Mark Kowlzan - Chief Executive Officer, Director Rick West - Chief Financial Officer, Senior Vice President Tom Hassfurther - Executive Vice President - Corrugated Products Judy Lassa - Senior Vice President - Paper Paul Stecko - Non-Executive Chairman of the Board.

Alex Ovshey - Goldman Sachs Chip Dillon - Vertical Research Partners Philip Ng - Jefferies Mark Weintraub - Buckingham Research George Staphos - Bank of America Anthony Pettinari - Citigroup Mark Connelly - CLSA Debbie Jones - Deutsche Bank Chris Manuel - Wells Fargo Scott Gaffner - Barclays Al Kabili - Macquarie Steve Chercover - Davidson Mark Wilde - BMO Capital Markets Garo Norian - Palisade Capital.

Thank you for joining Packaging Corporation of America's second quarter 2014 earnings results conference call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon the conclusion of his narrative, there will be a Q&A session. I will now turn the conference over to Mr. Kowlzan and please proceed when you are ready..

Good morning and thanks for participating in Packaging Corporation of America's second quarter earnings release conference call.

I am Mark Kowlzan, CEO of PCA and with me on the call today is Paul Stecko, our Chairman, Tom Hassfurther, Executive Vice President who runs our Packaging business, Judy Lassa, Senior Vice President who runs our white papers business and Rick West, our Chief Financial Officer.

I will begin the call with an overview of our second quarter results and then turn the call over to Tom, Judy and Rick who will provide more details. I will later wrap things up and we will be glad to take any questions. Yesterday we reported second quarter net income of $100 million or $1.01 per share.

Second quarter net income included after-tax charges for the Boise integration and DeRidder mill restructuring of $14 million or $0.15 per share, including cash charges of $2 million or $0.03 per share and non-cash charges of $12 million or $0.12 per share.

Excluding these special items, second quarter 2014 net income was $114 million or $1.16 per share compared to the second quarter 2013 net income of $71 million or $0.73 per share, and first quarter 2014 net income of $106 million or $1.08 per share. Details of the special items are shown in the schedules included with our press release.

Second quarter net sales were $1,468 million compared to second quarter 2013 net sales of $800 million and first quarter 2014 net sales of $1,431 million.

Excluding special items, the $0.08 per share increase in second quarter 2014 earnings compared to the first quarter 2014 earnings was driven by increased sales volume $0.07, lower energy costs $0.07and improved price and mix $0.05.

These items were partially offset by higher annual outage repair costs of $0.04, a higher tax rate $0.02, increased depreciation expense $0.02 and higher inventory consumption costs from extreme weather that were capitalized in inventory in the first quarter for $0.03.

We had an outstanding quarter delivering record results that were better than expected driven by strong corrugated products volume, higher prices and lower cost than the first quarter.

Synergy realization of both our mills and box plants was also ahead of our projections as we continued to implement a broad range of actions to improve productivity and reduce costs.

We estimate that we realized annual run rate synergies of about $85 million to $90 million and we are well positioned to achieve at least $175 million in synergies by the end of 2016. Looking at more details of second quarter operations.

Packaging EBITDA, excluding special items, was $259 million on sales of $1,145 million, which equates to 22.6% margin. Containerboard production was 846,000 tons, up 25,000 tons compared to the first quarter of this year, driven by two additional production days for 16,000 tons and also by higher productivity, 9,000 tons.

A key synergy with the Boise acquisition was moving lightweight containerboard production from both our Counce, Tennessee number one linerboard machine and Valdosta, Georgia linerboard mill to the DeRidder, Louisiana mill.

The production shift is complete and as a result, we set an all-time productivity records at both Counce number one machine and the Valdosta machine. Productivity on the DeRidder number one machine has also improved even with a lighter weight grade mix and we achieved record production on the Wallula Washington corrugated medium machine.

We had our Tomahawk, Wisconsin medium mill down for six days in May for it is annual maintenance outage which resulted in reduced production of about 9,000 tons. Containerboard inventories were up about 24,000 tons compared to the end of first quarter this year.

Of these 24,000 tons increase, about 7,500 tons came from shipments that we could not get out at month-end due to rail and truck availability issues at our Counce and Valdosta Mills and about 3,500 tons of the increase came from our acquisition of product packaging during the quarter which Tom Hassfurther will discuss later.

The remaining 13,000 ton increase was the result of our plans to optimize containerboard inventories at our box plants to improve supply assurance and reduce transportation costs in light of continuing rail and trucking issues that we are seeing our Mills. As most of you heard on the new, U.S.

rail industry is facing both rail car shortages and also longer shipping times. This has caused delays in scheduled shipments from our mills to our box plants. At times, we have had that to back bill rail shipments with higher cost shipments by truck in order to meet the needs of our box plants.

The trucking industry, however, is also facing service issues driven by limited availability of truck drivers and new regulations governing hours of service.

With low cost of money, it is much more cost-effective for us maintain a slightly higher containerboard inventory at our box plants rather than increase transportation cost and run the risk of not having enough inventory on hand at our box plants to adequately serve the customers.

Our integration level in the second quarter was 91% and to meet our total containerboard demand, we purchased 58,000 tons of containerboard from the outside market. Our year-to-date purchases of containerboard are approximately 100,000 tons.

In the third quarter, our Valdosta mill will be down eight days for its annual maintenance outage reducing production by about 13,000 tons. Also, the Wallula number two medium machine will be down for seven days for its annual maintenance outage reducing production by about 3,000 tons.

In addition, we have planned boiler and limestone repairs at our DeRidder mill which will increase purchased energy and chemical costs during the third quarter. I will now turn it over to Tom who will provide more details on PCA's containerboard and corrugated packaging sales and demand..

Thank you, Mark. Our containerboard and corrugated products demand was strong throughout the quarter with corrugated product shipments up 4.8% over the first quarter. With the acquisition of Boise, shipments were up 30% over the second quarter of last year and up 32% per workday.

Excluding Boise, PCA's corrugated products shipments were up 5.5% per workday and up 3.8% in total. On April 29 this year, we acquired Crockett Packaging, a corrugated products manufacturer, including a corrugated plant and a sheet plant in Southern California.

The Crockett acquisitions was important for us strategically, giving us a larger presence in the growing Los Angeles and Southern California markets. Excluding the Crockett acquisition, PCA shipments per workday were up 4.3%, while the industry was up 1%.

Prices for corrugated products were up slightly compared to the first quarter driven by a richer mix. With strong internal containerboard demand needed to supply our box plants, we reduced our outside sales of containerboard, both domestic and export, a total of 8,000 tons compared to last year's second quarter.

During the second quarter, total export shipments of containerboard, including Boise were down 2,000 tons compared to last year's second quarter. Export pricing remained steady throughout the quarter.

The domestic containerboard market for us also remained steady throughout the second quarter, both in terms of demand and price and our total company domestic containerboard shipments were down 6,000 tons compared to last year's second quarter. I will now turn it over Judy Lassa who will discuss white papers..

Thank you, Tom. Our papers segment EBITDA in the second quarter of 2014, excluding special items, was $45 million on sales of $295 million, which equated to a 15.2% margin compared to 13.1% margin in the first quarter. Our white paper mills produced 275,000 tons with productivity up almost 3% over the second quarter of 2013.

Annual maintenance outages were completed during the quarter at our International Falls, Minnesota and Wallula Washington paper mill. These two outages resulted in reduced production of 14,000 and higher operating costs.

In addition to normal outage work at the Wallula mill, we also upgraded the head box and rebuilt the forming section of another three paper machine which will increase machines (inaudible) range and overall paper quality. It will improve efficiencies and lower operating cost.

The mills started up well after the outages and all three of the paper mills were realizing productivity improvements and cost reductions through better operating efficiency.

Our office paper shipments were down 2% compared to last year's second quarter, and printing and converting and pressure sensitive paper shipments were down about 26,000 as a result of the fourth quarter 2013 paper machine closures at International Falls, Minnesota mill.

Paper inventories were up about 2,000 tons compared to the end of the first quarter of this year. White paper prices were up in the second quarter as a result of previously announced price increases for office papers, premium printing [ph] paper and pressure sensitive paper.

Looking at the third quarter, for the white papers business, we have no planned annual maintenance outages. Our Jackson, Alabama paper mill will be down in the fourth quarter (inaudible). We do expect evenly higher white paper shipments in the third quarter and further cost improvements in the mills. I will now turn it over to Rick West..

Thank you, Judy. Looking at other companywide cost and earnings change items from first quarter results, we did see significant improvements in our energy costs with warmer weather, driven by both lower consumption of purchased fuels $0.04 per share, and also lower fuel prices $0.03 per share.

Our effective tax rate was up in the second quarter to a more normal rate of about 37% which reduced earnings by $0.02 per share compared to the first quarter. Amortization of annual outage repair cost and direct outage costs increased by a total of $0.04 per share in line with our expectations.

Depreciation expense was up $0.02 per share compared to the first quarter. Finally, we consumed weather-related higher cost containerboard inventory, which was released in the first quarter that reduced second quarter earnings by $0.03 cents per share. Moving to cash generation and uses for the second quarter.

PCA generated cash from operations of $185 million. Capital expenditures were $97 million. Common stock dividends of $39 million were paid or $0.40 per share, and we did not repurchase any shares of PCA company stock. Cash tax payments of $56 million were made and we paid out $50 million of long term debt.

Our total debt reduction since the acquisition of Boise on October 25, 2013 is $225 million and our long-term debt is now at $2,432 million. We ended the quarter with $162 million in cash. I will now turn it back over to Mark..

Thank you, Rick. Before I move to the third quarter outlook, I want to comment briefly on the DeRidder mill conversion project. As you know, on March 26 we announced plans to convert the number three newsprint machine at DeRidder to produce 355,000 tons annually of lightweight linerboard and corrugating medium and exit the newsprint business.

The D3 machine project is on schedule with startup expected by November 1. The total estimated capital for converting D3 has not changed with $15 million spent in 2013 and $100 million to be spent this year.

Looking ahead to the third quarter, we expect higher sales volume and lower operating costs from both higher synergies and less scheduled annual mill maintenance downtime.

These items will be partially offset by higher amortization of annual outage repair costs, higher electricity prices, higher freight and chemical costs and increased depreciation expense. Considering these items, we do expect third quarter earnings of $1.25 cents per share.

With that, we would be happy to entertain any questions, but I must remind you that some of the statements we have made on the call constitute forward-looking statements.

These statements were based on current estimates, expectations and projections of the company and involve inherent risks and uncertainties including the direction of the economy and those identified as risk factors in our Annual Report on Form 10-K on file with the SEC.

Actual results could differ materially from those expressed in these forward-looking statements. With that, operator, I would like to open the call for questions. Thank you..

(Operator Instructions). Your first question comes from the line of Alex Ovshey with Goldman Sachs..

Thank you. Good morning..

Good morning..

Good morning..

On the synergy side, the realizations continue to come in very impressively.

Would you be able to tell us how you guys are trending in the packaging business in terms of the realization versus target as well as what the trend is in the paper segment?.

Alex, this is Rick West. In terms of the overall synergies, we are getting a number of synergies in the packaging business as well as the white papers business in our mills and our box plants. If you look at our total synergies, they are basically coming from three or four basic areas.

Productivity and optimization at our mills, cost reduction in our mills, lower corporate overhead, improvement in our white papers business and also optimization of our box plant operations. So it's basically coming from both sides..

Okay, Rick. That's helpful qualitative color.

And then, in terms of how the realized numbers so far breaks up between the segments, would you be able to share that? Or are you not willing to give us that breakout?.

No, we do not. There's so many moving things, where you are getting improvement, if you could classify synergies, also general improvements that you normally have in the business. So it's very difficult to try to break it out and we are not going to do that..

That's fair, and just one more for me on the white paper segment. I am estimating that the price moved up about $17 per ton sequentially.

Can you confirm that number first? Then second of all, is there incremental pricing that we should be thinking about in white papers in the third and fourth quarter of this year?.

Well, first of all, we have achieved significant price increases on a significant amount of our business. Some of that which is tied to the increase [ph], but the exact amount is competitive information and we won't comment on that as well not being able to comment on board frankly..

Okay. Thank you..

Next question, please..

Yes. Your next question comes from the line of Chip Dillon with Vertical Research Partners..

Hi, yes and good morning. I just want to make sure I got that debt number from Rick.

What was the quarter in total debt for the company?.

$2,432 million..

Does that include the short term debt as well?.

That is correct..

Okay, got you. And the final question is --.

And Chip, the rest of that, however this is Paul, we have got $160 million or so cash on hand too. So if you want to do a net debt number, you have got to take the $160 million too off..

Got you, and the one thing that we have gotten a lot of questions about was this move by RISI on the weekend where they took $10 out of the semichemical medium price and I know the writer mentioned that this was an adjustment for things he had seen, I guess, since last fall.

And I didn't know if you had seen a net reduction in the semichemical side over that period or is all the weakness really just in recycled and I guess that's how he tried to capture that..

Chip, this is Tom. I will take that question real quick.

I can tell you, that my personal reaction was nothing short of shock when I saw that because we have an advantage quite frankly in terms of being able to get a good look at what's happening overall in pricing because we both buy and sell and we have seen absolutely no change in semichem medium prices.

In fact, if you look at what happened last month and you look at the medium operating rates of 100.1% and yet inventories fell 22,000 tons, it correlates very closely to what we see in the market which is very tight medium supplies. So needless to say, we were quite shocked by the number.

Obviously trying to capture something that's, the price depends on the quality. I think it has lots to do with that as well. And we are having a difficult time securing enough quality medium ourselves in the marketplace. So that's the best color I can give you on that question..

Chip this is Paul Stecko. I think what you said is probably the case that over the last year, they had some startup tons primarily in the recycled side and quality varies, and we are not big, we don't purchase very much recycled medium. We purchase primarily semichem and that price has remained stable. This is similar with pulp and paper.

It is correct that some recycled medium has moved from 20 to 30, it's really as you characterized that a catch-up event and the only vehicle they have to catch that up as that's part of the market is to throw it into the semichem price even though, in our opinion, semichem hasn't moved at all. So we understand that.

We are not really troubled by it, but you have got to understand the fact that this is not a recent happening, it's a one off event that happened over seven months that they are choosing to reflect and as much more so than a recent event that, hey, this just happened yesterday.

Well, it just got reported yesterday to capture something that's related to the price of semichem. So that's kind of a long winded explanation, but I think that's what your question really started to getting at..

That's helpful, and one quick follow-up.

I remember in the 80s and 90s, five and half to six and half weeks of supply across the mills and box plants was a normal inventory figure and in recent years with just-in-time technologies, it seems like we have gotten down into the four week and yet in the last year, we have seen that edge back up, maybe from another several tons a week higher.

Is there some reason that, would that just be that people have too much inventory? Or do you think there is something going on, given the increasing freight and some logistical challenges that you mentioned earlier?.

Chip, if you look at just the trucking industry, well late last year legislation was passed.

It's under the United States Department of Transportation Federal Motor Carrier Safety Administration, but it's in our service laws that are going to effect that very complex regulation regarding how the truck drivers have to account for their time spent behind the wheel each day, how many hours they are allowed to drive between breaks and so that has added a complexity.

Again, there is approximately probably 2.7 million trucks on the road which means 2.7 million truck drivers having to deal with this new legislation. So that's been a big complexity.

And also on the rail side of the equation, if you think about just number of tanker cars that are in service today compared to three years ago, the number has tripled just over the last three years in terms of just the number of tanker cars that are in there. Primarily they are handling oil of the North Dakota region.

And so the amount of traffic congestion now in the rail lines has significantly increased due to that. And also with some of the accidents that occurred with oil tank cars, the speed and this is across the nation, the average speed on the rail is down 10% this year alone.

So those few items have compounded this whole issue of just in time and what the optimum amount of inventory needs to be..

And Chip, this is Paul Stecko. Just to build on that and something you said, I have been around that long when six weeks was the norm. And you are right, there has been a structural change in the industry, and that was driven by industry consolidation where lot of companies reduced the number of box plants they had.

And so you get the economy of scale there and over that time period, those inventory level that were required by the industry dropped. There used to be a magic number at which time people considered it a tight market and I think over the last 10 years that number has dropped little bit.

So that that number would be that most people look at it in terms of what is tight has dropped. And I think that's primarily related to the fact that a lot of box plants has closed.

But we think it's about the turn, at least in our business because the logistics situation is such that it's a lot cheaper to carry a little more inventory in all of your box plants than incur a huge freight premium for emergency shipment.

So our feel is, this thing has bottomed out, the number box plants is fairly stable and where inventory levels go our plants are going to be affected by how efficient a logistics system we have to support our box plants. So there has been quite a change over the last 30 years..

Very helpful. Thank you..

Next question, please..

Your next question comes from the line of Philip Ng with Jefferies..

Good morning, guys. D3 appears to be coming on quite well. But the market seemed a little choppy at this juncture.

Any thoughts on pushing to ramp up at a later time? And just can you give us a little feel for how full do you think that plant will be running in year one?.

Well, again, if you look at where we are, year-to-date, we have already purchased 100,000 of board on the outside market. We anticipate 200,000 tons of outside purchases this year. We had stated, I believe it was on the first quarter call that for 2015, we would probably need 255,000 tons or so on the outside market.

So if you look at where we are going with the machine, we expect to start the machine up on November 1 and we will ramp the machine production to full capacity over time. Most of the tons will go to our own box plants, as we pull back on our outside purchases.

In addition, we will be better able to supply a few of our long term export customers, but again as far as the ramp up, if you think about the fact that the box plant business continues to grow at that 4% rate, we will have a home for these tons in our system. So we are not concerned about ramping up the demand at this point..

Only thing that I would add, I don't know what your definition of choppy is, but the industry ran at 97% last quarter -- last month. So that's still a pretty high operating rate..

Got you, and that is helpful.

And with D3 winding down this year, can you help us peg a CapEx number for 2015?.

That's something that we will need to get the machine started out and we will need to look at towards the end of the year and we are not prepared to give estimates at this point..

Okay. That's helpful. And then in terms of the export market, I know it's a smaller part of your business but with D3 ramping us, just what's your view on the export market? I know you said prices have been stable for you.

Is there a price increase in the marketplace by European producers? Just wanted your thoughts on Europe in general? Do you think that's going to stick and how are market conditions in general on the European market?.

Phil, this is Tom. Number one is, we can't predict what prices are going to do and we don't give those kind of projections going forward. I can only tell you that what's happening in export prices. We have got we got some markets that are trying to move up in price. We have got others that have some small amount of price pressures.

Our advantage obviously is the fact that if prices don't agree with what we think we need to sell for, we can always pull back and move them back here into the domestic market. So I think it's moving around the world depending on what's going on in those various economies..

Okay. All right. Thanks. Good luck in the quarter..

Thank you. Next question..

The next question comes from the line of Mark Weintraub with Buckingham Research..

Thank you. Rick, I just wanted to clarify, I think you had mentioned that you had achieved roughly $85 million to $90 million in synergies to-date or that was kind of a run rate at this point and that you are anticipating to be at $170 million by the end of 2016.

Did I hear that right?.

That is correct..

No, I don't think that is correct. It's $175 million, not $170 million..

Okay..

You said $170 million. I think you meant $175 million, because that's what we said..

Okay, and just so that I understand, and that is independent of other types of operational types of improvements that you might get or is that kind of an all-encompassing number, the way we should think of it? Because you had made that point about how it is difficult retrospectively to look back and can differentiate.

Is that though kind of an assessment of the extra value from synergies? Or is it more an all-encompassing number?.

I will give you a great answer. Some of each. And by that, I mean we will capture some of the things that we concluded. This was really a synergy but if we make a standalone improvement at the Counce mill or the Valdosta mill, that's not in the number. The DeRidder project is a standalone project.

So the return that we published about that project, that's not a synergy. We bought the company but we said upfront, that doesn't count as a synergy. That's all over and above. But basically, when you look at these things, and it gets complicated.

That's why when you report these numbers, you have got to give that disclaimer, some of these things are hard to separate and we do the best we can, but if it occurs at a mill that had nothing to do with the combination with Boise, that doesn't count. If we move paper from Counce to DeRidder and we say freight, that does count.

But what's complicated is we have got hundreds and hundreds of these items, and we don't want to make the accounting more work than the money we are saving. So some of these things are estimates and it's just a pretty a gray area, to be perfectly frank..

Okay, and just one other small one, if you comfortable with it. I think you had Wallula and I-Falls down in the second quarter. The old Boise used to give a indications on how much the downtime in the different quarters would cost.

I don't know if that's something that you are not planning to do or is that some color that you could give us just in helping as we do quarterly modeling?.

Well, as we said last quarter, Mark, the one thing that's going to change a lot for us is repair job amortization, if we take the outages throughout the year and then amortize the total cost of the repairs over the remainder of the year. And if we look at that and second quarter, the repair job amortization was $0.03 per share.

It's going to go to $0.07 per share in the third quarter and then up to $0.13 per share in the fourth quarter.

Now, if you look at the other impact of the outages, the production losses, direct cost associated, the inefficiencies you have in an outage, we are going to pick up a little bit in the third quarter compared to the second quarter, and it will pick up a little bit more in the fourth quarter in earnings compared to third quarter.

So those two items will be going down some if we progress through the two quarters, but it will need the repair job amortization that is increasing that is the predominant factor in the rest of the year..

That it is very helpful.

That was for total company, though? Is that correct?.

It was total company, including the VA Mills and the previous Boise Mills, white papers and packaging..

Okay. Thank you very much..

Next question, please..

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

Hi, everyone. Good morning. Congratulations on the quarter. A couple of questions, if I could.

Back to the synergy, and I realize it's a long ways from 2016, but given the progress that you are making already with synergies and run rate that you have achieved, given that the progress that you have been seeing at the mills at Counce and Valdosta, which is being helped by the synergies and the acquisition of Boise, does there come a point, potentially, where maybe have an opportunity to reassess the synergies and perhaps see that there might be additional amounts that you benefit by? Or is that run rate $175 million by 2016, that's the number going forward, no matter what?.

George, at this point, we said at least $175 million. This is Rick West..

Hi, Rick..

Which implies there is a potential for more, but we prefer to give you an update on the total number at the end of the year as we continue to assess things. In terms of achievability and timeframe before the end of 2016, it may be possible, but it's too soon to tell.

We would like a little bit more runway because a number of the synergies you get upfront, we had a plan to get the productivity objectives done in terms of synergies and the corporate overhead and now we are working through the other items. So it's really two soon to tell..

Yes. Let me add just a little technicolor on that. We just recently had one where we made some changes in the way we run our recovery boiler at DeRidder and we saw some savings. We saw some productivity and that number is in our second quarter earnings. The question you have is, can we sustain that.

In other words, did we just create another bottleneck someplace else, but eventually it's going to wipe out that savings. So some of these things, you just can't run them off and claim them right way. You have got to make sure that you are continuing this thing for three, four months that, hey, this things permanent.

It's just not a one time thing that another bottleneck eventually wipes out. So you can't claim victory too soon in some of these things, and that's why we won't give updates quarterly on this. We want to make sure that the number is a good number and then we will release it..

That's fair and we appreciate the technicolor, as you said Paul, on that. Two additional questions, and it will turn over.

First, as we look out to early third quarter, could you give us any update on bookings or billing on an adjusted basis? There has been some evidence from some of the other companies that we track, not necessarily in corrugated, that there are some destock that occurred in the second quarter.

Any effect you are seeing in your numbers? And then mechanically speaking, and to the extent that it makes you can feel comfortable talking about this, does that $10 drop in pulp and paper week really affect much of your business? Mechanically, how much effect would it have at all on your outlook? Thanks, guys and good luck in the quarter..

George, this is Tom. I will take the first part, how we look in early the third quarter. This is going to be a little tough comparison in this particular month because we have got 11 days but last year of the FBA recognized two holidays, this year one holiday.

So I think the best way to look at it is, on a total basis our volume is up 9% but we are flat on a per workday basis, obviously because of that extra holiday. So probably I would estimate that the month is probably going to come out somewhere in between.

Probably 4.5% is probably where we were really tracking on a per workday basis by the time that the month ends. The $10 drop in medium is very little effect, less than half a penny share at this point is what we would project. And it could be even less than that, quite frankly..

Thank you..

Next question, please..

Your next question comes from the line of Anthony Pettinari with Citigroup..

Good morning..

Good morning..

Regarding the acquisition in Southern California, I was wondering if you could quantify or give us any color on the size and maybe multiple paid? And then maybe just more broadly as we look towards second half of the year and 2015, how do you think about bolt-ons? Do you have a certain amount of money that you have budgeted for bolt-ons that you try to ramp up your integration rate? Any kind of color you can give would be appreciated..

Anthony, this is Tom again. The only thing we really disclose on acquisitions is the purchase price, which was $21 million. But Crockett, again, these acquisitions have to meet the criteria, as we said forward. We have got be able to have a great customer base, a great management team, as well as being accretive to earnings.

Crockett meets all of those objectives. And you know it happens to be in a market where we definitely had some capacity constraints. So it fills a lot of need for us. Regarding acquisitions going forward, it will be the same strategy we have always had. When they come along and they are a great fit and they meet all our needs, we move forward.

But as I said many times, these are not acquisitions that come along every day. We look at many, many acquisition opportunities throughout the year and quite frankly very few of them meet the criteria because our bar is very high.

But we will continue to make them as they come along and as it fits into our needs and we are getting up there to a reasonably high integration level and we will keep moving that forward..

Okay, that's helpful.

And then, given the success you had with Boise and the investor response to that, is it fair to say that mill acquisitions are also at least on the table? Or do you have to wait to deleverage further before you would consider something like that?.

Right now, we have got plenty of opportunity with the integration activity going on with the optimization that's going on a daily basis within the mills that were part of Boise fleet. So we have got plenty of runway opportunity with these mills that we have got right now. So we wouldn't actively be looking at any other mill assets..

And just to amplify what Mark said, this is Paul Stecko. We have never had a goal to get bigger. We have always had a goal to make more money. And so right now, we think the Boise acquisition is a good vehicle to do that and that we have got a full court press on those activities.

Once we are through that then other possibilities could arise but we are not going to put the cart before the horse..

Okay, that's helpful. Turn it over..

Next question, please..

Your next question comes from the line of Mark Connelly with CLSA..

Thanks. Just two quick things. First, Boise improved your liner medium mix.

Is that having a fast impact or are we going to see that show up over time in efficiency? And second, can you tell us whether the white paper system is still short pulp after all the changes that we have had over last year or so?.

Judy why don't you take the white paper one..

So, from the standpoint of being full short, we still purchase pulp at our Jackson mill..

Okay..

And I think with regard to the first part of your question regarding containerboard, again, there is a big benefit we have seen being able to utilize the assets at DeRidder on D1 machine and optimizing grade mix and also taking advantage of the West Coast where the Wallula media machine has proven to be very beneficial to us..

And what you said about the Boise being heavier and the lines of the medium is certainly true. That did improve our balance. It actually maybe improved a little too much. And that's why the D3 conversion will put us right where we need to be. So that's how we get back to the perfect balance..

Okay.

So you have already gotten a significant part of the benefit but there is more coming with D3?.

Yes, absolutely..

Perfect. Thank you..

Next question, please..

Your next question comes from the line of Debbie Jones with Deutsche Bank..

Hi. Good morning..

Good morning..

Most of my questions have been answered, but I just wanted to ask, correct me if I am wrong, but I think your total corrugated shipments increased 4.8% quarter-over-quarter. It's a bit lower than the industry, which grew 5.3%. And if I back into your legacy growth, its actually a little bit higher than the industry.

So I am just curious you are shipping some of your Boise business into the PKG legacy pants and if we should expect that going forward?.

What you are seeing in those numbers, we are just reporting the PCA legacy plants right now because it's very difficult for us to get our arms completely around the Boise plant because we are shifting business back and forth, and I would not necessarily conclude that the PCA legacy plants are a big beneficiary of that..

The one thing I would to what Tom said, this is Rick West, our numbers for (inaudible) from the first quarter of the second quarter do include the entire shipments of the company, but when making year-over-year comparisons, so that you can reflect it compared to the industry, it is only the PCA numbers..

That's helpful. Okay, and then I guess my second question is, I think you had said that the Boiler MACT spend (inaudible), is going to be about $25 million.

And I just didn't know if you had given any timing on that?.

Yes, the spend is still around range right now and we are on track. We are currently working on the Tomahawk boiler. So we don't see changes there..

Okay, great. Thank you very much..

Next question, please..

Your next question comes from the line of Chris Manuel with Wells Fargo..

Good morning, gentlemen. Just a couple quick ones. Most might have been asked but with respect to some of the new capacity you have got coming online with D3, I think you still talked about how you would have been short but with what's coming on stream you would still have a little more than maybe what you needed.

Industry practice has been, something came on last year that some of those tons get discounted a bit in the marketplace until they get filled for a period of time.

Can you maybe talk about a couple of different things? One, what might contribution look like from DeRidder, November 1, when that comes on stream? Does that take six months to get all the way up to speed or how that works? And two, how do you have to go to market with those extra tons?.

Well, again just reiterating. If you think about 2014, we will anticipate that we are going about 200,000 tons on the outside market. We start the machine up as we are planning in November. We currently have the home moving those tons out into our own system and then the original plan calls for curtailing the outside purchases as time went on.

So we have got immediately that on that balance we have got a home for a significant portion, if you thought the machine was going to ramp up very quickly. And then if you look at our growth rate on the corrugated box cut up, on a 4% per year is about 90,000 or 100,000 tons of more requirements.

So very quickly through 2015 you would be consuming the vast majority of these tons coming off the machine to our own box plant..

Yes. And to say it another way, we are our own market. So, how do you go to market to yourself? It is a lot easier than going to the open market. And with regard to projections on the ramp up, we are going to ramp up first and report about it. We are not going to forecast how a ramp up is going to go. That is a lot less predictable and other things.

Although we are pretty confident. So we are going to skip the second half of that question..

Fair enough. Second question I had was, as we look at some of the data through the quarter that we view, it looked like it was a bit choppy, obviously some months better than others. I think April better, May a little softer.

Could you comment on, did you see any changes in trajectory through the past quarter? Were there any differences between categories? Maybe between food and different elements that nature within your customer sets? Some that were better, some that were worse that we should be mindful of?.

Chris, this is Tom. Our shipments were pretty steady throughout the quarter. There was not a significant amount of change. We might have had a little bit more in April, just as we catch up with some of the weather-related things that we mentioned in the first quarter. But for the most part, it was very steady.

Now regarding market segments, we never break out by market segments and report on that. So I am sorry, I can't tell handle that question for you..

Okay, that's helpful. And good luck, guys..

Thank you. Next question..

Your next question comes from the line Scott Gaffner with Barclays..

Good morning..

Good morning, Scott..

Just a couple of quick follow-ups. You talked about the synergy realization, but I didn't catch the number on the cost to achieve.

I think before you said $70 million to $80 million cost to achieve? Is that still a reasonable number on the synergy side to achieve?.

Yes. That's still a good number..

Okay, and then on DeRidder, the $100 million of CapEx that you plan to spend in 2014 where are we on that process? How much have we spent to-date? And then how much -- what's the timing of that capital spend for the balance of the year?.

Again, for an annualized run rate, that's just, by the end of the year, we will have spent $100 million dollars to complete that project and bring the D3 on to containerboard machine..

I would only add one thing. We do have a lot of capital in second half of the year. We have done a lot of work preliminary at shutting down the machine. We have made a lot of downpayments, but I would say we will have more capital in the second half of the year than the first half of the year..

And is there anything you see with that project or anything in the market that you see that would affect the after-tax? I think you said after-tax DCF [pf] would return to 30% to 35%.

Is there anything that would make that either lower or higher?.

No. Again, we still feel good about that number. As Paul said, we make our own market and those tons are spoken for..

Sure, and then just lastly on the office paper shipments. You said they were down 2% in the quarter. I think they were up 5.5% in the first quarter.

Anything that's shifting within your business there, as you move through the year, other than the market?.

No, and our second quarter shipments were lower than first quarter but that's really strong first quarter and we needed to rebuild the inventory going into our outages at I-Falls and Wallula..

Great. Thank you..

Great. Then, next question..

Your next question comes from the line of Al Kabili with Macquarie..

Hi, thanks a lot.

I would like to circle back on the inventory discussion and just for perspective, is there a sense you could give us on maybe how much additional inventory in tons you might be optimally wanting to take carry more, given some of the logistical and transportation items you talked about?.

Yes, this is Paul. We think we are at the number now. We had to bump it up roughly 10% and we think it's the right number. We think we can service our business optimally at this number where our inventories up about roughly 10%. And we will see.

As logistics get better and better, we will pull that number down and hopefully we don't have put any more in there because that would be indicative of even further exacerbated transportation problems. So we made about 10% adjustment. We think that's going to hold. Time will tell..

Okay. That's helpful. I appreciate that, Paul.

Second question is just along the lines of some of the recycled startup tonnage and any thoughts as far as kraft liner versus recycled liner spread and if there is any additional appetite or risk for some customers to, that are currently using boxes with virgin for kraft liner going to recycled?.

Al, this is Tom. I think really what the requirements from the customers are revolved around quality and their ability to move their products safely and efficiently from point A to point B.

So the other recycled startup are going to have to meet a high criteria, I think, to really compete the marketplace, and that requires a lot of capital to get there.

So instead of the -- I think there's markets for each to some extent, but the majority of the market will still revolve around the quality of the sheet and the quality of the box you provide to customer..

Okay. All right. That's helpful.

Then I wanted just, Rick, and thanks for the commentary on the amortization of maintenance and as far as production pickup in tons, is there any way, I know you had mentioned third quarter and fourth quarter we will see a little bit of that from this maintenance schedules, but is there a way you could sign this, put this, and quantify this for us as far as number of tons picked up in third quarter and fourth quarter sequentially?.

No. We do not have project tonnage. There's a lot of factors there. I would say, as we did earlier, we said higher sales volume, but we are not going to get into that, how much we are going to produce the next quarter..

Okay, and I am not talking about produce but just from a maintenance schedule perspective. How much pickup you get just from your maintenance? I am not asking for the --.

We don't give the exact tons that we are going to take out the next quarter. But I would tell you as I said earlier, with the fact that we have our Valdosta Mill down and our Wallula Mill down, there is not that much difference in production losses between the two quarter. But I am going to be able to give you the exact number..

Okay. All right. Well, thanks for that additional insight anyway. Okay. All right. Thank you very much. I appreciate it..

Next question..

Your next question comes from the line of Steve Chercover with Davidson..

Thanks. I am at the tail-end here too. So thanks for the color on the semichemical news and you guys have long been proponents of the importance of virgin.

Do you think that this could be the beginning of a true schism between the pricing of the two products?.

No..

All right, and that's a brief answer.

With respect to DeRidder, I think you said that your costs are going to come down, but should we be modeling any startup expenses in the fourth quarter? Or is it just kind of accretive because you are exiting newsprint?.

We are not giving fourth quarter guidance on startup expenses at this point. We will give more of a protection of the D3 machine in the total picture with our third quarter, well really after we startup. It's something that you have to wait and see..

Yes, and on that previous question, we do give maintenance downtime numbers for the upcoming quarter. So we told today how many tons we would lose at Valdosta and Wallula, but we only do that one quarter in advance. We don't give it full year. We don't do two quarters in advance.

And it's the same thing when you are getting into cost elements as a fourth quarter. We talk about things one quarter in advance. We will talk about the fourth quarter when we have this meeting again reporting on third quarter result. And that's been our policy for the last 15 years..

Understood, and then with your Crockett acquisition, are you getting any early read on the California agricultural season?.

Again, Crockett is just, a small way business in the ag business, just like we are as well. That ag business, it depends on what crop you are in. There is whole bunch of different moving parts out there. Some are hurting much worse than others and depending on the time of the harvest but needless to say, the draught has some effect..

Thank you..

Next question, please..

Your next question comes from the line of Mark Wilde with BMO Capital Markets..

Thanks. Good morning. Mark, just curious, it seems like these other conversions that ran on over the last 12 to 18 months, newsprint and the containerboard were pretty rough for the guys that attempted on that.

Have there been any lessons that you guys have taken from that?.

Well, again, we have said over the last few years, you can converge just about anything but part of that equation is how much capital does it take to produce the quality that you really require and so I think again knowing what we know how do well, we have been address those issues and understanding how we have to apply that the capital to achieve the ultimate goal.

So again part of the equation here too is that the D3 machine will have a much bigger virgin make up opportunity with the virgin fiber. So it's not just a recycled converted murder machine. So in that regard I think this is not quite comparable to other conversions that have been attempted..

Yes. I guess you guys have a market too. I had a question for Tom Hassfurther if I could.

Tom, there has been some talk about changes that some of the shippers are going to make in how they charge for the packaging shipments going forward, charging for size as well as weight and I just wondered whether you think this is going to have much effect on the business? And also whether it's going to lead to have more use of these on-site customized box machines and whether that might be interesting niches for PCA?.

Mark, I would say that I don't think it's going to have any - -overall it's not going to have a big impact one way or the other. I don't think these changes that are occurring at the UPS and FedEx as an example.

But I do think that regarding these sampled [ph] conversion, that sort of stuff to make a more customized box, you know that market has been there. It's growing. I think it has slowed down in terms of its growth and there is applications for it, but I think that it will continue to grow to some extent.

There is some opportunities for us, I think for anybody probably, because it is a consumption arena that is growing and we are taking a look at that and as well as other things. But I don't see it as being a huge change or shift in terms of demand in that arena..

Okay, and then finally, Judy, can you just comment on the release liner market? My sense has always been that that kind of ramp-up at Wallula has run a little slower than Boise expected them.

And I wondered if you could just give us a sense of how the market looks right now?.

Yes, certainly. Really, in that market, the demand is pretty solid with a slight growth going on and the opportunity at Wallula is going to allow us to get in some different segments and some different capabilities..

And to build on that, Mark, a little bit, we just did a project out there on annual shutdown that Judy talked about in terms of a head box and informer improvement and you are right, that slowed the ramp-up and the sale of that product when Boise ran the operations and one of the first things that actually that was identified both between Judy and Mark was that that needed to be fixed in order to get what we really want to get out of that machine.

And so far, we have been extremely pleased with what that machine has down since that rebuild..

Okay. That's helpful. Thanks very much. Good luck in the third quarter..

Very good. Operator, we are just about out of time. We could probably take one more question..

Certainly. Your final question comes from the line of Garo Norian with Palisade Capital..

Hi, guys.

You have talked for a few years about OCC prices likely moving up and make conversion more attractive more mostly probably driven by demand coming from Asia and it seems this hasn't really started to play out and I was just curious as to why you think it hasn't yet or am I just not seeing it in the numbers?.

This is Paul Stecko. The simple answer, we predicted that the world run out of recycled fiber and that's what happened in 2009 at the financial collapse, but concerned. It occurred that the supply demand line has about crossed. And what's happened since then is, it comes down to one thing, as China goes so goes the world.

China's asset for OCC could be insatiable. They come to the U.S. for most of it. If China starts growing again at the rate that even is close to resembling what they did in the past, we think that indeed will happen and when it happens, it will be more a function of China's growth than anything else..

Thank you..

And with that, we will conclude the second quarter call. I look forward to talking to you during the third quarter call in October. Have a nice day. Thank you..

Again, thank you for your participation. This concludes today's conference. You may now disconnect..