Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of historical results of operations and financial condition should be read in conjunction with the audited financial statements and the notes thereto which appear elsewhere in this Form 10-K. This discussion includes forward-looking statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other nonhistorical statements in the discussion, are forward-looking. See our discussion regarding forward-looking statements included under "Part I, Item 1A. Risk Factors" of this Form 10-K.

Overview

PCA is the fourth largest producer of containerboard and corrugated packaging products in the United States and the third largest producer of uncoated freesheet paper in North America, based on production capacity. We operate five containerboard mills, three paper mills, and 93 corrugated products manufacturing plants. Our corrugated products manufacturing plants produce 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, and honeycomb protective packaging. In addition, we are a large producer of packaging for meat, fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. We also manufacture and sell white papers, including both commodity and specialty papers, which may have custom or specialized features such as colors, coatings, high brightness, and recycled content. We operate primarily in the United States and have some converting and distribution operations in Canada.

Executive Summary

In 2015, we reported $436.8 million of net income, or $4.47 per diluted share, compared with $392.6 million, or $3.99 per share in 2014. Excluding the special items discussed below, we recorded $442.6 million of net income, or $4.53 per diluted share in 2015, compared with $458.6 million and $4.66 per diluted share in 2014. Compared with 2014, we performed well, despite lower white papers prices and mix and lower export containerboard prices. In 2015, we completed the integration of Boise Inc., achieved a record $762.6 million of operating cash flow, and returned $355.5 million to our shareholders through share repurchases and dividends.

In our packaging segment, we reported $714.9 million of income in 2015, compared with $663.2 million in 2014, and earnings before interest, taxes, depreciation, amortization, and depletion (EBITDA) excluding special items was $1,009.3 million, compared with $1,015.0 million in 2014. In 2015, we achieved record volumes in both our packaging mills and corrugated products plants. We achieved full design capacity of 1,000 tons of production per day on the DeRidder No. 3 machine, which was converted to containerboard in 2014.

Paper segment income was $112.5 million, compared with $135.4 million in 2014, and EBITDA excluding special items was $160.7 million, compared with $186.0 million in 2014. Compared with 2014, total sales prices were lower and volumes were slightly up in 2015. We maintained strong margins through improved operations and lower costs in our paper mills which offset some of the impact of lower paper prices. During the third quarter of 2015, we installed and started up a 53 megawatt turbine generator to replace four older units at our International Falls, Minnesota mill. With the new turbine generator, the mill is now capable of producing 70% of its electrical power requirements compared to 38% previously.

Earnings per diluted share, excluding special items, in 2015 and 2014 were as follows:

	Year Ended December 31
	2015				2014
Earnings per diluted share	$	4.47			$	3.99
Special items:
DeRidder restructuring (a)	0.01				0.43
Integration-related and other costs (b)	0.10				0.13
Sale of St. Helens paper mill site (c)	(0.05		)		—
Class action lawsuit settlement (d)	—				0.11
Total special items	0.06				0.67
Earnings per diluted share, excluding special items	$	4.53			$	4.66

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(a)	Includes amounts from restructuring activities at our mill in DeRidder, Louisiana, including costs related to the conversion of the No. 3 newsprint machine to containerboard, our exit from the newsprint business, and other improvements. The restructuring charges primarily related to accelerated depreciation.

(b)	Includes Boise acquisition integration-related and other costs. These costs primarily relate to professional fees, severance, retention, relocation, travel, and other integration-related costs. 2014 also includes $1.5 million of expense related to write-off of deferred financing costs in connection with the debt refinancing.

(c)	In September 2015, we sold the remaining land, buildings, and equipment at our paper mill site in St. Helens, Oregon, where we ceased paper production in December 2012. We recorded a $6.7 million gain on the sale.

(d)	Includes $17.6 million of costs for the settlement of the Kleen Products LLC v Packaging Corp. of America et al class action lawsuit.

Management excludes special items and uses non-GAAP measures to focus on PCA’s on-going operations and assess its operating performance and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. Reconciliation of diluted EPS to diluted EPS excluding special items is included above and the reconciliations of other non-GAAP measures used in this Management's Discussion and Analysis of Financial Condition and Results of Operations, to the most comparable measure reported in accordance with GAAP, are included later in Item 7 under "Reconciliations of Non-GAAP Financial Measures to Reported Amounts." Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

Industry and Business Conditions

Trade publications reported that industry corrugated products shipments increased 1.2% during 2015, compared with 2014 and 1.6% per workday with one less workday in 2015. Reported industry containerboard production was 1.3% higher than 2014, with export shipments up 1.9%. In the first two months of 2016, a trade publication lowered its published prices for domestic linerboard and medium by $15 and $30 per ton, respectively.

The market for communication papers competes heavily with electronic data transmission and document storage alternatives. Increasing shifts to these alternatives have reduced usage of traditional print media and communication papers. Trade publications reported that uncoated freesheet paper shipments were down 1.0% in 2015, compared with 2014. Trade publication average prices for uncoated freesheet decreased $26 per ton, or 2.5%, in 2015, compared with 2014.

In January 2015, we, along with the United Steel Workers (USW) and other domestic paper producers, filed a petition before the United States International Trade Commission and the United States Department of Commerce, alleging that paper producers in China, Indonesia, Australia, Brazil, and Portugal are selling products in the United States in violation of international trade rules. The domestic producers also alleged that Chinese and Indonesian producers are receiving illegal government subsidies. The agencies conducted their investigations in 2015 and early 2016. In January 2016, the U.S. Department of Commerce made determinations of antidumping and countervailing duties at rates varying by country and producer and, in February 2016, the International Trade Commission determined that the domestic industry has been materially injured by these imports. Accordingly, the antidumping and countervailing duties will be imposed on imports from these countries.

Outlook

Compared with fourth quarter 2015, we expect first quarter 2016 labor and benefits costs to be higher with annual wage increases and other timing-related expenses, and seasonally colder weather will increase wood and energy costs. Our tax rate will also be higher in the first quarter. These items will be partially offset by slightly higher corrugated products shipments and containerboard production, and lower scheduled mill outage costs. Finally, lower published prices for domestic linerboard and medium are expected to adversely affect earnings. As a result, we expect first quarter 2016 earnings to be lower than fourth quarter 2015.

Results of Operations

Year Ended December 31, 2015, Compared with Year Ended December 31, 2014

The historical results of operations of PCA for the years ended December 31, 2015 and 2014 are set forth below (dollars in millions):

	Year Ended December 31
	2015				2014				Change
Packaging	$	4,477.3			$	4,540.3			$	(63.0	)
Paper	1,143.1				1,201.4				(58.3		)
Corporate and other and eliminations	121.3				110.9				10.4
Net sales	$	5,741.7			$	5,852.6			$	(110.9	)
Packaging	$	714.9			$	663.2			$	51.7
Paper	112.5				135.4				(22.9		)
Corporate and other and eliminations	(77.4		)		(95.9		)		18.5
Income from operations	$	750.0			$	702.7			$	47.3
Interest expense, net	(85.5		)		(88.4		)		2.9
Income before taxes	664.5				614.3				50.2
Income tax expense	(227.7		)		(221.7		)		(6.0		)
Net income	$	436.8			$	392.6			$	44.2
Net income excluding special items (a)	$	442.6			$	458.6			$	(16.0	)
EBITDA (a)	$	1,106.5			$	1,083.7			$	22.8
EBITDA excluding special items (a)	$	1,106.2			$	1,143.6			$	(37.4	)

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(a)	See "Reconciliations of Non-GAAP Financial Measures to Reported Amounts" included in this Item 7 for a reconciliation of non-GAAP measures to the most comparable GAAP measure.

Net Sales

Net sales decreased $110.9 million, or 1.9%, to $5,741.7 million in 2015, compared with $5,852.6 million in 2014.

Packaging. Sales decreased $63.0 million, or 1.4%, to $4,477.3 million, compared with $4,540.3 million in 2014. Sales decreased $115.0 million due to the exit from our newsprint business in third quarter 2014 and the April 1, 2015, sale of our Hexacomb operations in Mexico and Europe. This decrease was partially offset by increased sales volumes in our corrugated products business ($17.0 million) and external containerboard sales ($31.0 million). Total corrugated products volume sold in 2015 increased approximately 1% over 2014. Our prices for corrugated products were approximately the same as 2014. With a full year of containerboard production on our D3 machine at our DeRidder, Louisiana mill, we increased our outside sales of containerboard, both domestic and export, by 52,000 tons compared with last year and we purchased 174,000 less tons of containerboard from the outside market in 2015. Our export prices were down 7% compared with 2014, while pricing for domestic containerboard sales was flat with last year. Containerboard mill production in 2015 was 3,656,000 total tons, compared with 3,452,000 total tons in 2014.

Paper. Sales decreased $58.3 million, or 4.9%, to $1,143.1 million, compared with $1,201.4 million in 2014. The decrease was primarily due to 4.8% lower sales prices and changes in mix ($57.6 million).

Gross Profit

Gross profit decreased $21.5 million, or 1.7%, in 2015, compared with 2014. In 2015 and 2014, gross profit included expenses of $9.0 million and $58.1 million of special items, respectively, most of which related to incremental depreciation expense related to changing the estimated useful lives of assets in connection with our DeRidder mill restructuring. Excluding special items, gross profit decreased $70.6 million in 2015, compared with 2014. The decrease was primarily due to lower paper prices and changes in mix, lower export containerboard prices, and higher labor and benefit costs, partially offset by higher packaging sales volume and lower energy, chemical, and freight costs. Gross profit was 21.0% of net sales in both 2015 and 2014.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses decreased $18.2 million, or 3.9%, in 2015, compared with 2014. The decrease in 2015 was due primarily to lower administrative employee costs from the headcount reductions related to the Boise integration.

Other Expense, Net

Other expense, net, in 2015 was $6.7 million, compared with $57.3 million during 2014. Other expense in 2015 included $14.0 million of asset disposals and write-off charges and $12.9 million of Boise integration-related and other costs, partially offset by $7.1 million of income, net of expenses, related to the DeRidder restructuring, a $6.7 million gain on the sale of our St. Helens paper mill site, and $3.6 million of income from a refundable state tax credit received related to our investments and the jobs retained at our DeRidder mill, among other miscellaneous income and expense items. Other expense, net, in 2014 included $20.0 million of Boise integration-related and other costs, $17.6 million of costs for the settlement of the Kleen Products LLC v Packaging Corp. of America et al class action lawsuit, $10.1 million of asset disposals and write-off charges, and $7.3 million of DeRidder restructuring charges.

Income from Operations

Income from operations increased $47.3 million, or 6.7%, for the year ended December 31, 2015, compared with 2014. Our 2015 income from operations included $8.7 million of expense from special items, compared with $101.8 million of expense from special items in 2014. See "Reconciliations of Non-GAAP Financial Measures to Reported Amounts" in this Item 7 for more information on special items. Excluding special items, income from operations decreased $45.8 million in 2015, compared with 2014. The decrease in income from operations, excluding special items, was driven primarily by lower gross profit as described above, partially offset by a decrease in employee administrative costs and a $3.6 million state tax credit related to investments and jobs retained at our DeRidder mill.

Packaging. Segment income from operations increased $51.7 million, or 7.8%, to $714.9 million, compared with $663.2 million in 2014. Excluding expenses of $6.1 million of special items in 2015 and $70.7 million in 2014, segment income decreased $12.9 million to $721.0 million, compared with $733.9 million. The decrease is primarily related to higher labor and benefit costs ($19.7 million), lower export containerboard prices ($13.2 million), higher annual outage costs due mostly to the first quarter extended annual outage at our DeRidder mill ($8.6 million), increased depreciation ($8.7 million), freight ($7.6 million), and fiber ($4.6 million) costs, partially offset by higher volumes ($26.3 million) and lower energy costs ($23.6 million).

Paper. Segment income from operations decreased $22.9 million, or 16.9%, to $112.5 million, compared with $135.4 million for 2014. Excluding income of $6.7 million of special items in 2015, segment income decreased $29.6 million to $105.8 million. The decrease is due primarily to lower white paper prices and mix ($57.6 million), partially offset by lower freight ($10.8 million), chemical ($10.2 million), and energy costs ($8.9 million).

Interest Expense, Net, and Income Taxes

Interest expense, net, was $85.5 million in 2015, compared with $88.4 million in 2014. Interest expense in 2014 included $1.5 million of expense related to the write-off of deferred financing costs in connection with the refinancing of debt.

During 2015, we recorded $227.7 million of income tax expense, compared with $221.7 million of expense during 2014. The effective tax rate for 2015 and 2014 was 34.3% and 36.1%, respectively. The decrease in our effective tax rate in 2015 was primarily due to an increased domestic manufacturing deduction resulting from less tax net operating losses remaining from the acquisition of Boise Inc.

Year Ended December 31, 2014, Compared with Year Ended December 31, 2013

The historical results of operations of PCA for the years ended December 31, 2014 and 2013 are set forth below (dollars in millions):

	Year Ended December 31
	2014 (a)				2013 (a)				Change
Packaging	$	4,540.3			$	3,431.7			$	1,108.6
Paper	1,201.4				216.9				984.5
Corporate and other and eliminations	110.9				16.7				94.2
Net sales	$	5,852.6			$	3,665.3			$	2,187.3
Packaging	$	663.2			$	554.2			$	109.0
Paper	135.4				13.5				121.9
Corporate and other and eliminations	(95.9		)		(85.8		)		(10.1		)
Income from operations	$	702.7			$	481.9			$	220.8
Interest expense, net	(88.4		)		(58.3		)		(30.1		)
Income before taxes	614.3				423.6				190.7
Income tax (expense) benefit	(221.7		)		17.7				(239.4		)
Net income	$	392.6			$	441.3			$	(48.7	)
Net income excluding special items (b)	$	458.6			$	325.2			$	133.4
EBITDA (b)	$	1,083.7			$	683.7			$	400.0
EBITDA excluding special items (b)	$	1,143.6			$	750.7			$	392.9

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

(b)	See "Reconciliations of Non-GAAP Financial Measures to Reported Amounts" included in this Item 7 for a reconciliation of non-GAAP measures to the most comparable GAAP measure.

Net Sales

Net sales increased $2,187.3 million, or 59.7%, to a record $5,852.6 million in 2014, compared with $3,665.3 million in 2013. The increase in 2014 related to a full year of Boise operations, compared with only two months and five days in 2013 ($1,962.8 million) and increased sales in PCA's historical operations ($224.5), which resulted from higher sales volumes and higher sales prices and mix.

Packaging. Sales increased $1,108.6 million, or 32.3%, to $4,540.3 million, compared with $3,431.7 million in 2013. A full year of Boise operations contributed $878.7 million of the increase and the remaining increase related to higher sales volumes ($160.5 million) and higher sales prices and mix ($69.4 million) in PCA's historical operations. Total corrugated products volume sold in 2014, including Boise, increased 25.5% over 2013 and shipments per workday increased 25.0%. The year ended December 31, 2014, included 251 workdays, those days not falling on a weekend or holiday, compared with 250 workdays in 2013. Excluding Boise shipments, corrugated products shipments increased 4.7% in total, or 4.3% per workday in 2014, compared with 2013. The acquisition of Crockett Packaging in April 2014, contributed about 1.0% to the increase in shipments, with the rest of the increase coming from organic growth. We reduced our outside sales of containerboard, both

domestic and export, by 46,000 tons compared with last year and we purchased 182,000 tons of containerboard from the outside market in 2014. Containerboard mill production in 2014 was 3,452,000 total tons, including 801,000 tons from Boise, compared with 2,749,000 total tons in 2013, which included 141,000 tons from Boise.

Paper. Our paper segment sales include the sales for the white paper mills we acquired from Boise. Sales for 2014 were $1,201.4 million. In 2013, sales during the two months and five days we owned Boise were $216.9 million. In 2014, sales volumes of white paper were 1,114,000 tons, compared with 210,000 tons in 2013, for the period we owned Boise.

Gross Profit

Gross profit increased $362.0 million, or 41.7%, in 2014, compared with 2013. In 2014, gross profit included $58.1 million of expense from special items, most of which related to restructuring charges at our DeRidder, Louisiana mill, including incremental depreciation related to changing the estimated useful lives of newsprint-related assets in connection with our exit from the newsprint business in September 2014. In 2013, gross profit included $21.5 million of expense from special items related to the step-up in value of inventory acquired in the Boise acquisition. Excluding special items, gross profit increased $398.6 million. Approximately 90% of the increase was due to a full year of Boise operations, including realized synergies, and the remaining increase was from higher gross profit in PCA's historical packaging operations due to higher sales prices, volume, and mix, partially offset by increases in costs for labor, depreciation, freight, wood fiber, and chemical expenses. Gross profit as a percentage of net sales decreased to 21.0% of net sales in 2014 compared with 23.7% in 2013 due primarily to a full year impact of the white papers business whose products generally have lower margins than the products sold in the packaging business and the DeRidder restructuring charges described above.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased $142.9 million, or 43.8%, in 2014 compared with 2013. Approximately 90% of the increase relates to the acquired Boise businesses. The remaining increase in our historical PCA business is due primarily to a $12.0 million increase in salary and fringe benefit expenses and other increases, which were individually insignificant.

Other Expense, Net

Other expense, net, in 2014 was $57.3 million, which included Boise acquisition integration-related and other costs, which primarily relate to severance, retention, travel, and professional fees ($20.0 million), costs for the settlement of the Kleen Products LLC v Packaging Corp. of America et al class action lawsuit ($17.6 million), DeRidder mill restructuring costs primarily related to the conversion of the No. 3 newsprint machine to produce lightweight linerboard and corrugating medium and related start-up costs, and our exit from the newsprint business in September 2014 ($7.3 million), and asset disposals and write-offs charges ($10.1 million). In 2013, "Other expense, net" was $59.0 million, which primarily included acquisition-related costs ($17.2 million), Boise acquisition integration-related and other costs ($17.4 million), pension plan curtailment charges ($10.9 million), and asset disposals and write-offs charges ($13.2 million).

Income from Operations

Income from operations increased $220.8 million, or 45.8%, for the year ended December 31, 2014, compared with 2013. Our 2014 income from operations included $101.8 million of expense from special items, compared with $67.0 million of expense from special items in 2013. See "Reconciliations of Non-GAAP Financial Measures to Reported Amounts" in this Item 7 for more information on special items. Excluding special items, income from operations increased $255.6 million in 2014, compared with 2013. Approximately 90% of the increase was due to a full year of Boise operations, including realized synergies, and the remaining 10% was due to improvement in PCA's historical earnings.

Packaging. Segment income from operations increased $109.0 million, or 19.7%, to $663.2 million, compared with $554.2 million in 2013. Excluding $70.7 million of special items in 2014 and $30.3 million in 2013, segment income increased $149.4 million to $733.9 million, compared with $584.5 million. The increase primarily related to a full year of Boise operations in 2014 (approximately 90% of the change, including realized synergies, and excluding special items) and increased income in PCA's historical packaging business, which related to higher sales price and improved mix ($69.4 million), higher sales volume ($12.8 million), partially offset by increased costs for labor and benefits ($28.4 million), depreciation ($16.6 million), transportation ($10.9 million), energy ($10.2 million), wood fiber ($5.0 million), chemicals ($2.8 million), and repairs ($2.8 million).

Paper. Segment income from operations was $135.4 million in 2014, compared with $13.5 million for the two months and five days after the Boise acquisition in 2013. Segment income in 2013 included $3.5 million of acquisition inventory step-up costs included in cost of sales, partially offset by $1.9 million of income for an insurance settlement related to Boise's former St. Helens, Oregon, mill, net of other expenses. Excluding these special items, segment income in 2013 for the white papers business was $15.1 million.

Interest Expense, Net, and Income Taxes

Interest expense, net, was $88.4 million in 2014, compared with $58.3 million in 2013. The increase in interest expense primarily related to higher average outstanding borrowings following the acquisition of Boise in October of 2013. Interest expense in 2014 and 2013 included $1.5 million and $1.1 million of expense, respectively, related to the write-off of deferred financing costs in connection with the repayment of debt. Also, 2013 included $10.5 million of expenses related to financing the acquisition of Boise.

In 2013, we recorded a $17.7 million income tax benefit, which included $166.0 million of income tax benefits from the reversal of the reserve for unrecognized tax benefits from alternative energy tax credits. 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 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 2013. Excluding the alternative energy tax credits, the 2013 effective tax rate was 35.0%, compared with 36.1% in 2014. The credits are described in Note 7, Alternative Energy Tax Credits, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K. The effective tax rate in 2014 varies from the U.S. federal statutory tax rate of 35.0% principally due to the impact of state and local income taxes and the domestic manufacturers’ deduction.

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of liquidity are net cash provided by operating activities and available borrowing capacity under our revolving credit facility. We ended the year with $184.2 million of cash and $326.5 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. Currently, our primary uses of cash are for operations, capital expenditures, debt service (including voluntary payments of debt), declared common stock dividends and share repurchases. We believe that net cash generated from operating activities, cash on hand, available borrowings under our revolving credit facility and available capital through access to capital markets will be adequate to meet our liquidity and capital requirements, including payments of any declared common stock dividends for the foreseeable future. As our debt or credit facilities become due, we will need to repay, extend or replace such facilities. Our ability to do so will be subject to future economic conditions and financial, business, and other factors, many of which are beyond our control.

Below is a summary table of our cash flows, followed by a discussion of our sources and uses of cash through operating activities, investing activities, and financing activities (dollars in millions):

	Year Ended December 31
	2015				2014				2013
Net cash provided by (used for):
Operating activities	$	762.6			$	736.1			$	608.2
Investing activities	(298.1		)		(451.1		)		(1,411.4		)
Financing activities	(405.2		)		(351.1		)		786.8
Net increase (decrease) in cash and cash equivalents	$	59.3			$	(66.1	)		$	(16.4	)

Operating Activities

2015

During 2015, net cash provided by operating activities was $762.6 million, compared with $736.1 million for 2014, an increase of $26.5 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $0.7 million. The remaining $27.2 million increase from changes in cash used for operating assets and liabilities was primarily due to the following: (a) no inventory prebuild for our first quarter 2016 planned maintenance outages due to additional capacity added at our reconfigured DeRidder, Louisiana mill and (b) a decrease in accounts receivable related to differences in the timing of collections of receivables. These changes were partially offset by (a) higher required cash tax payments resulting from less net operating loss utilization and (b) a decrease in accrued liabilities due primarily to lower compensation and benefits accruals. Cash requirements for operating activities are subject to PCA's operating needs and the timing of collection of receivables and payments of payables and expenses.

2014

During 2014, net cash provided by operating activities was $736.1 million, compared with $608.2 million for 2013, an increase of $127.9 million. Cash from operations excluding changes in cash used for operating assets and liabilities increased $216.2 million due to record earnings in 2014, which was driven by the acquisition of Boise in fourth quarter 2013. Cash used for operating assets and liabilities, excluding acquisitions, totaled $97.0 million in 2014, compared with $8.7 million in 2013. The higher requirements for operating assets and liabilities, excluding acquisitions, in 2014 were driven primarily by higher containerboard and office papers inventory levels built in advance of four of our five containerboard mills and two of our three white papers mills taking maintenance outages in the first half of 2015 and lower accounts payable levels due to the timing of payments, partially offset by a decrease in federal and state income taxes receivable at December 31, 2014, compared with December 31, 2013.

Investing Activities

2015

We used $298.1 million for investing activities in 2015, compared with $451.1 million in 2014. In 2015, we spent $314.5 million for capital investments, compared with $420.2 million in 2014. The decrease in capital spending was due primarily to $104.2 million invested in 2014 for the the conversion of the No. 3 newsprint machine at our DeRidder, Louisiana mill to produce containerboard. We received $23.0 million of cash proceeds for the sale of our Hexacomb corrugated manufacturing operations in Mexico and Europe during 2015. In 2014, we paid $20.5 million to acquire the assets of Crockett Packaging, a corrugated products manufacturer.

The details of capital expenditures for property and equipment, excluding acquisitions, by segment for the years ended December 31, 2015, 2014, and 2013, are included in the table below (dollars in millions).

		Year Ended December 31
		2015				2014				2013
Packaging		$	250.3			$	362.1			$	222.2
Paper		58.5				51.7				10.0
Corporate and Other		5.7				6.4				2.2
		$	314.5			$	420.2			$	234.4

We expect capital investments in 2016 to be between $250.0 million and $265.0 million, including capital required for Boiler MACT spending, but excluding any acquisitions. These expenditures could increase or decrease as a result of a number of factors, including our financial results, future economic conditions, and our regulatory compliance requirements. We currently estimate capital expenditures to comply with Boiler MACT regulations (as discussed below under "Environmental Matters") in 2016 of up to $3.0 million and we expect other environmental capital expenditures of about $5.0 million in 2016. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations, including those related to greenhouse gas emissions and industrial boilers. For additional information, see "Environmental Matters" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

At December 31, 2015, PCA had commitments for capital expenditures of $83.7 million. PCA believes that cash-on-hand combined with cash flow from operations will be sufficient to fund these commitments.

2014

We used $451.1 million for investing activities in 2014, compared with $1,411.4 million in 2013. In 2014, we spent $420.2 million for capital investments, compared with $234.4 million in 2013. The increase in capital spending was due primarily to having a full year of Boise capital investments, including $104.2 million for the the conversion of the No. 3 newsprint machine at our DeRidder, Louisiana mill to produce containerboard. In 2014, we spent $20.5 million for the acquisition of Crockett Packaging. In 2013 we spent $1,174.5 million on the acquisition of Boise, net of $121.7 million of cash acquired.

Financing Activities

2015

In 2015, we used $405.2 million for financing activities, compared with $351.1 million in 2014. The increase in cash used for financing activities primarily relates to share repurchases and increased dividend payments, partially offset by a decrease in debt repayments, net of proceeds received. In 2015, we made $47.6 million of principal payments on long-term debt and capital leases, compared with $193.6 million of payments, net of debt proceeds received, in 2014. In 2014, we also paid $3.4 million of financing costs. We paid $200.8 million of dividends in 2015, compared with $157.4 million of dividends in 2014. On February 26, 2015, PCA's Board of Directors increased the regular quarterly cash dividend to $0.55 per share from the previous $0.40 per share dividend, beginning with the dividend paid on April 15, 2015. During 2015, we paid $154.7 million to repurchase 2,326,493 shares of common stock, and we withheld 129,983 shares from vesting equity awards to cover employee tax liabilities of $8.7 million, compared with no share repurchases and $13.2 million of shares withheld on equity award vesting in 2014. Tax benefits from share-based awards and proceeds from the exercise of stock options contributed $6.0 million in 2015, compared with $15.9 million in 2014.

Subsequent to year-end, we repurchased 1,868,487 shares of common stock for $93.4 million, fully depleting the July 2015 authorization of $150 million. On February 25, 2016, PCA announced that its Board of Directors authorized the repurchase of an additional $200 million of the Company's outstanding common stock. Repurchases may be made from time to time in the open market or privately negotiated transactions in accordance with applicable securities regulations. The timing and amount of repurchases will be determined by the Company in its discretion based on factors such as PCA's stock price and market and business conditions.

For more information about our debt, commitments, and treasury lock derivative instruments, see Note 10, Debt, Note 19, Commitments, Guarantees, Indemnifications, and Legal Proceedings, and Note 14, Derivative Instruments and Hedging Activities, respectively, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

2014

In 2014, we used $351.1 million for financing activities, while financing activities provided $786.8 million in 2013. In 2014, we made $592.5 million of principal payments on long-term debt and capital leases and received $398.9 million of proceeds (net of debt discount) from long-term debt issuances, for a net reduction in debt of $193.6 million. To reduce exposure to variable interest rates, in September 2014, we issued $400 million of ten-year notes with a fixed interest rate of 3.65% and used the proceeds to pay down a portion of our five-year, variable-rate term loan. In October 2013, we entered into $2.35 billion of new credit facilities, including a $350.0 million revolver which remains undrawn. We used the proceeds from borrowings under these facilities 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. In addition, in 2013, we repaid $12.2 million of outstanding debt prior to the acquisition of Boise and repaid $109.0 million under our receivables credit facility that we terminated in December 2013. In 2014, we also paid $3.4 million of financing costs, compared with $19.4 million in 2013. We paid $157.4 million of dividends in 2014, compared with $109.1 million of dividends and $7.8 million of common stock repurchases in 2013. The lower dividends paid in 2013 resulted from accelerating the dividends that would have been paid in January 2013 to December 2012. During 2014, we withheld 183,170 shares from vesting equity awards to cover employee tax liabilities of $13.2 million, compared with $11.0 million in 2013. Proceeds from the exercise of stock options and tax benefits from share-based awards contributed $15.9 million in 2014, compared with $10.7 million in 2013.

Commitments

Contractual Obligations

The table below sets forth our enforceable and legally binding obligations as of December 31, 2015, for the categories described below. 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 (dollars in millions):

	Payments Due by Period
	Total				Less Than 1 Year				1-3 Years				3-5 Years				More Than 5 Years
Term loan, due October 2018	$	25.0			$	—			$	25.0			$	—			$	—
Term loan, due October 2020	637.0				6.5				13.0				617.5				—
6.50% Senior Notes, due March 2018	150.0				—				150.0				—				—
3.90% Senior Notes, due June 2022	400.0				—				—				—				400.0
4.50% Senior notes, due November 2023	700.0				—				—				—				700.0
3.65% Senior notes, due September 2024	400.0				—				—				—				400.0
Total short-term and long-term debt (a)	2,312.0				6.5				188.0				617.5				1,500.0
Interest on long-term debt (b)	560.4				85.5				162.7				146.0				166.2
Capital lease obligations, including interest	33.9				2.7				5.4				5.4				20.4
Operating leases (c)	248.4				54.4				81.9				42.9				69.2
Capital commitments	83.7				83.7				—				—				—
Purchase commitments:
Raw materials (d)	271.2				63.4				79.4				51.4				77.0
Energy related (e)	40.8				31.9				8.9				—				—
Other long-term liabilities reflected on our Consolidated Balance Sheet (f):
Compensation and benefits (g)	354.3				30.1				91.4				104.4				128.4
Other (h)	73.5				20.7				8.7				4.2				39.9
	$	3,978.2			$	378.9			$	626.4			$	971.8			$	2,001.1

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(a)	The table assumes our long-term debt is held to maturity and includes the current portion of long-term debt. See Note 10, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Amounts are reported gross and do not include unamortized debt discounts of $2.8 million at December 31, 2015.

(b)	Amounts represent estimated future interest payments as of December 31, 2015, assuming our long-term debt is held to maturity and using interest rates in effect at December 31, 2015. See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for the impact of changes in interest rates on PCA’s future cash flows.

(c)

We enter into operating leases in the normal course of business. We lease some of our operating facilities, as well as other property and equipment, under operating leases. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our operating lease obligations would change if we exercised these renewal options and/or if we entered into additional operating lease agreements.

(d)

Included among our raw materials purchase obligations are contracts to purchase approximately $237.3 million of wood fiber. Purchase prices under most of these agreements are set quarterly, semiannually, or annually based on regional market prices, and the estimate is based on contract terms or first quarter 2016 pricing. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. Our log, fiber, and wood chip obligations are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operating in the normal course of business, log and fiber availability, and the status of environmental appeals.

(e)	We enter into utility contracts for the purchase of electricity and natural gas. We also purchase these services under utility tariffs. The contractual and tariff arrangements include multiple-year commitments and minimum annual purchase requirements. Our payment obligations were based upon prices in effect on December 31, 2015, or contract language, if available.

(f)	Long-term deferred income taxes of $347.0 million and unrecognized tax benefits of $6.7 million, including interest and penalties, are excluded from this table, because the timing of their future cash outflows are uncertain.

(g)

Amounts primarily consist of pension and postretirement obligations, including current portion of $2.9 million. We have minimum qualified pension contributions of approximately $27 million in 2016. See Note 11, Employee Benefit Plans and Other Postretirement Benefits, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K, for additional information.

(h)	Amounts primarily consist of workers compensation, environmental, and asset retirement obligations.

Off-Balance-Sheet Arrangements

The Company does not have any off-balance sheet arrangements as of December 31, 2015.

Inflation and Other General Cost Increases

We are subject to both contractual, inflation, and other general cost increases. If we are unable to offset these cost increases by price increases, growth, and/or cost reductions in our operations, these inflation and other general cost increases could have a material adverse effect on our operating cash flows, profitability, and liquidity.

In 2015, our total company costs including cost of sales (COS) and selling, general, and administrative expenses (SG&A) was $5.0 billion, and excluding non-cash costs (depreciation, pension and postretirement expense, and share-based compensation expense) was $4.6 billion. A 1% increase in COS and SG&A costs would increase costs by $50 million and cash costs by $46 million.

Certain items of product input costs have historically been subject to more cost volatility including fiber, purchased energy, and chemicals.

Energy

In 2015, our mills, including both packaging and paper mills, consumed about 89 million MMBTU’s of fuel, including internally generated and externally purchased, to produce both steam and electricity. The following table for 2015 provides the total MMBTU's purchased externally by fuel type each quarter and the average cost per MMBTU by fuel type for the year. Our mills represent about 90% of our total purchased fuel costs. The cost per MMBTU includes the cost of the fuel plus our transportation and delivery costs.

		2015 Fuel Purchased (millions of MMBTU's)															2015 Avg.
Fuel Type		First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Full Year			Cost / MMBTU
Natural gas		5.14			4.89			5.29			5.69			21.01			$	3.65
Purchased bark		2.56			2.53			2.21			2.52			9.82			2.66
Coal		1.03			0.46			0.10			0.03			1.62			3.91
Other fuels		0.42			0.56			0.45			0.43			1.86			3.58
Total mills		9.15			8.44			8.05			8.67			34.31			$	3.38

In addition, the mills purchased 22.10 million CkWh (hundred kilowatt hours) of purchased electricity in 2015. The purchases by quarter and the average cost per CkWh were as follows:

		2015 Purchased Electricity (millions of CkWh)															2015 Avg.
		First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Full Year			Cost / CkWh
Purchased electricity		5.66			5.51			5.78			5.15			22.10			$	5.69

Environmental Matters

Environmental compliance requirements are a significant factor affecting our business. We employ processes in the manufacture of containerboard, paper, and pulp which result in various discharges, emissions and waste disposal. These processes are subject to numerous federal, state, local and foreign environmental laws and regulations. We operate and expect to continue to operate, under environmental permits and similar authorizations from various governmental authorities that regulate such discharges, emissions, and waste disposal. The most significant of these laws affecting the Company are:

•	Resource Conservation and Recovery Act (RCRA);

•	Clean Water Act (CWA);

•	Clean Air Act (CAA);

•	The Emergency Planning and Community Right-to-Know-Act (EPCRA);

•	Toxic Substance Control Act (TSCA); and

•	Safe Drinking Water Act (SDWA).

We believe that we are currently in material compliance with these and all applicable environmental rules and regulations. Because environmental regulations are constantly evolving, the Company has incurred, and will continue to incur, costs to maintain compliance with these and other environmental laws. The Company works diligently to anticipate and budget for the impact of applicable environmental regulations, and does not currently expect that future environmental compliance obligations will materially affect its business or financial condition. For the years ended December 31, 2015, 2014, and 2013, we spent $42.6 million, $43.9 million, and $41.1 million, respectively, to comply with the requirements of these and other environmental laws.

As is the case with any industrial operation, PCA has, in the past, incurred costs associated with the remediation of soil or groundwater contamination, as required by the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as the federal "Superfund" law, and analogous state laws. Cleanup requirements arise with respect to properties the Company currently owns or operates, former facilities and off-site facilities where the Company has disposed of hazardous substances. As part of the sale to PCA of the containerboard and corrugated products business of Pactiv Corporation in April 1999, Pactiv agreed to retain all liability for all former facilities and all sites associated with pre-closing off-site waste disposal. Pactiv also retained environmentally impaired real property in Filer City, Michigan unrelated to current mill operations. In addition, OfficeMax (now an indirect, wholly owned subsidiary of Office Depot) retains responsibility for certain environmental liabilities related to some of the businesses, facilities, and assets we acquired from Boise. Generally, this responsibility relates to hazardous substance releases and other environmental incidents that arose before 2004. Some of these liabilities could be significant; however, Office Depot may not have sufficient funds to satisfy its indemnification obligations, and in some cases, we may not be entitled to such indemnification.

In January 2013, the U.S. Environmental Protection Agency (the "EPA") established a three year deadline for compliance with the Boiler MACT regulations, establishing air emissions standards and certain other requirements for industrial boilers. PCA’s compliance actions involve modifying or replacing certain of its boilers. PCA estimates that its remaining Boiler MACT compliance obligations will require capital expenditures of $3.0 million in 2016. We currently expect other environmental capital expenditures of about $5.0 million in 2016. Total capital expenditures for environmental matters were $16.0 million in 2015, $29.0 million in 2014, and $6.2 million for 2013.

Because liability for remediation costs under environmental laws is strict, meaning that liability is imposed without fault, joint and several, meaning that liability is imposed on each party without regard to contribution, and retroactive, PCA could receive notifications of cleanup liability in the future and this liability could be material. From 2006 through 2015, there were no significant environmental remediation costs at PCA's mills and corrugated plants. As of December 31, 2015, we maintained an environmental reserve of $24.3 million relating to on-site landfills and surface impoundments as well as ongoing and anticipated remedial projects. The Company believes that it is not reasonably possible that future environmental expenses above the $24.3 million accrued at December 31, 2015, will have a material impact on its financial condition, results of operations, and cash flows.

While legislation regarding the regulation of greenhouse gas emissions has been proposed at the federal level, it is uncertain whether such legislation will be passed and, if so, what the breadth and scope of such legislation will be. The result of the regulation of greenhouse gas emissions could be an increase in our future environmental compliance costs, through caps, taxes or additional capital expenditures to modify facilities, which may be material. However, climate change legislation and

the resulting future energy policy could also provide us with opportunities if the use of renewable energy is encouraged. We currently self-generate a significant portion of our power requirements at our mills using bark, black liquor and biomass as fuel, which are derived from renewable resources. While we believe we are well-positioned to take advantage of any renewable energy incentives, it is uncertain what the ultimate costs and opportunities of any climate change legislation will be and how our business and industry will be affected.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, PCA evaluates its estimates, including those related to business combinations, goodwill and intangible assets, pensions and other postretirement benefits, environmental liabilities, income taxes, and long-lived asset impairment, among others. PCA bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. The Company believes that of its significant accounting policies, the following involve a higher degree of judgment and/or complexity:

Pensions

The Company accounts for defined benefit pension plans in accordance with Accounting Standards Codification (ASC) 715, "Compensation - Retirement Benefits." The calculation of pension expense and pension liabilities requires decisions about a number of key assumptions that can significantly affect expense and liability amounts, including discount rates, expected return on plan assets, expected rate of compensation increases, longevity and service lives of participants, expected contributions, and other factors. The pension assumptions used to measure pension expense and liabilities are discussed in Note 11, Employee Benefit Plans and Other Postretirement Benefits.

We recognize the funded status of our pension plans on our Consolidated Balance Sheet and recognize the actuarial and experience gains and losses and the prior service costs and credits as a component of "Accumulated Other Comprehensive Loss" in our Consolidated Statement of Changes in Stockholders' Equity. Actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. At December 31, 2015, we had approximately $103.3 million of actuarial losses, net of tax, recorded in "Accumulated other comprehensive loss" on our Consolidated Balance Sheet. 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. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.

We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period. As discussed above, the future effects of pension plans on our financial position and results of operations will depend on economic conditions, employee demographics, mortality rates, retirement rates, investment performance, and funding decisions, among other factors. The following table presents selected assumptions used and expected to be used in the measurement of pension expense in the following periods (dollars in millions):

	Year Ending December 31, 2016				Year Ended December 31
	2015				2014
Pension expense	$	26.8			$	31.3			$	25.3
Assumptions
Discount rate	4.50		%		4.14		%		5.00		%
Expected rate of return on plan assets	6.57		%		6.73		%		6.69		%

A change of 0.25% in either direction to the discount rate or the expected rate of return on plan assets would have had the following effect on 2015 and 2016 pension expense (dollars in millions):

	Base Expense				Increase (Decrease) in Pension Expense (a)
	0.25% Increase				0.25% Decrease
2015 Expense
Discount rate	$	31.3			$	(3.0	)		$	3.5
Expected rate of return on plan assets	31.3				(2.0		)		2.0
2016 Expense (b)
Discount rate	$	26.8			$	(2.2	)		$	2.9
Expected rate of return on plan assets	26.8				(1.9		)		1.9

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(a)	The sensitivities shown above are specific to 2015 and 2016. The sensitivities may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.

(b)

Beginning in 2016, we refined the method used to determine the service and interest cost components of our net periodic benefit cost. Previously, the cost was determined using a single weighted-average discount rate derived from the yield curve. Under the refined method, known as the spot rate approach, we will use individual spot rates along the yield curve that correspond with the timing of each benefit payment. We believe this change provides a more precise measurement of service and interest costs by improving the correlation between projected cash outflows and corresponding spot rates on the yield curve. Compared to the previous method, the spot rate approach will decrease the service and interest components of our benefit costs by about $8 million in 2016.

For more information related to our pension benefit plans, see Note 11, Employee Benefit Plans and Other Postretirement Benefits, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

Goodwill and Intangible Asset Impairment

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, 2015, we had $544.0 million of goodwill, of which we recorded $458.6 million in connection with the acquisition of Boise in fourth quarter 2013. At December 31, 2015, we had $488.8 million and $55.2 million of goodwill recorded in our Packaging and Paper segments, respectively. All of our intangible assets, excluding goodwill, are amortized over their estimated useful lives.

We maintain two reporting units for purposes of our goodwill and intangible asset impairment testing, Packaging and Paper, which are the same as our operating segments discussed in Note 18, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K. 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.

In conducting our goodwill impairment analysis, we utilize the income approach, based on a discounted cash flow model (Level 3 measurement). The fair value was also calculated using the market approach based primarily on comparable company EBITDA multiples (Level 2 measurement) and was compared to and supported the fair value based upon the discounted cash flow approach. We believe that the discounted cash flow model captures our estimates regarding the results of our future prospects; however, we also considered the market's expectations based on observable market information. The discounted cash flow model estimates the projected future cash flows to be generated by our reporting units, discounted to present value using a discount rate for a potential market participant. The market approach estimates fair value based on multiples of EBITDA. The following assumptions are key to our estimates of fair value:

Business Projections. The discounted cash flow model utilizes business projections that are developed internally by management for use in managing the business. These projections include significant assumptions such as estimates of future revenues, profits, income taxes, and capital expenditures. Our forecasts take into consideration recent sales data for existing products, planned timing of capital projects, and key economic indicators to estimate future production volumes, selling prices, and key input costs for our manufactured products. Our pricing assumptions are estimated based upon an assessment of industry supply and demand dynamics for our major products.

Growth Rates. A growth rate is used to calculate the terminal value in the discounted cash flow model. The growth rate is the expected rate at which earnings or revenue is projected to grow beyond the forecast period.

Discount Rates. Future cash flows are discounted at a rate that is consistent with a weighted average cost of capital for a potential market participant. The weighted average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise. The discount rates selected are based on existing conditions within our industry and reflect adjustments for potential risk premiums in those markets as well as weighting of the market cost of equity versus debt.

EBITDA Multiples. The market approach requires the use of a valuation multiple to calculate the estimated fair value of a reporting unit. We use an EBITDA multiple based on a selection of comparable companies and recent acquisition transactions within our industries.

Based on the results of the first step of the goodwill impairment test, we determined that the fair value of our Packaging and Paper reporting units were substantially in excess of the carrying amount, and therefore, no goodwill impairment existed. As a result, the second step of the goodwill impairment test was not required to be completed.

If management's estimates of future operating results materially change or if there are changes to other assumptions, the estimated fair value of our identifiable intangible assets and goodwill could change significantly. Such change could result in impairment charges in future periods, which could have a significant noncash impact on our operating results and financial condition. We cannot predict the occurrence of future events that might adversely affect the reported value of our goodwill and intangible assets. As additional information becomes known, we may change our estimates.

Long-Lived Asset Impairment

An impairment of a long-lived asset exists when the carrying value of an asset is not recoverable through future undiscounted cash flows from operations and when the carrying value of the asset exceeds its fair value. Long-lived asset impairment is a critical accounting estimate, as it is susceptible to change from period to period.

We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. For purposes of testing for impairment, we group our long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and liabilities. Our asset groupings vary based on the related business in which the long-lived asset is employed and the interrelationship between those long-lived assets in producing net cash flows. Asset groupings could change in the future if changes in the operations of the business or business environment affect the way particular long-lived assets are employed or the interrelationships between assets. To estimate whether the carrying value of an asset or asset group is impaired, we estimate the undiscounted cash flows that could be generated under a range of possible outcomes. To measure future cash flows, we are required to make assumptions about future production volumes, future product pricing, and future expenses to be incurred. In addition, estimates of future cash flows may change based on the availability of fiber, environmental requirements, capital spending, and other strategic management decisions. We estimate the fair value of an asset or asset group based on quoted market prices for similar assets and liabilities or inputs that are observable either directly (Level 1 measurement) or indirectly

(the amount for which the asset(s) could be bought or sold in a current transaction with a third party) when available (Level 2 measurement). When quoted market prices are not available, we use a discounted cash flow model to estimate fair value (Level 3 measurement).

We periodically assess the estimated useful lives of our assets. Changes in circumstances, such as changes to our operational or capital strategy, changes in regulation, or technological advances, may result in the actual useful lives differing from our estimates. Revisions to the estimated useful lives of assets requires judgment and constitutes a change in accounting estimate, which is accounted for prospectively by adjusting or accelerating depreciation and amortization rates. During the years ended December 31, 2015 and 2014, we recognized $9.0 million and $42.0 million, respectively, of accelerated depreciation expense related to shortening the useful lives of assets at the DeRidder, Louisiana mill, which primarily related to the newsprint business we exited in 2014.

Income Taxes

We account for income taxes and separately recognize deferred tax assets and deferred tax liabilities. We are subject to income taxes in both the U.S. and foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense and our tax basis in assets and liabilities.

PCA’s annual tax rate is determined based on income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires some items to be included in the tax return at different times than the items reflected in the financial statements. As a result, the annual tax rate in the financial statements is different than the rate reported on PCA’s tax return. Some of these differences are permanent, such as expenses that are not deductible in the tax return, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. We also recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.

Inherent in determining the annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Significant management judgments are required for the following items:

•	Management reviews PCA’s deferred tax assets for realizability. Valuation allowances are established when management believes that it is more likely than not that some portion of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the tax provision.

•

PCA establishes accruals for unrecognized tax benefits when, despite the belief that PCA’s tax return positions are fully supported, PCA believes that an uncertain tax position does not meet the recognition threshold of ASC 740, "Income Taxes." The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, the expiration of the statute of limitations for the relevant taxing authority to examine a tax return, case law and emerging legislation. While it is difficult to predict the final outcome or timing of resolution for any particular tax matter, PCA believes that the accruals for unrecognized tax benefits at December 31, 2015, reflect the likely outcome of known tax contingencies as of such date in accordance with accounting for uncertainty in income taxes under ASC 740.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex U.S. and foreign tax regulations, exposures from not filing in some jurisdictions, and transfer pricing exposures from allocation of income between jurisdictions. It is inherently difficult and subjective to estimate uncertain tax positions, because we have to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

New and Recently Adopted Accounting Standards

For a listing of our new and recently adopted accounting standards, 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 this Form 10-K.

Reconciliations of Non-GAAP Financial Measures to Reported Amounts

Income from operations and net income excluding special items are non-GAAP financial measures. Management excludes special items and uses non-GAAP measures to focus on PCA’s on-going operations and assess its operating performance and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. Reconciliations of the non-GAAP measures to the most comparable measure reported in accordance with GAAP for the years ended December 31, 2015, 2014, and 2013, follow (dollars in millions):

	Year Ended December 31
	2015								2014								2013 (a)
	Income from Operations				Net Income				Income from Operations				Net Income				Income from Operations				Net Income
As reported in accordance with GAAP	$	750.0			$	436.8			$	702.7			$	392.6			$	481.9			$	441.3
Special items:
DeRidder restructuring (b)	2.0				1.3				65.8				42.1				—				—
Integration-related and other costs (c)	13.4				8.9				18.4				12.7				17.4				11.0
Sale of St. Helens paper mill site (d)	(6.7		)		(4.4		)		—				—				—				—
Class action lawsuit settlement (e)	—				—				17.6				11.2				—				—
Alternative energy tax credits (f)	—				—				—				—				—				(166.0		)
Acquisition inventory step-up (g)	—				—				—				—				21.5				13.6
Acquisition-related costs (h)	—				—				—				—				17.2				10.9
Acquisition-related financing costs (h)	—				—				—				—				—				7.4
Pension curtailment charges (i)	—				—				—				—				10.9				7.0
Total special items	8.7				5.8				101.8				66.0				67.0				(116.1		)
Excluding special items	$	758.7			$	442.6			$	804.5			$	458.6			$	548.9			$	325.2

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

(b)	2015 and 2014 include amounts from restructuring activities at our mill in DeRidder, Louisiana including costs related to the conversion of the No. 3 newsprint machine to containerboard, our exit from the newsprint business, and other improvements.

(c)	All periods presented included include Boise acquisition integration-related and other costs, primarily for severance, retention, travel, and professional fees. 2014 also includes $1.5 million of expense related to the write-off of deferred financing costs in connection with the debt refinancing.

(d)	In September 2015, we sold the remaining land, buildings, and equipment at our paper mill site in St. Helens, Oregon where we ceased paper production in December 2012. We recorded a $6.7 million gain on the sale.

(e)	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 19, Commitments, Guarantees, Indemnifications, and Legal Proceedings, for more information.

(f)	2013 includes the reversal of $166.0 million of tax reserves related to alternative energy tax credits. Approximately $103.9 million of the reversal is due to the completion of the IRS audit of PCA's Filer City mill's cellulosic biofuel tax credits and $62.1 million is from the reversal of a reserve for the taxability of the alternative energy tax credits acquired in the acquisition of Boise.

(g)

Generally accepted accounting principles required us to value the inventory from the acquisition of Boise at fair value, which increased the value of the inventory by $21.5 million. This reduced the profit on the sale of the acquired inventory to that portion attributable to the selling effort. This step-up in value increased expenses by $21.5 million as the acquired inventory was sold and charged to cost of sales.

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

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

The following table reconciles net income (loss) to EBITDA and EBITDA excluding special items for the periods indicated (dollars in millions):

	Year Ended December 31
	2015				2014				2013				2012				2011
Net income	$	436.8			$	392.6			$	441.3			$	160.2			$	158.8
Interest expense, net	85.5				88.4				58.3				62.9				29.2
Provision (benefit) for income taxes	227.7				221.7				(17.7		)		214.5				86.0
Depreciation, amortization, and depletion	356.5				381.0				201.8				170.8				163.6
EBITDA (a)	$	1,106.5			$	1,083.7			$	683.7			$	608.4			$	437.6
Special items:
DeRidder restructuring	$	(7.0	)		$	23.9			$	—			$	—			$	—
Integration-related and other costs	13.4				18.4				17.4				—				—
Sale of St. Helens paper mill site	(6.7		)		—				—				—				—
Class action lawsuit settlement	—				17.6				—				—				—
Acquisition inventory step-up	—				—				21.5				—				—
Acquisition-related costs	—				—				17.2				—				—
Pension curtailment charges	—				—				10.9				—				—
Plant closure charges	—				—				—				2.0				7.4
Alternative energy tax credits	—				—				—				(95.5		)		—
Medical benefits reserve adjustment	—				—				—				—				(1.6		)
EBITDA excluding special items (a)	$	1,106.2			$	1,143.6			$	750.7			$	514.9			$	443.4

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(a)

EBITDA and EBITDA, excluding special items, are non-GAAP financial measures. We present these measures because they provide a means to evaluate the performance of our segments and our company on an ongoing basis using the same measures that are used by our management and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. For each non-GAAP financial measure, we provide a reconciliation to the most directly comparable financial measure presented in accordance with GAAP. These measures may differ from similarly captioned measures of other companies. Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

The following table reconciles segment income (loss) to EBITDA and EBITDA excluding special items (dollars in millions):

	Year Ended December 31
	2015				2014				2013
Packaging
Segment income	$	714.9			$	663.2			$	554.2
Depreciation, amortization, and depletion	297.3				323.0				190.2
EBITDA	1,012.2				986.2				744.4
DeRidder restructuring	(7.0		)		23.9				—
Integration-related and other costs	4.1				4.9				1.4
Acquisition inventory step-up	—				—				18.0
Pension curtailment charges	—				—				10.9
EBITDA excluding special items	$	1,009.3			$	1,015.0			$	774.7
Paper
Segment income	$	112.5			$	135.4			$	13.5
Depreciation, amortization, and depletion	54.9				50.6				9.1
EBITDA	167.4				186.0				22.6
Sale of St. Helens paper mill site	(6.7		)		—				—
Integration-related and other costs	—				—				(1.9		)
Acquisition inventory step-up	—				—				3.5
EBITDA excluding special items	$	160.7			$	186.0			$	24.2
Corporate and Other
Segment income (loss)	$	(77.4	)		$	(95.9	)		$	(85.8	)
Depreciation, amortization, and depletion	4.3				7.4				2.5
EBITDA	(73.1		)		(88.5		)		(83.3		)
Integration-related and other costs	9.3				13.5				17.9
Class action lawsuit settlement	—				17.6				—
Acquisition-related costs	—				—				17.2
EBITDA excluding special items	$	(63.8	)		$	(57.4	)		$	(48.2	)
EBITDA	$	1,106.5			$	1,083.7			$	683.7
EBITDA excluding special items	$	1,106.2			$	1,143.6			$	750.7