Packaging Corp of America (PKG) 10-K risk factor changes: FY2017 vs FY2017

General Economic Conditions - [removed: Adverse] [added: If] business and economic conditions [removed: or changes in tax laws may have a material adverse effect on] [added: deteriorate,] our business, results of operations, liquidity, and financial [removed: position.][added: position may be harmed.]

General global and U.S. economic conditions [removed: adversely] [added: directly] affect the demand and production of consumer goods, employment levels, the availability and cost of credit, and ultimately, the profitability of our business.

[removed: High] [added: If economic conditions deteriorate and result in higher] unemployment rates, lower family income, unfavorable currency exchange rates, lower corporate earnings, lower business investment, and lower consumer [removed: spending typically result in decreased] [added: spending, we may experience lower] demand for our products and products of our customers which utilize our products.

Some of our competitors are larger than we are and may have greater financial and other resources, greater manufacturing economies of scale, greater energy self-sufficiency, or lower operating costs, compared [removed: with] [added: to] our [removed: company.][added: Company.]

Some of the factors that may adversely affect our ability to compete in the markets in which we participate include the entry of new competitors [removed: (including overseas producers, who have increased imports of white paper to the United States in recent years and have been found to have violated international trade rules)] into the markets we serve, [added: increased competition from overseas producers,] our competitors' pricing strategies, our inability to anticipate and respond to changing customer preferences, and our inability to maintain the cost-efficiency of our facilities.

We are subject to both contractual, inflationary, and other general cost increases, including with regard to our labor costs and purchases of raw [removed: materials.][added: materials and transportation services.]

In [removed: 2016,] [added: 2017,] our total company costs including cost of sales (COS) and selling, general, and administrative expenses (SG&A) was [removed: $5.0] [added: $5.5] billion, and excluding non-cash costs (depreciation, depletion and amortization, pension and postretirement expense, and share-based compensation expense) was [removed: $4.6] [added: $5.1] billion.

A 1% increase in COS and SG&A costs would increase costs by [removed: $50] [added: $55] million and cash costs by [removed: $46] [added: $51] million.

In [removed: 2016,] [added: 2017,] we purchased approximately [removed: 630,000] [added: 670,000] tons of recycled fiber, net of the recycled fiber generated by our corrugated box plants.

Periods of higher recycled fiber costs and unusual price volatility have occurred in the [removed: past] [added: past, including during 2017 as demand for domestic recycled fiber from Asian producers fluctuated significantly,] and may occur again in the future, which could result in higher costs and lower earnings.

A $10 per ton price increase in recycled fiber for our containerboard mills, would result in approximately [removed: $6] [added: $7] million of additional [removed: expense.][added: expense based on 2017 consumption.]

A $0.10 per million MMBTU in natural gas prices would result in approximately $3 million of additional expense, based on [removed: 2016] [added: 2017] usage.

| [added: |] • | Unscheduled maintenance outages. |

| [added: |] • | Prolonged power failures. |

| [added: |] • | Equipment failure. |

| [added: |] • | Explosion of a boiler or other major facilities. |

| [added: |] • | Disruption in the supply of raw materials, such as wood fiber, energy, or chemicals. |

| [added: |] • | A chemical spill or release. |

| [added: |] • | Closure or curtailment related to environmental concerns. |

| [added: |] • | Labor difficulties. |

| [added: |] • | Disruptions in the transportation infrastructure, including roads, bridges, railroad tracks, and tunnels. |

| [added: |] • | Fires, floods, earthquakes, hurricanes, or other catastrophes. |

| [added: |] • | Terrorism or threats of terrorism. |

| [added: |] • | Other operational problems. |

We have completed several mergers and acquisitions and investments in recent years, including our [removed: acquisitions] [added: acquisition] of [removed: TimBar and Columbus] [added: Sacramento] Container [added: Corporation] during [removed: 2016.][added: 2017.]

Our success will depend in part on our ability to successfully integrate, and receive the intended benefits [removed: from] [added: from,] these acquisitions.

Integration requires modification of operational and financial [removed: systems,] [added: systems] and may result in significant additional expenses.

The agreement requires Office Depot to buy, and us to supply, at least 50% of Office Depot's requirements for [added: commodity] office papers through December [removed: 2017.][added: 2018.]

In [removed: 2016,] [added: 2017,] sales to Office Depot represented [removed: 42%] [added: 43%] of our Paper segment sales and [removed: 8%] [added: 7%] of our consolidated sales.

At December 31, [removed: 2016,] [added: 2017,] we had [removed: $2.6] [added: $2.7] billion of [removed: long-term] debt outstanding and a [removed: $324.9] [added: $326.9] million undrawn revolving credit facility, after deducting letters of credit.

We and our subsidiaries [added: are not restricted from incurring, and] may [removed: incur] [added: incur,] additional indebtedness in the future.

| [added: |] • | Result in significant cash requirements to make interest and maturity payments on our outstanding indebtedness; |

| [added: |] • | Increase our vulnerability to adverse changes in our business or industry conditions; |

| [added: |] • | Increase our vulnerability to increases in interest rates; |

| [added: |] • | Limit our ability to obtain additional financing for working capital, capital expenditures, general corporate, and other purposes; |

| [added: |] • | Limit our flexibility in planning for, or reacting to, changes in our business and our industry; and |

| [added: |] • | Limit our flexibility to make acquisitions. |

Securities markets worldwide periodically experience significant price declines and volume [removed: fluctuations.][added: fluctuations due to macroeconomic factors and other factors beyond our control.]

If economic conditions result in higher inflation, we may experience higher production and transportation costs, which we may not be able to recover through higher prices or otherwise.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 and Note 6, Income Taxes, of the Notes to the Consolidated Financial Statements in “Part II, Item 8.

Financial Statements and Supplementary Data” of this Form 10-K, for additional information on the impact of the Tax Cuts and Jobs Act (H.R.1) enacted in December 2017.

General economic conditions may result in higher inflation, which may increase our exposure to higher costs.

Transportation Costs - Reduced truck and rail availability could lead to higher costs or poorer service, resulting in lower earnings, and harm our ability to distribute our products.

We ship our products primarily by truck and rail.

We have experienced lower availability of third-party trucking services and interruptions or delays in rail services.

We have also experienced higher costs for transportation services in general.

These factors could lead to even higher transportation costs in the future and harm our ability to distribute our products in a timely manner.

We may not be able to recover higher transportation costs through higher prices or otherwise, which would result in lower earnings.

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We experienced an explosion at the DeRidder mill during 2017, which resulted in facility downtime and damage.

Net of insurance proceeds, we incurred $5 million of property damage and business interruption losses during the year and we are party to multiple lawsuits relating to alleged injuries resulting from such explosion.

Reliance on Personnel - We may fail to attract and retain qualified personnel, including key management personnel.

Our ability to operate and grow our business depends on our ability to attract and retain employees with the skills necessary to operate and maintain our facilities, produce our products and serve our customers.

The increasing demand for qualified personnel may make it more difficult for us to attract and retain qualified employees.

Changing demographics and labor work force trends may make it difficult for us to replace retiring employees at our manufacturing and other facilities.

If we fail to attract and retain qualified personnel, or if we experience labor shortages, we may experience higher costs and other difficulties, and our business may be adversely impacted.

In addition, we rely on key executive and management personnel to manage our business efficiently and effectively.

As our business has grown in size and geographic scope, we have relied on these individuals to manage increasingly complex operations.

The loss of any of our key personnel could adversely affect our business.

All debt is comprised of fixed-rate senior notes.

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Our indebtedness includes $1.0 billion with floating interest rates.

An increase in interest rates will increase the amount we must pay to service our indebtedness.

Such statements, along with any other [removed: nonhistorical] [added: non-historical] statements in the discussion, are forward-looking.

PCA is the fourth largest producer of containerboard products [removed: in the United States] and the third largest producer of uncoated freesheet paper in [removed: the United States,] [added: North America,] based on production capacity.

During 2016, we made two acquisitions [removed: in our] [added: of] corrugated products [removed: business: Tim-Bar] [added: businesses in the Packaging segment: TimBar] Corporation ("TimBar") and Columbus Container, Inc. ("Columbus Container").

On August 29, 2016, we acquired substantially all of the assets of TimBar, a large independent corrugated products producer with six [added: domestic] corrugated products production facilities for a purchase price of $386 million.

To finance the acquisition, we borrowed $385 million under a new five-year term loan [removed: facility.][added: facility, which we have subsequently refinanced.]

We used available cash on hand to pay the purchase [removed: price.][added: price for Columbus Container.]

We reported [removed: $450] [added: $669] million of net income, or [removed: $4.75] [added: $7.07] per diluted share, compared [removed: with $437] [added: to $450] million, or [removed: $4.47] [added: $4.75] per share in [removed: 2015.][added: 2016.]

[removed: Income] [added: 2017 income from operations] included [removed: $19] [added: $30] million of [removed: pre-tax] expense for special items [removed: in 2016] compared to [removed: $9] [added: $19] million [added: of expense] in [removed: 2015.][added: 2016.]

Excluding special items, we recorded [removed: $462] [added: $569] million of net income, or [removed: $4.88] [added: $6.02] per diluted share in [removed: 2016,] [added: 2017,] compared [removed: with $443 million and $4.53] [added: to $462 million, or $4.88] per diluted [removed: share] [added: share,] in [removed: 2015.][added: 2016.]

The increase was driven primarily by [removed: increased] [added: higher] containerboard and corrugated products [removed: volumes, improved operating costs,] [added: prices] and [removed: a lower share count,] [added: mix and sales and production volumes,] partially offset by lower [removed: containerboard and corrugated products] [added: Paper segment] prices and mix and [removed: lower paper volumes.][added: sales and production volumes, and higher input and operating costs.]

Paper segment [removed: income from operations was $138 million, compared with $112 million in 2015, and] EBITDA excluding special items was [removed: $199 million,] [added: $153 million in 2017,] compared [removed: with $161] [added: to $199] million in [removed: 2015.][added: 2016.]

The [removed: increase] [added: decrease] was [removed: primarily] due to [removed: improved operating costs and favorable changes in price and mix, partially offset by] lower [added: pulp] volume [added: ($47 million)] as a result of the [added: December] 2016 shutdown of [added: our] market pulp operations at our [removed: Wallula, Washington mill.][added: Wallula mill, and unfavorable changes in prices and mix ($7 million), partially offset by higher white paper volume ($12 million).]

Earnings per diluted share, excluding special items, in [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] were as follows:

| | [added: |] Year Ended December 31 | | | | | | |

| | [added: |] 2016 | | | | 2015 | | |

| Earnings per diluted share | [added: |] $ | [removed: 4.75] [added: 7.07] | | | $ | [removed: 4.47] [added: 4.75] | |

| Special items: | | | | | | | | [added: |]

| Facilities closure [added: and other] costs [removed: (a)] | [removed: 0.07] | | [added: (10.3] | [added: )] | [removed: —] | | [added: —] | [added: |]

| [removed: Acquisition-related] [added: Acquisition and integration related] costs (b) | [removed: 0.03] | | [added: 0.01] | | [removed: —] | | [added: 0.03] | [added: |]

| Wallula mill restructuring (c) | [removed: 0.02] | | [added: 0.21] | | [removed: —] | | [added: —] | [added: |]

| DeRidder restructuring [removed: (e)] | [removed: —] | | [added: —] | | [removed: 0.01] | | [added: 7.1] | [added: |]

| [removed: Integration-related] [added: Acquisition] and [removed: other] [added: integration related] costs [removed: (f)] | [removed: —] | | [added: (0.8] | [added: )] | [removed: 0.10] | | [added: (3.3] | [added: ) |]

| Sale of St. Helens [removed: paper mill site (g)] [added: Paper Mill Site] | [removed: —] | | [added: —] | | [removed: (0.05] | | [removed: )] [added: 6.7] | [added: |]

| Total special items [added: (income) expense] | [removed: 0.13] | | [added: (1.05] | [added: )] | [removed: 0.06] | | [added: 0.13] | [added: |]

| Earnings per diluted share, excluding special items | [added: |] $ | [removed: 4.88] [added: 6.02] | | | $ | [removed: 4.53] [added: 4.88] | |

| (b) | [removed: Includes] [added: For 2017, includes $1.7 million of charges related to the Sacramento Container Corporation acquisition and integration costs related to other recent acquisitions. For 2016, includes] $4.5 million of acquisition-related costs for the TimBar Corporation and Columbus Container, Inc. acquisitions. |

| [removed: (c)] [added: (j)] | Includes $2.7 million of costs related to ceased production of softwood market pulp operations at our Wallula, Washington mill and the permanent shutdown of the No.1 machine. |

[removed: | (d) | Includes $0.9] [added: Special items in 2016 included $9] million of [removed: costs] [added: facility closure costs, $4 million of TimBar and Columbus Container acquisition-related costs, and $1 million] related to our withdrawal from a multiemployer pension plan for one of our corrugated products facilities. [removed: |]

| [removed: (e)] [added: (k)] | Includes [removed: $2.0 million of] [added: amounts from] restructuring activities at our mill in DeRidder, [removed: Louisiana,] [added: Louisiana] including costs related to the conversion of the No. 3 newsprint machine to containerboard, our exit from the newsprint business, and other improvements. [removed: The restructuring charges primarily related to accelerated depreciation.] |

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

Trade publications reported [removed: that industry] [added: North American industry-wide] corrugated products [added: total] shipments increased [removed: 2.1%] [added: 2.5%] during [removed: 2016,] [added: 2017,] compared [removed: with 2015.][added: to 2016.]

Trade publications reported [removed: that] [added: North American] uncoated freesheet paper shipments were down 3.4% in [removed: 2016,] [added: 2017,] compared [removed: with 2015.][added: to 2016.]

[removed: Trade publication average] [added: Average] prices [added: reported by a trade publication] for [removed: uncoated freesheet decreased] [added: cut size office papers were lower by] $19 per ton, or 1.9%, in [removed: 2016,] [added: 2017,] compared [removed: with 2015.][added: to 2016.]

We [removed: expect] [added: anticipate continued] higher freight costs as well as higher labor and benefits costs with annual wage increases and other timing-related expenses.

[removed: We also] [added: Although we] anticipate [removed: continued] price inflation on recycled [removed: fiber, energy,] [added: fiber to be fairly flat, we do expect some inflation in our energy costs] and [removed: certain chemicals,] [added: with most of our chemical,] and [added: repair and materials costs, and] seasonally colder weather [removed: is expected to] [added: will] increase [removed: wood and] energy [added: usage and wood] costs.

Considering these items, [added: and other items,] we expect first quarter [removed: earnings per share] [added: earnings, excluding special items,] to be [removed: higher] [added: slightly lower] than fourth quarter [removed: 2016.][added: 2017.]

| | [added: |] Year Ended December 31 | | | | | | | [removed: | | | |]

| | [added: |] 2016 | | | | 2015 | | | | Change | | |

| Packaging | [added: |] $ | 4,584.8 | | | $ | 4,477.3 | | | $ | 107.5 | |

| Paper | [added: | |] 1,093.9 | | | | 1,143.1 | | | | (49.2 | [removed: |] ) |

Net sales were $6.44 billion for the year ended December 31, 2017 and $5.78 billion in 2016.

Net income included $100 million of income for special items (discussed below) in 2017, including $122 million of estimated income tax benefit related to the enactment in December 2017 of the Tax Cut and Jobs Act (H.R.1), compared to $12 million of expense in 2016.

For additional detail on special items included in reported GAAP results, see “Item 7.

Reconciliations of Non-GAAP Financial Measures to Reported Amounts.”

Packaging segment income from operations was $944 million in 2017, compared to $711 million in 2016.

Packaging segment EBITDA excluding special items was $1,257 million in 2017, compared to $1,019 million in 2016.

The increase was driven primarily by higher containerboard and corrugated products prices and mix and sales and production volumes driven by strong demand; partially offset by higher input costs, primarily recycled fiber and energy; higher labor costs; and higher freight and depreciation expense.

Paper segment income from operations was $62 million in 2017, compared to $138 million in 2016.

During the third quarter of 2017, the Company announced that it will discontinue production of uncoated freesheet and coated one-side grades at its Wallula, Washington mill in the second quarter of 2018 to begin the conversion of the No. 3 paper machine to a 400,000 ton-per-year virgin kraft linerboard machine.

The Company incurred charges in the Paper segment relating to these activities during 2017 as described below under “Special Items and Earnings per Diluted Share, Excluding Special Items,” and will incur future charges.

The total capital cost of the conversion is expected to be approximately $150 million.

Also, to further our corrugated products business growth strategy, on October 2, 2017, the Company acquired substantially all of the assets of Sacramento Container Corporation, and 100% of the membership interests of Northern Sheets, LLC and Central California Sheets, LLC (collectively the “Sacramento Container acquisition”) for $265 million with cash on hand.

The acquired companies operate two full-line corrugated product operations and sheet feeders in McClellan, California and Kingsburg, California.

The operating results of the companies acquired in the Sacramento Container acquisition are included in our results and reported in the Packaging segment from and after October 2, 2017.

We are in the process of integrating these operations into our business.

Accordingly, 2016 reflects a partial year of ownership of these operations and 2017 reflects a full year of ownership of these operations.

These operations have been substantially integrated into our business and have helped drive growth in our corrugated products volumes during 2017.

On December 13, 2017, we issued $1 billion of senior notes, consisting of $500 million of three year notes bearing interest at a fixed rate of 2.45% and $500 million of ten year notes bearing interest at a fixed rate of 3.40%.

We used the net proceeds of the offering to repay all of our outstanding variable-rate term loan debt, which was approximately $976 million at the time of the offering.

As a result, all of our outstanding long-term debt as of December 31, 2017 bears interest at fixed rates.

Special Items and Earnings per Diluted Share, Excluding Special Items

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| | | 2017 | | | | 2016 | | |

| Facilities closure and other costs (a) | | | (0.04 | ) | | | 0.08 | |

| Expiration of timberland repurchase option (d) | | | (0.01 | ) | | | — | |

| Deferred debt issuance costs (e) | | | 0.01 | | | | — | |

| Tax reform (f) | | | (1.29 | ) | | | — | |

| Internal legal entity consolidation (g) | | | 0.04 | | | | — | |

| DeRidder mill incident (h) | | | 0.03 | | | | — | |

| Hexacomb working capital adjustment (i) | | | (0.01 | ) | | | — | |

| Ceased production of market pulp at Wallula (j) | | | — | | | | 0.02 | |

| (a) | For 2017, includes $5.8 million of income primarily related to the sale of land corresponding to the closure of a corrugated products facility, partially offset by closure costs related to corrugated products facilities, a paper administration facility, a corporate administration facility, and a lump sum settlement of a multiemployer pension plan withdrawal liability for one of our corrugated products facilities. For 2016, includes $11.9 million of closure costs related to corrugated product facilities and a paper products facility, and a lump sum settlement of a multiemployer pension plan withdrawal liability for one of our corrugated products facilities. |

| (c) | Includes $33.4 million of charges related to our determination to discontinue production of uncoated free sheet and coated one-side grades at the Wallula, Washington mill in the second quarter of 2018 and convert the No. 3 paper machine to a high-performance 100% virgin kraft linerboard machine. |

| (d) | Includes a $2.0 million gain related to the expiration of a repurchase option corresponding to timberland previously sold. |

| (f) | Includes $122.1 million of estimated income tax benefit related to the enactment in December 2017 of the Tax Cuts and Jobs Act (H.R.1) primarily for the re-measurement of our net deferred tax liability as a result of the reduction in the U.S. corporate income tax rate. |

| (g) | Includes $3.3 million of tax expense for the change in value of deferred taxes as a result of an internal legal entity consolidation that will simplify future operating activities. |

| (h) | Includes $5.0 million of costs for the property damage and business interruption insurance deductible corresponding to the February 2017 explosion at our DeRidder, Louisiana mill. |

| (i) | Includes $2.3 million of income related to a working capital adjustment from the April 2015 sale of our Hexacomb corrugated manufacturing operations in Europe and Mexico. |

Reported industry containerboard production increased 3.1% compared to 2016, and reported industry containerboard inventories at the end of 2017 were approximately 2.4 million tons, up 3.3% compared to 2016.

Reported containerboard export shipments were up 4.1% compared to 2016.

TimBar provides solutions to customers in the higher margin retail, industrial packaging and display and fulfillment markets with a focus on multi-color graphics and technical innovation.

These acquisitions will accelerate the growth strategy and increase the containerboard integration level in our Packaging segment.

In 2016, we successfully completed the acquisitions of TimBar and Columbus Container, achieved a record $801 million of operating cash flow, and returned $316 million to our shareholders through share repurchases and dividends.

Packaging segment income from operations was $711 million, compared with $715 million in 2015, and earnings before interest, taxes, depreciation, amortization, and depletion (EBITDA) excluding special items was $1,019 million, compared with $1,009 million in 2015.

Volumes were up in both our containerboard mills and corrugated products plants in 2016, and we began implementing announced price increases during the fourth quarter.

Higher volumes and improved operating costs were partially offset by unfavorable changes in containerboard and corrugated products price and mix compared with 2015.

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| Multiemployer pension withdrawal (d) | 0.01 | | | | — | | |

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| (a) | Includes $11.0 million of closure costs related to corrugated product facilities and a paper products facility. |

| (f) | Includes $13.4 million of Boise acquisition integration-related and other costs. These costs primarily relate to professional fees, severance, retention, relocation, travel, and other integration-related costs. |

Reported industry containerboard production was 1.2% higher than 2015, with export shipments up 4.6%.

Published open market containerboard prices for linerboard decreased $15 per ton in January, followed by a $40 per ton increase in October.

Medium decreased $20, $10, and $15 per ton in January, February, and August respectively, followed by a $40 increase in October.

Looking ahead to the first quarter of 2017, we expect to realize the vast majority of our previously announced Packaging segment price increases and we expect higher corrugated products shipments with continuing strong demand.

We expect lower containerboard and paper production volume as we have scheduled maintenance outages on one of our machines at both the Counce and DeRidder containerboard mills and on one of our machines at our Jackson, Alabama paper mill.

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On average

Containerboard mill production in 2016 was 3,736,000 total tons, compared with 3,656,000 total tons in 2015.

Excluding special items, gross profit increased $64 million in 2016, compared with 2015.

Other expense, net, in 2016 was $24 million, compared with $7 million during 2015.

Other expense in 2016 included $9 million of facility closure costs, $9 million of asset disposal costs, and $3 million of acquisition-related costs, among other miscellaneous expense items.

Other expense in 2015 included $14 million of asset disposal costs and $13 million of Boise integration-related and other costs, partially offset by $7 million of income related to the DeRidder restructuring, a $7 million gain on the sale of our St. Helens paper mill site, and $4 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.

Excluding special items, income from operations increased $41 million in 2016, compared with 2015.

Interest expense, net, was $92 million in 2016, compared with $86 million in 2015.

| | 2015 | | | | 2014 | | | | Change | | |

| Packaging | $ | 4,477.3 | | | $ | 4,540.3 | | | $ | (63.0 | ) |

| Paper | 1,143.1 | | | | 1,201.4 | | | | (58.3 | | ) |

| 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 | (77.4 | | ) | | (95.9 | | ) | | 18.5 | | |

| Income from operations | $ | 750.0 | | | $ | 702.7 | | | $ | 47.3 | |

| Income tax expense | (227.7 | | ) | | (221.7 | | ) | | (6.0 | | ) |

Net sales decreased $111 million, or 1.9%, to $5,742 million in 2015, compared with $5,853 million in 2014.

Sales decreased $63 million, or 1.4%, to $4,477 million, compared with $4,540 million in 2014.

Sales decreased $115 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.

We were not party to any derivative-based arrangements at December 31, [removed: 2016.][added: 2017.]

[removed: The] [added: At December 31, 2017, the] interest rates on [removed: approximately 62%] [added: 100%] of PCA’s [added: outstanding] debt are fixed.

A one percent increase in interest rates related to variable rate debt would have resulted in an increase in interest expense and a corresponding decrease in income before taxes of $10.1 million annually.

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Packaging Corporation of America [removed: ("we," "us," "our," "PCA,"] [added: (“we,” “us,” “our,” “PCA,”] or the [removed: "Company")] [added: “Company”)] is the fourth largest producer of containerboard products and the third largest producer of uncoated freesheet [added: (UFS)] in [removed: the United States,] [added: North America,] based on production capacity.

We operate five containerboard mills, three [added: white] paper mills and 94 corrugated products manufacturing plants.

| | | | [added: | | | | |] First Quarter | | [added: | |] Second Quarter | | [added: | |] Third Quarter | | [added: | |] Fourth Quarter | | [added: | |] Full Year | [added: | |]

| [removed: Containerboard Production (a)] [added: (thousand tons)] | [removed: PCA] | [added: | | |] 2016 | [added: | | |] 898 | | [added: | |] 926 | | [added: | |] 950 | | [added: | |] 962 | | [added: | |] 3,736 | [added: |]

| [removed: (thousand tons)] | | [added: | | |] 2015 | [added: | | |] 882 | | [added: | |] 938 | | [added: | |] 933 | | [added: | |] 903 | | [added: | |] 3,656 | [added: |]

| [removed: Corrugated Shipments (BSF)] | [removed: PCA] | [added: | | |] 2016 | [added: | | |] 12.3 | | [added: | |] 12.7 | | [added: | |] 13.1 | | [added: | |] 13.2 | | [added: | |] 51.3 | [added: |]

| | | [added: | | |] 2015 | [added: | | |] 11.9 | | [added: | |] 12.4 | | [added: | |] 12.5 | | [added: | |] 12.1 | | [added: | |] 48.9 | [added: |]

| (thousand tons) | | [removed: 2015] | [removed: —] | | [removed: —] [added: 2016] | | [removed: —] | | [removed: —] [added: 16] | | [removed: —] | [added: | 10 | | | | 12 | | | | 7 | | | | 45 | |]

| [removed: White Paper (UFS) Production] [added: (thousand tons)] | [removed: PCA] | [added: | | |] 2016 | [added: | | |] 283 | | [added: | |] 268 | | [added: | |] 288 | | [added: | |] 288 | | [added: | |] 1,127 | [added: |]

| [removed: (thousand tons)] | | [added: | | |] 2015 | [added: | | |] 288 | | [added: | |] 273 | | [added: | |] 294 | | [added: | |] 262 | | [added: | |] 1,117 | [added: |]

| Market Pulp Production [removed: (b)] [added: (a)] | [added: |] PCA | [removed: 2016] | [removed: 16] | [added: 2017] | [removed: 10] | | [removed: 12] | [added: \-] | [removed: 7] | | [removed: 45] | [added: \- | | | | \- | | | | \- | | | | \- | |]

| [removed: (b)] [added: (a)] | On December 1, 2016, PCA ceased production of softwood market pulp at our Wallula, Washington mill and permanently shut down the No.1 machine. |

[removed: Below is a map of our locations:][added: ]

During the year ended December 31, [removed: 2016,] [added: 2017,] our Packaging segment produced [removed: 3.7] [added: 3.9] million tons of containerboard at our mills.

Our corrugated products manufacturing plants sold [removed: 51.3] [added: 55.7] billion square feet (BSF) of corrugated products.

Our net sales to third parties totaled [removed: $4.6] [added: $5.3] billion in [removed: 2016.][added: 2017.]

We [added: currently] manufacture our Packaging products at five containerboard mills, one containerboard machine (at our Wallula, Washington white paper mill), corrugated manufacturing operations, and protective packaging operations.

Our Wallula, Washington mill primarily produces white paper, but also produces semi-chemical corrugating medium on one of its [added: two] paper machines.

We operate 94 corrugated manufacturing operations, a technical and development center, [removed: eight] [added: nine] regional design centers, a rotogravure printing operation, and a complement of packaging supplies and distribution centers.

Of the 94 manufacturing facilities, [removed: 59] [added: 61] operate as combining operations, commonly called corrugated plants, which manufacture corrugated sheets and finished corrugated packaging products, [removed: 34] [added: 32] are sheet plants, which procure combined sheets and manufacture finished corrugated packaging products, and one is a corrugated sheet-only manufacturer.

Each of our plants serve a market radius of [removed: around] [added: approximately] 150 miles.

In [removed: 2016,] [added: 2017,] our usage of recycled fiber, net of internal generation, represents 17% of our containerboard production.

We procure wood fiber through leases of cutting rights, long-term supply agreements, and market [removed: purchases.][added: purchases and believe we have adequate sources of fiber supply.]

We participate in the Sustainable Forestry Initiative® [removed: (SFI)] [added: (SFI), the Programme for the Endorsement of Forest Certification (PEFC), as well as the Forest Stewardship Council (FSC),] and we are certified under [removed: the SFI] [added: their] sourcing standards.

In [removed: 2016,] [added: 2017,] our packaging mills consumed about [removed: 60] [added: 63] million MMBTU’s of fuel to produce both steam and electricity.

Of the [removed: 60] [added: 63] million MMBTU’s consumed, about [removed: 61%] [added: 62%] was from mill generated by-products and [removed: 39%] [added: 38%] was from purchased fuels.

Of the [removed: 39%] [added: 38%] in purchased fuels, [removed: 69%] [added: 61%] was from natural gas, [removed: 26%] [added: 33%] was from purchased wood waste and [removed: 5%] [added: 6%] was from other purchased fuels.

Our corrugated products are sold through [removed: a] [added: our] direct sales and marketing organization, independent brokers, and distribution partners.

Our containerboard sales group is responsible for the coordination of linerboard and corrugating [removed: medium] [added: medium, order processing, and] sales to our corrugated plants, to outside domestic customers, and to export customers.

We sell corrugated products to over [removed: 17,000] [added: 18,000] customers in over [removed: 34,000] [added: 35,000] locations.

The primary end-use markets in the United States for corrugated products are shown below as reported in the [removed: 2015] [added: 2016] Fibre Box Association annual report:

| Food, beverages, and agricultural products | [added: | |] 45 | % |

| Retail and wholesale trade | [removed: 19] | [added: | 22 |] % |

| Miscellaneous manufacturing | [removed: 15] | [added: | 12 |] % |

| Paper and other products | [added: | |] 11 | % |

| Chemical, plastic, and rubber products | [added: | |] 10 | % |

As of December 31, [removed: 2016,] [added: 2017,] we were the fourth largest producer of containerboard products in the United States, according to industry sources and our own estimates.

According to industry sources, corrugated products are produced by about [removed: 500] [added: 475] U.S. companies operating approximately 1,200 plants.

Corrugated producers generally sell within a [removed: 150\-mile] [added: 150-mile] radius of their plants and compete with other corrugated producers in their local region.

We [added: currently] have three white paper mills located in the United States.

On October 2, 2017, we acquired substantially all of the assets of Sacramento Container Corporation, and 100% of the membership interests of Northern Sheets, LLC and Central California Sheets, LLC for a cash purchase price of $265 million, funded with cash on hand.

The acquired companies operate two full-line corrugated products operations and sheet feeders in McClellan, California and Kingsburg, California.

During the third quarter of 2017, we announced that we would discontinue production of uncoated freesheet and certain types of pressure sensitive grades of white paper at our Wallula, Washington mill in the second quarter of 2018.

We will convert the No. 3 paper machine at the mill to a 400,000 ton-per-year virgin kraft linerboard machine.

After the conversion, the Wallula mill will produce only containerboard.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Containerboard Production | | PCA | | | 2017 | | | | 932 | | | | 947 | | | | 996 | | | | 1,006 | | | | 3,881 | |

| Corrugated Shipments (BSF) | | PCA | | | 2017 | | | | 13.6 | | | | 13.9 | | | | 13.7 | | | | 14.5 | | | | 55.7 | |

| White Paper (UFS) Production | | PCA | | | 2017 | | | | 273 | | | | 289 | | | | 278 | | | | 278 | | | | 1,118 | |

| | | | | | 2015 | | | | 27 | | | | 23 | | | | 25 | | | | 23 | | | | 98 | |

Below is a map of our locations:

Total annual containerboard capacity is 4,111,000 tons.

As described above, we are converting the No. 3 machine at the mill from white paper to kraft linerboard.

After the conversion, the Wallula mill will solely produce containerboard.

| --- | --- | --- | --- | --- |

Total annual white paper capacity is 990,000 tons.

As described above, we are converting the No. 3 machine at the mill from white paper to kraft linerboard.

Upon the conversion, the Wallula mill will solely produce containerboard.

Fiber is the largest raw material cost in this segment.

In 2016, as a result of a case brought by us and other domestic producers before United States international trade authorities, antidumping and countervailing duties at various levels were imposed on producers of uncoated freesheet papers produced in Australia, Brazil, China, Indonesia, and Portugal.

These duties remain in effect.

During 2016, we made two acquisitions in our corrugated products business: Tim-Bar Corporation ("TimBar") and Columbus Container, Inc. ("Columbus Container").

On August 29, 2016, we acquired substantially all of the assets of TimBar, a large independent corrugated products producer with six corrugated products production facilities for a purchase price of $386 million.

To finance the acquisition, we borrowed $385 million under a new five-year term loan facility.

TimBar provides solutions to customers in the higher-margin retail, industrial packaging and display and fulfillment markets with a focus on multi-color graphics and technical innovation.

On November 30, 2016, we acquired substantially all of the assets of Columbus Container for a purchase price of $100 million.

Columbus Container is a full-service provider of corrugated packaging products, with a full-line corrugated products plant, warehousing facilities, and other related operations located in Indiana and Illinois.

We used available cash on hand to purchase Columbus Container.

The operating results of TimBar and Columbus Container are included in our results and reported in the Packaging segment from and after the respective dates of acquisition.

These acquisitions will accelerate the growth strategy and increase the containerboard integration level in our Packaging segment.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2014 | 821 | | 846 | | 858 | | 927 | | 3,452 |

| | | 2014 | 11.6 | | 12.1 | | 12.4 | | 12.1 | | 48.2 |

| Newsprint Production (a) | PCA | 2016 | — | | — | | — | | — | | — |

| | | 2014 | 56 | | 56 | | 50 | | — | | 162 |

| | | 2014 | 286 | | 275 | | 296 | | 287 | | 1,144 |

| (thousand tons) | | 2015 | 27 | | 23 | | 25 | | 23 | | 98 |

| | | 2014 | 26 | | 23 | | 26 | | 25 | | 100 |

____________

| | |

| --- | --- |

| (a) | PCA ceased production of newsprint and converted the No.3 newsprint machine at our DeRidder, Louisiana mill to containerboard in the third quarter of 2014. Sales of newsprint were recorded in the Packaging segment. |

The year-end 2016 annual estimated production capacity, as reported to the American Forest and Paper Association (AF&PA), was 1,104,000 tons.

In 2016, the mill produced 1,103,000 tons of kraft linerboard on two paper machines.

The year-end 2016 annual estimated capacity reported to the AF&PA, on the two machines, was 994,000 tons.

The No. 1 machine produced 645,000 tons of kraft linerboard during 2016.

The No. 3 machine produced 180,000 tons of linerboard and 168,000 tons of medium.

The No. 3 machine was converted from a newsprint machine to a containerboard machine in 2014.

Its year-end 2016 annual estimated production capacity, as reported to the AF&PA, was 604,000 tons.

In 2016, our single paper machine at Valdosta produced 599,000 tons of kraft linerboard.

Its year-end 2016 annual estimated production capacity, as reported to the AF&PA, was 556,000 tons.

In 2016, the mill produced 500,000 tons on two paper machines.

Its year-end 2016 annual estimated production capacity, as reported to the AF&PA, was 445,000 tons.

In 2016, the mill produced 408,000 tons on three paper machines.

Its year-end 2016 annual estimated production capacity of medium, as reported to the AF&PA, was 147,000 tons.

In 2016, the mill produced 133,000 tons of semi-chemical corrugating medium.

We currently lease the cutting rights to approximately 75,000 acres of timberland located near our Counce, Tennessee and Valdosta, Georgia mills.

Virtually all of the acres under cutting rights agreements are located within 100 miles of these two mills which results in lower wood transportation costs and provides a secure source of wood fiber.

These leased cutting rights agreements have terms with about 14 years remaining, on average.

This group handles order processing for all shipments of containerboard from our mills to our corrugated plants.

| --- | --- |

[removed: | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)] OF THE SECURITIES EXCHANGE ACT OF 1934 [removed: |]

[removed: |] For the fiscal year ended December 31, [removed: 2016 |][added: 2017]

[removed: |] Commission file number 1-15399 [removed: |]

[removed: ][added: ]

Yes [removed: x] [added: ☒] No [removed: ¨][added: ☐]

Yes [removed: ¨] [added: ☐] No [removed: x][added: ☒]

| Large accelerated filer | [removed: x] | [added: ☒ | |] Accelerated filer | [removed: ¨] | [added: ☐ |]

| Non-accelerated filer | [removed: ¨] [added: | ☐] (Do not check if a smaller reporting company) | [added: |] Smaller reporting company | [removed: ¨] | [added: ☐ |]

At June 30, [removed: 2016,] [added: 2017,] the last day of the Registrant's most recently completed second fiscal quarter, the aggregate market value of Registrant's common equity held by non-affiliates was approximately [removed: $6,233,906,649] [added: $10,380,184,252] based upon the closing sale price as reported on the New York Stock Exchange.

On February [removed: 24, 2017,] [added: 23, 2018,] there were [removed: 94,206,284] [added: 94,349,822] shares of Common Stock outstanding.

Specified portions of the Proxy Statement for the Registrant's [removed: 2017] [added: 2018] Annual Meeting of Stockholders are incorporated by reference to the extent indicated in Part III of this Form 10-K.

| | [removed: PART I] [added: [PART I](#PART_I)] | |

| Item 1. | [removed: [Business](#s5A9913BB6F9F50CD8015574626046D98)] [added: [Business](#ITEM_1_BUSINESS)] | [removed: [1](#s5A9913BB6F9F50CD8015574626046D98)] [added: 1] |

| | [removed: [Packaging](#s0AB0A1873855516E9C3CA7DC94ECD3C4)] [added: [Packaging](#PACKAGING)] | [removed: [2](#s0AB0A1873855516E9C3CA7DC94ECD3C4)] [added: 2] |

| | [removed: [Paper](#sFCBADE64A1885E15B568F0D82BBD9063)] [added: [Paper](#PAPER)] | [removed: [5](#sFCBADE64A1885E15B568F0D82BBD9063)] [added: 5] |

| | [Corporate and [removed: Other](#sF013317897B655039ED3385B5B0CB0A9)] [added: Other](#CORPORATE_OR)] | [removed: [7](#sF013317897B655039ED3385B5B0CB0A9)] [added: 6] |

| | [removed: [Employees](#sEE5B66B89F3B58428A97EAFADADBD135)] [added: [Employees](#EMPLOYEES)] | [removed: [7](#sEE5B66B89F3B58428A97EAFADADBD135)] [added: 6] |

| | [Environmental [removed: Matters](#s28E65A2910735907AE10E61F603A2023)] [added: Matters](#EM)] | [removed: [7](#s28E65A2910735907AE10E61F603A2023)] [added: 6] |

| | [Executive Officers of the [removed: Registrant](#s6767F7F391CF54B7BBBF4A44739125FD)] [added: Registrant](#EXECUTIVE_FICERS__REGISTRANT)] | [removed: [7](#s6767F7F391CF54B7BBBF4A44739125FD)] [added: 6] |

| Item 1A. | [Risk [removed: Factors](#s0E37576E4FB95FC78327A50DB53E3FEF)] [added: Factors](#Item_1A_RISK_FACTORS)] | [removed: [8](#s0E37576E4FB95FC78327A50DB53E3FEF)] [added: 7] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s0BF12F9B3A335432AA40D8832275C8EB)] [added: Comments](#Item_1B_UNRESOLVED_STAFF_COMMENTS)] | [removed: [13](#s0BF12F9B3A335432AA40D8832275C8EB)] [added: 11] |

| Item 2. | [removed: [Properties](#s543F46C3E5F65D27AB8581058B7175BB)] [added: [Properties](#Item_2_PROPERTIES)] | [removed: [13](#s543F46C3E5F65D27AB8581058B7175BB)] [added: 12] |

| Item 3. | [Legal [removed: Proceedings](#s08197B09BC0A5A39AC5F82EFA91A9261)] [added: Proceedings](#Item_3_LEGAL_PROCEEDINGS)] | [removed: [13](#s08197B09BC0A5A39AC5F82EFA91A9261)] [added: 12] |

| Item 4. | [Mine Safety [removed: Disclosure](#sDF965D0B7BA15084A0044BC37A9E4B9E)] [added: Disclosure](#Item_4_MINE_SAFETY_DISCLOSURE)] | [removed: [13](#sDF965D0B7BA15084A0044BC37A9E4B9E)] [added: 12] |

| [removed: PART II] | [added: [PART II](#PART_II)] | |

| Item 5. | [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#sDE358ECF1E4A5AFA84B06604FFA51220)] [added: Securities](#Item_5_MARKET_FOR_REGISTRANTS_COMMON)] | [removed: [14](#sDE358ECF1E4A5AFA84B06604FFA51220)] [added: 13] |

| Item 6. | [Selected Financial [removed: Data](#s09AB9F28B16158FCB1D10A42F21D5300)] [added: Data](#ITEM_6_SELECTED_FINANCIAL_DATA)] | [removed: [17](#s09AB9F28B16158FCB1D10A42F21D5300)] [added: 16] |

| Item 7. | [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s622A8E7C25B35A57AC6192655231C896)] [added: Operations](#ITEM_7_MANAGEMENTS_DISCUSSION_ANALYSIS_F)] | [removed: [18](#s622A8E7C25B35A57AC6192655231C896)] [added: 17] |

| | [removed: [Overview](#s95853495743D5A158302AB84CF5DF229)] [added: [Overview](#OVERVIEW)] | [removed: [18](#s95853495743D5A158302AB84CF5DF229)] [added: 17] |

| | [Executive [removed: Summary](#s2C8BFE79A85A54F696912E6072E42BA1)] [added: Summary](#EXECUTIVE_SUMMARY)] | [removed: [18](#s2C8BFE79A85A54F696912E6072E42BA1)] [added: 17] |

| | [Industry and Business [removed: Conditions](#s8712DC7B2ED255E6927D6B8A228567DB)] [added: Conditions](#INDUSTRY_BUSINESS_CONDITIONS)] | [removed: [19](#s8712DC7B2ED255E6927D6B8A228567DB)] [added: 19] |

| | [removed: [Outlook](#sDB5271DDAE035B71875DE609F03A4B1D)] [added: [Outlook](#OUTLOOK)] | [removed: [20](#sDB5271DDAE035B71875DE609F03A4B1D)] [added: 19] |

| | [Results of [removed: Operations](#sCAC66319788F5F0D895F7DD6E1632173)] [added: Operations](#RESULTS_OPERATIONS)] | [removed: [20](#sCAC66319788F5F0D895F7DD6E1632173)] [added: 20] |

| | [Liquidity and Capital [removed: Resources](#s9D9E14D0E71857808E0502F79582D704)] [added: Resources](#LIQUIDITY_CAPITAL_RESOURCES)] | [removed: [24](#s9D9E14D0E71857808E0502F79582D704)] [added: 24] |

| | [removed: [Commitments](#s58EC1239C7285A43A58FE7DE539A2993)] [added: [Commitments](#COMMITMENTS)] | [removed: [27](#s58EC1239C7285A43A58FE7DE539A2993)] [added: 26] |

| | [Off-Balance-Sheet [removed: Arrangements](#s458825B6C350512F94A34DCD3B5B990F)] [added: Arrangements](#FBALANCESHEET_ARRANGEMENTS)] | [removed: [28](#s458825B6C350512F94A34DCD3B5B990F)] [added: 27] |

| | [Inflation and Other General Cost [removed: Increases](#s48267ECCE7075B548DAB6CCB69D59DCF)] [added: Increases](#INFLATION_OR_GENERAL_COST_INCREASES)] | [removed: [28](#s48267ECCE7075B548DAB6CCB69D59DCF)] [added: 27] |

| | [Environmental [removed: Matters](#s6B64CD6E8B565E0790B19173C7F67730)] [added: Matters](#EM1)] | [removed: [29](#s6B64CD6E8B565E0790B19173C7F67730)] [added: 28] |

| | [Critical Accounting Policies and [removed: Estimates](#s8A7CC9A14976574CA0A50D665E4B85CE)] [added: Estimates](#CRITICAL_ACCOUNTING_POLICIES_ESTIMATES)] | [removed: [30](#s8A7CC9A14976574CA0A50D665E4B85CE)] [added: 29] |

| | [New and Recently Adopted Accounting [removed: Standards](#s0334D672F5D956CEADAAEB4DFBEC032E)] [added: Standards](#NEW_RECENTLY_ADOPTED_ACCOUNTING_STARDS)] | [removed: [33](#s0334D672F5D956CEADAAEB4DFBEC032E)] [added: 32] |

10-K 1 pkg-10k_20171231.htm 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

Yes ☒ No ☐

Yes ☒ No ☐

| --- | --- | --- | --- | --- | --- | --- |

| | | | | | | |

| | | | | | | |

| Emerging growth company | | ☐ | | | | |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ☐ No ☒

10-K 1 pkg1231201610k.htm 10-K

______________________________________

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| --- |

| | | |

| --- | --- | --- |

_____________________________________

| | | | |

| --- | --- | --- | --- |

ii

| | |

| --- | --- |

| | |

Additionally, we have 94 corrugated manufacturing operations, of which the buildings and land for [removed: 52] [added: 56] are owned, including [removed: 44] [added: 46] combining operations, or corrugated plants, one corrugated sheet-only manufacturer, and [removed: seven] [added: nine] sheet plants.

We lease the building for [removed: 15] [added: 11] corrugated plants and 27 sheet plants.

We own [removed: one warehouse] [added: warehouses] and miscellaneous other properties, including sales offices and woodlands management offices.

The headquarter [removed: facilities are] [added: facility is] leased for the next [removed: five] [added: four] years with provisions for two additional five year lease extensions.

We also lease an administrative office in Boise, Idaho, through [removed: March 2018.][added: July 2025.]

| | |

| | |

| | [removed: Sales] [added: | Market] Price | | | | | | | | Dividends [removed: Declared] | | | | [removed: Sales] [added: Market] Price | | | | | | | | Dividends [removed: Declared] | | |

| Quarter Ended | [added: |] High | | | | Low | | | | [added: Declared] | [removed: High] | | | [added: High] | [removed: Low] | | | [added: Low] | | | | [added: Declared] | | |

| March 31 | [added: |] $ | [removed: 62.67] [added: 96.87] | | | $ | [removed: 44.32] [added: 84.01] | | | $ | [removed: 0.55] [added: 0.63] | | | $ | [removed: 84.88] [added: 62.67] | | | $ | [removed: 73.03] [added: 44.32] | | | $ | 0.55 | |

| June 30 | [removed: 71.31] | | [added: 113.52] | | [removed: 58.44] | | [added: 89.73] | | [removed: 0.55] | | [added: 0.63] | | [removed: 78.98] | | [added: 71.31] | | [removed: 62.48] | | [added: 58.44] | | [removed: 0.55] | | [added: 0.55] | [added: |]

| September 30 | [removed: 82.77] | | [added: 119.43] | | [removed: 65.12] | | [added: 105.81] | | [removed: 0.63] | | [added: 0.63] | | [removed: 73.60] | | [added: 82.77] | | [removed: 58.29] | | [added: 65.12] | | [removed: 0.55] | | [added: 0.63] | [added: |]

| December 31 | [removed: 88.41] | | [added: 121.38] | | [removed: 78.03] | | [added: 108.49] | | [removed: 0.63] | | [added: 0.63] | | [removed: 70.04] | | [added: 88.41] | | [removed: 59.54] | | [added: 78.03] | | [removed: 0.55] | | [added: 0.63] | [added: |]

On February [removed: 24, 2017,] [added: 23, 2018,] there were [removed: 70] [added: 66] holders of record of our common stock.

On February 25, 2016, PCA announced that its Board of Directors authorized the repurchase of [removed: $200] [added: $200.0] million of the Company's outstanding common stock.

In 2016, we paid $100.3 million to repurchase 1,987,187 shares of common stock which fully depleted the [removed: remaining] $93.3 million [removed: authorized for] [added: of] repurchase [added: authority] under [removed: the July 2015 authorization.][added: previous authorizations by our board of directors.]

[removed: In 2014, the] [added: The] Company did not repurchase any shares of [added: its] common [removed: stock.][added: stock under this authority during the year ended December 31, 2017.]

As of December 31, [removed: 2016, $193.0 million of the] [added: 2017, we are] authorized [removed: amount remained available for] [added: to] repurchase [added: $193.0 million] of the Company’s common stock.

Total shares withheld in 2016 were 172,438 [removed: for] [added: to cover] $11.2 [removed: million.][added: million of employee tax liabilities.]

The following table presents information related to our repurchases of common stock made under repurchase plans authorized by PCA's Board of Directors, and shares withheld to cover taxes on vesting of equity awards, during the three months ended December 31, [removed: 2016:][added: 2017:]

| Issuer Purchases of Equity Securities | | | | | | | | | | | | | | | [added: | | |]

| Period | | Total Number of Shares Purchased (a) | | | [added: | |] Average Price Paid Per Share | | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | [added: |] Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) | | |

| October 1-31, [removed: 2016] [added: 2017] | | [added: |] — | | | [added: |] $ | — | | | [added: |] — | | | $ | 193.0 | |

| November 1-30, [removed: 2016] [added: 2017] | | [added: |] — | | | [added: | |] — | | | | — | | | [removed: 193.0] | [added: 193.0] | |

| (a) | [removed: 11,429] [added: 500] shares were withheld from employees to cover income and payroll taxes on equity awards that vested during the period. |

The graph tracks the performance of a $100 investment (including the reinvestment of all dividends) in our common stock, in each index, and in the peer groups' common stock from December 31, [removed: 2011,] [added: 2012,] through December 31, [removed: 2016.][added: 2017.]

[removed: ][added: ]

| | [added: |] Cumulative Total Return | | | | | | | | | | | | | | | | | | | | | | |

| | [added: |] December 31 | | | | | | | | | | | | | | | | | | | | | | |

| | [removed: 2011] | [removed: | | |] 2012 | | | | 2013 | | | | 2014 | | | | 2015 | | | | 2016 | | | [added: | 2017 | | |]

| | | 2017 | | | | | | | | | | | | 2016 | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

During the year ended December 31, 2017, we paid $237.6 million of dividends to shareholders.

On December 14, 2017 PCA's Board of Directors approved a regular quarterly cash dividend of $0.63 per share of common stock, which was paid on January 12, 2018 to shareholders of record as of December 26, 2017.

The dividend payment was $59.4 million.

Total shares withheld in 2017 were 97,946 to cover $10.8 million in employee tax liabilities.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| December 1-31, 2017 | | | 500 | | | | | 117.76 | | | | — | | | | 193.0 | |

| Total | | | 500 | | (a) | | $ | 117.26 | | | | — | | | $ | 193.0 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Packaging Corporation of America | | $ | 100.00 | | | $ | 169.39 | | | $ | 213.59 | | | $ | 178.16 | | | $ | 247.80 | | | $ | 360.53 | |

| S&P 500 | | | 100.00 | | | | 132.39 | | | | 150.51 | | | | 152.59 | | | | 170.84 | | | | 208.14 | |

| S&P Midcap 400 | | | 100.00 | | | | 133.50 | | | | 146.54 | | | | 143.35 | | | | 173.08 | | | | 201.20 | |

| Peer Group | | | 100.00 | | | | 133.53 | | | | 151.13 | | | | 110.96 | | | | 156.68 | | | | 176.03 | |

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 2016 | | | | | | | | | | | | 2015 | | | | | | | | | | |

All shares repurchased have been retired.

Total shares withheld in 2014 were 183,170 for $13.2 million.

| | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| December 1-31, 2016 | | 11,429 | | | 86.28 | | | | — | | | 193.0 | | |

| Total | | 11,429 | | (a) | $ | 86.28 | | | — | | | $ | 193.0 | |

____________

| | |

| Packaging Corporation of America | $ | 100.00 | | | $ | 157.35 | | | $ | 266.53 | | | $ | 336.07 | | | $ | 280.32 | | | $ | 389.91 | |

| S&P 500 | 100.00 | | | | 116.00 | | | | 153.58 | | | | 174.60 | | | | 177.01 | | | | 198.18 | | |

| S&P Midcap 400 | 100.00 | | | | 117.88 | | | | 157.37 | | | | 172.74 | | | | 168.98 | | | | 204.03 | | |

| Peer Group | 100.00 | | | | 139.99 | | | | 186.93 | | | | 211.57 | | | | 155.34 | | | | 219.34 | | |

| | [added: |] Year Ended December 31 | | | | | | | | | | | | | | | | | | |

| | [removed: 2016] [added: | 2017] (a) | | | | [removed: 2015] [added: 2016] (a) | | | | [removed: 2014] [added: 2015] (a) | | | | [removed: 2013] [added: 2014] (a) | | | | [removed: 2012] [added: 2013 (a)] | | |

| Statement of Income Data (b): | | | | | | | | | | | | | | | | | | | | [added: |]

| Net Sales | [added: |] $ | [removed: 5,779.0] [added: 6,444.9] | | | $ | [removed: 5,741.7] [added: 5,779.0] | | | $ | [removed: 5,852.6] [added: 5,741.7] | | | $ | [removed: 3,665.3] [added: 5,852.6] | | | $ | [removed: 2,843.9] [added: 3,665.3] | |

| Net Income | [removed: 449.6] | | [added: 668.6] | | [removed: 436.8] | | [added: 449.6] | | [removed: 392.6] | | [added: 436.8] | | [removed: 441.3] | | [added: 392.6] | | [removed: 160.2] | | [added: 441.3] | [added: |]

| Net income per common share: | | | | | | | | | | | | | | | | | | | | [added: |]

| — basic | [removed: 4.76] | | [added: 7.09] | | [removed: 4.47] | | [added: 4.76] | | [removed: 3.99] | | [added: 4.47] | | [removed: 4.57] | | [added: 3.99] | | [removed: 1.66] | | [added: 4.57] | [added: |]

| — diluted | [removed: 4.75] | | [added: 7.07] | | [removed: 4.47] | | [added: 4.75] | | [removed: 3.99] | | [added: 4.47] | | [removed: 4.52] | | [added: 3.99] | | [removed: 1.64] | | [added: 4.52] | [added: |]

| Weighted average common shares outstanding: | | | | | | | | | | | | | | | | | | | | [added: |]

| — basic | [removed: 93.5] | | [added: 93.5] | | [removed: 96.6] | | [added: 93.5] | | [removed: 97.0] | | [added: 96.6] | | [removed: 96.6] | | [added: 97.0] | | [removed: 96.4] | | [added: 96.6] | [added: |]

| — diluted | [added: | |] 93.7 | | | | [removed: 96.7] [added: 93.7] | | | | [removed: 97.1] [added: 96.7] | | | | [removed: 97.5] [added: 97.1] | | | | 97.5 | | [removed: |]

| EBITDA(c) | [added: |] $ | [removed: 1,138.3] [added: 1,322.6] | | | $ | [removed: 1,106.5] [added: 1,138.3] | | | $ | [removed: 1,083.7] [added: 1,106.5] | | | $ | [removed: 683.7] [added: 1,083.7] | | | $ | [removed: 608.3] [added: 683.7] | |

| Cash dividends declared per common share | [removed: 2.36] | | [added: 2.52] | | [removed: 2.20] | | [added: 2.36] | | [removed: 1.60] | | [added: 2.20] | | [removed: 1.51] | | [added: 1.60] | | [removed: 1.00] | | [added: 1.51] | [added: |]

| Balance Sheet Data (b): | | | | | | | | | | | | | | | | | | | | [added: |]

| Total assets | [added: |] $ | [removed: 5,777.0] [added: 6,197.5] | | | $ | [removed: 5,272.3] [added: 5,777.0] | | | $ | [removed: 5,258.7] [added: 5,272.3] | | | $ | [removed: 5,182.1] [added: 5,258.7] | | | $ | [removed: 2,490.1] [added: 5,182.1] | |

| Total debt obligations | [removed: 2,667.4] | | [added: 2,650.7] | | [removed: 2,319.7] | | [added: 2,667.4] | | [removed: 2,365.2] | | [added: 2,319.7] | | [removed: 2,558.6] | | [added: 2,365.2] | | [removed: 814.7] | | [added: 2,558.6] | [added: |]

| Stockholders' equity | [removed: 1,759.8] | | [added: 2,182.6] | | [removed: 1,633.3] | | [added: 1,759.8] | | [removed: 1,521.4] | | [added: 1,633.3] | | [removed: 1,356.8] | | [added: 1,521.4] | | [removed: 1,008.2] | | [added: 1,356.8] | [added: |]

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

____________

| | |

| [Reports of Independent Registered Public Accounting [removed: Firms](#s5B9D741893B8597B8C527BCE5EFA2ED5)] [added: Firm](#REPORT_INDEPENDENT_REGISTERED_PUBLIC_ACC)] | [removed: [38](#s5B9D741893B8597B8C527BCE5EFA2ED5)] [added: 36] |

| [Consolidated Statements of Income and Comprehensive Income for the years ended December 31, [removed: 201](#s32178E57B34C5A4DB30C5767F18C9CF9)6, 2015,] [added: 2017, 2016,] and [removed: 2014] [added: 2015](#CONSOLIDATED_STATEMENTS_INCOME_COMPREHEN)] | [removed: [40](#s32178E57B34C5A4DB30C5767F18C9CF9)] [added: 39] |

| [Consolidated Balance Sheets as of December 31, [removed: 201](#sDA4DEB9916A05CAD9D964C2411F8208D)6] [added: 2017] and [removed: 2015] [added: 2016](#CONSOLIDATED_BALANCE_SHEETS)] | [removed: [41](#sDA4DEB9916A05CAD9D964C2411F8208D)] [added: 40] |

| [Consolidated Statements of Cash Flows for the years ended December 31, [removed: 201](#s0C99C8570EB15FA4BEE001CCC96DA63C)6, 2015,] [added: 2017, 2016,] and [removed: 2014] [added: 2015](#CONSOLIDATED_STATEMENTS_CASH_FLOWS)] | [removed: [42](#s0C99C8570EB15FA4BEE001CCC96DA63C)] [added: 41] |

| [Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, [removed: 201](#s6466FC2A1C7C5B2594F2C787E79AF011)6, 2015,] [added: 2017, 2016,] and [removed: 2014] [added: 2015](#CONSOLIDATED_STATEMENTS_CHANGES_IN_STOCK)] | [removed: [43](#s6466FC2A1C7C5B2594F2C787E79AF011)] [added: 42] |

| [Notes to Consolidated Financial [removed: Statements](#sCADD0B2E1B8E5475A39007F4E5FA7D26)] [added: Statements](#NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMEN)] | [removed: [44](#sCADD0B2E1B8E5475A39007F4E5FA7D26)] [added: 43] |

[removed: The Board of Directors] [added: To the stockholders] and [removed: Stockholders][added: board of directors]

We have audited the accompanying consolidated balance sheets of Packaging Corporation of America and subsidiaries [added: (the “Company”)] as of December 31, [removed: 2016 and 2015] [added: 2017] and [added: 2016,] the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the [removed: three-year] [added: three‑year] period ended December 31, [removed: 2016.][added: 2017, and the related notes (collectively, the “consolidated financial statements”).]

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the [added: consolidated] financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures included] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the [added: consolidated] financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the consolidated] financial [removed: statement presentation.][added: statements.]

In our opinion, the consolidated financial statements [removed: referred to above] present fairly, in all material respects, the financial position of [removed: Packaging Corporation of America and subsidiaries] [added: the Company] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the years in the [removed: three-year] [added: three‑year] period ended December 31, [removed: 2016,] [added: 2017,] in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States), Packaging Corporation of America’s] [added: States) (“PCAOB”), the Company’s] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control [removed: -] [added: –] Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission (COSO),] [added: Commission,] and our report dated February 28, [removed: 2017] [added: 2018] expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

[added: | |] /s/ KPMG LLP [added: |]

[added: | |] Chicago, Illinois [added: |]

We have audited Packaging Corporation of [removed: America’s] [added: America and subsidiaries’ (the “Company”)] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal [removed: Control-Integrated] [added: Control – Integrated] Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission (COSO).][added: Commission.]

[removed: Packaging Corporation of America’s] [added: The Company’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 [removed: Management's] [added: Management’s] Report on Internal Control Over Financial [removed: Reporting included in Item 9A.][added: Reporting.]

We conducted our audit in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Our audit [added: of internal control over financial reporting] 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.

In our opinion, [removed: Packaging Corporation of America] [added: the Company] maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal [removed: Control-Integrated] [added: Control – Integrated] Framework (2013) issued by [removed: COSO.][added: the Committee of Sponsoring Organizations of the Treadway Commission.]

The Company acquired [removed: TimBar Corporation] [added: Sacramento Container Corporation, Northern Sheets LLC] and [removed: Columbus Container, Inc.] [added: Central California Sheets LLC (collectively, Sacramento Container)] during [removed: 2016] [added: 2017,] and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2016, TimBar Corporation and Columbus Container, Inc.’s] [added: 2017, Sacramento Container’s] internal control over financial reporting.

As of and for the year ended December 31, [removed: 2016, TimBar Corporation accounted for approximately 7% of the Company’s consolidated total assets and 2% of consolidated net sales, and Columbus Container, Inc.] [added: 2017, Sacramento Container] accounted for approximately [removed: 2%] [added: 5%] of the Company’s consolidated total assets and [removed: less than] 1% of consolidated net sales.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of [removed: TimBar Corporation and Columbus Container, Inc.][added: Sacramento Container.]

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (“PCAOB”),] the consolidated balance sheets of [removed: Packaging Corporation of America] [added: the Company] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, [removed: 2016,] [added: 2017,] and [added: related notes (collectively, the consolidated financial statements), and] our report dated February 28, [removed: 2017] [added: 2018] expressed an unqualified opinion on those consolidated financial statements.

[added: | |] Chicago, [removed: IL][added: Illinois |]

| | [added: |] Year Ended December [removed: 31] [added: 31,] | | | | | | | | | | |

| | [removed: 2016] | [added: 2017] | | | [removed: 2015] | [added: 2016] | | | [removed: 2014] | [added: 2015] | | [added: |]

| Statements of [removed: Income:] [added: Income] | | | | | | | | | | | | [added: |]

| Net sales | [added: |] $ | [removed: 5,779.0] [added: 6,444.9] | | | $ | [removed: 5,741.7] [added: 5,779.0] | | | $ | [removed: 5,852.6] [added: 5,741.7] | |

| Cost of sales | [removed: (4,503.3] | | [added: (4,972.7 |] ) | | [removed: (4,533.7] | [added: (4,503.3] | ) | | [removed: (4,623.1] | [added: (4,533.7] | ) |

| Gross profit | [removed: 1,275.7] | | [added: 1,472.2] | | [removed: 1,208.0] | | [added: 1,275.7] | | [removed: 1,229.5] | | [added: 1,208.0] | [added: |]

| [removed: Selling, general,] [added: Selling] and administrative expenses | [removed: (471.1] | | [added: (522.6 |] ) | | [removed: (451.3] | [added: (471.1] | ) | | [removed: (469.5] | [added: (451.3] | ) |

| Other expense, net | [removed: (24.3] | | [added: (18.4 |] ) | | [removed: (6.7] | [added: (24.3] | ) | | [removed: (57.3] | [added: (6.7] | ) |

| Income from operations | [removed: 780.3] | | [added: 931.2] | | [removed: 750.0] | | [added: 780.3] | | [removed: 702.7] | | [added: 750.0] | [added: |]

| Interest expense, net | [removed: (91.8] | | [added: (102.6 |] ) | | [removed: (85.5] | [added: (91.8] | ) | | [removed: (88.4] | [added: (85.5] | ) |

| Income before taxes | [removed: 688.5] | | [added: 828.6] | | [removed: 664.5] | | [added: 688.5] | | [removed: 614.3] | | [added: 664.5] | [added: |]

| Provision for income taxes | [removed: (238.9] | | [added: (160.0 |] ) | | [removed: (227.7] | [added: (238.9] | ) | | [removed: (221.7] | [added: (227.7] | ) |

| Net income | [added: |] $ | [removed: 449.6] [added: 668.6] | | | $ | [removed: 436.8] [added: 449.6] | | | $ | [removed: 392.6] [added: 436.8] | |

| Net income per common share: | | | | | | | | | | | | [added: |]

Opinion on the Consolidated Financial Statements

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

| | We have served as the Company’s auditor since 2014. |

| | February 28, 2018 |

To the stockholders and board of directors

Opinion on Internal Control Over Financial Reporting

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control Over Financial Reporting

| | /s/ KPMG LLP |

| | February 28, 2018 |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Net income | | $ | 668.6 | | | $ | 449.6 | | | $ | 436.8 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Net income | | $ | 668.6 | | | $ | 449.6 | | | $ | 436.8 | |

| Net loss on impairment of assets | | | 13.5 | | | | — | | | | — | |

| Other, net | | | 3.0 | | | | 1.4 | | | | (19.8 | ) |

| Proceeds from asset disposals | | | 16.6 | | | | 0.5 | | | | 1.5 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Shares | | | | Amount | | | | Capital | | | | Earnings | | | | Loss | | | | | Equity | | |

| Comprehensive income | | | — | | | | — | | | | — | | | | 668.6 | | | | (17.3 | ) | | | | 651.3 | |

| Balance at December 31, 2017 | | | 94,350 | | | $ | 0.9 | | | $ | 471.2 | | | $ | 1,867.4 | | | $ | (156.9 | ) | | | $ | 2,182.6 | |

During the third quarter of 2017, the Company announced that it will discontinue the production of uncoated free sheet and coated one-side grades at the Wallula, Washington mill in the second quarter of 2018 to begin the conversion of the No.3 machine to a 400,000 ton-per-year virgin kraft linerboard machine.

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2017 | | | | 2016 | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2017 | | | | 2016 | | |

| --- | --- | --- |

In 2017, we recognized incremental depreciation expense of $10.5 million, primarily related to the announced second quarter 2018 discontinuation of uncoated free sheet and coated one-side grades at the Wallula, Washington mill associated with the conversion of the No. 3 paper machine to a high-performance 100% virgin kraft linerboard machine.

At December 31, 2017 and 2016 deferred financing costs were $15.3 million and $12.4 million, respectively, and were recorded in “Long-Term Debt” on our Consolidated Balance Sheets.

Additionally, in conjunction with the announced conversion of the No. 3 machine at the Wallula mill to kraft linerboard, management performed a recoverability test on associated fiber farms and deemed the asset group to not be fully recoverable.

As a result of the recoverability calculation on the fiber farm asset group, the Company recorded an impairment loss of $13.5 million in the third quarter of 2017.

The Company will adopt the standard utilizing the modified retrospective method, in which case the cumulative effect of applying the standard is recognized at the date of initial application on January 1, 2018.

During our assessment, the Company considered whether the adoption would require a transition from point-in-time revenue recognition to an over-time approach for products produced by the Company without an alternative use, which would result in acceleration of revenue.

The Company determined that based on the express terms included in the majority of its contracts, and the Company’s standard terms and conditions, an enforceable right of payment that includes a reasonable profit throughout the duration of the contract did not exist.

Therefore, the Company remains at a point-in-time approach and records revenue at the point control transfers to the customer.

While the adoption of ASU 2014-09 on January 1, 2018 will not have a material effect on the Company’s financial position or results of operations, the new standard requires additional disclosures around revenue recognition in the notes to the financial statements, which the Company will comply with beginning in 2018.

| | |

February 28, 2017

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| Other, net | (5.9 | | ) | | (20.3 | | ) | | (0.9 | | ) |

| Other, net | 0.5 | | | | 5.7 | | | | 2.1 | | |

| Proceeds from exercise of stock options | — | | | | — | | | | 3.7 | | |

| Excess tax benefits from stock-based awards | 5.7 | | | | 6.0 | | | | 12.2 | | |

| | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Shares | | | Amount | | | | | | | | | | | | | | | | | | |

| Balance at January 1, 2014 | 98,172 | | | $ | 1.0 | | | $ | 401.7 | | | $ | 1,019.1 | | | $ | (65.0 | ) | | $ | 1,356.8 | |

| Exercise of stock options | 151 | | | — | | | | 6.3 | | | | — | | | | — | | | | 6.3 | | |

| Comprehensive income | — | | | — | | | | — | | | | 392.6 | | | | (88.9 | | ) | | 303.7 | | |

| Restricted stock/performance unit grants and cancellations | 243 | | | — | | | | 5.7 | | | | — | | | | — | | | | 5.7 | | |

1.

2.

Assets under

curtailment or other event occurs, requiring we update the estimates on an interim basis.

Effective January 1, 2016, the Company adopted Accounting Standards Update (ASU) 2015-03 (Topic 835): Simplifying the Presentation of Debt Issuance Costs.

We applied this guidance retrospectively, as required, and reclassified $12.3 million from "Other long-term assets" to "Long-term debt" on our December 31, 2015 Consolidated Balance Sheet to conform with current period presentation.

At December 31, 2016 deferred financing costs were $12.4 million.

There are two permitted transition methods under the standard: full retrospective method, in which case the cumulative effect of applying the standard would be recognized in the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application.

We have been closely monitoring FASB activity related to the new standard.

The following updates have been made as a result of implementation issues related to the new standard:

| • | In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers - Principal versus Agent Consideration (Reporting revenue gross versus net), which clarifies gross versus net revenue reporting when another party is involved in the transactions. |

| • | In April 2016, FASB issued ASU 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing, which amends the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property. |

| • | In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients, which provides narrow-scope improvements to the guidance on collectability, non-cash consideration, and completed contracts at transition |

| • | In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which provides additional guidance and clarification for application and interpretation of the new standard. The ASU makes technical corrections and improvements to the new revenue standard and to other Codification topics to address unintended consequences from applying the new guidance. |

We are still assessing the impact of ASU 2014-09, the related updates as mentioned above, and the most appropriate transition method but we do not believe they will have a material effect on the Company’s financial position or its results of operations.

We expect to finalize both our assessment and determine our adoption method by June 30, 2017.

The new standard becomes effective for us as of January 1, 2018, with the option to early adopt the standard for annual periods beginning on or after December 15, 2016.

We do not plan to early adopt the standard.

In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

It is

results of operations, or cash flows.

The guidance also allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur.

The magnitude of such impacts are dependent upon the Company's future stock price at vest or settlement date in relation to the fair value of share-based awards on the grant date, the Company's future grants of share-based awards, and the exercise behavior of the Company's equity compensation holders.

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Prior to filing this report, PCA completed an evaluation under the supervision and with the participation of PCA’s management, including PCA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of PCA’s disclosure controls and procedures as of December 31, [removed: 2016.][added: 2017.]

Based on this evaluation, PCA’s Chief Executive Officer and Chief Financial Officer concluded that PCA’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, [removed: 2016.][added: 2017.]

We are currently in the process of evaluating and integrating [removed: TimBar’s and Columbus'] [added: Sacramento Container’s] controls over financial reporting which may result in changes or additions to PCA’s internal control over financial reporting.

We excluded [removed: TimBar and Columbus] [added: Sacramento Container] from the assessment of internal control over financial reporting at December 31, [removed: 2016.][added: 2017.]

Except as may relate to the [removed: TimBar and Columbus acquisitions,] [added: Sacramento Container acquisition,] there were no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the most recent fiscal quarter ended December 31, [removed: 2016] [added: 2017] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As of and for the year ended December 31, [removed: 2016, TimBar] [added: 2017, Sacramento Container] accounted for approximately [removed: 7%] [added: 5%] of the Company's consolidated total assets and [removed: 2% of consolidated sales, and Columbus accounted for] approximately [removed: 2% of the Company's consolidated total assets and less than] 1% of consolidated net sales.

PCA’s management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the Company’s internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this assessment and excluding the operations acquired from [removed: TimBar and Columbus,] [added: Sacramento Container,] PCA’s management concluded that its internal control over financial reporting was effective as of December 31, [removed: 2016,] [added: 2017,] based on the specified criteria.

On October 2, 2017, PCA acquired Sacramento Container Corporation, Northern Sheets LLC and Central California Sheets LLC (collectively, “Sacramento Container”).

On August 29, 2016, PCA acquired TimBar Corporation ("TimBar").

Additionally, on November 30, 2016, PCA acquired Columbus Container, Inc. ("Columbus").

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The following information required by this Item 10 will be included in PCA’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders and is incorporated by reference herein:

| [added: |] • | Information regarding PCA’s directors included under the caption [removed: "Election] [added: “Election] of [removed: Directors"] [added: Directors”] |

| [added: |] • | Information regarding PCA’s Audit Committee and financial experts included under the caption [removed: "Election] [added: “Election] of Directors - Audit [removed: Committee"] [added: Committee”] |

| [added: |] • | Information regarding PCA’s code of ethics included under the caption [removed: "Election] [added: “Election] of Directors - Code of [removed: Ethics"] [added: Ethics”] |

| [added: |] • | Information regarding PCA’s stockholder nominating procedures included under the captions [removed: "Election] [added: “Election] of Directors - Nominating and Governance [removed: Committee," "Other] [added: Committee,” “Other] Information - Recommendations for Board - Nominated Director [removed: Nominees,"] [added: Nominees,”] and [removed: "Other] [added: “Other] Information - Procedures for Nominating Directors or Bringing Business Before the [removed: 2017] [added: 2018] Annual [removed: Meeting"] [added: Meeting”] |

| [added: |] • | Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 included under the caption [removed: "Section] [added: “Section] 16(a) Beneficial Ownership Reporting [removed: Compliance"] [added: Compliance”] |

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Authorization of Securities under Equity Compensation Plans — Securities authorized for issuance under our equity compensation plans at December 31, [removed: 2016] [added: 2017] are as follows:

| | [added: |] Column | | | | | | | | | [added: | |]

| Plan Category | [added: |] Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a) | | | [added: |] Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights | | | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) | | [added: |]

| Equity compensation plans [added: not] approved by securityholders | [removed: —] | [added: N/A] | | [removed: $] | [removed: —] | [added: N/A] | | [removed: 1,238,703] | | [added: N/A | | |]

| Equity compensation plans [removed: not] approved by securityholders | [removed: N/A] | | [added: —] | [removed: N/A] | | [added: $] | [added: —] | [removed: N/A] | | [added: | 1,008,690 | |]