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

Mark A. Weintraub - The Buckingham Research Group Incorporated Chip A. Dillon - Vertical Research Partners Inc. Mark Wilde - Deutsche Bank AG, Research Division Anthony Pettinari - Citigroup Inc, Research Division George L. Staphos - BofA Merrill Lynch, Research Division Phil M. Gresh - JP Morgan Chase & Co, Research Division Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division Joshua L. Zaret - Longbow Research LLC Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division Jason Marcus Albert T. Kabili - Crédit Suisse AG, Research Division Steven Chercover - D.A. Davidson & Co., Research Division Philip Ng - Jefferies & Company, Inc., Research Division Scott Gaffner - Barclays Capital, Research Division

Thank you for joining Packaging Corporation of America's Third Quarter 2012 Earnings Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a Q&A session. I will now turn the conference over to Mr. Kowlzan, and please proceed when you are ready.

Good morning, and welcome to Packaging Corporation of America's Third 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 call this morning, and after the presentation, we'll be glad to take any questions. Yesterday, we reported third quarter net income of $40 million or $0.41 per share, which included after-tax debt refinancing charges of $13 million or $0.14 per share. Excluding these charges, earnings were $53 million or $0.55 per share compared to third quarter 2011 earnings of $43 million or $0.43 per share. Net sales were a record $723 million, up 8% compared to third quarter 2011 net sales of $671 million. The $0.12 per share earnings increase, excluding special items, was driven by higher containerboard and corrugated products volume of $0.07; and lower costs for energy, $0.05; recycled fiber, $0.04; and chemicals, $0.02. These items were partially offset by higher costs for labor and benefits, $0.03; interest, $0.02; and depreciation, $0.02. Excluding special items, net income for the first 9 months of 2012 was a record $142 million or $1.45 per share compared to $122 million or $1.21 per share in 2011. This earnings increase of $0.24 per share was driven by higher containerboard and corrugated products volume of $0.23; lower costs for energy, $0.14; recycled fiber, $0.08; and chemicals, $0.05; and a lower share count from share repurchases of $0.04. These items were partially offset by higher costs for labor and benefits of $0.09; depreciation, $0.07; interest, $0.06; transportation, $0.04; and lower export pricing, $0.05. Year-to-date net sales were a record $2.1 billion, up 7% over 2011. In summary, we had a…

Thank you, Mark. In the third quarter, PCA generated cash from operations of $102 million. Capital expenditures were $25 million. We paid our quarterly common stock dividend of approximately $24.5 million and repurchased 253,000 shares of our common stock for about $32.50 per share or $8 million. As of September 30, 2012, our diluted shares outstanding were 97.3 million shares. Cash tax payments of $2 million were made, and fuel credits of $22 million were used to offset federal taxes. We have estimated remaining fuel tax credits above $279 million. The final amount of the available fuel tax credits and the final cash tax rate and taxes paid in 2012 is contingent upon the conclusion of the IRS audit currently underway. On July 26, we completed the redemption of our 5.75% notes due in 2013 with a redemption premium payment of $21 million, which resulted in third quarter after-tax charges of $13 million or $0.14 per share. We ended the third quarter with $141 million in cash, up $23 million from our second quarter ending cash, if you exclude the cash proceeds we had on hand at the end of the second quarter from our debt offering. Our debt at the end of the third quarter was $797 million. With that, I will turn it back over to Mark.

Thank you, Rick. We completed our major energy project in last year's fourth quarter and now have almost a full year of operations behind us. I'm very pleased to report that the project is delivering more benefits than we originally forecasted, and we now estimate the project will improve 2012 earnings by about $0.37 per share compared to our original estimate of $0.26 per share at the beginning of the year. The better-than-expected results came mainly from better-than-anticipated chemical and energy recovery efficiencies associated with the new Valdosta recovery boiler and 2 rebuilt boilers at Counce. The increased process efficiency and more consistent pulp quality has, in turn, allowed us to also increase both our pulp and containerboard production more than we expected. The operating flexibility we now have with our recovery boilers has also allowed us to avoid some machine downtime this year when our power boilers were down for maintenance and allowed us to eliminate electricity purchases at Valdosta this summer during peak electricity demand periods, when electricity prices were at their highest. So overall, I'm very pleased with the energy project. The project is generating an after-tax return of about 25% on total capital and almost 30% on net capital after deducting avoided maintenance capital despite much lower fuel and electricity prices today compared to the prices we've built into the project savings. We expect the return will improve even further as energy prices increase over time and we capture those cost avoidance benefits. Looking ahead to the fourth quarter, we expect higher earnings from our announced price increases, but full quarter's earnings benefit from these price increases will not be fully realized until the first quarter of 2013. The earnings improvement from higher prices in the fourth quarter is expected to be partially offset by seasonally higher costs due in part to colder weather. Considering these items, we expect fourth quarter earnings of about $0.61 per share. With that, we'll be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constitute 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 the annual report on Form 10-K on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. With that, operator, I'd like to open up the call to questions. Thank you.

[Operator Instructions] Our first question comes from Mark Weintraub of Buckingham Research.

Just, first of all, on the box price increase, to the extent you could give us a little bit more color on how that is progressing relative to other historic initiatives or prior initiatives. And in particular, when you talk about a corresponding increase, should we interpret that meaning that you're shooting for a full passthrough of $50, $55 per ton, or is it conceivable that it could vary from that to the upside? Or any other color you can give on that.

Yes, Mark, for both legal and competitive reasons, we can't get into a lot of detail on forward pricing expectations. But again, as we said during the call, we did build a partial quarter realization into the fourth quarter outlook, and we do expect the full realization into the first quarter of 2013, but just reminding you, historically, we've put box price increases through faster than the competition in part because of our local customer mix. And we'll provide more details during first quarter, our earnings call in January. But also, keeping in mind that with our 9,000 customers, we do go out and talk to all these customers. But in general, historically, we've been successfully completing these pass-throughs ahead of competition. Tom, do you want to add anything to that?

Not much more than what you said, Mark. I would say that this is -- we're handling this as a routine price increase. As Mark mentioned, we've got 9,000 customers we've got to go out and inform on a one-on-one basis. Because of our value proposition, we can't just send out a letter notifying them of a price increase. So right now, this is an all-consuming job. And as Mark mentioned, we expect the full realization in the first quarter next year.

And Mark, to the last part of your question -- this is Paul Stecko. The word corresponding, the only intent of that word is it's related to the fact that box prices normally follow containerboard increase. So those 2 are related. And as containerboard price is up, and now box prices have been announced by us. So don't read anything more into that word. In terms of what our realization is, we don't disclose that. That's a matter between us and our customers. And that -- what we charge in boxes varies widely because the nature of our customer and product mix varies widely. And so it's not one number. It's an average number, and average numbers are sometimes misleading. But that's not something we normally disclose until we have completely completed, if you will, our box price increase.

Okay. And then a question, if I could, on the dividend and your thoughts about potential changes going forward. You do look like you're going to be reporting record earnings in 2012. And presumably, with the box price increase going in 2013, hopefully, it can be even better. Not that long ago, you were paying $1.20 dividend, and it's lower than that right now. When might you be reconsidering what an appropriate level for the dividend is? And kind of what are the key criteria that would lead you to conclude what you might conclude?

Mark, as we've historically said, dividend matters are board matters. And so with that, with Paul here, I'm going to let Paul talk about that since he's Chairman of the Board.

Okay. Thanks, Mark. Appreciate that. It's a complicated question because there's a lot of things that go into it. So just to keep it short, there have been some positive developments with us finally coming to a conclusion on this matter, and that is the price increase is obviously positive. It will obviously produce a lot of cash, which we have to figure out what to do with. The other thing that's happened, since mid-June, our shares have gone from about $25 to a little over $35. That's the good news. The bad news is it's lowered our yield. And so the one way you fix that, obviously, is increase the dividend. So I think they're the 2 positives in terms of getting closure to doing something. The one negative, as I think everybody knows, is the tax situation with regard to the treatment of dividends, which we won't know until the end of the year. But all in all, this is a matter that the board will discuss. And from my perspective, as Chairman of that board, we're getting pretty close to determining what and how much we want to do here. And that's about all I can say at that -- at this point.

Our next question comes from Chip Dillon, Vertical Research Partners.

You mentioned the higher earnings you expect from the energy projects, which, I think, gets us to about $0.51. If you could clarify that or verify that. And then also, where do you see your capacity now in light of the expansions? At least, when I looked at the last K, you had about 1,043,000 tons at Counce and 556,000 at Valdosta. Can you just sort of give us an idea of how much increase you think you will be able to get, production-wise, as a result of the projects being better than expected?

Well, I'm going to answer part of that, and I'm going to let Rick walk you through the reconciliation of the returns. But if you think about our capacity, at the beginning of the year, we've got announced capacity of 2,575,000 tons. It looks like we're on a run rate of about 2.6 million, 2,600,000 tons. With that, obviously, we did see some benefit. Starting in 2010, when we made some of the paper machine modifications at Valdosta as part of the capital project for drying efficiency improvements, we've added about 120,000 tons of capacity or about 5% over the 3-year period. Now we're not going to sustain that type of rate. We'll be back into the normal type of creep, 1% or so. With that, Rick, why don't you walk through the reconciliation of returns?

Yes, Chip, the number you referenced, of course, that was more in line with what the original project was than we've had some things that happened, lower -- as Mark mentioned, lower fuel and electricity prices than what we've built into the project, which have been offset by some better productivity than we expected. But just to put everything in perspective, as you recall, at the beginning of the year, we said in 2012, we expected $0.21 per share in direct benefits from the project. That included savings, incremental profit less the added depreciation for this year. Also, we expected $0.10 per share in avoided downtime, and that was partially offset by $0.05 per share in higher interest expense from the non-capitalization of interest. And that gave us a total earnings improvement from the energy project in 2012 of $0.26 per share. Now if you look at our reported numbers, we have avoided the downtime, and we're getting the $0.10 per share and avoided the downtime, and it's just what we were looking at, at the beginning of the year. And as you saw from our results, our interest expense is up, attributable to the capitalized interest. So the capitalized interest of $0.05 is essentially the same. However, the direct benefits from the projects have increased from $0.21 per share to $0.32 per share, which increases the total earnings benefit in 2012 to $0.37 per share. Now the additional improvement in earnings of $0.11 per share is really coming from 3 areas. One, an additional $0.01 per share from energy cost savings. Energy prices have not gone up this year. Over time, that number will improve, as Mark said in his comments. This year, we're also getting an additional $0.05 per share from chemical cost savings. And finally, we're getting an additional $0.05 per share from more productivity and production increases than we expected at the beginning of the year. So now go back and look at the energy project from where we started in, really, 2009, when we came up with the estimates, and where we're looking at today and toward the future, overall, the 3 biggest benefits of the energy project are energy cost reduction, incremental production and chemical savings, in that order. Now I'll turn it over to Mark, and he may have some more comments on how we were able to achieve these higher-than-expected benefits this year.

Well, again, when you think about our recovery boiler, you're trying to achieve 2 different things here. You're trying to achieve steam generation with the organic composition, and also, you're trying to recover cooking chemicals. So you've got a very complex reaction taking place at the bottom of the boiler, in the reduction zone. So we knew we were going to essentially double the amount of steam generation with these boilers, but we were pleasantly surprised with the efficiency gains and the chemical reduction efficiencies in the units both at Valdosta and Counce, which now have allowed us to produce essentially more cooking liquor, more uniform pulp and more pulp in general. So that lent itself to more paper machine productivity, so again, quite an added benefit from the project.

Okay. Well, that's very helpful color. And one other question, I was sort of looking back, and if you study calendars, which I do find better things to do, but on my cursory look, we average about 20.4 shipping days in September normally. And so given 100,000 a day shipment rate, it looked like the inventory situation this month that was reported this morning would normally have about 140,000, if you will, ton headwind that it seems like that didn't impact inventories at all. We still had the normal increase. And I thought -- I don't know if you had any comment about why you thought that was the case. Is it more that -- I mean, the production seemed to be high. I can only conclude that there just weren't the tons available to get out into the marketplace, but maybe you have better color than I have.

Yes, with only 19 box plant workdays in September, which is the minimum number, I would have expected a bigger inventory increase. On the other hand, we had hoped to build about 10,000 tons of, specifically PCA, of inventory to get ready for October. October has 23 cut-up days. However, we weren't able to build any inventory in September because our demand remained so strong. So maybe we should not be surprised.

Yes, let me just amplify. September is a strange month. What we've discovered, it's like discovering Halley's Comet. Maybe we should've known it. But it's been since -- like 1984 was the last time there was a 2-day difference in shipping days year-over-year. So usually, it's only 1 day. And so we would have thought, with that few shipping days, the inventories would have risen more, but they didn't. And I don't know if people took downtime in the industry. I know we couldn't build inventory because our demand was strong. September was a record, for us, volume day on a per-workday basis. So I really don't have a good explanation for that. But one other point on that, I saw the FBA numbers this morning, and it showed that roughly, on a per-workday basis, demand was up about 2.5%, and on the total volume, it was down about 7% or so. I don't have the exact numbers in front of me, but that's close. And what we normally do is average the 2 numbers. But you really shouldn't do that at this time because it's such a rare event that there's 2 days difference. You simply can't make up 2 full days during a month. So the kind of the way -- if somebody asked me how would you put your spin on the numbers, I would deduct one of those days, and that would make the total volume down about 2.5%; on a per workday, up 2.5%. So it kind of feels like a flat month to us for the -- I would say the industry, it feels like a flat month for them year-over-year, whereas we're up 5% and down 2.5%. So we're up a couple of percent. So it's kind of tracking the way it's been tracking all year. Comparing PCA to the industry, on organic growth, we've been 2% to 3% better. And then if you throw our acquisitions in, we're about 6% better. But it's a strange month. This hasn't happened since 1984, when we've had a 2-day difference in shipping days, and that does skew the numbers somewhat.

Our next question comes from Mark Wilde from Deutsche Bank.

Just a question on export pricing. I noticed that you noted that in the first 9 months, lower export prices were about a $0.05 drag year-to-date. I wondered if you could give us some sense of whether there's still a drag as you see them here in October?

Well, again, as most of you probably know, we're not a big export player, but we did raise export prices in September to a majority of the markets we serve. And if you think about it, we do business in approximately 35 countries. Of those 35 countries, we probably have 5 larger countries that we ship probably 55% or so of our volumes. But we don't make a practice of commenting on specific prices in specific markets for competitive reasons. So with that, we're getting better but not as good as domestic pricing.

Okay. And can you just, Mark, can you just give us a little more color just generally on what you're seeing in exports? Because I'm hearing about some very long backlogs on export sales right now, maybe some people even out in 2013. Can you provide any color?

Hey, Mark, this is Tom. Again, as Mark mentioned earlier, I mean, we're a smaller player in the export market. But I can tell you that demand is steady to up depending on the market. And certainly, the backlogs are getting out there. There's no question about that.

Okay. But I just have a couple of other questions. Mark, any thoughts on other capital projects that may be looming over the next 2 or 3 years for PCA?

We don't have any big projects like these energy projects right now, and we have the typical smaller-capital-requirement projects that allow us to continue to build on efficiencies and enhance the efficiencies in a smaller way. But with that, we always have a portfolio of opportunities in both the box plants and the mills but nothing of the magnitude that we saw with the big energy project.

Okay. And then just my final question. Can you just give us an update on what you're seeing in wood fiber costs and around your different fiber baskets?

Prices are pretty flat both north and south, so as we get ready and while we're completing our winter wood build right now, the prices are flat.

Our next question comes from Anthony Pettinari of Citi.

Can you talk about how shipments have trended over the first couple weeks of the month? And then maybe more broadly, you outperformed the industry again on volumes this quarter. I was wondering what you think a sustainable organic growth rate for you is. Can you sustain the kind of 2% to 3% growth that we've seen this year maybe going into next year?

Yes, if you look at the first 9 days of October, our bookings are up about 6% through this period of time compared to a very strong October last year. Billings are essentially flat. We're getting cut-ups very strong, and billings always catch up with bookings over the course of the month. Tom, you want to elaborate on that?

Well, Anthony, I would just say that we have always -- we've said we'll continue to look for every opportunity we can, certainly, in terms of acquisitions. So we may -- we'll continue to look for those. Organically, we've had a pretty normalized rate here for quite some time, and we would continue to see that rate going forward. That would be our expectation.

Okay, that's very helpful. And when you think about box shipment growth in the U.S. or sort of industry-wide, I mean, it's basically been flat this year, as you mentioned. When you look into 2013, is there anything that you're seeing in any particular category, like food or beverage or other products, that would make you think that 2013 should be maybe a better volume year for the industry or maybe the same? Or how are you kind of thinking about those volumes?

Well, at this point in time, I don't think anybody sees anything out there on the horizon that's going to be a dramatic shift. However, I'd like to think that it can't get a hell of a lot worse than where we've been, and we're bound to get a little bit better. Certainly, one of the concerns that we have is any uptick, given the inventory rates we have right now, is going to make things even tighter than they are at the moment. So we'll just -- we continue to do what we do and let the economy take care of itself. But hopefully, there will be some uptick going forward.

Yes, I mean, Anthony, both presidential candidates are talking about jobs, and both have said jobs is very important. And if we can get unemployment to continue to drop, that will be very positive for our industry. And of course, I think we're all familiar with a lot of the anecdotal information reported in the papers about people moving manufacturing back to the U.S. I think it's started a little bit, but obviously, we need more of that. That's probably the best thing that the country could do to get out of the deficit situation, and that is to grow our way out of it. And so long term, we feel fairly positive about where the U.S. economy is going to go because it has to go there. Picking when that starting point is, however, is not so easy.

The next question is from George Staphos of Merrill Lynch.

I wondered if maybe we could pick up on that line of questioning that Anthony had started. If we look at this year, certainly, it's not been a great year in terms of volume through the retail chain for a lot of the food and beverage products because of food inflation. Yet, as I recall, you're not huge in agriculture, but it's not been the world's greatest ag season as well. Are your food processing and food-related customers talking at all, with any kind of data that would suggest that next year could be a better year than what's been probably a pretty challenging year, this year in 2012?

Well, George, this is Tom. I'll just comment on this real quick. I mean, most of our customers, obviously, they tend to be fairly optimistic about their business and they hope that there's improvement going forward. I can tell you they're trying to do everything they possibly can, from a marketing point of view, to move their products. And I think, at the end of the day, just like any other year, there'll be some winners and there'll be some losers. And it's in our best interest to, obviously, to try to align with the winners. And I think one of our advantages is, with the 9,000 customer base that we have, we're spread out very well, so that we have the ability to grow with a lot of different customers and we don't have tremendous exposure to just 1 or 2.

Okay. Next question I had was on inventory position. Your inventory trend in the quarter surprised me. I would have expected flat, maybe up. Sounded like that's where you were trending. Explain to us if there is any operational issues you're having now by being so tight on inventory and what your goals would be for inventory in the fourth quarter coming up.

Yes, George. We continue to run full out. For the third quarter, we're running at a run rate over 100% capacity. And so, we continue -- first 15 days of the month, we continue on that trend. We did take advantage of supplying some of our legacy customers that requested some extra tons on the export side of the business during the third quarter, so we weren't able to build inventory. But right now, I think, again, the mills just have to continue running at the pace they're running and to supply Tom's needs, and our export and domestic customer needs.

Mark, I don't know if you could comment to this, but was there a greater-than-normal trend in this past quarter for other producers asking you for tons that would normally be the case in the third quarter?

We generally don't comment on those matters.

Okay.

George, it's Paul. I think Mark has a very good point in terms of inventory. We hope to build some inventory. We were running so well, we decided to take the risk, if you will, to ship more to some export customers who we cut back, right, and we tried to help them out a little bit. And that bet was, we can continue to run well. And there's always a trade-off. If we don't, we probably wished we had kept those tons, but if we do, we'll be happy we sold them. And so we're betting that we could continue to run this well, and one of the reasons we're fairly confident about the bet, we still -- we're only 4 or 5 months beyond the annual shutdowns, so our mills are still in tip-top shape. And where you really start to worry, when you get into the first quarter, when it's the coldest quarter, and you've got now 9, 10 months on your equipment, that's when the productivity risks are greatest. And right now, we've got the wind on our back, productivity-wise, so we're going to ride that horse as hard as we can.

Got you. Last quick one, I'll turn it over. Is it possible to discuss at all, either in an index term or percentage terms, what the overall cash cost performance at the mills have been this year? Clearly, it's gotten better, the energy products have been a success. But obviously, the way the company reports, which is consistent with the way the other companies in the industry report, on integrated basis plus changes in mixes, at the box plant level over tons, impairs comparability. So could you help us understand how you've improved in cash cost efficiency at the mills this year?

George, regarding that, obviously, we're not going to give any specifics with the exception to say that the energy projects have delivered great results and we've seen the benefits of the improvements at both Valdosta and Counce. And then just every year, we're always working on continuing to improve the efficiencies. That’s all I really want to say about that. Paul, do you have anything to add?

No, other than -- you said it. Our actual data, actual costs, are company confidential information. And for competitive reasons, we choose not to disclose that.

Next question, please.

Our next question comes from Phil Gresh of JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: First question, with the containerboard production up 3% year-over-year in the third quarter, how do you expect that to continue to progress, as we think ahead to, say, next year? I mean, do you think you can continue at this 3% rate? Or some of that, perhaps, was some of that from the energy projects we should expect a lower rate moving forward?

Going forward, we should be at the normal creep rate, 1% type normal creep. We took advantage, obviously, of the energy projects through the 2010 and '11 activity at Valdosta and Counce, and saw that nice 3% bump. So that was a onetime event for us, and as I explained on one of the earlier questions, we have no plans, as far as capital right now, to go after any aggressive creep. So and going forward, it's going to be typical flat, 1% type of activity. Phil M. Gresh - JP Morgan Chase & Co, Research Division: And then just one follow-up question on the pricing. When you said you expect to be essentially complete in the fourth quarter, should I read that to mean that kind of full run rate will be in there, kind of exiting December? Or is there still some carryover that we should be thinking about, just from a timing perspective?

Now our forecast, at this point in time, Phil, is that we'll have the full run rate going in into the first quarter of next year. We obviously have some contracts that extend out a little bit further than that, which may add just a little bit. But for the most part right now we're forecasting a full run rate. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Got it. And then with the energy projects and the increased savings that are coming from those, is there any carryover benefit into 2013, perhaps from the productivity or the chemicals or anything else you highlighted there, Rick?

There might be a little bit. We've improved, as we've seen things we could do, as Mark said, with the cooking and chemical recovery process, we got a little bit more during the year. So average-on-average, from 2012 to 2013, productivity may come up a little bit, but that's built in to the 1% that Mark talked about of creep.

Yes. The other thing, Phil, that we've discovered, as you always do on a project like this is, is that when you get done, there's a few more things you could tweak that you didn't do in the first project. Now it's not a lot of money and it's not a lot of return, but Mark told me about a project the other day, probably going to cost $0.5 million dollars to do, and we'll get a 100% return on that. And that's because the energy project enabled it. But it's just a small thing, a $0.5 million in improved earnings isn't that much. But we've got a number of those and when you look back at everything, I guess, if you've done something just a touch different, you can get a pretty good return. Unfortunately, it's just a little bit of capital. And even though the return's really good, it doesn't make that much more money. But we do have some upside in those areas. Phil M. Gresh - JP Morgan Chase & Co, Research Division: All right, okay. And then this is my last question, on the share repurchases. Rick, I think you said it was $8 million in the quarter. So that was a little below the second quarter and if I look at the year-to-date, you're tracking below last year on that front. So maybe you can just kind of comment on, I guess, the philosophy right now around share repurchases? Is some of this driven by how much cash you want to have on hand right now? Or just how do you think about that, in light of the fact that CapEx is down quite a bit from last year, so you do have more cash flow? So I guess I would've thought maybe a bit more on the share repurchase front this year. Maybe you could just give a little color?

Yes. This is Paul, again. You're right. We didn't do as much last quarter as we normally do. We bought in about $32.50 a share, and the strategy we had been pursuing, which we discussed on last 4 conference calls was that we're going to try to be a little bit more opportunistic than in the past. And that's when it was a very volatile time in Europe, problem in Greece or Spain, the market would get hit over here, everybody got tarred with the same brush. Our stock had dropped $1 or $2 and we'd pick it up. And we were very successful in doing that, buying on the down, when something not related to our business happened in some parts of the world. That really changed, if you look at the third quarter. We basically went up from about, like I said, $27 a share to about $35, $36. And the stock was much less volatile, and those opportunities for a big blip down really never happened. And so we kept waiting and waiting and waiting, and it never happened, and we ended up buying some stock. So I think if the world is more stable, we're going to have to return to more of a more steady, more continuous dollar cost averaging, hopefully on the way up, type of buying strategy. But the old strategy served us well for about 18 to 24 months. But unless the world gets more volatile and there are -- those opportunities don't exist, then we're going to have to buy on a more steady basis going forward. So that remains to be seen. Next question.

Our next question is from Mark Connelly from CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Just one thing, I think we beat the inventory question to death. But can we talk about, more broadly, about working capital, given the acquisitions and where that's going to settle out over the next couple of quarters?

This is Rick, Mark. From our working capital standpoint, our working capital has increased. As you pointed out, from the acquisitions. If I look at it, I think historically, working capital had been the lowest in the fourth quarter. And I think as we go into the fourth quarter, I do expect working capital to go down. Now the amount of working capital we have on hand will really just be determined by a number of things, price of product, and then AR. I don't see a lot of change in DSO. And number two, is how much inventory you need, in finished goods as well as containerboard. But I think the biggest change in our working capital has been, more so, the acquisitions and a little bit of pickup in finished goods. But I do expect that to go down end of fourth quarter and probably level out a little more over next year.

Thank you. Next question?

Our next question is from Joshua Zaret from Longbow Research.

I have a question on the work gain of the commencement of this box price initiative. I mean, in general, and I underline "in general," should we typically think it starts 4 weeks after Pulp and Paper Week raised their price series? Or is it a set date like October 1? And as long as I'm asking this, did you get anything in September on the box side?

We're not going to comment about that, again, for legal reasons. Paul, do you want to add anything to that?

Yes. Our policy forever has been, when the price increase is over, we comment on it. We do not comment on while it's going on. And that's on advice of counsel for antitrust reasons. And as you know, we're a very litigious society these days, and so we are extra careful to go way beyond what's required for safety reasons. And we did say we completed our containerboard price increase in the third quarter, because it was over and we could say that. We're in the process of a box price increase, so we're going to give no further information than that until we complete it and then we can talk to you a lot about it.

Was there a publicly announced date? Or -- it sounds like there isn't.

We're not going to comment on that. We have 9,000 customers. We call on them, we don't simply send out a letter. And so you cannot guarantee that you -- you try to get to them as quickly as possible, et cetera, et cetera, but it's not as simple for us as just sending out a letter, because we don't do that. We make personal calls. Next question.

Our next question is from Alex Ovshey of Goldman Sachs.

As you look at your M&A pipeline and as we head towards year end and potential tax changes in '13, are you seeing any incremental opportunities come up?

Tom would have to answer that.

Regarding acquisitions is I would just say that, as we've talked previously, we continually look at acquisitions and we've got some opportunities that are out there that we're vetting at the moment. But we have a very high hurdle rate for these acquisitions. And so you don't have to meet the litmus test, regarding customers, regarding management team, marketplace, et cetera. And we're going through some of those and we continually look at lots and lots and happen to get one here or there that is an absolutely right fit. And we'll continue to do that.

And then as I look at your balance sheet, it's in pretty good shape. The leverage ratio is pretty low. Can you just talk about what you believe to be the appropriate leverage for the business. And if we're below that level, how do you see the company getting back to that level?

I'll take that. We really don't look at it as a leverage ratio. Of course, we watch it. But we think we're at the right debt level that gives us a lot of financial flexibility. We've got low interest rates, low debt, and it really gives us the ability to take advantage of whatever opportunity is out there with the leverage we have. And I think, you can look at it in the way of what do you want to do opportunistically, and we'd rather have that financial flexibility of what would essentially be considered a low leverage to take advantage of those things with our financial flexibility when they might appear. And so, we don't really have any plans to pay down debt. We only have a small term loan. And then in addition to that, we've got very low interest on our other notes. So we're pretty happy with where we're at from a leverage standpoint. But we would not be -- we have the flexibility, if we wanted to borrow, to borrow also.

I'll just ask one more question. Can you help us think about the normalized CapEx level for the business? And if you look at years 2010, '11, clearly it was elevated because of energy projects. Probably in '12, it was a little bit lower because you were benefiting from the investments you're making in '10 and '11. And so what's the right way to think about normalized CapEx? And is that a good proxy for 2013?

Typically, we've seen -- we've run at about 75% depreciation within that $110 million, $120 million level. And if you can look at depreciation, going forward, with the acquisition, where we are on a percentage depreciation, it's going to be in that $120 million range. And then we've also talked to the point that Tom's going to have $50 million to $60 million available for continued acquisition opportunities or box plant strategic activities. So again, we are going to normalize and it's going to be right in that range, $120 million area. Plus the opportunities for Tom's side of the business.

When we talk about the box plant, I'd also add, we've said for a long time, we run at about $110 million, and we like to spend about $50 million a year on box plant acquisitions. That's kind of been our mantra for the last 5 years. So that $110 million has probably creeped up to $120 million because if we make these acquisitions they need capital to be supported, too. So as we get bigger, we basically have gone from about a $2.1 billion company, we're close to $3 billion now. So obviously it requires a little bit more CapEx. The only other change that I think we've talked about a little bit is that Tom is out looking for acquisitions but those acquisitions also compete against his internal projects. And so that $50 million is for either acquisitions or if he's got a better internal project for there. So that internal project would go into the CapEx number, but it really comes out of the acquisition pot. And so wherever we have the best investment for that $50 million, and usually it's an acquisition because it's got a lot of synergy benefits, but occasionally, it's for an internal acquisition, like the plant we built in Reading, 1.5 years ago. And so, I throw that caveat, the competition for these acquisition dollars is king and it's both internal and external. Next question.

Our next question is from Al Kabili from Credit Suisse. Albert T. Kabili - Crédit Suisse AG, Research Division: Just wanted to circle up a little on the acquisition front. And with the M&A you've done on the box plant side, you were still able to increase your year-over-year, your sales of containerboard to the outside. And I was wondering if you could comment on that. I would have thought your integration rates would be going up with the box plant acquisitions. Is this just a function of the higher capacity from the -- on the mill side from the energy projects? Or could you just help us through that.

Again, the energy projects allowed us to grow the containerboard production by 120,000 tons. At the same time, we've been talking about our plans on the box plant side to grow the integration level from 80% up to the low 90s, and currently, we're selling -- we're roughly 83% integrated. And so, we've been able to produce the tons necessary to continue supplying the market. And also, at the same time as we've made these acquisitions, supply those acquisitions. And so with that, again, things are going to level out though.

Yes, I think the level out is an important comment. It's been a tough job to get the integration level up when you're also increasing your mill capacity, but we're up about 3% over the last couple of years despite the additional capacity in our mills. But as Mark said earlier on the call, we're down to maybe 1% creep growth. So Tom Hassfurther's going to have a little easier time building that integration level up because the mill production is not going to be going up as fast as it has been. Albert T. Kabili - Crédit Suisse AG, Research Division: Okay. All right, that's helpful. And also, if you could help just us a little on the fourth quarter, you lapped some of the box plant acquisitions. Can you help us with what acquisitions helped on shipments in the fourth quarter? Is it still that 3% kind of rate in the fourth quarter? Or does that go down a little bit, because you lapped some of the M&A?

I think we had one acquisition we made last year in the fourth quarter. So it won't be 3, it'll probably be more like 2. We caught up to that one we made in the fourth quarter last year. Albert T. Kabili - Crédit Suisse AG, Research Division: Okay. Great, that's helpful. And then just a final question, is just on mix. You talked last quarter how mix was a little better than you had expected. And I was wondering if you could talk about what you saw on product mix this quarter. And then a follow-up to that mix question is, with price hikes coming, are you seeing from customers increased interest in further lightweighting, or any response from mix on that as well?

This is Tom, Al. I would just say that, from a mix point of view, it's been pretty steady, not a dramatic change. And regarding the lightweighting, I think every customer out there is looking for an opportunity to reduce cost, but at the same time, they're not going to sacrifice quality in any way. So I think there's a constant pursuit in the marketplace for reduced costs. And we're working -- we work with all our customers to try to do what's right and to try to meet their objectives, but at the same time make sure that we maintain the quality and service that they demand. Next question.

Our next question is from Steve Chercover from D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: I, too, had a question on mix. Are you seeing any benefit from the return of manufacturing to the U.S. that you alluded to? And also, are you seeing kind of incremental volumes to the white good products? I'm thinking appliances for housing recovery.

Yes. This is Paul. I would say we're -- yes, we're seeing some benefit in that. I used to hear once a week from the box side of the business that this customer or that customer was shifting business to Mexico or China. I don't hear that anymore. And we're also hearing information that -- and we know of some of our customers that have moved some business back from Mexico or China. The amounts to this point are small, but we expect that trend to continue. And so, we really can't quantify it any more than that. Steven Chercover - D.A. Davidson & Co., Research Division: That's encouraging. Even if it's embryonic, it's a start.

Yes, that's a good way to put it. Steven Chercover - D.A. Davidson & Co., Research Division: Other quick question. In your fourth quarter outlook, you mentioned higher cost due to weather. Did you incorporate flat OCC or do you have any inflation built in there?

The OCC is flat. We've seen numbers, obviously, the Southeast area, OCC is up about $5. But all in all, we're flat. And that's what we've built into the fourth quarter. Next question, please.

Our next question comes from Philip Ng of Jefferies. Philip Ng - Jefferies & Company, Inc., Research Division: Just had a longer-term question. The industry has obviously benefited quite a bit from the consolidation on the containerboard level. I just want to get a sense, do you think there needs to be more consolidation on the box side just to improve returns going forward?

We're not going to comment about that, again, for legal reasons. Philip Ng - Jefferies & Company, Inc., Research Division: Okay. That's fine. And then based on what you guys mentioned earlier about CapEx being potentially being in that $110 million, $120 million ballpark and $50 million to $60 million acquisitions, 2013 is shaping up as a record for cash flow year for you. So in terms of the remaining piece, in terms of cash flow deployments, should we think about it as being return to shareholders or how should we think about that going forward?

Well, yes. I think you heard Paul talk earlier to the dividend question. So the fact that we've spelled out our plans for capital, we have no plans to pay down debt, so that leaves that cash available for share buyback and dividends, so at some ratio of the 2. Again, that's where we're headed into the new year. Philip Ng - Jefferies & Company, Inc., Research Division: Okay. And then in terms of OCC, you mentioned that you're baking in flat OCC prices for 4Q. But I guess my question is, the drop off that occurred during 3Q, will that cycle through into 4Q? Or the benefit already kicked in, in 3Q already?

We don't talk about guidance into the forward quarters like that. But again, I think, to summarize, it all depends on China. Think about that. Philip Ng - Jefferies & Company, Inc., Research Division: Okay. And this one last final question on the M&A side, a few of the companies I cover, not in containerboard, have kind of mentioned how multiples have come in a little bit due to current macro backdrop that given the fact that the industry is getting price increase, have you seen multiples come -- actually move higher given the current backdrop?

No. We don't have anything, really, to comment on that.

We're not -- that's what analysts do. We don't -- we're not smart enough to comment on multiple changes. Our multiple is up this year, obviously, for, I think, our performance and what people think of the future. But predicting, I can't even predict where our stock price is going, let alone multiple. So we can't add any value to that. Philip Ng - Jefferies & Company, Inc., Research Division: In terms of what kind of multiples for the stuff that you could buy, I guess, in the pipeline, has that changed directionally?

We're not going to comment on that.

Thank you. We've got time for one more question.

Our next question is from Scott Gaffner of Barclays.

Just a logistical question on the box price increase. I mean, you did say it was an all-consuming effort going out to these 9,000 customers. But I would assume that a certain percentage of your customers are on some sort of index that makes the conversation a little bit easier. Can you talk about what percentage of customers are on some sort of index, as far as the containerboard price increase flowing through and how that will affect the discussion?

No, I'm not going to comment on that. I will just say that the discussion is as important with every single customer, regardless of whether they're on or off some sort of an index.

And It's not that we don't want to disclose information to you, we just don't like to disclose that information to competitors. There's no upside to that.

No, I can appreciate that. Just looking at the energy cost. I mean, you noted that the energy projects were ahead of schedule this year. Obviously, more of a benefit than you expected. But the natural gas prices have risen a little bit recently. How do you think about that when we move into 2013, if they were to stay at this level? How does that impact your business? And then just sort of a follow-up on that, when you look at the seasonality of your purchased energy versus internally supplied, how does that change, as we move through the year?

Natural gas is such a small component of our energy, that it's really not a big factor. So in that regard, again, we just use very low natural gas. So that's about all I really want to say.

And it really doesn't change seasonally, except that the fact that in the winter months, you use more energy on the 3 coldest months of the year, primarily because your water temperature is a lot colder, and you got to heat a lot of water up to make paper. So and -- the one thing just to point out on our Valdosta mill, we're now to the point now where other than in the line kiln, where we do burn a little -- we burn natural gas, we don't use any fossil fuel at all at Valdosta. We run the mill, well again except for the line kiln, on 100% wood waste and black liquor. And so -- and Counce isn't quite as good, but Counce is pretty good in that regard, too.

Right, okay. Just lastly on how we should think about, directionally, maintenance downtime as we move into 2013? I would assume you're in a pretty good position based off of the energy projects and some of the work you've done over the last couple of years. Should we think about -- and you got some benefit it looks like in the first half of 2012 from lower downtime, maintenance downtime. Should we think about that repeating again in 2013?

We're right in the process of planning next year's shutdown. So we'll be able to add details on the January earnings call. But essentially, the shutdowns are normalized year-to-year with required work, but we'll add the details on January.

I think the other -- the only thing I'll add to that is we did say, when we talked about returns of voided capital, and with Valdosta and Counce, with the new boilers, there would've been about $80 million of capital spent over about a 5-year period that won't have to be spent now on maintenance because these are -- they're virtually new boilers. So going down on that regard, our maintenance expense will be less.

Okay. With that, we're out of time. I appreciate everybody's time today on the call. We look forward to seeing you in January for the full-year and fourth quarter call. Thank you very much.

Ladies and gentleman, this concludes the conference for today. You may all disconnect and have a wonderful day.