Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

Packaging Corporation of America Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms	38
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2014, 2013, and 2012	41
Consolidated Balance Sheets as of December 31, 2014 and 2013	42
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012	43
Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 2014, 2013, and 2012	44
Notes to Consolidated Financial Statements	45

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Packaging Corporation of America:

We have audited the accompanying consolidated balance sheet of Packaging Corporation of America and subsidiaries as of December 31, 2014, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2014. In connection with our audit of the consolidated financial statements, we also have audited financial statement Schedule II - Valuation and Qualifying accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Packaging Corporation of America and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Packaging Corporation of America’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

As discussed in Note 2 to the consolidated financial statements, the Company has elected to change its method of accounting for certain inventories in 2014.

/s/ KPMG LLP

Boise, Idaho

February 27, 2015

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Stockholders

Packaging Corporation of America:

We have audited Packaging Corporation of America’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Packaging Corporation of America’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Packaging Corporation of America maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Packaging Corporation of America and subsidiaries as of December 31, 2014, and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2014, and our report dated February 27, 2015 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Boise, Idaho

February 27, 2015

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Packaging Corporation of America

Board of Directors and Stockholders

We have audited the accompanying consolidated balance sheets of Packaging Corporation of America (the "Company") as of December 31, 2013, and the related consolidated statements of income and comprehensive income, changes in stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2013. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the consolidated financial statements of Boise Inc., a wholly-owned subsidiary, which statements reflect total assets constituting 52% in 2013 and total revenues and net income constituting 12% and 14%, respectively in 2013 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Boise Inc., is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Packaging Corporation of America at December 31, 2013, and the consolidated results of its operations and its cash flows for the two years then ended in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for inventory in 2014.

/s/ Ernst & Young LLP

Chicago, Illinois

February 28, 2014 except for Note 2, as to which the date is May 9, 2014

Packaging Corporation of America

Consolidated Statements of Income and Comprehensive Income

(dollars in millions, except per-share data)

	Year Ended December 31
	2014				2013				2012
Statements of Income:
Net sales	$	5,852.6			$	3,665.3			$	2,843.9
Cost of sales	(4,623.1		)		(2,797.8		)		(2,209.2		)
Gross profit	1,229.5				867.5				634.7
Selling, general, and administrative expenses	(469.5		)		(326.6		)		(280.8		)
Alternative energy tax credits	—				—				95.5
Other expense, net	(57.3		)		(59.0		)		(11.8		)
Income from operations	702.7				481.9				437.6
Interest expense, net	(88.4		)		(58.3		)		(62.9		)
Income before taxes	614.3				423.6				374.7
(Provision) benefit for income taxes	(221.7		)		17.7				(214.5		)
Net income	$	392.6			$	441.3			$	160.2
Net income per common share
Basic	$	3.99			$	4.57			$	1.66
Diluted	$	3.99			$	4.52			$	1.64
Dividends declared per common share	$	1.60			$	1.51			$	1.00
Statements of Comprehensive Income:
Net income	$	392.6			$	441.3			$	160.2
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	(2.6		)		(0.1		)		—
Fair value adjustments to cash flow hedges, net of tax of $6.5 million for 2012	—				—				(10.2		)
Reclassification adjustments to cash flow hedges included in net income, net of tax of $2.2 million, $2.2 million, and $1.2 million for 2014, 2013, and 2012, respectively	3.5				3.5				1.8
Amortization of pension and postretirement plans actuarial loss and prior service cost, net of tax of $2.8 million, $8.5 million, and $4.3 million for 2014, 2013, and 2012, respectively	4.2				13.4				6.7
Changes in unfunded employee benefit obligations, net of tax of $59.2 million, $20.4 million, and $9.3 million for 2014, 2013, and 2012, respectively	(94.0		)		32.2				(14.5		)
Other comprehensive income (loss)	(88.9		)		49.0				(16.2		)
Comprehensive income	$	303.7			$	490.3			$	144.0

See notes to consolidated financial statements.

Packaging Corporation of America

Consolidated Balance Sheets

(dollars and shares in millions, except per-share data)

	December 31
	2014				2013
ASSETS
Current assets:
Cash and cash equivalents	$	124.9			$	191.0
Accounts receivable, net of allowance for doubtful accounts and customer deductions of $11.3 million and $10.6 million as of December 31, 2014 and 2013, respectively	646.1				643.1
Inventories	664.9				594.3
Prepaid expenses and other current assets	61.9				32.0
Federal and state income taxes receivable	5.1				23.0
Deferred income taxes	75.7				47.6
Total current assets	1,578.6				1,531.0
Property, plant, and equipment, net	2,857.6				2,805.7
Goodwill	546.8				526.8
Intangible assets, net	293.5				310.6
Other long-term assets	72.0				69.7
Total assets	$	5,348.5			$	5,243.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	6.5			$	39.0
Capital lease obligations	1.1				1.0
Accounts payable	330.5				357.5
Dividends payable	39.4				39.3
Accrued liabilities	220.0				214.1
Accrued interest	13.5				9.7
Total current liabilities	611.0				660.6
Long-term liabilities:
Long-term debt	2,348.9				2,508.8
Capital lease obligations	22.8				23.9
Deferred income taxes	409.9				434.8
Compensation and benefits	361.7				193.5
Other long-term liabilities	72.8				65.4
Total long-term liabilities	3,216.1				3,226.4
Commitments and contingent liabilities
Stockholders' equity:
Common stock, par value $0.01 per share, 300.0 million shares authorized, 98.4 million and 98.2 million shares issued as of December 31, 2014 and 2013, respectively	1.0				1.0
Additional paid in capital	432.1				401.7
Retained earnings	1,242.2				1,019.1
Accumulated other comprehensive loss	(153.9		)		(65.0		)
Total stockholders' equity	1,521.4				1,356.8
Total liabilities and stockholders' equity	$	5,348.5			$	5,243.8

See notes to consolidated financial statements.

Packaging Corporation of America

Consolidated Statements of Cash Flows

(dollars in millions)

	Year Ended December 31
	2014				2013				2012
Cash Flows from Operating Activities:
Net income	$	392.6			$	441.3			$	160.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization of intangibles and deferred financing costs	390.8				217.9				175.4
Share-based compensation expense	15.6				14.8				11.7
Deferred income tax provision (benefit)	2.6				(160.3		)		181.0
Alternative energy tax credits	—				76.3				(76.3		)
Loss on disposals of property, plant, and equipment	7.0				9.4				7.3
Loss on early extinguishment of debt	—				—				21.3
Pension and post retirement benefits expense, net of contributions	25.4				18.5				1.7
Other, net	(0.9		)		(1.0		)		(3.2		)
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in assets —
Accounts receivable	(8.5		)		(31.2		)		(25.0		)
Inventories	(72.4		)		25.0				(6.4		)
Prepaid expenses and other current assets	(5.1		)		(1.9		)		(0.8		)
Increase (decrease) in liabilities —
Accounts payable	(36.0		)		54.2				(40.4		)
Accrued liabilities	7.0				(22.1		)		(2.7		)
Federal and state income tax payable / receivable	18.0				(32.7		)		0.4
Net cash provided by operating activities	736.1				608.2				404.2
Cash Flows from Investing Activities:
Additions to property, plant, and equipment	(420.2		)		(234.4		)		(128.5		)
Acquisitions of businesses, net of cash acquired	(20.5		)		(1,174.5		)		(35.4		)
Additions to other long term assets	(12.5		)		(3.1		)		(1.1		)
Treasury grant proceeds	—				—				57.4
Other	2.1				0.6				0.1
Net cash used for investing activities	(451.1		)		(1,411.4		)		(107.5		)
Cash Flows from Financing Activities:
Proceeds from issuance of debt	398.9				1,998.1				397.0
Repayments of debt	(592.5		)		(1,074.8		)		(437.2		)
Financing costs paid	(3.4		)		(19.4		)		(0.8		)
Settlement of treasury lock	—				—				(65.5		)
Common stock dividends paid	(157.4		)		(109.1		)		(117.8		)
Repurchases of common stock	—				(7.8		)		(45.2		)
Proceeds from exercise of stock options	3.7				2.9				19.9
Excess tax benefits from stock-based awards	12.2				7.8				4.0
Shares withheld to cover employee restricted stock taxes	(13.2		)		(11.0		)		—
Other	0.6				0.1				—
Net cash (used for) provided by financing activities	(351.1		)		786.8				(245.6		)
Net (decrease) increase in cash and cash equivalents	(66.1		)		(16.4		)		51.1
Cash and cash equivalents, beginning of year	191.0				207.4				156.3
Cash and cash equivalents, end of year	$	124.9			$	191.0			$	207.4

See notes to consolidated financial statements.

Packaging Corporation of America

Consolidated Statements of Changes in Stockholders' Equity

(dollars in million and shares in thousands)

	Common Stock							Treasury Stock							Additional Paid in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total Stockholders' Equity
	Shares			Amount				Shares			Amount
Balance at January 1, 2012	98,325			$	1.0			(2	)		$	—			$	351.8			$	716.3			$	(97.8	)		$	971.3
Common stock repurchases and retirements	(1,510	)		—				2			—				(9.3		)		(35.9		)		—				(45.2		)
Common stock dividends declared	—			—				—			—				—				(98.1		)		—				(98.1		)
Restricted stock grants and cancellations	383			—				—			—				1.6				—				—				1.6
Exercise of stock options	945			—				—			—				22.3				—				—				22.3
Share-based compensation expense	—			—				—			—				11.7				—				—				11.7
Other	—			—				—			—				0.7				—				—				0.7
Comprehensive income	—			—				—			—				—				160.2				(16.2		)		144.0
Balance at December 31, 2012	98,143			$	1.0			—			$	—			$	378.8			$	742.5			$	(114.0	)		$	1,008.3
Common stock repurchases and retirements	(171	)		—				—			—				(1.1		)		(6.7		)		—				(7.8		)
Common stock withheld and retired to cover taxes on vested stock awards	(224	)		—				—			—				(1.4		)		(9.6		)		—				(11.0		)
Common stock dividends declared	—			—				—			—				—				(148.4		)		—				(148.4		)
Restricted stock grants and cancellations	297			—				—			—				6.9				—				—				6.9
Exercise of stock options	127			—				—			—				3.7				—				—				3.7
Share-based compensation expense	—			—				—			—				14.8				—				—				14.8
Other	—			—				—			—				—				—				—				—
Comprehensive income	—			—				—			—				—				441.3				49.0				490.3
Balance at December 31, 2013	98,172			$	1.0			—			$	—			$	401.7			$	1,019.1			$	(65.0	)		$	1,356.8
Common stock withheld and retired to cover taxes on vested stock awards	(183	)		—				—			—				(1.2		)		(12.0		)		—				(13.2		)
Common stock dividends declared	—			—				—			—				—				(157.5		)		—				(157.5		)
Restricted stock grants and cancellations	228			—				—			—				9.7				—				—				9.7
Exercise of stock options	151			—				—			—				6.3				—				—				6.3
Share-based compensation expense	—			—				—			—				15.6				—				—				15.6
Comprehensive income	—			—				—			—				—				392.6				(88.9		)		303.7
Balance at December 31, 2014	98,368			$	1.0			—			$	—			$	432.1			$	1,242.2			$	(153.9	)		$	1,521.4

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

1. Nature of Operations and Basis of Presentation

Packaging Corporation of America ("we," "us," "our," "PCA," or the "Company") was incorporated on January 25, 1999. In April 1999, PCA acquired the containerboard and corrugated packaging products business of Pactiv Corporation (Pactiv), formerly known as Tenneco Packaging, Inc., a wholly owned subsidiary of Tenneco Inc. On October 25, 2013, PCA acquired Boise Inc. (Boise). For more information, see Note 3, Acquisitions. After the acquisition of Boise, we became a large diverse manufacturer of both packaging and paper products. We are headquartered in Lake Forest, Illinois, and we operate largely in the United States but also have operations in Europe, Mexico, and Canada. We have approximately 14,000 employees.

We report our businesses in three reportable segments: Packaging, Paper, and Corporate and Other. Our Packaging segment produces a wide variety of corrugated packaging products. The Paper segment manufactures and sells a range of papers, including communication-based papers, and pressure sensitive papers (collectively, white papers), and market pulp. Corporate and other includes support staff services and related assets and liabilities, transportation assets, and activity related to other ancillary support operations. For more information about our segments, see Note 18, Segment Information.

In these consolidated financial statements, certain amounts in prior periods' consolidated financial statements have been reclassified to conform with the current period presentation.

Effective January 1, 2014, the Company elected to change its method of accounting for certain inventories from lower of cost, as determined by the LIFO method, or market, to lower of cost, as determined by the average cost method, or market. We applied this change in method of inventory costing retrospectively to all prior periods presented in accordance with U.S. generally accepted accounting principles relating to accounting changes. For more information about our inventory valuation, see Note 2, Summary of Significant Accounting Policies.

The consolidated financial statements include the accounts of PCA and its majority-owned subsidiaries after elimination of intercompany balances and transactions. Boise's results are included in our results subsequent to October 25, 2013, the date of acquisition.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods.

Revenue Recognition

We recognize revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed or determinable, and collectability is reasonably assured. Shipping and handling billings to a customer are included in net sales. Shipping and handling costs, such as freight to our customers' destinations, are included in cost of sales. We present taxes collected from customers and remitted to governmental authorities on a net basis in our Consolidated Statements of Income.

Planned Major Maintenance Costs

The Company accounts for its planned major maintenance activities in accordance with ASC 360, "Property, Plant, and Equipment," using the deferral method. All maintenance costs incurred during the year are expensed in the year in which the maintenance activity occurs.

Share-Based Compensation

We recognize compensation expense for awards granted under the PCA long-term equity incentive plans based on the fair value on the grant date. We recognize the cost of the equity awards expected to vest over the period the awards vest. See Note 12, Share-Based Compensation, for more information.

Research and Development

Research and development costs are expensed as incurred. The amount charged to expense was $12.3 million, $11.5 million, and $11.3 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Foreign Currency

Local currencies are the functional currencies for our operations outside the United States. Assets and liabilities are remeasured into U.S. dollars using the exchange rates as of the Consolidated Balance Sheet date. Revenue and expense items are remeasured into U.S. dollars using an average exchange rate prevailing during the period. Any resulting translation adjustments are recorded in the Consolidated Statements of Comprehensive Income. The foreign exchange gain (loss) resulting from remeasuring transactions into the functional currencies is reported in the Consolidated Statements of Income.

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly liquid investments with a maturity, when acquired, of three months or less. Cash equivalents are stated at cost, which approximates market. Cash and cash equivalents totaled $124.9 million and $191.0 million at December 31, 2014 and 2013, respectively, which included cash equivalents of $79.9 million and $156.6 million, respectively. At December 31, 2014 and 2013, we had $10.4 million and $7.1 million, respectively, of cash at our operations outside the United States.

Trade Accounts Receivable, Allowance for Doubtful Accounts, and Customer Deductions

Trade accounts receivable are stated at the amount we expect to collect. The collectability of our accounts receivable is based upon a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to PCA (e.g., bankruptcy filings, substantial downgrading of credit sources), a specific reserve for bad debts is recorded against amounts due to the Company to reduce the net recorded receivable to the amount the Company reasonably believes will be collected. For all other customers, reserves for bad debts are recognized based on historical collection experience. If collection experience deteriorates (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to the Company), the estimate of the recoverability of amounts due could be reduced by a material amount. We periodically review our allowance for doubtful accounts and adjustments to the valuation allowance are recorded as income or expense. Trade accounts receivable balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At December 31, 2014 and 2013, the allowance for doubtful accounts was $4.9 million and $3.9 million, respectively.

The customer deductions reserve represents the estimated amount required for customer returns, allowances, and earned discounts. Based on the Company’s experience, customer returns, allowances, and earned discounts have averaged approximately 1% of gross selling price. Accordingly, PCA reserves 1% of its open customer accounts receivable balance for these items. The reserves for customer deductions of $6.4 million and $6.7 million at December 31, 2014 and 2013, respectively, are also included as a reduction of the accounts receivable balance.

Derivative Instruments and Hedging Activities

The Company records its derivatives, if any, in accordance with ASC 815, "Derivatives and Hedging." The guidance requires the Company to recognize derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value of a derivative depends on the intended use and designation of the derivative instrument. For a derivative designated as a fair value hedge, the gain or loss on the derivative is recognized in earnings in the period of change at fair value together with the offsetting gain or loss on the hedged item. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (loss) (AOCI) and is subsequently recognized in earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is recognized in earnings. We were not party to any derivative-based arrangements at December 31, 2014 and 2013.

Fair Value Measurements

PCA measures the fair value of its financial instruments in accordance with ASC 820, "Fair Value Measurements and Disclosures." The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes the following hierarchy that prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Valuations based on unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Financial instruments measured at fair value on a recurring basis include the fair value of our pension and postretirement benefit assets and liabilities. See Note 11, Employee Benefit Plans and Other Postretirement Benefits for more information. Other assets and liabilities measured and recognized at fair value on a nonrecurring basis include assets acquired and liabilities assumed in acquisitions and our asset retirement obligations. Given the nature of these assets and liabilities, evaluating their fair value from the perspective of a market participant is inherently complex. Assumptions and estimates about future values can be affected by a variety of internal and external factors. Changes in these factors may require us to revise our estimates and could require us to retroactively adjust provisional amounts that we recorded for the fair values of assets acquired and liabilities assumed in connection with business combinations. These adjustments could have a material effect on our financial condition and results of operations. See Note 3, Acquisitions, and Note 19, Asset Retirement Obligations, for more information.

Inventory Valuation

Prior to 2014, with the exception of inventories acquired since 2004, our raw materials, work in process, and finished goods inventories were valued using the last-in, first-out (LIFO) cost method. Supplies and materials are valued at the first-in, first-out (FIFO) or average cost methods. Effective January 1, 2014, the Company elected to change its method of accounting for certain inventories from lower of cost, as determined by the LIFO method, or market, to lower of cost, as determined by the average cost method, or market. Had the Company not made this change in accounting method, "Net income" for the year ended December 31, 2014, would have been $1.6 million higher than reported in the Consolidated Statements of Income and "Inventories" at December 31, 2014, would have been $69.2 million lower than reported in the Consolidated Balance Sheets. We believe the change is preferable as the average cost method better reflects the current value of inventory on the consolidated balance sheets, more closely aligns with how we manage inventory, and conforms the inventory costing methods to be more consistent within the Company.

We applied this change in method of inventory costing retrospectively to all prior periods presented in accordance with U.S. generally accepted accounting principles relating to accounting changes. As a result of the retrospective change in accounting principle, opening retained earnings as of January 1, 2012, increased $42.3 million. For additional information and detail of certain components of our financial statements affected by the change in valuation methodology as originally reported under the LIFO method and as adjusted for the change to the average cost method, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our Current Report on Form 8-K filed on May 9, 2014.

The components of inventories were as follows (dollars in millions):

	December 31
	2014				2013
Raw materials	$	261.9			$	212.0
Work in process	11.3				13.9
Finished goods	216.3				210.0
Supplies and materials	175.4				158.4
Inventories	$	664.9			$	594.3

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost. Cost includes expenditures for major improvements and replacements and the amount of interest cost associated with significant capital additions. Repairs and maintenance costs are expensed as incurred. When property and equipment are retired, sold, or otherwise disposed of, the asset's carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in "Net income" in our Consolidated Statements of Income.

Property, plant, and equipment consisted of the following (dollars in millions):

	December 31
	2014				2013
Land and land improvements	$	138.2			$	140.6
Buildings	659.9				628.9
Machinery and equipment	4,508.0				4,246.3
Construction in progress	154.8				168.8
Other	54.5				48.1
Property, plant, and equipment, at cost	5,515.4				5,232.7
Less accumulated depreciation	(2,657.8		)		(2,427.0		)
Property, plant, and equipment, net	$	2,857.6			$	2,805.7

The amount of interest capitalized from construction in progress was $2.8 million, $1.7 million, and $0.8 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Depreciation is computed on the straight-line basis over the estimated useful lives of the related assets. Assets under capital leases are depreciated on the straight-line method over the term of the lease or the useful life, if shorter. The following lives are used for the various categories of assets:

Buildings and land improvements	5 to 40 years
Machinery and equipment	3 to 25 years
Trucks and automobiles	3 to 10 years
Furniture and fixtures	3 to 20 years
Computers and hardware	3 to 10 years
	Period of the lease or
Leasehold improvements	useful life, if shorter

The amount of depreciation expense was $348.2 million, $191.2 million, and $166.0 million for the years ended December 31, 2014, 2013, and 2012, respectively. The increase in depreciation expense relates primarily to the acquisition of Boise in fourth quarter 2013, as well as accelerated depreciation. During the year ended December 31, 2014, we recognized $42.0 million of incremental depreciation expense primarily related to shortening the useful lives of assets at the DeRidder, Louisiana, mill, related primarily to the newsprint business which we exited in 2014.

Pursuant to the terms of an industrial revenue bond, title to certain property, plant, and equipment was transferred to a municipal development authority in 2009 in order to receive a property tax abatement. The title of these assets will revert back to PCA upon retirement or cancellation of the bond. The assets are included in the consolidated balance sheet under the caption "Property, plant, and equipment, net" as all risks and rewards remain with the Company.

Leases

We assess lease classification as either capital or operating at lease inception or upon modification. We lease some of our locations, as well as other property and equipment, under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date of possession of the facility, including any periods of free rent and any renewal option periods that are reasonably assured of being exercised.

Long-Lived Asset Impairment

Long-lived assets other than goodwill and other intangibles are reviewed for impairment in accordance with provisions of ASC 360, "Property, Plant and Equipment." In the event that facts and circumstances indicate that the carrying amount of any long-lived assets may be impaired, an evaluation of recoverability is performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset (or group of assets) is compared to the assets (or group of assets) carrying amount to determine if a write-down to fair value is required.

Goodwill and Intangible Assets

The Company has capitalized certain intangible assets, primarily goodwill, customer relationships, and trademarks and trade names, based on their estimated fair value at the date of acquisition. Amortization is provided for customer relationships on a straight-line basis over periods ranging from ten to 40 years, and trademarks and trade names over periods ranging from three to 20 years.

Goodwill, which amounted to $546.8 million and $526.8 million for the years ended December 31, 2014 and 2013, respectively, is not amortized but is subject to an annual impairment test in accordance with ASC 350, "Intangibles - Goodwill and Other." We test goodwill for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. Additionally, we evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary. The Company concluded that none of the goodwill or intangible assets were impaired in the 2014, 2013, and 2012 annual impairment tests. See Note 8, Goodwill and Intangible Assets for additional information.

Pension and Postretirement Benefits

Several estimates and assumptions are required to record pension costs and liabilities, including discount rate, return on assets, and longevity and service lives of employees. We review and update these assumptions annually unless a plan curtailment or other event occurs, requiring we update the estimates on an interim basis. While we believe the assumptions used to measure our pension and postretirement benefit obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension and postretirement benefit obligations and future expense. See Note 11, Employee Benefit Plans and Other Postretirement Benefits, for additional information.

For postretirement health care plan accounting, the Company reviews external data and its own historical trends for health care costs to determine the health care cost trend rate assumption.

Environmental Matters

Environmental expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. Liabilities are recorded for environmental contingencies when such costs are probable and reasonably estimable. These liabilities are adjusted as further information develops or circumstances change. Environmental expenditures related to existing conditions resulting from past or current operations from which no current or future benefit is discernible are expensed as incurred.

Asset Retirement Obligations

The Company accounts for its retirement obligations related predominantly to landfill closure, wastewater treatment pond dredging, closed-site monitoring costs, and certain leasehold improvements under ASC 410, "Asset Retirement and Environmental Obligations," which requires recognition of legal obligations associated with the retirement of long-lived assets whether these assets are owned or leased. These legal obligations are recognized at fair value at the time that the obligations are incurred. When we record the liability, we capitalize the cost by increasing the carrying amount of the related long-lived asset which is amortized to expense over the useful life of the asset. See Note 19, Asset Retirement Obligations, for additional information.

Deferred Financing Costs

PCA has capitalized certain costs related to obtaining its financing. These costs are amortized to interest expense using the effective interest rate method over the terms of the related financing, which range from five to ten years. Unamortized

deferred financing costs of $14.1 million as of both December 31, 2014 and 2013, respectively, were recorded in "Other long-term assets" on our Consolidated Balance Sheets.

Cutting Rights and Fiber Farms

We lease the cutting rights to approximately 88,000 acres of timberland and we lease 9,000 acres of land where we operate fiber farms as a source of future fiber supply. For our cutting rights and fiber farms, we capitalized the annual lease payments and reforestation costs associated with these leases. Costs are recorded as depletion when the timber or fiber is harvested and used in operations or sold to customers. Capitalized long-term lease costs for our cutting rights and fiber farms, primarily recorded in "Other long-term assets" on our Consolidated Balance Sheet, were $38.0 million and $37.0 million as of December 31, 2014 and 2013, respectively. The amount of depletion expense was $7.3 million, $2.5 million, and $0.7 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Deferred Software Costs

PCA capitalizes costs related to the purchase and development of software which is used in its business operations. The costs attributable to these software systems are amortized over their estimated useful lives based on various factors such as the effects of obsolescence, technology, and other economic factors. Net capitalized software costs recorded in "Other long-term assets" on our Consolidated Balance Sheets were $6.8 million and $5.7 million for the years ended December 31, 2014 and 2013, respectively. Software amortization expense was $2.9 million, $1.1 million, and $0.9 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Income Taxes

PCA utilizes the liability method of accounting for income taxes whereby it recognizes deferred tax assets and liabilities for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets will be reduced by a valuation allowance if, based upon management’s estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period. The estimates utilized in the recognition of deferred tax assets are subject to revision in future periods based on new facts or circumstances. PCA’s practice is to recognize interest and penalties related to unrecognized tax benefits in income tax expense.

Trade Agreements

PCA regularly trades containerboard with other manufacturers primarily to reduce shipping costs. These agreements are entered into with other producers on an annual basis, pursuant to which both parties agree to ship an identical number of tons of containerboard to each other within the agreement period. These agreements lower transportation costs by allowing each party’s containerboard mills to ship containerboard to the other party’s closer corrugated products plant. PCA tracks each shipment to ensure that the other party’s shipments to PCA match PCA’s shipments to the other party during the agreement period. Such transfers are possible because containerboard is a commodity product with no distinguishing product characteristics. These transactions are accounted for at carrying value, and revenue is not recorded as the transactions do not represent the culmination of an earnings process. The transactions are recorded into inventory accounts, and no sale or income is recorded until such inventory is converted to a finished product and sold to an end-use customer.

New and Recently Adopted Accounting Standards

In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU provides guidance that will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The guidance will become effective for us in December 2016, and for annual and interim periods thereafter. Early adoption is permitted. The adoption of this update will not affect our financial position or results of operations.

In May 2014, the FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. The amendments in this ASU will become effective for us in 2017, and early adoption is prohibited. Entities

can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact the adoption of ASU 2014-09 may have on our financial position and results of operations.

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The standard also requires additional disclosures about discontinued operations. We adopted the provisions of this guidance in third quarter 2014, and it did not have a material effect on our financial position and results of operations.

In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. This ASU requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. This ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. We adopted the provisions of this guidance January 1, 2014, and it did not have a material effect on our financial position and results of operations.

There were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.

3. Acquisitions

Crockett Packaging Acquisition

On April 28, 2014, we acquired the assets of Crockett Packaging, a corrugated products manufacturer, for $21.2 million, before $0.7 million of working capital adjustments. The assets included a corrugated plant and a sheet plant in Southern California. Sales and total assets of the acquired company are not material to our overall sales and total assets. Operating results of the acquired assets subsequent to April 28, 2014, are included in our Packaging segment's 2014 operating results. We have estimated the allocation of the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition, of which $12.2 million was allocated to goodwill (which is deductible for tax purposes) and $5.5 million to intangible assets (to be amortized over a weighted average life of approximately ten years), primarily customer relationships, in the Packaging segment. The purchase price allocation continues to be preliminary, as estimates and assumptions are subject to change as more information becomes available.

Boise Acquisition

On October 25, 2013, we acquired 100% of the outstanding stock and voting equity interests of Boise for $2.1 billion including the assumption of debt. We paid $12.55 per share to shareholders, or $1.2 billion, net of $121.7 million of cash acquired, and assumed the fair value of Boise's debt, of $829.8 million. The acquisition expands our corrugated products geographic reach and offerings, provides low-cost, lightweight containerboard capacity for continued growth in the packaging business, and provides meaningful opportunities in the white paper business. During the year ended December 31, 2014, we recorded approximately $6.4 million of purchase price adjustments that increased goodwill. These adjustments related primarily to a true-up to the valuation of fixed assets, the associated impact to income tax liabilities, and residual goodwill. Boise's financial results are included in our Packaging, Paper, and Corporate and Other segments from the date of acquisition. For more information, see Note 18, Segment Information.

4. Earnings Per Share

The following table sets forth the computation of basic and diluted income per common share for the periods presented (dollars and shares in millions, except per share data).

	Year Ended December 31
	2014				2013				2012
Numerator:
Net income	$	392.6			$	441.3			$	160.2
Less: distributed and undistributed earnings allocated to participating securities	(5.7		)		—				—
Net income attributable to common shareholders	$	386.9			$	441.3			$	160.2
Denominator:
Weighted average basic common shares outstanding	97.0				96.6				96.4
Effect of dilutive securities	0.1				0.9				1.1
Diluted common shares outstanding	97.1				97.5				97.5
Basic income per common share	$	3.99			$	4.57			$	1.66
Diluted income per common share	$	3.99			$	4.52			$	1.64

For the years ended December 31, 2014, 2013, and 2012, all outstanding options to purchase shares were included in the computation of diluted common shares outstanding. On June 29, 2014, all remaining options to purchase shares expired.

5. Other Expense, Net

The components of other expense, net, were as follows (in millions):

	Year Ended December 31
	2014				2013				2012
Integration-related and other costs (a)	$	20.0			$	17.4			$	—
Class action lawsuit settlement (b)	17.6				—				—
DeRidder restructuring (c)	7.3				—				—
Pension curtailment charges (d)	—				10.9				—
Acquisition-related costs (e)	—				17.2				—
Asset disposals and write-offs	10.1				13.2				10.8
Other	2.3				0.3				1.0
Total	$	57.3			$	59.0			$	11.8

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(a)	Includes Boise acquisition integration-related and other costs, which primarily relate to severance, retention, travel, and professional fees.

(b)	Includes $17.6 million of costs for the settlement of the Kleen Products LLC v Packaging Corp. of America et al class action lawsuit. See Note 20, Commitments, Guarantees, Indemnifications, and Legal Proceedings, for more information.

(c)	Costs relate primarily to the conversion of the No. 3 newsprint machine at our DeRidder, Louisiana, mill to produce lightweight linerboard and corrugating medium, and our exit from the newsprint business in September 2014.

(d)	Includes $10.9 million of non-cash pension curtailment charges related to pension plan changes in which certain hourly corrugated plant and containerboard mill employees will transition from a defined benefit pension plan to a defined contribution (401k) plan.

(e)	Includes $17.2 million of acquisition-related costs, primarily for professional fees related to transaction-advisory services and expenses related to financing the acquisition of Boise.

6. Income Taxes

The following is an analysis of the components of the consolidated income tax provision (dollars in millions):

	2014				2013				2012
Current income tax provision (benefit) -
U.S. Federal	$	185.1			$	129.6			$	27.1
State and local	33.1				12.7				6.4
Foreign	0.9				0.3				—
Total current provision for taxes	219.1				142.6				33.5
Deferred -
U.S. Federal	(5.0		)		(160.5		)		179.1
State and local	7.6				0.3				1.9
Foreign	—				(0.1		)		—
Total deferred provision (benefit) for taxes	2.6				(160.3		)		181.0
Total provision (benefit) for taxes	$	221.7			$	(17.7	)		$	214.5

The effective tax rate varies from the U.S. Federal statutory tax rate principally due to the following (dollars in millions):

	2014				2013				2012
Provision computed at U.S. Federal statutory rate of 35%	$	215.0			$	148.3			$	131.1
Alternative fuel mixture and cellulosic biofuel producer credits	—				(166.0		)		81.7
State and local taxes, net of federal benefit	20.5				13.6				8.9
Domestic manufacturers deduction	(16.5		)		(11.7		)		(7.2		)
Other	2.7				(1.9		)		—
Total	$	221.7			$	(17.7	)		$	214.5

Tax benefits in 2013 included $166.0 million for the release of ASC 740 uncertain tax positions related to the taxability of the alternative energy tax credits acquired in the acquisition of Boise and the completion of the IRS audit of PCA's 2008 and 2009 Federal income tax returns including the Filer City mill's cellulosic biofuel tax credits. Tax expense in 2012 included $81.7 million for the reallocation of gallons from the cellulosic biofuel producer credit to the alternative energy tax credit claimed in the 2009 amended federal and state income tax returns filed in 2012. For further discussion regarding these credits, see Note 7, Alternative Energy Tax Credits.

The following details the scheduled expiration dates of our tax effected net operating loss (NOL) and other tax carryforwards at December 31, 2014 (dollars in millions):

	2015 Through 2024				2025 Through 2034				Indefinite				Total
U.S. federal and non-U.S. NOLs	$	1.1			$	76.6			$	0.3			$	78.0
State taxing jurisdiction NOLs	3.6				3.6				—				7.2
U.S. federal, non-U.S., and state tax credit carryforwards	0.2				0.4				0.6				1.2
U.S. federal capital loss carryforwards	0.6				—				—				0.6
Total	$	5.5			$	80.6			$	0.9			$	87.0

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Deferred income tax assets and liabilities at December 31 are summarized as follows (dollars in millions):

	December 31
	2014				2013
Deferred tax assets:
Accrued liabilities	$	19.0			$	19.5
Employee benefits and compensation	44.2				27.3
Net operating loss carryforwards	85.2				126.8
Stock options and restricted stock	8.9				8.9
Pension and postretirement benefits	139.1				75.5
Derivatives	16.0				18.2
Capital loss, general business, foreign, and AMT credit carryforwards	1.8				2.6
Gross deferred tax assets	$	314.2			$	278.8
Valuation allowance (a)	(1.7		)		(2.7		)
Net deferred tax assets	$	312.5			$	276.1
Deferred tax liabilities:
Property, plant, and equipment	$	(531.6	)		$	(519.7	)
Goodwill and intangible assets	(107.7		)		(111.9		)
Inventories	(7.4		)		(28.5		)
Investment in joint venture	—				(1.0		)
Other	—				(2.2		)
Total deferred tax liabilities	$	(646.7	)		$	(663.3	)
Net deferred tax liabilities (b)	$	(334.2	)		$	(387.2	)

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(a)

Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. In 2014, of the $1.7 million valuation allowance, $1.1 million relates to foreign net operating loss carryforwards and credits and $0.6 million relates to capital losses. In 2013, of the $2.7 million valuation allowance, $1.6 million relates to foreign net operating loss carryforwards and credits and $1.1 million relates to capital losses. We do not expect to generate capital gains before the capital losses expire. If or when recognized, the tax benefits relating to the reversal of any of or all of the valuation allowance would be recognized as a benefit to income tax expense.

(b)

As of December 31, 2014, we did not recognize U.S. deferred income taxes on our cumulative total of undistributed foreign earnings for our non-U.S. subsidiaries. We indefinitely reinvest our earnings in operations outside the United States. It is not practicable to determine the amount of unrecognized deferred tax liability on these undistributed earnings because the actual tax liability, if any, is dependent on circumstances existing when the repatriation occurs.

Cash payments for federal, state, and foreign income taxes were $189.5 million, $90.7 million, and $9.7 million for the years ended December 31, 2014, 2013, and 2012, respectively.

The following table summarizes the changes related to PCA’s gross unrecognized tax benefits excluding interest and penalties (dollars in millions):

	2014				2013				2012
Balance as of January 1	$	(5.4	)		$	(111.3	)		$	(111.0	)
Increase related to acquisition of Boise Inc. (a)	—				(65.2		)		—
Increases related to prior years’ tax positions	(1.0		)		(0.1		)		(0.1		)
Increases related to current year tax positions	(0.3		)		(1.5		)		(1.3		)
Decreases related to prior years' tax positions (b)	0.9				64.8				—
Settlements with taxing authorities (c)	0.5				106.2				—
Expiration of the statute of limitations (d)	0.9				1.7				1.1
Balance at December 31	$	(4.4	)		$	(5.4	)		$	(111.3	)

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(a)	In 2013, PCA acquired $65.2 million of gross unrecognized tax benefits from Boise Inc. that relate primarily to the taxability of the alternative energy tax credits.

(b)	The 2013 amount includes a $64.3 million gross decrease related to the taxability of the alternative energy tax credits claimed in 2009 excise tax returns by Boise Inc. For further discussion regarding these credits, see Note 7, Alternative Energy Tax Credits.

(c)	The 2013 amount includes a $104.7 million gross decrease related to the conclusion of the Internal Revenue Service audit of PCA’s alternative energy tax credits. For further discussion regarding these credits, see Note 7, Alternative Energy Tax Credits.

(d)	In 2014, 2013, and 2012, various state statutes of limitations expired. As a result, the reserve for unrecognized tax benefits decreased by $0.9 million gross, $1.7 million gross, and $1.1 million gross, respectively.

At December 31, 2014, PCA had recorded a $4.4 million gross reserve for unrecognized tax benefits, excluding interest and penalties. Of the total, $3.5 million (net of the federal benefit for state taxes) would impact the effective tax rate if recognized.

PCA recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the unrecognized tax benefits noted in the table above, PCA accrued interest of $0.2 million gross and $3.3 million gross during 2014 and 2013, respectively. At both December 31, 2014 and 2013, after the decreases and settlements noted in the table above, PCA had a recorded liability for interest of $0.4 million gross. Penalties in 2014 and 2013 were not significant. PCA does not expect the unrecognized tax benefits to change significantly over the next 12 months.

PCA is subject to taxation in the United States and various state and foreign jurisdicitions. A federal examination of the tax years 2008 and 2009 was concluded in November 2013, and tax years 2010 - 2012 were concluded in February 2015. The tax years 2013 - 2014 remain open to federal examination. The tax years 2010 - 2014 remain open to state examinations. Some foreign tax jurisdictions are open to examination for the 2008 tax year forward. Through the Boise acquisition, PCA recorded net operating losses and credit carryforwards from 2008 through 2011 and 2013 that are subject to examinations and adjustments for at least three years following the year in which utilized.

7. Alternative Energy Tax Credits

The Company generates black liquor as a by-product of its pulp manufacturing process, which entitled it to certain federal income tax credits. When black liquor is mixed with diesel, it is considered an alternative fuel that was eligible for a $0.50 per gallon refundable alternative energy tax credit for gallons produced before December 31, 2009. Black liquor is also eligible for a $1.01 per gallon taxable cellulosic biofuel producer credit for gallons of black liquor produced and used in 2009. The Company first recorded income relating to these credits in its Consolidated Statement of Income for the year ended December 31, 2009.

During 2010, the Internal Revenue Service (IRS) released guidance related to the alternative energy credits which resulted in: (1) the Company releasing a reserve that was established in 2009 for ambiguity in the calculation of the alternative energy tax credit; (2) reallocation of gallons of black liquor from the alternative energy tax credit to the cellulosic biofuel credit; and (3) the determination that the Company’s proprietary biofuel process at its Filer City, Michigan mill would likely qualify for the cellulosic biofuel producer credit. The Company amended its 2009 federal income tax return in December 2010 to claim the additional Filer City gallons. As a result of these changes, the Company recorded a charge of $86.3 million in "Alternative energy tax credits" and a $135.5 million benefit in the "(Provision) benefit for income taxes". Additional expenses of $1.6 million related to the alternative energy tax credits were also recorded, resulting in total income of $47.7 million recorded in 2010. In addition, the Company recorded in 2010 a reserve for unrecognized tax benefits under ASC 740, "Income Taxes," of $102.0 million (net of the federal benefit for state taxes) because the IRS guidelines do not specifically address the unique and proprietary nature of the Filer City mill process and uncertainty existed.

On February 3, 2012, PCA again amended its 2009 federal tax return to reallocate claimed gallons from cellulosic biofuel producer credits to alternative energy tax credits. As a result of this change, the Company recorded a charge of $118.5 million in "(Provision) benefit for income taxes" and income of $95.5 million in "Alternative energy tax credits", together resulting in a first quarter 2012 non-cash, after-tax charge of $23.0 million. In the fourth quarter of 2012, PCA recorded after-tax income of $3.4 million for the amendment of the 2009 state income tax returns related to the federal amendment filed in February 2012. The net impact of these changes resulted in a non-cash, after-tax charge of $19.6 million for the year ended December 31, 2012.

The IRS completed its audit of PCA’s 2008 and 2009 Federal income tax returns and all claimed alternative energy tax credits were allowed. In November 2013, PCA received a confirmation letter from the Joint Committee on Taxation that their review was also complete. As a result, a $103.9 million ($102.0 million of tax plus $1.9 million of accrued interest) reserve for unrecognized tax benefits for the Filer City mill’s cellulosic biofuel tax credit was fully reversed as a benefit to income taxes in the fourth quarter of 2013.

In November 2013, an IRS Chief Counsel Memorandum was published that provided guidance concerning the taxability of the alternative energy tax credits. Based on this new fact, PCA reversed a $62.1 million (net of the federal benefit for state taxes) reserve for unrecognized tax benefits acquired from Boise for the taxability of the 2009 alternative energy tax credits that Boise had claimed through excise tax refunds as a benefit to income taxes in the fourth quarter of 2013. This resulted in a reduction in "Other long-term liabilities" of $13.1 million and the recording of a deferred tax asset to increase the net operating loss carryforwards recorded in deferred taxes by $49.0 million.

8. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At December 31, 2014 and 2013, we had $491.6 million and $472.9 million, respectively, of goodwill recorded in our Packaging segment and $55.2 million and $53.9 million, respectively, in our Paper segment on our Consolidated Balance Sheets.

Changes in the carrying amount of our goodwill were as follows (dollars in millions):

	Packaging				Paper				Goodwill
Balance at January 1, 2013	$	67.2			$	—			$	67.2
Acquisitions	405.7				53.9				459.6
Balance at December 31, 2013	472.9				53.9				526.8
Acquisitions (a)	12.2				—				12.2
Adjustments related to purchase accounting (b)	6.5				1.3				7.8
Balance at December 31, 2014	$	491.6			$	55.2			$	546.8

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(a)	In April 2014, we acquired the assets of Crockett Packaging, a corrugated products manufacturer, for $21.2 million, before $0.7 million of working capital adjustments, and recorded $12.2 million of goodwill in our Packaging segment.

(b)	Adjustments relate primarily to the Boise acquisition, see Note 3, Acquisitions, for more information.

Intangible Assets

Intangible assets are comprised of customer relationships and trademarks and trade names.

The weighted average useful life, gross carrying amount, and accumulated amortization of our intangible assets were as follows (dollars in millions):

	As of December 31, 2014										As of December 31, 2013
	Weighted Average Remaining Useful Life (in Years)		Gross Carrying Amount				Accumulated Amortization				Weighted Average Remaining Useful Life (in Years)		Gross Carrying Amount				Accumulated Amortization
Customer relationships	14.3		$	311.5			$	36.9			15.4		$	306.4			$	16.5
Trademarks and trade names	13.4		21.8				3.0				14.7		21.4				0.8
Other	2.2		0.2				0.1				3.0		0.2				0.1
Total intangible assets (excluding goodwill)	14.2		$	333.5			$	40.0			15.4		$	328.0			$	17.4

Amortization expense was $22.6 million, $6.4 million, and $3.1 million for the years ended December 31, 2014, 2013, and 2012, respectively. Estimated amortization expense of intangible assets over the next five years is expected to approximate $22.6 million (2015), $22.5 million (2016), $22.4 million (2017), $22.2 million (2018), and $21.3 million (2019).

Impairment Testing

We test goodwill for impairment annually in the fourth quarter as of October 1 or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. Additionally, when we experience changes to our business or operating environment, we evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary. We completed our test in the fourth quarter as of October 1, 2014, and there is no indication of goodwill or intangible asset impairment.

9. Accrued Liabilities

The components of accrued liabilities were as follows (in millions):

	December 31,
	2014				2013
Compensation and benefits	$	130.8			$	131.4
Medical insurance and workers’ compensation	27.0				26.4
Franchise, property, sales and use taxes	17.5				20.2
Customer volume discounts and rebates	13.9				11.4
Severance, retention, and relocation	8.3				8.2
Environmental liabilities and asset retirement obligations	7.1				7.8
Legal contingencies	0.8				1.0
Other	14.6				7.7
Total	$	220.0			$	214.1

10. Debt

At December 31, 2014 and 2013, our long-term debt and interest rates on that debt were as follows (dollars in millions):

	December 31, 2014							December 31, 2013
	Amount				Interest Rate			Amount				Interest Rate
Revolving Credit Facility, due October 2018	$	—			—	%		$	—			—	%
Five-Year Term Loan, due October 2018	65.0				1.54			650.0				1.54
Seven-Year Term Loan, due October 2020	643.5				1.79			650.0				1.79
6.50% Senior Notes due March 2018	150.0				6.50			150.0				6.50
3.90% Senior Notes, net of discounts of $0.3 million and $0.3 million as of December 31, 2014 and 2013, respectively, due June 2022	399.7				3.90			399.7				3.90
4.50% Senior Notes, net of discount of $1.7 million and $1.9 million as of December 31, 2014 and 2013, respectively, due November 2023	698.3				4.50			698.1				4.50
3.65% Senior Notes, net of discount of $1.1 million as of December 31, 2014, due September 2024	398.9				3.65			—				—
Total	2,355.4				3.56			2,547.8				3.08
Less current portion	6.5				1.79			39.0				1.59
Total long-term debt	$	2,348.9			3.56	%		$	2,508.8			3.10	%

As of December 31, 2014, the details of our borrowings are as follows:

•	Senior Unsecured Credit Agreement. On October 18, 2013, we replaced our senior credit facility that was scheduled to terminate in October 2016, with a new $1.65 billion senior unsecured credit facility. Loans bear interest at LIBOR plus a margin that is determined based upon our credit ratings. The financing consisted of:

◦

Revolving Credit Facility: A $350.0 million unsecured revolving credit facility with variable interest (LIBOR plus a margin) due October 2018. During 2014, we did not borrow under the Revolving Credit Facility. At December 31, 2014, we had $24.9 million of outstanding letters of credit that were considered outstanding on the revolving credit facility, resulting in $325.1 million of unused borrowing capacity. The outstanding letters of credit were primarily for workers compensation. We are required to pay commitment fees on the unused portions of the credit facility.

◦	Five-Year Term Loan: A $650.0 million unsecured term loan with variable interest (LIBOR plus 1.375%), payable quarterly, due October 2018. The balance outstanding at December 31, 2014 was $65.0 million.

◦	Seven-Year Term Loan: A $650.0 million unsecured term loan with variable interest (LIBOR plus 1.625%), payable quarterly, due October 2020. The balance outstanding at December 31, 2014 was $643.5 million.

•	6.50% Senior Notes. On March 25, 2008, we issued $150.0 million of 6.50% senior notes due March 15, 2018, through a registered public offering.

•	3.90% Senior Notes. On June 26, 2012, we issued $400.0 million of 3.90% senior notes due June 15, 2022, through a registered public offering.

•	4.50% Senior Notes. On October 22, 2013, we issued $700.0 million of 4.50% senior notes due November 1, 2023, through a registered public offering.

•	3.65% Senior Notes. On September 5, 2014, we issued $400.0 million of 3.65% fixed-rate senior notes due September 15, 2024, through a registered public offering. In connection with the $400.0 million debt issuance, we paid $3.4 million of deferred financing costs, which we are amortizing to interest expense using the effective interest method over the term of the debt.

The instruments governing our indebtedness contain financial and other covenants that limit the ability of PCA and its subsidiaries to enter into sale and leaseback transactions, incur liens, incur indebtedness at the subsidiary level, enter into certain transactions with affiliates, merge or consolidate with any other person or sell or otherwise dispose of all or substantially all of our assets. Our credit facility also requires us to comply with certain financial covenants, including maintaining a minimum interest coverage ratio and a maximum leverage ratio. A failure to comply with these restrictions could lead to an event of default, which could result in an acceleration of any outstanding indebtedness and/or prohibit us from drawing on the revolving credit facility. Such an acceleration may also constitute an event of default under the senior notes indenture. At December 31, 2014, we were in compliance with these covenants.

At December 31, 2014, we have $1,646.9 million of fixed-rate senior notes and $708.5 million of variable-rate term loans outstanding. At December 31, 2014, the fair value of our fixed-rate debt was estimated to be $1,707.5 million. The difference between the book value and fair value is due to the difference between the period-end market interest rate and the stated rate of our fixed-rate debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 2 inputs), discussed further in Note 2, Summary of Significant Accounting Policies. The fair value of our variable-rate term debt approximates the carrying amount as our cost of borrowing is variable and approximates current market rates.

Repayments, Interest, and Other

In 2014, we used the proceeds of our $400.0 million of 3.65% fixed-rate senior notes offering and other cash from operations to repay $591.5 million of debt outstanding under the Five-Year and Seven-Year Term Loans.

On December 23, 2013, we repaid in full the $109.0 million that was outstanding under, and terminated, the receivables credit facility that was scheduled to terminate on October 11, 2014.

In October 2013, we used debt and cash on hand to finance the acquisition of Boise, repay $953.6 million of indebtedness, which included $829.8 million of acquired Boise debt, and for general corporate purposes.

On July 26, 2012, we used the proceeds of our $400.0 million of 3.90% senior notes offering issued June 26, 2012, and cash on hand to redeem our 5.75% notes for $432.5 million, which included a redemption premium of $21.3 million and $11.2 million of accrued and unpaid interest.

As of December 31, 2014, annual principal maturities for debt, excluding unamortized debt discount, are: $6.5 million each year for 2015, 2016, and 2017; $221.5 million for 2018; $6.5 million for 2019; and $2.1 billion for 2020 and thereafter.

At both December 31, 2014 and 2013, the reference interest rate (LIBOR) of our variable rate debt for both our Five-Year Term Loan, due October 2018, and Seven-Year Term Loan, due October 2020, was 0.17%. The applicable margin of our variable rate debt at both December 31, 2014 and 2013, for our Five-Year Term Loan, due October 2018, and Seven-Year Term Loan, due October 2020, was 1.375% and 1.625%, respectively.

Interest payments and redemption premium payments paid in connection with the Company’s debt obligations for the years ended December 31, 2014, 2013, and 2012, were $77.0 million, $105.7 million (including a $54.8 million redemption premium related to the acquired Boise Inc. debt), and $66.3 million (including a $21.3 million redemption premium), respectively.

Included in interest expense, net, are amortization of financing costs and amortization of treasury lock settlements. Amortization of treasury lock settlements was a $5.7 million net loss for both the years ended December 31, 2014 and 2013, and a $3.0 million net loss for the year ended December 31, 2012. Amortization of financing costs for the years ended December 31, 2014, 2013, and 2012, was $3.3 million (including $1.5 million of deferred financing costs), $10.3 million (including $8.2 million for acquisition-related financing fees), and $1.1 million, respectively.

11. Employee Benefit Plans and Other Postretirement Benefits

PCA has defined pension benefit plans for both salaried and hourly employees. The plans covering salaried employees are closed to new entrants with only certain current active participants still accruing benefits. The plans covering certain hourly employees are closed to new participants. We also have a Supplemental Executive Retirement Plan (SERP) and other nonqualified defined benefit pension plans that provide unfunded supplemental retirement benefits to certain of our executives and former executives. The SERP provides for incremental pension benefits in excess of those offered in our principal pension plans.

Other Postretirement Benefits

PCA provides postretirement medical benefits for certain salaried employees and postretirement medical and life insurance benefits for certain hourly employees. For salaried employees, the plan covers employees retiring from PCA on or after attaining age 58 who have had at least 10 years of full-time service with PCA after attaining age 48. For hourly employees, the postretirement medical and life insurance coverage, where applicable, is available according to the eligibility provisions contained in the applicable collective bargaining agreement in effect at the employee’s work location.

Obligations and Funded Status of Defined Benefit Pension and Other Postretirement Benefits Plans

The funded status of PCA's plans change from year to year based on the plan asset investment return, contributions, benefit payments, the discount rate used to measure the liability, and expected participant longevity. The following table, which includes only company-sponsored defined benefit and other postretirement benefit plans, reconciles the beginning and ending balances of the projected benefit obligation and the fair value of plan assets. We recognize the unfunded status of these plans on the Consolidated Balance Sheets, and we recognize changes in funded status in the year changes occur through the Consolidated Statements of Comprehensive Income (dollars in millions):

	Pension Plans								Postretirement Plans
	Year Ended December 31								Year Ended December 31
	2014				2013				2014				2013
Change in Benefit Obligation
Benefit obligation at beginning of period	$	929.8			$	378.7			$	26.3			$	31.8
Service cost	22.7				24.5				1.6				2.1
Interest cost	45.9				21.5				1.2				1.3
Plan amendments (a)	2.6				13.8				—				—
Actuarial (gain) loss (b)	159.2				(53.5		)		4.1				(7.8		)
Acquisitions	—				554.0				—				0.2
Special termination benefits	0.3				—				—				—
Participant contributions	—				—				1.2				1.2
Benefits paid	(30.9		)		(9.2		)		(2.5		)		(2.5		)
Benefit obligation at plan year end	$	1,129.6			$	929.8			$	31.9			$	26.3
Accumulated benefit obligation portion of above	$	1,078.6			$	884.0
Change in Fair Value of Plan Assets
Plan assets at fair value at beginning of period	$	772.1			$	238.4			$	—			$	—
Acquisitions	—				486.2				—				—
Actual return on plan assets	63.4				26.6				—				—
Company contributions	1.3				30.1				1.3				1.3
Participant contributions	—				—				1.2				1.2
Benefits paid	(30.9		)		(9.2		)		(2.5		)		(2.5		)
Fair value of plan assets at plan year end	$	805.9			$	772.1			$	—			$	—
Underfunded status	$	(323.7	)		$	(157.7	)		$	(31.9	)		$	(26.3	)
Amounts Recognized on Consolidated Balance Sheets
Current liabilities	$	(1.1	)		$	(0.8	)		$	(1.4	)		$	(1.2	)
Noncurrent liabilities	(322.6		)		(156.9		)		(30.5		)		(25.1		)
Accrued obligation recognized at December 31	$	(323.7	)		$	(157.7	)		$	(31.9	)		$	(26.3	)
Amounts Recognized in Accumulated Other Comprehensive (Income) Loss (Pre-Tax)
Prior service cost	$	27.6			$	31.6			$	0.3			$	0.1
Actuarial loss	172.6				26.7				5.5				1.4
Total	$	200.2			$	58.3			$	5.8			$	1.5

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(a)	In 2013, the United Steel Workers (USW) ratified a master labor agreement with PCA under which certain USW-represented employees will have their pension accruals frozen under PCA's hourly pension plan, resulting in most of the $13.8 million increase in benefit obligations.

(b)	The actuarial loss in 2014 is due primarily to a decrease in the weighted average discount rate and also our use of recently updated mortality assumptions from the Society of Actuaries which reflect longer expected participant longevity. In 2013, the discount rate increased resulting in an actuarial gain.

Components of Net Periodic Benefit Cost and Other Comprehensive (Income) Loss

The components of net periodic benefit cost and other comprehensive (income) loss (pretax) were as follows (dollars in millions):

	Pension Plans												Postretirement Plans
	Year Ended December 31												Year Ended December 31
	2014				2013				2012				2014				2013				2012
Service cost	$	22.7			$	24.5			$	22.4			$	1.6			$	2.1			$	1.9
Interest cost	45.9				21.5				14.8				1.2				1.3				1.2
Expected return on plan assets	(50.7		)		(21.4		)		(12.1		)		—				—				—
Special termination benefits	0.3				—				—				—				—				—
Net amortization of unrecognized amounts
Prior service cost	6.5				6.2				6.0				(0.2		)		(0.4		)		(0.4		)
Actuarial loss	0.6				4.7				4.9				0.1				0.5				0.5
Curtailment loss (a)	—				10.9				—				—				—				—
Net periodic benefit cost	$	25.3			$	46.4			$	36.0			$	2.7			$	3.5			$	3.2
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
Actuarial net (gain) loss	$	146.4			$	(58.7	)		$	19.9			$	4.2			$	(7.8	)		$	1.7
Prior service cost	2.6				13.8				2.3				—				—				—
Amortization of prior service cost	(6.5		)		(6.2		)		(6.0		)		0.2				0.4				0.4
Amortization of actuarial loss	(0.6		)		(4.7		)		(4.9		)		(0.1		)		(0.5		)		(0.5		)
Curtailment loss (a)	—				(10.9		)		—				—				—				—
Total recognized in other comprehensive (income) loss (b)	141.9				(66.7		)		11.3				4.3				(7.9		)		1.6
Total recognized in net periodic benefit cost and other comprehensive (income) loss - pretax	$	167.2			$	(20.3	)		$	47.3			$	7.0			$	(4.4	)		$	4.8

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(a)	We recognized curtailment losses in "Other expense, net" in the Consolidated Statements of Income for recent USW negotiations, resulting in the bifurcation of the active USW population between those grandfathered in the current formula (with continued accruals) and non-grandfathered in the current formula (frozen benefits at the contract date).

(b)

Accumulated losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets will be recognized on a straight-line basis over the average remaining service period of active employees, which is between seven to ten years, to the extent that losses are not offset by gains in subsequent years. The estimated net loss and prior service cost that will be amortized from "Accumulated other comprehensive loss" into pension expense in 2015 is $14.0 million.

The accumulated benefit obligations for the plans with obligations in excess of plan assets, is $1.08 billion.

Assumptions

The following table presents the assumptions used in the measurement of our benefits obligations:

	Pension Plans						Postretirement Plans
	December 31						December 31
	2014		2013		2012		2014		2013		2012
Weighted-Average Assumptions Used to Determine Benefit Obligations at December 31
Discount rate	4.14%		5.00%		4.25%		3.95%		4.85%		4.00%
Rate of compensation increase	4.00%		4.00%		4.00%		N/A		N/A		N/A
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for the Years Ended December 31
Discount rate	5.00%		4.57%		4.75%		4.85%		4.00%		4.50%
Expected return on plan assets	6.69%		6.53%		6.15%		N/A		N/A		N/A
Rate of compensation increase	4.00%		4.00%		4.00%		N/A		N/A		N/A

Discount Rate Assumption. The discount rate reflects the current rate at which the pension obligations could be settled on the measurement date: December 31. The discount rate assumption used to calculate the present value of pension and postretirement benefit obligations reflects the rates available on high-quality, fixed-income debt instruments on December 31. In all periods, the bonds included in the models reflect anticipated investments that would be made to match the expected monthly benefit payments over time. The plans' projected cash flows were duration-matched to these models to develop an appropriate discount rate. The discount rate PCA will use in 2015 to calculate the net periodic pension benefit and postretirement benefit cost is 4.14% and 3.95%, respectively.

Asset Return Assumption. The expected return on plan assets reflects the expected long-term rates of return for the categories of investments currently held in the plans as well as anticipated returns for additional contributions made in the future. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns on the plan investments. The weighted-average expected return on plan assets we will use in our calculation of 2015 net periodic pension benefit cost is 6.73%.

Rate of Compensation Increase. The rate of compensation increase is determined by PCA based upon annual reviews. The compensation increase assumption is not applicable for all plans as many of our pension plans are frozen and not accruing benefits.

Health Care Cost Trend Rate Assumptions. PCA assumed health care cost trend rates for its postretirement benefits plans were as follows:

	2014		2013		2012
Health care cost trend rate assumed for next year	7.75%		7.75%		8.00%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.00%		5.00%		5.00%
Year that the rate reaches the ultimate trend rate	2023		2020		2020

Postretirement Health Care Plan Assumptions. For postretirement health care plan accounting, PCA reviews external data and its own historical trends for health care costs to determine the health care cost trend rate assumption.

A one-percentage point change in assumed health care cost trend rates would have the following effects on the 2014 postretirement benefit obligation and the 2014 net post retirement benefit cost (in millions):

	1-Percentage Point Increase				1-Percentage Point Decrease
Effect on postretirement benefit obligation	$	1.3			$	(1.1	)
Effect on net postretirement benefit cost	0.1				(0.1		)

Investment Policies and Strategies

PCA has retained the services of professional advisors to oversee pension investments and provide recommendations regarding investment strategy. PCA’s overall strategy and related apportionments between equity and debt securities may change from time to time based on market conditions, external economic factors, and the funded status of the plans. The general investment objective for all of our plan assets is to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses to enable the plans to satisfy their benefit payment obligations over time. The objectives take into account the long-term nature of the benefit obligations, the liquidity needs of the plans, and the expected risk/return trade-offs of the asset classes in which the plans may choose to invest. Pension plans’ assets were invested in the following classes of securities at December 31, 2014 and 2013:

	Percentage of Fair Value
	2014			2013
Debt securities	54	%		52	%
International equity securities	23			25
U.S. equity securities	20			21
Real estate securities	1			1
Other	2			1

At December 31, 2014, the targeted investment allocations differed between the acquired Boise plans and PCA's historical plans based on funded status. At December 31, 2014, PCA's historical plans, which comprised $285.9 million of the fair value of plan assets, targeted 34% invested in equities, 62% invested in bonds, and 4% in other, whereas the Boise plans, which comprised $520.1 million of the total fair value of plan assets, targeted 50% in equities and 50% in bonds. Our retirement committee reviews the investment allocations for reasonableness at a minimum, semi-annually.

Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk, all of which are subject to change. Due to the level of risk associated with some investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term, and such changes could materially affect the reported amounts.

Fair Value Measurements of Plan Assets

The following tables set forth, by level within the fair value hierarchy, discussed in Note 2, Summary of Significant Accounting Policies, the pension plan assets, by major asset category, at fair value at December 31, 2014 and 2013 (dollars in millions):

	Fair Value Measurements at December 31, 2014
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Short-term investments (a)	$	—			$	1.8			$	—			$	1.8
Mutual funds (b):
U.S. large value	14.8				—				—				14.8
U.S. large growth	11.6				—				—				11.6
U.S. mid-cap value	3.0				—				—				3.0
U.S. mid-cap growth	8.8				—				—				8.8
Foreign large blend	41.9				—				—				41.9
Diversified emerging markets	8.0				—				—				8.0
Real estate	8.9				—				—				8.9
Fixed income	178.2				—				—				178.2
Common/collective trust funds (a):
U.S. large-cap equity blend	—				92.9				—				92.9
U.S. small and mid-cap equity blend	—				20.5				—				20.5
Foreign large blend	—				128.4				—				128.4
Diversified emerging markets	—				9.4				—				9.4
U.S. small blend	—				8.9				—				8.9
Fixed income	—				259.3				—				259.3
Private equity securities (c)	—				—				8.1				8.1
Total securities at fair value	$	275.2			$	521.2			$	8.1			$	804.5
Receivables and accrued expenses													1.4
Total fair value of plan assets													$	805.9

	Fair Value Measurements at December 31, 2013
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Short-term investments (a)	$	—			$	1.9			$	—			$	1.9
Mutual funds (b):
U.S. large value	19.4				—				—				19.4
U.S. large growth	17.2				—				—				17.2
U.S. mid-cap value	3.1				—				—				3.1
U.S. mid-cap growth	6.8				—				—				6.8
Foreign large blend	45.2				—				—				45.2
Diversified emerging markets	8.0				—				—				8.0
Real estate	7.5				—				—				7.5
Fixed income	54.4				—				—				54.4
Common/collective trust funds (a):
U.S. large-cap equity blend	—				87.9				—				87.9
U.S. small and mid-cap equity blend	—				19.6				—				19.6
Foreign large blend	—				126.6				—				126.6
Diversified emerging markets	—				9.2				—				9.2
Government bonds	—				35.6				—				35.6
Corporate bonds	—				77.2				—				77.2
U.S. small blend	—				6.8				—				6.8
Fixed income	—				234.4				—				234.4
Private equity securities (c)	—				—				9.9				9.9
Total securities at fair value	$	161.6			$	599.2			$	9.9			$	770.7
Receivables and accrued expenses													1.4
Total fair value of plan assets													$	772.1

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(a)

Investments in common/collective trust funds valued using net asset values (NAV) provided by the administrator of the funds. We use NAV as a practical expedient to fair value. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of units outstanding. While the underlying assets are actively traded on an exchange, the funds are not. There are currently no redemption restrictions on these investments. There are certain funds with one-day redeemable notice.

(b)	Investments in mutual funds valued at quoted market values on the last business day of the fiscal year.

(c)

Investments in this category are invested in the Pantheon Global Secondary Fund IV, LP. The fund specializes in investments in the private equity secondary market and occasionally directly in private companies to maximize capital growth. Fund investments are carried at fair value as determined quarterly using the market approach to estimate the fair value of private investments. The market approach utilizes prices and other relevant information generated by market transactions, type of security, size of the position, degree of liquidity, restrictions on the disposition, latest round of financing data, current financial position, and operating results, among other factors. In circumstances where fair values are not provided with respect to any of the company's fund investments, the investment advisor will seek to determine the fair value of such investments based on information provided by the general partners or managers of such funds or from other sources. Audited financial statements are provided by fund management annually. Notwithstanding the above, the variety of valuation bases adopted and quality of management data of the ultimate underlying investee companies means that there are inherent difficulties in determining the value of the investments. Amounts realized on the sale of these investments may differ from the calculated values. Boise had originally committed to a $15.0 million investment, with $5.0 million of the commitment unfunded at December 31, 2014.

The following table sets forth a summary of changes in the fair value of the pension plans' Level 3 assets for the year ended December 31, 2014 (dollars in millions):

	2014
Balance, beginning of year	$	9.9
Acquisitions	—
Purchases	—
Sales	(3.4		)
Unrealized gain	1.6
Balance, end of year	$	8.1

Funding and Cash Flows

PCA makes pension plan contributions that are sufficient to fund its actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act (ERISA). From time to time, PCA may make discretionary contributions based on the funded status of the plans, tax deductibility, income from operations, and other factors. In 2014, we contributed $1.3 million to our plans, which exceeded our 2014 minimum required contributions, calculated under the pension provisions of the Highway and Transportation Funding Act passed in August 2014. We have no required minimum qualified pensions contributions in 2015.

The following are estimated benefit payments to be paid to current plan participants by year (dollars in millions). Qualified pension benefit payments are paid from plan assets, while nonqualified pension benefit payments are paid by the Company.

	Pension Plans				Postretirement Plans
2015	$	34.2			$	1.4
2016	37.6				1.6
2017	41.5				1.7
2018	45.2				1.9
2019	49.0				2.1
2020 - 2024	298.3				12.1

Defined Contribution Plans

Some of our employees participate in contributory defined contribution savings plans, available to most of our salaried and hourly employees. The defined contribution plans permit participants to make contributions by salary reduction pursuant to Section 401(k) of the Code. PCA made employer-matching contributions of $28.3 million, $15.0 million, and $10.8 million in 2014, 2013, and 2012, respectively. The increase in contributions in 2014, compared with 2013 and 2012, relates primarily to the additional participants added in the Boise acquisition. Company matching contributions to certain full-time salaried employees are made in company stock, through our Employee Stock Ownership Plan (ESOP). All other matching contributions are in cash. We expense employer matching contributions and charge dividends on shares held by the ESOP to retained earnings. Shares of company stock held by the ESOP are included in basic shares for earnings-per-share computations. At December 31, 2014 and 2013, the ESOP held 2.2 million and 2.1 million shares of company stock, respectively.

Certain salaried and hourly employees that are not participating in a PCA sponsored defined benefit pension plan receive a service-related company retirement contribution to their defined contribution plan account in addition to any employer matching contribution. This contribution increases with years of service and ranges from 3% to 5% of base pay. We expensed $7.4 million, $5.3 million, and $4.3 million for this retirement contribution during the years ended December 31, 2014, 2013, and 2012, respectively.

Deferred Compensation Plans

Key managers can elect to participate in a deferred compensation plan. The deferred compensation plan is unfunded; therefore, benefits are paid from our general assets. At December 31, 2014 and 2013, we had $12.4 million and $12.0 million, respectively, of liabilities attributable to participation in our deferred compensation plan on our Consolidated Balance Sheets.

12. Share-Based Compensation

The Company has a long-term equity incentive plan, which allows for grants of stock options, stock appreciation rights, restricted stock, and performance awards to directors, officers, and employees, as well as others who engage in services for PCA. The plan, as amended, terminates May 1, 2023, and authorizes 10.6 million shares of common stock for grant over the life of the plan. As of December 31, 2014, 1.9 million shares remained available for future issuance under the plan. Forfeitures are added back to the pool of shares of common stock available to be granted at a future date.

Restricted Stock

Restricted stock awards granted to officers and employees generally vest at the end of a four-year period, and restricted stock awards granted to directors vest immediately. The fair value of restricted stock is determined based on the closing price of the Company’s stock on the grant date. A summary of the Company’s restricted stock activity follows:

	2014							2013							2012
	Shares			Weighted Average Grant- Date Fair Value				Shares			Weighted Average Grant- Date Fair Value				Shares			Weighted Average Grant- Date Fair Value
Restricted stock at January 1	1,463,694			$	31.48			1,771,664			$	23.44			1,817,745			$	22.37
Granted	229,489			70.24				331,053			51.99				394,928			27.46
Vested (a)	(507,222	)		26.29				(605,458	)		19.54				(429,034	)		22.66
Forfeitures	(1,662	)		61.05				(33,565	)		24.76				(11,975	)		21.46
Restricted stock at December 31	1,184,299			$	41.71			1,463,694			$	31.48			1,771,664			$	23.44

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(a)	The total fair value of awards upon vesting for the years ended December 31, 2014, 2013, and 2012, was $36.4 million, $29.5 million, and $12.4 million, respectively.

Performance Units

In 2014 and 2013, we granted performance award units to certain key employees. The awards vest four years after the grant date based on the achievement of defined performance rankings compared to a peer group. The performance units are paid out entirely in shares of the Company’s common stock. The awards are valued at the closing price of the Company’s stock on the grant date and expensed over the requisite service period based on the most probable number of awards expected to vest.

	2014							2013
	Shares			Weighted Average Grant- Date Fair Value				Shares			Weighted Average Grant- Date Fair Value
Performance units at January 1	70,600			$	47.83			—			$	—
Granted	56,889			71.19				70,600			47.83
Vested	—			—				—			—
Forfeitures	—			—				—			—
Performance units at December 31	127,489			$	58.25			70,600			$	47.83

Compensation Expense

Our share-based compensation expense is recorded in "Selling, general, and administrative expenses." Compensation expense for share-based awards recognized in the Consolidated Statements of Income, net of forfeitures was as follows (dollars in millions):

	Year Ended December 31
	2014				2013				2012
Restricted stock	$	13.8			$	14.3			$	11.7
Performance units	1.8				0.5				—
Impact on income before income taxes	15.6				14.8				11.7
Income tax benefit	(6.1		)		(5.8		)		(4.6		)
Impact on net income	$	9.5			$	9.0			$	7.1

The fair value of restricted stock and performance units is determined based on the closing price of the Company’s common stock on the grant date. As PCA’s Board of Directors has the ability to accelerate vesting of share-based awards upon an employee’s retirement, the Company accelerates the recognition of compensation expense for certain employees approaching normal retirement age.

The unrecognized compensation expense for all share-based awards was as follows (dollars in millions):

	December 31, 2014
	Unrecognized Compensation Expense				Remaining Weighted Average Recognition Period (in years)
Restricted stock	$	27.3			2.5
Performance units	5.5				3.1
Total unrecognized share-based compensation expense	$	32.8			2.6

We evaluate share-based compensation expense on a quarterly basis based on our estimate of expected forfeitures, review of recent forfeiture activity, and expected future turnover. We recognize the effect of adjusting the forfeiture rate for all expense amortization in the period that we change the forfeiture estimate. The effect of forfeiture adjustments was insignificant in all periods presented.

13. Derivative Instruments and Hedging Activities

Hedging Strategy

When appropriate, we use derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary risks managed by using derivative financial instruments are interest rate and foreign currency exchange rate risks. We do not enter into derivative financial instruments for trading or speculative purposes.

Interest Rate Risk

The Company has used treasury lock derivative instruments to manage interest costs and the risk associated with changing interest rates. In connection with contemplated issuances of ten-year debt securities, PCA entered into interest rate protection agreements with counterparties in 2003, 2008, 2010, and 2011 to protect against increases in the ten-year U.S. Treasury Note rate. These treasury rates served as references in determining the interest rates applicable to the debt securities the Company issued in July 2003, March 2008, February 2011, and June 2012. As a result of changes in the interest rates on those treasury securities between the time PCA entered into the derivative agreements and the time PCA priced and issued the debt securities, the Company: (1) received a payment of $22.8 million from the counterparty upon settlement of the 2003 interest rate protection agreement on July 21, 2003; (2) made a payment of $4.4 million to the counterparty upon settlement of the 2008 interest rate protection agreement on March 25, 2008; (3) received a payment of $9.9 million from the counterparties upon settlement of the 2010 interest rate protection agreements on February 4, 2011; and (4) made a payment of $65.5 million to the counterparty upon settlement of the 2011 interest rate protection agreement on June 26, 2012. The

Company recorded the effective portion of the settlements in AOCI, and these amounts are being amortized over the terms of the respective notes.

During the second quarter of 2012, the Company recorded a charge of $3.4 million in interest expense as hedge ineffectiveness due to settling the 2011 interest rate protection agreement prior to its maturity of December 31, 2012. The Company calculated the ineffective portion of the hedge utilizing the hypothetical derivative method. Additionally, during the third quarter of 2012, the Company recorded a $2.2 million settlement gain in interest expense from the 2003 interest rate protection agreement that was written off due to the redemption of the 5.75% notes on July 26, 2012.

Foreign Currency Exchange Rate Risk

In connection with the energy optimization projects at its Valdosta, Georgia mill and Counce, Tennessee mill, the Company entered into foreign currency forward contracts in 2009 and 2010 to hedge its exposure to forecasted purchases of machinery and equipment denominated in foreign currencies. The foreign currency forward contracts were properly documented and designated as cash flow hedges at inception. By the end of 2011, all contracts had been settled for a loss of $0.7 million. The loss was recorded in accumulated OCI and is being amortized into cost of sales over the lives of the respective machinery and equipment.

Derivative Instruments

The impact of derivative instruments on the consolidated statements of income and accumulated OCI was as follows (dollars in millions):

	Net Loss Recognized in Accumulated OCI (Effective Portion) December 31
	2014				2013
Treasury locks, net of tax	$	(24.7	)		$	(28.2	)
Foreign currency exchange contracts, net of tax	(0.4		)		(0.4		)
Total	$	(25.1	)		$	(28.6	)

	Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Year Ended December 31
Location	2014				2013				2012
Amortization of treasury locks (included in interest expense, net)	$	(5.7	)		$	(5.7	)		$	0.4

The net amount of settlement gains or losses on derivative instruments included in accumulated OCI to be amortized over the next 12 months is a net loss of $5.7 million ($3.4 million after-tax).

14. Stockholders' Equity

Dividends

During the year ended December 31, 2014, we paid $157.4 million of dividends to shareholders. On December 9, 2014, PCA's Board of Directors approved a regular quarterly cash dividend $0.40 per share, which was paid on January 15, 2015, to shareholders of record as of December 19, 2014. The dividend payment was $39.4 million.

On February 26, 2015, PCA announced an increase of its quarterly cash dividend on its common stock from an annual payout of $1.60 per share to an annual payout of $2.20 per share. The first quarterly dividend of $0.55 per share will be paid on April 15, 2015 to shareholders of record as of March 13, 2015.

Share Repurchase Program

In 2013 and 2012, we repurchased the following shares of common stock. In both years, all of the shares purchased were retired. No shares were repurchased in 2014. Share repurchase activity follows (in millions, except share and per share amounts).

	Shares			Weighted Average Price Per Share				Total
2012	1,507,659			$	29.96			$	45.2
2013	171,263			45.54				7.8

At December 31, 2014, $98.1 million of the $150.0 million authorization by the Board of Directors remained available for repurchase of the Company's common stock.

Accumulated Other Comprehensive Income (Loss)

Changes in AOCI by component follows (dollars in millions). Amounts in parentheses indicate losses.

	Foreign Currency Translation Adjustments				Unrealized Loss On Treasury Locks, Net				Unrealized Loss on Foreign Exchange Contracts				Unfunded Employee Benefit Obligations				Total
Balance at December 31, 2013	$	(0.1	)		$	(28.2	)		$	(0.4	)		$	(36.3	)		$	(65.0	)
Other comprehensive income (loss) before reclassifications, net of tax	(2.6		)		—				—				(94.0		)		(96.6		)
Amounts reclassified from AOCI, net of tax	—				3.5				—				4.2				7.7
Net current-period other comprehensive income (loss)	(2.6		)		3.5				—				(89.8		)		(88.9		)
Balance at December 31, 2014	$	(2.7	)		$	(24.7	)		$	(0.4	)		$	(126.1	)		$	(153.9	)

The following table presents information about reclassifications out of AOCI (dollars in millions). Amounts in parentheses indicate expenses in the Consolidated Statements of Income.

		Amounts Reclassified from AOCI Year Ended December 31
Details about AOCI Components		2014				2013				Affected Line Item in the Statement Where Net Income is Presented
Unrealized loss on treasury locks, net		$	(5.7	)		$	(5.7	)		See (a) below
		2.2				2.2				Tax benefit
		$	(3.5	)		$	(3.5	)		Net of tax
Unfunded employee benefit obligations
Amortization of prior service costs		$	(6.3	)		$	(5.8	)		See (b) below
Amortization of actuarial gains / (losses)		(0.7		)		(5.2		)		See (b) below
Curtailment loss		—				(10.9		)		See (b) below
		(7.0		)		(21.9		)		Total before tax
		2.8				8.5				Tax benefit
		$	(4.2	)		$	(13.4	)		Net of tax

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(a)

This AOCI component is included in interest expense, net. Amount relates to the amortization of the effective portion of treasury lock derivative instruments recorded in AOCI. The net amount of settlement gains or losses on derivative instruments included in AOCI to be amortized over the next 12 months is a net loss of $5.7 million ($3.4 million after-tax). For a discussion of treasury lock derivative instrument activity, see Note 13, Derivative Instruments and Hedging Activities, for additional information.

(b)	These AOCI components are included in the computation of net pension and postretirement benefit costs. See Note 11, Employee Benefit Plans and Other Postretirement Benefits, for additional information.

15. Concentrations of Risk

Our Paper segment has had a long-standing commercial and contractual relationship with OfficeMax Incorporated (OfficeMax), and OfficeMax is our largest customer in the paper business. OfficeMax was acquired by Office Depot, Inc. late in 2013. Office Depot has since agreed to be acquired by Staples, Inc. on February 4, 2015. The pending acquisition by Staples is subject to the satisfaction of certain conditions. This relationship exposes us to a significant concentration of business and financial risk. Our sales to Office Depot (including OfficeMax) represented 9% and 2% of our total company sales, for 2014 and for the period of October 25, 2013, through December 31, 2014, respectively, and 44% and 38% of our Paper segment sales revenue for those periods, respectively. At December 31, 2014 and 2013, we had $52.6 million and $39.2 million of accounts receivable due from Office Depot (including OfficeMax), which represents 8% and 6% of our total company receivables, respectively.

Our agreement with OfficeMax will continue to remain in effect after a merger or acquisition as to the office paper requirements of the legacy OfficeMax business. However, we cannot predict how any merger or acquisition will affect the financial condition of the ultimate entity, the paper requirements of the legacy Office Max business, the purchasing decisions of the ultimate entity or the effects on pricing or competition for office papers. In 2014, sales to Office Depot (including Office Max) represented 44% of our Paper segment sales. If these sales are reduced, whether as a result of the pending integration of Office Max into Office Depot, the future acquisition of Office Depot by Staples or otherwise, we would need to find new customers, which could harm our profitability if our prices are lower or costs are higher. Any significant deterioration in the financial condition of the ultimate entity affecting its ability to pay or any other change that results in its willingness to purchase our products will harm our business and results of operations.

Labor

At December 31, 2014, we had approximately 14,000 employees and approximately 50% of these employees worked pursuant to collective bargaining agreements. Approximately 75% of our hourly employees are represented by unions. The majority of our unionized employees are represented by the United Steel Workers (USW), the International Brotherhood of Teamsters (IBT), the International Association of Machinists (IAM), and the Association of Western Pulp and Paper Workers (AWPPW). Approximately 16% of our employees work pursuant to collective bargaining agreements that will expire within the next twelve months.

16. Transactions With Related Parties

Louisiana Timber Procurement Company, L.L.C. (LTP) is a variable-interest entity that is 50% owned by PCA and 50% owned by Boise Cascade Company (Boise Cascade). LTP procures sawtimber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of PCA and Boise Cascade in Louisiana. PCA is the primary beneficiary of LTP, and has the power to direct the activities that most significantly affect the economic performance of LTP. Therefore, we consolidate 100% of LTP in our financial statements in our Corporate and Other segment. The carrying amounts of LTP's assets and liabilities (which relate primarily to noninventory working capital items) on our Consolidated Balance Sheets were both $5.2 million at December 31, 2014, and $5.0 million at December 31, 2013. For 2014 and for the period of October 25 to December 31, 2013, we recorded $75.8 million and $10.3 million, respectively, of LTP sales to Boise Cascade in "Net Sales" in the Consolidated Statements of Income and approximately the same amount of expenses in "Cost of Sales". The sales were at prices designed to approximate market prices.

For 2014 and for the period of October 25 to December 31, 2013, fiber purchases from related parties were $28.7 million and $3.7 million, respectively. Most of these purchases related to chip and log purchases by LTP from Boise Cascade's wood products business. These purchases are recorded in "Cost of Sales" in the Consolidated Statements of Income.

17. U.S. Treasury Grant

On April 5, 2012, PCA’s application for a U.S. Treasury Section 1603 Grant for Specified Energy property was approved for the Valdosta energy project. The Company received the grant proceeds of $57.4 million on April 11, 2012 and recorded the proceeds as a reduction to the cost of the related property, plant, and equipment. These proceeds will be amortized ratably over the estimated useful lives of the related equipment, which amounts to $3.2 million each year.

18. Segment Information

On October 25, 2013, PCA acquired Boise Inc. (Boise) for $2.1 billion, including the fair value of assumed debt. After the acquisition, we began reporting in three reportable segments: Packaging, Paper, and Corporate and Other. These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies.

Packaging. We manufacture and sell a wide variety of corrugated packaging products, including conventional shipping containers used to protect and transport manufactured goods, multi-color boxes and displays with strong visual appeal that help to merchandise the packaged product in retail locations. In addition, we are a large producer of packaging for meat, fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products.

Paper. We manufacture and sell a range of white papers, including communication papers, and pressure sensitive papers, and market pulp. Our white papers can be manufactured as either commodity papers or specialty papers with specialized or custom features, such as colors, coatings, high brightness, or recycled content. We ship to customers both directly from our mills and through distribution centers. In 2014, our sales to Office Depot (including OfficeMax), our largest paper segment customer, represented 44% of our Paper segment sales revenue.

Corporate and Other. Our Corporate and Other segment includes corporate support staff services and related assets and liabilities, and foreign exchange gains and losses. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from some of our manufacturing sites and assets related to a 50% owned variable interest entity, Louisiana Timber Procurement Company, L.L.C. (LTP), that we acquired in the acquisition of Boise. See Note 16, Transactions With Related Parties, for more information related to LTP. Sales in this segment relate primarily to LTP and our rail and truck business. We provide transportation services not only to our own facilities but also, on a limited basis, to third parties when geographic proximity and logistics are favorable. Rail cars and trucks are generally leased.

Each segments' profits and losses are measured on operating profits before interest expense and interest income. For many of these allocated expenses, the related assets and liabilities remain in the Corporate and Other segment.

Segment sales to external customers by product line were as follows (dollars in millions):

	Year Ended December 31
2014				2013				2012
Packaging sales	$	4,540.3			$	3,431.7			$	2,843.9
Paper sales
White papers	1,138.5				207.0				—
Market pulp	62.9				9.9				—
	1,201.4				216.9				—
Corporate and Other	110.9				16.7				—
	$	5,852.6			$	3,665.3			$	2,843.9

Sales to foreign unaffiliated customers during the years ended December 31, 2014, 2013, and 2012 were $378.8 million, $162.4 million, and $115.8 million, respectively. At December 31, 2014 and 2013, the net carrying value of long-lived assets held by foreign operations, all of which were in our Packaging segment, were $12.4 million and $14.0 million, respectively.

An analysis of operations by reportable segment were as follows (dollars in millions):

		Sales, net												Operating Income (Loss)				Depreciation, Amortization, and Depletion				Capital Expenditures (l)				Assets
Year Ended December 31, 2014		Trade				Inter- segment				Total
Packaging		$	4,534.5			$	5.8			$	4,540.3			$	663.2		(b)	$	323.0			$	362.1			$	4,105.3
Paper		1,201.4				—				1,201.4				135.4				50.6				51.7				968.6
Corporate and Other		116.7				144.9				261.6				(95.9		)	(c)	7.4				6.4				274.6
Intersegment eliminations		—				(150.7		)		(150.7		)		—				—				—				—
		$	5,852.6			$	—			$	5,852.6			702.7				$	381.0			$	420.2			$	5,348.5
Interest expense, net														(88.4		)	(d)
Income before taxes														$	614.3

		Sales, net												Operating Income (Loss)				Depreciation, Amortization, and Depletion				Capital Expenditures (l)				Assets
Year Ended December 31, 2013 (a)		Trade				Inter- segment				Total
Packaging		$	3,431.3			$	0.4			$	3,431.7			$	554.2		(e)	$	190.2			$	222.2			$	3,988.5
Paper		216.9				—				216.9				13.5			(f)	9.1				10.0				938.4
Corporate and Other		17.1				28.0				45.1				(85.8		)	(g)	2.5				2.2				316.9
Intersegment eliminations		—				(28.4		)		(28.4		)		—				—				—				—
		$	3,665.3			$	—			$	3,665.3			481.9				$	201.8			$	234.4			$	5,243.8
Interest expense, net														(58.3		)	(h)
Income before taxes														$	423.6

		Sales, net												Operating Income (Loss)				Depreciation, Amortization, and Depletion				Capital Expenditures (l)				Assets
Year Ended December 31, 2012		Trade				Inter- segment				Total
Packaging		$	2,843.9			$	—			$	2,843.9			$	383.9		(i)	$	169.4			$	127.8			$	2,194.5
Corporate and Other		—				—				—				53.7			(j)	1.4				0.7				300.4
		$	2,843.9			$	—			$	2,843.9			437.6				$	170.8			$	128.5			$	2,494.9
Interest expense, net														(62.9		)	(k)
Income before taxes														$	374.7

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(a)	On October 25, 2013, we acquired Boise Inc. (Boise). Our financial results include Boise subsequent to acquisition.

(b)	Includes $65.8 million of costs related primarily to the conversion of the No. 3 newsprint machine at our DeRidder, Louisiana, mill to produce lightweight linerboard and corrugating medium, and our exit from the newsprint business in September 2014. Includes $4.9 million of Boise acquisition integration-related and other costs, most of which are recorded in "Other expense, net".

(c)

Includes $13.5 million of Boise acquisition integration-related and other costs, most of which are recorded in "Other expense, net". Includes $17.6 million of costs for the settlement of the Kleen Products LLC v Packaging Corp. of America et al class action lawsuit recorded in "Other expense, net". See Note 20, Commitments, Guarantees, Indemnifications, and Legal Proceedings, for more information.

(d)	Includes $1.5 million of expense related to the write-off of deferred financing costs in connection with the debt refinancing discussed in Note 10, Debt.

(e)	Includes $18.0 million of expense for the acquisition inventory step-up and $1.4 million of integration-related and other costs incurred in connection with the acquisition of Boise in fourth quarter 2013.

(f)	Includes $3.5 million of expense for acquisition inventory step-up and $1.9 million of income for integration-related and other costs.

(g)	Includes $17.2 million of acquisition-related costs and $17.9 million of integration-related and other costs.

(h)	Includes $10.5 million of expenses for financing the acquisition and $1.1 million of expense for the write-off of deferred financing costs.

(i)	Includes $2.0 million of plant closure charges.

(j)	Includes $95.5 million of income related to the increase in gallons claimed as alternative energy tax credits on the Company's amended 2009 tax return. See Note 7, Alternative Energy Tax Credits, for more information.

(k)	Includes $24.8 million of debt refinancing charges, including a $21.3 million redemption premium, a $3.4 million charge to settle the treasury lock prior to its maturity, and $0.1 million of other items.

(l)	Includes "Additions to property, plant, and equipment" and excludes cash used for "Acquisitions of businesses, net of cash acquired" as reported on our Consolidated Statements of Cash Flows.

19. Asset Retirement Obligations

Our asset retirement obligations relate predominantly to landfill closure, wastewater treatment pond dredging, closed-site monitoring costs, and certain leasehold improvements. In accordance with ASC 410, "Asset Retirement and Environmental Obligations," we recognize the fair value of these liabilities as an asset retirement obligation and capitalize that cost as part of the cost basis of the related asset in the period in which the costs are incurred if sufficient information is available to reasonably estimate the fair value of the obligation. Fair value estimates are determined using Level 3 inputs in the fair value hierarchy. The fair value of our asset retirement obligations is measured using expected future cash outflows discounted using the company's credit-adjusted risk-free interest rate. Over time, the liability is accreted to its settlement value, and the capitalized cost is depreciated over the useful life of the related asset. These liabilities are based on the best estimate of costs and are updated periodically to reflect current technology, laws and regulations, inflation, and other economic factors. Occasionally, we become aware of events or circumstances that require us to revise our future estimated cash flows. When revisions become necessary, we recalculate our obligation and adjust our asset and liability accounts utilizing appropriate discount rates. No assets are legally restricted for purposes of settling asset retirement obligations. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.

The following table describes changes to the asset retirement obligation liability (dollars in millions):

	Year Ended December 31
	2014				2013
Asset retirement obligation at beginning of period	$	32.0			$	5.1
Acquisition	4.1				23.8
Liabilities incurred	—				3.2
Accretion expense	1.0				0.3
Payments	(0.1		)		—
Revisions in estimated cash flows	—				(0.4		)
Asset retirement obligation at end of period	$	37.0			$	32.0

We have additional asset retirement obligations with indeterminate settlement dates. The fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate the settlement dates of the obligations. These asset retirement obligations include, for example, (i) removal and disposal of potentially hazardous materials related to equipment and/or an operating facility if the equipment and/or facilities were to undergo major maintenance, renovation, or demolition and (ii) storage sites or owned facilities for which removal and/or disposal of chemicals and other related materials are required if the operating facility is closed. We will recognize a liability in the period in which sufficient information becomes available to reasonably estimate the fair value of these obligations.

20. Commitments, Guarantees, Indemnifications, and Legal Proceedings

We have financial commitments and obligations that arise in the ordinary course of our business. These include long-term debt (discussed in Note 10, Debt), capital commitments, lease obligations, purchase commitments for goods and services, and legal proceedings (discussed below).

Capital Commitments

The Company had capital commitments of approximately $94.7 million and $151.4 million as of December 31, 2014 and 2013, respectively, in connection with the expansion and replacement of existing facilities and equipment.

Lease Obligations

PCA leases space for certain of its facilities, cutting rights to approximately 88,000 acres of timberland, land for a fiber farm, and equipment, primarily vehicles and rolling stock. Remaining lease terms range from one to 15 years and may contain renewal options or escalation clauses. Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to purchase the leased property. Additionally, some agreements contain renewal options averaging approximately six years. Some leases may require the Company to pay executory costs, which may include property taxes, maintenance and insurance. The minimum lease payments under non-cancelable operating leases with lease terms in excess of one year were as follows (dollars in millions):

2015	$	58.9
2016	48.9
2017	37.8
2018	28.2
2019	21.6
Thereafter	78.9
Total	$	274.3

Total lease expense, including base rent on all leases and executory costs, such as insurance, taxes, and maintenance, for the years ended December 31, 2014, 2013, and 2012, was $85.6 million, $56.0 million and $49.4 million, respectively. These costs are included in "Cost of sales" and "Selling, general, and administrative expenses" in our Consolidated Statements of Income. We had an insignificant amount of sublease rental income in the periods presented.

PCA was obligated under capital leases covering buildings and machinery and equipment in the amount of $23.9 million and $24.9 million at December 31, 2014 and 2013, respectively. Assets held under capital lease obligations were included in property, plant, and equipment as follows (dollars in millions):

	Year Ended December 31
	2014				2013
Buildings	$	0.3			$	0.3
Machinery and equipment	28.5				28.5
Total	28.8				28.8
Less accumulated amortization	(10.5		)		(8.7		)
Total	$	18.3			$	20.1

Amortization of assets under capital lease obligations is included in depreciation expense.

The future minimum payments under capitalized leases at December 31, 2014 were as follows (dollars in millions):

2015	$	2.7
2016	2.7
2017	2.7
2018	2.7
2019	2.7
Thereafter	23.0
Total minimum capital lease payments	36.5
Less amounts representing interest	(12.6		)
Present value of net minimum capital lease payments	23.9
Less current maturities of capital lease obligations	(1.1		)
Total long-term capital lease obligations	$	22.8

Interest expense related to capital lease obligations was $1.6 million during the year ended December 31, 2014, and $1.7 million during both the years ended December 31, 2013 and 2012.

Purchase Commitments

In the table below, we set forth our enforceable and legally binding purchase obligations as of December 31, 2014. Some of the amounts included in the table are based on management's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table. Purchase orders made in the ordinary course of business are excluded from the table below. Any amounts for which we are liable under purchase orders are reflected on the Consolidated Balance Sheets as accounts payable and accrued liabilities. These obligations relate to various purchase agreements for items such as minimum amounts of fiber and energy purchases over periods ranging from one year to 20 years. Total purchase commitments were as follows (dollars in millions):

2015	$	86.8
2016	21.4
2017	8.6
2018	8.0
2019	8.0
Thereafter	9.4
Total	$	142.2

The Company purchased a total of $265.9 million, $61.7 million, and $27.7 million during the years ended December 31, 2014, 2013, and 2012, respectively, under these purchase agreements. The increase in purchases under these agreements in 2014, compared with 2013, relates to the acquisition of Boise in fourth quarter 2013.

Environmental Liabilities

The potential costs for various environmental matters are uncertain due to such factors as the unknown magnitude of possible cleanup costs, the complexity and evolving nature of governmental laws and regulations and their interpretations, and the timing, varying costs and effectiveness of alternative cleanup technologies. From 1994 through 2014, remediation costs at the Company’s mills and corrugated plants totaled approximately $3.2 million. At December 31, 2014, the Company had $35.4 million of environmental-related reserves recorded on its Consolidated Balance Sheet. Of the $35.4 million, approximately $26.9 million related to environmental-related asset retirement obligations discussed in Note 19, Asset Retirement Obligations, and $8.5 million related to our estimate of other environmental contingencies. The Company recorded $7.1 million in "Accrued liabilities" and $28.3 million in "Other long-term liabilities" on the Consolidated Balance Sheet. Liabilities recorded for environmental contingencies are estimates of the probable costs based upon available information and assumptions. Because of these uncertainties, PCA’s estimates may change. The Company believes that it is not reasonably possible that future environmental expenditures for remediation costs and asset retirement obligations above the $35.4 million accrued as of December 31, 2014, will have a material impact on its financial condition, results of operations, or cash flows.

Guarantees and Indemnifications

We provide guarantees, indemnifications, and other assurances to third parties in the normal course of our business. These include tort indemnifications, environmental assurances, and representations and warranties in commercial agreements. At December 31, 2014, we are not aware of any material liabilities arising from any guarantee, indemnification, or financial assurance we have provided. If we determined such a liability was probable and subject to reasonable determination, we would accrue for it at that time.

Legal proceedings

During 2010, PCA and eight other U.S. and Canadian containerboard producers were named as defendants in five purported class action lawsuits filed in the United States District Court for the Northern District of Illinois, alleging violations of the Sherman Act. The lawsuits were consolidated in a single complaint under the caption Kleen Products LLC v Packaging Corp. of America et al. The consolidated complaint alleges that the defendants conspired to limit the supply of containerboard, and that the purpose and effect of the alleged conspiracy was to artificially increase prices of containerboard products during

the period of August 2005 to October 2010 (the time of filing of the complaint). The complaint was filed as a class action suit on behalf of all purchasers of containerboard products during such period. On April 4, 2014, we reached an agreement with the representatives of the class to settle this lawsuit for $17.6 million. These costs were recorded in "Other expense, net" in our Consolidated Statements of Income for the year ended December 31, 2014. On May 6, 2014, the court preliminarily approved the settlement. Notice of the proposed settlement was mailed to potential class members and $17.6 million was paid to the settlement fund escrow account in June 2014. The court granted final approval of the settlement on September 4, 2014.

We are also a party to other legal actions arising in the ordinary course of our business. These legal actions include commercial liability claims, premises liability claims, and employment-related claims, among others. As of the date of this filing, we believe it is not reasonably possible that any of the legal actions against us will, either individually or in the aggregate, have a material adverse effect on our financial condition, results of operations, or cash flows.

21.	Quarterly Results of Operations (unaudited, dollars in millions, except per-share and stock price information)

	Quarter
2014:	First (a)				Second (b)				Third (c)				Fourth (d)				Total
Net sales	$	1,431.3			$	1,468.4			$	1,518.9			$	1,434.0			$	5,852.6
Gross profit	301.4				310.8				320.3				297.0				1,229.5
Income from operations	160.9				180.2				188.4				173.2				702.7
Net income	90.1				99.6				104.4				98.5				392.6
Basic earnings per share	0.92				1.01				1.06				1.00				3.99
Diluted earnings per share	0.92				1.01				1.06				1.00				3.99
Stock price - high	75.10				72.74				72.82				80.14				80.14
Stock price - low	61.35				65.00				63.11				57.06				57.06
	Quarter
2013:	First				Second (e)				Third (f)				Fourth (g)				Total
Net sales	$	755.2			$	800.2			$	845.5			$	1,264.4			$	3,665.3
Gross profit	185.2				195.3				227.6				259.4				867.5
Income from operations	106.0				110.2				142.8				122.9				481.9
Net income	62.3				66.2				84.7				228.1				441.3
Basic earnings per share	0.65				0.69				0.88				2.36				4.57
Diluted earnings per share	0.64				0.68				0.87				2.34				4.52
Stock price - high	44.93				50.78				61.32				64.39				64.39
Stock price - low	37.86				42.36				48.45				55.66				37.86

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Note: The sum of the quarters may not equal the total of the respective year’s earnings per share on either a basic or diluted basis due to changes in the weighted average shares outstanding throughout the year.

(a)	Includes $17.6 million of costs accrued for the settlement of the Kleen Products LLC v Packaging Corp. of America et al class action lawsuit ($11.2 million after-tax or $0.11 per diluted share), $4.1 million of integration-related costs ($2.6 million after-tax or $0.03 per diluted share), and $4.0 million of DeRidder restructuring charges ($2.6 million after-tax or $0.02 per diluted share).

(b)	Includes $17.8 million of DeRidder restructuring charges ($11.2 million after-tax or $0.12 per diluted share) and $4.9 million of integration-related and other costs ($3.0 million after-tax or $0.03 per diluted share).

(c)	Includes $26.0 million of DeRidder restructuring charges ($16.6 million after-tax or $0.17 per diluted share) and $4.5 million of integration-related and other costs ($2.9 million after-tax or $0.03 per diluted share).

(d)	Includes $18.0 million of DeRidder restructuring charges ($11.7 million after-tax or $0.12 per diluted share) and $6.4 million of integration-related and other costs ($4.2 million after-tax or $0.04 per diluted share).

(e)	Includes a $7.8 million non-cash pension curtailment charge ($5.0 million after-tax or $0.05 per diluted share).

(f)	Includes a $3.1 million non-cash pension curtailment charge ($2.0 million after-tax or $0.02 per diluted share), $1.5 million of acquisition-related costs ($1.0 million after-tax or $0.01 per diluted share), and $2.7 million of acquisition-related financing costs ($1.8 million after-tax or $0.02 per diluted share).

(g)

Includes Boise's results for the period of October 25, 2013, through December 31, 2013. The quarter also includes $166.0 million of income tax benefits from the reversal of the reserves for unrecognized tax benefits from alternative energy tax credits ($1.70 per diluted share), partially offset by $21.5 million of expense for the acquisition inventory step-up ($13.6 million after-tax or $0.14 per diluted share), $15.8 million of acquisition-related costs ($10.0 million after-tax or $0.10 per diluted share), $8.9 million of acquisition-related financing costs ($5.6 million after-tax or $0.06 per diluted share), and $17.4 million of integration-related and other costs ($11.0 million after-tax or $0.11 per diluted share).