Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis includes statements regarding our expectations with respect to our future performance, expected business conditions, liquidity, and capital resources. Such statements, along with any other statements that are not historical in nature, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in our 2022 Annual Report on Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission ("SEC"). We do not assume any obligation to update any forward-looking statement. Our actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q. Please see “Forward Looking Statements” elsewhere in this Item 2.

Overview

PCA is the third largest producer of containerboard products and a leading producer of UFS paper in North America. We operate eight mills and 86 corrugated products manufacturing plants. Our containerboard mills produce linerboard and corrugating medium, which are papers primarily used in the production of corrugated products. 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 UFS papers, including both commodity and specialty papers, which may have custom or specialized features such as colors, coatings, high brightness, and recycled content. We are headquartered in Lake Forest, Illinois and operate primarily in the United States.

This Item 2 is intended to supplement, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Annual Report on Form 10-K.

Executive Summary

Second quarter net sales were $1.95 billion in 2023 and $2.24 billion in 2022. We reported $203 million of net income, or $2.24 per diluted share, during the second quarter of 2023, compared to $302 million, or $3.20 per diluted share, during the same period in 2022. Net income included $6 million of expense for special items in the second quarter of 2023, compared to $2 million of expense for special items in 2022 (discussed below). Excluding special items, net income was $209 million, or $2.31 per diluted share, during the second quarter of 2023, compared to $304 million, or $3.23 per diluted share, in the second quarter of 2022. The decrease in net income was driven primarily by lower volumes in our Packaging and Paper segments, lower prices and mix in our Packaging segment, higher depreciation expense and higher other converting costs. These items were partially offset by lower operating costs, higher prices and mix in our Paper segment, lower scheduled maintenance outage expenses, and a lower tax rate. For additional detail on special items included in reported GAAP results, as well as segment income (loss) excluding special items, earnings before non-operating pension income (expense), interest, income taxes, and depreciation, amortization, and depletion ("EBITDA"), and EBITDA excluding special items, see “Item 2. Reconciliations of Non-GAAP Financial Measures to Reported Amounts.”

Packaging segment income from operations was $286 million in the second quarter of 2023, compared to $420 million in the second quarter of 2022. Packaging segment EBITDA excluding special items was $405 million in the second quarter of 2023 compared to $525 million in the second quarter of 2022. The decrease was due to lower sales and production volumes, lower prices and mix, higher freight and logistics expenses, and higher other converting costs, partially offset by lower operating costs and lower scheduled maintenance outage expenses. Lower sales and production volumes were driven by lower demand compared to peak demand levels in the comparable 2022 period with consumer buying preferences having shifted more towards service-oriented spending, continued inflation, and higher interest rates driving lower purchases of both durable and non-durable goods compared to 2022 levels. Published containerboard index prices declined in January, February, and May. We continued to balance our containerboard production to levels appropriate for our demand and focused on management of our operating costs. During the second quarter of 2023, we temporarily idled our Wallula, WA containerboard mill to help achieve this balance and optimize our cost structure across our containerboard mill system.

Paper segment income from operations was $29 million in the second quarter of 2023, compared to $23 million in the second quarter of 2022. Paper segment EBITDA excluding special items was $39 million in the second quarter of 2023, compared to $32 million in the second quarter of 2022. The increase was due to higher prices and mix and lower freight and logistic expenses, partially offset by lower sales and production volumes and higher operating costs. Published index prices for our cut size office and offset printing papers declined in April and June 2023. We continued to balance our paper production to levels appropriate for our demand and focused on management of our operating costs.

Packaging segment income from operations was $554 million in the first six months of 2023, compared to $782 million in the same period in 2022. Packaging segment EBITDA excluding special items was $797 million in the first six months of 2023 compared to $989 million in the first six months of 2022. The decrease in EBITDA excluding special items was due primarily to lower sales and production volumes, higher freight and logistic expenses, and higher converting costs, partially offset by lower operating costs, higher prices and mix, and lower scheduled outage expenses.

Paper segment income from operations was $63 million in the first six months of 2023, compared to $45 million in the first six months of 2022. Paper segment EBITDA excluding special items was $80 million in the first six months of 2023, compared to $60 million in the same period in 2022. The increase in EBITDA excluding special items was due to higher prices and mix and lower freight and logistic expenses, partially offset by higher operating costs and lower sales and production volumes.

Special Items and Earnings per Diluted Share, Excluding Special Items

A reconciliation of reported earnings per diluted share to earnings per diluted share, excluding special items, for the three and six months ended June 30, 2023 and 2022 is as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
Earnings per diluted share, as reported		$	2.24			$	3.20			$	4.35			$	5.91
Special items:
Jackson mill conversion-related activities (a)			0.04				0.03				0.05				0.04
Facilities closure and other costs (income) (b)			0.03				(0.01	)			0.11				—
Total special items			0.07				0.02				0.16				0.04
Earnings per diluted share, excluding special items		$	2.31			$ 3.23 (c)				$	4.51			$	5.95

(a)

For the three and six months ended June 30, 2023, includes $4.4 million and $5.7 million, respectively, of charges related to the announced discontinuation of production of UFS paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities. For the three and six months ended June 30, 2022, these amounts were $3.9 million and $5.4 million, respectively.

(b)

For the three and six months ended June 30, 2023, includes $3.9 million and $13.6 million, respectively, of closure costs related to corrugated products facilities and design centers. For the three and six months ended June 30, 2022, includes $0.9 million and $0.3 million, respectively, of income primarily consisting of insurance proceeds received for a natural disaster at one of the corrugated products facilities and a favorable lease buyout for a closed corrugated products facility, partially offset by closure costs related to corrugated products facilities and acquisition and integration costs related to the December 2021 Advance Packaging Corporation acquisition.

(c)

Amount may not foot due to rounding.

Included in this Item 2 are various non-GAAP financial measures, including diluted EPS excluding special items, segment income excluding special items and EBITDA excluding special items. Management excludes special items as it believes these items are not necessarily reflective of the ongoing results of operations of our business. 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, because these measures assist in providing a meaningful comparison between periods presented and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. A 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 in Item 2 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 North American industry-wide corrugated products shipments in total and per work day were down (7.9%) during the second quarter of 2023 compared to the same quarter of 2022. Reported industry containerboard production decreased (11.5%) compared to the second quarter of 2022. Reported industry containerboard inventories at the end of the second quarter of 2023 were approximately 2.6 million tons, down (9.7%) compared to the same period in 2022. Reported containerboard export shipments were down (18.8%) compared to the second quarter of 2022. In January 2023, index prices decreased $10 per ton for linerboard and $30 per ton for corrugating medium, followed by an additional decrease in February of $20 per ton, each. In May 2023, index prices decreased $20 per ton for linerboard and $40 per ton for corrugating medium.

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 North American UFS paper shipments were down (10.1%) in the second quarter of 2023 compared to the same quarter of 2022. Average prices reported by a trade publication for cut size office papers were lower by $23 per ton, or (1.6%) in the second quarter of 2023, compared to the first quarter of 2023, and higher by $72 per ton, or 5.1%, compared to the second quarter of 2022. In April 2023, index prices declined $20 per ton for cut size office papers and $30 per ton for offset printing papers. In June 2023, index prices declined $10 per ton for cut size office papers and offset printing papers.

Outlook

Looking ahead to the third quarter, in the Packaging segment, although there will be one less shipping day for the corrugated business, we expect shipments per day to improve versus the second quarter. However, prices will be lower as a result of the previously published domestic containerboard price decreases along with slightly lower export prices. In the Paper segment, we expect seasonally stronger volume from back-to-school shipments, although prices are expected to trend lower based on the recent declines in index prices. Operating and converting costs are expected to increase slightly due to higher recycled fiber prices and seasonal energy usage. Scheduled outage expenses will be higher, driven by the scheduled maintenance planned at our International Falls, MN mill. Finally, we estimate our depreciation expense, freight expense and tax rate to be slightly higher as well. Considering these items, we expect third quarter earnings to be lower than the second quarter.

Results of Operations

Three Months Ended June 30, 2023, compared to Three Months Ended June 30, 2022

The historical results of operations of PCA for the three months ended June 30, 2023 and 2022 are set forth below (dollars in millions):

		Three Months Ended
		June 30,
		2023				2022				Change
Packaging		$	1,790.3			$	2,066.9			$	(276.6	)
Paper			142.8				149.8				(7.0	)
Corporate and Other			61.0				63.2				(2.2	)
Intersegment eliminations			(42.0	)			(42.6	)			0.6
Net sales		$	1,952.1			$	2,237.3			$	(285.2	)
Packaging		$	285.8			$	419.8			$	(134.0	)
Paper			29.1				22.7				6.4
Corporate and Other			(30.5	)			(26.7	)			(3.8	)
Income from operations		$	284.4			$	415.8			$	(131.4	)
Non-operating pension (expense) income			(2.0	)			3.6				(5.6	)
Interest expense, net			(14.6	)			(18.8	)			4.2
Income before taxes			267.8				400.6				(132.8	)
Income tax provision			(65.1	)			(99.1	)			34.0
Net income		$	202.7			$	301.5			$	(98.8	)
Non-GAAP Measures (a)
Net income excluding special items		$	208.9			$	303.7			$	(94.8	)
Consolidated EBITDA			412.3				530.1				(117.8	)
Consolidated EBITDA excluding special items			417.5				532.6				(115.1	)
Packaging EBITDA			402.1				525.8				(123.7	)
Packaging EBITDA excluding special items			405.3				525.3				(120.0	)
Paper EBITDA			36.8				28.5				8.3
Paper EBITDA excluding special items			38.8				31.5				7.3

(a)

See “Reconciliations of Non-GAAP Financial Measures to Reported Amounts” included in this Item 2 for a reconciliation of non-GAAP measures to the most comparable GAAP measure.

Net Sales

Net sales decreased $285 million, or (12.7%), to $1,952 million during the three months ended June 30, 2023, compared to $2,237 million during the same period in 2022.

Packaging. Net sales decreased $277 million, or (13.4%), to $1,790 million, compared to $2,067 million in the second quarter of 2022 due to lower containerboard and corrugated products volume ($207 million) and lower prices and mix ($70 million). In the second quarter of 2023, export and domestic containerboard outside shipments decreased (22.5%) compared to the second quarter of 2022. Our total corrugated products shipments were down (9.8%) in total and per workday, compared to the same period in 2022. In the second quarter of 2023, our domestic containerboard prices were (9.9%) lower, while export prices were (29.3%) lower, than the same period in 2022.

Paper. Net sales decreased $7 million, or (4.7%), to $143 million, compared to $150 million in the second quarter of 2022, due to lower volume ($22 million), partially offset by higher prices and mix ($15 million).

Gross Profit

Gross profit decreased $144 million during the three months ended June 30, 2023, compared to the same period in 2022. The decrease was driven primarily by lower volumes in our Packaging and Paper segments, lower prices and mix in our Packaging segment, and higher depreciation expense, partially offset by lower operating costs, higher prices and mix in our Paper segment, and lower scheduled maintenance outage expenses. In the three months ended June 30, 2023, gross profit included $3 million of special items primarily related to Jackson mill conversion-related activities and closure costs related to corrugated products facilities. In the three months ended June 30, 2022, gross profit included $2 million of special items for charges related to Jackson mill conversion-related activities and acquisition and integration costs related to Advance Packaging, partially offset by income related to a favorable lease buyout for a closed corrugated facility.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) decreased $11 million during the three months ended June 30, 2023, compared to the same period in 2022. The decrease was primarily due to employee-related expenses, outside services, and insurance.

Other Expense, Net

Other income (expense), net, for the three months ended June 30, 2023 and 2022 are set forth below (dollars in millions):

		Three Months Ended
		June 30,
		2023				2022
Asset disposals and write-offs		$	(6.6	)		$	(13.8	)
Facilities closure and other income (costs)			(2.4	)			0.5
Jackson mill conversion-related activities			(1.8	)			(1.7	)
Other			(3.9	)			(1.3	)
Total		$	(14.7	)		$	(16.3	)

We discuss these items in more detail in Note 5, Other Expense, Net, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this Form 10-Q.

Income from Operations

Income from operations decreased $131 million, or (31.6%), during the three months ended June 30, 2023, compared to the same period in 2022. The second quarter of 2023 included $8 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities, compared to $3 million of special items expense primarily related to costs from Jackson mill conversion-related activities, closure costs related to corrugated products facilities, and expenses related to the acquisition of Advance Packaging Corporation, partially offset by income related to storm damage proceeds and a favorable lease buyout for a closed corrugated facility in the second quarter of 2022.

Packaging. Packaging segment income from operations decreased $134 million to $286 million, compared to $420 million during the three months ended June 30, 2022. The decrease related primarily to lower sales and production volumes ($109 million), lower containerboard and corrugated products prices and mix ($56 million), higher depreciation expense ($10 million), higher freight expenses ($4 million), and higher other converting costs ($4 million), partially offset by lower operating costs ($46 million), lower annual outage expenses ($4 million), and other costs ($3 million). Special items during the second quarter of 2023 included $4 million of expense primarily related to closure costs related to corrugated products facilities, compared to $1 million of income primarily related to storm damage insurance proceeds and a favorable lease buyout for a closed corrugated facility, net of costs for Jackson mill conversion-related activities, corrugated facility closures, and acquisition and integration-related costs in the second quarter of 2022.

Paper. Paper segment income from operations increased $6 million to $29 million, compared to $23 million during the three months ended June 30, 2022. The increase primarily related to higher prices and mix ($15 million) and lower freight expenses ($3 million), partially offset by lower sales and production volumes ($8 million) and higher operating costs ($3 million). Special items during the second quarter of 2023 and 2022 included $4 million of expense for Jackson mill conversion-related activities.

Non-Operating Pension Expense, Interest Expense, Net and Income Taxes

Non-operating pension expense increased $6 million during the three months ended June 30, 2023, compared to the same period in 2022. The increase in non-operating pension expense was primarily related to unfavorable 2022 asset performance, partially offset by assumption changes.

Interest expense, net for the three months ended June 30, 2023 decreased $4 million when compared to the same period in 2022. The decrease in interest expense, net was primarily due to higher interest income due to higher rates on invested cash balances compared to the same period in 2022.

During the three months ended June 30, 2023, we recorded $65 million of income tax expense, compared to $99 million of expense during the three months ended June 30, 2022. The effective tax rate for the three months ended June 30, 2023 and 2022 was 24.3% and 24.7%, respectively. The decrease in our effective tax rate for the three months ended June 30, 2023 compared to the same period in 2022 was primarily due to favorable employee restricted stock and performance unit vests with higher excess tax benefits and higher net favorable state tax law changes partially offset by higher nondeductible employee remuneration paid to covered employees.

Six Months Ended June 30, 2023, compared to Six Months Ended June 30, 2022

The historical results of operations of PCA for the six months ended June 30, 2023 and 2022 are set forth below (dollars in millions):

		Six Months Ended
		June 30,
		2023				2022				Change
Packaging		$	3,598.9			$	4,031.3			$	(432.4	)
Paper			293.7				303.3				(9.6	)
Corporate and Other			121.6				121.5				0.1
Intersegment eliminations			(85.8	)			(82.4	)			(3.4	)
Net sales		$	3,928.4			$	4,373.7			$	(445.3	)
Packaging		$	553.7			$	782.1			$	(228.4	)
Paper			63.2				45.1				18.1
Corporate and Other			(61.9	)			(54.8	)			(7.1	)
Income from operations		$	555.0			$	772.4			$	(217.4	)
Non-operating pension (expense) income			(4.0	)			7.3				(11.3	)
Interest expense, net			(29.9	)			(38.7	)			8.8
Income before taxes			521.1				741.0				(219.9	)
Income tax provision			(128.3	)			(185.3	)			57.0
Net income		$	392.8			$	555.7			$	(162.9	)
Non-GAAP Measures (a)
Net income excluding special items		$	407.3			$	559.5			$	(152.2	)
Consolidated EBITDA			812.5				996.4				(183.9	)
Consolidated EBITDA excluding special items			822.4				999.8				(177.4	)
Packaging EBITDA			788.9				989.0				(200.1	)
Packaging EBITDA excluding special items			796.8				989.2				(192.4	)
Paper EBITDA			77.9				57.2				20.7
Paper EBITDA excluding special items			79.9				60.4				19.5

(a)

See “Reconciliations of Non-GAAP Financial Measures to Reported Amounts” included in this Item 2 for a reconciliation of non-GAAP measures to the most comparable GAAP measure.

Net Sales

Net sales decreased $445 million, or (10.2%), to $3,928 million during the six months ended June 30, 2023, compared to $4,374 million during the same period in 2022.

Packaging. Net sales decreased $432 million, or (10.7%), to $3,599 million, compared to $4,031 million in the six months ended June 30, 2022, due to lower containerboard and corrugated products volume ($435 million), partially offset by higher containerboard and corrugated products prices and mix ($3 million). In the first six months of 2023, our domestic containerboard prices were (6.7%) lower, while export prices were (23.0%) lower, than the same period in 2022. In the first six months of 2023, export and domestic containerboard outside shipments decreased (24.9%) compared to the first six months of 2022. Total corrugated products shipments were down (11.3%) in total and per workday compared to the same period in 2022.

Paper. Net sales during the six months ended June 30, 2023 decreased $10 million, or (3.2%), to $294 million, compared to $303 million in the six months ended June 30, 2022, due to lower volume ($47 million), partially offset by higher prices and mix ($38 million).

Gross Profit

Gross profit decreased $246 million during the six months ended June 30, 2023, compared to the same period in 2022. The decrease was driven primarily by lower volumes in our Packaging and Paper segments, higher depreciation expense, higher freight and logistics expense, and higher converting costs, partially offset by lower operating costs, higher prices and mix in our Packaging and Paper segments, and lower scheduled maintenance outage expenses. In the six months ended June 30, 2023, gross profit included $10 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities. In the six months ended June 30, 2022, gross profit included $3 million of special items expense primarily related to Jackson mill conversion-related activities and acquisition and integration costs related to Advance Packaging, partially offset by income related to a favorable lease buyout for a closed corrugated facility.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) decreased $24 million during the six months ended June 30, 2023, compared to the same period in 2022. The decrease was primarily due to lower bad debt expense, employee-related expenses, and outside services.

Other Expense, Net

Other income (expense), net, for the six months ended June 30, 2023 and 2022 are set forth below (dollars in millions):

		Six Months Ended
		June 30,
		2023				2022
Asset disposals and write-offs		$	(13.2	)		$	(26.4	)
Facilities closure and other income (costs)			(7.1	)			0.1
Jackson mill conversion-related activities			(1.5	)			(2.1	)
Other			(5.4	)			(3.5	)
Total		$	(27.2	)		$	(31.9	)

We discuss these items in more detail in Note 5, Other Expense, Net, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this Form 10-Q.

Income from Operations

Income from operations decreased $217 million, or (28.1%), during the six months ended June 30, 2023, compared to the same period in 2022. The first six months of 2023 included $19 million of special items expense primarily related to corrugated facility closure costs and Jackson mill conversion-related costs, compared to $5 million of special items expense primarily related to Jackson mill conversion-related costs, corrugated facility closure costs, and acquisition and integration costs related to Advance Packaging, partially offset by income related to storm damage proceeds and a favorable lease buyout for a closed corrugated facility in the same period of 2022.

Packaging. Packaging segment income from operations decreased $228 million to $554 million during the first six months of 2023, compared to the same period last year. The decrease related primarily to lower sales and production volumes ($228 million), higher depreciation expense ($23 million), higher freight expenses ($13 million), and higher converting costs ($3 million), partially offset by lower operating costs ($24 million), higher containerboard and corrugated products prices and mix ($17 million), lower annual outage expenses ($5 million), and other costs ($6 million). Special items during the first six months of 2023 included $13 million of expense related to corrugated facility closure costs. There was no impact from special items during the first six months of 2022.

Paper. Paper segment income from operations increased $18 million to $63 million, compared to the six months ended June 30, 2022. The increase primarily related to higher prices and mix ($38 million) and lower freight expenses ($8 million), partially offset by lower sales and production volumes ($13 million), and higher operating costs ($14 million). Special items during the first six months of 2023 and 2022 included $6 million and $5 million, respectively, of expense related to Jackson mill conversion-related activities.

Non-Operating Pension Expense, Interest Expense, and Income Taxes

Non-operating pension expense increased $11 million during the six months ended June 30, 2023, compared to the same period in 2022. The increase in non-operating pension expense was primarily related to unfavorable 2022 asset performance, partially offset by assumption changes.

Interest expense, net decreased $9 million during the six months ended June 30, 2023, compared to the same period in 2022. The decrease in interest expense, net was primarily due to higher interest income in 2023 due to higher rates on invested cash balances during the first half of 2023, compared to the same period in 2022.

During the six months ended June 30, 2023, we recorded $128 million of income tax expense, compared to $185 million of expense during the six months ended June 30, 2022. The effective tax rate for the six months ended June 30, 2023 and 2022 was 24.6% and 25.0%, respectively. The decrease in our effective tax rate for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to favorable employee restricted stock and performance unit vests with higher excess tax benefits and higher net favorable state tax law changes partially offset by higher nondeductible employee remuneration paid to covered employees.

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. At June 30, 2023, we had $477 million of cash and cash equivalents, $153 million of marketable debt securities, and $323 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, acquisitions, debt service, common stock dividends, and repurchases of common stock. 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):

		Six Months Ended
		June 30,
		2023				2022				Change
Net cash provided by (used for):
Operating activities		$	640.3			$	644.3			$	(4.0	)
Investing activities			(242.2	)			(398.1	)			155.9
Financing activities			(241.0	)			(197.6	)			(43.4	)
Net increase in cash and cash equivalents		$	157.1			$	48.6			$	108.5

Operating Activities

Our operating cash flow is primarily driven by our earnings and changes in operating assets and liabilities, such as accounts receivable, inventories, accounts payable and other accrued liabilities, as well as factors described below. 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.

During the six months ended June 30, 2023, net cash provided by operating activities was $640 million, compared to $644 million in the same period in 2022, a decrease of $4 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $149 million primarily due to lower income from operations in 2023 as discussed above. Cash from operations increased by $145 million due to changes in operating assets and liabilities primarily due to the following:

a)

a favorable change in accounts receivable levels in the first six months of 2023 compared to the same period in 2022 primarily due to lower sales volumes in the Packaging segment during the first six months of 2023; and

b)

a favorable change in inventories in the first six months of 2023 compared to the same period in 2022 primarily due to a decrease in inventory levels for finished goods and raw materials in the Packaging segment during the first six months of 2023.

These favorable changes were partially offset by an unfavorable change in accounts payable in the first six months of 2023 compared to the same period in 2022 primarily due to lower production and sales volumes, which resulted in lower purchasing and manufacturing activities.

Investing Activities

We used $242 million for investing activities during the six months ended June 30, 2023 compared to $398 million during the same period in 2022. We spent $239 million for internal capital investments during the six months ended June 30, 2023, compared to $398 million during the same period in 2022.

We expect capital investments in 2023 to be approximately $475 million. These expenditures could increase or decrease as a result of a number of factors, including our financial results, strategic opportunities, future economic conditions, and our regulatory compliance requirements. We currently estimate capital expenditures to comply with environmental regulations will be about $20 million in 2023. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations. For additional information, see “Environmental Matters” in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Annual Report on Form 10-K.

Financing Activities

During the six months ended June 30, 2023, net cash used for financing activities was $241 million, compared to $198 million of net cash used for financing activities during the same period in 2022. We paid $225 million of dividends during the first six months of 2023, compared to $187 million of dividends paid during the comparable period in 2022.

In addition to the items discussed in Note 11, Debt, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Part I, Item 1. Financial Statements" of this Form 10-Q, see Note 11, Debt, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2022 Annual Report on Form 10-K for more information.

Contractual Obligations

There have been no material changes to the contractual obligations disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Annual Report on Form 10-K.

Reconciliations of Non-GAAP Financial Measures to Reported Amounts

Income from operations excluding special items, net income excluding special items, EBITDA, and EBITDA excluding special items are non-GAAP financial measures. Management excludes special items, as it believes that these items are not necessarily reflective of the ongoing operations of our business. These measures are presented 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, because these measures assist in providing a meaningful comparison between periods and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. 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 three and six months ended June 30, 2023 and 2022 follow (dollars in millions):

		Three Months Ended June 30,
		2023												2022
		Income before Taxes				Income Taxes				Net Income				Income before Taxes				Income Taxes				Net Income
As reported in accordance with GAAP		$	267.8			$	(65.1	)		$	202.7			$	400.6			$	(99.1	)		$	301.5
Special items:
Jackson mill conversion-related activities (a)			4.4				(1.1	)			3.3				3.9				(1.0	)			2.9
Facilities closure and other costs (income) (b)			3.9				(1.0	)			2.9				(0.9	)			0.2				(0.7	)
Total special items			8.3				(2.1	)			6.2				3.0				(0.8	)			2.2
Excluding special items		$	276.1			$	(67.2	)		$	208.9			$	403.6			$	(99.9	)		$	303.7

		Six Months Ended June 30,
		2023												2022
		Income before Taxes				Income Taxes				Net Income				Income before Taxes				Income Taxes				Net Income
As reported in accordance with GAAP		$	521.1			$	(128.3	)		$	392.8			$	741.0			$	(185.3	)		$	555.7
Special items:
Facilities closure and other costs (income) (b)			13.6				(3.4	)			10.2				(0.3	)			0.1				(0.2	)
Jackson mill conversion-related activities (a)			5.7				(1.4	)			4.3				5.4				(1.4	)			4.0
Total special items			19.3				(4.8	)			14.5				5.1				(1.3	)			3.8
Excluding special items		$	540.4			$	(133.1	)		$	407.3			$	746.1			$	(186.6	)		$	559.5

(a)

Includes charges related to the announced discontinuation of production of UFS paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.

(b)

For 2023, includes charges consisting of closure costs related to corrugated products facilities and design centers. For 2022, includes income primarily consisting of insurance proceeds received for a natural disaster at one of the corrugated products facilities and a favorable lease buyout for a closed corrugated products facility, partially offset by closure costs related to corrugated products facilities and acquisition and integration costs related to the December 2021 Advance Packaging Corporation acquisition.

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
Net income		$	202.7			$	301.5			$	392.8			$	555.7
Non-operating pension expense (income)			2.0				(3.6	)			4.0				(7.3	)
Interest expense, net			14.6				18.8				29.9				38.7
Income tax provision			65.1				99.1				128.3				185.3
Depreciation, amortization, and depletion			127.9				114.3				257.5				224.0
EBITDA		$	412.3			$	530.1			$	812.5			$	996.4
Special items:
Facilities closure and other costs (income)			3.2				(0.9	)			8.2				(0.3	)
Jackson mill conversion-related activities			2.0				3.4				1.7				3.7
Total special items			5.2				2.5				9.9				3.4
EBITDA excluding special items		$	417.5			$	532.6			$	822.4			$	999.8

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
Packaging
Segment income		$	285.8			$	419.8			$	553.7			$	782.1
Depreciation, amortization, and depletion			116.3				106.0				235.2				206.9
EBITDA			402.1				525.8				788.9				989.0
Facilities closure and other costs (income)			3.2				(0.9	)			8.2				(0.3	)
Jackson mill conversion-related activities			—				0.4				(0.3	)			0.5
EBITDA excluding special items		$	405.3			$	525.3			$	796.8			$	989.2
Paper
Segment income		$	29.1			$	22.7			$	63.2			$	45.1
Depreciation, amortization, and depletion			7.7				5.8				14.7				12.1
EBITDA			36.8				28.5				77.9				57.2
Jackson mill conversion-related activities			2.0				3.0				2.0				3.2
EBITDA excluding special items		$	38.8			$	31.5			$	79.9			$	60.4
Corporate and Other
Segment loss		$	(30.5	)		$	(26.7	)		$	(61.9	)		$	(54.8	)
Depreciation, amortization, and depletion			3.9				2.5				7.6				5.0
EBITDA			(26.6	)			(24.2	)			(54.3	)			(49.8	)
EBITDA excluding special items		$	(26.6	)		$	(24.2	)		$	(54.3	)		$	(49.8	)
EBITDA		$	412.3			$	530.1			$	812.5			$	996.4
EBITDA excluding special items		$	417.5			$	532.6			$	822.4			$	999.8

Market Risk and Risk Management Policies

PCA is exposed to the impact of commodity price changes, interest rate changes, and changes in the market value of its financial instruments. To manage these risks, we may from time to time enter into transactions, including certain physical commodity transactions, that are determined to be derivatives. As of June 30, 2023, we are party to certain physical commodity transactions related to natural gas supply contracts. These contracts qualify for the normal purchase normal sale ("NPNS") exception, and we have elected that exception. For a discussion of derivatives and hedging activities, see Note 2, Summary of Significant Account Policies, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2022 Annual Report on Form 10-K.

At June 30, 2023, interest rates on 100% of PCA’s outstanding debt are fixed.

Off-Balance-Sheet Activities

The Company does not have any off-balance sheet arrangements as of June 30, 2023.

Environmental Matters

There have been no material changes to the disclosure set forth in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters” filed with our 2022 Annual Report on Form 10-K.

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, pensions and other postretirement benefits, goodwill and intangible assets, long-lived asset impairment, environmental liabilities, and income taxes, 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.

PCA has included in its 2022 Annual Report on Form 10-K a discussion of its critical accounting policies and estimates which require management’s most difficult, subjective, or complex judgments used in the preparation of its consolidated financial statements. PCA has not had any changes to these critical accounting estimates during the first six months of 2023.

New and Recently Adopted Accounting Standards

For a listing of our new and recently adopted accounting standards, see Note 2, New and Recently Adopted Accounting Standards, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this Form 10-Q.

Forward-Looking Statements

Some of the statements in this Quarterly Report on Form 10-Q, and in particular, statements found in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words “will,” “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. These factors, risks and uncertainties include the following:

the impact of general economic conditions;

the impact of acquired businesses and risks and uncertainties regarding operation, expected benefits and integration of such businesses;

containerboard, corrugated products, and white paper general industry conditions, including competition, product demand, product pricing, and input costs;

fluctuations in wood fiber and recycled fiber costs;

fluctuations in purchased energy costs;

the possibility of unplanned outages or interruptions at our principal facilities; and

legislative or regulatory actions or requirements, particularly concerning environmental or tax matters.

Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do occur, what impact they will have on our results of operations or financial condition. Given these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof. For a discussion of other factors, risks and uncertainties that may affect our business, see Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2022.