Packaging Corp of America 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2023

or

For the transition period from to

Commission file number 1-15399

(Exact Name of Registrant as Specified in its Charter)

Registrant's telephone number, including area code

(847) 482-3000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 27, 2023, the Registrant had outstanding 89,624,297 shares of common stock, par value $0.01 per share.

Securities registered pursuant to Section 12(b) of the Exchange Act:

Table of Contents

All reports we file with the Securities and Exchange Commission (SEC) are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available through our website at www.packagingcorp.com as soon as reasonably practicable after filing such material with the SEC.

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PART I

FINANCIAL INFORMATION

Packaging Corporation of America

Consolidated Statements of In****come and Comprehensive Income

(unaudited, dollars in millions, except per-share data)

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Packaging Corporation of America

Consolidated B****alance Sheets

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

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Packaging Corporation of America

Consolidated Statem****ents of Cash Flows

(unaudited, dollars in millions)

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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

Third quarter net sales were $1.94 billion in 2023 and $2.13 billion in 2022. We reported $183 million of net income, or $2.03 per diluted share, during the third quarter of 2023, compared to $262 million, or $2.80 per diluted share, during the same period in 2022. Net income included $2 million of expense for special items in the third quarter of 2023, compared to $3 million of expense for special items in 2022 (discussed below). Excluding special items, net income was $185 million, or $2.05 per diluted share, during the third quarter of 2023, compared to $266 million, or $2.83 per diluted share, in the third quarter of 2022. The decrease in net income was driven primarily by lower prices and mix and lower volumes in the Packaging segment, lower volume in the Paper segment, higher depreciation expense, a higher tax rate, and other expenses. These items were partially offset by lower operating costs, higher prices and mix in the Paper segment, lower converting costs and lower scheduled maintenance outage expenses in the Packaging segment, and lower freight and logistic expenses. 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 $257 million in the third quarter of 2023, compared to $359 million in the third quarter of 2022. Packaging segment EBITDA excluding special items was $374 million in the third quarter of 2023 compared to $467 million in the third quarter of 2022. The decrease was due to lower prices and mix, lower sales and production volumes, and higher other costs, partially offset by lower operating and converting costs and lower scheduled maintenance outage expenses. During the first half of the year, lower sales and production volumes were driven by lower demand with customers adjusting their ordering patterns to reduce their inventories. Consumer buying preferences shifting more towards service-oriented spending, continued inflation, and higher interest rates have driven lower purchases of both durable and non-durable goods compared to peak 2022 levels. During the third quarter, demand improved with customer ordering patterns returning to more normal levels. Corrugated products shipments increased 1.9% per work day compared to the third quarter of 2022 and 3.9% per work day compared to the second quarter of 2023. We continued to balance our containerboard production with levels appropriate for our demand. Throughout the third quarter of 2023, we continued the temporary idling of our Wallula, WA containerboard mill to help achieve this balance and optimize our cost structure across our containerboard mill system. Based on our current outlook for improving demand together with current plans in the first half of 2024 for scheduled mill maintenance outages and completing the final phase of the containerboard conversion of the No. 3 machine at our Jackson, Alabama mill, we are planning to restart the No. 3 machine at our Wallula mill during the fourth quarter in order to bring our inventories to desired levels. Throughout our mills and corrugated products facilities, operational benefits were achieved through process improvement initiatives including machine and equipment efficiencies; fiber, chemical, and material usages; internal energy generation and usage; and labor costs.

Paper segment income from operations was $28 million in the third quarter of 2023, compared to $26 million in the third quarter of 2022. Paper segment EBITDA excluding special items was $35 million in the third quarter of 2023, compared to $33 million in the third 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. We continued to adjust our paper production to levels appropriate for our demand and focused on cost effective operations.

Packaging segment income from operations was $811 million in the first nine months of 2023, compared to $1,141 million in the same period in 2022. Packaging segment EBITDA excluding special items was $1,171 million in the first nine months of 2023 compared to $1,456 million in the first nine months of 2022. The decrease in EBITDA excluding special items was due primarily to lower sales and production volumes, lower prices and mix, and higher freight and logistic expenses, partially offset by lower operating and converting costs, and lower scheduled outage expenses.

Paper segment income from operations was $91 million in the first nine months of 2023, compared to $71 million in the first nine months of 2022. Paper segment EBITDA excluding special items was $115 million in the first nine months of 2023, compared to $93 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 lower sales and production volumes, and higher operating costs.

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 nine months ended September 30, 2023 and 2022 is as follows:

(a)

For the three and nine months ended September 30, 2023, includes $2.6 million and $8.2 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 nine months ended September 30, 2022, these amounts were $3.9 million and $9.4 million, respectively.

(b)

For the three and nine months ended September 30, 2023, includes $0.1 million of income and $13.5 million of charges, respectively, related to the closure of corrugated products facilities and design centers. Included therein are closure costs as well as the gain on sale of a corrugated products facility. For the three and nine months ended September 30, 2022, includes $0.2 million of charges and $0.2 million of income, respectively, consisting of closure costs related to corrugated products facilities and acquisition and integration costs related to the December 2021 Advance Packaging Corporation acquisition, partially offset by a gain on sale of assets related to a corrugated products facility. For the nine months ended September 30, 2022, these costs were offset by 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.

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 were down (4.0%) in total and (0.9%) per work day with two less shipping days during the third quarter of 2023 compared to the same quarter of 2022. Reported industry containerboard production decreased (0.6%) compared to the third quarter of 2022. Reported industry containerboard inventories at the end of the third quarter of 2023 were approximately 2.6 million tons, down (14.2%) compared to the same period in 2022. Reported containerboard export shipments were up 16.3% compared to the third 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 (12.9%) in the third 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 $7 per ton, or (0.5%) in the third quarter of 2023, compared to the second quarter of 2023, and higher by $13 per ton, or 0.9%, compared to the third 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. In August and September 2023, offset printing paper prices declined $20 and $10 respectively.

Outlook

Looking ahead into the fourth quarter, in our Packaging segment, we expect less market-related downtime as we build our inventories back to appropriate levels along with higher shipments per day in our corrugated products facilities. We also expect lower average prices primarily due to the majority of the May decrease in the published benchmark index grades being realized throughout the third quarter as well as a seasonally less rich mix. In our Paper segment, volume will be lower compared to the seasonally stronger third quarter and prices and mix are assumed to trend lower with declines in the index prices. Operating and converting costs will increase driven by higher recycled fiber prices, seasonal energy costs, and re-start of the Wallula mill. Depreciation expense is estimated to be slightly higher and scheduled maintenance outage expenses will be lower. Considering these items, we expect fourth quarter earnings to be lower than the third quarter.

Results of Operations

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

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

(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 $190 million, or (8.9%), to $1,936 million during the three months ended September 30, 2023, compared to $2,126 million during the same period in 2022.

Packaging. Net sales decreased $180 million, or (9.3%), to $1,760 million, compared to $1,940 million in the third quarter of 2022 due to lower containerboard and corrugated products prices and mix ($186 million), partially offset by higher volume ($6 million). In the third quarter of 2023, export and domestic containerboard outside shipments increased 18.1% compared to the third quarter of 2022. Our total corrugated products shipments were down (1.3%) in total and up 1.9% per workday, with two less shipping days, compared to the same period in 2022. In the third quarter of 2023, our domestic containerboard prices were (14.6%) lower, while export prices were (36.2%) lower, than the same period in 2022.

Paper. Net sales decreased $7 million, or (4.5%), to $158 million, compared to $165 million in the third quarter of 2022, due to lower volume ($12 million), partially offset by higher prices and mix ($5 million).

Gross Profit

Gross profit decreased $106 million during the three months ended September 30, 2023, compared to the same period in 2022. The decrease was driven primarily by lower prices and mix and lower volumes in our Packaging segment, higher depreciation expense, lower volume in the Paper segment, and other expenses, partially offset by lower operating costs, higher prices and mix in the Paper segment, lower converting costs, lower scheduled maintenance outage expenses, and lower freight and logistic expenses. In the three months ended September 30, 2023, gross profit included $3 million of special items related to Jackson mill conversion-related activities. In the three months ended September 30, 2022, gross profit

included $2 million of special items for charges related to Jackson mill conversion-related activities and closure costs related to corrugated products facilities.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) decreased $1 million during the three months ended September 30, 2023, compared to the same period in 2022. The decrease was primarily due to outside services and insurance.

Other Income (Expense), Net

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

We discuss these items in more detail in Note 5, Other Income (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 $102 million, or (28.2%), during the three months ended September 30, 2023, compared to the same period in 2022. The third quarter of 2023 included $2 million of special items expense primarily related to Jackson mill conversion-related activities and activity related to corrugated products facilities closures, compared to $4 million of special items expense primarily related to costs from Jackson mill conversion-related activities in the third quarter of 2022.

Packaging. Packaging segment income from operations decreased $102 million to $257 million, compared to $359 million during the three months ended September 30, 2022. The decrease related primarily to lower containerboard and corrugated products prices and mix ($159 million), lower sales and production volumes ($11 million), higher depreciation expense ($12 million), and higher other costs ($5 million), partially offset by lower operating and converting costs ($76 million), and lower annual outage expenses ($6 million). Special items during the third quarter of 2023 included an insignificant amount of special items in the Packaging segment, compared to $3 million of expense primarily related to Jackson mill conversion-related activities in the third quarter of 2022.

Paper. Paper segment income from operations increased $2 million to $28 million, compared to $26 million during the three months ended September 30, 2022. The increase primarily related to higher prices and mix ($5 million) and lower freight expenses ($3 million), partially offset by lower sales and production volumes ($6 million). Special items during the third quarter of 2023 and 2022 included $3 million and $1 million, respectively, of expense for Jackson mill conversion-related activities.

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

Non-operating pension expense increased $5 million during the three months ended September 30, 2023, compared to the same period in 2022. The increase in non-operating pension expense was related to unfavorable 2022 asset performance, partially offset by favorable assumption changes.

Interest expense, net for the three months ended September 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 September 30, 2023, we recorded $61 million of income tax expense, compared to $85 million of expense during the three months ended September 30, 2022. The effective tax rate for the three months ended September 30, 2023 and 2022 was 25.1% and 24.4%, respectively. The increase in our effective tax rate for the three months ended September 30, 2023 compared to the same period in 2022 was primarily due to lower excess tax benefits associated with employee restricted stock and performance unit vests as well as lower favorable state tax law changes.

Nine Months Ended September 30, 2023, compared to Nine Months Ended September 30, 2022

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

(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 $635 million, or (9.8%), to $5,865 million during the nine months ended September 30, 2023, compared to $6,500 million during the same period in 2022.

Packaging. Net sales decreased $613 million, or (10.3%), to $5,359 million, compared to $5,972 million in the nine months ended September 30, 2022, due to lower containerboard and corrugated products volume ($430 million) and lower containerboard and corrugated products prices and mix ($183 million). In the first nine months of 2023, our domestic containerboard prices were (9.3%) lower, while export prices were (27.9%) lower, than the same period in 2022. In the first nine months of 2023, export and domestic containerboard outside shipments decreased (13.7%) compared to the first nine months of 2022. Total corrugated products shipments were down (8.1%) in total and (7.1%) per workday, with two less shipping days, compared to the same period in 2022.

Paper. Net sales during the nine months ended September 30, 2023 decreased $17 million, or (3.6%), to $452 million, compared to $469 million in the nine months ended September 30, 2022, due to lower volume ($60 million), partially offset by higher prices and mix ($43 million).

Gross Profit

Gross profit decreased $352 million during the nine months ended September 30, 2023, compared to the same period in 2022. The decrease was driven primarily by lower volumes in the Packaging and Paper segments, lower prices and mix in the Packaging segment, higher depreciation expense, partially offset by lower operating costs, higher prices and mix in the Paper segment, and lower scheduled maintenance outage expenses. In the nine months ended September 30, 2023, gross profit included $12 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities. In the nine months ended September 30, 2022, gross profit included $5 million of special items expense primarily related to Jackson mill conversion-related activities.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) decreased $25 million during the nine months ended September 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 Income (Expense), Net

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

We discuss these items in more detail in Note 5, Other Income (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 $319 million, or (28.2%), during the nine months ended September 30, 2023, compared to the same period in 2022. The first nine months of 2023 included $22 million of special items expense primarily related to corrugated facility closure costs and Jackson mill conversion-related costs, compared to $9 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 in 2022.

Packaging. Packaging segment income from operations decreased $331 million to $811 million during the first nine months of 2023, compared to the same period last year. The decrease related primarily to lower sales and production volumes ($239 million), lower containerboard and corrugated products prices and mix ($142 million), higher depreciation expense ($35 million), and higher freight expenses ($13 million), partially offset by lower operating and converting costs ($97 million), and lower annual outage expenses ($11 million). Special items during the first nine months of 2023 included $13 million of expense related to corrugated facility closure costs, compared to $3 million of expense 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 in 2022.

Paper. Paper segment income from operations increased $20 million to $91 million, compared to the nine months ended September 30, 2022. The increase primarily related to higher prices and mix ($43 million) and lower freight expenses ($11 million), partially offset by lower sales and production volumes ($19 million), higher operating costs ($15 million), and higher depreciation ($1 million). Special items during the first nine months of 2023 and 2022 included $9 million and $6 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 $17 million during the nine months ended September 30, 2023, compared to the same period in 2022. The increase in non-operating pension expense was related to unfavorable 2022 asset performance, partially offset by favorable assumption changes.

Interest expense, net decreased $13 million during the nine months ended September 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 nine months of 2023, compared to the same period in 2022.

During the nine months ended September 30, 2023, we recorded $190 million of income tax expense, compared to $270 million of expense during the nine months ended September 30, 2022. The effective tax rate for the nine months ended September 30, 2023 and 2022 was 24.8% for both periods.

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 September 30, 2023, we had $573 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):

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 nine months ended September 30, 2023, net cash provided by operating activities was $980 million, compared to $1,075 million in the same period in 2022, a decrease of $95 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $231 million primarily due to lower income from operations in 2023 as discussed above. Cash from operations increased by $136 million due to changes in operating assets and liabilities primarily due to the following:

a)

a net favorable change in inventories in the first nine months of 2023 compared to the same period in 2022, primarily due to an increase in inventory levels in the Packaging segment during the first nine months of 2022 partially offset by an increase in Paper inventory levels due to softening demand during the same period in 2023;

b)

a net favorable change in income taxes due to lower tax payments during the first nine months of 2023 compared to the same period in 2022; and

c)

a net favorable change in accounts receivable in the first nine months of 2023 compared to the same period in 2022 primarily due to a smaller increase in accounts receivable levels for the Packaging segment as a result of lower sales volumes and pricing during the first nine months of 2023 compared to the same period in 2022.

These favorable changes were partially offset by the following:

a)

a net unfavorable change in accrued liabilities in the first nine months of 2023 compared to the same period in 2022 primarily due to a decrease in customer rebates related to the timing of payments and lower sales volumes and lower accruals for employee compensation and benefit liabilities; and

b)

a net unfavorable change in accounts payable in the first nine 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 $331 million for investing activities during the nine months ended September 30, 2023 compared to $582 million during the same period in 2022. We spent $329 million for internal capital investments during the nine months ended September 30, 2023, compared to $577 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 nine months ended September 30, 2023, net cash used for financing activities was $396 million, compared to $463 million of net cash used for financing activities during the same period in 2022. We paid $337 million of dividends during the first nine months of 2023, compared to $304 million of dividends paid during the comparable period in 2022. We repurchased and retired 0.3 million shares of the Company's common stock for $42 million during the first nine months of 2023, compared to repurchases of 1.0 million shares of the Company's common stock for $142 million during the same 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 nine months ended September 30, 2023 and 2022 follow (dollars in millions):

(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 the closure of corrugated products facilities and design centers. Included therein are closure costs as well as the gain on sale of a corrugated products facility. For the three months ended September 30, 2022, includes closure costs related to corrugated products facilities and acquisition and integration costs related to the December 2021 Advance Packaging Corporation acquisition, partially offset by a gain on sale of assets related to a corrugated products facility. For the nine months ended September 30, 2022, these costs were offset by 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.

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

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

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 September 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 September 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 September 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 nine 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.

For a discussion of market risks related to PCA, see Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Risk and Risk Management Policies” in this Quarterly Report on Form 10-Q.

PCA maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be disclosed in PCA’s filings under the Securities Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to PCA’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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 September 30, 2023. The evaluation of PCA’s disclosure controls and procedures included a review of the controls’ objectives and design, PCA’s implementation of the controls, and the effect of the controls on the information generated for use in this report. 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 September 30, 2023.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule13a-15(f) under the Exchange Act) that occurred during the most recent fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The disclosure set forth under the caption "Legal Proceedings" in Note 19, Commitments, Guarantees, Indemnifications and Legal Proceedings, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Part I, Item 1. Financial Statements" of this Form 10-Q is incorporated herein by reference.

There have been no material changes to the risk factors disclosed in “Part I, Item IA. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. UNREGISTERED SALES OF EQUI****TY SECURITIES AND USE OF PROCEEDS

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 September 30, 2023:

(a)

1,202 shares were withheld from employees to cover income and payroll taxes on equity awards that vested during the period.

(b)

Excludes commissions.

Item 3. DEFAULTS UPO****N SENIOR SECURITIES

None.

Item 4. MINE SAF****ETY DISCLOSURES

Not applicable.

During the three months ended September 30, 2023, none of the Company's directors or officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any non-Rule 10b5-1 trading arrangements as defined in Item 408(a) of Regulation S-K.

† Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 3, 2023