Mark Kowlzan - Chief Executive Officer Paul Stecko - Chairman Richard West - Senior Vice President, Chief Financial Officer Tom Hassfurther - Executive Vice President, Packaging Judy Lassa - Senior Vice President, Paper.

George Staphos - Bank of America Mark Weintraub - Buckingham Research Chip Dillon - Vertical Research Anthony Pettanari - Citigroup Alex Ovshey - Goldman Sachs Philip Ng - Jefferies Debbie Jones - Deutsche Bank Chris Manuel - Wells Fargo Securities Scott Gaffner - Barclays Al Kabili - Macquarie Mark Wide - Bank of Montreal.

Thank you for joining Packaging Corporation of America’s Fourth Quarter and Full Year 2014 Earnings Results Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon conclusion of his narrative, there will be a question-and-answer session. I will now turn the conference call over to Mr.

Kowlzan and please proceed when you are ready..

Good morning and thank you for participating in Packaging Corporation of America’s fourth quarter and full year earnings release conference call.

I’m 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’ll begin the call with an overview of our fourth quarter and full year results and then turn the call over to Tom, Judy and Rick who will provide further details. I’ll wrap things up and then we’ll be glad to take questions. Yesterday we reported fourth quarter net income of $98 million or $1 per share.

Fourth quarter net income included charges for the Boise integration and DeRidder mill restructuring of $16 million or $0.16 per share, including cash charges of $13 million or $0.13 per share and non-cash charges of $3 million or $0.03 per share.

Excluding these special items, fourth quarter 2014 net income was $114 million or $1.16 per share compared to the fourth quarter of 2013 net income of $102 million or $1.05 per share and third quarter of 2014 net income of $124 million or $1.26 per share.

Fourth quarter net sales were $1,434 billion compared to fourth quarter 2013 net sales of $1.264 billion and third quarter 2014 net sales of $1.519 billion. We also reported record full year of earnings excluding special items of $459 million or $4.66 per share compared to 2013 earnings excluding special items of $325 million or $3.33 per share.

Net sales in 2014 were a record $5.9 billion compared to $3.7 billion in 2013. Full year earnings including special items were $393 million or $3.99 per share compared to 2013 earnings of $441 million or $4.52 per share. Excluding special items, total company EBITDA in 2014 was $1.144 billion compared to $751 million in 2013.

Details of special items for both the fourth quarter and full year were included in the schedules that accompanied the earnings press release.

Excluding special items, the $0.10 per share reduction in fourth quarter 2014 earnings compared to the third quarter of 2014 was driven primarily by higher annual mill outage costs $0.07, lower white paper prices and mix $0.03, a seasonally less rich mix in corrugated products $0.03, lower corrugated product shipments with three less shipping days were $0.02, and higher wood costs $0.02.

These items were partially offset by higher containerboard volume driven primarily by the production on D3 machine at the DeRidder, Louisiana mill for $0.04, and lower taxes $0.04 related in part to the passage of the federal tax extenders package in December.

In total, fourth quarter results came in where we expected except that White paper prices and mix were lower and taxes were better. Looking at more details of our fourth quarter operations, packaging EBITDA excluding special items was $250 million on sales of $1.122 billion which equates to a 22.3% margin.

For the year excluding special items, packaging EBITDA was $1.015 billion and sales were $4.54 billion which equates to a 22.4% margin. Containerboard production in the fourth quarter was 927,000 tons, up 69,000 [ph] tons over the third quarter of this year.

The higher production was primarily from the DeRidder Number 3 machine which produced 58,000 tons during the quarter after starting up on October the 17. As a result of the D3 production, we were able to reduce the outside purchases of containerboard which averaged about 17,000 tons per month through October down to 4,500 tons in December.

In 2015, we plan to eliminate all purchases except for speciality grades that we do not produce. During the quarter we did increase our containerboard inventories by 45,000 tons. We need the addition of inventories during the first half of 2015 to help offset reduce production with four of our five containerboard mills down for their annual outages.

In the first quarter our two largest mills, Counce and DeRidder will be down and together with these two outages will reduce production by about 40,000 tons. The Counce outage will continue into the second quarter and will also have our Tomahawk and Filer City media mills down for their outages.

In addition, in the first quarter there are two less mill production days than in the fourth quarter with February being the 28th day month, so that is an additional 20,000 ton less production bringing the total loss production to 60,000 tons.

Fortunately we will have the D3 machine available for the full quarter so that along with our other mills running well should offset some of the loss production. I now would like to turn it over to Tom, who will provide more details on PCA’s containerboard and corrugated packaging sales and demand..

Thank you, Mark. Our corrugated products demand was strong and steady throughout the quarter. With the partial quarter of Boise shipments after the October 2013 acquisition. Corrugated products shipments were up 11% over the fourth quarter of last year.

Excluding Boise, PCA’s fourth quarter shipments were up 5.4% in total and per workday with the same number of workdays each year. The acquisition of Crockett Packaging in April 2014 contributed about 1.5% of the shipments increase.

For the year, PCAs corrugated product shipments excluding Boise were up 4.7% in total and 4.3% per workday with one more workday and about 1% of the increase came from the acquisition of Crockett. Including Boise, PCA shipments for the year were up in total 25.5% and per workday 25%.

Prices for corrugated containers were essentially flat during the fourth quarter, but mix was seasonally weaker in the last half of the quarter maybe a little more than normal as we are seeing some customers moving more of their display and other value added business earlier in the year.

Our outside sales of containerboard were up 5000 tons compared with the third quarter and down about 7000 tons compared with the fourth quarter of last year including Boise tons in both years. Pricing for domestic containerboard sales was flat with the third quarter.

Export prices were down a little in the quarter with reduced earnings by about a $0.01 [ph]. Looking at current corrugated shipments data for the first 13 days of January PCA bookings for corrugated products are up 5% over the same period last year and shipments are up 7.4% so we were off to a good start in the first quarter.

I should note however for comparison purposes the shipments numbers are probably overstated by about 2% because January 2nd was not a recognized FDA shipping day but about half of our box plant operated that day. I will now turn it over to Judy Lassa, who will discuss white papers..

Thank you, Tom. Our paper segment EBITDA in the fourth quarter of 2014, was $45 million on sales of $284 million, which equates to a 15.8% margin. Our white paper mills ran well, producing 287,000 tons in the fourth quarter.

We did have our Jackson, Alabama mill down seven days in November for its annual maintenance outage, which reduced production by about 10,000 tons and increased operating costs. Office paper shipments during the fourth quarter were down 6% compared to the fourth quarter of last year.

During the past year, we elected to exit some business which reduced our shipments. Printing and converting and pressure-sensitive paper shipments were down 12,500 tons compared to last year’s fourth quarter, driven by the International Falls Minnesota machine closures in the fourth quarter of last year.

Industry publications reduced office paper prices by $10 per ton in November and an additional $5 per ton in December. The November price reduction did impact our fourth quarter office paper prices. Our overall mix was unfavourable and we saw slightly lower prices for both printing and converting and pressure sensitive papers.

Excluding special items, 2014 EBITDA was $186 million, up $53 million or 40% from 2013 full year EBITDA which included two periods owned by Boise and PCA. Sales were $1.2 billion in 2014. I will now turn it over to Rick West..

Thank you, Judy. PCA generated cash from operations in the fourth quarter of $179 million and for the year $736 million. Capital expenditures in the fourth quarter were $165 million and for the year $420 million.

Common stock dividends of $39 million or $0.40 per share were paid in the fourth quarter and we made $78 million of cash tax payments Total debt reduction since the acquisition of Boise on October 25, 2013 is $300 million, and our long-term debt is now at $2.355 billion. We ended the quarter with $125 million in cash on hand.

As we normally do at the beginning of each year, PCA provides estimates for certain 2015 [ph] items. We expect total capital expenditures to be between $275 million to $300 million. DD&A is expected to be $345 million, up $5 million over 2014 recurring DD&A which excludes accelerated depreciation for the DeRidder restructuring.

Pension expense is expected to be $30 million, up $5 million over 2014. We expect to make minimal cash, pension payments. The combined federal in state effective in cash tax rate is expected to average about 35.5%.

Based on our current long term debt with current LIBOR rates, interest expense in 2015 would be about $90 million and cash interest payments would be about $86 million, up $9 million over 2014.

Based on current plan annual maintenance outages at our mills, the total earnings of these impact of these outages including loss production, the direct cost that could increase is associated with the outages and repair cost during the outages is expected to be $0.55 per share.

The current estimated impact by quarter in 2015 is $0.13 per share in 1Q, $0.16 per share in 2Q, $0.08 per share in 3Q and $0.18 per share in the fourth quarter of 2015.

In terms of MLPs we do not have anything new to report on our MLP deliberations other than we are continuing our modelling and tax analysis efforts as we await action from the IRS on our request for a private letter ruling which was filed in November.

Before I turn it over to Mark, beginning with reporting our first quarter 2015 results in April, we will return to reporting our year-over-year results rather than sequentially quarter to quarter. We now have a full year’s operation with Boise, which for comparison purposes will allow us to go back to our traditional method of reporting results.

I will now turn it back over to Mark..

Thank you, Rick. In summary, 2014 was a very successful transitional year for PCA with the integration of the Boise acquisition and the completion of the redesigned, rebuilt and start up of the DeRidder number 3 machine to produce containerboard.

All areas of the company worked hard to accomplish these objectives and it shows in our reported results, with earnings per share up 40% and EBITDA up 52% excluding special items.

As you know we raised our synergy estimates after the Boise acquisition from $105 million at the time of the acquisition to $175 million on July 22, 2014 when we reported second quarter earnings. During 2014, synergies of $100 million or $0.65 per share were realized.

Over the next two years we are now estimating that our total synergies will increase from $175 million to $200 million. Looking ahead, our earnings in the first quarter are normally lower than the fourth quarter and that is again the case this year.

We expect loss containerboard production of about 60,000 tons and higher operating cost from annual maintenance downtime at our two large containerboard mills and two less production days compared to the fourth quarter. This will be essentially offset by lower amortization of annual outage repair cost.

Corrugated product shipments are expected to be seasonally lower and white paper prices are expected to be lower with a full quarter’s impact of published price decreases. Seasonally colder weather will increase wood, energy and chemical cost.

In addition, labor and benefit cost will be higher with annual wage increases and timing related benefit payments. These items will be partially offset by the higher production on D3 paper machine and lower interest expense from an annual interest rebate on a portion of our debt.

Everything considered, we currently expect first quarter earnings of $1.07 per share to $1.10 per share. With that, we’d be happy to entertain any questions, but I must remind you some of the statements we’ve made on the call constituted 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’d like to open the call for questions. Thank you..

[Operator instructions] Your first question comes from the line of George Staphos from Bank of America.

Congratulations on the year and thanks for the detail. My general line of questioning is aimed at either trying to bridge into first quarter or look at year-on-year trends.

I guess the first question I had is, you know if we look at the impact of Boise both in terms of synergies and the add from D3, is it possible to isolate how much EBITDA that contributed in fourth quarter and/or into the first quarter when we look back at prior year period?.

.:.

Okay [ph] George I’ll take a shot at those questions. Let me start first with looking at 1Q 2015 earnings guidance you know versus last year’s first quarter the $1.08 per share.

And you know if we look for things it should improve last year’s first quarter earnings of $1.08 per share compared to this year’s first quarter earnings, we do have additional synergies of $0.16 per share compared to last year’s first quarter. And that equates to about $100 million more work.

We had $25 million annual run rate in the first quarter of last year with all of the things we did immediately after the acquisition. We now have the additional $100 million in the first quarter of this year so that adds $0.16 per share.

Secondly, if you look at our corrugated products growth for last year and our mill production that adds an additional $0.10 per share so a total of $0.26 per share compared to last year. There is three items that offset that.

The first item is that we do have higher annual outage cost in this year’s first quarter compared to last year’s first quarter up $0.07 per share and last year’s first quarter we only had the Counse mill down, and which was about 22,000 tons. In this year’s first quarter we have both the Counse and DeRidder mills down.

The DeRidder mill was not down last year, it was a year that we did not have an outage, this year is the more extended outage and if we do have some additional direct cost in buying purchase electricity because we have the turbine down for a seven year inspection which does make the number higher, so that’s $0.07 per share off.

In addition to that, a normal inflation and other cost increases after taking into account the positive impact of natural gas and some other what I would call deflationary items. The net of the inflation is $0.10 per share year-over-year, so that’s a hit turning to $0.10 per share.

Finally, and looking at price and mix compared to last year’s first quarter, that down about $0.10 per share and is primarily an export containerboard in white papers. Now in terms of the bad weather last year if I recall correctly we did say some of that showed up in the first quarter, some of it showed up in the second quarter.

In terms of this year, one of the reasons that we gave the range of $1.07 to $1.10 is the factor of whether not knowing what will occur for the remainder of the quarter, and so that’s what is represented in the range. So that’s basically year-over-year a lay out of our earnings.

And as Mark said earlier in relation to your other question with Boise, contribution to PCAs earnings and I’ll just say for the full year he said, we did realize a $100 million of synergies plus the EBITDA that we purchased, so they were a major part of our increase in earnings year-over-year..

Thank you, that’s very helpful..

Next question, please..

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

Good morning, Mark..

And following up a little bit more on that, and trying to understand, so the additional $0.07 outage, you had previously mentioned that in total there is $0.55 for all outages this year.

Was that a similar apples-to-apples number being used there? It says the outage, the $0.07 you were talking about does that include lost production that's not included in the $0.55, all outages numbers you had talked about previously?.

It’s a comparative number for all periods in the first quarter of last year. Our total outage cost was about $0.07 per share and this year it’s about $13.5 per share and that does include all three components.

In the press release we did say and looking at 3Q to 4Q when you take into account all of the items that make up the difference in the 60,000 tons which includes the outages plus the two additional, the two days of less production driven by February, that’s really offset by the lower repair cost amortization which does go from the fourth quarter from $0.14 to zero.

So you’re getting a $0.14 positive, but that’s going from 4Q to 1Q.

But in terms of the overall impact for the year with the DeRidder outage we’re going from a total annual outage cost in 2014 of about $0.48 per share to about $0.55 as I said earlier for 2015 and all of that is being driven by the DeRidder outage in the first quarter of the additional $0.06 so we are absorbing that entire increase in the first quarter..

And Mark as Rick said earlier the reason for that big difference is we had no annual outage at DeRidder last year. And we have an extra one and its – it’s now our largest mill..

Okay, that’s very helpful.

And just quick follow up if I could, on the, the synergies I think you indicated that you’re at -- at about $125 million run rate expected for this quarter your target is now for $200 can you give us a sense of the timeline of when you would expect to get to that $200 million run rate?.

Yes, Mark you know we are anticipating over the next two years 2015, 2016 we should achieve that and again as the year rolled on last year we continued to discover little opportunities.

One example of that is the new turbine generator that we are currently installing currently International Falls mills so that’s just an example of our internal project that we’ve gone after very quickly to bring to the bottom line, reduce energy and efficiency of the mill..

Yes I guess another one Mark, this is Paul Stecko that we can mention and Mark and his people have done some outstanding work at DeRidder which is a pulp limited mill. We’re out of pulping capacity there that’s why we buy purchase OCC for D3.

But we have come up with some very good ideas to debottle neck the pulp mill and get more pulp production and we’re making some changes as a matter of fact they will get some of that on its annual outage here in the brown stock washing area, but that is a fairly good part of the reason we’ve increased the synergies because of the additional pulp capacity we can bring on in a pulp limited mill..

Great. Thanks very much..

Next question, please..

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

Yes, good morning. Could you talk about the DeRidder ramp-up? I know you started that in October and you usually take some time before you get the full benefit. I think you were saying you expect it to have a net benefit of about $60 million of EBITDA. And I know some of that is from the forgone purchases.

So could you tell us sort of where we stand with that and how much more is left?.

Yes, when we started off in October we talked about the anticipated curve and at this point we are very pleased with where we are. We did realize about $0.04 I believe on the fourth quarter benefit from the production of that machine. And as you would expect you know during the start up period, start up expenses costs are going to be higher.

So that would impact the benefit and you know again net benefit is down initially. And as time rolls on your cost reduced, your efficiency is improved.

And again we did take advantage of the time in the late November, early December to do a lot of great development which we had not anticipate, and not anticipated being able to take advantage of until later.

So that was some of the costs that was incurred, but again it help to get ahead of the curve and prepare the machine to supply necessary tons into our system.

So again with the numbers that we did layout for the project, we still standby the numbers and again, I think you’ll see that as the year goes on, that the machine has been performing well, I think if you look at the machine performance on efficiency basis the DeRidder 3 machine is running as well as any other machine in our legacy system, so quite pleased.

And again what Paul has said about the work we’ve been doing with the pulp mill we have been able to free up more virgin capacity and that has allowed us to undertake the great development sooner, and so we’re pleased there. So again we’re still holding with the numbers we had thought. .

Yes. Let me just add one thing. When the startup of the machine, this is a very difficult conversation, we’re doing some things that haven’t been done before and we’re in even for our own self and some uncharted regions. And we have had a few problems along the way, minor in nature that will rectify during our outage at DeRidder in the first quarter.

Mark said our efficiencies are very good and they all are, but we’re not able to run that machine full speed yet because of some modifications that we have to make, and we will make. So we’re been held back little bit on top end in terms of making a lot more tons until we correct a few things.

But the good news is we’re excited about that of what this machine can do and what we’ve found in our great development activities, now we just got to make some modifications. That’s the first point. And that will be completed by the end of first quarter. Secondly on the startup you have two types of startups. One is on production.

Can you ramp this machine up from nothing to 1000 tons a day and that’s one objective. But when you startup a new machine you also experience higher cost for a lot of reasons, everything new and [indiscernible] run and once you get up to a speed and while you’re doing that you also have to work on a lot of things to reduce the cost of production.

We expect two things over the next three to six months on this machine, production will go up and cost will come down and those two together will drive the productivity, that kind of numbers that we think this machine is capable of. So I just want to amplify a little bit on that point..

Got you. That's helpful. And then just one quick follow-up, we've seen in the last few months a number of other players, if you will forward integrate into box plants, and that's been a strategy you guys have had.

And could you, I guess, update us on where you see your integration level right now? And secondly, do you feel you want to continue to move that up and is it getting more challenging to get attractive box plant assets given the competition for them out there?.

Yes. Chip, with the startup of the DeRidder machine, we brought our integration level down from the low 90s into the mid 80s and from full year the integration were been 90%, but again with the capacity that DeRidder 3 is delivering again we’re back down into that mid-80 range.

So it presents an opportunity for Tom’s side of the business to continue to grow. Tom you want to add to that..

Well, I would say that we continue to have a target that’s 90 plus in terms of our integrations. So, we’ll be looking obviously to continue grow our business organically and we’ll take advantage of the acquisitions that present themselves when they come along..

Okay. Thank you..

Next question please..

Your next question comes from the line of Anthony Pettanari from Citigroup..

Hi. Good morning..

Good morning, Anthony..

If I look at your EBITDA per ton in corrugated, it was significantly lower year over year. And you indicated containerboard prices were mostly flat. You also talked about the DeRidder startup and some of the mill outage expenses. Paul, you reference getting out some of the kinks in DeRidder.

As we go to 2Q, 3Q, assuming prices are flat, would you expect your EBITDA per ton in corrugated to kind of get back to the levels that it was for most of 2014?.

Well, as Tom said earlier that the biggest change in corrugated in the fourth quarter was mix.

And Tom elaborate if you recall on our last call that we had a surprise and our mix was richer in the third quarter and he speculated that time that some of the people in order to make sure they get all their product that in time were move into display business and some of the high end stuff earlier in the year.

And that turn got to be the case, because our real high end business displays, et cetera were less in the fourth quarter than we anticipated. For the full year they were about where we thought, but they move them earlier in the year and then we had one accounting change that affected the EBITDA margin which will go away.

But Tom you want to comment on that mix thing first..

Well, I would just say exactly basically what you say Paul, when we were on the third quarter call if you recall, our mix was significantly better and a lot of that was due to the fact that our value added business was significantly.

And we speculated that at that time that many of our customers were moving those Christmas orders up, as an example, and that’s just because seasonally this Christmas season and this push keeps moving up earlier in the year.

And that held true to perform in the fourth quarter and that’s why our mix was a down a little bit on that value added business.

And now you just kind of see the Christmas season as it evolves its I think much more oriented towards the big box and the department stores earlier in the year and then as the year winds on the internet sales really pick up. So that’s the cover I had..

And Rick you want to comment on the accounting item..

Yes. You know, right now with the integration of the Boise we’re still operating in two different basis in terms of systems and more so on the pay roll system, their payroll system and our existing methods of paying product. So at the end of the year you try to look at everything to ensure that you have it in the proper bucket.

So we had to move about $3 million of labor-related costs from the corporate segment back to the packaging segment in the fourth quarter. So you took a full year hit in the fourth quarter whereas it should have been about $500 million, you know $600 million per quarter, $600 million to $700 million per quarter.

Excuse me, $600,000 to $700,000 per quarter versus the $3 million in the fourth quarter. So that $3 million also affected the margin in containerboard and that should have been spread across the year. So, the first three quarters were over stated, just a touch and the fourth quarter caught it up..

Okay. That’s very helpful detail. Then maybe just a follow on for Judy. You know you’d spoke about potentially exiting some white paper business.

Is that continuing in 1Q, or is there any color you can give us around that?.

No. I mean, I think it was just the changes that we made in 2014 and part of that was due to reshuffling our system with the I Falls reconfiguration..

Okay. So that process is largely over..

Yes..

Okay. I’ll turn it over. Thank you..

Next question please..

Your next question comes from the line of Alex Ovshey from Goldman Sachs..

Hey, good morning everyone..

Good morning..

I wanted to go back to the earnings bridge on a year-over-year basis for the first quarter. You talked about $0.10 of higher costs with labor, other costs being partly offset by impacts of lower energy.

Can you maybe elaborate a little bit more on some of the cost buckets that you're seeing that are inflationary? And maybe thinking about the full year, is that $0.10 sort of something we can annualize and assume that there is sort of $0.40 of cost inflation the business will see on an annual basis? Or is it a high $0.10 number in the first quarter and then potentially tapers off as we move through the year?.

It’s a couple of both, you know, if you look at the first quarter, there’s a coupe of things that hit you all with sudden compared to the fourth quarter. The first is that for the most part of all our salaried employees received their annual waging freeze on January 1st. So that’s an immediate increase in fourth quarter to first quarter.

Also the majority of our union contracts for all hourly employees move up in January. So that’s an immediate increase.

The third item that’s an immediate increase in fourth quarter to first quarter is the fact that certain statutory benefits such as FICA are paid out earlier in the year and they start backup in the first quarter and then they wind down. And then there are certain benefit-related payments that come in the first quarter and then they go down.

So in terms of the labor inflation there’s a portion of it that winds down, there’s portion of its fits more so in the annual wage increases. In terms of – and that’s probably the biggest item that you see in a negative inflation.

We’ve also had some in freight year-over-year and everybody is aware of that, the continuing problems with rail and truck availability that’s driving up the costs into large extend offsetting the positive benefits of oil or diesel prices. You do get a really good benefit in natural gas.

We do burn more natural gas than we use to with the additional white paper mills and the DeRidder mills, so that is a benefit. But if you think about it on a overall standpoint it’s very difficult. You can predict to some extend the inflation for annual wages which are generally 2.5%, 3%.

Your other benefit primarily medical you’re aware of how much that goes up every year. But in total you have to realize that when you look at our cost to good sold and our SG&A, excluding depreciation and you can take it right off the 2014 press release, its about $4.5 billion.

So you’ve got to put enough percentage to that what you think a lot of the factors would be and I’ve talked about a few, but it is a large number.

And so I can’t predict the inflation to any great extent of the overall year, but there are certain things of course that we had last year’s you can see by the year-over-year comparison for 1Q to 1Q, but that will be a number that we will have to overcome in the 2015 by whatever we can do and we have some positives going into 2015..

Yes. I’ll add to that. We don’t give full year forecast. We give quarter over quarter forecast and Rick did say that we’ll taken a more of hit in labor this quarter than we will the other quarters. But coming up with inflation for the year its anybody’s guess we got roughly $4.5 billion if we have 1% inflation overall. That’s $45 million.

If we have 2% inflation that’s $90 million. So my guess this is going to be in 1% to 2% range. Where? I really don’t know. And we cannot speak up on that quarter by quarter..

Okay. That’s fair.

And then just D3 now that it's running, can you just update us on what you expect the operating capacity of that machine to be on a full-year basis – not necessarily production, but just what the stated capacity would be and whether it's changed since the last time there was an update? And, then, what's the expected fiber furnish for the facility and what percentage if it is Virgin versus OCC based?.

Yes. When we announced the project, we said, our believe its going to be 355,000 ton a year type projects in that’s what we're looking at right now.

And the fiber furnished, again the opportunities we have, depending on whether we choose to make medium or liners, we can utilize the OCC plan we can go 100% recycled fiber all the way up to a blend of say 70% Virgin and 30% OCC.

So, we have a tremendous amount of flexibility on the machine and with were coming up a month from now on the, mill, we will enhance that capability and ensure that we have that mix of 70/30 if we choose to make liner on the machine..

Okay, great. That’s very helpful. Thank you..

Next question please..

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

Good morning, guys. Quick question on prices on the export front. Have you seen it stabilize a bit? I know in the trade publications, it seems like it has taken much of a decline.

Have you seen a further decline in January? And can you talk about what your thoughts are in pricing or starting to see it stabilizing in Q1?.

Phil, this is Tom, I’ll take the first question on export prices. They came down a touch and they basically had stayed there. We don’t speculate going forward on what we expect prices to do, but that’s all I can tell you as where it is at this point. Judy to want to take the other question..

[indiscernible] Tom..

What paper prices going forward again, we don’t forecast where prices are going. As Judy mentioned, trade publication which we tied to throughout the prices, $10 in November, $5 in December..

$5 in November and then $10 in December..

Yes. I said it backward. I’m sorry. So, we only hit – we only got a partial quarter hit on that. We’ll get the entire quarter hit in the first quarter and we’re white paper prices are going are going to depend on a lot of things, the economy is it going to get a little more robust with all the cash available what that you’re saving on gasoline.

That’s a positive. Where our imports going to go in terms of up or down or in that regard, so its something that remains to be seen there, we’re not offering any forward price estimates at this point..

Okay. And I appreciate the color you provided earlier about your 1Q guidance with 1Q seeing a larger to normal hit with the maintenance expense in some inflation.

How should we think about the $0.06 hit on maintenance if 1Q been spread out in a more favorable fashion in remaining quarters? Is it pretty evenly spread out or it is more 2Q centric?.

Well, I gave the numbers. We took the year-over-year increase totally in the first quarter and when I gave the numbers for the $0.55 per share in 2015, the overall cost of outages in the first quarter is $0.13 per share.

The overall cost for outages in the second quarter that we see is $0.16 per share, because we’ve got additional time at Counce, Tomahawk, Filer City and we begin to amortize repair costs. In the third quarter, it goes down all the way to $0.08 per share because we essentially have very little downtime in the third quarter.

And then, in the fourth quarter it goes up dramatically because there are outages as well as the full recognition of repair cost. So it goes up to $0.18 per share. So in terms of the increase year-over-year it is all in the first quarter..

Okay. That’s helpful, Rick. And just one last question, I know, if you guys can talk about this, it still pretty early.

Any update on how we should be thinking about anti-dumping case as it relates to white paper and how that kind of impacted to you in a positive or negative way in coming quarters?.

You know, again what you’ve seen in the press with the announcement of the case, its in the hands of the government in terms of the Department of Commerce and International Trade Commission to go and do their investigation, so that’s really will say at this time..

Okay. Thanks guys..

Next question please..

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

Thanks You did a pretty commendable job outpacing the industry in the corrugated demand growth.

I was just wondering out of the Boise acquisition, should be continued to see PKG outpace industry in 2015? Or do you think you’re being more normalized with the industry trend?.

Debbie we would expect to grow our businesses like we’ve always grown our business both organically and through acquisition. So, I would – I think it would be pretty obvious that we will continue to outpace the industry or that’s certainly is our expectation..

And it’s Paul Stecko. Debbie add to that, that’s our goal, goal is different than performance, so the only performance data is, we’re up a bunch the first half of January and so we’re off to a good start, so the rest of the year we hope that continue that trend but two-thirds of a month data doesn’t make a trend yet, but we’re off to a good start..

Okay. Thank you. Yes. I think it make sense year-to-date you’ve been better but I’m just wondering, so I kind of looking out what you’re hearing from your customers seems relatively positive and that’s helpful. I’m also knowing if you’re…..

They keep telling us they like us. So, that's all about I can tell you there..

All right. That’s good to hear.

I’m also wondering if anything is change over the last month kind of impact your thoughts on capital allocation, dividend, share buybacks or debt pay down, the goals that’s you kind of already stated?.

No. We do have the positives of having our debt refinancing down that took us out of the way and takes away some of the urgency to pay down debt and our balance sheet is in very good shape.

So we’ll continue to look to return cash to shareholders and whether it would be dividends or whether it would be share repurchases and we think we’re in a good position going into 2015 to do that with lower capital expenditures as I said earlier today. And we’ll be looking at that as the year progress..

Yes. We’ll still pay debt off, but we won’t pay as much as we originally thought and that hasn’t changed..

Thank you very much. Good luck in the quarter..

Thanks. Next question please..

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

Good morning, gentlemen..

Good morning..

First question I want to ask was as we look at that the new DeRidder machine, 355,000 tons, let’s call it roughly a ton a day.

It looks like you are bit below that in the 4Q?.

Ton a day is not right, you got to carry the three desks [ph], you got to carry three zeros..

Okay. I apologize, so -- but I guess from what it is when you look at your per day rate it look bit late in 4Q where you’re running. However you talked about getting some of the improvements in some of the different elements experience running a machine and something that cost out et cetera.

As you’re running it today, are you close to rated run rate on the machine or you still running a bit below?.

You know again we talk to earnings calls in October, we expected to make about 50,000 tons. We made 58,000 tons. We exceeded the startup curve period for the 4Q.

And then again as we ran the machine and learned about the capabilities of machine, again, in order to produce some of the liner grades that we had not expected to produce until later we did run slower and we were taking advantage of the virgin crafts fiber which became available, and again, identifying opportunities on how to utilize that virgin craft.

So again for 4Q we actually exceeded the curve expectations on tons per day.

And then again with current mix of linerboard and media being produced on the machine, we are still going according to the curve and we will take advantage as Paul said with the shutdown coming up a month from now with some modifications in some equipment that we’re installing and that will better enable us to take advantage of craft fiber and then theoretically move the speed up and move the productivity up to a higher level..

For the quarter you know Mark just said we made 58,000 tons, you divide that by the number of days we ran to get about 600 tons a day of the 1000 and we’ve move that up over the quarter.

So 600 [ph] was the average, we obviously exceeded the year at a higher number than that if you average 600 [ph] but we started out at zero and we’re not at the 1000 and we need to a little bit of work on the machine we’ll get up to the 1000 but we’re fairly close..

Okay. That’s helpful.

My second question was and Rick, thank you much for running kind of to the bridge on a quarter-over-quarter basis or how we think about that, but I guess the one element that I was unclear about or wanted to get a little bit more color on was when you think about your rolling assumptions, you talked about thus far through quarter you were up mid single digit, upper single digit depending on how you looked at your extra day thus far.

But where were that fit with in the bridge.

It would seem as though – maybe have you bake that in somewhere and I just wasn’t aware of it – a higher volume performance?.

I think that when we do a bridge year-over-year we bridge it representative of what we’ve been able to accomplish and that’s even when we go from 1Q, 2014 to 1Q, 2015 where we’re basically expecting the same type of growth as Tom said in his call and what we’ve experience historically.

So we have built that number into our first quarter number year-over-year..

Okay. So you are embedding up somewhat low single digit sort of number in there. I’m with you then. Okay. Thank you..

Absolutely, because I saw what you can do it looking over year-over-year as to how did you do last year and what are envisioning for your growth this year to help to offset the inflation that normally occurs..

Thank you..

Next question please..

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

Hey..

Good morning..

Just going back to your prior question on your growth versus the market as you continue to grow you get to be more of a proxy for the entire market I would think.

Historically my understanding as you grown through going after some highly profitable niche business, I guess my question is more centered on, how long do you think that can last? Is there plenty of that highly profitable niche type business out there for you to go after? Is it couple of years to get to be more like average or do you think there’s longer runway than that?.

Scott, this is Tom. You know, I think one way to answer this, to take a look back first and to kind of look at our performance and we’ve got a long track record grow on the business certainly more than the industry has. And we’ve done in a lot of different ways and I’m not going to disclose all those best kept secrets here on the call.

But I can tell you that our expectation is that we will continue to do that. We see plenty of opportunities to do that. We positioned ourselves in a way with our customer base and with type of customers and the type of products we produce and that’s – so you know, it’s been good to us and we continue to see those opportunities..

And this is Paul Stecko. I want to add to what you said. We’re selective in the type of business we want to pursue and we can be selective because we’re only 10% of the market. It’s not like we’re 50% to 60% of the market. We still have the other 90% of the market that we can be selective and so we’ve got a lot of room to grow.

And if we increased our volume by 50 more percent now it took us roughly a decade to increase 50% go through about 6.5% to 10%, that’s a 50% increase. If we increased another 50% that would only take us through a 15% mortgage share, so we’ve got a lot of runway when we get to a much bigger number I think that question may come into the play.

But that’s going to be quite a way out..

Fair enough.

And then on the demand trends within the quarter, I don’t know if I missed that or not, but can you talk about how things – you talk about the mix through shifting as the quarter when on, but how were the sequential sales trends within the corrugated market throughout the fourth quarter?.

Well, the fourth quarter was very good and the demand was strong and steady as I mentioned. And then I also shared with you what the bookings look like so far in the first quarter, which were up 5% over the same period last year and shipments were about 7.4% which probably will equate something to closer to about 5.5% ones we compare actual days..

Okay..

So, we’re off to a very good start..

Right.

But no meaningful difference say, October, November, December of the fourth quarter, any one month, okay?.

Pretty steady..

Okay. And then just last question you did mentioned ecommerce really picking up late in the quarter and sort of taking the growth manual away from or taking over for the display business.

Any idea now how much ecommerce represents of the total business, means, is this enough now to really move the needle within the Company?.

We don’t really break that out and talk about exactly about what portion ecommerce is and quite frankly it still a hard number to get your arms around because lot of customers do both. They are in both segments. So it’s tougher to get your arms around.

But I don’t think there’s any question that the needle doesn’t get move on ecommerce and that’s become a growth area certainly for the industry..

Great. Thanks for all the color..

Thank you. Next question please..

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

Good morning. I wanted to just clarify the year-over-year headwind on the price mix of $0.10 per share that I think Rick mentioned in the first quarter. If I think about paper prices, they were trending up early last year. And, so, the year-over-year variance, I wouldn't think, is too much on the paper price side.

On the export side, clearly dollar prices are down. But fortunately you expert a lot less than most so I wouldn't think that's hugely material.

So I'm struggling a little bit with what drives that large of a $0.10 price mix hit year over year?.

Judy you want to take whitepapers..

Yeah.

I mean, again we are up year-over-year, but as Paul mentioned before in Q1 we do have some headwinds with the publication prices dropping?.

Yes. To recall last year there were announcements, but it took trade publications forever to recognize them and they all didn’t go up in January, it took through into the second quarter before they got fully realized and both them didn’t get totally realized anyway. So, there’s a lag in prices than went up and now they fallen back.

So its kind timing issue that you didn’t get that price increase effective all January 1st. Most of it was not in the first quarter in terms of realization. So that’s one and of course export prices have fallen as you mentioned and then the trade publications move the price to medium down over the year.

I think $20 on a West Coast and $10 in the East, so that affected us to and so that’s basically the major movers that changed them..

Okay. Because the point on the pricing, right, so the year-over-year variance, because there was the lag, I guess that's what I was trying to get at, that wouldn't be so much of a negative year-over-year variance because of the lag. If anything, it may even be slightly positive. And so medium is a small factor, open-market medium prices for you.

So I'm just struggling.

Is it mostly mix that's driving that year-over-year kind of headwind? Is there something going on with mix that we are not appreciating? And do you see this type of a headwind? I know you don't give guidance, but do you see this kind of a headwind continuing throughout the remainder of the year, as well?.

Well, let Judy take the mix question, but on price, the price is down year-over-year for the reason I just went through. We didn’t get most of the price until the second quarter and so then it went up and then down, so our price at until December over December were down compared to last year.

So it’s a negative because of the timing of when it went through and Judy you may talk about mix..

Yes. On the white paper side of thing we do have a mix issue in first quarter in addition to the publications moving. We actually, if you look at our office in our TMC [ph], we actually are ahead and there is just a mix with pressure sensitive and pulp that are making it lower..

Okay. All right.

And on the containerboard side, I mean, is there any notable mix change year-over-year we’re assuming in 1Q or is mostly the mix is on the paper side?.

Yes. There is a just a slight variance in mix for us on the containerboard corrugated side in Q1. But the two best quarters for mix in containerboard in the second and third quarters. And the two weeks is to the first and the fourth..

Yeah. Okay..

But year-over-year we expect that to be about the same..

Okay. All right. Thank you for that.

On the – I guess just final follow-up question from me, Rick, just on total outage expense, in totality I believe the $0.55 will be pretty similar to 2014, so its just a matter of sort of the timing of the total maintenance outage expenses when it hits in the quarter, is that fair? Maybe its up $0.03, $0.04 year-over-year in total?.

No. I said it was up about $0.07 year-over-year, and its all in the first quarter that we have the additional hit because of DeRidder. In terms of the outages year-over-year in last year in the first quarter we have $0.07. This year we have $0.13. Last year in the second quarter we had about $0.11. This year we have $0.16.

Last year in the third quarter we had $0.12. This year we had $0.08. Last year we had $0.18 in the fourth quarter. This year we have $0.18 in the fourth quarter.

So the $0.06 per share increase, $0.6 to $0.07 is in the first quarter and then you have some shifts between the second and the third quarter with the third quarter this year being lower based upon the timing of when the outages occur..

Okay. Got it. All right. That's what I was trying to get it. That helps a bunch. I appreciate it. And yeah, good luck the rest of the year, here. Thanks..

Thanks. Operator we have time for one more question..

Your next question comes from the line of Mark Wide from Bank of Montreal..

Good morning, Mark..

Outside your business we have had a lot of currency movements including some pretty big ones in Latin America?.

I’m sorry Mark, we missed the first part of your question, could you repeat that?.

Yes, Mark, I’m just curious about the impact of FX on both sides of your business and in particularly FX down in Latin American places like Columbia and elsewhere?.

Well, Mark, the strong dollar obviously is impactive to us and that does effects some of our decisions relative to our export business and will impact the margins somewhere as we’ve talked about. But I would say, Mark, that some of the regions of the world that have been more impacted than others where export prices were lowest.

We don’t participate in those regions and its even get worst in those regions because of the strong dollars. So you’re very perceptive in that regard..

Okay.

The second question I had just, can you talk about wood cost and wood supply issues in any of your markets where it looks like it might be an issue?.

Yes, Mark, when you look back at 2014 with the wet summer we had in the upper Midwest, the unrelenting rain through the Minnesota Wisconsin area impacted us particularly at Tomahawk through the fall the winter wood build that normally were taking place didn’t occur, so that’s been one particular area that’s wood cost have definitely impacted us.

And then the Southeast, the Southern Georgia, the Panhandle region we had a weather call and that impacted the ability to move some wood in so, so that area along with the pellet plant activity again just the ongoing demand on wood basket, but the moisture in the fall definitely impacted some southeast and the upper Midwest..

[Indiscernible].

With the better winter conditions now we are just starting to recover and keep better logging conditions..

Okay and the last question I had Mark was just if you look at these machine conversions that have been done in the containerboard over the last few years it seems like the track record has been pretty chequered [ph].

And I just, I wondered what kind of lessons you guys have learned from doing D3?.

I agree with your comment and I have said before in the last few years you can convert anything, it’s a matter of how much capital you are willing to spend and also the knowledge that they could put into it and we have a unique set of capabilities and we identified the necessary capital to achieve what we needed but we are doing some unique things on a machine that others don’t have the capability to do and/or choose to spend the money on but part of that again is just our in house expertise and being able to take advantage of a unique situation at DeRidder..

And obviously Mark we don’t want to share that technology with competitors, so that’s why we are kind of tight lipped about that. We think we know how to do some neat things and we want to keep it to ourselves..

Okay, fair enough thanks..

Okay, with that, Operator, thank you for participating in the call today and we will look forward to talking with you in April. Have a good day, bye bye..

This does conclude today’s conference call. Thank you for your participation. You may now disconnect..