Mark W. Kowlzan - Chief Executive Officer and Director Richard B. West - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Paul T. Stecko - Executive Chairman Thomas A. Hassfurther - Executive Vice President of Corrugated Products Unknown Executive -

Chip A. Dillon - Vertical Research Partners Inc. Phil M. Gresh - JP Morgan Chase & Co, Research Division Anthony Pettinari - Citigroup Inc, Research Division Mark A. Weintraub - The Buckingham Research Group Incorporated Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division George L. Staphos - BofA Merrill Lynch, Research Division Albert T. Kabili - Crédit Suisse AG, Research Division Philip Ng - Jefferies & Company, Inc., Research Division Joshua L. Zaret - Longbow Research LLC Steven Chercover - D.A. Davidson & Co., Research Division Scott Gaffner - Barclays Capital, Research Division Joe Licursi - BMO Capital Markets Canada John Charles Tumazos - John Tumazos Very Independent Research, LLC

Thank you for joining Packaging Corp. of America's First Quarter 2012 Earnings Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. [Operator Instructions] I will now turn the conference call over to Mr. Kowlzan, and please proceed when you are ready.

Good morning, and welcome to Packaging Corp. of America First Quarter Earnings Release Conference Call. I'm Mark Kowlzan, CEO of PCA. And with me on the call today is Paul Stecko, Executive Chairman of PCA; Tom Hassfurther, who runs our Corrugated business; and Rick West, PCA's Chief Financial Officer. Thanks for participating in this morning's call, and after the presentation, we'll be glad to take any questions. Yesterday, we reported first quarter net income of $18 million or $0.18 per share, which included a noncash after-tax charge totaling $23 million or $0.24 per share from an amendment of our 2009 federal income tax return to reallocate gallons between alternative fuel mixture credits and cellulosic biofuel producer credits. This charge is a reversal of income that was previously reported as a special item and not included in our recurring results and is further detailed in the notes to our consolidated earnings results included as part of the press release. Excluding this charge, adjusted net income was a first quarter record, $41 million or $0.42 per share compared to the first quarter of 2011 adjusted net income of $39 million or $0.39 per share, which excludes a $2 million or $0.02 per share asset disposal charge. The increase in adjusted net income was driven by higher containerboard and corrugated products volume of $0.09 per share; lower cost for energy of $0.04 per share; and lower recycled fiber cost of $0.02 per share. These increases were partially offset by lower export containerboard prices of $0.03 per share; and increased cost for depreciation of $0.03 per share; transportation, $0.02 per share; labor costs, $0.02 per share; and also higher interest expense of $0.02 per share. Net sales were a first quarter record, $671 million, up 7% compared to the first quarter of 2011 net…

Thank you, Mark. In the first quarter, PCA generated cash from operations before working capital changes of $98 million. Working capital increased by $63 million driven by about $45 million in beginning-of-the-year payments, including incentive bonuses and our semiannual interest payments on our notes, increased inventory levels and other normal seasonal changes in working capital. Capital expenditures were $35 million during the quarter. We paid our quarterly common stock dividend of approximately $20 million, and repurchased 781,000 shares of our common stock for about $29.75 per share or $23 million. As of March 31, 2012, our diluted shares outstanding were 97.4 million shares. On March 16, 2012, we acquired Packaging Specialists, a corrugated products manufacturer located near Pittsburgh, Pennsylvania, with sales of about $50 million in 2011. At quarter end, we had $84 million cash on hand, and our total long-term debt, excluding capital leases, is $805 million. During the first quarter, no federal cash tax payments were made and no alternative fuel mixture credits or cellulosic biofuel producer credits were used, as our first federal tax payment is not due until April 15. With the amendment of our 2009 tax return, we have estimated remaining fuel tax credits totaling $42 million to $144 million. This amendment should also allow us to reduce our 2012 federal cash taxes well below our original estimate of about 20%. The final amount of the available fuel tax credits and the final cash tax rate is contingent upon the conclusion of the IRS audit currently underway. Finally, we are very pleased to report that our application for an energy investment grant from the U.S. Department of the Treasury for our Valdosta, Georgia energy project was approved. And on April 11, we received $57 million in proceeds. With that, I will turn it back over to Mark.

Thank you, Rick. Looking ahead, our cost per annual maintenance outages will be greater in second quarter than in the first quarter, with less tons produced and higher amortization of repair cost. This will reduce earnings by about $0.03 per share compared to the first quarter. We also expect slightly higher cost for transportation and recycled fiber. Higher corrugated product shipments and a richer mix are expected as we move into a seasonally stronger period. Energy usage should be lower with normal weather and natural gas cost, particularly in our box plants, will be lower. Considering these items, we expect second quarter earnings of about $0.45 per share. With that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on this call constituted forward-looking statements. These statements were based on current estimates, expectations and projections of the company, and involve inherent risks and uncertainties, including the direction of the economy and those identified as risk factors in our annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in these forward-looking statements. With that, operator, we'd be glad to take any questions.

[Operator Instructions] I am showing our first question comes from Chip Dillon from Vertical Research.

I was wondering if you could tell us a little bit about the thoughts behind switching -- reversing, if you will, looks like roughly almost half of the cellulosic biofuels category of credits back into the alternate fuel mixture credit. I know that there's about a 30% higher recovery with the cellulosic, at least if you have the confidence that you'll be able to get it. And I'm supposing, I guess, either maybe your depreciation analysis going forward or maybe even some political uncertainty could have been part of it. But I'd love to hear why you made that switch.

Rick, why don’t you go ahead and get into the details?

Yes, Chip. From the 2 credits, you referenced the 30%. Of course, the benefit from the cellulosic biofuel producer credit after tax is $0.62, and the alternative fuel mixture is $0.50 per share, so it's not a total difference of that amount. But basically, it was a very complex issue. There were a number of factors that we considered, both from a tax and a benefits utilization strategy. It's really not something we'd like to get into in the call, and we discuss, normally, our tax strategy. As I said earlier in the call, we do have the benefit of now being able to take the credits in a more rapid basis, and that our cash tax rate could go down significantly from 20%, much lower, as we go through the year. But we need to see what's happening with the IRS audit underway before I can give you a definitive on a number of things, including the range that we gave, as well as what the cash tax rate would be.

Yes. Another way to look at it -- Chip, this is Paul. We basically reduced the range from 60 to 160 to, say, 40 to 140, so the number may not even change when we get done with the whole thing. It's just the range that's changed. And that thing is still a moving target. And as Rick said, until we get the audit completed, we're not really going to offer any more information on that subject.

Totally understand. And then just a quick follow-up. When you look at the -- this is becoming a routine, where you guys seem to be doing much better on the volume front. I know you're adding 2 conversion and you just mentioned the acquisition, but could you talk a little bit about what you see as the reason you guys are growing so much faster than the market, and also any thoughts as to why the market looks like it's actually slowed down a little bit versus GDP compared to, say, what were seeing a year or so ago?

Chip, again, when you look at our strategy over the last 2 years to enhance 5 of our box plants and help take care of their capability to service customers, that was the $80 million over 2010, 2011 at 5 of the plants. But also, Tom was very successful in executing 3 acquisitions last year, and then the one that we just announced. So when you think about the capabilities from a revenue side of the equation that the box plants now offer, it's quite a different footprint. So Tom, if you want to add and elaborate to that.

All right. Yes, Chip, let me just add a little clarity to this thing and go back in time a little bit and refresh your memories about what our strategy was and continues to be, starting with the fact we want to become 90% integrated. And we wanted to do that 3 different ways: one was organic growth; the other one was strategic capital investment, and that was specifically in plants where we were at or near capacity; and the third way was through acquisition. And of course, we talked about the acquisition. And we made 4 acquisitions in the past 15 months, and that's resulted in approximately 3% additional growth for us. We also completed much of the strategic capital investment, currently north of about $40 million, and that of course relates to capacity needs driven almost exclusively by customer demand. And then the remaining is the organic growth, which we've talked about for a long time. It's a long-term strategy, requires a very long sales cycle. It involves hundreds, maybe thousands of accounts that have allowed us opportunities to grow. They're either growing or we've got opportunities with them to add value or earn a larger share of the market. And so that's -- we continue to do that. And of course, I'd be remiss if I didn't give our people a lot of credit for executing a very aggressive plan, and they're doing an incredibly good job. So that's where we stand with that. Relative to "Is the market slowing down, and why is it not tracking GDP exactly?" well, if you follow any of the trends that have gone on, and certainly FBA statistics and that sort of thing, you know that we kind of separated from GDP as an industry quite a while ago, and track probably more closely nondurables today than we do anything else. But I think we're still fairly bullish on what's going on with the economy. There'll be some ups and downs, and I still say that customers watch their inventories very, very closely. So we're seeing a few more swings one way or the other that maybe we wouldn't see in a more traditional economy.

And Chip, this is Paul. Let me just add one thing to what Tom said. I think he put everything in pretty good perspective, but when it comes to organic growth, we have outgrown the industry for over the last decade continually. And we think the reason is that our basic sales proposition is we sell value, not price. And if you can provide a customer more value than anybody else, we think that's what makes you successful. And you can provide value in a lot of ways. Now we can spend 2 hours on talking about how you provide value. But that more than anything else, in my opinion, is what's driven our success with regard to organic growth.

Our next question comes from Phil Gresh from JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: So just on the maintenance cost for the quarter. Obviously, it's up $0.03 from the first quarter. As we just think about the rest of the year, I know that sometimes there's the amortization cost that continues throughout the year. So I was just trying to calibrate how much we would add back, given that there's no more downtime for the rest of the year. Is it -- would it be the full $0.03 plus the first quarter amounts? Or is there amortization we need to factor in as well?

Rick, why don't you go ahead and get into the details?

Yes. You really had the right point with the amortization of the repair cost. That is the one thing that you will continue to have. And so when you look at the second quarter to the third quarter, you will continue to have the amortization of repair cost, and it will go up from the second quarter. So net-net between the second quarter and the third quarter, I can't give a number, but you will have a higher repair cost compared to the second. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay, that's helpful. And then just on the energy projects, I think, Mark, you had mentioned in the last call that it is possible you might see the saves exceed the $0.26 that you talked about. I just want to get a sense of how that's progressing at this stage.

Everything we've talked about as far as -- I think we summarized and said all in, net about $0.26 benefit. We said $0.21 from the direct energy pieces themselves, and then with the increased volume that we added back net of the capitalized interest that was netted against that, we still feel comfortable that, that 26% -- $0.26 per share number for the year is still good. Everything we saw in the first quarter coming out of the Valdosta and Counce indicated that the boilers and turbines are doing exactly what we expected and have enhanced not only the energy picture but our capabilities to just run the mills more effectively and efficiently. So we still feel good with the numbers we've talked about.

We're comfortable with the number as we run this equipment. I guess our feeling is there may be a little more upside than downside to that number, but only time will tell. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay. I just had to say, on the export markets, you talked about stabilizing pricing early in the first quarter, but you didn't really talked about anything about it picking up here at all in the second quarter. So I just want to know what you're seeing out there for the export markets in general. And obviously, there was a mill closure in Europe as well, so wondering how that might factor into your thinking about the opportunities on the export market.

Well, from a volume point of view, again, we said we're pretty well flat on volume. But Tom, do you have anything to elaborate on what you're seeing?

Yes, I think all I can tell you is, Phil, we've -- we have advised our customers that prices will be going up in the second quarter. That's all I can tell you on the -- on that side of the business, and I think it's driven by a lot of different normal factors.

I'm showing our next question comes from Anthony Pettinari from Citi.

Just a follow-up on Chip's question on volumes. You referenced the 90% integration level goal. Are you at about -- or is it safe to say you're about 80% now? And in terms of the 90% goal, when do you think you can get there? Is that a 2-year goal or a 3-year goal?

Currently, we're at that 81% level with the -- again, as the mills have continued to perform well, that's been the factor there. But the goal would still be to go out to the end of 2014, 2, 3 years and with acquisition activity that we have in growing the organic side of the business to continue to achieve that 90% target. So yes, that's still the plan.

And in terms of a budget or a range that you would set aside for box plant acquisition, is there any kind of color that you can give, given the 3 that you picked up recently?

On a range per year of spending?

Yes, yes, over the next couple of years.

Well, just to go back. Last year's 3 acquisitions, we spent $57 million. And so around $50 million a year would probably be a good number, on average.

Yes. That's been our historic average if you go back a decade, about $50 million in box plant acquisitions. Now that can vary from 0 to 100, depending on the year. You could have a year when you really can't find anything that really fits your model but the next year, you'll find a lot. But I think it would average $50 million a year going forward, and that's not cast in concrete but that's kind of our calibration.

Our next question comes from Mark Weintraub from Buckingham Research.

Just one clarification. When you were talking about the downtime, costs, maintenance, et cetera, third quarter versus second quarter, I think, Rick, you focused on the repair expense. That would go up a little bit. But presumably, you don't have the 25,000 tons of lost production, and so you have that as a positive, 3Q to 2Q. And so if you net those 2, I would assume that your maintenance/downtime costs would be lower in the third quarter than the second quarter. Is that a fair assumption?

That is fair. We would not have the norm in the second quarter. We have the lost production plus you have the increased cost while you were down, as well as starting up and shutting down the equipment. So in the third quarter, you would not have the first 2 items, but you would have a higher amortization of annual outage repair cost in the third quarter compared to the second quarter.

And Mark, just to put it another way, the highest headwinds with regard to maintenance is in the second quarter this year. Those headwinds subside in the third and fourth quarter because we're not going to -- no downtime related. As you've said, the only point was it all doesn't go away because we amortize shutdowns over the rest of the year after they occur. So you can't take everything out but you take out the piece that you just said. So from an earnings point of view, and we don't give guidance more than one quarter in advance, the situation gets better third quarter over second.

Okay. And maybe I'm jumping ahead too far here. But -- so kind of order of magnitude about a $0.04, $0.05 -- $0.04 type of improvement, 3Q versus 2Q?

Yes. We only give guidance once and we try to be pretty disciplined about only going out one quarter at a time.

Sure. And just one quick other one. You continue obviously to generate lots of free cash flow, particularly as your cash tax rate is going to be even lower. You have the box plant acquisitions. Is much of the remainder going to be focused on share repurchase? Or could you potentially even contemplate revisiting the dividend again sooner rather than later?

I think, as we've said in the past week, we continue dynamically to look at where our cash needs to be deployed, whether it's a balance of dividends, share buyback and reinvestment in the assets and the acquisitions. So we'll continue that process to evaluate as we go quarter to quarter and look at our cash accumulation and cash position. So again, that just remains a dynamic discussion amongst ourselves.

Yes. If somebody tries to support [ph] it, we think $50 million is a number for acquisitions. I mean, we're very diligent in the way we pursue acquisitions, because in our business there are very high return but very high risk, depending on a lot of factors, so we take our time. But that just leaves dividends and share buyback. And share buyback is the most obvious vehicle because dividends involve a longer period of time. You have to be sure that you can sustain that dividend. So both are always in our mind. But obviously, we had a $150 million share buyback authorization. We're proceeding to spend that at an appropriate rate.

Our next question comes from Mark Connelly from CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Mark, 2 things. So you mentioned higher OCC costs this quarter, but are you seeing anything picking up in virgin fiber cost? We're starting to see wood products cost rise. In some regions that helps, sometimes it hurts, so I'm just curious whether you're seeing any movement on your cost on the virgin inside?

No. As a matter of fact, the virgin fiber side, especially in the South, remains really flat. And so we haven't had any of the weather extremes in the South this past -- from the fourth quarter going into the first quarter. So virgin, I guess we've talked about that before, I'd say it's trending pretty flat. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Do you have a view that if lumber does start to pick up in the South whether that's going to actually help you or hurt you?

Because of the residual chip volumes that would become available on the market, that would help. We've seen some of that activity actually in Michigan at our Filer City mill, with some sawmills producing more through the fall into the winter. And so there were more chips available on the market. So we've seen some of that activity starting to take place.

Mark, in the lumber market, they cut big trees as opposed to smaller pulpwood trees, and they're going to make residuals as they cut those trees. And that waste wood has got to find a home, and if that -- and we're hoping that the wood products business does pick up because at one time, for example, at our Counce mill, we got 1/3 of our wood supply from sawmill residuals. We're down now to maybe 10%, 12%. And so when and if it picks up, we think it's a plus. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Okay. Okay, that's helpful. Just one last question. You mentioned the rise in transportation cost. Is that making you think differently about the inventories you want to carry?

No. Right now, the diesel is always a factor in the transportation cost. But also with the 4 acquisitions we have behind us and also the new Reading plant, the question of inventories and how we manage inventories is again dynamically changed in how we service the bigger fleet of box plants. So I think, going forward, our inventory model will remain somewhat the same, but we do need to consider how we service the additional plants we have.

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

I wanted to piggyback actually off of Mark's question there. As you look at the acquisitions that you've made and now the most recent one, should we assume that at least initially you have a somewhat more challenging logistical situation to make sure that you keep the customers that you acquired through these acquisitions? And as we think -- take a step back, think more broadly about the acquisitions that you've made, is it possible to perhaps peg what kind of accretion, either to earnings or cash flow returns, they can have when we look out, say, a year or so?

On the first part, from the logistics and how we service the customer base, no, that's not an issue. As a matter of fact, in many cases, our capabilities are enhanced with a bigger footprint. On the second question, Rick, do you want to talk about the accretion?

No, that's not something we would get into, Mark -- I mean, George, trying to isolate profitability by an individual unit.

Would it be fair though, Rick, that you would have made these acquisitions with the assumption that it's enhancing to whatever relative level of return or free cash flow generation you had previously? Would that be fair?

Well, I think you can look at the volume. We said with the volume, we were up 8.3%, and without acquisitions, we would have been up 5.4%. So you're getting the throughput of the mills plus the box plant shipments of about 3%. So intuitively, those acquisitions are generating additional earnings for us. We just don't want to get into the specific numbers.

And George, as I said earlier, we view this endeavor as a high-return, high-risk endeavor. High risk for the reasons you elaborated on, but high return for a lot of reasons, if you can make sure that you're not going to be encumbered by some of the potential downfall of making these acquisitions. And that's why we're very deliberate in the way we approach this. And so we've been extremely pleased with the returns we've gotten on these. That's not to say over the last 15 years we haven't been burned a few times for the reasons you elaborated on, but overall, we've been pretty successful in this regard. And Tom, I think you want to say something.

Yes, George, this is Tom. I'd like to also add that in order to mitigate those risks, as I've mentioned, one of our key criterias in the acquisition process is a great management team and very talented people, and to make sure that they stay on board. That really helps mitigate that risk of losing customers or anything like that.

Okay, I appreciate the color there. If we can switch topics to maintenance and the projects that you have underway. One of the things that you mentioned as part of the second quarter program is maintenance of the boiler walls. And I remember from one of the last calls -- perhaps incorrectly so, but I think this is true, that you're accelerating to some degree the maintenance on boiler walls. If that's true, can you elaborate a bit on that? And if it's true, should we expect perhaps a bit more than historically normal maintenance expense during the first half of the year on a going-forward basis?

The work that's underway right now at Counce, again, we were taking advantage of the very fact that we had the annual shutdown and some of that work could've been done over the next few years. But again, we had the ability to execute that work now and get that behind us. So in that regard, it's an isolated opportunity to upgrade and update the water wall on the boiler, so...

Just to amplify on it, every 6 years, as Mark said, we have a major turbine overhaul and we decided since the turbine was going to be down 16 days, why spread the boiler work over a couple of years? Hide the boiler work behind that turbine downtime. And that, in the long term, eliminates mill downtime and you save a bunch of money, although -- as you do the repair all at once. And so we took advantage of that fact that this only comes up once every 6 years, and we took advantage of it.

Got it. My last question, I'll turn it over. Can you comment at all about early second quarter volume trends? If you'd mentioned before, I missed it.

On the first 8 days of cut-up [ph] for the month, we're seeing bookings up 10% and shipments up 6%, so all in all, the trend continues with what we saw in the first quarter, so we're still feeling pretty good about where our business is.

Our next question comes from Al Kabili from Credit Suisse. Albert T. Kabili - Crédit Suisse AG, Research Division: I guess, Mark, maybe you could talk about -- you mentioned a richer mix that you see in this upcoming quarter. Is that just seasonality, or is there something else driving that? I wonder if you could just elaborate a little more on that.

Yes. That's pure seasonality taking place. So again, we see this every year. Albert T. Kabili - Crédit Suisse AG, Research Division: Okay. And then the second question I had, along the export markets, you mentioned you're telling your customers price increases. Is that across all the major geographies or is that primarily Europe? Or is that spread across Latin America, Asia as well?

Well, again, in general, we told our customers in the export market that prices will be increasing in the second quarter. And that's really all we want to comment regarding pricing.

It does vary by market, by geography. And we're really not going to get more specific than that. We give that information to our customers. And that's always been our plan, to share that with customers and go no further. Albert T. Kabili - Crédit Suisse AG, Research Division: Okay, fair enough. And then also, relative to the growth rates you're seeing, is there any particular end market that stands out directionally, one way or the other, that you're seeing? Or is it pretty broad-based in terms of the end markets and in terms of your shipment growth?

We continue to see a broad-based growth across our footprint in North America. So again, it's nothing in particular. All of our segments are continuing to move in the right direction.

Our next question comes from Philip Ng from Jefferies & Company. Philip Ng - Jefferies & Company, Inc., Research Division: Production levels were actually very strong during quarter. I would imagine you're obviously benefiting from some of your recent investments. But what's a good run rate for production capacity going forward? I know historically 1Q has been little lighter.

Yes. We don't get into forward quarters of production. So again, I think if you know what we've produced in the first quarter and what last year was, so again, I think that's all we want to say about the quarter.

We basically run to demand and that will determine our production level. The only thing that Mark did said earlier is that at the end of the second quarter, all of our maintenance outages will have been completed for the year. And -- but again, we don't -- we run to demand and we don't give projections more than one quarter out. Philip Ng - Jefferies & Company, Inc., Research Division: But I mean, historically speaking, since most of your maintenance is done in the first half, if demand is there, production is usually a little stronger in the back half, right? Is that fair?

That's very fair. Philip Ng - Jefferies & Company, Inc., Research Division: And then a question for Rick. The CapEx for this year, I think it's in that 1 10 ballpark. Is that sustainable over the next few years? And do you have any other major projects on tap?

We do not comment on CapEx but one year in advance. That's been our historical norm, 1 10, but we'll have to look at it each year. And that's all I could add on that, Phil. Philip Ng - Jefferies & Company, Inc., Research Division: Okay. And then just one final question on the inventory. It seemed a little higher 1Q than years past. It sounds like you're taking a little more downtime and you're expecting strong demand. One, is that the biggest reason? And two, is the expectation for inventory to come down over the next few quarters? I just want to get your view on the inventory level for the industry.

As usual, we had the shutdowns planned for the first and second quarters, so it was in our best interest to build inventory and plan to take care of and service our box plants as needed. So the 11,000 ton increase was actually necessary to take care of our business. So other than that, we also, as I'd mentioned earlier, with the new acquisitions and the new Reading plant, 5 additional plants to service, so nothing's changed there. Philip Ng - Jefferies & Company, Inc., Research Division: Okay. I just wanted to get your thoughts on the inventory level for the industry.

No comment. We don't comment regarding that.

Our next question comes from Joshua Zaret from Longbow Research.

A quick question. With the huge consolidation trend we're seeing, 4 major players of the past now involved in consolidation, is that benefiting you in terms of customer churn and people coming your way? Are you seeing anything in that direction?

The only thing we'd offer on that is that every time anything happens in the industry, there are pluses and minus. And one plus of it is that if 2 people got together as a result of a merger, and they were the 2 suppliers to a company that wanted to have 2 different suppliers, then that company, the buyer, would have to seek another supplier because the 2 suppliers they had now became one supplier.

Right. That's what I'm getting at. So is that benefiting you?

That benefits us. That's correct.

Okay. And then to change quickly, can you remind us what percentage of your box shipment and market is agriculture?

Tom, do you want to take a shot? It's a low number.

It's a very low number. We're not very high in ag.

Okay, that's what I thought. And so then the final question, when you're purchasing your corrugated [ph] box plants, is there a theme in terms of end markets that you're focusing on, or technologies or anything in that respect?

No, not really. If you really look at our spread of business, and I think that's what gives us some tremendous strength, you're talking about thousands and thousands of accounts spread over all sorts of different industries. And we try to obviously pick the winners in those industries if we possibly can, because they're going to have the best opportunity to grow. But with regard to acquisitions, it's more built around relationships, their ability to add value, how well they fit into our model. Are they willing to do the hard to do? Have they earned the right to have that long-term reputation with the customers? And of course, are those customers in industries that are going to survive? I mean, that's obviously one of the things we take a look at. But for the most part, if there's -- any of those acquisitions, their customer base is spread very much like ours is.

Our next question comes from Steve Chercover from D. A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: I was surprised it took so long to get to the question as to the implications of the recent consolidation. And I heard your answer. Does the consolidation spur you to expand to any U.S. geographies where you're not currently exposed?

We've said for a long time we're in every major market, except the Pacific Northwest. And so we don't feel the need to be in every market, in that we're not in one because we're geographically disadvantaged and so far away. So we look for box plants that, as Tom just elaborated on the detail, meet our criteria and not generally focus on a specific geography where we need to be. Steven Chercover - D.A. Davidson & Co., Research Division: [Operator Instructions] I'm showing our next question comes from Scott Gaffner from Barclays.

I was just hoping if you could dig a little bit deeper into your response to the 2Q positive mix shift. You mentioned seasonality, but does seasonality drive higher-value products? And if so, what are we talking about here?

The seasonality does drive some of the higher-priced products, that's true, and demand starts to typically starts to ramp up a little bit. And that's why if you look at our comparables, last year, we were up. This year, we're saying we're going to be up again. That's pretty much the trend.

Okay. And then looking at the transportation cost, it's been a headwind all of 2011, obviously starting off again as a headwind this year. I think before you talked about 50% of your shipments are rail versus truck. Is there anything that you can do to sort of manage the outbound transportation cost?

Well, again, because of the diesel factor, you have your trucking and your rail available and you optimize that mix. And so on any given week, any given month, it's an optimization question on how you take advantage of that.

You misquoted, you misquoted us just a little bit. I think it's good that we correct that. 50% of our shipments are roughly truck/rail that's coming out of our mills. Out of our box plants, it's virtually 100% truck. So it's very skewed to trucking when you throw in the box plant. You can't ship boxes by rail. The rail system doesn't operate that way. So most of our shipments are trucked, and that's why diesel is such an important variable.

And the one thing on the box plant side, Scott, is that we can -- we obviously focus very much on cubing the trailers, because we can't weight out trailers in the box business, so you focus heavily on cubic miles.

Our next question comes from Stephen Atkinson from BMO Capital Markets.

It's Joe Licursi. I don't know if you've covered this, but when you talk about the Counce turbo generator overhaul, do you expect any benefits, like in terms of additional production or lower cost, like incremental to what you're planning?

No, this is just a 6-year routine overhaul, with the turbine going through all its maintenance requirements just to maintain it.

Just like your car, when you overhaul, you hope it runs good for another 6 years.

Okay, so it's just maintenance, right?

Yes.

Our next question comes from John Tumazos from John Tumazos Very.

In the $0.45 guidance for the second quarter, what is your estimate of natural gas prices? And are there any other ingredient price estimates of note?

What we're seeing with natural gas, what we estimate is that natural gas remains flat at that low level we're currently experiencing.

And John, we don't use much gas in our mills to speak of, but we do get a big savings in our box plants because most of our box plants' boilers are fired with natural gas, so the bulk of the savings will be in the box plants, not the mills.

So does flat mean the same price and volumes used as the first quarter or as a year ago?

Well, again, you're going from winter season into a spring, summer season period. So typically, your usage volume does fall going into the warmer climate, warmer season. One other thing, we did have some physical contracts purchased out in advance but those did expire in the first quarter, so we will get a little bit of benefit from the fact that we'll be buying at the market price now versus the physical contract price. But it's not a huge number.

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

Quick one. We hear a lot about manufacturing perhaps seeing a renaissance here in the United States over the next number of years, given what's transpired in the emerging markets, given the cost position. Are there 2 or 3 concrete tangible evidences from what you see that that's in fact happening? Or from your vantage point, it's a lot of discussion, but really without a lot of reality at this juncture, in terms of manufacturing we're covering here, relative to where it had been in the U.S.

Yes. George, let me take that. We have some tangible results but we're not going to share them with our competitors on this call. But there's a lot of tangible examples have been published in the Wall Street Journal over the last 2 months. So I think there's a lot of anecdotal evidence, very specific, that, that indeed has started to happen, and we certainly hope that it continues.

Paul, if that's happening, how long do you think it takes for the supply chain around manufacturing to build out, right? If manufacturing, say, of washing machine -- I mean, that's not the right example, is improving, your fabricators, your tool and die guys, all these guys have to start building back up again. Is that a 1-year or a 3-year phenomenon? Or how would you think about it?

The short answer is, "I don't know." I've never manufactured washing machines. But there are better people that you can ask than us. We simply don't know.

[Operator Instructions]

With no more questions, thank you for joining us today. We look forward to seeing you at the next call. Have a good day.