Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included herein and our audited Consolidated Financial Statements and Notes thereto for the fiscal year ended September 30, 2008, as well as the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," that are part of our Fiscal 2008 Form 10-K, which we filed with the SEC on November 26, 2008. The table in "Note 15. Segment Information" of the Notes to Condensed Consolidated Financial Statements section of the Financial Statements included herein shows certain operating data for our segments.

Overview

On March 5, 2008, we acquired Southern Container, which owned the Solvay containerboard mill, eight integrated corrugated box plants, two sheet plants and four high impact graphics facilities. With the acquisition, RockTenn became one of the largest manufacturers of containerboard in North America, and continues as one of America's leading manufacturers of bleached and recycled paperboard with annual capacity of approximately 2.4 million tons of paperboard. The acquisition adds highly integrated low operating cost assets to our Corrugated Packaging segment. We have included the results of Southern Container's operations in our Corrugated Packaging segment in our financial statements since the March 2, 2008 effective date of the acquisition. We financed the acquisition with our $1.2 billion Credit Facility and $200 million of March 2016 Notes. See "Note 5. Acquisitions" and "Note 9. Debt", respectively, of the Notes to Condensed Consolidated Financial Statements section of the Financial Statements included herein.

Segment income in the second quarter of fiscal 2009 increased 68.8% to $96.7 million compared to the second quarter of fiscal 2008 primarily due to the inclusion of three months of earnings from the Southern Container acquisition, compared to one month in the prior year quarter, which was partially offset by a decrease in Merchandising Displays segment income due to lower net sales.

Net income increased $20.3 million to $37.4 million in the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008 primarily as a result of the inclusion of three months of income from the Southern Container acquisition, compared to one month in the prior year quarter. Net income has been reduced by specific pre-tax charges related to the Southern Container acquisition aggregating $2.2 and $13.7 million in the second quarter of fiscal 2009 and 2008, respectively. The second quarter of fiscal 2009 charges consisted primarily of $0.8 million of integration costs and $1.4 million of deferred compensation expense. The second quarter of fiscal 2008 charges consisted of $7.1 million of acquisition inventory step up expense, $3.0 million for an acquisition bridge financing fee, $1.8 million of debt extinguishment costs associated with the transaction, $1.1 million of integration costs and $0.7 million of deferred compensation expense funded into escrow through a purchase price reduction from Southern Container's stockholders. Increased selling prices, other than for recycled fiber sales, and lower recycled fiber and energy costs were partially offset by generally lower volumes, increased virgin fiber and chemical costs.