Jay Royalty - Vice President of Investor Relations John V. Faraci - Chairman, Chief Executive Officer and Chairman of Executive Committee Carol L. Roberts - Chief Financial Officer and Senior Vice President William P. Hoel - Senior Vice President of Container The Americas and Interim Senior Vice President of Industrial Packaging Group Thomas Gustave Kadien - Senior Vice President of Consumer Packaging and IP Asia Timothy S. Nicholls - Senior Vice President of Printing & Communications Papers - The America's Region Mark Stephan Sutton - President, Chief Operating Officer and Director

Gail S. Glazerman - UBS Investment Bank, Research Division Anthony Pettinari - Citigroup Inc, Research Division Chip A. Dillon - Vertical Research Partners, LLC Alex Ovshey - Goldman Sachs Group Inc., Research Division Albert T. Kabili - Macquarie Research Mark A. Weintraub - The Buckingham Research Group Incorporated George L. Staphos - BofA Merrill Lynch, Research Division Steven Chercover - D.A. Davidson & Co., Research Division Mark Wilde Deborah Jones - Deutsche Bank AG, Research Division Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Good morning. My name is Patrick, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2014 earnings conference call. [Operator Instructions] Thank you. I'd now like to turn the call over to Vice President of Investor Relations, Jay Royalty, to begin the conference. Jay?

Thanks a lot, Patrick. Good morning, everyone, and thank you for joining International Paper's second quarter earnings conference call. Our key speakers this morning are John Faraci, Chairman and Chief Executive Officer; and Carol Roberts, Senior Vice President and Chief Financial Officer. During this call, we will make forward-looking statements that are subject to risks and uncertainties, which are outlined on Slide 2 of our presentation. We will also present certain non-U.S. GAAP financial information. A reconciliation of those figures to U.S. GAAP financial measures is available on our website. Our website also contains copies of the second quarter press release and today's presentation slides. Lastly, Slide 4 provides context around the Ilim joint ventures, financial information and statistical measures. With that, I'll now turn the call over to John Faraci.

Thanks, Jay, and good morning to everybody. As we normally do, Carol and I are going to review the second quarter 2014 results and the performance of individual businesses, then we'll speak to the third quarter outlook and open it up for your questions. So I'm going to start them on Slide 5. International Paper delivered strong earnings performance in the second quarter, driven by very strong results in our North American Industrial Packaging business and solid performance around the globe in other key businesses. Our North American businesses saw an expected recovery from a weather-impacted first quarter, but we also continued to have higher-than-expected input costs. Additionally, we successfully executed almost $200 million of maintenance outages across the enterprise and, importantly, we didn't let that get in the way of continuing to operate in a very solid fashion. Ilim continues to be a good news story, with solid operational EBITDA attributable to benefits from the continued improvement at both projects, Koryazhma and Bratsk. And despite some softness in the pulp markets in the second quarter, the joint venture also had a favorable FX gain as the ruble strengthened against the U.S. dollar. Think of that as a reversal from the opposite we had in the first quarter. In early July, IP's Board of Directors approved an additional $1.5 billion share repurchase authorization, which extends the program implemented last September, and Carol's going to update you on second quarter activity a little bit later on in the presentation. On the people front. We announced the appointment of Mark Sutton as President and Chief Operating Officer of International Paper on January 1. The board and I are very pleased to have Mark in that role. He's an experienced global leader and operator, knows IP and the industry well. He's with us here in the room today and will participate in the Q&A portion of the call. Finally, we completed the xpedx transaction on July 1, as IP spun off our North American distribution business and merged it with Unisource to create a new publicly traded company called Veritiv, which is now trading on the New York Stock Exchange. And I want to wish all of our former colleagues and Mary Laschinger, the Chairman and CEO of Veritiv, a lot of success going forward, and wish the new company well. So let's move on to the financials. That's Slide 6. EPS was $0.95 a share, up almost 50% over the second quarter of last year. EBITDA was $1.1 billion, up from $920 million in the first quarter. Margins grew as well, up 90 basis points over last year and 160 basis points over the first quarter. Free cash flow was $380 million compared to $250 million in the first quarter. And with that, I'm going to turn it over to Carol and let her walk through the details on the quarter and the business results, and then we'll get to the forecast outlook and your questions.

Thanks, John, and good morning, everyone. Let me turn to the sequential EPS bridge, where it shows that we are $0.95 per share in the second quarter versus $0.61 per share in the first quarter. The strong results were driven by price improvement across several of the businesses. We had higher volume, solid operational performance across the enterprise and a significant positive noncash FX swing as the ruble recovered against the U.S. dollar on Ilim's JV U.S.-denominated debt. These positive swings were partially offset by significantly higher outage costs, as planned in the quarter, and as John referenced, they went very well. Some of the improvement in volume, operations and input costs, I can say, were attributable to moving past the weather disruptions in North America that did plague the first quarter. But beyond that, we experienced seasonal improvement in demand in North American Industrial Packaging and solid operating performance on all fronts. Courtland closure and transition costs were lower in the quarter, as expected. Input costs moderated slightly. However, I would say that they remained high throughout the quarter, and we're going to talk about the outlook going forward. Corporate items were slightly favorable, but they were more than offset by a slightly higher tax rate of 32%, as expected, and higher interest cost due to a tax reserve that was established in the quarter. Turning to Slide 8. I want to take a look at the year-over-year input costs for the first half of 2014. And as you can see on the right-hand side of the slide, wood and energy have been significantly higher, probably a bit higher than expected and significantly higher than last year. While they moderated slightly in the second quarter, we are seeing continued pressure on wood, higher electricity costs and higher chemical costs…

Thanks, Carol. So summing up. The IP leadership team continues to find ways to build on our success and improve the strength and, importantly, the performance of International Paper. In addition to the accomplishments that Carol spoke about and, as I've said before, we've got many levers to pull to improve and deliver strong results despite a challenging global environment. We seem to come up with new reasons to have a challenging global environment every day, it seems. But I'm pleased with the progress we're making and the results we're posting along the way. We're generating strong, sustainable free cash flow, and we're deploying that cash with the objective of maximizing shareowner value. So all in, as we look to the future, we like what's ahead. And with that, we'll be happy to take your questions now.

[Operator Instructions] Our first question is from the line of Gail Glazerman from UBS.

I guess, just starting with -- and I know there were some comments on the news wires this morning. But can you talk a little bit about the MLP potential and how you would think about that and kind of how you -- just what obstacles and opportunities you might see?

Sure.

Yes, Gail. This is Carol. First, let me say, very importantly, that we maintain a constructive and open dialogue with all our shareholders. And we're always open to new ideas and ways to increase shareholder value. We have been studying the MLPs for some time. And for us, it just remains unclear as to whether this concept would really be value-creating for the company. Today, as I think everybody knows, and it's been written about, there is a moratorium on private letter rulings at the IRS. And there has been one prior favorable ruling on pulp but, as everybody knows, there's no precedent for containerboard or coated paperboard at this time. So all that said, even if we could get a private letter ruling from the IRS, we're not yet -- and I would say we're somewhat far from convinced that this would be a good idea, and a good idea, on a number of fronts, that are unique to International Paper and the business we're in. The first issue that you have is the potential tax cost and the tax leakage, given that the assets involved here are fairly highly depreciated. The other consideration that we're looking at very hard is the operational, commercial challenges and some of the restrictions on how it would require us to run the business. And then the third piece that really plays into an MLP is the capital considerations. And as everybody knows, in our business, we're a capital-intensive industry, and sometimes the capital, particularly in these big and integrated mills, can be fairly lumpy. So all that said, we're going to continue to evaluate it until we can reach a conclusion for ourselves and, importantly, until the IRS makes clear what their new requirements are going to be for MLPs. And so in the interim, we’ll continue to operate our business as is, and we expect to do so for the foreseeable future. So we'll continue to study it and we'll look at it. And we're -- as we said, we're always looking for creative ways to unlock more value.

Okay. And can you just give us some color on what you're seeing in terms of demand trends in the third quarter? And maybe how this transitions from the second quarter into third quarter, I guess, in terms of key businesses as well as key global regions.

Bill, do you want to talk about the box business?

Going from the second quarter into the third quarter, we're not seeing much of a change in overall demand trend. We saw a week -- first week of the quarter with the holiday ending on a Friday, and you had a long weekend there. That impacted shipments for a couple of days. But since then, the trend has been very much the same as we saw in June. So we're not seeing a lot of changes in boxes.

Anything else in particular, Gail, you want to hear about?

I guess, what you're seeing in China and maybe a little bit in uncoated freesheet and how the market may not have firmed up as I would've expected, given the magnitude of the closures.

Tom Kadien was just in China, so he can speak to [ph] that.

Yes, China's kind of moving along. I'd say it's a slow growth. It's up a couple percent, 3%, which is less than we would normally feel. I think -- and I'm speaking right now about our box markets over there. There's a lot of capacity in all markets over there right now. And growth is positive, but it's not like -- it doesn't feel like the reported 7-plus percent that they're talking about for GDP.

Gail, it's Tim. Just on the uncoated freesheet front, similar to Bill, we are seeing things from second to third quarter so far kind of moving along sideways. Having said that, we normally see a seasonal pickup as we go into August and September. So we'll have to see how that plays out. I would say, just globally, uncoated freesheet, because of a lot of factors around the world, has not had the year that we all thought it would from a demand standpoint, whether it's the Ukraine or the World Cup in Brazil. Our volumes in Brazil looked pretty flattish and anemic through the first half of the year. We thought the World Cup would help. It clearly did not. It actually hurt. So I would expect that, in the second half, there's an opportunity for things to pick up a little bit, but we'll just have to see how it plays out.

Our next question comes from Anthony Pettinari from Citi.

Just a question on Ilim. You have a slide that references $550 million to $600 million in fully ramped potential. Can you just give us some color on what fully ramped means? And what would be the time frame to potentially hit that? And then just maybe a related question. The U.S. and Europe put on a stricter round of sanctions on Russia. And I guess, you'd expect the Russians to reciprocate. Did the sanctions have any impact on Ilim or how you operate the business or generate earnings from the business?

Well, let me take that in 2 pieces, Anthony. Just to give you a little bit more color on how we get to the $550 million to $600 million. The big piece of that is Bratsk. Before this outage, we were running the pulp mill at about 1,200 tons a day. Coming up out of the outage, and it's only been 10 days, we've been averaging 1,700 tons a day and hit over 1,900 tons a day in the first 10 days or so. So dramatic increase. The capacity of that pulp dryer is a little over 2,000 tons a day. So that has a huge impact on the cost structure of the mill, plus you've got the incremental volume. So that, and then getting the coater up and running at Koryazhma so we can make both uncoated paper, which we're making a lot of now, we're running that at design rates; and coated paper, we'll be the only supplier of coated paper in the Russian market, are -- will be the biggest pieces of getting from where we are, which is a run rate of, call it, $450 million, to the $550 million to $600 million. In terms of what's going on in the Ukrainian sanctions, we'd need to see the details on what this last round of sanctions that kind of were in the paper that the U.S. and the Europeans are putting on. I'd say, up to now, the impact on our business has primarily been felt in Eastern Europe. Obviously, Ukraine has been impacted a lot. It wasn't a big market for us, but the Eastern European markets have been impacted. The Russian economy was already slowing down. And sanctions, we wish there were a -- we could resolve these issues. But up until now, there's been no impact on our business other than the spillover of economic activity slowing down in Eastern Europe. And while this isn't a positive -- a plus for the Russian economy, the Russian economy was slowing down well before the Ukraine issue got on the radar screen.

Okay, that's very helpful. And maybe just a quick follow-up on containerboard. Pulp and Paper Week recently lowered medium prices by $10 a ton and has talked about weakness in recycled prices. And I was wondering if that price reduction was surprising to you and if you could maybe characterize the impact to IP.

Anthony, this is Mark Sutton. That's a great question. Let me -- before I answer that question, let me take this opportunity just to make a statement about -- as I roll into my new role. I've met many of you on the call. I look forward to spending more time with you in my new role. I've been spending time with our global business leaders and teams, getting up to speed, not only on near-term issues and what we can do for the rest of 2014 but also on the strategic front. And I'm increasingly coming away with a better feeling, an excited feeling about the opportunities we have as a company and also a better feeling in confirming my belief that we have the best people in the industry globally. So I'm excited about the new role, look forward to working with all of you that follow our industry and cover us. With respect to your question, I think the medium price changes that occurred, we view it as an isolated event and somewhat of a regional event. We haven't seen much of an impact on our business at all. As we said earlier, in Carol's part, our prices were firm through the quarter. I think you've got some issues going on that we've talked about at prior calls. As new capacity comes on, it's quite common for products to be made initially at the lower end of the technical scale. I think some of that's probably been happening, which requires some pricing behavior to get people to try it. So we don't see it as a big impact on our business at all.

Our next question is from Chip Dillon from Vertical Research Partners.

First question, I guess, is more directed to you, Carol, about the Highway Trust Fund bill. You mentioned that it would maybe allow you to avoid, I guess, $800 million to $1 billion in contributions. Could you give us an idea of when that would occur? And maybe said differently or asked differently, what are your current forecasts for contributions, say, for '15, '16, maybe '17? And how would they differ?

Chip, yes. So as you think about the things we've talked about, we said that we expected about $1.2 billion to $1.5 billion to go into the pension, and that was like '13, '14, '15; '14 '15, '16, and so it was in that time frame. We didn't put much in '13. And as you can see through the cash flow statement so far this year, we've put in a little under $300 million, and we actually made another required payment in July. So we're up a little over $300 million this year. Now we have another required contribution in '15 and '16 that would be the balance of that $1.2 billion. So we were looking at roughly $1 billion of additional required contribution in '15 and '16. That's the contribution that we won't have to put in if, indeed, the bill gets passed and written into law as it's written today. And it's all around widening the corridor and pushing out the impact of these lower interest rates. So that's the impact we have. Now what happens on that, of course, is you'll lose those tax deductions, and so there's a cash tax implication. But all in all, if you say, "Hey, we put $1 billion less in. We're going to have to pay taxes on that," you can see that you're going to net $600, $700 of positive cash over this period of time. That would've gone somewhere else, now we can do something else productive with. I hope that helps.

That's very helpful. And just as a quick follow-up. I think you said something about -- I mean, as we look at the third quarter, maybe you can quantify the Bratsk outage. I'm not sure you did. And I think something was mentioned about lower pulp prices, and it seems like softwood has sort of hung in there. I know it can be quite volatile from Ilim into China, and so maybe you could talk a little bit about how you see the softwood pulp picture.

Well, I could probably let Tim comment, but I think the softwood pulp, and I use the word very deliberately, average price. So it's average-to-average. So while our pulp prices are very stable now and we feel good about the markets going forward, there was some movement down in the price through the second quarter. But when you look at it average-to-average, it's lower. And relative to the Bratsk outage, we did not comment on the specific cost of that outage. We don't really disclose that for the JV, but it was a fairly good-sized outage. But the good news is, as John said, we're coming out of it running very, very well.

And do you think that better running in August and September could offset that cost? Or probably not quite?

Well, that has the potential. And that's why we said we think that some of the good operations could offset the pulp price, and we'll have to see about how we run the rest of the quarter. But we've been running well, and so we've been pleasantly surprised the last couple of quarters relative to Ilim's operational performance.

Next question is from Alex Ovshey from Goldman Sachs.

John, just a couple of questions for you. First, just going back to the MLP question. Would you be able to tell us how long you've been looking into this question? And I know Carol provided some nice detail around some of the potential challenges, around the tax leakage and restrictions on capital spend and just the time that is necessary to really be able to thoughtfully address those questions. So I mean, from your perspective, outside of what the IRS may or may not say, how long do you think it may take before IP has a better view on whether or not it could sort of overcome those obstacles?

Yes. So again, we'll -- we've been looking at it for quite a few months now. And as I said, we'll continue to evaluate that and also see where the IRS comes out on their requirements for MLPs. After the IRS decides, at that time, we'll have had enough time that we'll decide if we think that some proposed MLP structure has sufficient merits. And if that was the case, at that point, we'd pursue a private letter ruling. If we were to receive a private letter ruling and continue to take it [indiscernible], that's when we would make a public statement as such. But I think we're still a long ways from that between both our evaluation and really, where the IRS is. And so once again, as I said, we're going to continue to operate our business as is and continue to evaluate it and look at the complexities and the opportunity and see if there's really an opportunity for true value creation.

Yes, and that said, I mean, if you look at IP's track record and the decisions we've made over the last 6, 7 years and, most recently, the spin merge with xpedx and Unisource, which was a transaction I think we were the first ones to do, take 2 private companies and take them public, we're ready, willing and able to do things that are complicated that we think create long-term value for the company and our shareowners. So there's more work to do.

Right, right. Very helpful, John and Carol. And just a question on Containerboard. Looking at industry inventory levels, relative to a 5- or 10-year average, they do seem -- or they are higher than that. I'm just curious if you can talk about where IP's inventory levels sit and how you feel about them. And then maybe looking back to last year, when we did have the inventory levels above the 10-year average, we saw the industry take some slow-back. So I'm interested in whether or not you're building in any slow-back of production to your output for the back half of the year on Containerboard?

Alex, this is Mark. I'll take the inventory question. I think, with respect to IP's inventories, we manage our supply chain very, very efficiently, and we like the shape that our inventories are in right now. We have been operating on some supply chain metrics at best-ever levels in terms of having the right stock in the right box plants. Also, in a challenging transportation environment, managing our transportation cost the best we can. So we like where our inventories are. I think overall -- and I'm not going to comment on overall industry inventories and projecting slow-backs and that part of your question. What I will say, though, is the way we run our business -- now I'll remind you again, we look at our Containerboard business as a global business. We have 3 main channels that we bring our product to market. The biggest one, obviously, is our own box business. We also serve very important customers in the U.S. open market. And then thirdly, we export a significant amount of our containerboard to parts of the world that need it and value it. A portion of that is our own box plants internationally. So when we look at how we run our containerboard system, we run it to the demand we have from our customers through all 3 of those channels. And the float between the channels allows us to optimize the business at any given period in time and adapt to seasonal demand issues. So that really drives our decision for how we run our system, and that is based on the demand of our customers.

Next question is from Al Kabili from Macquarie.

First question, I guess, is for Tim on the uncoated freesheet. The transitional costs with the Courtland closure, do we get any additional sequential benefit from that in the third quarter? It didn't look like there was much explicitly indicated in the outlook.

Yes. It hasn't changed a whole lot, Al, since first quarter, when we updated everyone. But it'll be less than 10 in the third quarter and probably around 5 in the fourth quarter, and then it pretty much just trails off. So we're down to the final pieces at this point.

Okay. That's helpful. And then the second question that I had, I guess, is switching over to Containerboard. Mark, it looks like you're talking about flattish, no real change in volume trends in July. And if I look at the outlook, it sounds like you see, on the volume end of things, CPG improving in North America, on Slide 17. And I was wondering if you could kind of clarify the flattish July trends versus sort of the commentary on the outlook, if there's some visibility there that things are getting better. Kind of how are you thinking about what are you hearing from customers from a demand perspective on the outlook in the back half?

Sure, Al. On the comments that Bill Hoel made about the box market in July, that was Corrugated Packaging. And on the outlook chart that you're looking at, that's all of our Packaging, and that CPG refers to our Consumer Packaging business, where we see improving -- slightly improving demand. And we have the capacity, with most of our outages behind us, to meet that. So that's the difference there. I think Bill covered some of it, and Carol had a piece on the slide that had our east and west breakout. So a lot of our customers inside of certain segments are still seeing their business driven as kind of a mirror image of the U.S. economy and the behavior of the consumers. There's some movement within segments. In the protein segment, some of the poultry businesses, as it's well-known, are doing better. And part of that's having to do with the challenges that the beef industry has had with corn prices. That tends to change over time. So within segments, there are different customers who have a certain product that's winning in the marketplace. We obviously try to align ourselves up with those customers. But the segments are so large and our corrugated position is so large that, over time, some of these trends tend to offset themselves.

So 1 or 2 quarters [indiscernible] press release.

The order activity in boxes for the last few weeks has been fairly decent. I think one other point that we didn't cover is that in July, we have 1 more day than we had last year or last month. So even though the daily shipments are relatively flat, you do have 1 more day, not only in the month but in the quarter, the third quarter versus second quarter. So that helps you out in overall absolute volume. But our order activity has been pretty strong. I think one of the other challenges we have in the second half of the year is the West Coast ag business. We're heavily involved in fresh fruit and vegetables in the West Coast. And with the drought conditions, it could be a little soft there. The rest of the segments that we serve, though, are relatively strong. So overall, we're more than making up for the weakness in the fresh fruit and vegetables in the second half.

Our next question comes from Mark Weintraub from Buckingham.

First, I was hoping -- can we get an update on your dealings with the mills you had divested as part of the Temple acquisition? I think the Indy paper, I think that contract was potentially going to change at midyear.

Sure, Mark. The divested mills, there were 3 mills that we divested, just about 1 million tons. Two of them were for the creation of New-Indy Containerboard. Yes, there was a 3-year agreement to purchase tons from those divested mills and with a -- its really agreed-upon ramp-down. And so we're just progressing through that, and I think it's been working pretty well in terms of the -- where we started a couple of years ago, and it goes through the middle of next year. And so we're continuing to purchase from that mill and also the third one, which was purchased by Hood Container. And those are mostly making medium, a product that we are obviously short of after selling those mills. And so we're continuing with the current plan of ramp-down, and we'll get to the final year between this summer and next summer when the final 12 months of the agreement unfolds.

Okay. And so it's a ratable ramp-down, is the way we should think about it?

Yes. It's not a cliff drop-off in volume. That works really for all supply chains, ours as well as the companies that we sold the mills to. So we designed a smooth ramp that just allows us to perform at the most cost-effective way and the best service platform we can have to our converting plants.

Okay, great. And...

The DOJ agreement expires in July of next year.

And second, in prior calls, you've given some guidance indications on free cash flow. Would those be pretty much unchanged as you're looking at 2014 right now? Or any adjustments?

Yes, I think we still feel good about our free cash flow generation capability. We had some headwinds. We had headwinds in the first quarter relative to the weather. It's hard to see us getting that back. I feel like we've got a headwind around some input costs that seem to be trending a bit higher than maybe what we had expected. But the businesses continue to run well, and so it's going to be all around the second half performance. So I feel good about -- that we are going to have another strong year of that free cash flow performance that we've talked about.

Our next question is from George Staphos from Bank of America.

I had a couple of questions, maybe for Carol or for Tom. Realizing that pricing is going to be a key driver of this, if we held pricing flat at today's level or second quarter average levels, if you prefer that, what kind of ramp-up would you be having us think about in terms of the consumer segment profitability versus the first half? The second question I had is, could you update us on the thoughts at Orsa, Tim, given the performance? It's obviously been improving. What type of ramp and what type of attack do you need to see to get Orsa back to a more profitable level? And I actually had one follow-on, if there's time.

George, this is Tom. On the pricing. The first quarter announcement, I think we showed about $5 in the second -- at the end of the first quarter. I think our AGS is up another 21, since that's the average in the second quarter. And as we exit rate out of the second quarter, we still have more realization to get in the third quarter off of that first quarter increase. So it's fully in. We announced 50. We'll net less than 50 but more than 40.

George, it's Tim. On Orsa. Yes, it's gone slower than we wanted it to, but I think we have finally started getting traction. One of the things that hasn't helped has been the market. The market's actually slightly negative year-to-date versus last year. And coupled with that, we've had a few customers that, because of market conditions and their position, they've struggled, and that's impacted us. Having said that, I feel really good about what has started happening over the past couple of months on the commercial side. We've had some capital that has started going in that is allowing us to automate some of the facilities and reduce headcount. So our costs are going to start coming in line. The mills are running well. They had a better quarter in the second quarter than in the first. And I would expect another -- we took a bit of a step-up in the second quarter versus the first, I would expect a more significant one between now and the end of the year.

Tom, just a quick one, if I could. So is there a way to size what kind of improvement, overall, the segment should be if you hold your pricing where it is? And if it's not possible to guide in that way, should we assume that most of the benefit you see, second half versus first half, is pricing? And then a quick one on MLP. You can answer this just yes or no. How significant is the question of integration of the box plants with the mills in terms of understanding the complexity in terms of whether MLP structures make sense for you or not?

I'll do the last one first. Yes.

And in terms of the Coated Paperboard business here in North America, the third quarter's going to be a significant ramp-up. We'll get price realization, as I outlined. But we had significant outages. We've had a tough first half, frankly. We had weather in the first quarter. We had outages in just about every month up through May, and we finally started to see our stride in the June month. We've got good backlogs coming out of the quarter. Pricing's headed up. So we'll show the earnings power of the business that we used to enjoy 1 or 2 years ago before we had to shut down Augusta PM#2. So we'll have a good third quarter.

The next question is from Steve Chercover from D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: Yes, my question was also on Bleached Board. So the momentum that we've just been discussing, that's the final implementation of the April price hike? Am I -- is it safe to assume that the July 1 hike had no impact, but we've got one pending for September 1, and that's presumably more of a Q4 event as well?

Yes, we're talking -- I've been talking about our first quarter announcement that we implemented in the second quarter, and there's a tail of realization in the third quarter. Some of our competitors have announced increases, either in June or more recently, and I'm not going to really speak to that on this call. But we see strong backlogs. Our backlogs are 5 weeks coming out of the Fourth of July holiday. And we feel pretty good going into the third quarter. Steven Chercover - D.A. Davidson & Co., Research Division: Great. And then also on the MLP, I guess it's more of an observation. It's safe to say that this is definitely a big-brainer as opposed to a no-brainer, but you guys won't proceed without a private letter ruling?

Yes, a private letter ruling is required. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. Because I think you could assume the risk, but then if you have an adverse decision, then it's on you. But -- okay.

We'll put it back together again.

Your next question is from Mark Wilde from Bank of Montréal.

John, I wondered if you or Carol would want to just comment on timing of the share repurchase, particularly the new program. Because you've just -- you have moved through that first program so much more rapidly than the targets you'd laid out last year.

Yes, Mark. I think this is a clear example of we embarked on something and we said, "Hey, we've got a great opportunity to provide cash back to our shareowners." We'd like to do it opportunistically. The key tenet is we prefer to buy the stock, obviously, at intrinsic value or below. And when we see a good opportunity to buy back stock, we've done so. We're continuing to generate strong cash, so we feel like it's an important part of our capital allocation strategy. And I think, looking backwards, you can see our actions. And getting the next $1.5 billion authorized is about being ready to continue to move in that direction. We're in a strong cash position, so we'll continue to work in this direction, and I think it's become an important part of International Paper's more strategic capital allocation program.

I would just emphasize what Carol said at the end. I mean, if you think about balanced use of cash and where we are with the balance sheet and our dividend, it's not policy, but we told the shareowners about the dividend, 30% to 40% of free cash flow, because taking share buybacks is part of the way IP deploys cash and returns cash to shareowners.

Okay. The follow-on I had was just around kind of bulk margins in Containerboard and Uncoated Free Sheet. On the Containerboard side, you talked a while back about $200 million in kind of further optimization in that business. Maybe you can give us an update on where you're at with that and what the timing is? And then also what the target would be for, ultimately, for margins in the North American Printing Paper business.

Mark, this is Mark Sutton. On the Containerboard piece of that question, and then I'll turn it over to Tim on Printing Papers. We called it an optimization plan, and we never plan to report in the detail that we did on synergies, but we are making really good progress. If you think about the performance of the business in light of this sort of flattish environment that we've had for demand, a good bit of those results are internal improvements that are part of the optimization plan. We've seen a big step-up in our ability to get our converting operations ready to perform at their full capability, and I'll just give you a couple of examples. Once we put the newly acquired mills we got from Temple onto our common supply chain system, we're really able to take cost out of our supply chain on the freight and logistics side but also in the performance inside of our converting operations. So we are operating -- almost on a monthly basis, we're setting new best-evers for waste management and the throughput and other metrics we use to measure productivity, are now on a much steeper ramp of improvement. And a lot of that has to do with sort of running this large mill system in the most efficient way possible from a total delivered cost standpoint, not just a mill cost standpoint. So we're pleased with the progress against that $200 million. And not a lot of it was based on a great market, so the volume not materializing isn't really hurting us. It was based on running better and reducing cost in our mills. We've had one whole set of outages that we've done on the new mills, and we've implemented some of the changes. We've got to do another round of that to get some of the cost reduction projects fully implemented. And I think we'll be definitely on track to meet and probably exceed our optimization target. I'll turn it over to Tim.

On the Printing Papers side, it's probably difficult to forecast margins in a declining market. Having said that, we feel pretty good about where we are. We've got 2 specialty mills that we're still working on cost optimization opportunities as well as mix opportunities. And we've got 2 large commodity mills where we're doing the same thing. So there's -- the bulk of it's going to come from cost and mix, and we'll have to see what demand does. But clearly, with Courtland behind us, we move up to mid- to slightly above mid-teens, and then we'll have to see where that goes for 2015 as we look at market declines for the rest of the year. But there's still good opportunities around changing what runs through our mills and continuing to refine that. And there's very good opportunities on the cost side.

Our next question is from Debbie Jones from Deutsche Bank.

I was wondering if you could comment on the 430,000 tons or so at Valliant that you could hypothetically bring back online, and kind of the decision-making process around that. And then like what the costs associated would be and the benefits that you would expect.

Debbie, this Mark. First of all on Valliant. We haven't made a decision on Valliant. We've talked about it on prior calls as a way to potentially optimize our capacity. And as I mentioned earlier, Valliant's a very valuable asset as we look at our overall business. We talked earlier on the call about the divestiture of 1 million tons of containerboard. We don't talk about it a whole lot, but our European and other international box businesses use over 2.5 million tons of containerboard, and that's part of that global channel selection I talked about. We've increased, over the last 4 years, by over 0.25 million tons our shipments from IP mills in the U.S. to our international box plants. There's more opportunity there. We still purchase over 1 million tons in the international market from third-party producers. We've also got grades inside of our Containerboard system that are very attractive, but they're not containerboard, and that business has grown. Most of those products go into the building materials market. And so when you look at all the moving parts, a machine like Valliant in a mill that's already running with an efficient use of fixed cost would be a potential winner for our system. So when and if we make a decision, we'll definitely come out and communicate it. But it's all wrapped around making the containerboard and some of these other specialty products that we need to serve our customers. So Valliant's an existing machine, as you know, so the cost to bring it back up is part getting things maintained and back in shape to run and then part the shutdown several years ago, and there's some cost efficiency that we can do if we were to start it up to run it at a lower cost, better energy usage and so forth. So stay tuned on that. We definitely are looking at Valliant, but not only Valliant. There's other opportunities we have in our system to continue to optimize it.

Okay. And my follow-up just relates to your -- what you referenced. I just was wondering if you could comment on the overall health of demand in the regions where you compete. And then I think there've been some pricing increases for containerboard, and whether or not you expect that to roll through on your corrugated box pricing.

So on regional corrugated box demand, I think we made some earlier comments. I think John mentioned the European business. We're outperforming the market in our European business, which, again, is Western European kind of industrial markets and then the Mediterranean region for agricultural markets. And we're seeing slightly better demand in that region for the market, and we're doing a little bit better than that. There has been some price announcements and movements on recycled linerboard in Europe. That's still yet to be determined. Some of those were just announced. But overall, we've seen stable pricing. Some isolated cases of prices moving up and down in a specific country or a specific region, and that tends to be directly related to, more or less, supply showing up at any moment in time. But overall, I'd say demand in our global regions -- I think Tom mentioned what's happening in Asia, growth, but not quite as much as we had seen in the past. And Tim talked about Orsa. But stable demand in most of the regions, and pricing is relatively stable. So Corrugated Packaging business is, obviously, one we like, and we're looking forward to seeing further improvement.

Our next question comes from the line of Adam Josephson from KeyBanc.

Carol, just one more follow-up on the MLP issue. Setting aside the other issues you discussed, which I know are important, which you can't practically set aside, do you have a view regarding the multiple uplift that would come from dropping some of your virgin mills into an MLP structure? And whether the MLP multiple premium, over your current multiple that exists today, is likely to persist for years into the future?

So as we think about what really is a multiple expansion, it really has to be something underneath that's value-creating, that changes the value of the business. And the one that is clear is the tax advantage, if you can capture it and hold it and you don't lose it in some other way. So clearly, in a partnership arrangement, it's a pass-through, so you eliminate one level of taxation. But that's a price that's specific, that you can quantify. Once again, the key issue is, is can you maintain that price and not lose it to other complexities or other places that, that price is lost? Outside of that, I probably wouldn't comment on relative to multiple or margin -- or multiple expansion in the rest of the business.

Right. No, sure. And Mark, just one on containerboard export markets. I know you were just talking about Europe specifically, but can you characterize the state of the export markets? And are they appreciably different than they were 3 months, 6 months, 9 months ago?

I would say not appreciably different. There is -- we have seen some additional supply, mostly from the U.S., in some markets, which is not uncommon. And I think we've mentioned it before, probably related to a little bit of the capacity start-ups. But other than that, we see pretty stable markets. Most of what we export is kraft liner, and those segments have done most of the switching between recycle and virgin that they can do. So they tend to buy because they need it. And so not a big, significant difference in any of those time increments you mentioned.

Let me wrap up here. We had a solid quarter. We feel good about the quarter. We think of success as a journey at International Paper. We're far from done. We're generating strong, sustainable free cash flow. And I think, importantly, for all of our shareowners, we're deploying that cash in a way to maximize shareowner value. And as I said before with the Q&A, all-in as we look to the future, we like what's ahead. We're ready for both the opportunities and the challenges. So thank you.

So thanks, John, and thanks, again, to all of you for taking the time to join us this morning. As always, Michele and I will be available after the call, and our phone numbers are on Slide 20 of the presentation. Have a great day.

Thank you. And this does conclude today's conference call. All lines may disconnect at this time.