Thank you for joining Packaging Corporation of America's Third Quarter 2018 Earning Results Conference Call. Your host today will be Mark Kowlzan, Chief Executive Officer of PCA. Upon 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 thank you for participating in Packaging Corporation of America's third quarter 2018 earnings release conference call. I'm Mark Kowlzan, Chairman and CEO of PCA. And with me on the call today is Tom Hassfurther, Executive Vice President, who runs the Packaging business; and Bob Mundy, our Chief Financial Officer. I'll begin the call with an overview of our third quarter results and then I'm going to turn it over to Tom and Bob, who'll provide further details. And then I'll wrap things up and then we'll be glad to take any questions. Yesterday, we reported third quarter net income of $207 million, or $2.18 per share. Third quarter net income included special items expenses of $0.05 per share, primarily for certain costs related to discontinuing paper operations associated with the previously announced conversion of the No. 3 machine at our Wallula, Washington mill to linerboard. Excluding special items, third quarter 2018 net income was $211 million, or $2.23 per share, compared to third quarter 2017 net income of $159 million or $1.68 per share. Third quarter net sales were $1.8 billion in 2018 and $1.6 billion in 2017. Total company EBITDA for the third quarter, excluding special items, was $406 million in 2018 and $364 million in 2017. Excluding the special items, third quarter 2018 earnings per share of $2.23 was $0.55 per share above the third quarter of 2017, driven primarily by higher prices in mix of $0.38, and volumes $0.37 in the Packaging segment; higher prices in mix in our Paper segment of $0.13; lower fiber costs $0.04, which was a combination of improved fiber usage and lower OCC prices; and a favorable tax rate of $0.26, primarily resulting from Tax Reform changes. These items were partially offset by lower volumes in our Paper segment…

Thanks, Mark. As Mark indicated, we achieved a new all-time record for containerboard shipments with continued strong demand in our box plants as well as our domestic and export containerboard markets. We also had record third quarter corrugated product shipments which were up 8.2% in total with one additional workday and shipments per day up 6.5% over last year's third quarter. Our outside sales volume of containerboard was 20,000 tons above last year's third quarter and 35,000 tons higher than the second quarter of 2018. We continued to implement our Packaging segment price increases very well during the quarter. Domestic containerboard and corrugated products prices and mix together were $0.31 per share above the third quarter of 2017 and up $0.19 per share compared to the second quarter of 2018. Export containerboard prices were up $0.07 per share, compared to the third quarter of 2017 and flat compared to the second quarter of 2018. We expect corrugated products demand to remain strong as we move into the fourth quarter, although we expect shipments to be lower compared to the third quarter with two less shipping days. Also, beginning in the fourth quarter, year-over-year volume comparisons will now include Sacramento Container in both periods. Our corrugated products mix will be seasonally less rich in the fourth quarter versus the third quarter as the produce business in the Pacific Northwest as well as the display and high-end graphics business for the holiday period normally falls off during the quarter. I'll now turn it back to Mark.

Thanks, Tom. Looking at the Paper segment, EBITDA excluding special items in the third quarter was $44 million with sales of $254 million or 17% margin, compared to the third quarter of 2017's EBITDA of $38 million and sales of $271 million or 14% margin. Strong market conditions continued during the quarter and our prices and mix were slightly better than we anticipated. Volume for our cut-size and printing and converting products continued to be on allocation as we managed our already tight inventory levels around the scheduled outage at the Jackson mill. I'm now going to turn it over to Bob.

Thanks, Mark. We had very good free cash flow generation in the third quarter, with cash provided by operations of $301 million. The primary uses of cash during the quarter included: capital expenditures of $130 million; common stock dividends, which reflect our recent 25% dividend increase, totaled $75 million; $51 million for federal and state income tax payments; pension payments of $18 million; and interest payments of $7 million. We ended the quarter with $294 million of cash on hand. The 2018 tax estimate ranges continue to be 14%, 16% for our federal and state cash tax rate, and 24% to 26% for our book effective tax rate. I'll now turn it back over to Mark.

Thanks, Bob. Looking ahead to the fourth quarter, we expect Packaging segment demand to remain strong, although as Tom mentioned, we will have two less shipping days, and we expect a seasonally less rich mix in corrugated products compared to the third quarter. In our Paper segment, we will continue implementing our recently announced price increases, but expect a seasonally less rich mix. Although paper volumes will be seasonally lower, we expect demand to remain strong as we manage our already tight inventory levels. With seasonally colder weather, fuel costs are expected to be higher across the company and we expect continued inflation in most of our operating and converting costs, including incremental wage pressure with the tighter labor market. We will also have an extended outage at the Wallula mill to complete the remaining work related to the conversion of the No. 3 machine from paper to linerboard. Considering these items, we expect fourth quarter earnings of $2.15 per share. And with that, we'd be happy to entertain any questions, but I must remind you that some of the statements we've made on the call constituted forward-looking statements. The 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 the Annual Report on Form 10-K and on file with the SEC. Actual results could differ materially from those expressed in the forward-looking statements. With that, Heidi, I'd like to open up the call to questions, please.

Certainly. Your first question comes from the line of Chip Dillon with Vertical Research. Please go ahead.

Yes and good morning, everyone.

Good morning, Chip.

Good morning.

Mark, we saw a really big jump in exports in the third quarter according to the industry data. I know September was the biggest month we ever saw and it would be one thing if there was obvious softness in the economy, but we saw the industry really stretch for these operating rates to, I guess, supply that. I didn't know if you could explain to us what made the export market so appealing, at least that's what apparently was the case given the strong numbers.

Well, I think, in our case, we typically see when we come out of the first part of the year, because of the annual outages, we're limited on how much ability we have to service our long-term legacy customers around the world. And so, in that case, as we've done in the past coming into the third quarter, the mills are running and the shutdowns are behind us. And so, we're able to now pick up and service the export order. So, that was certainly the case for us. We had the ability. The mills are running well and we have the demand from these legacy customers. Tom, do you want to add to that?

I would just add that at least from PCA's point of view, I mean we're a little more back-loaded in the year for our exports. But in addition, demand was very good worldwide.

Yeah, okay. That's helpful. And just a second question, a lot of us on this call pretend to know what to do in the market. Your experience has been terrific, noting that you last bought back a lot of stock in late 2015 and 2016. I think at, we just calculated, an average price of $57. And so for that, I would congratulate you for not buying back the stock earlier this year like probably everyone was telling you to. With the situation having changed a lot, is that something that you're taking a deeper look at? I mean, you could consider that your after tax cost of a dividend is probably now more than the after tax cost of borrowing money?

I think what we've always said publicly is that we will always be opportunistic. That's been the keyword we've always used in our decision-making on how we decide and when to buy back stock. Also any discussion is a board level discussion. And so all things being considered, we like to remain in a position with a lot of flexibility, strong balance sheet, cash on hand and just being able to take advantage of whatever opportunity presents itself, whether it's share buyback, dividend increases, or acquisitions or capital opportunities. So, I guess that being said, we certainly have opportunities. But, again, that's a matter for the board level.

Okay. I'll turn it over. I might get back in. Thanks, guys.

Okay. Thanks, Chip. Next question, please.

From the line of Mark Connelly with Stephens. Please go ahead.

Hi, good morning. This is Ashish Gupta for Mark.

Morning.

Morning. Based on what we calculated in terms of your cost per ton in containerboard, we're just kind of wondering how you were able to get the cost per ton down. It was very impressive performance, just surprising given the inflation we're seeing. Is there something structural in the mills? Is there more tailwinds that we can expect in the future? Just if you could give us more color on that that'd be great.

No, I think it's a testament to the high efficiency operations, the focus we have day to day. We've said this for years and years that the daily focus in the mills is on operating cost and operating efficiency. Box plants, it's all about profitable volume and we watch our costs obviously. But the mills, seven days a week, 24 hours a day, it's about high efficiency, low-cost operation. So, we have a very large team of engineers full time working in the mills and in a large corporate technology organization that's dedicated to that very effort.

Great. And if you just allow me one more. Can you give us an idea of what the split is between commodity and specialty paper? It just seemed like there was a much higher price realization in the quarter in white paper. I just wasn't sure if that had to do with the premium versus commodity split.

I don't have that number on the top of my head. That's something we don't pay particular attention to in terms of that level. We can always get back with you on that one.

No problem. Thanks so much.

All right. Next question, please.

Certainly. From the line of Mark Wilde with BMO Capital Markets. Please go ahead.

Good morning, Mark. Good morning, Tom, Bob.

Good morning.

Good morning.

I wondered, is it possible to get some sense of sort of same store box volumes if we didn't have Sacramento in the mix?

Tom?

Yeah. Yeah. Mark, I think the best indicator is probably where we are so far this month because we're – so, I'll just share those numbers with you. We're averaging a little over 2.5% so far this month and that's everything baked in. So you got a complete apples-to-apples comparison there.

Okay. That's helpful. And then just kind of following on that, it seems like given the growth in your box volumes over the last couple of years and assuming some kind of momentum into next year, you're going to actually have offset all of that Wallula capacity by sometime late next year, early 2020, and you'll be pretty close to fully integrated. So, I just – I wonder what kind of options you might be considering if we look out a couple of years here in terms of containerboard supply.

Well, Mark, we've said this before, we always have opportunities whether it's internal, how we look at the assets we operate, but we certainly have the opportunity into and through next year to fully take advantage of the Wallula capacity. We certainly have to finish the work we're doing right now. The machine is scheduled to start back up early next week from its planned outage this month. And so if we've done our homework and executed well, we should be in a great position to take advantage of the productivity opportunities at Wallula. That being said, I think you're right, if you assume that growth continues on this trajectory, we'd be looking out in the future years at various alternatives. And that's – again, we've said that it would include further conversions, asset acquisitions in terms of one-off mill opportunities. So, we've got a host of opportunities, but I'm certainly not concerned about that at this point.

Okay. All right. I – just one quick one. Is there any – is there a chance to get a view on 2019 CapEx, Bob Mundy?

No, Mark. We'll talk about that on the next call as we normally do.

Okay. That's fine. I'll turn it over. Thanks.

Thank you. Next question, please.

Certainly. From the line of George Staphos with Bank of America. Please go ahead.

Thanks. Hi, everyone. Good morning. Thanks for all the details so far. I wanted to check into the price mix result in the third quarter relative to your guidance. If you could talk a little bit to the extent possible about what materialized better than you were initially guiding to in the quarter? And I had a couple of follow-ons.

Well, there were a couple of things, George. On the Paper side, we had some favorability there. And of course on the box side, that was a little bit improved versus what we're anticipating. It just goes back to always trying to maximize the benefit of the products that we have available and the brands that we can offer.

Bob, if I could, the mix was a little bit richer than you expected or anything else that you could share again realizing it's not something you initially want to advertise live mic, but anything else you could share in term of what realized a little bit more favorably than you'd expected?

No, it was – certainly it's a mix, George. But it's also just very good execution on the box plant side, on the corrugated side of things that was certainly a piece of that as well.

Okay. I appreciate the commentary there. Mark, with Wallula, what are kind of the key milestones over the quarter, I mean, to the extent that we can check in or what we should be asking about on the next call? What would they be in terms of the last bit of work being done successfully?

Well, just to remind everybody, during the May outage, we converted the machine from a coated paper machine to a virgin kraft linerboard machine. But we are running in a slowed back capacity while we're waiting on our final permits to be issued for air permits. And so running to that permit level as we called out, we are running in that 700 tons to 800 tons a day range. Now, we have the permits in hand, and so it allows us to run the productivity up to the planned 1,150-ton a day or about 400,000 tons a year annual run rate. Now, that's assuming, as I said a few minutes ago, that we've done our homework well and the folks out there are executing well. This work we're doing currently involves the new shoe press installation, rebuilding out the forming unit, adding the final dryer section that we were waiting on, and then pulp mill changes. So, we have a host of different things that we're doing. But I've got confidence in the group to execute. We should be starting up next week, and so I think in January you should be hearing us talk about how we came up and ran. On the July call I mentioned that when we started up on the first week of June, within the first two hours, we were selling premium high-performance virgin kraft linerboard within two hours. And so that's going to be – the key is making sure that we come up and run as planned and then basically supply our needs as we go through the fourth quarter and prepare for next year. And then I've said this on the call a little while ago, too, that this gives us the opportunity to rebalance out our supply system in terms of how we're supplying linerboard throughout North America to our mill system... (22:09)

Hey, Mark – sorry about that. Last one for me, and I'll turn it over. Obviously, conversions and increase in capacity in North America have been very topical in the trade press and certainly everyone has a view on that and its effect for the market. Has your view on the implications of this capacity changed at all? Why or why not? What would you sort of remind us about as we're trying to analyze the industry relative to this capacity and the implication again for the future? Thanks, guys. Good luck in the quarter.

Yeah. George, if you look at it from our perspective, if you go back in when we announced Wallula almost two years ago, that was purely based on our internal demand as we saw our needs growing through the future period of time. The majority of the other announcements, if you go back and look again over this period of time and through this year, the majority of these announcements are based on these integrated players internal demand for this product. And so there is very little that has been talked about that would flow to the very limited outside open market. Tom, you want to add to that?

Yeah, I think Mark hit the key point there, George and that is that, as you mentioned, given the demand that we have right now in the industry and you just look at the run rates, we're going to need additional capacity in this market. Now, that said, most of the additions that have been either executed or on the drawing board are integrated suppliers, and they've got a home for those tons, obviously. When we went through this before, not that long ago in the industry, there was a lot of consternation about it. And it turned out that the industry did absorb this tonnage, and that most of the suppliers, certainly ourselves, I mean, we run to demand, and that's what we'll continue to do. But if you look at a number of other things that are going on as well, we've talked in the last couple of calls about the situation in China, the fact that they absolutely need fiber. I think the Nine Dragons move into the United States as well as a couple of others demonstrates that in spades. They're talking about shipping pulp back. They're talking about shipping a limited amount of containerboard back with what they can convert. It's expensive to do. But given the situation over there, they need fiber, and so that's all going over to China as we see it. Mark also mentioned the limited open market that we have here. I mean, the dynamics in this industry has changed dramatically, as we've talked about, and said that integrated producers are generally somewhere around 90% of the demand. And so you've got a very, very limited open market to sell to. If somebody doesn't have a customer, they're probably going to have to look overseas for that. In addition, some of the other things that we've seen announced, maybe the one-offs, tend to be recycled or maybe it's a virgin, but it's not the best virgin. It's very high cost. And a lot of these conversions are not in very good wood baskets. And they're also limited to lightweights and super lightweights which again is a limited market. So, overall, I think that we don't have tremendous concerns about this because we know what the demand is on the conversion side. And that tells us, I mean, on the box side I'm talking about, and that translates into some need for new capacity.

All right. Thank you, guys.

All right. Next question, please.

Certainly. From the line of Anthony Pettinari with Citi. Please go ahead.

Good morning.

Good morning, Anthony.

Just two question. It didn't seem like you had any direct impacts from the hurricanes. I'm just wondering if there were any kind of secondary impacts either on demand or maybe higher fiber costs or supply chain costs in the Southeast. And then just generally, you talked about continued inflation in most of your categories into 4Q. I was wondering if you could talk specifically about freight. Are you seeing any maybe just stabilization year-over-year in terms of freight rates, any kind of color you could give there?

Yeah. The first part of the question regarding the hurricane impact, we saw minimal impact from Hurricane Florence in the Carolina region. Basically it was around transportation impacts for that couple of weeks, just slowing things down on finished goods outflow and raw material inflow; again, some of our having the impact. Tom, you want to talk a little bit more about that because, otherwise, the latest hurricane that went through the Panhandle had no impact on us.

Yeah. We didn't have any impact on our facilities, but certainly some of our customers did have some impacts. And so that will, on a short-term, impact some of the demand in those particular markets and also a little impact in the ag area as well.

And then regarding inflation, Bob, why don't you...

Yeah. So, just a couple – on storms, not so much hurricanes, Anthony, but we did have a sort of an odd storm that came through one of our large modern Chicago container plants. And it hit us for a couple of pennies in our third quarter results with the damage and so forth that occurred there. But they're not hurricanes, but it was certainly storm-related.

That was a July storm, Anthony.

And then on freight, freight is we talked about our inventory, manage our inventories and doing what we had to do to help mitigate some of those freight and logistics costs. I think that's what we're seeing is that we held that in a good place during the third quarter and we anticipate doing that again in the fourth quarter. Other than that, there were other operating costs and what have you, including labor and fringes and so forth. We'd still see that again creeping up again as we move into the fourth quarter.

Okay, that's very helpful. And then just following up on the last question, I guess industry exports have gone up in the last couple of months. Your outside sales of paper are up. Do you export meaningful amounts of board to China? And then with customers or traders in China, are you seeing an increase in demand, given the very strict import restrictions that they've put in place on recycled paper?

We export to about 35 different countries all around the world, very small amounts relatively speaking. China happens to be one of those outlets that we have, again, some very good legacy customers. And so we did supply a very minimal amount of extra tons during this quarter. But it was a minimal amount of incremental tons that flowed to China. But we did see some extra demand to these legacy customers.

Okay. That's helpful. I'll turn it over.

Next question, please.

Certainly. From the line of Debbie Jones with Deutsche Bank. Please go ahead.

Hi. Good morning.

Good morning.

My first one is, I wanted to ask about volumes kind of through the year if you've seen any notable trends or differences. And what you think is really driving the growth for PKG ahead of the market beyond Sacramento Container going forward?

I'll start out and then I'll turn it over to Tom. I think again, in general, what you see is we have a very strong manufacturing activity nationwide. That has continued to show a positive impact across many different sectors. And then , the ag business in various regions, Tom, do you want to give a little more detailed color?

Yeah. Debbie, I would say that our volumes have continued to track up throughout the year. We're bullish on that. I would say that the only thing that interrupts that at all at any point in time is inventory adjustments that our customers go through. And those are just cyclical, to some extent. But no sooner do those adjustments take place that the demand ramps right back up again. So when you look at it across the year, I mean, it's a steady improvement.

Okay. Thank you. My second question is, on inventories moving higher, there's cost associated with that. Obviously, you're trying to offset some other headwinds. I'm wondering if there's ever any discussion about investing in your own fleet or anything like that as you think about the idea that transport headwinds are probably here to stay, costs are going to potentially go higher in 2019?

Yeah. Debbie, we've mentioned before on earnings calls earlier this year that we've been certainly taking advantage through some of our acquisitions. The TimBar acquisition, Sacramento Container, Columbus, and then the Boise Cascade system had its own transportation organization. And so we have certainly bolstered that capability. We've been investing over the last year-and-a-half in rolling stock and drivers. And so we have certainly been growing that nationwide capability to service more of our regional activity. So that's certainly been a factor in helping us with our efficiencies.

Okay. Thanks. I'll turn it over.

Next question, please.

Certainly. From the line of Mark Weintraub with Seaport Global. Please go ahead.

Thank you. Good morning.

Good morning, Mark.

I was hoping to get if possible more color on Wallula and how much of the profit potential we might already have been seeing and/or will have seen in the second half of this year versus what it can be when it's fully ramped? Because I realize there are a lot of moving parts here.

Yeah. We've never called out the specific contributions we expected from the Wallula conversion. Obviously, people have been modeling that. We did say that it had a positive contribution after it started up in terms of the – that's one of the reasons our numbers in the second quarter were a little bit better. And then I'll put it this way, we're very pleased with the contribution that we saw through the third quarter, but again, we're not going to quantify that. Bob, you want to add a little color to that?

Obviously, we said earlier in the year that it would be a lumpy year for that conversion and what it was doing to our results. There certainly was a hit in the second quarter of about $0.05 sequentially, but then we had a nice pickup in the third. But again, going from the third to the fourth, they'll be on a $0.07 or $0.08 hit to do all the work that we have to do in the fourth quarter. So, but once we come out of that, then we'll see – I think we're going to hit our expectations as far as the profit improvement in the Packaging segment but also to mitigate what we were seeing in the pressure sensitive business as decline in margins which is why we took advantage of that machine the way we did.

So, if I understand correctly, so it's something of a hit in the second quarter and then nice contribution third, and then at least some of it coming back in the fourth. So if we net all that together in 2018, would it be a positive, negative or kind of neutral-ish?

It'd be a slight negative.

Okay. So is it fair to say all the goods really on a net basis to come in 2019? Making sure that I understand.

Yes, that's correct.

Yes.

Great. Okay. Super. That's it. Thank you.

Okay. Next question, please.

Certainly. From the line of Scott Gaffner with Barclays. Please go ahead.

Thank you. Morning.

Morning.

Morning.

Mark, when I look at the – historically looking back at Wallula and some of the time to convert that mill, a lot of it was around equipment backlogs and just waiting for some of the new equipment from your suppliers to come in. And I'm just thinking about on a go-forward basis as you look to maybe upgrade some of your other capacity, what are you seeing as far as equipment backlog is just with all the conversions taking place in the industry right now? Has that lengthened material or something you're concerned about on a go-forward basis?

Yes, let's make it clear that we're not considering anything right now on a going-forward basis as far as conversion. But it is public knowledge in terms of some of the major equipment deliveries that head boxes, dryer cans, refiners, press sections. You're talking about 18 to 20 month deliveries for critical pieces of equipment from the vendors around the world. So that's moved out even further than it had been a year ago.

Okay. And when you look at your fiber sourcing that we've heard from a few other producers around increased wood fiber costs following the hurricanes. Is that something that you've seen as well?

We have not been impacted directly because of the Carolina, Florence Hurricane or the Panhandle event. Again, our mill, Valdosta in particular and Jackson mill were out of the way. And so we've really not seen any impact in terms of deliveries or gate wood (36:32) pricing. Going forward, obviously theoretically, we would anticipate that there's a lot of pine that will be on the market as landowners have to harvest wood before it becomes non-usable in pulp and paper and lumber. So there could be an opportunity for some – in terms of an availability in some of these regions that were impacted by the hurricane. But, again, we're not seeing anything significant.

Okay. Last one for me is just on the export market. I mean you mentioned strong shipments into the export market and obviously you've got 30-plus countries, but anything you're seeing on pricing in the export market just given it seems like growth outside of the U.S. is maybe slowing a little bit. Anything you can give us there would be helpful. Thanks.

Scott, this is Tom. The only impact we really see in the export market is around tariffs and currency exchange. So, those are the primary factors going on right now. As I mentioned earlier, the prices are flat compared to last quarter.

Okay. Thanks, Tom. Thanks, Mark.

Thank you. Next question, please.

Certainly. From the line of Brian Maguire with Goldman Sachs. Please go ahead. Brian Maguire - Goldman Sachs & Co. LLC: Hey. Good morning, everyone.

Good morning, Brian.

Good morning. Brian Maguire - Goldman Sachs & Co. LLC: I just wanted to come back to demand maybe from a little bit of a different angle, but a lot of concern in the market these days just around macro and sort of where the forward demand outlook is. And some of the industry data in September was a little bit lighter than the trend that had been on. I just wondered if you could comment if you saw that as well. I think you talked about maybe periodic customer inventory adjustments being made, not sure if you saw that sort of in the middle of September like some of the trade periodicals reported. And just as you're looking into October, can you just clarify on that 2.5% number? Was that at an absolute basis or on a per day basis? Thanks.

Okay. Brian, this is Tom. The September numbers were a little lighter you said than the trend. In any given month, it's hard to estimate what really the trend is. You've got to look over a longer period of time. And so we see the trend is remaining pretty good. The number I'm talking about for the month of October is essentially where we are right now. We're still having a difficult time getting all the data out of Sacramento. They're not on our systems and that sort of stuff. So, I'm trying to blend Sacramento into what our current plans are, and that's where we're running right now. Brian Maguire - Goldman Sachs & Co. LLC: Okay. Great. Thanks. And earlier, Mark, you talked about different options for cash, the buybacks. Obviously, one M&A in the past you've been active, but not so much in Sacramento. Just wondering, in the current environment, how much of a focus is M&A? And if there are conversations still going on there? Are you seeing any signs? Some of the asking prices at multiples might be coming down to reflect sort of what's going on in the public equity markets here?

No. Again, we'll continue to be opportunistic and look at one-off box plant businesses that would make sense for us. As far as multiples dropping, again, they're still – and if it's a high quality book of business, there's still a big demand for that out in the marketplace. So, I'm not seeing a big change in that. Tom, do you want to go ahead and add a little color to that?

I would say that's what's dropping is the availability of good businesses. As I mentioned earlier, I mean, the independent market has reduced so dramatically that do you know that there are much, much fewer options. I also would just mention that we did close on a small acquisition. It's – that's not – that we're not going to discuss. But it's just a small one that we just completed. More strategic in nature, but those are some of the things we'll continue to do. Brian Maguire - Goldman Sachs & Co. LLC: Okay. I appreciate the color. Thanks.

Next question, please.

Certainly. From the line of Steve Chercover with Davidson. Please go ahead. Steven Pierre Chercover - D.A. Davidson & Co.: Thanks, and good morning, everyone.

Good morning. Steven Pierre Chercover - D.A. Davidson & Co.: I just have two quick ones. So, first of all, I guess to follow on Chip's question, can you just remind us please what your repo authorization might be at this stage?

Yeah. I know it's $193 million, I believe. Bob?

Yeah. Yeah.

That's the number. Steven Pierre Chercover - D.A. Davidson & Co.: $193 million dry powder? Okay. And then, secondly, I appreciate your perspective on the industry changes and the ability to absorb any new capacity. But assuming your system's virtually sold out a couple of years from now, can you give us a sense geographically where would be most advantageous to add given your box system in the freight environment?

Again, I don't want to speculate, and I don't want to get into – it's very proprietary at a minimum. And so that's something we're not going to discuss. Steven Pierre Chercover - D.A. Davidson & Co.: All right. Thank you.

Next question, please.

From the line of Adam Josephson with KeyBanc. Please go ahead.

Thanks. Good morning, everyone. Thanks for taking my questions.

Morning.

Tom, just one clarification back to the box demands. You're up 6.5% in 3Q including Sacramento. And then I think you said in October, you're up 2.5% exclusive of Sacramento. Should we assume the entire delta between the 6.5% in 3Q and the 2.5% in October, at least thus far, was the impact of Sacramento, or was there anything else going on there?

Well, I don't think you can assume that in general, no. I think there is a lot of moving parts to our business. There's a lot of timing associated with when we're busier and when we're not busier. And the third quarter is a very strong quarter for us. Fourth quarter, we've got two less selling days, and we really don't know in any given fourth quarter. It's just hard to predict exactly what the volume is going to be. So this is just a very small snapshot of what the start to October is.

Sure. No, thank you. And just one follow up to something you were talking about earlier with the capacity coming from the integrateds versus non-integrateds and talked about the small open market that exists. That the market's 90% integrateds. The idea being that given how small the open market is, that would perhaps prevent market entrants, but obviously, we've seen Nine Dragons as well as Midwest, Verso, McKinley, all of which are non-integrated announced capacity into what is a very small open market. So, any thoughts as to where all that paper would go given how small you talked about the open market being?

But that's the point. Also you mentioned McKinley but they are, in fact, integrated into Mexico. But that's the point that Tom has made, and we've been talking about that. It's such a limited opportunity. Some of the Chinese activity that they have clearly called out that they will be moving that fiber back to China. And so if you have somebody that's going to try to produce a product in this country, they are very constrained within a geographic region, transportation cost phenomena, and then just the market opportunity. Tom?

Yeah. I would also add, Adam, that we've already seen some demonstration of what's happening in the marketplace and we're seeing most of this paper trying to find a home in export markets, which is also somewhat difficult to do. I mean, export primarily focuses on virgin as opposed to recycled. And then, it's got to be a pretty good virgin sheet in order to enter into somebody's system, otherwise, it needs to move into the Middle East or something like that. And we're already seeing some of that. So, we're already getting the answers to what happens if you put in mill capacity and you don't have an integrated outlet for it. The other thing is, I think everybody needs to keep in mind that just because something was announced and this is to take place two, three years from now, depending on demand, depending on markets, everything else, that may or may not ever take place because these are huge, huge capital investments that have a high expectation for return. And if those returns aren't there, given the fact they may not have an outlet, that may never occur.

Thank you.

All right. Next question, please.

And we have a follow-up from the line of Chip Dillon with Vertical Research. Please go ahead.

Yes. Tom and Mark, just had a question about any thoughts you had about demand more longer term. I know we've talked a lot about what the third and the fourth quarter is. But you notice that Amazon, despite its size, has doubled its fulfilment square footage in the last 30 months, which is about half the size of Manhattan, but fortunately, it's all flat. But when you look at that kind of investment that the market seems to think as it make sense, you would think that e-commerce alone could be adding quite a bit to demand. And as you all know from what we saw before the outsourcing days, we would typically see box demand mirror GDP all the way through till the year 2000. And now we're past outsourcing, but back then, we didn't have e-commerce. So, how do you think about the impact at e-commerce as you look out the next three years?

Well, e-commerce is much, much bigger than just Amazon. Many of our customers would be approximately 18,000 or 19,000 customers. Many of our customers utilize e-commerce to move their finished product out to their customer base. It just so happens that Amazon obviously is the big player in the United States, and so it captures a lot of the attention. That being said, it's certainly been a growth factor, e-commerce in general and Amazon. And so, again, it presents an opportunity for the industry on growth going forward. And, Tom, you want to add some comments? You spoke...

Yeah. I would say, Chip, that, I mean, it is amazing the growth rate that Amazon has. There's no question about that. It is absolutely amazing they're at the rate they are growing. But in addition, I think the other good news is that big box isn't dead either. And so brick and mortar is readjusting, and they're actually growing. So, I think that really bodes well for consumer spending and equally bodes well for our box business.

Thanks. That's helpful.

Any other questions, please?

Certainly. We have a question from the line of Gabriel Hajde with Wells Fargo Securities. Please go ahead.

Good morning, gentlemen. Just two quick ones. The $0.14 decline in the Paper business from lower volumes, is there something seasonal were stronger in the third quarter, or is that something that we can kind of extrapolate out over the next couple of quarters as you flip to containerboard?

No. That was related to exiting the pressure-sensitive business that we talked about during the year.

So, nothing to do with the Wallula mill?

Well, it was the Wallula business. And again, that's – we talked about that when we announced the project prior to this year and we've spoken about that in January and April and July in terms of the quarter-to-quarter impact as we were unwinding that business through the summer months and through the remaining portion of this fourth quarter. We're selling out the rest of the inventory we had on hand. So it's just a declining volume that happens to be in the Paper segment.

Yeah. In addition to the tight conditions that Mark spoke of earlier when we're on allocation and inventories are extremely low, so we're just having to really watch what we can sell right now to properly manage our inventories for the future which also had a downward push on volumes.

Okay. And I think you addressed it a little bit before, Bob, in a previous question, the 50,000 ton inventory build, and then what you're planning to do taking a little bit down again this quarter to complete your work. Depending on, I guess, how demand shakes out, would you anticipate that inventories would be up at the end of the year versus the third quarter or flat? And then, you mentioned Q1 being a heavy maintenance year. I think this year was pretty large as well. Would you envision it being bigger than Q1 of 2018? Or any sense for that?

This is Mark. Let me answer the inventory. We'd anticipate that year-end inventories for 2018 would be similar to year-end inventories for 2017. And then regarding the second part of your question, we will call out specifically during the January call what the annual shutdown impact will be in terms of costs for the year.

Okay. Thank you.

Thank you. Next question?

And we have a follow-up from the line of George Staphos with Bank of America. Please go ahead, sir.

Hi. Thank you. Two quick ones for me, guys. Thanks for taking my call. First of all, piggybacking on Chip's question, does the growth of e-commerce and the packaging required for that have any implications for the sheet of paper? So, might we see more light weights with e-commerce or not necessarily? Question one. Question two. Flexibility has always been something that PKG tries to manage across its system, across its converting network. With recovered paper prices being as low as they are, does that suggest perhaps you'd be a little bit more open to having more recycled content, more OCC in your mix or whatever RCP in the future? Thanks, guys. Good luck in the quarter again.

Yeah. Second part of the question. We anticipate that OCC as a fiber supply to the world will establish a new equilibrium over time. The world still needs essentially the same amount of fiber at the beginning of the year, and China still requires the most fiber of any country. They still consume more total cellulosic fiber than anybody in the world. And so we would anticipate longer term that OCC continues to be volatile, and we would rather not be tied to that in any significant manner, but we would obviously remain flexible and opportunistic in how we're able to utilize it. The first part of your question, Tom, do you want to...

Yeah. I would say that the growth in e-commerce, I mean, does not necessarily dictate more light weights. I mean, it could be – it's a mixed bag as well depending on the size of the box, depending on the performance that somebody is looking for, etcetera. So, I think if there's any change, it's minimal.

Thank you.

Thank you. Any other questions, please?

No, Mr. Kowlzan. I see there are no more questions. Do you have any closing comments?

I just want to thank everybody for joining us on the call. And we look forward to talking with you in January to wrap up the full-year 2018 and the fourth quarter 2018. Have a good day. Thank you.

This concludes today's conference call. You may now disconnect.