Thank you for joining Packaging Corporation of America’s first quarter 2010 earnings conference call. Your host today will be Paul Stecko, Chairman and CEO. Upon the conclusion of the narrative there will be a Q-and-A session. I will 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 the PCA’s first quarter earnings release call. On the call with me today as usual as Tom Hassfurther, who runs our Box business; Mark Kowlzan, who runs our paper mills; and Rick West, our CFO and they will assist me on the call and again, thanks for participating and when I finish the prepared remarks, we will take your questions. Yesterday we reported first quarter earnings of $19 million or $0.19 a share. The reported results including $9 million and $0.9 per share addition to income from alternative fuel mixture tax credits, which were generated in 2009 and then after tax charge $2.5 million or $0.02 of share from asset disposable for related to work counts and Valdosta major energy projects as well as the announce closure of the Ackerman, Mississippi saw mill. The increase in earnings from alternative fuel packs credits was the result of removing a reserve that has been established to cover potential ambiguity that was subsequent result concerning the methodology of calculating the fuel credits. Our net sales for the first quarter were $551 million compared to $512 million in the first quarter of 2009. Excluding the additional income from alternative fuel mixture credits and the asset disposals, net income was $12 million or $0.12 of share versus first quarter of 2009 earnings of $26 million or $0.25 of share. The decrease and earnings per share compare to last year was driven by lower containerboard and corrugated products pricing mix of $0.26 of share. Higher recycle fiber costs of $0.06 of share and higher pulpwood cost of $0.03 of share. These items were partially offset by higher volume of $0.16 of share lower energy costs of $0.04 of share and lower chemical costs of $0.02 of share.…

(Operator Instructions) Your first question comes from Chip Dillon - Credit Suisse.

First question is could you give us as you often do the update for how your orders and shipments looks so for in the month of April?

Yes, I can. April is started out to be very strong and compared to last year, we only have nine days what’s the data, and it’s 21 work days. So we’re not halfway there, but after nine days basically, our billings are up 10% over the last year and I think what significant here, as I mentioned on the call, we had some very good numbers in the first quarter, but they were fairly easy comparables. We got a tougher comparable in April. We were only down half has much in April last years, we were in the first quarter. So we’re up 10% on the tougher comparable. So very strong and in total volume through the first nine days in April, we’re up 10% over March on an absolute basis, March of this year. So I would say unusually strong first 10 days, first nine days in April.

So, again just unclear on this, it’s also of 10%, the first nine days in April versus the first nine days of March above this year?

It’s up. It’s the first, yes.

You are talking about the inventories and they look like they are actually lower than they were in the 93, 94, 95 run up that we saw and I remember here in a term allocation, I mean you’re looking at the exports down several months. Are you having actually a hard time shipping, more people are trying to order, are you behind?

No, we’re not behind. We’re happy to say although a lot of reports of a lot people being behind. We’re fairly on schedule. We did makes them allocation decisions earlier in the quarter anticipating that this could happen and trying to build some safety soft for the big Valdosta outage and so the good news is that we allocate, we pull tons out of some markets primarily export, so we wouldn’t get behind. The bad news is, we probably didn’t pull enough because we really haven’t built enough safety stock for the Valdosta outage. So we’ve got a lot of pressure on our sales to make sure that outage is completed on time and a mills starts up well about outage and we will have to continue to allocate tons in the export market and that’s where we’re taken up the slake. So we made a decision early to allocate early, so we would not get behind on our domestic shipments. We done a pretty good job in that regard and Chip, what I’m doing, I’m limit in everybody to two calls and we’ll pick you up on in next round.

Your next question comes from George Staphos - Bank of America.

Hi, Paul, two questions on costs. You know, as we look at the guidance that you’ve given for the second quarter would be possible to gives a ballpark of what award in energies benefit would be sequentially relative to the first quarter and then the second question, as you think about your overall cost position would be fair to characterize two key were still has been the maintenance outages now, if you can do that, more elevated than kind of a normal second quarter, but down versus 1Q.

Well, on the cost to energy usually were the couple of cents, second quarter over first. It was the last part of the call. We think its we’re going to pickup some money here, but because we think wood cost will continue to threaten down, but that’s a lot of harder to get in and not going to given number in that regard, but we do have our wood cost going down. I think our second quarter earnings, this I can’t be typical because we’ve got a price increase mix into it. So, they’re obviously going to be higher and we just say compare to a typical quarter, it’s hard to answer that because there’s a typical second quarter through a price increase that doesn’t include a price increase. So, that’s kind of a tough, there’s no typical here and unless you normalize to price increases.

I guess would you grew the point that you would probably be earning even more than what you’re guiding to, if not for the elevated for raw material input cost position right now?

Well, absolutely.

Your next question comes from Mark Weintraub - Buckingham Research.

Thank you, Paul. If I understand correctly, so if you gotten $0.08 maintenance hit in the second quarter and that goes away for the third and fourth quarter, is that correct for so?

That’s correct.

So my base going into the third quarter is of sensibly $0.38, if your guidance proves out and then beyond that?

That’s correct.

Okay, and then beyond that any benefit we got from the April price increase that continues to flow through, which presumably can be quite substantial and so now meet to the question, which is in all likely that going to be generating a lot of earnings in cash. Your balance sheet is in very good shape and you essentially put the cash aside already for the energy project. Can you give us any update on what the potential uses of that cash might be and what maybe yet to happen, so you’re ready to make a commitment in that regard?

So, potential use is, Mark really hadn’t change and you look at the dividend, you look at share buyback and you look at the box plan acquisition, which we would like to do it to get our integration level up from the 80% to the 90% level and obviously acquisitions are hard to predict either, even flow with those so, could satisfy that really get you down to two things share buyback and dividends and once a couple of things are sowed out and they are starting to get sowed it out and as exactly when and if the cash flow improves how much we can have were obviously, as each quarter goes and each price increase goes still, we get a little better handle on that. The economy is still I think I’d like to feel a little more comfortable, but although signs are or, I’m feeling better, today than I did three months ago; and then the fourth one is, how is the tax situation going to play out and I think more and more dates becoming available on that show, but the only thing I can tell you is, we’re getting closer, but we’re not there yet.

Okay, and is there a stronger buy us to dividends or shares repurchase at this point is that still something that rocks?

We’re not there yet. So that’s about all I can say on that, but we’re close.

Your next question comes from Richard Skidmore - Goldman Sachs.

Just a quick question on your volume up significantly year-over-year versus what the industries trending out and historically you’ve done a bit better than the industry. How do you feel about on your ability to continue to grow faster than the industry on your box volumes and what’s going to be the key driver of that?

Well a couple of things and that I should point out just in the sake of completeness, last first quarter we underperformed the industry and then we outperform the industry the last three quarters. So former reasons are number to so good in the first quarters, we did at under perform the industry and the trend has been for the last three quarters to out perform the industry and so I can only know, what we’re doing in and I can’t predict how the industry is going to do, but the trend says the last three quarters we’ve outperformed the industry and that I see no reason why that we shouldn’t be able to outperform the industry; and that’s about all that I can say, because long term, we’ve done that and I think it’s the nature of, we do concentrate on where we call we’re hard to do things and there would been through some tough times and there we got even harder things to do. So, a hopefully this trend will continue, but that’s hard to predict.

Paul, is there any specific end markets that you’re seeing specific recovery in?

What makes me feel good about the numbers is, this is across the Board, this looks like all of our customers. I use that word not everyone, but the vast majority of our customers are reporting that their business is improving, things are getting better, the economy is getting better, and that’s manifested itself and better box demand not only for us, but for the industry. So that’s I think the really good news. This is broad based, now it’s not the housing market, it’s not food, it’s everything.

Your next question comes from Mark Wilde, Deutsche Bank.

Just curious, it seems like we’re continuing to pickup momentum here in terms of just volumes. I wondered in your experience, where are you seeing the real pickups within your portfolio?

I can’t cover that Mark on the last question, you probably on the line didn’t’ hear. It’s across the board, there’s no one particular area. General feeling is the economies pickup and everybody is starting to have the benefit from it and we’re seeing that on a very broad base. There’s nothing that jumps out has being very strong or very weak. Things are picking up all over and that’s translating into two better businesses. I think the other thing that indicates that the economy is getting better in other one of the concerns that I had was that in our March volume was very strong albeit to compared against the weak comparison, but the April numbers that there’s ever going to be a free buys and there’s any suspect that the strong March was caused by a free buy and because of the April 1 price increase, the April numbers are even stronger than March. So that would indicate that it was very little buying to beat that price increase. So I just think it’s the economy is the matter of fact that one of the other problems we’re having is that truck and rail ability and should they provide truck, trucks are harder to find and to me that’s an indicator that the economy is start in a bus, a little harder and again a trucks are well all over the country.

Then related to actually the trucking as a follow-up here, until a last few days oil prices have been trending up and can you just remind us of the different ways, and which rising oil prices might flow through to your business as we move through the year?

The rise in oil prices do bother me, they don’t bother me very much about driving up our cost of making paper, although they do affect transportation cost. Our biggest concern was rising oil is that, if that translates into higher gasoline prices that takes disposable income out of the economy and people spend money on gasoline which we don’t pack in corrugated containers and that money does not buy things that are packed in boxes. So, if oil prices really cause the spike in gasoline prices, that translates into lower box demand in my opinion and that’s a much bigger cause for concern. The other thing that happens with higher oil prices obviously chemical prices go up too, but again my bigger concern as things that hurt corrugated products demand first and then I worry about what it does to our cost, because we have a pretty good cost structure in mill. We virtually don’t use any oil anymore except a little on our line counts.

Your next question comes from Claudia Shank Hueston - JPMorgan.

Just a question on what your assumptions are for recycled fibers as we had into the second quarter reducing prices far more?

Rick flip the coin yesterday, it came up tail. So that’s the basis of this prediction. We think they may come down a little bit, but the truth as a matter is, we don’t really know if we had to take gas probably down 15 in May, maybe down another 10 in June, and then probably start to pick up as the Chinese by more, but I think if you ask five people that question, you might get five different answers. So it’s a tough thing to predict, I don’t want to sign like I know more than we do, but that’s what we think.

Your next question comes from Mark Connelly - CLSA.

Do I have my notes correct that this year’s outages in Q2 including the big Valdosta outage are still substantially less than last year and does that create an opportunity for you to rebuild some of those inventories that you’ve been struggling to?

Yes, it does, because last year Mark, we had a lot of market related downtime. As there is more maintenance downtime this year, because we got an extra shutdown. By an extra shutdown, we’ve had to take Valdosta down twice. We took it down once in a first quarter to make some energy project tie-ins that was a short shutdown like six days, five or six days, and then we have a longer shutdown, right now that do also annual maintenance and some tie-ins, but last year’s second quarter about 60,000 tons of downtime well are going to take 35 this year, but what you said is correct, when we have this quarter completed basically by you’ll say mid May, will be done with all our outages and we have the ability then to try to replenish inventory, but that are the dig difference between last year and this year is demand is a lot stronger this year. It was harder to build inventory, but…

How interests are you to build?

No downtime in the second quarter. We think that we’ll be able to get our inventories back in good shape and that’s essential because in the first quarter of next year we’ve going to have to do some downtime headcounts on the energy optimization program, because we’re rebuilding, we’re not replacing the recovery boilers there and that will take some of our capacity out. So we’re not going to be dancing for joy for about another year until we’re out of this transition with the energy projects and we’re going to have to run well to keep up with demand.

One quick question, your fiber mix has all of this OCC and virgin stuff meaningfully changed to your mix and where we get back to normal in Q2 if it has?

Yes and no, in short periods of time when we couldn’t get any wood, we couldn’t get enough wood headcounts and we maximized OCC to keep running and that caused us money that’s why our OCC cost were up $0.06 in the second quarter, but now we’re back down to our normal running rate. We’ve got plenty of wood, so other than that upset condition, we’ve remained fairly stable. We did get hurt. Even though it’s amazing, even though we only use 17% normally recycle fiber. We did use a lot more in a first quarter and that drew our cost up $0.06 of share, which is a big number.

Your next question comes from Chip Dillon - Credit Suisse

You mentioned earlier, I think that the energy project and the challenges over the next year, given that this is a unique setup projects you’re doing at Counce and Valdosta. Is there any changes either, and therefore there maybe, changes as you go long, are we still expecting the project to come in all in about $300 million and this is still expected at the end of 2011, or is there any tweaking to that timeframe or to the cost?

The answer to the question is nothing has changed. We expect it to come in at around 300, Mark Kowlzan (and I) here, we say that, but probably as touch below 300, where we are a little bit ahead, but we’re saving our contingency (inaudible) overturn of problem, but 300 or maybe a touch less and we’re on schedule, we feel very good about the schedule.

The return potential, is that we should expect to gain should be 20% to 25% after taxes on that full 300 is that right?

That’s correct. There has been no change in that regards. The only thing that I will say is that, we on this annual outage at accounts put in a new economizer on our big boiler and that economizer was designed by the same people that are rebuilding are two smaller boilers we’re very happy with a results of that we got a nice energy, we got a nice efficiency improvement more than we expected and that makes me feel pretty good about the improvements that we projected on rebuilding those two boilers, because based on what we seeing on this economizer upgrade; and we maybe be a touch conservative in our estimates, I don’t know that yes, but it’s a good piece of data to have in our back pocket.

Your next question comes from Joshua Zaret - Longbow Research.

Paul my question is, could you tell us the difference you’re seeing in you box customer sentiment, what you’re hearing between the January box price initiative and the April, May initiative? Also how the drop in OCC cost is factoring into this argument? How important that is?

As I stated earlier, we basically completed the first box price increase on April 1, and April 1 is a magic day, because some of our customers or on quarterly pricing, which means that they enjoy the benefit of waiting a little whiled on prices go up on a laid down they pay earlier depending when you make the price increase announcement. So it went as planned, we got it done in normal amount of time I would consider a normal price increase. We’ve announced box price increases for May. We’re just beginning to talk to customers about that and so we’re optimistic with the supply demand situation in order bookings etc. that this price increase will go also in these scheduler timeframe we have in mind and I never get in into any specific comments from customers, we keep them between us and the customers. So that’s about all I can say from that subject.

Let me just empower up, theoretically with the drop in OCC costs make it a little more difficult, is that your experience or is it really operating rates at the primary mill level really drive this figure?

I would say that this small drop in OCC really talking $30 and we use 17% OCC in our mix, so it doesn’t affect us very much. In big scheme of things what has always drive driven prices increase in this industry are one container board inventories and there at on which is supply basis all time lows and then demand, and demand is improving, and basically expectations, and the expectations all I think pretty good for the industry, pretty good for the economy, things are picking up, and I think those are an order magnitude more important than $30 ton drop in OCC prices.

Your next question comes from George Staphos - Bank of America.

Paul, two questions, shorter term and then longer term, as we think about inventories and we’re at right now, I mean traditionally you tend to see seasonal drop in inventory this time a year, but it also sounds to some degree at least from listening to that you anyway or maybe industry inventory levels are at practical lows, would you expect much if any further inventory drop from these levels either for you or for the industry? Another question on strategy, I will follow upon.

I can only speak for our self. I don’t expect our inventories to go any lower. We’re sucking fumes as they say that gas tank is pretty low, we got to try to build a little bit inventory because we have allocated some markets and we have told those customers that we will try to help them as soon as we can and we’re not going to forget about that obligations. As far as the rest of the industry, I don’t know what their situation is on annual outages, over the last stuff that’s not from we track, but when you have this love and people are still shipping orders in late. I think it’s unlikely that they’re going to much lower.

I appreciate that Paul. Then and the longer term question you obviously you and Mark have a lot on the played in terms of the energy products the early science which from what you’re saying a positive a longer term you want to use some of the cash if you have the right opportunity to pass grow the vertical integration or there any other elements of this strategy for packaging corp. That we should be mindful of from a marketing and operational standpoint over next three years that you’d remind us of now.

Sure, the other half of the equation is obviously the box business. We’ve worked hard in and mills only thing counts and that’s cost it is low as possible. In the box plant area obviously we work on doing the hard things that involves people that involve technology and equipment, but the other thing that we’re trying to accomplish in our box system over the next three years is to get our integration level up from about 80% today then 90% and we are spending some extra capital this year about 35 million in our box plants in markets were we are harder capacity not everywhere, but in selected spots in order to grow in those markets to grow with customers that one as to grow so we can better serve them and that’s part of our plan along with selected box plant acquisitions to get our integration level up from say 80% to 90% over the next three or four years and that’s also is the hard of our strategy.

Paul, just a quick one net investment what they work in terms of integration to that three basis points and 10 I assume not but how much of that add to your forward integration?

Well, I can’t get into those specifics, but what we’re doing this year is probably to increase our integration level just this year 2% to 3%.

Your next question comes from Mark Weintraub - Buckingham Research.

Paul just, do you have a quick update on the Filer City energy projects?

Yes, Filer City is someone in long the one disappointment in Filer City with the velocity economy last year. We ran that mill that only about 85% of capacity last year and so we did not need the pulp to ramp we couldn’t make enough pulp to ramp up the bio plant 200% of capacity because we only run in the plan that 85% of capacity and we’re looking forward now to be enable to ramp up to a 100% of capacity and that we’re pretty confident work we can do that. That the things some along as doing well, I will tell there’s been a few bumps in a road as we learnt things about the technology, but nothing of a real significant, we have a learned a lot about how to run a biochemical plant that produce methane gas and there is not many places to look, we’re the only ones in a world that we know of been running a plant on feeding the bacteria this type of fuel and we know a lot more than we did today and our energy cost have improved a lot; and we’re pretty happy with where we are and will be even happier when we run up to 100% capacity on that and I would expect probably be able to do that sometime during the third quarter.

You mentioned, you are the only company using this type of processes. Is this still a process that potentially you could leverage in the future or given where gas prices are just is it’s less out gases?

The answer is, yes. We could for example we’ve looked at maybe moving this technology to Tomahawk, but right now our capital is tied up and too large energy projects accounts and then Valdosta. So that’s down the road, you know we do recognize as you know $300 million capital spending is a big number this year and so, we’re not about to commit anymore capital over than that; and as you said with natural gas had very low prices, that makes the Filer City project although a good one, the returns lot as high as it would be up gas was $13 again. We don’t burn that much gas at Tomahawk, however we burn coal there. So one potential benefit down the road if we did something to Tomahawk, it’s coal became a bad thing to burn, who knows where the environmental loss are going that’s something that would really up the probability of doing something at Tomahawk.

Your next question comes from Fritz von Carp - Sage Asset Management.

I heard some anecdotes from operating people in the industry or around customers and so forth of your industry, who think it’s beginning to get hard to find boxes, that enough capacity was taken out during the downturn that even in this little bit of an upturn we’ve had that supplies starting if you get tried it. Could you comment on that, have you seen that more or less, or what do you have to there?

The real thing that I really would say again, I could comment or self. We have certain regions of the country where our demand and our capacity don’t match, in other words, we need more capacity. Quite frankly, the other parts of the company, where we got plenty of capacity and we don’t need anymore, we won’t need anymore for a long time. So it’s a mix bag and I could not generalized box plans run probably on average at like a number 70%, 75% of capacity. I would think there’s plenty of capacity in the country, so boxes maybe tightly hard to get, so that’s probably because more of the paper is not available than box plan capacity.

I was referring not to folding of the paper into the finished product, but the basic container board, you know that is most --?

Yes.

I understand that folding the boxes is got more capacity always?

Yes, okay. In terms of paper, inventories are at historic lows. I think that answers your question that there’s not as much paper around as historically there is and that translates into a tight market. So I think what you’re saying is reflected in the inventory numbers and you are correct.

I’m not showing any other questions in the queue at this time gentlemen.

Okay. Well, listen, I would like to again thank to everybody for participating and looking forward to talking to you next quarter. Take care

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the conference. You may now disconnect. Good day.