Brad Ankerholz - Treasurer David Scheible - Chairman and CEO Mike Doss - President and COO Steve Scherger - SVP and CFO.

George Staphos - Bank of America Anthony Pettinari - Citi Alex Ovshey - Goldman Sachs Chip Dillon - Vertical Research Partners Mark Wilde - Bank of Montreal Phil Ng - Jefferies Ghansham Panjabi - Baird.

Good morning. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Graphic Packaging Third Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. Brad Ankerholz, Treasurer, you may begin your conference..

Thanks, Ian, and good morning, and welcome everybody to the Graphic Packaging third quarter 2015 earnings call. Commenting on results this morning are David Scheible, our Chairman and CEO; Mike Doss, our President and Chief Operating Officer; and Steve Scherger, Senior Vice President and CFO.

To help you follow along with today's call, we have provided a slide presentation, which can be accessed by clicking on the Webcasts and Presentations link at our website, which is graphicpkg.com.

I would like to remind everyone, the statements of our expectations, plans, estimates and beliefs regarding future performance and events constitute forward-looking statements.

Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the company's present expectations. Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission.

Undue reliance should not be placed on forward-looking statements as such statements speak only as of the date on which they're made, and the company undertakes no obligation to update such statements. David, I'll turn it over to you now..

Thanks, Brad. Good morning everyone. We had another solid quarter as adjusted earnings per share increased 17% to $0.20 per share. We continue to execute well and deliver against our commitments in what remains a challenging consumer environment.

We produced nearly 10,000 more tons of paperboard in our US mills and we sold those tons to our global packaging network. Sales increased roughly 2% in the quarter and were driven by acquisitions, new product launches and some sub-straight substitution into our products.

EBITDA and margins grew in the quarter driven by asset optimization, acquisition integration, performance improvements in both carton and mill operations. Adjusted EBITDA increased 3.4% to $197 million and adjusted EBITDA margins increased 18.4%. The macro trends this quarter were similar to what we’ve seen for the past several quarters.

There were really no true surprises. US markets were flat to down. Europe continues to be a positive for us. We improved our operating performance through investments back in the business and overcame continued currency headwinds and soft demand in some of our key end-markets.

Third quarter was another example of how we execute our strategy to drive top and bottom line growth.

Our three strategic investment priorities are simple; first, we invest in our core business to support growth from lower costs; second, we make strategic acquisitions for growth and channel expansion; and finally, we returned excess capital to shareholders.

This has been our capital investment strategy continues to be the position of the company long-term and we executed on all three areas in this quarter. Our investment back in the business is a key driver, which allows us to deliver ongoing performance improvement results.

In Q3, we delivered $19 million of performance improvements in the quarter and we are on track to achieve $70 million to $80 million for the year. We are benefiting from investments we have made in our mill system and ongoing upgrades to our converting network as well. On the acquisition front, we have announced four tuck-under acquisitions this year.

First two were Rose City and Cascades in Q1. The integration of these acquisitions and synergies are tracking to plan. And we continue to forecast solid progress here.

On October 1, we acquired the assets of Carded Graphics, a Virginia-based folding carton manufacturer with a strong regional position in the food, craft beer and other consumer product markets and an excellent management team.

Today, we announced a definitive agreement to acquire G-Box, a Mexican-based operator for two folding carton facilities in Monterrey and Tijuana. G-Box along with Carded Graphics expands our geographic footprint, manufacturing scope, customer base and range of products.

G-Box will give us a strong platform in Mexico and Carded Graphics will allow us to better serve new and existing customers on the East coast, specifically in the fast-growing craft beer market. Both of these are nice tuck-under acquisitions to supplement growth and improve our position in the global marketplace.

We continue to see additional opportunities to support this strategic investment priority. Our third priority is returning excess capital to shareholders. Through the third quarter, we have declared nearly $50 million in dividends and purchased $23 million of our stock, including $15 million in the third quarter alone.

You can expect us to follow a very disciplined and balanced approach to these three priorities and we see plenty of opportunities to deploy our capital going forward. We have talked about the operating leverage that comes from our vertically integrated approach and the more than 150,000 tons of excess pulp capacity in our system.

We are now focused on growing demand to build this capacity and extrapolate the operating leverage in our market. The four acquisitions this year combined with a growing platform in Europe provides us with the incremental demand to begin ramping up our paperboard production to maintain our balance.

We will do this by adding a new press section in head box to one of our SUS paper machines in West Monroe, Louisiana during the second quarter of 2016.

This will require some incremental downtime in April, but we are taking steps to eliminate customer disruption by building the necessary roll-stock inventory to run the business during this projected downtime. This inventory build will have a small impact on EBITDA and cash flow in Q4 as open market sales will be somewhat negatively impacted.

This investment, however will increase throughput, improve our quality and increase our yields resulting in approximately 30,000 tons of incremental SUS capacity. This should provide some added operating leverage as we move into the later part of 2016 and certainly as we move into 2017.

Mike and Steve will provide you with more details on the timing and the financial implications of the project in their comments.

Summarize, despite some demand in foreign exchange headwinds in the quarter, we execute well both operationally and strategically by running our facilities better and adding some great new businesses and management teams through acquisition.

We’re confident in our ability to continue growing the business and excited to be in a position to increase our board production and then lock additional operating leverage in our model. I am going to now turn the call over to Mike Doss, our President and Chief Operating Officer to discuss the business in greater detail. .

Thanks, David. Volumes in our global paperboard packaging business increased almost 8% in the third quarter, the increase was driven by our continued European expansion and the Rose City Packaging and Cascades’ Norampac paperboard acquisitions.

Excluding these acquisitions, volumes were down slightly as we mostly offset demand weakness in some of our US end-markets with targeted gains and new product development. Year-to-date volumes, excluding acquisitions are up slightly as new product development and targeted share gains have offset weakness in certain end-use market categories.

Demand across many of our food and beverage end-markets remain mixed. As we discussed before, some of the weakness is structural in nature, while some is consumers managing spending.

We have been seeing slow but steadily improving trends in the global beverage business that might strengthen the beer market, most notably the specialty and craft segments.

The carbonated soft drink market remain challenging in the quarter as consumers continue to move away from carbonated soft drinks towards specialty drinks such as energy, water and tea. Global beverage volumes were up slightly in the quarter.

Other consumer products volume was more challenged in the quarter with dry foods, cereal, frozen foods categories, all down to low-to-middle single-digits across the industry according the Nielsen data. Frozen pizza and pasta were both positive, so really a mixed bag on the consumer front.

The integration of Europe continues to progress as expected and we are gaining position in that market. In the third quarter, we continue to integrate SUS board in Europe and remain on track to ship nearly 150,000 tons to the region in 2015 with the ultimate target to ship 200,000 tons annually.

This would more than double the volumes in Europe from just a few years ago when we were shipping less than 95,000 tons annually into the region. The internalization of our US paperboard remains central to our strategy in Europe and growth in this region provides additional leverage to our vertically-integrated model.

This is certainly added to FX complexity, but is clearly improving results. In North America, the integration of our Rose City Packaging and Cascades’ Norampac paperboard business is also progressing according to plan and we continue to target 20,000 to 25,000 tons of integration from these businesses within two years.

Our synergy and board integration targets remain unchanged for Norampac and Rose City and we are pleased with the progress we have integrating both these acquisitions. The Rose City acquisition also allowed us to re-evaluate our West Coast manufacturing footprint.

As a result, we have decided to close our Renton, Washington converting facility and transition its production to the Rose City plants and other regional facilities. This change will allow us to further optimize our West Coast cost structure. New product development remains an essential component of our organic growth strategy.

New product sales increased over 30% in the quarter and we had a number of product wins and commercial launches. In the beverage category, we completed plastic replacement projects for two long-standing clients, Campbell's V8 Fusion Energy brand and Ocean Spray’s sparkling cranberry beverages.

In the food category, our proprietary pressed paperboard solution, power tray is gaining significant traction with a number of new and existing clients in the protein and produce channels.

On the strength solutions side, we launched a litho-lam carton that offers superior durability and dispensing characteristics for Glad ForceFlex line of trash bags by Clorox. In early august, we implemented a $50 a ton increase on our CRB grades.

We are executing this increase in the market and should begin to see some benefits in the fourth quarter and in 2016. However, just a reminder that the benefits will be modest given over 80% of our CRB production is consumed internally.

Please recall, our current sales are typically governed by contracts that contain price resetting mechanisms, tighter board prices or commodity costs. These pricing resets are designed to cover the cost inflation over time and take an average of nine months to work their way through the system.

As a reminder, board price increases are not typically margin-enhancing over the long-term as they are mechanism to recover commodity input inflation in carton contract renewal settlements over time. Turning to operations, we had another strong quarter.

As David mentioned, our US mills ran well and produced nearly 10,000 more tons over third quarter last year. The improvements in mill efficiency this year have been the result of our continued commitment to both Lean and Six Sigma principals along with targeted high return investments.

We also made progress during the quarter on our West Monroe co-gen project that we had previously announced. We are on track for startup in Q1 of next year and expect annualized benefits of $10 million from the approximately $30 million capital project.

Looking at paperboard demand, the mills remain full and our backlogs at quarter-end were strong at four weeks for CRB and five weeks for CUK. David talked about our strategic decision to upgrade one of our SUS paperboard machines at our West Monroe mill to increase annual production by about 30,000 tons.

The timing of this project is a little earlier than we had expected and this was driven by the increased demand for SUS that's resulting from our acquisitions. For project of this scope, there are limited opportunities to take the amount of downtime required to complete the work.

We made the decision to schedule the installation of the new press section during the annual outage in April of next year. We expect to take approximately 25 days downtime to complete the normal maintenance and to install the new press section and head box. That’s about 15 days extra compared to what we would normally take for an annual outage.

To support the downtime, we will be building approximately 20,000 tons of SUS inventory in the fourth quarter. So we have the necessary board to meet customer carton demand during the downtime. The board would have normally been sold to open market customers and will therefore have a modest impact on EBITDA and cash flow.

We are very excited about this project and believe it’s right in-line with our number one strategic priority of investing back in the business to support our continued long-term growth. As David, mentioned, we’re excited about two additional acquisitions in Q4.

We purchased the assets of Virginia-based Carded Graphics on October 1 and expect to close on the purchase of the shares of Mexico-based G-Box later in the quarter.

We expect these acquisitions to generate approximately $15 million of EBITDA in 2016 with combined EBITDA increasing to $20 million to $25 million in 2017 as we integrate paperboarding grow key categories like craft beer and geographically in Mexico.

With that, I’ll turn it over to Steve Scherger, our Chief Financial Officer, who will take you through the quarterly financial results in more detail.

Steve?.

Thanks, Mike and good morning. As Mike and David shared, we delivered another very solid quarter. When I refer to EBITDA, net income and EPS today, I’ll be referring to adjusted numbers. Adjustments this quarter were $8 million pre-tax, which related to M&A activity, integration costs and other special charges.

For those of you on the website please refer to page 8, follow along. Focusing on Q3 results. Our net sales were up $20 million or 2% compared to prior year. EBITDA increased $6.5 million or 3.4% to $197 million. Margins for the quarter improved 20 basis points to 18.4%. Diluted EPS for the quarter was $0.20 compared to $0.17 last year.

Turning to Q3 sales. The 2% increase was driven by improved volume and mix, primarily from our acquired businesses. As expected, price is negative at $6.3 million this quarter due primarily to contractual resets related to declining commodity costs and contract renewal settlements.

As I mentioned last quarter, we expect pricing and commodity inflation deflation to remain relatively in balance in 2015 and over time. The strength of the US dollar versus global currencies resulted in lower sales of $30 million in the quarter.

Turning to EBITDA, the $6.5 million or 3.4% increase to $197 million was driven primarily by strong performance improvement of $18.9 million. We have delivered almost $60 million in net performance benefits year-to-date, which puts us on track to achieve full year performance improvement in the $70 million to $80 million range.

Positive volume contributed $6.3 million to EBITDA as the benefits from the Cascades and Rose City acquisition flowed through our results. Partially offsetting the positive drivers were $4.1 million of lower price, net commodity deflation, labor and benefits inflation was $7.3 million in line with our expectations and FX losses were $7 million.

We expect the full-year impact of FX to be in the $25 million to $30 million range at today's rates. Our balance sheet liquidity profile remains strong. Net debt decreased $85 million during the quarter. We ended the quarter with $1.9 billion of net debt. Our net leverage ratio declined to 2.58 times from 2.9 times at this time last year.

During the quarter we contributed $20 million to our pension plans and returned over $30 million to our shareholders with the quarterly dividend and share repurchases. Domestic liquidity remains quite strong at over $1 billion.

Our 2015 guidance is essentially unchanged from last quarter, but as David and Mike both mentioned, plant downtime for our mill capacity expansion in Q2 next year will require us to build inventory late in the fourth quarter and into the New Year.

As a result, we expect full year EBITDA growth to be in the 5% range and free cash flow available for M&A and a return to shareholders will now be in the $340 million to $350 million. We look forward to sharing more guidance regarding 2016 with you in February. Thank you for your time this morning. I'll now turn the call back to the operator..

[Operator Instructions] Your first question comes from the line of George Staphos from Bank of America. Your line is now open..

Thanks, everyone, good morning. I have couple of questions to start. So as we think about the downtime at West Monroe and the incremental, I think you said Steve or Dave or Mike, 15 incremental days the normal. Should that also not have a negative effect on EBITDA early in the year or how should we try to model for that? Thanks.

And then I had a couple of follow-ons..

Yeah, thanks. George, this is Steve. Just to kind of play that out for you a little bit and to even talk a little bit about this year, the incremental inventory build as we mentioned will have a modest impact on the EBITDA this year and about $10 million build relative to the inventory. We will then work through that in the first and second quarter.

So there will be some implications with the actual downtime that we will take in Q2 and that will be a $10 million to $15 million total impact in the quarter. However, the benefits from the actual increase in capacity will start to show up in quarters Q3 and Q4.

We will provide a little more guidance as we move forward, but there will be some impact in Q2 that will recover in Qs 3 and 4 with the increased capacity utilization and availability..

I think the way to think about that is that net-net for the year, since we're not really managing quarter-on-quarter, we will have not much of an impact at all..

Okay, thanks for that, Dave.

Now, again, not to get too sort of micro, but for the I guess free cash flow guidance or cash flow from net debt reduction, if there is a $10 million effect from building inventory in the fourth quarter and I look at your slide now versus the presentation from second quarter, the variance is at the high end more like $25 million, are there some other factors that are affecting your cash generation for the whole year relative to your expectation or is the variance purely the inventory build relative to West Monroe?.

No, it's the inventory build and a little bit of the EBITDA. So we have $10 million of inventory build and about a $5 million EBITDA impact which is why we are now in that 5% to 6% range, ratified range, George, and so it's really just a combination that leads us into that $340 million to $350 million cash flow expectation..

Okay. I appreciate that. And then to the extent that you can comment, I will turn it over from here, again certainly you've been not unique in this. The trends at retail, the trends in the consumer have been very mixed.

Can you comment at all in terms what you are seeing early in the quarter realizing that's pretty dangerous to extrapolate much off of 5 or 10 days? And is there any change at all in the tone your customers are expressing relative to their outlook for demand into the quarter and really more importantly into '16? Thanks, guys..

I will take the first part of that, which I think you answered your own question, which is --.

I am good at that Dave..

Well, that’s you are married too, you are well trained. What I would say is that two weeks in, we feel great, two weeks in. What I think Mike would say is, well, is that, hey, look our customers continue to be optimistic about their future.

Now, having said that, we have not necessarily seen in the previous three quarters that translate into actual selling of additional products.

So while they talk great and they certainly believe that '16 is going to be better than '15, I think we're in that -- you are going to have to show it to us and we are certainly not forecasting a major change in demand trends as we head into '16. Maybe we will be positively surprised if that's not how we are planning our business..

Is it the same old optimism or is there something more tangible this time, recognizing you so want to see it in the numbers before you believe it?.

Well, we see them, George, obviously spending more time on new product development and in some cases cost cutting. So they are definitely busy at work, but to David's point, we just haven't seen anything that would give us any real confidence that there's a tailwind we are certainly going to be able to ride.

So we're not expecting that, we're not building that into our forwards. And if it shows up, that's a real positive for us..

I will tell you, as Mike said, frozen pizza was a good quarter, crack, beer, beer overall was a good quarter around the globe. So that's really positive. I think predominantly our issue is really more in the cereal and dry food area specifically as opposed to across the entire product line.

So when you talk about it's really the question is, will the guys making cereal, for example, start to get to some mojo back, but pasta was a good quarter. So a lot of it is just so end use market driven and each one of those has a separate consumer trend, a millennial trend or a baby-boomer trend that's driving those dynamics.

And trying to find exactly divine, exactly how that's going to translate into selling more cereal or cent of the aisle product, very, very difficult at this point..

All right, thanks. I will turn it over, guys..

Your next question comes from the line of Anthony Pettinari from Citi. Your line is now open..

Good morning. Looking at the G-Box acquisition, you talked about the attractiveness of the Mexican market for quite some time, but we've also talked about how it can be harder to do due diligence in Mexico and concerns about asset quality.

I am just wondering if you could talk a little bit about why G-Box was more attractive than I am guessing a lot of other assets you've looked at.

And then is there any kind of meaningful capital investments in 2016 or 2017 to reach those targets that you have on the slides?.

Hey, Anthony, it's Mike. First off, we're really excited about the G-Box acquisition.

As you’ve correctly stated, we've been working on that for several years now, really looking for high quality asset that we could have confidence in, that we could bolt-on to our system and really deliver on both what we are paying for as well as synergies that we need to make it accretive. And we believe we've found out with G-Box in many ways.

Now we will have a total of three facilities in Mexico, we had already one, so this gives us two more. We are in the right spots. These are well-capitalized plants that we purchased and as David mentioned, we acquired an excellent management team. And that management team is staying on with us.

So they're actually going -- we are going to scale them and they are going to help us run in that market. So, yeah, we believe that we purchased very high quality assets and that synergy targets are achievable and that we can grow now with three facilities as opposed to just having one. So we're quite excited about it..

Mike and I were down there, so went down there in a month ago to visit the facilities and the management team specifically and it's a pretty small acquisition for us, but what we were trying to assess is, is this real, do we believe the numbers they have been able to demonstrate growth, but it's a well-tested management team.

They've got some excellent background. They know their market, they know their financials and so we came away feeling, hey, we are confident enough in this acquisition and it makes really good sense to put Graphic Packaging's logo on the front of the building. So we are really optimistic about where that goes.

The other thing is that we’ve got a couple of customers who are relocating major manufacturing facilities down into Mexico and this – and they're very geographically located close to what we're acquiring. So I think there's a great opportunity for growth.

And those acquisitions -- their movement down there is not necessarily to export back to United States, but it's also to address the growing Mexico market. So I think we believe there is a top line opportunity there and it's an investment that we felt we needed to be doing.

We needed to have a better position in the entire North American market with Cascades and now G-Box, we feel like we've done that..

Okay, that's helpful.

Is the mix between food and bev and other consumer and maybe industrials durables, is that similar for G-Box to Graphic or can you talk a little bit about the customer mix for G-Box?.

Sure. I would characterize it's right on top of what we do, Anthony. I mean, they are doing beverage in that plant as well as consumer and a little bit of industrial. So the mix of customers or customers we understand some of them are our customers currently.

There is new ones and as David said, there is – some of our customers are scaling down there, so we'll be able to take advantage of that and they have the right equipment to do that both in terms of Carded and some Litho-Flute, which helps build out our same platform asset, so very excited about it..

Okay. And just last question.

Do you have an updated view on the contribution from M&A in 2015 given that you will get a little bit of benefit presumably from Carded and G-Box in 4Q?.

The impact, Anthony, in Q4 will be very modest. We've just acquired Carded, we have to close on G-Box. It will be end of November, December timeframe, so really no material impact in Q4, 1 million plus or minus and really the key is standing up the relationships and executing on the 2016 commitments that we shared with you..

Okay, I will turn it over..

Your next question comes from our Alex Ovshey with Goldman Sachs. Your line is open..

Thank you. Good morning. .

Good morning..

Couple of questions. So thinking about productivity, over the last couple of quarters you've given us a number of things to be thinking about in terms of '16 versus '15, so the Cogen project, the synergies, the Rose City and Cascades.

If you were to think about the '16 productivity pipeline versus what you guys have been able to accomplish in '15, how would you sort of compare the set of opportunities?.

Alex, it's Mike. We'll have our ongoing commitment for productivity improvements that we've always guided towards which is $60 million to $80 million a year. That remains unchanged. As you know, we treated the Cogen as bit of an allocation project given its size and we outlined the financials for you there.

We've got a big project with the pressing section and new head box on the paper machine in West Monroe that will drive 30,000 additional tons, but as David and Steve both commented on, we have to take some down time next year to get that and then we’ll get the benefits in Q3 and Q4 and into 2017.

So I think from your standpoint, if you kind of look at your model, it's very consistent to what we've been doing in the last couple of years..

Got it.

I guess the bottom line is $60 million to $80 million is the way to be thinking about next year?.

Yes, absolutely. I mean I think what we said all along, Alex, is that we're getting it somewhat differently now. I think we've mentioned that we put more capital back in the business, because we've got some great capital plans that we just did not have the balance sheet to invest in previously. Now we're doing it.

It's not that there isn't ongoing improvement in Lean Six Sigma and the converting plants that are non-capital driven, but I think it's a higher leverage towards capital based projects right now, because we've got the money in some of these projects that have been out there under not funded.

So I think the rate remains about the same, how we get there is a little bit different. .

But we will stay committed to that range of productivity. We believe it is the right range to be targeting given the size of the business and given the project approval that we have in place..

Okay, appreciate everybody. And then so on the cap structures, even though you are aggressively investing in the business, you are buying assets, essentially you are going to end the year maybe even below your target leverage of 2.5 to 3, probably around that number.

So as you are at the lower-end, I mean does that imply maybe a step up in share buyback or is the M&A pipeline robust enough where it's more likely you will see more M&A than buyback? How would you help us think through that?.

Well, I think what we say is, we have a very good view on the number one priority, which is investing back into the business and we gave you some sight – a line of sight to the most significant projects. We continue to see a pretty good pipeline on M&A activity. That's about all I can really say relative to M&A today.

I don't think the -- I don’t think our -- I think where we are right now is that those will be the priorities in the fourth quarter, it isn’t -- doesn’t say that as we get into ’16 we won’t increase or do more in the share buyback. So if the other two buckets are filled, but as we look at the fourth quarter, that’s not our number one priority..

Okay, make sense. And if I can just ask one last one, so box board markets, I think you said that the CUK backlog is longer than the CRB one, we saw move up in CRB prices. So, as you think about CUK, I mean, what do we need to see in that marketplace before maybe we have some price movement there given the backlog seem to be in very good shape..

You know Alex, its Mike, I mean, our backlog as we outlined are strong and solid but it’s our practice for all the right reasons and to trust and not comment on what we would do or when we do in terms of pricing in the future..

I respect that Mike, thank you. I’ll turn it over..

Your next question comes from Chip Dillon with Vertical Research Partners. Your line is open..

Yes, thanks very much and good morning Dave, Michael and Steve. My question has to do with first one, you mentioned I think I got these right that you are now shipping about 150,000 tons annualized I think you said to Europe and your goal is to get to 200,000 obviously to push through your box, your folding carton system there.

Could you give us an idea of how much of that 150,000 or the eventually 200,000 is in each of the three major substrate or two major substrates you produce CRB and SUS..

All SUS..

Hey, Chip its Mike Doss, our first time to talk, nice to meet you. I wanted to just clarify on that it is all SUS. There is no CRB..

We do not ship CRB except for the most part to ourselves and somewhat locally, we are a net buyer of CRB and it’s not a product we would consider exporting to Europe..

We will send it to Canada and Mexico but not to Europe, not across the water..

Got you. Okay that makes total sense by the way.

And then, the second question is, if I heard you right, you said, I know that downtime at West Monroe will have a one-time impact, I guess the increment of about 10 to 15 million on EBITDA and cash flow, I think I heard you say that the inventory bill would be about 10 million and I just want to make sure I think about this the right way.

If it’s 20,000 tons you could actually assume that’s about $500 a ton what seems like it’s a lot but there must be some other issues there that would contribute to that 10 million in the fourth quarter?.

Hi Chip, this is Steve. Just for clarity on the -- and as David mentioned as well, the downtime that we’ll incur next year in second quarter will be offset by productivity and increased volumes in Q3 and Q4.

So there won’t be a net negative impact from that investment and we’ll start to see some positive net benefits as we enter into the second half of next year and clearly into 2017.

The overall impact of the cash flows at the end of year, we put the whole value up on the balance sheet as you know and some of -- not all of it, not all of that value ends up being cash as you said, but there is no other major movement that we’re dealing with, you’ve got the ton of [ph] cash, you’ve got a little bit of EBITDA and a little bit of the actual inventory.

So its combination Chip to get to the 10..

You get some profit inventory hung-up as you know Chip, you’ve been following this industry long enough to know that as you produce you got held up in your inventory if you don’t sell that inventory then you end up losing some of the EBITDA not necessarily the cash. So it’s sort of a balance in that processing.

We’re not perfect enough to estimate it, we’re just saying in a range. So I don’t think what you can do is do the math, you just did well, 10,000 tons divided by this, I don’t really think that’s exactly the right math. What we’re simply saying is, it’s going to be in this range of that and we won’t be a perfect build on the inventory.

To be perfectly honest, there will be, we will have to manage to figure out which inventory and what mix of inventory we build to make sure that our carton businesses are successfully supported as we head into Q1.

15 days of additional downtime is a lot of downtime in a mill the size of West Monroe that produces what 3,000 tons a day, 3,000 to 5,000 a day..

About 2,500..

A day, so I mean you can image that’s a lot of tons..

And Chip, just again for clarity. There aren’t any other movement that we’re seeing of subs since relative to our balance sheet. Our cash conversion cycles remain intact, our overall capital spending forecast remain intact.

So there is really nothing else moving, we’re just as we look to the impact of this we wanted to make sure that we were appropriate in the guidance as we’ll steer the ship in at the end of the year.

Recognizing that we’ll sell that as we move right into the second quarter and return the cash to ourselves and to the shareholders as we move into next year..

Got you, that's very clear, thank you. And then just a last one is, it looks like both the acquisitions you announced on the folding carton side will be quite accretive certainly by ’17. And my question on that 20 to 25 million of EBITDA improvement.

How much of that is if you will getting an extra margin shipping board from you know to your plans down there and in Virginia versus selling on the open market. So just give us an idea of, if any of that 20 to 25 million includes that.

And then secondly, on the exchange rates, I mean your timing seems great in Mexico given how weak the peso has been and I just want to make sure I guess you're assuming current exchange rates with Mexico when you come up with those numbers?.

We are, we don't forecast any changes in exchange rates.

And for us that integration value that 20 to 25 will come from a combination in this, in the case of Carded and G-Box, it will be a combination of, we have -- we’ll have some broad integration that will come along with that -- Carded for example almost immediately and G-Box will have some there.

There is growth also that we’re confident in that will come from Mexico. And then as Mike mentioned one of the things that these acquisitions are providing for us in some cases are integration opportunities of our folding carton operations like Rose City allowing for the closure of Renton.

And so with the mid-to-long term in mind, it will be a combination of board, cost and facility consolidation or cost takeout and in the case of Mexico, some growth..

And Chip, the other side of the equation is a little bit what you saw in the same quarter is that to some extent we are investing in those verticals those end used verticals that are growing but we’re still having to offset the ones that are not. So we'll talk specifically about soft drinks.

Some of the acquisition stuff is to fill the hole that’s inevitably being created by a change in consumer demand and soft drinks. So neither of these acquisitions were aimed at soft drinks for example. They were in craft beer or they were in other food areas that are growing geographically.

So some of that is not, you don't add, it's not all truly incremental there is some incremental portion of it, we’re going to operate those facilities better but we’re still trying to make sure that we balance the corporation recognizing that some of our end-used market verticals are not particularly positive in North America..

Very clear and quickly last.

And mentioned craft beer which -- as you guys move more in that area, are you finding that most of your solutions are tied to their bottles or actually is there -- are you noticing a big increase in their use of cans and you’re following them there as well?.

Chip, it's Mike. I mean, 2015 has been the year of cans.

I mean we've seen a -- we continue to gain some share on bottles for sure, but the transition to cans has been almost surprising for us to include placement of machines that support the craft brewers and to be able to get into the can format and you’ve probably seen the marketplace some of the decorations and decorating that they’ve done on the cans is pretty phenomenal.

So we’re excited about that for those customers..

I mean, Chip, Mike can properly tell you, this is maybe one of our biggest machine selling year in the last five years would you think Mike?.

Yes absolutely..

A lot of machine to go correctly into the brewers so that they can can-pack multi pack cans..

Got you thank you very much..

Your next question comes from Mark Wilde with Bank of Montreal. Your line is open..

Good morning Dave, good morning Mike, Steve.

First question is, just this G-Box tap out Mexico for you guys right now or could we see guys do anything else in that market?.

I think it really starts a platform for us Mark that’s got scale. So we don't view ourselves as tapped out in Mexico..

But one of the things that's nice about this acquisition Mark is that they've got a brand new plant in Tijuana area that they’re just now bringing up. So we've got some real growth capacity built in that's why we don't feel like there is a whole lot of excess cash that we’ve got to put into that business.

We've got a pretty good platform down there, so it may be a while before we actually need to, if we fill of their facilities there is plenty of upside..

Okay.

I guess in Mexico just interesting to kind of watch the growth in the beer business down there and particularly watch the growth in cans, which traditionally has been a big market for you guys, I just wonder how much of that market growth you're capturing?.

At this point in time very little of it and that's one of the reason -- I think I talked about that on the call is that we get some of it but our facility in Queretaro is really focused predominantly on food, we do some beverage but it’s not well designed for that. But the facilities that we’ve purchased are already in the can market.

So the advantage we have is that we got a platform to build on that can market. So hopefully, we’ll be, I mean hopefully, hope is not a strategy, we will clearly be able to improve our position on beer can sales in Mexico..

Okay, another question just on offshore markets Dave.

I wandered with all of the currency moves that we've had whether you're seeing any more competitive pressure either from Europe or from you know like the box board producers down in Brazil and Chile?.

Hey Mark, it’s Mike. I mean, we characterize that as properly being about the same that we've experienced for the last 12 to 18 months. As I know you are aware I mean the big machine [indiscernible] doesn’t come online until first quarter of next year. So I guess it’s we don't know what impact that will have.

They publicly stated they want to target the Americas but that substrate competes with something that we don't manufacture. So at that point in time, we’ll have to address that if and when it becomes a challenge. But in terms of what we’re expressing right now is pretty consistent with the last 12 to 18 months..

And then Mike, if I could just on these carton plants, I used to cover another company in Atlanta that bought a lot of carton businesses and didn't really integrate them very well and it really came out pretty badly.

Can you talk about what you guys are doing to integrate all of these businesses to make sure they’re really all tied together?.

Well, as you know our model really operates from the core and so we integrate them pretty quickly in terms of things like supply chain integration, broad integration, how we're going to balance that supply and procurement into our overall processes.

And in both these acquisitions that we announced and the one that we did up in Canada, management came with us and has a role integrated right into our existing leadership team and that’s something we look for as opposed to just buying assets and putting all our people in there.

We feel that there is local knowledge particularly in the markets that we bought in like Mexico and craft beer but we’re getting outstanding managers and we test that during the diligence process and make sure that the chemistry is going to be fit for how we want to run the business.

We're pretty open about the fact that you're going to run our board or the board that we tell you you're going to run. And the operating platforms and how we run the carton plants to drive productivity. We are always looking for new and better ideas but we've got a way that we do it and we don't deviate much from that..

And Mark, one of the things that we’ve talked about just before you choose that, over time these converting plants needs to be recapitalized and when you get to that point you have really two choices.

One is you put new capital into yourself or two, you look regionally and find out whether if somebody has already done that and you can purchase their whole business which includes the customer interface, newer equipment and then sort of decapitalize your business and put your business in a new facility.

It's exactly what happened with Rose City, I mean, our facility out in Renton was in significant need of capital reinvestments, we hope they hadn't put a dollar in that thing for a decade.

And it made no sense because it wasn't really a great platform for us out there to do it ourselves but when you combined with Rose City, which was new, better management team, great geographic locations with lots of capacity, it made heck of a lot more sense to move it in there and that's really part -- that's exactly what we did.

So if you think about the converting business not as an adjunct but as an integral part of how do you drive profitability back and you look at your alternatives versus your investment strategies, that's the way we look at it.

And so, some of these acquisitions are really built around improving our overall asset base without a direct capital investment adding capacity or adding new capitalization to old facilities. So it’s a mixed bag and we make that decision on a holistic basis..

And do they go Dave, immediately on the same systems, the information systems that you guys are on?.

For the most part we run SAP, it's a little less critical in the carton plants but the financials are all end up on SAP, the floor-based are not so critical relative to being on SAP, a lot of them are. But if you can imagine, our carton plant, you’ve been at a bunch of them Mark, it’s just not as critical.

Financials, we don’t negotiate on that they all have end up blowing out through SAP, so we got a direct visibility. As Mike said, we also integrate and we take over the purchasing decisions centrally.

So we immediately see all the builds on the general ledger information because we take that over from the center immediately upon acquisition of a converting asset, in this case also in Cascades when we bought a mill system as well..

Okay.

The last two questions I had, wondered if you could just comment on kind of price cost as we look into kind of fourth quarter and ’16 and then just update us on kind of debottlenecking opportunities over Macon overtime and what a timeline might look like there?.

Yeah, Mark. This is Steve. Just on the price cost, really, we continue to see what we have been committed to and what we work to execute on, which is that our price inflation deflation will offset cost, commodity cost inflation deflation this year. As you know, we're rolling through some commodity deflation that is impacting price.

You saw where we’re at in the quarter that will likely play itself out in a common way in the fourth quarter and then as we execute on some of the CRB price increase and margin to ‘16, our expectations would be the same and Mike said it well and we just keep repeating it, because it’s important, we just don't see it as margin accretive, it is really there to offset the realities of commodity costs and the occasional contract resets that we do with our customers..

And I will take the question on Macon.

I think the one thing we could comment on we just got then with our annual outage there Mark and we installed a dilutions pro head box on the Macon, one of our Macon machines, which as David said, [Technical Difficulty] These are the types of projects that help us year in and year out delivering that $60 million to$80 million worth of productivity that we talked about.

And we got projects identified in Macon that we can build it out for sure, but as we’ve stated we don’t want to make those investments until we’re very confident we’ve got those things sold.

We’re confident enough to do the crossing section in head box in West Monroe, those 30,000 tons and as we continue to find acquisitions to drive additional organic growth that requires us to have more tons, we know exactly which levers we will deploy over the next few years to take advantage of that [Technical Difficulty].

Your next question comes from Phil Ng with Jefferies. Your line is open..

Hey guys.

A quick question on some of the acquisition you made, particularly on G-Box, are the contracts pretty similar to your business in North America in terms of pass through and pricing?.

Yes, there is not much difference in most of these contracts, I mean as Mike said, same customers, so they don't typically maneuver differently in different geographies..

You know one thing to add there, the team there has done a very nice job of managing through currency in addition to that. So they’ve got an appropriate balance of dollar-denominated local currency denominated, so that’s been an important part of their value proposition as well..

Yeah. They've done a pretty good internal hedge against currency, by the way, they have constructed their business. The guys are G-Box are smart guys and they are probably listening in today.

So I’m not telling you they don’t know, but I like working with those guys, they ask very hard questions about graphic, sometimes harder than ones you guys ask and I like the fact that they were pushing back and understanding how could they grow their business, how they make it better by using the resources at Graphics Packaging.

That's really what you want to hear when you make these acquisitions that are not right in your backyard and I was dearly impressed with that..

The profitability data that you guys have provided is quite high for converted business only 19% EBITDA margins, has that been pretty stable throughout the cycle, I mean you've obviously expressed some concerns in the past on Mexico, so just wanted to get some color on that front?.

Phil, this is Mike.

It’s been very stable through the cycle, as David said, they have got a very capable leadership team and a methodology they’ve used, it’s been highly effective and I guess in terms of what that looks like, as David commented earlier on, we are buying high-quality assets and as a result of that, we’re making very good returns and we said that look, we are willing to pay up, when we find those kind of opportunities where we believe that we can take advantage of both the EBITDA as well as the synergy opportunities and we think both these acquisitions fit right in that wheelhouse..

Mark asked the question earlier too Phil about how do you guys do these integrations, well, quite frankly, you tend to think of it as where graphic buying and helping them understand how graphic works, but what we found in our European acquisitions and in Canada is that we learn some things about how other people operate in their facilities and sometimes on some verticals better than we are.

So the key there is also translating back what we saw in our acquisitions with Europe was some people that really knew how to run a plant. They were doing better in their plant that we were in many of ours. So translating that learning back to graphic is one of the reasons why you’re seeing $80 million a year in productivity improvements.

So we’re an equal opportunity offender when it comes to finding better ideas across the space.

We’ve done a better job of doing that in the last three or four years than we did in the previous four or five years, so I would expect that we will find the same thing when we look in these most recent acquisitions and Canada is smart too, if you look at their margins, they’re very good, they run a good business, there are some thing that we will learn on the new product activity there.

We can duplicate what they were able to do in their space across, there is operating leverage as well. That’s the key. We don’t always do it. But at least, there is an opportunity set and that’s kind of the business management we hope for..

That’s the nature Phil. And on top of that, we were able to see that in our Rose City acquisition too in terms of how they went to the market and the regional customer set which is an important one as we've talked to you about.

So we need to continue to leverage around what these acquisitions do well and I've done it with the scale the Graphic Packaging brings..

Okay. That's very helpful. And I guess just one last one from me, with the potential ABI SABMiller combination, can you help us kind of frame what the impact it could have on your businesses there, lot of overlap for you as well. Thanks..

Well, you're asking me to define what you think the department of justice is going to do and I've not been that good at that even here. So what I would say is that, the most likely scenario that's been proposed is that MillerCoors spins off, so I would tell you in North America, the impact for Graphic Packaging would be virtually nothing.

There is no combination there that the changes are in relationship with AB or with MillerCoors. For the rest of the world, I guess we'll see how that plays out. That relationship is not as big for us anywhere else and of course in China, we're still a pretty small player in China.

So no matter what happens in China, it's a round off right now in our financials..

One thing to add to that Phil is AB has been very committed to bring [Technical Difficulty] of their brands, which has resulted in moves to paperboard ,and so if you take the long-haul view of this and in terms of investing in the brands and paper board, it should be a net positive on a global stage..

This is probably a 2017 question. Hard to be perfectly honest. Hope it all gets resolved..

Your next question comes from Ghansham Panjabi with Baird. Your line is open..

Hey, on the additional SUS investment, what is the total cash cost of the investment, I'm sorry if I missed that and is the additional capacity something that you see as the company kind of growing into organically or is it to support forward thinking acquisitions out there in the future..

Hi, Ghansham. It's Mike and so the range of capital investment for the head box in the pressing section will be between $35 million and $40 million of CapEx..

And we're making the investment because we're selling the tons..

Right. As we kind of outlined in the call, these bolt-on acquisitions, we've done four of them this year, really they all have some need for SUS tons and in addition to the progress we continue to make in Europe, we're confident that we need those 30,000 tons now, so we will build it out..

And is that capital specific to ‘016 or is there some there as well?.

Very small..

Small this year, Ghansham and vast majority will be next year and we'll provide -- it's much like we've done this year, we'll call that out very specifically for you, you can think about it as an investment beyond the core $200 million that we stayed committed for maintenance and traditional spend, so we'll call that out specifically, but it's in that $35 million to $40 million range..

Okay.

And just one other question, on the new product activity you referenced, has that been impacted in anyway by the drop in plastic prices, which at least were part of the portfolio, could be a natural alternative for some of your customers, relative to paperboard prices which have actually held up pretty well or in some cases increased, has that changed the dynamics in anyway?.

So, Ghansham, as you and I have kind of talked in the past on this, I mean, our customers really take a long term view on their packages, because as you know just peg whether it was a flexible application versus a paperboard application based on the price of oil, you would always have that wrong.

Paper is always going to be more expensive and flexible, but it’s got certain characteristics that allow them greater functional utility graphics and performance.

So in terms of how we think about that and we compete pretty aggressively every day in those spaces for alternative packaging applications and we’re not seeing anything that would suggest that we’re losing any share to those substrates..

Your next question comes from George Staphos with Bank of America. Your line is open..

Very quickly, in the call, first of all, in terms of West Monroe, is there anything unique to the press section that you’re adding to the mill and then in terms of just again this increase in box capacity that we’ve talked about over the last several quarters in the industry, how is that adjusting if at all your strategy, both on sourcing and for that matter on M&A within the markets?.

So that’s the last question, geez, that’s a long one.

Relative to the head box in West Monroe, it’s certainly new for West Monroe, but it’s technology that’s been applied around the world, it’s part of that process that we’ve said that we want to continue to invest back in these mills and now we have the balance sheet to do, we’re trying to make sure that they stay world class.

And that’s exactly what we’re doing in West Monroe. I think Mike would agree too that the quality required for Europe sometimes is a step up for what’s required here, so this makes darn sure that both Macon and West Monroe stay current for our needs in Europe.

Relative to the box board changes around the world and I guess what you’re saying is with the addition of all the ivory board and those kinds of products, does that change our view of the SBS market or the potential proactiveness, the answer is no.

I mean, we still remain first and foremost a converting business that backward integration generates cash. So our SBS converting business has continued to grow, both of these acquisitions, we talked a little bit about SUS and CRB but they also use SBS in their business, but we’re going to have to find that SBS on that outside.

Are we opportunistic about how we buy SBS, oh yes, we’re opportunistic about buying everything. So this would not be different, because it give us a view that long term SBS is not a good market.

We think if we can make it more and we can build our network out around an SBS, that makes perfectly good sense for us if we own an SBS board mill, but today, we don’t and there aren’t per sale. So our view is unchanged, but our ability to execute around SBS remains the same..

And Dave, just if possible, if you can remind us the return on these investments, obviously you are not looking at just at the ton of boards you’re producing, but ultimately the incremental value that you’re adding, selling it on an integrated basis around the world, that return on something like West Monroe, how much ultimately is driven by the improvement at the mill and the profitability of that board as was produced and how much is driven by the integration and the ultimate sale of that.

So weigh, 60-40, 30-70 or is it too hard to answer this late in the call. And if so, we’ll respect that answer too..

No. George, this is Steve. The short answer is the mill economics have to hold their own. So frankly the economics are driven.

We have to have confidence that the mill economics will hold their own, because then we’ve got economics that drive through our integrated model that lead the store that 18% to 20% in total, but the mill economic returns are there on this project, associated with selling the incremental tons, but that has to hold its own way..

But those tons will all end up through our converting network hours, it’s not really driven for exterior sales.

So if you think about the mill, it’s an investment behind the scenes for the converting business, as Mike said, we’ve sold those tons from a converting standpoint and that’s why are investing behind, but on a standalone basis, we will be making investment to sell open market board in our mill system, no..

We stand up to converting the mill first and then we invest behind it..

Yeah. I wasn’t assuming you’re making those tons in the outside market, Dave, I was assuming again it was going into conversion, so I was trying to get a sense for how much is from integration, how much is from just improving the cost structure of the mill, but it sounds like you’re getting the return at the mill in the first place..

We want to hold the line on getting the return at the mill and then drive it through the whole integrated model..

Thanks very much guys. We’ll talk to you next quarter..

And there are no further questions at this time. I turn the call back over to presenters. This concludes today’s conference call. You may now disconnect..