Thank you for joining Packaging Corporation of America's fourth quarter and full year 2009 earnings conference call. Your host today will be Paul Stecko, Chairman and CEO. Upon the conclusion of the narrative there will be a Q&A session. I would now turn the conference call over to Mr. Stecko. Please go ahead when you're ready.

Thank you and good morning and thanks for joining us on our call. With me on the call are our Tom Hassfurther, who runs our Corrugated Products business; Mark Kowlzan, who runs our mills operations; and Rick West, who you all know is our CFO. And again, thanks for participating and we will take your questions when I complete the presentation. Yesterday we reported fourth quarter earnings of $59 million or $0.57 a share. Fourth quarter net income included $44 million or $0.42 a share from alternative fuel mixture tax credits and after-tax non-cash charges totaled $1.2 million or $0.01 a share from assets disposals related to previously announced major capital projects at our Counce and Valdosta mills to reduce energy costs. I should note that in 2010 and 2011 we will also be taking an after-tax non-cash charge of about $1.5 million or $0.01 a share each quarter to account for all of the expected asset write-offs related to these major capital projects. For the fourth quarter net sales were $532 million compared to $546 million in the fourth quarter of 20008. Excluding income from the alternative fuel mixture tax credits and the asset disposal charge, net income was $16 million or $0.16 a share versus fourth quarter 2008 earnings of $30 million or $0.30 a share. This decrease in earnings was driven by a lower containerboard in corrugated products price and mix of $0.32 a share, which was partially offset by higher volume of $0.08 a share, lower cost for energy of $0.08 a share and lower cost of transportation of $0.03 a share. For the year, net income was $266 million or $2.60 a share. And excluding the alternative fuel mixture tax credits and the fourth quarter energy project asset disposal charges, earnings were $96 million or…

(Operator Instructions). Our first question comes from Mr. Mark Weintraub of Buckingham Research.

Paul, I just wanted to clarify the (Inaudible) million alternative fuel mixture credits, is that in addition to the $261 million of cash you have on the balance sheet or is that included in that cash?

There is no alternative fuel mixture credits included in the $260 million cash, that is cash.

Okay, so obviously you guys have a tremendous amount of cash and liquidity and some of it’s going to the energy program, you’re already generating a lot of cash from operation, we are just seeing prices starting to go up and so presumably coming second quarter we are going to be generating even more. At what point do you re-look at the dividend and/or share repurchase or some other use of cash?

We look at all the time, Mark, and as you said, and as I said, we are not getting the biggest part of the benefit of the cash generation will come in the second quarter when we’ve got the full price increase put in hopefully. And we have roughly $300 million of CapEx in our two projects that we’ll spend over the next two years, but if things keep going the way that it had been going, I think we will be in the position some time this year to start making some decisions in that regard, but not during the first quarter.

Okay, terrific. Just second, can you give us a sense as to how demand was looking in January in your box business?

Yeah, the short answer is pretty darn good, little more quantitative, our bookings through I got 13 days worth the data, there are 20 shipping days. So, for roughly two thirds of the month our bookings are up 8% over last year and our billings, which usually lagged booking at the beginning of the month are up 6.6%. So, what we saw in December, I was a little concerned with the late December end that didn’t end with the bank for us, we didn’t really see a slowdown but would feel the effects of that in January, but that hasn’t happened and we are off to a very good start in January.

Thank you. Our next question comes from Claudia Houston of JPMorgan.

Just a couple of question, one just on the CapEx for 2010 and how we should be thinking about the CapEx for the year and then also on the tax rate what you view as sort of a normal tax rate for 2010?

Let me take the first one, I’ll let Rick take the second one. On the CapEx, we are going to come in probably right around $300 million may be little less, I’m hopeful it will be $300 million because we are trying to accelerate our two energy projects, the return is very good and sooner we can bring them in, obviously the sooner we can start getting the return, but basically a couple of $100 million for the energy projects and probably around $100 million for the rest company mills and box plans in 2010, so roughly $300 million.

Okay, thanks.

And with regard to tax rate, Rick, you want to handle that?

Yes, the effective tax rate for 2010 and of course the fourth quarter could be a little lower, but generally about 37.5%.

Our next question comes from Chip Dillon of Credit Suisse First Boston.

First question, just to be clear on the black liquor, since you’re cash tax payer there is really no other benefit that you won’t get beyond the year-end balance sheet, is that right? There is no tax receivables left to get, is that fair?

No, we have tax receivables left of about a $130 million, we will record no more income, but we will able to take the tax credits that we have remaining that we generated in 2009 and applied against our 2010 tax [result].

Okay, that’s great to know and so that means you will be booking 37.5% or your cash tax payments will be reduced effectively by this $130 million in 2010?

That is correct, you will only have your 3%, 4% for state income tax.

Got you, okay.

And obviously the reason we are doing that Chip, that maximizes the value of these credits to us.

Of course...

Rest they have used them for the way we think that we are intended to be at tax credit another way we are using them as opposed to income.

Got you, I totally understand, especially with cash paying less than 1%. When you look at the capital spending number, it seems obviously a bit higher than what you had said earlier which means you are spending more on the energy project in 2010 and you mentioned you’ve already spend $15 million actually in ’09, Tom, is it fair to say that that means your CapEx will be a lot lower next year assuming nothing else changes and that we would only see may be $85 million or so spent on the energy projects that year?

When you say next year you mean 2011?

Yes.

Yeah, okay next year 2011, yeah, we will spend less in 2011 on energy project than 2010, but we also have some projects that other internal projects in the company that we are going to start this year a couple projects in increasing some capacity in some of our box plans pick-up in demand is wonderful, but you got to make sure you got the capacity to deliver that demand and we have some very good return projects in our box plan to do that.

And given that you have that more than 200 of the 300 spent by the end of this year, is there a chance that you could may be jump to gun on that fourth quarter or ‘11 completion, not that you are promising anything, but it would seem like the odds of that are going up.

I would say, Chip, you are talking in terms of may be a month or two with the best to pick it up.

Okay.

I don’t think we’ll get all the way to 200 this year on the energy projects, that’s our goal. May be we only get to 190, but it’s obviously very early in the year, but for a one number I'm throwing that 300 million and to be honest, there is a higher probability we’ll under run that number by little as opposed to over run it.

Got you. And last question, given your position and involvement in Europe and just in the global industry, any feel for what you think is going on with OCC? Is this just a sort of a near-term blip and may be tied at the end of black liquor credits and may be less (Inaudible) raw pulp being made or could there be something more to it that’s sustainable?

Well, I think the short answer is, I don’t think this is a one-term blip. Our position has always been that we think that the world will [route] OCC because all the new capacity coming on is virtually a 100% recycled. As this world grows, and lets presume that the world will continue to grow then the make-up fiber have to come from virgin fiber and so we like where we are in terms of having the lowest dependents on OCC, because we think long term OCC will be short and if it’s short it will tend to rising price and obviously the big fall off on OCC benefited us for lease in the short-term, but we are in this business for a long-term and we don’t mind taking our lumps in the short-term, but we want to win in the long-term, and as I like to tell people, I like the hand we have been dealt fiber wise. I wouldn’t trade it through anybody else’s.

Our next question comes from Mark Connelly of Sterne, Agee.

Thanks, Paul. Two things, following on your comment about fiber, last quarter you talked a little bit about higher fiber costs and then of course you didn’t get a little bit of a shortage. Can you talk about what you are expecting over the next quarter, is you down time and outages going to help enough if fiber stays wet, the way it has. How concerned should we be, say, over the next quarter about the virgin fiber side?

Honestly, I feel a lot better then I did two and a half months ago and we ran out of wood two and a half months ago that never happened. I’ve never experienced that in 30 years in the industry. We have done a pretty good job and I felt very comfortable, January 1st and then the cold weather and then the rain weather has hit us pretty hard. We are still a lot better then we were in the fall. We think we are going to be all right, but if we have another prolong bad weather spell, you never know. The one negative is when we were short on wood, we tried to maximize the amount of OCC we use, but that’s not such an attractive alternative these days with OCC prices jumping 30 bucks or more in January and we feel the OCC could go up another 20, 25 or 30 in February. One of the things that we have, the ability to do, however, we got a fairly good system to cut access chips in Valdosta where we’ve got wood and ship them to Counce that costs us some money, but that’s a pretty good buy compared to downtime and with OCC prices going up the way they are, it’s a good alternative to have, and I feel much more comfortably because of that. We are in better shape than we were in the fourth quarter, but we are not out of the woods and that’s really as good as I can do with that question.

Are your virgin fiber costs higher then they were three months ago?

Virgin fiber costs are about the same. The only expense that we’re incurring extra is to chip chips and it’s strictly freight.

Freight, okay.

Our wood costs were little lower in Valdosta than they are at Counce, but we incurred the incremental freight and net-net those chips cost us more than the wood that we have available at Counce. The problem is if we can’t get into the woods, you can’t get that wood. The other problem that’s happened is that it messed up the situation; it got so cold in January, a 100 years low temperatures in and round Counce. Wood is frozen solid, I mean woods have water, so you are trying to chip ice and it really beats up equipments, so we had a lot of down time in our wood yards, but things warmed up at least and now we have just got a [fight drained]. We are not the only ones experiencing these problems; it’s been a tough time all through the South East in terms of getting fiber into the mills for everybody.

Just one last question. You talked about exports picking up and that’s what we are hearing from pretty much everybody. Are the margins on your export tons roughly the same as domestic?

No, export pricing is little lower.

Still.

Offset by less freight, but still domestic is better than export, but export has pick up a lot of steam and tons are short in export and you got to go back long way, but if you go back to 94, 95 when prices hit 530 in the U.S., we were selling export business at 600 in South America. So it’s hard to predict where export prices are going, I’m not saying they are going there, but it has happened before.

But the margins are getting better?

Well, absolutely.

Our next question comes from Richard Skidmore of Goldman Sachs.

Just wanted to talk a little about the box demand numbers that you put up in the fourth quarter and versus the industry. Can you talk about specifically where you think you might be gaining some share relative to the overall industry in the box business?

That’s an interesting question and we thought about that and talked to a fair number of customers, I’ll tell you what we’ve concluded. The nature of our customer base, we’re not big in the big national Counce business. We have a lot of customers, a lot of smaller customers and in the first quarter of last year our demand was worse than the industries. We were about 3% worse than the industry average in the first quarter of 2009. Then we rebounded and were a couple of percent better the industry and we continued to improve above the industry through the rest of the year. Now I don’t have industry data yet for the fourth quarter, for December, excuse me, I have it for the first two months, but I don’t have it for December, but I think that trend we will see the December numbers, but I think we’ve also like before we will outperform the industry in the fourth quarter when those numbers come out. And what I think is, I think the nature of our customers when the recession hit they hampered down pretty flat in terms of shedding inventory, reducing cost, cutting their production schedules, because the smaller companies, I think, just moved quickly because again they did not have the liquidity that some of the big companies have et cetera. But the opposite happened when the economy picked up. They were more aggressive and less cautious than a lot of big companies and they rebounded quicker and I think we’ve written that way through the rest of the year. I think as some of the bigger companies pickup that trend may subside a little bit, but I think it’s just the nature of our customer base. They tended to do things pretty quicker smaller companies and they manage cash very, very carefully. And that’s the reason I think things have turned the way they turned.

Okay, I appreciate the color. As you look at your production, I think you mentioned you’d operated at 97% in the quarter and as your box volumes have grown faster than the industry, is there a point at which you start thinking that you need more on the mill side to continue to grow faster than the industry in the corrugated side?

We would have to grow for a longer period of time to just nine months for that to happen. We have a bellows and that bellows is we can tons out of export if we need them and we’ll just going to have to see where the economy goes and this growth above the industry has been higher than I would have expected and gain I’ve told you the reason. We will be challenged in the first quarter with keeping up with demand, because we’ve got the two outages 27,000 tons. We’ve got cold weather; we’ve got productivity problems with cold weather. We will be challenged, our peg will be very tight paper wise until we get through the shutdowns and then as always we’re in much better shape after we get through this first quarter. So this is going to be a particularly tough quarter for us in terms of making sure our mills run very well, because we need the tons.

Thank you. (Operator Instructions). Our next question comes from George Staphos of Banc of America Securities.

Paul, I was hoping you could may be give us a bit more color regarding the energy projects and perhaps may be how the returns have improved given as you say that you've been able to lock a lot of the manufacturing costs. I think you said something about 80% on longer term contracts given the environment for, I guess, contracting and project development and I had a couple of follow on?

They haven’t improved George to any extent, you're talking tenth of a percent, when we budgeted this project we assumed that we would be able to buy equipment lock up constructions at these prices. We had a contingency in there some of that contingency has drop the little bit, but these projects were still pick a number 25% and what needs to happen to drive their higher than 25% is that the Congress once it gets through with healthcare the other things have to take on something such as Section 45 electricity credits.

Right.

That was not handled at the end of the year as Congress ran out of time that will be one of things that we think they are going to take up in the first quarter that's got the potential to drive our return near 30% if that happens and we're optimistic. There are two bills, one in house and one in the [sense] I think levels are playing field with regard to electricity credits and we're hopeful that that will be adopted.

Okay, but it sounds like you saved a few million dollars, may be but not in tenth of millions of dollars on these projects from locking up long term arrangements?

No, it’s not, but the big plus. However, is that we've been able to lock in the prices and take the risk of escalating on material prices off of the table and I think we all know what's happened to things like steel and stainless steel prices over the last three or four years. Stainless steel has basically more than doubled in cost and now things have come back to the levels what they are and we’ve simply taken that escalation risk off the table and we're pretty happy about that.

Paul, that’s fair. Switching gears, if we think about the market and we've now seen the linerboard increase announced or implemented for January. Ballpark, how much of your box business do you think will have the [record] that box price implementation in for in the second quarter? Are we talking 80%, 95%?

We only talk to our customers about box prices, we don’t talk to anybody else about that, but I can talk about history with you. Historically, we've been able to put box prices through in a two to three month timeframe and see we are very optimistic about this box price increase. The one negative on this box price increase is, April 1st; a lot of people including our customers are in quarterly pricing. April 4th, first as you know is in the second quarter. So all of the people that their contract require quarterly pricing those automatically are off the table. So even if we put the thing in two months that last bunch which would occur April 1, you really don’t get until the third month and one day you'd have it for a month, but have one day is not there.

Okay, are there any shipment and/or market waggeries we have to be aware of, given that again the Easter holiday falls right on I think the beginning of April or is that going to be a non-event for you, do you think in the industry?

I can’t speak for the industry, but it’s a non-event for us.

Okay. Paul, last question and I'll turn it over. Just as we look at bridge from 4Q to 1Q you enumerated to rationally the things to consider, obviously we can do our own math on the down time, but can you call any of the other factors whether it’s [inside] to your consumption that we should keep in mind on, kind of on a per share or million to dollars basis?

The answer is no. We don’t break those into details. They are detailed estimates. If you take them all together you get to where we get and we've simply gave in the items, but we're not going to get into each everyone of them in terms of the exact amount.

Our next question comes from Mark Wilde of Deutsche Bank.

(Inaudible) possible for you to give us kind of just a sequence at least a rough sequence as we move thorough the year in terms of downtime, it seems like that downtime in the Northern mills usually comes in the second quarter?

Yes. As I said, the Counce shutdown would be maintenance shutdown, will be in March of this year. And then in April we’ll have Valdosta down again for it’s annual outage, again about a week down. And then we also take Tomahawk down in the second quarter, which will be in May. But again that’s always been that way. Filer can move around, but this year we’re going to take Filer down early this year also in April. And then we will have no shutdowns in the second half of the year. Filer was down last fall we’re moving that to April of this year.

With Tomahawk and Filer City, both be roughly one week?

Roughly one week.

Okay, right. And then with these OCC prices moving up so rapidly, can you give us just a rule of thumb for you or what you think the industries kind of tripping point might be in terms of when OCC hits a certain point you’d rather run the pulp mill when it’s below a certain point, you might opt to use OCC?

We are at that point now, we’d rather run virgin fibers in OCC from (Inaudible) point of view.

Where do you think that occurs, I mean it’s 110?

Well, that’s a hard question, that’s why saying how much is that like a diamond cost per carat. You got to know the quality of the diamond, it varies by mill market, varies by your wood cost, it’s different at Valdosta than Counce and it’s different at the semi-chem mills. So that’s not an easy question to answer just with one number. It’s a range of numbers depending on your wood cost. Now and so not being a base, but wood cost could vary by 20 bucks a ton between mills and you have to faster that into it.

Okay. And then last question. These energy projects, did they both start up in the fourth quarter of 2011 or they actually could you see one of the mills come up kind of before the other and come up a little better over there?

They are both are going to come up in the fourth quarter, tentatively 1st of December when I say the fourth quarter, well I think other month or so off of those schedules whether we can or not, but it’s too close to call right now, I mean how things go, weather is important. You want to try to get it done before it gets cold in Counce and how winter work goes. It’s not fortunately this winter, we don’t have that much work to do, but next winter, the winter of 2011 would be a critical winter in terms of how much construction work you can get done, because it’s very tough working outside the construction in very cold weather. So if you tell me how next winter is going to go, I can give you a better estimate, but if things are normal, we’re talking near December of 2011.

Thank you. Our next question comes from Stephen Atkinson of Bank of Montreal.

First question would be on the energy projects, do you have a targeted savings?

Yes, we have a targeted savings. In order to get the type of return you talked there, there is a savings number associated with that. The complication comes with the Section 45 of letter of credits. And where we can get a credit for the capital in the project or we can take it in terms the electricity revenues. And so that savings could vary in anywhere from $90 million in savings if none of the credits were in the capital or it could probably drop as low as say $75 million, $70 million if we had a capital credit. For example, instead of taking $0.01 a share, $0.01 per kilowatt-hour, we could get capital back. I'll throw a number of that not determine, but say $50 million that would come off to capital cost of the project. That might be better for us than taking the electricity credits, so the savings is going to be in a range depending in what form and if the Section 45 Legislation is passed. So it’s a complicated answer to a simple question.

I really liked the answer. The second thing is that given that is taking a while to do the project, it sounds to me that you’re doing the projects in a way did you not going to upset the ongoing production and so that really would there be any savings as you're going along as you’re gradually putting in the different pieces?

No, because when Filer starts up and you're making steam through the turbine generator there are no savings, but you did hear Paul one important point, and that is at Valdosta, we're building a recovery boiler separate from the existing operation, the existing operation one until we start the new one up. We do have to make some tie-ins so we had five days of downtime as a result of the project that will be it for the downtime associated with the project at Valdosta. It's a little more complicated at Counce because we have to rebuild two recovery boilers. And so what we'll do is shut one down while it’s being rebuilt, we're run the elder ones flat out, but that will result in some loss production until we then do the other one. And that's all figured into our savings calculations, but we will lose some production at Counce because of the nature of that project is much simpler at Valdosta. But unfortunately until we crank it up there are no savings.

Yeah, okay so that what would be timing on the loss production at Counce?

That would be in 2011, none this year.

Okay.

We’ve got all the boiler equipment on order and then we will take the boilers down probably in consort with the first shut down next year so we'd save that time. We’ll do it with the annual maintenance outage because that's free time if you will and then we'd do the other ones right after that. We are talking next winter and spring.

Okay, that's great.

I’ve got to hold you for one more question, so I can get to everybody?

On your waste paper sourcing and collection, do you just have contract? Or you have your own collection system?

No, we have contracts. And again, we only procure about 1000 tons a quarter of OCC on the outside so we don't use very much we obviously don't need our own collection system, because we use so little.

(Operator Instructions). Our next question comes from [Mr. Andrew Fineman – Meridian]

Thanks. So when you talked about not being on the woods yet with the weather in South East, but I think now on you Paul that's in your guidance. I mean when normally when you have a problem then you tell us a number like $0.12 you're factoring that in?

You are absolutely correct. I've given my best thinking on what we've think are going to happen, but I could be wrong.

Okay.

One of my skills is not predicting the weather. And we hope it goes and we think it might go then that's the best that I can do. The other thing I would point out most of the real bad weather has really shifted more south through at least December and unfortunately if you were in the bottom half of Alabama, Mississippi and in the Louisiana they've had a tougher time than we had in the last few weeks the woods crop up the weather has moved back up North again and so if it goes back to a more normal pattern we'll be okay and I think my members will be pretty accurate, if its not normal pattern who knows.

Okay, thanks. And the $658 million of long term debt that you mentioned, does that include the capital leases?

No, I don’t think so

No, it doesn’t, Andy.

(Operator Instructions). I’m showing no further question sir.

Okay. Well, listen, I’d like to thank everybody for participating on the call, if any follow-up questions you can always get a hold of Rick or myself if you think you have a chance to get on and I look forward talking to you next quarter.

Ladies and Gentlemen, thank you for your participation in today’s conference. This concludes the program, you may all disconnect. Thank you and have a nice day.