded our capital structure, lower-cost debt and ample liquidity, more than adequate resources to fund capital and expansion needs going forward. It was a good, solid year of accomplishment. Now let's get into more detail by focusing on the Q4 numbers on Slide 11. Adjusted EBITDA, up 5.4% to $158 million, as the margin improved to 14.7%. Adjusted net income increased $25 million to over $58 million. Adjusted earnings per share for the quarter at $0.17, and double the $0.08 we reported last year. Before turning to the full-year numbers, there are 2 tax items to discuss. First, we had an income tax benefit of $3.5 million for the quarter. This benefit principally relates to recent guidance from the IRS relating to the taxability of the black liquor tax credit. When we recorded the credit back in 2009, it was net of income tax. Updated guidance released in October now concludes that the credit is not…

[Operator Instructions] Our first question will come from the line of Philip Ng with Jefferies.

Just a quick question. I noticed the productivity savings looks a little light relative to what you guys were talking about last quarter. Are you guys stripping out some synergy numbers or this a function of Flexible not performing as well as you had expected?

I think, Phil, I think you'll find that those productivity numbers, the $100 million, was pretty much right on what we said in terms of the range we gave you.

They're not so much 2013, I'm talking more on 2014.

Oh, 2014? Oh, just a sharpening our pencil as we go through our planning exercise.

I think you have to remember, we've always told you that when we give you the guidance, it's backed up by individual projects. So as we get through the end of the year and we sit down with each one of the operating businesses, then we hone in on those individual targets. So we'll give you a broader range, but you shouldn't have more confidence around the numbers we're providing now because they're tied to individual projects in the forwards. The other thing that happens, too, is you have to remember that a lot of our productivity improvement includes -- it has an overall assumption of what we think volume is going to do on individual segments. So as some of the volume on a go-forward basis gets -- is less certain, then we dial back a little bit, because we need the throughput to be able to get it. So what I would tell you is that it's an ongoing balancing act, but I feel pretty good about the targets that we provided right now.

Got you. And in terms of your Paperboard segment, I mean, performance has been quite strong in light of a challenging demand backdrop and a negative price-cost spread in 2013. So when you think about 2014, with price, some of the cost take-out initiatives you have in place and with synergies kicking in, should we expect margins to step up a bit here in this business? I know nat gas prices have ticked up a bit, but you guys do seem to be nicely hedged here.

Yes, I mean, I think for the math to work, the margins really have to improve. And that's certainly our expectations as well. I mean, I'm not going to give margins guidance, but if you're asking me are they going to go up, yes, they will. You accurately pointed out, we're still going to get volume and price contribution here and in Europe. The programs like I talked about in Kalamazoo are there to support the things that we did last year. In Macon, we spent $200 million in CapEx last year and half of that, at least half of that was on pure cost-reduction activity. So yes, I feel pretty good about the cost-reduction activities, the volume if it holds. We would expect margin expansion. And you and I have talked about this before. It's a big fixed cost business. So a little bit of volume improvement drops directly to the bottom line. Right now, we're being conservative about our looks in volume and price, but I would expect margins to move up.

Got you. And I guess just on that last piece, on the volume front, I know demand has been a little choppy. You seem to be a little more upbeat on share gains and beer, but food and CSDs are still a little weak. What's your outlook for volumes for 2014?

I've almost got to get out of the business of predicting it because I don't think I've been very good at it. What I will tell you is that our volume right now is pretty good. Our backlogs are strong. Now these storms in the Midwest sort of don't affect our volumes, but they'd affect our ability to run our plants. I can't get trucks in and out of my facilities. So right now, I'm much more concerned about getting this stuff delivered than I am having orders to make. But overall, I would tell you I don't expect carbonated soft drink trends to get materially better. I think beer is continuing to improve and that's exactly what we're seeing. And I think the others will sort of be flat versus what we saw in 2013. At least that's our current projections. Europe is a good market for us right now. Backlog sales in Europe look pretty good. So overall, I am optimistic in at least the way we built our model and expectations around the volume we put in.

Is weather going to be a big headwind for you in Q1? I know a few of the companies down in the Southeast have flagged that. Is it just more of a one-off? Is it pretty manageable or is it going to be a big hit in Q1?

It's always -- weather, you can't use weather as an excuse. What I would tell you is we'll drive some -- we'll have some incremental costs in trying to get our stuff moved around. We'll have -- freight costs will be a little different because we're trying to meet customer needs. And we can't -- look, right now, if you're trying to get a big truck in and out of our Illinois or Wisconsin facilities, you've got, as you would like to call, a headwind, and they're 50 miles an hour in your face. So the fact of the matter is they will have some costs, but it's not going to have a material effect on Q1, certainly not on 2014.

Your next question will come from the line of Alex Ovshey with Goldman Sachs.

Dave and Dan, a couple of questions. I think on the last quarter's conference call presentation, you talked about a pricing number for 2014. I think it was in the $30 million to $35 million range. Correct me if that's not exactly right. And I think you talked about the fourth quarter being a little bit better for you in 2013. Do you have an updated pricing number to share with us for 2014?

Yes, I think what I said was I thought we'd be in the $30 million to $40 million range for 2014. Certainly, we're going to be more on the upper end of that range as you look at it right now. But a lot of the folks in the space do a linear math, and they'll say, "Well, you're just selling so many thousand tons. You multiply it times your price increase. You're going to get $70 million worth of pricing and lock it in." But the fact of the matter is that's not really the way that business works. The reason it doesn't work that way is 2. One is that makes sort of assumption on volume in those end-use sectors. And as you can see, the volume is softer. I'm not going to get a lot of pricing. Even though I have price increase contracts in CSD this year, I'm not going to get all of that pricing on a per ton basis because they're not going to take the tons necessarily relative to year-on-year. So I lose a little price on that side. The second side of that deal is that when we have these contract resets, and this is important to us, is that this year, we'll have $700 million worth of contract resets. We do a couple of things. One, of course, we take our pricing in that contract. But the second thing we do is we look at the individual parts of that contract, and there are pieces of that business that we like and there are pieces of that business that we don't. And we will trade off with customers those pieces that don't make sense for us. Maybe we'll trade off an SBS application for an SUS application. You won't see that in price, but where you will see that is in productivity because that will allow us to have better throughput in our mills. So when we think about how we actually manifest that stuff into our portfolio on a long-term basis, it's taking those contracts when they reset and get the business that makes it stickier, that really we're the people that those customers should be doing that business with so we don't get into all this bid-ask stuff every time a contractor -- and so we'll spend a little bit of pricing money to do that because I pick it up on the productivity side of the equation getting it. And that's why you don't do a linear thing. We're building the model for a long term, not for individual quarter cyclicality. So when I tell you it's $30 million to $40 million, is that going to be in the upper side? Yes. Could it be a little higher? Sure. But is it a linear process of you make this many tons times this? No, that's not the way Graphic Packaging is built and never has been.

Appreciate that color, Dave. And just thinking about the input cost just for the raw materials side, taking into account where gas price is, whatever your base case for OCC and other important input costs, how do you see your raw material inflation for 2014? Obviously realizing that there's investment -- that much visibility into that question, but how do you guys see it as we stand today?

I think we saw in '13, Dan, around $40 million roughly, mas o menos. $40 million of inflation. I think that's probably a pretty good number for 2014. And you know what, you're absolutely right. It's going to be driven right now in our models predominantly by energy. You all know -- you track this as close as I do, but secondary fiber forecast for the first quarter are kind of flat. So we're not going to see a tremendous amount of movement on OCC during that period of time. We have seen some paperboard increases out there. I think the SBS guys are -- have announced a $50 a ton, and we buy a fair amount of SBS. So we'll have to see that flowing through the P&L as well. That comes in inflation, but then, of course, we raise the price on the backside. So I'm thinking, Dan, $35 million to $40 million is about -- is a good number.

And, Alex, just to remind you, that that's our input cost inflation. And in addition, we have employment inflation as well. And that will be somewhere in that $25 million to $30 million range incrementals on top of that number.

Got it, okay, I appreciate that. And just one last one from me. On the Flexible segment or maybe that segment will be renamed here, Dan, you gave a sort of the pro forma numbers of revenues and EBITDA of what was divested. Maybe the other way to ask the question is can you just sort of tell us pro forma what's left for that segment, sales and EBITDA, and what the plan is to try to improve that number for '14 is?

Yes, I think you're going to see a revenue number somewhere in that $400 million to $450 million range in that business currently as it's structured. And part of what we do in that business, we sell to ourselves. So if you look at, versus the prior year, some of that is going to be due to selling the output out of the mill into those bag converting plants.

I talked to you about the productivity improvements. We have a couple of things. One, I think the issues that we had in the paperboard mill in 2013 are behind us. We made some investments in that to improve. We had, I told you earlier last year, we had a fiber yield problem in that mill, which required us to change -- do some work on the head box, which we have -- we completed in September -- August, September. So we're starting to see every month good productivity and improvement out of the mill, so the focus really ends up being in the converting side of that business. We're certainly seeing progress in the cost per bag. I think the hard thing figuring out in that business, though, is what the volume trends are doing because for us to get the productivity, we need to see a throughput on bags. And, quite frankly, that market has really struggled relative to volume and really inconsistent, wide variability. And it is a much -- it is incredible. That business is much more impacted by weather because if you think about it, it's feed and seed, it's salt, it's chemicals, it's construction, cement and the weather has not really been favorable over a long period of time for that business. So in some ways, it has been, using a very tired vernacular, like trying to catch a dropping knife. So we're going to make a huge progress in 2014. But I told you in my script, I was expecting us to be further along in improving this business than we are right now.

Your next question will come from the line of Ghansham Panjabi with Robert W. Baird. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: It's actually Mehul Dalia sitting in for Ghansham. How should we think about the progression of price costs on a quarterly basis in 2014 based on what you know now?

Well, I haven't done quarterly. We haven't done quarterly. We'll see a lot of it start in the first quarter because the contracts reset. The fact of the matter is, we won't -- in many of these contracts, we see the pricing in the contracts go up when it gets to its annual date. And so some of those contracts started in the fourth quarter, which is why we got $4.3 million above that. And then some of them will start throughout the -- will go throughout the year. I can't give you individual quarterly because I just don't have it at my fingertips. Like I said, the run rate in the fourth quarter will certainly be above $40 million, there's no question about that, because what I'm giving you on $30 million to $40 million is what we will get in 2014. So the run rate will definitely be higher by the end of the year.

Yes, one thing you want to think about is there's some cyclicality to our business. So when you're applying the assumption for price increase, you should consider that for -- on a quarterly-by-quarterly basis. There'll be more price flowing in, in the months where we have higher sales volumes. And I think that's a good technique to use.

Yes, I mean, you guys have not had this conversation before. I really don't kind of really worry about the individual quarterly detail that you guys are worried about on when pricing hits. What I'm trying to run the company for is a long term. Anybody who's buying or selling on the quarterly ups-and-downs should buy somebody else's stock. So what I would tell you is that overall, we're going to increase the improvement of this business by the things running through quarterly changes in pricing or not. We don't track it that closely here. We certainly don't -- we don't provide that information. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: Can you provide us an update on your M&A pipeline? Is acquisitions a priority for Graphic in 2014?

It will continue to be a priority for Graphic beyond 2014. As we said in the call, we really have a couple of -- we have some segments in the business that struggle from a volume standpoint. And so for us to continue to grow the business, we're going to do 2 things, one is new innovative products and the second is acquisitions. And we're going to continue to globally look for opportunities to Graphic Packaging. And yes, 2014 is like every other year. We expect to be able to make strategic acquisitions this year.

Your next question will come from the line of Ketan Mamtora with Deutsche Bank.

It just sounds to me that you seem quite optimistic about the European business. Can you just talk about the kind of opportunities you are seeing there and as you go along if this provides more bolt-on opportunities there?

Sure. I mean, if you think a little bit about our European business, even the beverage business, for example, the beverage business in Europe is almost exclusively beer-based. There's really not much paperboard that goes in soft drink. So whatever secular decline that is occurring in soft drink here in the United States is -- we don't see in Europe. And so as I said, beer was solid in this country. Beer is growing in Europe as well. And so with the acquisition of A&R, that made us a big player. It gave us a solid position in Heineken. We already had a big position in AB. We've got opportunity at Beck's across the board. So there's some great opportunities with Graphic Packaging in the beer side. On the food side, we were literally not -- we're not in the food business materially. We just did not have the right assets. And part of it was physical assets, but we didn't have the right management team for that either. So what we've really acquired in Europe is both the physical assets, the customer share and the right management team for it. So we have seen great success. Guys like General Mills and Kellogg's and Kraft, those are global customers. And we're doing business now on both of those continents. And some of that innovation activity is translated. So as I look across Europe in a very fractionated folding carton market, there's great opportunities for us to add really high-quality assets, both physical as well as people. And that's what we're doing. So I'm optimistic about Europe because I think the kind of things that we've done here, we can successfully do in Europe. And we've got years and years of runway there because of the fractionated basis -- the fractionated structure of that market versus the United States, which, as you know, has become a pretty consolidated space in the paperboard side.

Right. And then just switching gears to Flexible. I mean, obviously, you mentioned that margin has not improved as you would've liked. But can you just talk about which end markets are you seeing the most weakness in, I mean outside of the weather issues that you had?

Well, I think the most variable has actually been the feed and seed side of the equation. That's been a pretty consistent growth market historically. But I will tell you that if you're talking to farmers, ranchers, they'll just tell you it's been very, very difficult 18 months to figure out what's going on and that has definitely affected that business. A good part of our business, probably 20% of our portfolio, is in cement bags. And it seems like the construction market is just a stop and start. It's housing starts look like we're moving, and all of a sudden they stop again. And so it's been sort of a very inconsistent demand. That has also contributed to our performance issues because our product line mix in that business shifts around materially more than it has in our folding carton business. So it's a little difficult on the converting side to get a consistent, improved performance because your viability around your mix changes materially versus a plant running cereal or pizza or consumer products' side. And that has been a little bit frustrating. Traditionally, there's been variability. But really, in the last 18 months, we've seen a significant increase in the variability of the demand for those end use sectors.

Okay, that's very helpful. And then just one last one. I noticed that your NOLs actually went up $126 million from Q3 to Q4. Can you just talk a little bit about what happened there?

Yes, I can do that. When we made the adjustment for black liquor, the result of that was to increase the NOL, because we had used the NOL back in 2009 when we recorded net of tax.

Your next question will come from the line of George Staphos with Bank of America Merrill Lynch.

Jumped on the call late here given dueling calls, so I apologize if you already answered this question. On Flexible, Dan and Dave, are you still ultimately targeting the segment to get to a double-digit EBITDA margin? And could you put some, if that's still the case, some parameters on when you expect to ultimately get there and what still the biggest challenges are to get to that goal, if it's still viable?

Well, yes, it is viable and it is going to be a low double-digit margin business for us for sure, but it is not going to happen in second quarter of 2014. We're going to make significant progress this year because we're going to get a lot more contribution from the mill performance than we got last year. The converting fix is an ongoing battle for sure, but we are making progress. We made progress in the fourth quarter and we're making progress in the first quarter. But to get to that number, it's going to be an end of the year sort of run rate to get to that kind of thing. Now it is -- will generate positive cash flow and positive ROIC, so it's a contributor, but we still have work to do in that space.

All right, I appreciate the color on that, Dave. Secondly, with Macon increasingly coming on, could you remind us what it ultimately did for your energy consumption, your reduction of nat gas and other purchase fuels? I know -- I remember what the savings benefit is, but if you could quantify it in MMBtu? And then kind of the related question, given the recent spike in energy, I don't know if you commented on this earlier, but if you held all of your input costs constant as of today's pricing, what kind of commodity inflation would you expect in 2014?

So now we're going to do have to do calculus? Let me say this, Macon doesn't use a tremendous amount of natural gas. You know we -- it was a purchased energy mill, but that energy was driven in many ways by coal, which has switched over to natural gas. So that $20 million arbitrage is really against the increased pricing and costs that we were seeing blowing through from Georgia Power for purchased energy. And that -- so that's how you think about it. In terms of actual MMBtu purchase, most all of our MMBtus is purchased in West Monroe, Louisiana. And we're still purchasing the predominant amount of that. What are we purchasing, 4...?

10 million to 12 million MMBtu across the country a year.

So as Dan said on the call, we've hedged roughly, on average, about 50% to 55% of our natural gas usage in 2014 at about $4, guys? At about $4. The rest of it, of course, will float at increased energy costs. So our primary inflationary driver next year will be energy. I think this year, it was as well. Energy was -- of our $40 million of inflation this year, $24 million of it or so was energy. So that gives you some sort of feel for -- we are more heavily hedged this year at a lower price relative to last year. But I think we averaged, and I wrote this number down somewhere, but we averaged in natural gas last year a light $4, about $4 or something like that. Didn't we, Debbie? I'm just -- and so we're going to be -- we averaged about $4 for the year, did we not, roughly? About $4.09 or something for the year in natural gas. So clearly, we're going to average a little higher than that. But 50% of it is hedged at that rate. So I would think energy is going to be another $20 million or something to us this year, maybe not quite that high, but somewhere in that range.

Yes, I think we took a lot of the risks off the table with our hedging program. We thought the rates were attractive around the $4 range. And we did that. So if you look at -- there was a huge increase in that, in natural gas between 2012 and 2013. And it was unusually low in 2012. I think you remember that, George. And even at $4, what we paid in '13 historically, that's a real good rate for natural gas.

I'm probably high on that. It's probably closer to maybe 12 to 15 incremental is about right if I do that math. Just, like I said, we had to do calculus in my head, but it's going to be somewhere around that.

No, that's very helpful. I appreciate it and all the figures around it. I guess the last question that I had for you, is there a way to, perhaps not quantify, but qualitatively discuss the whatever increase in interest you're seeing in CUK these days versus last year from markets that were previously not your core beverage packaging markets as a way -- you see where I'm going with it. Obviously, your view is it's growing in interest as a substrate in the packaging market. There's a way to quantify for us or qualitatively give us discussion in terms of how much more broader appeal you're getting now on that business versus, say, a year or 2 ago?

I think it's easier to think about it in large sectors like this, which is as opposed to individual applications. Yes, of course, we're seeing it in individual applications. I love what Tite-Pak does for that business. And the warehouse clubs is a great win. But actually, you should think more about what we're doing in Europe. If you think about the acquisitions in Europe, guys, that gives us an opportunity to integrate substrate that we were -- they were buying in Europe that were not buying from us or they were not SUS, but SUS -- all those characteristics and qualities that SUS has that makes it work in the United States makes its work in Europe. It's just the board was not available, and neither was the converting business focused on that board because nobody like Graphic owned those businesses. So as I look forward in Europe, I will tell you over a long period of time, we have a plan to double our SUS sales in Europe. And I don't see any reason in the world why we can do that. We're building -- the assets that we bought, and I know you can't get over there to see these assets, but I will tell you that the assets we bought in Europe are world class. They are as good as any converting plant that we have in the United States and far better than the ones that we were running at legacy Graphic, make no mistake about it. So we've got a good base to be able to build and take advantage of where SUS naturally competes with other substrates. And that's why I feel optimistic about SUS long term.

[Operator Instructions] And your next question will come from the line of Joe Stivaletti with Goldman Sachs.

I just had just one thing. On the acquisition front, I was wondering if you could talk a little bit about the priorities, as you're thinking about possible acquisitions, what areas? And also in light of your 2.5 to 3x leverage target, I mean, would you -- for the right acquisition, would you consider -- how high would you consider taking leverage temporarily to complete an acquisition?

Well, the first question first, and what is our focus. We're still -- look, we still like the converting business. I get that it's a difficult business. It can be a messy business from time to time, but it allows us to control our own destiny long term by being closer to the customer and driving back that flywheel of cash back through our paperboard mill. That's our model and that's what we're going to do. Geographically, right now, guys, I feel much better about investing in the developed countries, United States and Western Europe, than I do in the emerging businesses. We've looked at those things. We've done our work. We've had -- we've put millions of dollars with Bain to help us understand what we should be doing in China and India. And the fact of the matter is, what we're doing there is very little. And that's just about the right context right now. Long term, we'll look at the emerging markets, but there doesn't -- we can't see a way to make much cash and EBITDA in those spaces, so we're going to -- we're not going to focus on those in the short term. Relative to getting to our targets, I mean, Dan and I expected to continue to deleverage at a pretty rapid pace. We expect to get to our 2.5x targets clearly by the end of this year. How far up would we go? I think we said in the past, I don't want to sort of box ourselves in. What I will tell you we're not going to do is we're not going to get back up in that 5x leverage stuff. That's just -- that's rarefied air. We're not comfortable operating in that. There's no reason that we have to operate in that. Our stock is also our currency. So if we want to do something that makes sense, we have cash and stock to be able to do the right acquisition. I'm just not getting back into that rarefied air.

And at this time, there are no further questions. I'll turn the conference back over to management for any concluding remarks.

We're going to get back to work and run the quarter. Thanks very much. Talk to you next time.