# Packaging Corp of America: Form 10-Q for the period ended Mar 31, 2016

- Company: [Packaging Corp of America](/companies/pkg.md) (CIK 75677)
- Form: 10-Q
- Filed: 2016-05-06
- Accepted by EDGAR: May 6, 2016, 16:24 ET
- Period: 2016-03-31
- Accession: 0000075677-16-000034
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/75677/000007567716000034/pkg0331201610q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/75677/000007567716000034/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-01-01 to 2016-03-31 | $1.40bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-01-01 to 2016-03-31 | $1.10bn | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2016-01-01 to 2016-03-31 | $298.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2016-01-01 to 2016-03-31 | $113.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-01-01 to 2016-03-31 | $180.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2016-01-01 to 2016-03-31 | $55.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-01-01 to 2016-03-31 | $103.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-01-01 to 2016-03-31 | 94,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-01-01 to 2016-03-31 | $191.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2016-01-01 to 2016-03-31 | $52.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2016-01-01 to 2016-03-31 | $53.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2016-01-01 to 2016-03-31 | $100.3m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-03-31 | $162.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-03-31 | $1.53bn | us-gaap:AssetsCurrent |
| Total assets | at 2016-03-31 | $5.23bn | us-gaap:Assets |
| Current liabilities | at 2016-03-31 | $545.3m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2016-03-31 | $2.29bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2016-03-31 | $6.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2016-03-31 | $1.59bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,379 characters.

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 nonhistorical statements in the discussion, 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 2015 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 fourth largest producer of containerboard and corrugated packaging products in the United States and the third largest producer of uncoated freesheet paper in North America, based on production capacity. We operate five containerboard mills, three paper mills, and 92 corrugated products manufacturing plants. Our corrugated products manufacturing plants produce a wide variety of corrugated packaging products, including conventional shipping containers used to protect and transport manufactured goods, multi-color boxes and displays with strong visual appeal that help to merchandise the packaged product in retail locations, and honeycomb protective packaging. In addition, we are a large producer of packaging for meat, fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. We also manufacture and sell white papers, including both commodity and specialty papers, which may have custom or specialized features such as colors, coatings, high brightness, and recycled content. We operate primarily in the United States.

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 2015 Annual Report on Form 10-K.

### Executive Summary

Net sales were $1.4 billion in both the first quarters of 2016 and 2015. We reported $104 million of net income, or $1.09 per diluted share, during the first quarter of 2016, compared with $91 million, or $0.92 per diluted share, during the same period in 2015. Excluding the special items discussed below, we recorded $106 million of net income, or $1.11 per diluted share, during the first quarter of 2016, compared with $100 million, or $1.01 per diluted share, in the first quarter of 2015. Increased earnings were driven primarily by higher volumes in our packaging segment and lower costs for maintenance, fiber, and energy in both our packaging and paper segments, partially offset by lower prices and mix in white paper, containerboard, and corrugated products.

Packaging segment income from operations was $160 million in the first quarter of 2016, compared to $141 million in the first quarter of 2015. Packaging segment earnings before interest, taxes, depreciation, amortization, and depletion (EBITDA) excluding special items was $235 million in the first quarter of 2016, compared to $222 million in the first quarter of 2015. Compared to the first quarter of 2015, both containerboard and corrugated products shipments were higher while containerboard and corrugated prices and mix were down due to lower export prices and industry published price decreases. During the first quarter of 2016, we successfully completed scheduled maintenance outages at our Valdosta, DeRidder, and Counce mills.

Paper segment income from operations was $36 million in each of the first quarters of 2016 and 2015. Paper segment EBITDA excluding special items increased to $51 million in the first quarter of 2016, compared to $49 million in the first quarter of 2015. Our office paper shipments, which represent about 70% of our white paper volume, were higher versus the first quarter of 2015. Overall white paper shipments were flat with last year’s first quarter, and pulp shipments were lower. White paper prices and mix were unfavorable to last year’s first quarter; however, our mills ran efficiently and effectively managed costs throughout the quarter, leading to strong margin performance.

#### Special Items and Earnings per Diluted Share, Excluding Special Items

The first quarter of 2016 included $3 million of pre-tax expense for special items, compared with $14 million of pre-tax expense for special items during the same period in 2015. The special items in the first quarter of 2016 were for facilities closure costs related to closing a corrugated manufacturing facility and a paper distribution center. The three months ended March 31, 2015 included $10 million of expenses related to the DeRidder mill restructuring, primarily related to accelerated depreciation, and $4 million of Boise acquisition integration-related and other costs.

A reconciliation of reported earnings per diluted share to earnings per share, excluding special items, for the first quarters of 2016 and 2015 are as follows:

|  | Three Months Ended March 31 2016 | 2015 |
| --- | ---: | ---: |
| Earnings per diluted share, as reported | $1.09 | $0.92 |
| Special items (a): |  |  |
| Facilities closure costs | 0.02 | — |
| DeRidder restructuring | — | 0.07 |
| Integration-related and other costs | — | 0.02 |
| Total special items | 0.02 | 0.09 |
| Earnings per diluted share, excluding special items | $1.11 | $1.01 |

(a) See "Reconciliations of Non-GAAP Financial Measures to Reported Amounts" in this Management's Discussion and Analysis of Financial Condition and Results of Operations for more information on the special items.

Management excludes special items and uses non-GAAP measures to focus on PCA’s on-going operations and assess its operating performance and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. 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 that industry-wide corrugated products shipments increased 1.4% during the first quarter of 2016, compared with the same quarter in 2015, and remained essentially flat per workday with one less workday in 2015. Reported industry containerboard production was 1.4% higher than the first quarter of 2015, and reported industry containerboard inventories at the end of the first quarter of 2016 were approximately 2.7 million tons, up 3.6% compared to the same period in 2015. Reported containerboard export shipments were up 3.6% compared to the first quarter of 2015. Published open market prices for linerboard and corrugating medium as reported by a trade publication decreased $15 and $20 per ton, respectively, in January 2016. In February 2016, medium decreased an additional $10 per ton.

The market for communication papers competes heavily with electronic data transmission and document storage alternatives. Increasing shifts to these alternatives have reduced usage of traditional print media and communication papers. Trade publications reported that uncoated freesheet paper shipments were up 0.8% in the first quarter of 2016, compared with the same quarter in 2015. Average prices reported by a trade publication for cut size office papers were lower by $27 per ton, or 2.7%, in the first quarter of 2016, compared with the first quarter of 2015.

### Outlook

Looking ahead to the second quarter of 2016, we expect seasonally higher volumes for containerboard and corrugated products and lower energy costs compared to the first quarter. In addition, we notified our white paper customers of $60 per ton price increases for printing and converting grades and cut-size office papers to take effect in the second quarter of 2016; however, the substantial majority of any price increase is expected to be realized in the third quarter of 2016. Maintenance outage costs are expected to be higher in the second quarter due to four planned mill outages, and we expect lower prices for containerboard as a result of the published price decreases, which are expected to partially offset the benefits described above. Considering these items, we expect second quarter earnings, excluding special items, to be higher than our first quarter earnings.

### Results of Operations

### Three Months Ended March 31, 2016, compared with Three Months Ended March 31, 2015

The historical results of operations of PCA for the three months ended March 31, 2016 and 2015 are set forth below (dollars in millions):

|  | Three Months Ended March 31 2016 | 2015 | Change |
| --- | ---: | ---: | ---: |
| Packaging | $1,095 | $1,099 | $(4) |
| Paper | 281 | 298 | (17) |
| Corporate and Other | 63 | 61 | 2 |
| Intersegment eliminations | (38) | (32) | (6) |
| Net sales | $1,401 | $1,426 | $(25) |
| Packaging | $160 | $141 | $19 |
| Paper | 36 | 36 | — |
| Corporate and Other | (15) | (20) | 5 |
| Income from operations | $181 | $157 | $24 |
| Interest expense, net | (22) | (19) | (3) |
| Income before taxes | 159 | 138 | 21 |
| Income tax provision | (55) | (47) | (8) |
| Net income | $104 | $91 | $13 |
| Non-GAAP Measures (a) |  |  |  |
| Net income excluding special items | $106 | $100 | $6 |
| EBITDA | 269 | 250 | 19 |
| EBITDA excluding special items | 272 | 255 | 17 |
| Packaging EBITDA | 233 | 220 | 13 |
| Packaging EBITDA excluding special items | 235 | 222 | 13 |
| Paper EBITDA | 50 | 49 | 1 |
| Paper EBITDA excluding special items | 51 | 49 | 2 |

(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 $25 million, or 1.8%, to $1,401 million during the three months ended March 31, 2016, compared with $1,426 million during the same period in 2015.

*Packaging.* Net sales decreased $4 million, to $1,095 million, compared with $1,099 million in the first quarter of 2015, primarily due to lower export and domestic containerboard and corrugated products price and mix ($13 million) and sales lost due to the divestiture of our Hexacomb operations in Mexico and Europe in 2015 ($11 million). These decreases were partially offset by increased corrugated products sales volumes ($20 million). Domestic and export containerboard prices in the first quarter of 2016 decreased 4.1% and 7.4%, respectively, compared with the same quarter last year, in part due to published price decreases. In the first quarter of 2016, our containerboard outside shipments decreased 1.2%, and corrugated products shipments were up 3.4%, compared with the first quarter of 2015.

*Paper.* Net sales during the three months ended March 31, 2016 decreased $17 million, or 5.7%, to $281 million, compared with $298 million in the first quarter of 2015. Sales decreased primarily due to changes in price and mix ($10 million) and lower volume ($7 million). Office paper prices and mix in the first quarter of 2016 decreased 3.9% compared with the same period last year. In the first quarter of 2016, our office paper shipments increased slightly, and pressure sensitive shipments were up 3,000 tons. This was more than offset by lower printing and converting paper shipments (4,000 tons) and pulp shipments (10,000 tons) in the first quarter of 2016 compared to the first quarter of 2015.

### Gross Profit

Gross profit increased $22 million, or 7.9%, during the three months ended March 31, 2016, compared with the same period in 2015. The increase was primarily due to higher packaging sales volumes and lower maintenance, fiber, and energy costs, partially offset by lower prices and mix in white paper, containerboard and corrugated products and lower expense for special items in the first quarter of 2016 compared to the same period in 2015. In the first quarters of 2016 and 2015, gross profit included special items of $1 million for facilities closure costs and $9 million for DeRidder mill restructuring charges, respectively, most of which related to incremental depreciation expense associated with changing the estimated useful lives of mill assets.

### Selling, General, and Administrative Expenses

Selling, general, and administrative expenses decreased $3 million, or 2.6%, during the three months ended March 31, 2016, compared with the same period in 2015. The decrease was due primarily to lower administrative employee costs from headcount reductions related to the Boise integration.

### Other Expense, Net

Other expense, net, during the three months ended March 31, 2016 was $4 million, compared with $3 million during the three months ended March 31, 2015. The first quarter of 2016 included $2 million of facilities closure costs and $2 million of asset disposals and other costs. The first quarter of 2015 included $4 million of income from a refundable state tax credit received related to our investments at DeRidder, which was more than offset by $3 million of Boise integration-related and other costs, $1 million of DeRidder restructuring charges, and $2 million of asset disposals and other costs. We discuss these items in more detail in Note 3, Other Expense, Net of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Part I, Item1. Financial Statements" of this Form 10-Q.

### Income from Operations

Income from operations increased $24 million, or 15.3%, during the three months ended March 31, 2016, compared with the same period in 2015. The first quarter of 2016 included $3 million of expense from special items, compared with $14 million of expense from special items in the first quarter of 2015. First quarter 2016 special items included $3 million of charges related to facilities closure costs. First quarter 2015 special items included $10 million of charges related to restructuring the DeRidder mill and $4 million of integration-related and other costs. Excluding special items, income from operations increased $13 million during the three months ended March 31, 2016, compared with the same period in 2015. The increase was primarily due to increased sales volumes and lower operating costs, partially offset by lower prices and mix in white paper, containerboard and corrugated products.

*Packaging.* Segment income from operations increased $19 million, or 13.5%, to $160 million, compared with $141 million during the three months ended March 31, 2015. The increase in the first quarter of 2016 related primarily to lower outage costs ($11 million), freight ($6 million), higher volume ($5 million), lower energy ($4 million), and wood ($4 million) costs, and lower expense for special items in the first quarter of 2016 compared to the same period in 2015 ($9 million), offset partially by lower containerboard and corrugated products prices and mix ($9 million), increased depreciation ($4 million), and labor ($3 million) costs, and a state incentive received in 2015 related to investments at our DeRidder mill ($4 million). Special items included $2 million of facilities closure costs in the first quarter of 2016 and $10 million of DeRidder restructuring charges and $1 million of integration-related and other costs for the same period in 2015.

*Paper.* Segment income from operations was flat at $36 million, compared to the three months ended March 31, 2015. Cost variances compared to the first quarter of 2015 were primarily related to lower energy ($5 million), fiber ($5 million), freight ($1 million), and labor ($1 million) costs, partially offset by lower white paper prices and mix ($5 million), lower pulp volume ($3 million), facilities closure costs in the first quarter of 2016 ($1 million), and other costs that were individually insignificant.

### Interest Expense, Net, and Income Taxes

Interest expense, net, was $22 million during the three months ended March 31, 2016, compared with $19 million during the three months ended March 31, 2015. The increase in interest expense was primarily due to lower interest rebate income related to one of our term loans recorded in the first quarter of 2016 compared to the first quarter of 2015.

During the three months ended March 31, 2016 we recorded $55 million of income tax expense, compared with $47 million of expense during the three months ended March 31, 2015. The effective tax rate for the three months ended March 31, 2016 and 2015 was 34.8% and 34.2%, respectively.

### 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 March 31, 2016 we had $162 million of cash and $326 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. Currently, our primary uses of cash are for operations, capital expenditures, debt service (including voluntary payments of debt), repurchases of common stock, and declared common stock dividends. 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):

| Net cash provided by (used for): | Three Months Ended March 31 2016 | 2015 | Change |
| --- | ---: | ---: | ---: |
| Operating activities | $191 | $108 | $83 |
| Investing activities | (56) | (57) | 1 |
| Financing activities | (157) | (49) | (108) |
| Net increase (decrease) in cash and cash equivalents | $(22) | $2 | $(24) |

### Operating Activities

During the three months ended March 31, 2016 net cash provided by operating activities was $191 million, compared with $108 million in the same period in 2015, an increase of $83 million. Cash from operations excluding changes in cash used for operating assets and liabilities increased $17 million, primarily due to higher income as discussed above. The remaining $66 million increase from changes in cash used for operating assets and liabilities was primarily due to the following: (a) a decrease in our accounts receivable in the first quarter of 2016 related to differences in the timing of collections of receivables, primarily in the Paper segment and (b) an increase in taxes payable resulting from higher taxable income levels in the first quarter of 2016 compared to the same quarter in the prior period. These factors were offset partially by (a) a decrease in accrued liabilities due primarily to larger compensation and benefits payments made during the first quarter of 2015 and (b) an increase in prepaid expense in the first quarter of 2016 related to mill outage costs. 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.

### Investing Activities

Net cash used for investing activities during the three months ended March 31, 2016 decreased $1 million, to $56 million, compared with $57 million during the same period in 2015. We spent $53 million for capital investments during the three months ended March 31, 2016, compared with $56 million during the same period in 2015.

We expect capital investments to be between $250 million and $265 million in 2016, excluding any acquisitions or other strategic activities. These expenditures could increase or decrease as a result of a number of factors, including our financial results, future economic conditions, and our regulatory compliance requirements. We currently estimate capital expenditures to comply with Boiler MACT regulations in 2016 of up to $3 million, and we expect other environmental capital expenditures of about $5 million in 2016. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations, including those related to greenhouse gas emissions and industrial boilers. For additional information, see "Environmental Matters" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2015 Annual Report on Form 10-K.

### Financing Activities

During the three months ended March 31, 2016 we used $157 million for financing activities, compared with $49 million during the same period in 2015. The increase in cash used for financing activities primarily relates to an increase in share repurchases and a higher dividend payment. In the first three months of 2016, we paid $53 million of dividends compared with the $39 million of dividends paid during the first three months of 2015. On February 26, 2015 PCA's Board of Directors increased the regular quarterly cash dividend to $0.55 per share from the previous $0.40 per share dividend, beginning with the dividend paid on April 15, 2015. During the three months ended March 31, 2016, we paid $100 million to repurchase 1,987,187 shares of common stock, compared with $8 million of share repurchases in the same period in 2015. We also withheld shares from vesting equity awards to cover employee tax liabilities of $2 million in the first quarter of 2016.

As PCA completed share repurchases under its prior authorization, on February 25, 2016 PCA announced that its Board of Directors authorized the repurchase of an additional $200 million of the Company’s outstanding common stock. Repurchases may be made from time to time in open market or privately negotiated transactions in accordance with applicable securities regulations. The timing and amount of repurchases will be determined by the Company in its discretion based on factors such as PCA’s stock price and market and business conditions.

For more information about our debt, see Note 10, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our 2015 Annual Report on Form 10-K.

### Contractual Obligations

There have been no material changes to the contractual obligations table disclosed in Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our 2015 Annual Report on Form 10-K, except as disclosed in Note 9, Debt, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Part I, Item 1. Financial Statements" of this Form 10-Q.

### 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 and uses non-GAAP measures to focus on on-going operations and assess its operating performance and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. Additionally, EBITDA and EBITDA excluding special items 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 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 months ended March 31, 2016 and 2015 follow (dollars in millions):

|  | Three Months Ended March 31 2016 Income from Operations | Net Income | 2015 Income from Operations | Net Income |
| --- | ---: | ---: | ---: | ---: |
| As reported in accordance with GAAP | $181 | $104 | $157 | $91 |
| Special items: |  |  |  |  |
| Facilities closure costs (a) | 3 | 2 | — | — |
| DeRidder restructuring (b) | — | — | 10 | 7 |
| Integration-related and other costs (c) | — | — | 4 | 2 |
| Total special items | 3 | 2 | 14 | 9 |
| Excluding special items | $184 | $106 | $171 | $100 |

(a) The three months ended March 31, 2016 include $3 million of facilities closure costs related to a corrugated products facility and a paper products facility. The closure costs are recorded within "Other expense, net" and "Cost of sales", as appropriate.

(b) The three months ended March 31, 2015 include $10 million of restructuring charges at our mill in DeRidder, Louisiana. The restructuring charges primarily related to accelerated depreciation and were mostly recorded in "Cost of sales".

(c) The three months ended March 31, 2015 include $4 million of Boise acquisition integration-related and other costs, mostly recorded in "Other income (expense), net". These costs primarily relate to professional fees, severance, retention, relocation, travel, and other integration-related costs.

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

|  | Three Months Ended March 31 2016 | 2015 |
| --- | ---: | ---: |
| Net income | $104 | $91 |
| Interest expense, net | 22 | 19 |
| Income tax provision | 55 | 47 |
| Depreciation, amortization, and depletion | 88 | 93 |
| EBITDA | $269 | $250 |
| Special items: |  |  |
| Facilities closure costs | $3 | $— |
| DeRidder restructuring | — | 1 |
| Integration-related and other costs | — | 4 |
| EBITDA excluding special items | $272 | $255 |

20

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

| Packaging | Three Months Ended March 31 2016 | 2015 |
| --- | ---: | ---: |
| Segment income | $160 | $141 |
| Depreciation, amortization, and depletion | 73 | 79 |
| EBITDA | 233 | 220 |
| Facilities closure costs | 2 | — |
| DeRidder restructuring | — | 1 |
| Integration-related and other costs | — | 1 |
| EBITDA excluding special items | **$235** | **$222** |
| **Paper** |  |  |
| Segment income | $36 | $36 |
| Depreciation, amortization, and depletion | 14 | 13 |
| EBITDA | 50 | 49 |
| Facilities closure costs | 1 | — |
| EBITDA excluding special items | **$51** | **$49** |
| **Corporate and Other** |  |  |
| Segment loss | $(15) | $(20) |
| Depreciation, amortization, and depletion | 1 | 1 |
| EBITDA | (14) | (19) |
| Integration-related and other costs | — | 3 |
| EBITDA excluding special items | **$(14)** | **$(16)** |
| **EBITDA** | **$269** | **$250** |
| **EBITDA excluding special items** | **$272** | **$255** |

### Market Risk and Risk Management Policies

PCA is exposed to the impact of interest rate changes and changes in the market value of its financial instruments. We periodically enter into derivatives to minimize these risks, but not for trading purposes. At March 31, 2016 we had no derivative instruments outstanding. For a discussion of derivatives and hedging activities, see Note 14, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our 2015 Annual Report on Form 10-K.

The interest rates on approximately 70% of PCA’s debt are fixed. A one percent increase in interest rates related to variable-rate debt would have resulted in an increase in interest expense and a corresponding decrease in income before taxes of approximately $7 million annually.

### Off-Balance-Sheet Activities

The Company does not have any off-balance sheet arrangements as of March 31, 2016.

### 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 2015 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 pensions and other postretirement benefits, goodwill and intangible assets, long-lived asset impairment, 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 2015 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 three months of 2016.

### New and Recently Adopted Accounting Standards

For a listing of our new and recently adopted accounting standards, see Note 16, 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. 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 the Boise acquisition and risks and uncertainties relating to the integration of Boise’s business into our business;
- 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, 2015.

## Market risk

As filed, 238 characters.

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.

## Controls and procedures

As filed, 1,621 characters.

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 March 31, 2016. 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 March 31, 2016.

During the quarter ended March 31, 2016 there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, PCA’s internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 172 characters.

There have been no material changes to the risk factors disclosed in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015.

Filed May 6, 2016.
Source: SEC EDGAR, the filing index for accession 0000075677-16-000034. Last ingested by Listed: Nov 5, 2026, 13:32 ET. No prices; not investment advice.