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Packaging Corp of America (NYSE:PKG)

Q3 2008 Earnings Call

October 21, 2008 10:00 am ET

Executives

Paul T. Stecko – Chairman and Chief Executive Officer

Richard B. West – Chief Financial Officer

William T. Sweeney – Executive Vice President, Corrugated Products

Mark W. Kwolzan – Senior Vice President, Containerboard

Analysts

Mark Wythrop – Buckingham Research

Richard Skidmore – Goldman Sachs

Mark Connelly – Credit Suisse

George Staphos – Banc Of America Securities

Mark Wilde – Deutsche Bank Securities

[Andrew Highman] – Iridian Asset Management

[Chip Dillon] – Self Employed

Operator

Thank for joining Packaging Company Corporation of America’s third quarter 2008 earnings conference call. Your host today will be Paul Stecko, Chairman and Chief Executive Officer. Upon conclusion of the narrative, there will be a question and answer session. As a reminder this program is being recorded. I will now turn the conference call over to Mr. Stecko. Please go ahead whenever you’re ready.

Paul Stecko

Thank you and good morning. As usual on the call with me today is Bill Sweeney who runs our corrugated products business, Mark Kwolzan who runs our mill operations and Rick West, our Chief Financial Officer. Thanks for calling in and participating and, as always, when we complete this presentation we will be more than happy to take your questions.

Let me start with a summary of the results and then get into some specific details. Yesterday we reported third quarter earnings of $38 million, or $0.37 a share, compared to $49 million, or $0.46 a share in last year’s third quarter. Third quarter 2008 results include after-tax expenses of about $1 million, or $0.01 a share, related to the previously reported explosion that we had on our recycled fiber tank at our Tomahawk mill.

Net sales for the third quarter were $621 million and that’s compared to $591 million in last year’s third quarter. Net income for the first nine months of this year was $105 million, or $1.01 a share, compared to $126 million, or $1.20 a share, in 2007. Year-to-date net sales are $1.81 billion compared to $1.74 billion in 2007.

Higher container board and corrugated products pricing increased our earnings by $0.21 a share compared to last year’s third quarter. This improvement was more than offset by higher costs for fiber of $0.06 a share, energy of $0.05 a share, chemicals of $0.04 a share, transportation, labor and benefits, which were each $0.03 a share, interest and other costs of $0.03 a share and lower volume of $0.02 a share.

Now some specifics – our mills produced 621,000 tons of container board, that’s down 11,000 tons or 1.8% from last year’s record third quarter production. Our production was a little lower than planned as we adjusted operating rates to compensate for much higher wood cost and slightly lower than expected box volume.

Outside sales of container board were up 2,000 tons from the second quarter of this year and down 13,000 from last year’s all time record shipments. To put last year’s third quarter in a little perspective, it was about 12,500 tons better than the previous third quarter record, so it’s obviously a pretty tough comparable. Our total corrugated product shipments were down 0.5% or one-half a percent and down 2.1% per workday with one more workday this quarter.

Year-to-date our total shipments and shipments per workday are down a modest 0.6% and 1.1%, respectively, over a strong 2007. We ended the quarter with our container board inventories flat with the end of the second quarter and we’re down 8,000 tons for the year. So you can see that our supply and demand has remained in very good balance.

As stated earlier, higher sales prices for container board and corrugated products improved earnings by $0.21 a share over last year’s third quarter. The higher sales prices were a result of both our second half 2007 container board and box price increases, the realization of our July 2008 container board price increase and a partial quarter’s realization of our August 2008 box price increase. The August box price increase was essentially completed by the beginning of October and we achieved our price realization targets, so it went very well.

Shifting to cost – wood, which is the single largest cost component to make container board, was up about 17% compared to the third quarter of 2007 and up about 6.5% compared to the second quarter of this year. This was higher than we expected. The increase in wood cost is being driven primarily by higher diesel fuel cost, which increased logging and transportation cost, as well as the prolonged down turn in the housing market, which limits residual wood chip availability from saw mills.

In the third quarter we saw even more saw mills either slowed back or shut down, putting additional pressure on the pulp wood market. In addition our southern mills – in our southern mills – we had a lot of rain which makes logging more difficult and more expensive.

Recycled fiber prices were down this quarter with industry published prices for OCC down 9% compared to the third quarter of last year and down 11% compared to the second quarter of this year. Including both wood and recycled fiber, our total fiber cost increased this quarter by about $0.06 per share compared to last year with our wood cost being up over $0.07 and our recycled fiber cost being down about $0.015 per share.

Higher energy cost reduced our third quarter earnings by about $0.05 per share compared to the third quarter of last year. Fortunately, we consumed very little oil and natural gas in our mills. This quarter our use of gas and oil was only 660,000 M2 BTUs, down 11% from last year’s third quarter. The work we did on our bark boiler at Valdosta to improve combustion efficiency and the start-up of the bio-gas refinery at our Filer City mill have helped us to continue to reduce costly gas and fuel oil consumption.

Speaking of the bio refinery, the start-up curve is moving along as expected. We are running at about 80% of capacity. We expect to reach full capacity and full efficiency over the next six months as the bacterial population fully matures. This time frame is a little difficult to project since, to our knowledge, this is the first time that such bacteria has ever been fed pulping liquor such as ours. So there’s more to learn.

Looking at another major cost, transportation, average diesel prices, as reported by the U.S. Energy Information Association, were up 50% compared to the third quarter of last year and only down about 1% compared to the second quarter of 2008. Higher transportation costs reduced our earnings by about $0.03 a share compared to last year’s third quarter. But on a positive note, diesel prices did fall during the quarter from a reported average of $4.70 a gallon in July to $4.02 in September and this should help fourth quarter transportation costs come down some.

Chemical costs were also up as producers work hard to recover their costs. Increased cost for our primary chemicals, caustic soda, soda ash, sulfuric acid, and wax reduced earnings by about $0.04 a share compared to last years third quarter. Higher labor costs reduced earnings by about $0.03 a share and higher medical worker compensation costs reduced earnings, also, by about $0.03 a share. Both the medical and workers comp costs were a little higher than we originally expected because of some significant medical claims and the settlements of some older workman compensation claims.

Turning next to cash utilization and our balance sheets. Capital expenditures were $33 million in the third quarter and are $98 million year-to-date. We repurchased 150,000 shares of our stock at an average price of $2.21 per share and ended the quarter with $148 million cash on hand. Our long-term debt was at $657 million, net of discounts of $2 million and we paid off $150 million in maturing notes due August 1. We also renewed our existing $150 million receivables credit facility which was scheduled to terminate on October 3 at comparable rates. There is $109 million drawn on the receivables credit facility.

We have no note maturities for five years, with our $400 million in notes, our $400 million of five and seven, 5.75% notes due in 2013 and our $150 million in new 6.5% notes due in 2018. Our $150 million bank revolver remains undrawn. So, financially we like where we are with dual liquidity and about 85% of our debts fixed at an average interest rate of 5.95% with no maturities for five years.

To sum things up, overall, we think we had a pretty good quarter. Earnings remained strong despite significant cost increases, the August box price increase went very well, volume for the quarter wasn’t great but it wasn’t bad either and we were able to keep our inventories flat with the second quarter. I think, finally and importantly, these days, our balance sheet and liquidity remained strong and stable.

Looking ahead to the fourth quarter, we expect higher average box prices as the result of a full quarter’s realization of the August box price increase. This will be partially offset by higher wood cost and higher energy usage with colder weather but, more importantly, we also expect lower container board and corrugated products volume with a weaker economy and three less shipping days.

The key variable and uncertainly, of course, is the economy and its corresponding impact on our corrugated products demand and our mill operating rates. This uncertainly makes it more difficult than usual to accurately forecast earnings, but at this point we believe fourth quarter earnings will be about $0.35 a share.

With that, would be happy to entertain any questions but, as always, I must remind you that some of the statements we have made on this call constituted forward looking statements. These statements were based on current expectations of the company and involve inherent risks and uncertainties, including those identified as risk factors in our annual report on Form 10K on file with the FCC. Actual results could differ materially from those expressed in these forward looking statements.

With that I would ask the operator to open up the phone lines and we will be happy to address your questions.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions). Our first question comes from Mark Wythrop – Buckingham Research.

Mark Wythrop – Buckingham Research

Thank you. Paul, with your dividend yield now close to 7%, I guess there are two questions that come to my mind. One is exactly what is your comfort level with $1.20 dividend that you’re paying? And two, if you are comfortable with that, what is your thinking process when you have a lot of cash on hand and you have a lot of liquidity and the, basically, after tax, in terms of buying back stock, would seem to be extremely high at this juncture? So, maybe, if you could let us know where you stand on those two issues.

Paul Stecko

Well, we are comfortable with the dividend and we continue to buy back stock. Quite frankly, we earned $0.35 last quarter despite rapidly rising cost and so, I think we’re pretty pleased that we could sustain that level of earnings in spite of the cost pressure. I would say that, who knows where the economy is going and that’s obviously the big unknown but based where things are right now, we think we’re in a position to pay the dividend that we pay and buy back the shares that we said we would buy back.

Mark Wythrop – Buckingham Research

You mentioned you bought 150,000 shares during the third quarter. Have you been buying stock back in the early part of the fourth quarter, is that something that you can--?

Paul Stecko

There’s a large stock so you are in a sense paying the 7% dividend every share we buy back, we’re getting the 7% return too. Rick, you want to give an update on the share purchases through the first part of the month.

Rick West

Thus far, Mark, we’ve purchased 858,000 shares for $16 million in the fourth quarter at an average price of $18.89.

Mark Wythrop – Buckingham Research

Can you remind us how much additional you have on your share repurchase authorization?

Paul Stecko

About half.

Mark Wythrop – Buckingham Research

What is that in amount, I’m sorry?

Paul Stecko

It was a $150 million program and we’ve got about half left.

Mark Wythrop – Buckingham Research

OK, then lastly, you mentioned you had $148 million of cash on the balance sheet or had at the end of the quarter. How much of your debt was short term or how much of that $148 million might you look at dedicated to paying down debt?

Paul T. Stecko

Well the only thing we have, Mark, is $109 million in our receivables revolver and we keep that constantly because it’s such a low rate. So, we would not look to pay down any debt.

Mark Wythrop – Buckingham Research

OK, great. Thanks a lot.

Paul T. Stecko

Operator

Your next question comes from Richard Skidmore – Goldman Sachs.

Richard Skidmore – Goldman Sachs

Can you just talk about what you’re seeing in the export markets and the relationship with your customers in the export markets? I think from prior discussions those are relatively longer term in duration, not necessarily [inaudible] can you talk about giving the change and exchange rate your clearly slowing how you see the export markets trade?

Paul Stecko

In a word, stable. We think we’re going to sell in the fourth quarter what we thought we would sell in the fourth quarter six months ago. I think that is driven by the fact that we have long-term relationships with people, we have targets on how much we’re going to sell to a lot of our customers for the entire year and we have a reputation of honoring those commitments and so do our customers. We don’t see a big movement there. Again, I’m not speaking, I can’t speak for the broader industry, but in our case stable is the best way I can answer that.

Richard Skidmore – Goldman Sachs

OK, then just in this environment that were in and from an economy standpoint and weaker box shipments, how do you think about market share in the current environment versus supply and demand in your system.

Paul Stecko

I don’t know, really I don’t know that I understand your question. What I said in the call, maybe I can answer it this way and get at what you’re trying to determine. We’re going to run to meet our demand and one of the things that we did do in the third quarter is we not only pulled our operating rates back to keep supply and demand in balance, we actually are taking a little bit of risk in keeping our inventories probably a little lower than the cost of the wood, and this year our account shutdown for 2009 moves to April, and so one of the pressures that we’ve always faced in the fourth quarter is building up inventory so we could get through our two first quarter shutdowns next year.

But we’ve got a little relief now, because counts has moved to April because of some equipment deliveries, and so it does not make a lot of sense to build that inventory too soon when wood costs are high and could go higher in the fourth quarter, so that’s one of the reasons that we’ve said – and it will affect our fourth quarter earnings – that we will both run the demand and run to minimize our incremental cost and that’s the last cost, the highest cost of the wood you use, the highest cost energy you use, so we do have a little more free bore to be more aggressive in keeping our inventories to maximize our profitability from a cost point of view.

Operator

Our next question comes from Mark Connelly – Credit Suisse.

Mark Connelly – Credit Suisse

Hey, Paul; just two things. You’ve spent a fair bit of energy working on the energy issue and this biorefinery is part of it. Can you give us an update on what the payback on those projects looks like with energy costs where they are today? This one was sort of a home run when you announced it.

Paul T. Stecko

Yes. The answer is the returns are pretty much the same because we didn’t use much gas and oil to begin with and they’ve come down. And I’ll give you a couple of examples. The bark boiler upgrades at Valdosta, you know, they’re like a 40% return, and the cost of bark hasn’t changed very much, but the – it wasn’t that much capital so they’re like 35% return projects.

At the biorefinery our original estimates were about a $20 million investment. We thought we had savings of about $10 million, and that gets, you know, 35%-type return also. That was based on replacing a little bit of gas that we did use. About 8% of our fuel at Filer City was natural gas. That all got taken out, but then we also reduced the coal usage there, and we also reduce our steam consumption because we don’t have to run our evaporators or the Copeland recovery unit for chemical recovery, and that saves a lot of steam, but that’s steam on coal.

So that return is basically hung in there and maybe down a little bit because the price of natural gas has come down a little bit, but we were moving more coal. Now, the other plus to that project is that we think our capital expense will go down there because we’ve been pushing that coal boiler very hard for the last five years and our maintenance expense was very high and we just went in and looked at that boiler last month and since the biorefinery’s been up we’ve reduced our coal consumption by 30% and the boiler’s in much better shape since we’re not running it nearly as hard as we had.

But that’s a long-winded answer to the answer is probably Filer City comes out a touch, but only a touch.

Mark Connelly – Credit Suisse

Okay, so this is a pretty good price. Okay, another question, Paul; you know, if I try to add up all the things that are happening on your cost side you’ve got wood costs up. You’ve got energy prices down a little bit. You’ve got OCC down. You’ve got transportation coming down. You’ve got chemicals up. You know, where does this balance out for an industry that was trying to convince customers that they should pay higher prices? I mean can you just walk us through you know where those costs net out?

Paul T. Stecko

Well, yes. I think we did already in the release in terms of –

Mark Connelly – Credit Suisse

I’m trying to think about the next quarter. I don’t –

Paul T. Stecko

Oh, the next quarter; well, you know what we think for the next quarter is that we really, other than wood, we don’t see prices for most other things going up in the fourth quarter. What the big determinate for us in earnings and really what the swing variable will be in the fourth quarter is our volume.

You know we saw softening in September. It’s continued into the first half of October at about the same pace, and so volume is by far the biggest variable that could move our fourth quarter earnings. The only costs that are really going up in the fourth quarter are wood fiber, and that’s a couple-a-cent item and not energy prices, but energy consumption with higher and price being the same with colder weather.

But the big item that could affect our earnings is volume. It’s just very hard to predict at this point, due to the nature and instability of the economy.

Richard Skidmore – Goldman Sachs

Okay, and one last question Paul. As your customers deal with these credit issues, are you seeing people coming to you worrying about some of your competitors who may have chosen to weaken their balance sheets relative to yours? Is that a material impact in your –

Paul T. Stecko

Yes. I don’t want to comment on the creditworthiness of any competitor. That’s just not something that even if I knew something I’d comment about it. That’s between those companies and everybody else, so I’m going pass on that one.

Richard Skidmore – Goldman Sachs

All right, thanks Paul.

Operator

Our next questions comes from George Staphos – Banc of America Securities

George Staphos – Banc of America Securities

Thanks! Hi, everyone, good morning. Hey Paul, could you give us a quick read – perhaps you mentioned it earlier, but I would have missed it – on what vines look like early in October from the data that you’ve seen?

Paul T. Stecko

You didn’t miss it, but I did allude to it. We saw volume soften in September and when it softened we were down about – rough number – about 6% in September over the previous year. And it was pretty steady. In other words, it just didn’t spike. It didn’t move around. It’s like everybody slowed back in their production rate and our volume fell 6%.

That has continued through the first ten workdays. I only have data for ten workdays in October and we’re down about 6% in October compared to last year, and again it’s steady. It’s not volatile. It’s not seasonal. It’s just you know we’re not losing business; we’re not gaining business to any appreciable extent. It’s just that people are making 6% less of what they made last year and so they need 6% less boxes.

For the last six, seven weeks, we’ve been running about 6% behind last year.

George Staphos – Banc of America Securities

Paul thanks for that. I know it’s hard to speculate, but if you compare the current period to past, perhaps, recessionary periods, are you seeing the signs that we’re going into recession from your experience? Could it be deeper? Do you think it could be shallower, and perspective you might have on that? And then, Rick, are you seeing any changes in your customer receivables, bad debt expense, et cetera, again given the environment?

Paul T. Stecko

I’ll answer the first one for Rick, because the answer is no. We’ve seen nothing, no changes. It’s business as usual. Things are just about 6% slower than they have been.

But in terms of have I seen anything that gives me signs of hope, distress, all of the above, the answer is none of the above. We’re just running a little slower and I have – I would not think that I could predict where we’re going from here and that’s one of the things I mentioned earlier. There’s a lot of uncertainty about where this economy’s going and 50 people will tell you 50 different opinions and you don’t need 51. So, that’s as good as I can do.

George Staphos – Banc of America Securities

Yes, at least 50 different opinions; last question, I’ll turn it over. If you needed to next year, how quickly could you pull back capital spending? How low could you go realizing that’s not your projection yet? And, could you give us a bit more color on the equipment that you’re bringing into counts and why that’s leading to a push back in the maintenance till April? Thanks, guys.

Paul T. Stecko

Yes. You know, our CapEx, we don’t, at this point, see a need to reduce our CapEx next year. We’ve been pretty steady in our spending and we’re long term thinkers and that’s why we like to have a stable balance sheet. You know, we’ve been averaging for the last 6, 7, 8 years about $110 million, $115 million in CapEx.

Of that, about $60 million, $65 million is what I call maintenance, and so if you have to you could probably get down to that number and you'd probably you'd go a little lower than that, if you wanted to take some risk. We don't like to take those kinds of risks with maintenance, but you know about $65 million of the $110 million, $115 million is maintenance capital.

With regard to counts, we have an upgrade on one of our big par boilers. Again, we're going to improve the efficiency. We're changing the air system. It's back on, I think the call that they're more commonly asked about energy projects. We've got a good return on this project.

The problem is it's a little longer job than a normal repair, because it's a big boiler, and we've had to move that in concert with the best time to buy electricity from our utility supplier and when they have the least downtime. And it made the most sense, in terms of getting the best electric rates for non-interruptible power, in April instead of March. And, so it's more to minimize the cost of our electricity purchases than it is on any equipment deliveries.

Operator

Our next question comes from Mark Wilde – Deutsche Bank.

Mark Wilde – Deutsche Bank Securities

Morning. Paul, a few questions, one, just on this wood situation, can you give us any like color on whether it's hitting certain regions harder than others? And, also whether there's anything you could do to you know mitigate this, say, portable chip mills, things like that?

Paul T. Stecko

You know, it’s hitting – wherever there are wood products plants, Mark – it’s hitting those regions where wood products plants coexist with paper mills, and that about covers everywhere. Now, some places are obviously more acute than others, the west coast being a good example where a lot of mills don't even have wood yards.

They run on 100% purchased chips. So, they have been hit the hardest, then the wood cost of going up the most in those regions. But, that's happened a while ago. What has continued to worsen is the situation in the south, and more and more chip mills are taking more and –wood products plants are taking more and more downtime than they had previously been, just because the housing market has not come back, so that [asks] the first half of the question.

In terms of chip mills, that's not the problem. We've got adequate chipping capacity at our mills, but as less, as fewer saw logs are cut, there are fewer residual chips which means that more of the chips must come from pulpwood. And, since the demand for pulpwood comes up, it doesn't matter how many sawmill – how many chip mills you might disperse, that's not where the cost problem is.

The cost problem is with more and more pulpwood has to be cut. You've got to bring it from further distances, and that drives up the cost. So, an important source of fiber has been you know hopefully temporarily lost, with all these wood products plants coming down.

And, it's strictly pressure on pulpwood prices at a time, but we've had extremely wet weather in the south. And, now we're entering the winter weather season, which gets, you know where logging gets more difficult.

Mark Wilde – Deutsche Bank Securities

Okay, another question. It looks like labor and benefits together were up about $0.06 in the third quarter. I think you had identified about two pennies in the second quarter. Is the Delta just those increased benefit claims that you mentioned?

Paul T. Stecko

Yes, the biggest piece of that was well you know one of the things we're working hard to do is clean out old workmen's comp claims. That's just a good business decision, and when you can settle them, you do. And, medical costs were higher than we anticipated. That was the single, biggest part.

And then, obviously you have an increase, your labor increases, both hourly and salaried labor. And, then we also have you know we had our incentive stock award, is mid-year. That was in there, so it's a variety of things with the two biggest things being medical and workmen's comp.

Mark Wilde – Deutsche Bank Securities

If you were to look at the fourth quarter on a year-over-year basis, any thought on what we might see in the fourth quarter?

Paul T. Stecko

In terms of what?

Mark Wilde – Deutsche Bank Securities

In terms of that increase year-over-year in labor and benefit. I'm just trying to figure out how much of this is one-time stuff, and how much of this is just an ongoing increase in cost.

Paul T. Stecko

I would not be surprised if that could be another couple of cents.

Mark Wilde – Deutsche Bank Securities

Okay. All right, last question. A lot of guys in the industry are putting in these big corrugators, as long as Bill Sweeney is there. Any thoughts on you know your desire, your need to put in some of these bigger, wider, high-speed corrugating operations?

Paul T. Stecko

Mark, I'm going to Bill answer that, but we did that five years ago. Bill, you want to talk about that?

William J. Sweeney

Yes, Mark, we're ahead of the curve. We put a 310 BHS about five years ago. It took two corrugators down to one, and we put them in volume plants, where we thought we could get the maximum benefit, and all of those plants are now centrally sold out, running on three shifts. They've been very successful.

Operator

(Operation Instructions). Our next question comes from [Andrew Highman] – Iridian Asset Management.

[Andrew Highman] – Iridian Asset Management

Thank you. You know I noticed that, Paul, that you're going to be speaking at this containerboard conference about biorefining, and you know you guys are far ahead of the curve, compared to anybody and the first ones doing it.

Does that represent – once you're at full capacity, and you get a quarter under your belt, the things are running smoothly – does that represent potential licensing revenue for Packaging Corp down the road?

Paul T. Stecko

Let me first correct you. I am speaking at the conference you referenced, but my topic is Biomass, which is a lot more encompassing than just what we're doing at the biorefinery. There is a movement in not only this country but the world, to use wood for fuel purposes, and that's becoming a very important subject. It will present many challenges, many opportunities, and many problems for our industry, and that's the topic that I am discussing, and biorefinery is a small subset of a much bigger topic.

With regard to where we're going with what we're doing at Filer City, it's just a little premature to address that subject. I'd feel a lot better addressing it, discussing it when some issues with proprietary technology are properly protected, and we're a little further up the learning curve. So, that's the best I can do on that question.

Operator

Our next question comes from [Chip Dillon], self-employed.

[Chip Dillon] – Self Employed

Hi, Paul.

Paul T. Stecko

Hey, Chip, good to hear from you. You don't know how happy I am to take this call.

[Chip Dillon] – Self Employed

Oh, thank you. Quick question on the chemical side, you mentioned that you know your costs were going up and a number of areas were staying flat as you go third to fourth, but are you actually seeing any declines yet in things like chemicals?

Paul T. Stecko

I think the short answer to that is no. We have not seen any declines, and you know there may be a few things here and there, but not much. You know caustic has actually crept up a touch, and wax has come down just a touch, but other than that, no. It’s fairly stable.

But, we're optimistic that things will, if this economy slows you know there's only one good thing about a recession – two. One, they don't last forever, and two, it does tend to bring some costs down.

And, so if this recession does stay where it is or worsen, we would expect to see that, but not yet. And, you know hopefully that's a good sign. Maybe we'll come out of this thing quicker than we think, and – but no is the answer to your question.

[Chip Dillon] – Self Employed

Okay, and then if you'd – we haven't really talked a lot about overseas today, and you know there's evidence, at least I see in places like Asia, where some of the big players might not be as healthy as they once were, and between the decline at OCC and I believe the decline in recycled container board prices overseas, are you seeing any impact on export demand from the U.S. for craft liner?

Paul T. Stecko

No, we are not, Chip. That question came up earlier in the call, and what we said is, again in our book of business, we have long-term relationships with most of our export customers. We have, I wouldn't say agreements, but we have forecast that they think they will buy X tons during the year. And, we had not had occasion to speak of that people are going to cut back on what they thought they were going to buy from us, and we don't sell a lot of paper in China; however, we do sell some. That's our smallest market with Europe and Latin America, South America being our biggest markets, and business in Latin America has been pretty good.

[Chip Dillon] – Self Employed

And I guess as a correlator to that, you haven't seen – or have you – any evidence whatsoever of actually Testliner trying to find its way into an independent box plant here in the states?

Paul T. Stecko

None that I know of.

Operator

(Operator Instructions). There are no further questions.

Paul T. Stecko

Yes. Okay. No, I appreciate your interest in PCA and, hopefully, looking forward to talk to you first quarter next year with this economy a lot further along than any of us might have hoped, so talk to you then.

Operator

Thank you, ladies, and gentlemen, for your participation in today's conference. This does conclude the program, you may now disconnect. Good day.

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