# Packaging Corp of America: Form 10-K for the period ended Feb 28, 2017

- Company: [Packaging Corp of America](/companies/pkg.md) (CIK 75677)
- Form: 10-K
- Filed: 2017-02-28
- Accepted by EDGAR: Feb 28, 2017, 15:25 ET
- Period: 2017-02-28
- Accession: 0000075677-17-000004
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/75677/000007567717000004/pkg1231201610k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/75677/000007567717000004/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-02-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Shares outstanding | at 2017-02-24 | 94,206,284 shares | dei:EntityCommonStockSharesOutstanding |

## Business

As filed, 28,316 characters.

Packaging Corporation of America ("we," "us," "our," "PCA," or the "Company") is the fourth largest producer of containerboard products and the third largest producer of uncoated freesheet in the United States, based on production capacity. We operate five containerboard mills, three paper mills and 94 corrugated products manufacturing plants. We are headquartered in Lake Forest, Illinois and operate primarily in the United States.

We report in three reportable segments: Packaging, Paper and Corporate and Other. For segment financial information see Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8, Financial Statements and Supplementary Data" of this Form 10-K.

During 2016, we made two acquisitions in our corrugated products business: Tim-Bar Corporation ("TimBar") and Columbus Container, Inc. ("Columbus Container"). On August 29, 2016, we acquired substantially all of the assets of TimBar, a large independent corrugated products producer with six corrugated products production facilities for a purchase price of $386 million. To finance the acquisition, we borrowed $385 million under a new five-year term loan facility. TimBar provides solutions to customers in the higher-margin retail, industrial packaging and display and fulfillment markets with a focus on multi-color graphics and technical innovation. On November 30, 2016, we acquired substantially all of the assets of Columbus Container for a purchase price of $100 million. Columbus Container is a full-service provider of corrugated packaging products, with a full-line corrugated products plant, warehousing facilities, and other related operations located in Indiana and Illinois. We used available cash on hand to purchase Columbus Container. The operating results of TimBar and Columbus Container are included in our results and reported in the Packaging segment from and after the respective dates of acquisition. These acquisitions will accelerate the growth strategy and increase the containerboard integration level in our Packaging segment.

### Production and Shipments

The following table summarizes the Packaging segment's containerboard production and corrugated products shipments and the Paper segment's production.

|  |  |  | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Full Year |
| --- | --- | --- | ---: | ---: | ---: | ---: | ---: |
| Containerboard Production (a) | PCA | 2016 | 898 | 926 | 950 | 962 | 3,736 |
| (thousand tons) |  | 2015 | 882 | 938 | 933 | 903 | 3,656 |
|  |  | 2014 | 821 | 846 | 858 | 927 | 3,452 |
| Corrugated Shipments (BSF) | PCA | 2016 | 12.3 | 12.7 | 13.1 | 13.2 | 51.3 |
|  |  | 2015 | 11.9 | 12.4 | 12.5 | 12.1 | 48.9 |
|  |  | 2014 | 11.6 | 12.1 | 12.4 | 12.1 | 48.2 |
| Newsprint Production (a) | PCA | 2016 | — | — | — | — | — |
| (thousand tons) |  | 2015 | — | — | — | — | — |
|  |  | 2014 | 56 | 56 | 50 | — | 162 |
| White Paper (UFS) Production | PCA | 2016 | 283 | 268 | 288 | 288 | 1,127 |
| (thousand tons) |  | 2015 | 288 | 273 | 294 | 262 | 1,117 |
|  |  | 2014 | 286 | 275 | 296 | 287 | 1,144 |
| Market Pulp Production (b) | PCA | 2016 | 16 | 10 | 12 | 7 | 45 |
| (thousand tons) |  | 2015 | 27 | 23 | 25 | 23 | 98 |
|  |  | 2014 | 26 | 23 | 26 | 25 | 100 |

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

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

Below is a map of our locations:

### Packaging

### Packaging Products

Our containerboard mills produce linerboard and semi-chemical 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.

During the year ended December 31, 2016, our Packaging segment produced 3.7 million tons of containerboard at our mills. Our corrugated products manufacturing plants sold 51.3 billion square feet (BSF) of corrugated products. Our net sales to third parties totaled $4.6 billion in 2016.

### Facilities

We manufacture our Packaging products at five containerboard mills, one containerboard machine (at our Wallula, Washington white paper mill), corrugated manufacturing operations, and protective packaging operations. The following provides more details of our operations:

*Counce.* Our Counce, Tennessee mill produces kraft linerboard. The year-end 2016 annual estimated production capacity, as reported to the American Forest and Paper Association (AF&PA), was 1,104,000 tons. In 2016, the mill produced 1,103,000 tons of kraft linerboard on two paper machines. The mill can produce basis weights from 26 lb. to 90 lb. The mill also produces a variety of performance and specialty grades of linerboard.

*DeRidder.* Our DeRidder, Louisiana mill produces kraft linerboard on its No. 1 machine and linerboard and semi-chemical corrugating medium on its No. 3 machine. The year-end 2016 annual estimated capacity reported to the AF&PA, on the two machines, was 994,000 tons. The No. 1 machine produced 645,000 tons of kraft linerboard during 2016. The No. 3 machine produced 180,000 tons of linerboard and 168,000 tons of medium. The No. 3 machine was converted from a newsprint machine to a containerboard machine in 2014. The mill can produce linerboard in basis weights of 26 lb. to 69 lb. and medium in basis weights of 23 lb. to 33 lb.

*Valdosta.* Our Valdosta, Georgia mill produces kraft linerboard. Its year-end 2016 annual estimated production capacity, as reported to the AF&PA, was 604,000 tons. In 2016, our single paper machine at Valdosta produced 599,000 tons of kraft linerboard. The mill can produce basis weights from 35 lb. to 96 lb.

*Tomahawk.* Our Tomahawk, Wisconsin mill produces semi-chemical corrugating medium. Its year-end 2016 annual estimated production capacity, as reported to the AF&PA, was 556,000 tons. In 2016, the mill produced 500,000 tons on two paper machines. The Tomahawk mill can produce basis weights from 23 lb. to 47 lb. and a variety of performance and specialty grades of corrugating medium.

*Filer City.* Our Filer City, Michigan mill produces semi-chemical corrugating medium. Its year-end 2016 annual estimated production capacity, as reported to the AF&PA, was 445,000 tons. In 2016, the mill produced 408,000 tons on three paper machines. Filer City can produce corrugating medium in basis weights from 20 lb. to 47 lb.

*Wallula.* Our Wallula, Washington mill primarily produces white paper, but also produces semi-chemical corrugating medium on one of its paper machines. Its year-end 2016 annual estimated production capacity of medium, as reported to the AF&PA, was 147,000 tons. In 2016, the mill produced 133,000 tons of semi-chemical corrugating medium. Wallula can produce corrugating medium in basis weights from 23 lb. to 45 lb.

We operate 94 corrugated manufacturing operations, a technical and development center, eight regional design centers, a rotogravure printing operation, and a complement of packaging supplies and distribution centers. Of the 94 manufacturing facilities, 59 operate as combining operations, commonly called corrugated plants, which manufacture corrugated sheets and finished corrugated packaging products, 34 are sheet plants, which procure combined sheets and manufacture finished corrugated packaging products, and one is a corrugated sheet-only manufacturer.

Corrugated products plants tend to be located in close proximity to customers to minimize freight costs. Each of our plants serve a market radius of around 150 miles. Our sheet plants are generally located in close proximity to our larger corrugated plants, which enables us to offer additional services and converting capabilities such as small volume and quick turnaround items.

### Major Raw Materials Used

*Fiber supply.* Fiber is the largest raw material cost to manufacture containerboard. We consume both wood fiber and recycled fiber in our containerboard mills. We have no 100% recycled mills, or mills whose fiber consumption consists solely of recycled fiber. To reduce our fiber costs, we have invested in processes and equipment to ensure a high degree of fiber flexibility. Our mill system has the capability to shift a portion of its fiber consumption between softwood, hardwood, and recycled sources. All of our mills, other than the Valdosta mill, can utilize some recycled fiber in their containerboard production. Our ability to use various types of virgin and recycled fiber helps mitigate the impact of changes in the prices of various fibers. Our corrugated manufacturing operations generate recycled fiber as a by-product from the manufacturing process, which is consumed by our mills. In 2016, our usage of recycled fiber, net of internal generation, represents 17% of our containerboard production.

We procure wood fiber through leases of cutting rights, long-term supply agreements, and market purchases. We currently lease the cutting rights to approximately 75,000 acres of timberland located near our Counce, Tennessee and Valdosta, Georgia mills. Virtually all of the acres under cutting rights agreements are located within 100 miles of these two mills which results in lower wood transportation costs and provides a secure source of wood fiber. These leased cutting rights agreements have terms with about 14 years remaining, on average.

We participate in the Sustainable Forestry Initiative® (SFI) and we are certified under the SFI sourcing standards. These standards are aimed at ensuring the long-term health and conservation of forestry resources. We are committed to sourcing wood fiber through environmentally, socially, and economically sustainable practices and promoting resource and conservation stewardship ethics.

*Energy supply.* Energy at our packaging mills is obtained through purchased or self-generated fuels and electricity. Fuel sources include natural gas, by-products of the containerboard manufacturing and pulping process (including black liquor and wood waste), purchased wood waste, and other purchased fuels. Each of our mills self-generates process steam requirements from by-products (black liquor and wood waste), as well as from the various purchased fuels. The process steam is used throughout the production process and also to generate electricity.

In 2016, our packaging mills consumed about 60 million MMBTU’s of fuel to produce both steam and electricity. Of the 60 million MMBTU’s consumed, about 61% was from mill generated by-products and 39% was from purchased fuels. Of the 39% in purchased fuels, 69% was from natural gas, 26% was from purchased wood waste and 5% was from other purchased fuels.

*Chemical supply.* We consume various chemicals in the production of containerboard, including caustic soda and sulfuric acid. Most of our chemicals are purchased under contracts, which are bid or negotiated periodically.

### Sales, Marketing, and Distribution

Our corrugated products are sold through a direct sales and marketing organization, independent brokers, and distribution partners. We have sales representatives and a sales manager at most of our corrugated manufacturing operations and also have corporate account managers who serve customer accounts with a national presence. Additionally, our design centers maintain an on-site dedicated graphics sales force. In addition to direct sales and marketing personnel, we utilize new product development engineers and product graphics and design specialists. These individuals are located at both the corrugated plants and the design centers. General marketing support is located at our corporate headquarters.

Our containerboard sales group is responsible for the coordination of linerboard and corrugating medium sales to our corrugated plants, to outside domestic customers, and to export customers. This group handles order processing for all shipments of containerboard from our mills to our corrugated plants. These personnel also coordinate and execute all containerboard trade agreements with other containerboard manufacturers.

Containerboard produced in our mills is shipped by rail or truck. Our corrugated products are delivered by truck due to our large number of customers and their demand for timely service. Our corrugated manufacturing operations typically serve customers within a 150-mile radius. We sometimes use third-party warehouses for short-term storage of corrugated products.

### Customers

We sell corrugated products to over 17,000 customers in over 34,000 locations. About three-quarters of our corrugated products sales are to regional and local accounts, which are broadly diversified across industries and geographic locations. The remaining one-quarter of our customer base consists primarily of national accounts that have multiple locations and are served by a number of PCA plants. No single customer exceeds 10% of segment sales.

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

|  |  |
| --- | ---: |
| Food, beverages, and agricultural products | 45% |
| Retail and wholesale trade | 19% |
| Miscellaneous manufacturing | 15% |
| Paper and other products | 11% |
| Chemical, plastic, and rubber products | 10% |

### Competition

As of December 31, 2016, we were the fourth largest producer of containerboard products in the United States, according to industry sources and our own estimates. According to industry sources, corrugated products are produced by about 500 U.S. companies operating approximately 1,200 plants. The primary basis for competition for most of our packaging products includes quality, service, price, product design, and innovation. Most corrugated products are manufactured to the customer’s specifications. Corrugated producers generally sell within a 150-mile radius of their plants and compete with other corrugated producers in their local region. Competition in our corrugated products operations tends to be regional, although we also face competition from large competitors with significant national account presence.

On a national level, our primary competitors are International Paper Company, WestRock Company, Georgia-Pacific LLC, KapStone Paper and Packaging Corporation, and Pratt Industries. However, with our strategic focus on regional and local accounts, we also compete with the smaller, independent producers.

### Paper

We are the third largest manufacturer of uncoated freesheet in the United States, according to industry sources and our own estimates. We 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. White papers consist of communication papers (cut-size office papers and printing and converting papers) and pressure sensitive papers, including release liners, which our customers use to produce labels for use in consumer and commercially-packaged products. Effective December 1, 2016, we ceased softwood market pulp production at our Wallula, Washington mill and permanently shut down the No.1 machine, with pulp capacity of approximately 100,000 tons.

### Facilities

We have three white paper mills located in the United States. The following paragraphs describe our white paper mills:

*Jackson.* Our Jackson, Alabama mill produces both commodity and specialty papers. Its year-end 2016 annual estimated production capacity of white papers on two paper machines, as reported to the AF&PA, was 470,000 tons. In 2016, the mill produced 465,000 tons of white papers.

*International Falls.* Our International Falls, Minnesota mill produces both commodity and specialty papers. Its year-end 2016 annual estimated production capacity of white papers on two paper machines, as reported to the AF&PA, was 465,000 tons. In 2016, the mill produced 475,000 tons of white papers.

*Wallula.* Our Wallula, Washington mill has the ability, on one machine, to switch production between pressure sensitive papers and a variety of white paper grades. The mill also produces corrugating medium. Its year-end 2016 annual estimated production capacity of white paper grades, as reported to the AF&PA, was 190,000 tons. The semi-chemical corrugating medium produced at Wallula is included in our Packaging segment as discussed above. In 2016, the mill produced 187,000 tons of white papers and 45,000 tons of market pulp. We ceased market pulp production in December 2016.

### Major Raw Materials Used

*Fiber supply.* Fiber is our principal raw material in this segment, including wood fiber, recycled fiber, and purchased pulp. We purchase both whole logs and wood chips, which are a byproduct of lumber and plywood production. At our mill in Jackson, Alabama, we also purchase recycled fiber to produce our line of recycled office papers. Our Jackson and International Falls paper mills also purchase pulp from third parties pursuant to contractual arrangements. We purchase wood fiber through contracts and open-market purchases.

We participate in the Sustainable Forestry Initiative® (SFI) and the Forest Stewardship Council® (FSC) and are certified under the SFI sourcing standards. We procure all wood fiber for our white paper mills through our certified systems that are managed in accordance with the SFI and FSC standards. These standards are aimed at ensuring the long-term health and conservation of forestry resources.

*Energy supply.* We obtain energy through purchased or self-generated fuels and electricity. Fuel sources include natural gas, electricity, by-products of the manufacturing and pulping process (including black liquor and wood waste), and purchased wood waste. Each of the paper mills self-generates process steam requirements from by-products (black liquor and wood waste), as well as from the various purchased fuels. The process steam is used throughout the production process and to generate electricity.

In 2016, our white paper mills consumed about 30 million MMBTU’s of fuel to produce both steam and electricity. Of the 30 million MMBTU’s consumed, about 62% was from mill generated by-products and 38% was from purchased fuels. Of the 38% in purchased fuels, 85% was from natural gas and 15% from purchased wood waste.

*Chemical supply.* We consume various chemicals in the production of white papers and pulp, including starch, precipitated calcium carbonate, caustic soda, sodium chlorate, dyestuffs, and optical brighteners. Most of our chemicals are purchased under contracts, which are bid or negotiated periodically.

### Sales, Marketing, and Distribution

Our white papers are sold primarily by our own sales personnel. We ship to customers both directly from our mills and through distribution centers and a network of outside warehouses by rail or truck. This allows us to respond quickly to customer requirements.

### Customers

We have over 200 customers in approximately 500 locations. These customers include paper merchants, commercial and financial printers, envelope converters, and customers who use our pressure sensitive paper for specialty applications such as consumer and commercial product labels. We have established long-term relationships with many of our customers. Office Depot, Inc. is our largest customer in the Paper segment. We have an agreement with Office Depot in which we will supply at least 50% of Office Depot's requirements for commodity office papers through December 2017. The agreement will renew automatically through December 2018; however, there are circumstances that could cause the agreement to terminate in 2017. If this were to occur, Office Depot's purchase obligations under the agreement would phase out over two years. In 2016, our sales revenue to Office Depot represented 42% of our Paper segment sales revenue.

### Competition

The markets in which our Paper segment competes are large and highly competitive. Commodity grades of white paper are globally traded, with numerous worldwide manufacturers, and as a result, these products compete primarily on the basis of price. All of our paper manufacturing facilities are located in the United States, and although we compete primarily in the domestic market, we do face competition from foreign producers and have experienced increased foreign competition in recent years. The level of this competition varies depending on domestic and foreign demand and foreign currency exchange rates. In general, paper production does not rely on proprietary processes or formulas, except in highly specialized or custom grades.

Our largest competitors include Domtar Corporation, International Paper Company, and Georgia-Pacific LLC. We also face competition from overseas producers. Although price is the primary basis for competition in most of our paper grades, quality and service are also important competitive determinants. Our white papers compete with electronic data transmission, e-readers, electronic document storage alternatives, and paper grades we do not produce. Increasing shifts to these alternatives have had, and are likely to continue to have, an adverse effect on traditional print media and paper usage and lower demand for communication papers.

### Corporate and Other

Our Corporate and Other segment includes corporate support staff services and related assets and liabilities. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport some of our products from our manufacturing sites, and assets related to a 50% owned variable interest entity, Louisiana Timber Procurement Company, L.L.C. (LTP).

### Employees

As of December 31, 2016, we had approximately 14,000 employees, including 4,200 salaried and 9,800 hourly employees. Approximately 70% of our hourly employees worked pursuant to collective bargaining agreements. The majority of our unionized employees are represented by the United Steel Workers (USW), the International Brotherhood of Teamsters (IBT), the International Association of Machinists (IAM), and the Association of Western Pulp and Paper Workers (AWPPW). We are currently in negotiations to renew or extend any union contracts that have recently expired or are expiring in the near future, including the agreement at our Wallula, Washington paper mill with the AWPPW union, which expires on March 14, 2017. During 2016, we experienced no work stoppages, and we believe we have satisfactory labor relations with our employees.

### Environmental Matters

A discussion of the financial impact of our compliance with environmental laws is presented under the caption "Environmental Matters" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K.

### Executive Officers of the Registrant

Brief statements setting forth the age at February 28, 2017, the principal occupation, employment during the past five years, the year in which such person first became an officer of PCA, and other information concerning each of our executive officers appears below.

***Mark W. Kowlzan,*** **61, Chairman and Chief Executive Officer** - Mr. Kowlzan has served as PCA's Chairman since January 2016 and as Chief Executive Officer and a director since July 2010. From 1998 through June 2010, Mr. Kowlzan led the company’s containerboard mill system, first as Vice President and General Manager and then as Senior Vice President - Containerboard. From 1996 through 1998, Mr. Kowlzan served in various senior mill-related operating positions with PCA and Tenneco Packaging, including as manager of the Counce linerboard mill. Prior to joining Tenneco Packaging, Mr. Kowlzan spent 15 years at International Paper Company, a global paper and packaging company, where he held a series of operational and managerial positions within its mill organization. Mr. Kowlzan is a member of the board of American Forest and Paper Association.

***Thomas A. Hassfurther,*** **61, Executive Vice President - Corrugated Products** - Mr. Hassfurther has served as Executive Vice President - Corrugated Products of PCA since September 2009. From February 2005 to September 2009, Mr. Hassfurther served as Senior Vice President - Sales and Marketing, Corrugated Products. Prior to this he held various senior-level management and sales positions at PCA and Tenneco Packaging. Mr. Hassfurther joined the company in 1977.

***Charles J. Carter,*** **57, Senior Vice President - Containerboard Mill Operations** - Mr. Carter has served as Senior Vice President - Containerboard Mill Operations since July 2013. Prior to this, he served as Vice President – Containerboard Mill Operations since January 2011. From March 2010 to January 2011, Mr. Carter served as PCA’s Director of Papermaking Technology. Prior to joining PCA in 2010, Mr. Carter spent 28 years with various pulp and paper companies in managerial and technical positions of increasing responsibility, most recently as Vice President and General Manager of the Calhoun, Tennessee mill of Abitibi Bowater from 2007 to 2010 and as manager of SP Newsprint’s Dublin, Georgia mill from 1999 to 2007.

***Robert P. Mundy,*** **55, Senior Vice President and Chief Financial Officer -** Mr. Mundy has served as PCA’s Senior Vice President since July 2015 and Chief Financial Officer since September 2015. He previously served as Senior Vice President and Chief Financial Officer of Verso Corporation, a leading North American supplier of coated papers to catalog and magazine publishers, from 2006 to June 2015. Verso Corporation filed for Chapter 11 bankruptcy in January 2016. Prior to that, he worked at International Paper Company, from 1983 to 2006, where he was Director of Finance of the Coated and

Supercalendered Papers division from 2002 to 2006, Director of Finance Projects from 2001 to 2002, Controller of Masonite Corporation from 1999 to 2001, and Controller of the Petroleum and Minerals business from 1996 to 1999. He served in various business positions at International Paper from 1983 to 1996.

***Kent A. Pflederer,*** **46, Senior Vice President, General Counsel and Secretary** - Mr. Pflederer has served as General Counsel and Corporate Secretary since June 2007 and Senior Vice President since January 2013. Prior to joining PCA, Mr. Pflederer served as Senior Counsel, Corporate and Securities, at Hospira, Inc. from 2004 to 2007 and served in the corporate and securities practice at Mayer Brown, LLP from 1996 to 2004.

***Thomas W.H. Walton,*** **57, Senior Vice President - Sales and Marketing, Corrugated Products** - Mr. Walton has served as Senior Vice President - Sales and Marketing, Corrugated Products since October 2009. Prior to this, he served as a Vice President and Area General Manager within the Corrugated Products Group since 1998. Mr. Walton joined the company in 1981 and has also held positions in production, sales, and general management.

### Available Information

PCA’s internet website address is *www.packagingcorp.com*. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. In addition, our Code of Ethics may be accessed in the Investor Relations section of PCA’s website. PCA’s website and the information contained or incorporated therein are not intended to be incorporated into this report.

## Risk factors

As filed, 18,718 characters.

Some of the statements in this report and, in particular, statements found in 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, but are not limited to, the factors described below.

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 so, what impact they will have on our results of operations or financial condition. In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise or otherwise update any forward-looking statements that have been made to reflect the occurrence of events after the date hereof.

In addition to the risks and uncertainties we discuss elsewhere in this Form 10-K (particularly in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations") or in our other filings with the Securities and Exchange Commission (SEC), the following are important factors that could cause our actual results to differ materially from those we project in any forward-looking statement.

***Industry Cyclicality - Changes in the prices of our products could materially affect our financial condition, results of operations, and liquidity.*** Macroeconomic conditions and fluctuations in industry capacity can create changes in prices, sales volumes, and margins for most of our products, particularly commodity grades of packaging and paper products. Prices for all of our products are driven by many factors, including general economic conditions, demand for our products, and competitive conditions in our industry, and we have little influence over the timing and extent of price changes, which may be unpredictable and volatile. In addition, our selling prices are influenced by index levels published by trade publications. Changes in how these index levels are determined or maintained may affect our sales prices. If supply exceeds demand, industry operating conditions deteriorate or other factors result in lower prices for our products, our earnings and operating cash flows would be harmed.

***General Economic Conditions - Adverse business and economic conditions or changes in tax laws may have a material adverse effect on our business, results of operations, liquidity, and financial position.*** General global and U.S. economic conditions adversely affect the demand and production of consumer goods, employment levels, the availability and cost of credit, and ultimately, the profitability of our business. High unemployment rates, lower family income, unfavorable currency exchange rates, lower corporate earnings, lower business investment, and lower consumer spending typically result in decreased demand for our products and products of our customers which utilize our products. Changes in tax laws or tax rates may have a material impact on our future cash taxes, effective tax rate or deferred tax assets and liabilities. These conditions are beyond our control and may have a significant impact on our business, results of operations, liquidity, and financial position.

***Competition - The intensity of competition in the industries in which we operate could result in downward pressure on pricing and volume, which could lower earnings and operating cash flows.*** Our industries are highly competitive, with no single containerboard, corrugated packaging, or white paper producer having a dominant position. Containerboard and commodity white paper products cannot generally be differentiated by producer, which tends to intensify price competition. The corrugated packaging industry is also sensitive to changes in economic conditions, as well as other factors including innovation, design, quality, and service. To the extent that one or more competitors are more successful than we are with respect to any key competitive factor, our business could be adversely affected. Our packaging products also compete, to some extent, with various other packaging materials, including products made of paper, plastics, wood, and various types of metal. If we are unable to successfully compete, we may lose market share or may be required to charge lower sales prices for our products, both of which would reduce our earnings and operating cash flows.

Our white paper products compete with electronic data transmission and document storage alternatives. Increasing shifts to electronic alternatives have had and will continue to have an adverse effect on usage of these products. As a result of such competition, we are experiencing decreasing demand for most of our existing white paper products. As the use of these alternatives grows, demand for paper products is likely to further decline. Declines in demand for our paper products may adversely affect our earnings and operating cash flows.

Some of our competitors are larger than we are and may have greater financial and other resources, greater manufacturing economies of scale, greater energy self-sufficiency, or lower operating costs, compared with our company. We may be unable to compete effectively with these companies particularly during economic downturns. Some of the factors that may adversely affect our ability to compete in the markets in which we participate include the entry of new competitors (including overseas producers, who have increased imports of white paper to the United States in recent years and have been found to have violated international trade rules) into the markets we serve, our competitors' pricing strategies, our inability to anticipate and respond to changing customer preferences, and our inability to maintain the cost-efficiency of our facilities.

***Inflation and Other General Cost Increases - We may not be able to offset higher costs***. We are subject to both contractual, inflationary, and other general cost increases, including with regard to our labor costs and purchases of raw materials. If we are unable to offset these cost increases by price increases, growth, and/or cost reductions in our operations, these inflationary and other general cost increases could have a material adverse effect on our operating cash flows, profitability, and liquidity.

In 2016, our total company costs including cost of sales (COS) and selling, general, and administrative expenses (SG&A) was $5.0 billion, and excluding non-cash costs (depreciation, depletion and amortization, pension and postretirement expense, and share-based compensation expense) was $4.6 billion. A 1% increase in COS and SG&A costs would increase costs by $50 million and cash costs by $46 million.

***Cost of Fiber - An increase in the cost of fiber could increase our manufacturing costs and lower our earnings.*** The market price of wood fiber varies based upon availability, source, and the costs of fuels used in the harvesting and transportation of wood fiber. The cost and availability of wood fiber can also be impacted by weather, general logging conditions, geography, and regulatory activity.

The availability and cost of recycled fiber depends heavily on recycling rates and the domestic and global demand for recycled products. We purchase recycled fiber for use at four of our five containerboard mills as well as the containerboard machine at our Wallula, Washington mill. In 2016, we purchased approximately 630,000 tons of recycled fiber, net of the recycled fiber generated by our corrugated box plants. The amount of recycled fiber purchased each year varies based upon production and the prices of both recycled fiber and wood fiber.

Periods of supply and demand imbalance have created significant price volatility. Periods of higher recycled fiber costs and unusual price volatility have occurred in the past and may occur again in the future, which could result in higher costs and lower earnings. A $10 per ton price increase in recycled fiber for our containerboard mills, would result in approximately $6 million of additional expense.

***Cost of Purchased Fuels and Chemicals - An increase in the cost of purchased fuels and chemicals could lead to higher manufacturing costs, resulting in reduced earnings.*** We have the ability to use various types of purchased fuels in our manufacturing operations, including natural gas, bark, and other purchased fuels. Fuel prices, in particular prices for oil and natural gas, have fluctuated dramatically in the past. New and more stringent environmental regulations may discourage, reduce the availability of, or make more expensive, the use of certain fuels, particularly coal and fossil fuels. In addition, costs for key chemicals used in our manufacturing operations also fluctuate. These fluctuations impact our manufacturing costs and result in earnings volatility. If fuel and chemical prices rise, our production costs and transportation costs will increase and cause higher manufacturing costs and reduced earnings. A $0.10 per million MMBTU in natural gas prices would result in approximately $3 million of additional expense, based on 2016 usage.

***Material Disruption of Manufacturing - A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales, and/or negatively affect our results of operations and financial condition.*** Our business depends on continuous operation of our facilities, particularly at our mills. Any of our manufacturing facilities, or any of our machines within such facilities, could cease operations unexpectedly for a significant period of time due to a number of events, including:

- Unscheduled maintenance outages.
- Prolonged power failures.
- Equipment failure.
- Explosion of a boiler or other major facilities.
- Disruption in the supply of raw materials, such as wood fiber, energy, or chemicals.
- A chemical spill or release.
- Closure or curtailment related to environmental concerns.
- Labor difficulties.
- Disruptions in the transportation infrastructure, including roads, bridges, railroad tracks, and tunnels.
- Fires, floods, earthquakes, hurricanes, or other catastrophes.
- Terrorism or threats of terrorism.
- Other operational problems.

These events could harm our ability to produce our products and serve our customers and may lead to higher costs and reduced earnings.

***Environmental Matters - PCA may incur significant environmental liabilities with respect to both past and future operations.*** We are subject to, and must comply with, a variety of federal, state and local environmental laws, particularly those relating to air and water quality, waste disposal and the cleanup of contaminated soil and groundwater. Because environmental regulations are constantly evolving, we have incurred, and will continue to incur, costs to maintain compliance with those laws. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters" for estimates of expenditures we expect to make for environmental compliance in the next few years. New and more stringent environmental regulations may be adopted and may require us to incur significant additional capital expenditures to modify or replace certain of our boilers. In addition, environmental regulations may increase the cost of our raw materials and purchased energy. Although we have established reserves to provide for known environmental liabilities, these reserves may change over time due to the enactment of new environmental laws or regulations or changes in existing laws or regulations, which might require additional significant environmental expenditures.

***Mergers and Acquisitions - Our acquired businesses may underperform relative to our expectations, and we may not be able to successfully integrate these businesses into our own.*** We have completed several mergers and acquisitions and investments in recent years, including our acquisitions of TimBar and Columbus Container during 2016. Our success will depend in part on our ability to successfully integrate, and receive the intended benefits from these acquisitions. There may be difficulties, costs and delays involved in the integration of these businesses into ours. Integration requires modification of operational and financial systems, and may result in significant additional expenses. If the acquired businesses underperform relative to our expectations, or if we fail to successfully integrate these businesses, our business, financial condition and results of operations may be materially and adversely affected.

***Customer Concentration - Office Depot represents a significant portion of PCA’s paper business.*** We have a supply agreement with Office Depot, our largest customer in the Paper segment. The agreement requires Office Depot to buy, and us to supply, at least 50% of Office Depot's requirements for office papers through December 2017.

In 2016, sales to Office Depot represented 42% of our Paper segment sales and 8% of our consolidated sales. If these sales are reduced, including if we are unable to renew the agreement at committed volumes, we would need to find new customers. We may not be able to fully replace any lost sales, and any new sales may be at lower prices or higher costs. Any significant deterioration in the financial condition of Office Depot affecting its ability to pay or any other change that makes Office Depot less willing to purchase our products will harm our business and results of operations.

***Labor Relations- If we experience strikes or other work stoppages, our business will be harmed.*** Our workforce is highly unionized and operates under various collective bargaining agreements. We must negotiate to renew or extend any union contracts that have recently expired or are expiring in the near future. While we believe that we have generally had satisfactory labor relations, we may not be able to successfully negotiate new agreements without work stoppages or labor difficulties in the future or renegotiate them on favorable terms. If we are unable to successfully renegotiate the terms of any of these agreements, or if we experience any extended interruption of operations at any of our facilities as a result of strikes or other work stoppages, our business, results of operations and financial condition may be harmed.

***Cyber Security - Risks related to security breaches of company, customer, employee, and vendor information, as well as the technology that manages our operations and other business processes, could adversely affect our business.*** We rely on various information technology systems to capture, process, store, and report data and interact with customers, vendors, and employees. Despite careful security and controls design, implementation, updating, and internal and independent third-party assessments, our information technology systems, and those of our third party providers, could become subject to cyber attacks or security breaches. Network, system, and data breaches could result in misappropriation of sensitive data or operational disruptions including interruption to systems availability and denial of access to and misuse of applications required by our customers to conduct business with us. Misuse of internal applications; theft of intellectual property, trade secrets, or other corporate assets; and inappropriate disclosure of confidential information could stem from such incidents. Delayed sales, slowed production, or other issues resulting from these disruptions could result in lost sales, business delays, and negative publicity and could have a material adverse effect on our operations, financial condition, or operating cash flows.

***Debt obligations - Our debt service obligations may reduce our operating flexibility.*** At December 31, 2016, we had $2.6 billion of long-term debt outstanding and a $324.9 million undrawn revolving credit facility, after deducting letters of credit. We and our subsidiaries may incur additional indebtedness in the future. Our indebtedness includes $1.0 billion with floating interest rates. An increase in interest rates will increase the amount we must pay to service our indebtedness.

Our current borrowings, plus any future borrowings, may affect our ability to operate our business, including, without limitation:

- Result in significant cash requirements to make interest and maturity payments on our outstanding indebtedness;
- Increase our vulnerability to adverse changes in our business or industry conditions;
- Increase our vulnerability to increases in interest rates;
- Limit our ability to obtain additional financing for working capital, capital expenditures, general corporate, and other purposes;
- Limit our flexibility in planning for, or reacting to, changes in our business and our industry; and
- Limit our flexibility to make acquisitions.

Further, if we cannot service our indebtedness, we may have to take actions to secure additional cash by selling assets, seeking additional equity or reducing investments, which may not be achievable on acceptable terms or at all.

***Market Price of our Common Stock - The market price of our common stock may be volatile, which could cause the value of the stock to decline.*** Securities markets worldwide periodically experience significant price declines and volume fluctuations. This market volatility, as well as general economic, market, or political conditions, could reduce the market price of our common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors, and in response, the market price of our common stock could decrease significantly.

## Properties

As filed, 2,238 characters.

We own and lease properties in our business. Primarily all of our leases are noncancelable and are accounted for as operating leases. These leases are not subject to early termination except for standard nonperformance clauses.

Information concerning capacity and utilization of our principal operating facilities, the segments that use those facilities, and a map of geographical locations is presented in "Part I, Item 1. Business" of this Form 10-K. We assess the condition and capacity of our manufacturing, distribution, and other facilities needed to meet our operating requirements. Our properties have been generally well maintained and are in good operating condition. In general, our facilities have sufficient capacity and are adequate for our production and distribution requirements.

We currently own buildings and land for five containerboard mills and three white paper mills. Additionally, we have 94 corrugated manufacturing operations, of which the buildings and land for 52 are owned, including 44 combining operations, or corrugated plants, one corrugated sheet-only manufacturer, and seven sheet plants. We lease the building for 15 corrugated plants and 27 sheet plants. We own one warehouse and miscellaneous other properties, including sales offices and woodlands management offices. We lease space for regional design centers and numerous other distribution centers, warehouses, and facilities. The equipment in these leased facilities is, in virtually all cases, owned by us, except for forklifts and other rolling stock, which are generally leased.

We lease the cutting rights to approximately 75,000 acres of timberland located near our Valdosta mill (68,000 acres) and our Counce mill (7,000 acres). On average, these cutting rights agreements have terms with approximately 14 years remaining. Additionally, we lease approximately 9,000 acres of land for a fiber farm, located near our Wallula mill, where we plant, grow, and harvest fiber.

Our corporate headquarters is located in Lake Forest, Illinois. The headquarter facilities are leased for the next five years with provisions for two additional five year lease extensions. We also lease an administrative office in Boise, Idaho, through March 2018.

## Legal proceedings

As filed, 266 characters.

Information concerning legal proceedings can be found in Note 18, Commitments, Guarantees, Indemnifications, and Legal Proceedings, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

## Management's discussion and analysis

As filed, 71,070 characters.

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

### Overview

PCA is the fourth largest producer of containerboard products in the United States and the third largest producer of uncoated freesheet paper in the United States, based on production capacity. We operate five containerboard mills, three paper mills, and 94 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 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 are headquartered in Lake Forest, Illinois and operate primarily in the United States.

During 2016, we made two acquisitions in our corrugated products business: Tim-Bar Corporation ("TimBar") and Columbus Container, Inc. ("Columbus Container"). On August 29, 2016, we acquired substantially all of the assets of TimBar, a large independent corrugated products producer with six corrugated products production facilities for a purchase price of $386 million. To finance the acquisition, we borrowed $385 million under a new five-year term loan facility. TimBar provides solutions to customers in the higher margin retail, industrial packaging and display and fulfillment markets with a focus on multi-color graphics and technical innovation. On November 30, 2016, we acquired substantially all of the assets of Columbus Container for a purchase price of $100 million. Columbus Container is a full-service provider of corrugated packaging products, with a full-line corrugated products plant and warehousing facilities and other related operations located in Indiana and Illinois. We used available cash on hand to pay the purchase price. The operating results of TimBar and Columbus Container are included in our results and reported in the Packaging segment from and after the respective dates of acquisition. These acquisitions will accelerate the growth strategy and increase the containerboard integration level in our Packaging segment.

### Executive Summary

We reported $450 million of net income, or $4.75 per diluted share, compared with $437 million, or $4.47 per share in 2015. Income included $19 million of pre-tax expense for special items in 2016 compared to $9 million in 2015. Excluding special items, we recorded $462 million of net income, or $4.88 per diluted share in 2016, compared with $443 million and $4.53 per diluted share in 2015. The increase was driven primarily by increased containerboard and corrugated products volumes, improved operating costs, and a lower share count, partially offset by lower containerboard and corrugated products prices and mix and lower paper volumes. In 2016, we successfully completed the acquisitions of TimBar and Columbus Container, achieved a record $801 million of operating cash flow, and returned $316 million to our shareholders through share repurchases and dividends.

Packaging segment income from operations was $711 million, compared with $715 million in 2015, and earnings before interest, taxes, depreciation, amortization, and depletion (EBITDA) excluding special items was $1,019 million, compared with $1,009 million in 2015. Volumes were up in both our containerboard mills and corrugated products plants in 2016, and we began implementing announced price increases during the fourth quarter. Higher volumes and improved operating costs were partially offset by unfavorable changes in containerboard and corrugated products price and mix compared with 2015.

Paper segment income from operations was $138 million, compared with $112 million in 2015, and EBITDA excluding special items was $199 million, compared with $161 million in 2015. The increase was primarily due to improved operating costs and favorable changes in price and mix, partially offset by lower volume as a result of the 2016 shutdown of market pulp operations at our Wallula, Washington mill.

Earnings per diluted share, excluding special items, in 2016 and 2015 were as follows:

|  | Year Ended December 31 2016 | 2015 |
| --- | ---: | ---: |
| Earnings per diluted share | $4.75 | $4.47 |
| Special items: |  |  |
| Facilities closure costs (a) | 0.07 | — |
| Acquisition-related costs (b) | 0.03 | — |
| Wallula mill restructuring (c) | 0.02 | — |
| Multiemployer pension withdrawal (d) | 0.01 | — |
| DeRidder restructuring (e) | — | 0.01 |
| Integration-related and other costs (f) | — | 0.10 |
| Sale of St. Helens paper mill site (g) | — | (0.05) |
| Total special items | 0.13 | 0.06 |
| Earnings per diluted share, excluding special items | $4.88 | $4.53 |

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

(b) Includes $4.5 million of acquisition-related costs for the TimBar Corporation and Columbus Container, Inc. acquisitions.

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

(d) Includes $0.9 million of costs related to our withdrawal from a multiemployer pension plan for one of our corrugated products facilities.

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

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

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

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 later in Item 7 under "Reconciliations of Non-GAAP Financial Measures to Reported Amounts." Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

### Industry and Business Conditions

Trade publications reported that industry corrugated products shipments increased 2.1% during 2016, compared with 2015. Reported industry containerboard production was 1.2% higher than 2015, with export shipments up 4.6%. Published open market containerboard prices for linerboard decreased $15 per ton in January, followed by a $40 per ton increase in October. Medium decreased $20, $10, and $15 per ton in January, February, and August respectively, followed by a $40 increase in October.

The market for communication papers competes heavily with electronic data transmission and document storage alternatives. Increasing shifts to these alternatives have reduced usage of traditional print media and communication papers.

Trade publications reported that uncoated freesheet paper shipments were down 3.4% in 2016, compared with 2015. Trade publication average prices for uncoated freesheet decreased $19 per ton, or 1.9%, in 2016, compared with 2015.

### Outlook

Looking ahead to the first quarter of 2017, we expect to realize the vast majority of our previously announced Packaging segment price increases and we expect higher corrugated products shipments with continuing strong demand. We expect lower containerboard and paper production volume as we have scheduled maintenance outages on one of our machines at both the Counce and DeRidder containerboard mills and on one of our machines at our Jackson, Alabama paper mill. We expect higher freight costs as well as higher labor and benefits costs with annual wage increases and other timing-related expenses. We also anticipate continued price inflation on recycled fiber, energy, and certain chemicals, and seasonally colder weather is expected to increase wood and energy costs. Considering these items, we expect first quarter earnings per share to be higher than fourth quarter 2016.

### Results of Operations

### Year Ended December 31, 2016, Compared with Year Ended December 31, 2015

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

|  | Year Ended December 31 2016 | 2015 | Change |
| --- | ---: | ---: | ---: |
| Packaging | $4,584.8 | $4,477.3 | $107.5 |
| Paper | 1,093.9 | 1,143.1 | (49.2) |
| Corporate and other and eliminations | 100.3 | 121.3 | (21.0) |
| Net sales | $5,779.0 | $5,741.7 | $37.3 |
| Packaging | $711.1 | $714.9 | $(3.8) |
| Paper | 138.1 | 112.5 | 25.6 |
| Corporate and other | (68.9) | (77.4) | 8.5 |
| Income from operations | $780.3 | $750.0 | $30.3 |
| Interest expense, net | (91.8) | (85.5) | (6.3) |
| Income before taxes | 688.5 | 664.5 | 24.0 |
| Income tax expense | (238.9) | (227.7) | (11.2) |
| Net income | $449.6 | $436.8 | $12.8 |
| Net income excluding special items (a) | $462.0 | $442.6 | $19.4 |
| EBITDA (a) | $1,138.3 | $1,106.5 | $31.8 |
| EBITDA excluding special items (a) | $1,154.5 | $1,106.2 | $48.3 |

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

#### Net Sales

Net sales increased $37 million, or 0.6%, to $5,779 million in 2016, compared with $5,742 million in 2015.

*Packaging.* Sales increased $108 million, or 2.4%, to $4,585 million, compared with $4,477 million in 2015. The increase was driven by increased corrugated products sales volume ($177 million), of which $117 million is related to our TimBar and Columbus acquisitions, partially offset by unfavorable changes in price and mix ($58 million) and the April 1, 2015 sale of our Hexacomb operations in Mexico and Europe ($11 million). Total corrugated products shipments in 2016 increased 5.0% over 2015. Packaging segment prices were lower than 2015, but trended up in the fourth quarter as we began implementing previously announced price increases to our containerboard and corrugated products customers. On average during the year, our export prices were down 7.0% and domestic containerboard pricing was down 2.9% compared to last year. Containerboard mill production in 2016 was 3,736,000 total tons, compared with 3,656,000 total tons in 2015.

*Paper.* Sales decreased $49 million, or 4.3%, to $1,094 million, compared with $1,143 million in 2015. The decrease was related to lower volume as a result of the 2016 shutdown of market pulp operations at our Wallula mill, ($53 million), partially offset by favorable changes in price and mix ($3 million).

#### Gross Profit

Gross profit increased $68 million, or 5.6%, in 2016, compared with 2015. The increase was primarily due to higher containerboard and corrugated products volumes and lower fiber, energy, and freight costs, partially offset by lower prices and mix in containerboard and corrugated products. In 2016, gross profit included special items of $5 million for facility closure and acquisition-related costs, compared to $9 million in 2015, most of which related to incremental depreciation expense related to changing the estimated useful lives of assets in connection with our DeRidder mill restructuring. Excluding special items, gross profit increased $64 million in 2016, compared with 2015.

#### Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased $20 million, or 4.4%, in 2016, compared with 2015. The increase in 2016 was due primarily to higher administrative costs of $16 million corresponding to the TimBar and Columbus Container, Inc., acquisitions.

#### Other Expense, Net

Other expense, net, in 2016 was $24 million, compared with $7 million during 2015. Other expense in 2016 included $9 million of facility closure costs, $9 million of asset disposal costs, and $3 million of acquisition-related costs, among other miscellaneous expense items. Other expense in 2015 included $14 million of asset disposal costs and $13 million of Boise integration-related and other costs, partially offset by $7 million of income related to the DeRidder restructuring, a $7 million gain on the sale of our St. Helens paper mill site, and $4 million of income from a refundable state tax credit received related to our investments and the jobs retained at our DeRidder mill, among other miscellaneous income and expense items. We discuss these items in more detail in Note 5, Other Expense, Net of the Condensed Notes to the Consolidated Financial Statements in "Part II, Item 8. Financial Statements" of this Form 10-K.

#### Income from Operations

Income from operations increased $30 million, or 4.0%, for the year ended December 31, 2016, compared with 2015. Our 2016 income from operations included $19 million of expense from special items, compared with $9 million of expense from special items in 2015. Special items for 2016 included $11 million of facility closure costs related to corrugated manufacturing facilities and a paper distribution center, $4 million of TimBar and Columbus Container acquisition-related costs, $3 million related to shutdown of market pulp operations at our Wallula mill, and $1 million related to our withdrawal from a multiemployer pension plan for one of our corrugated products facilities. Special items for 2015 included $14 million of Boise acquisition-related expense, $2 million of expense related to restructuring the DeRidder mill, partially offset by $7 million gain on the sale of our St. Helens paper mill site. Excluding special items, income from operations increased $41 million in 2016, compared with 2015. The increase was driven primarily by higher containerboard and corrugated products volumes and lower operating costs, partially offset by lower prices and mix in containerboard and corrugated products.

*Packaging.* Segment income from operations decreased $4 million, or 0.5%, to $711 million, compared with $715 million in 2015. The decrease is primarily related to lower domestic containerboard and corrugated products prices and mix ($48 million), lower export containerboard prices ($12 million), higher labor costs ($12 million), greater expense for special items in 2016 compared to 2015 ($8 million), higher depreciation expense ($5 million), a 2015 state tax credit related to investments and jobs retained at our DeRidder mill ($4 million), and other items that were individually insignificant. These items were partially offset by higher volumes ($34 million), and lower freight ($19 million), mill outage ($14 million), energy ($13 million), and fiber ($9 million) costs. Special items in 2016 included $9 million of facility closure costs, $4 million of TimBar and Columbus Container acquisition-related costs, and $1 million related to our withdrawal from a multiemployer pension plan for one of our corrugated products facilities. Special items in 2015 included $4 million of Boise integration-related costs and $2 million of DeRidder restructuring charges.

*Paper.* Segment income from operations increased $26 million, or 22.8%, to $138 million, compared with $113 million for 2015. The increase is due primarily to lower fiber ($32 million), mill outage ($14 million), energy ($8 million), and labor ($3 million) costs, and higher paper prices and mix ($3 million), partially offset by lower volumes ($23 million), and greater expense for special items in 2016 compared to special items income in 2015 ($12 million). Special items expense in 2016 included $3 million related to the shutdown of market pulp operations at our Wallula mill and $2 million of facility closure costs in 2016. Special items income in 2015 included a $7 million gain on the sale of the St. Helens mill site in 2015.

#### Interest Expense, Net, and Income Taxes

Interest expense, net, was $92 million in 2016, compared with $86 million in 2015. The $6 million increase in interest expense was primarily due to higher interest rates on PCA’s variable rate debt and additional interest due to the TimBar acquisition during 2016 compared to 2015.

During 2016, we recorded $239 million of income tax expense, compared with $228 million of expense during 2015. The effective tax rate for 2016 and 2015 was 34.7% and 34.3%, respectively.

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

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

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

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

#### Net Sales

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

*Packaging.* Sales decreased $63 million, or 1.4%, to $4,477 million, compared with $4,540 million in 2014. Sales decreased $115 million due to the exit from our newsprint business in third quarter 2014 and the April 1, 2015, sale of our Hexacomb operations in Mexico and Europe. This decrease was partially offset by increased sales volumes in our corrugated products business ($17 million) and external containerboard sales ($31 million). Total corrugated products volume sold in 2015 increased approximately 1% over 2014. Our prices for corrugated products were approximately the same as 2014. With a full year of containerboard production on our D3 machine at our DeRidder, Louisiana mill, we increased our outside sales of containerboard, both domestic and export, by 52,000 tons compared with last year and we purchased 174,000 less tons of containerboard from the outside market in 2015. On average during the year, our export prices were down 7% compared with 2014, while pricing for domestic containerboard sales was flat with last year. Containerboard mill production in 2015 was 3,656,000 total tons, compared with 3,452,000 total tons in 2014.

*Paper.* Sales decreased $58 million, or 4.9%, to $1,143 million, compared with $1,201 million in 2014. The decrease was primarily due to unfavorable changes in sales prices and mix ($58 million).

#### Gross Profit

Gross profit decreased $22 million, or 1.7%, in 2015, compared with 2014. In 2015 and 2014, gross profit included expenses of $9 million and $58 million of special items, respectively, most of which related to incremental depreciation expense related to changing the estimated useful lives of assets in connection with our DeRidder mill restructuring. Excluding special items, gross profit decreased $71 million in 2015, compared with 2014. The decrease was primarily due to lower paper prices and changes in mix, lower export containerboard prices, and higher labor and benefit costs, partially offset by higher packaging sales volume and lower energy, chemical, and freight costs. Gross profit was 21.0% of net sales in both 2015 and 2014.

#### Selling, General, and Administrative Expenses

Selling, general, and administrative expenses decreased $18 million, or 3.9%, in 2015, compared with 2014. The decrease in 2015 was due primarily to lower administrative employee costs from the headcount reductions related to the Boise integration.

#### Other Expense, Net

Other expense, net, in 2015 was $7 million, compared with $57 million during 2014. Other expense in 2015 included $14 million of asset disposals and write-off charges and $13 million of Boise integration-related and other costs, partially offset by $7 million of income, net of expenses, related to the DeRidder restructuring, a $7 million gain on the sale of our St. Helens paper mill site, and $4 million of income from a refundable state tax credit received related to our investments and the jobs retained at our DeRidder mill, among other miscellaneous income and expense items. Other expense, net, in 2014 included $20 million of Boise integration-related and other costs, $18 million of costs for the settlement of the Kleen Products LLC v Packaging Corp. of America et al class action lawsuit, $10 million of asset disposals and write-off charges, and $7 million of DeRidder restructuring charges.

#### Income from Operations

Income from operations increased $47 million, or 6.7%, for the year ended December 31, 2015, compared with 2014. Our 2015 income from operations included $9 million of expense from special items, compared with $102 million of expense from special items in 2014. See "Reconciliations of Non-GAAP Financial Measures to Reported Amounts" in this Item 7 for more information on special items. Excluding special items, income from operations decreased $46 million in 2015, compared with 2014. The decrease in income from operations, excluding special items, was driven primarily by lower gross profit as described above, partially offset by a decrease in employee administrative costs and a $4 million state tax credit related to investments and jobs retained at our DeRidder mill.

*Packaging.* Segment income from operations increased $52 million, or 7.8%, to $715 million, compared with $663 million in 2014. The increase in income from operations is primarily related to lower expense from special items in 2015 compared to 2014 ($65 million), higher volumes ($26 million) and lower energy costs ($24 million), partially offset by higher labor and benefit costs ($20 million), lower export containerboard prices ($13 million), higher annual outage costs due mostly to the first quarter extended annual outage at our DeRidder mill ($9 million), increased depreciation ($9 million), freight ($8 million), and fiber ($5 million) costs. Special items in 2015 included restructuring costs at our mill in DeRidder, Louisiana of $2 million and integration-related and other costs relating to the Boise acquisition of $4 million, compared with $66 million and $5 million, respectively, in 2014.

*Paper.* Segment income from operations decreased $23 million, or 16.9%, to $112 million, compared with $135 million for 2014. The decrease in income from operations is due primarily to lower white paper prices and mix ($58 million), partially offset by lower freight ($11 million), chemical ($10 million), and energy costs ($9 million), and special item income ($7 million) in 2015 related to the gain on the sale of our paper mill site in St. Helens, Oregon, where we ceased paper production in 2012. There were no special items in 2014.

#### Interest Expense, Net, and Income Taxes

Interest expense, net, was $85 million in 2015, compared with $88 million in 2014. Interest expense in 2014 included $2 million of expense related to the write-off of deferred financing costs in connection with the refinancing of debt.

During 2015, we recorded $228 million of income tax expense, compared with $222 million of expense during 2014. The effective tax rate for 2015 and 2014 was 34.3% and 36.1%, respectively. The decrease in our effective tax rate in 2015 was primarily due to an increased domestic manufacturing deduction resulting from less tax net operating losses remaining from the acquisition of Boise Inc.

### Liquidity and Capital Resources

### Sources and Uses of Cash

Our primary sources of liquidity are net cash provided by operating activities and available borrowing capacity under our revolving credit facility. We ended the year with $239 million of cash and $325 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 (including voluntary payments of debt), declared common stock dividends and share repurchases. We believe that net cash generated from operating activities, cash on hand, available borrowings under our revolving credit facility and available capital through access to capital markets will be adequate to meet our liquidity and capital requirements, including payments of any declared common stock dividends, for the foreseeable future. As our debt or credit facilities become due, we will need to repay, extend or replace such facilities. Our ability to do so will be subject to future economic conditions and financial, business, and other factors, many of which are beyond our control.

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

| Net cash provided by (used for): | Year Ended December 31 2016 | 2015 | 2014 |
| --- | ---: | ---: | ---: |
| Operating activities | $801.2 | $762.6 | $736.1 |
| Investing activities | (769.6) | (298.1) | (451.1) |
| Financing activities | 23.5 | (405.2) | (351.1) |
| Net increase (decrease) in cash and cash equivalents | $55.1 | $59.3 | $(66.1) |

### Operating Activities

#### 2016

During 2016, net cash provided by operating activities was $801 million, compared with $763 million for 2015, an increase of $38 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $31 million. The decrease was primarily driven by 2016 cash contributions of $57 million to our pension plans, partially offset by record earnings in 2016. The remaining $69 million increase from changes in cash provided by operating assets and liabilities was primarily due higher accounts payable levels in 2016 compared to 2015 due to the timing of payments; lower required cash tax payments in 2016 resulting from utilization of prior year overpayments; and an increase in accrued liabilities due primarily to higher compensation and benefits accruals. These changes were partially offset by larger inventory prebuild for our first quarter 2017 planned maintenance outages and an increase in accounts receivable related to differences in the timing of collections of receivables. 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 2015, net cash provided by operating activities was $763 million, compared with $736 million for 2014, an increase of $27 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $1 million. The remaining $28 million increase from changes in cash used for operating assets and liabilities was primarily related to no inventory prebuild for our first quarter 2016 planned maintenance outages due to additional capacity added at our reconfigured DeRidder, Louisiana mill and a decrease in accounts receivable related to differences in the timing of collections of receivables. These changes were partially offset by higher required cash tax payments resulting from less net operating loss utilization and a decrease in accrued liabilities due primarily to lower compensation and benefits accruals. Cash requirements for operating activities are subject to PCA's operating needs and the timing of collection of receivables and payments of payables and expenses.

### Investing Activities

We used $770 million for investing activities in 2016, compared with $298 million in 2015. In 2016, we spent $274 million for capital investments, compared with $314 million in 2015. During 2016, we spent $485 million, net of cash acquired, for the TimBar and Columbus Container acquisitions. In April of 2015, we received $23 million of cash proceeds for the sale of our Hexacomb corrugated manufacturing operations in Mexico and Europe.

The details of capital expenditures for property and equipment, excluding acquisitions, by segment for the years ended December 31, 2016, 2015, and 2014, are included in the table below (dollars in millions).

|  | Year Ended December 31 2016 | 2015 | 2014 |
| --- | ---: | ---: | ---: |
| Packaging | $239.9 | $250.3 | $362.1 |
| Paper | 31.6 | 58.5 | 51.7 |
| Corporate and Other | 2.8 | 5.7 | 6.4 |
|  | $274.3 | $314.5 | $420.2 |

We expect capital investments in 2017 to be between $310 million and $325 million, including capital required for Boiler MACT spending, but excluding any acquisitions. These expenditures could increase or decrease as a result of a number of factors, including our financial results, future economic conditions, and our regulatory compliance requirements. We currently estimate capital expenditures to comply with Boiler MACT regulations (as discussed below under "Environmental Matters") in 2017 of up to $1 million and we expect other environmental capital expenditures of about $7 million in 2017. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations, including those related to greenhouse gas emissions and industrial boilers. For additional information, see "Environmental Matters" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

At December 31, 2016, PCA had commitments for capital expenditures of $95 million. PCA believes that cash-on-hand combined with cash flow from operations will be sufficient to fund these commitments.

We used $298 million for investing activities in 2015, compared with $451 million in 2014. In 2015, we spent $315 million for capital investments, compared with $420 million in 2014. The decrease in capital spending was due primarily to $104 million invested in 2014 for the conversion of the No. 3 newsprint machine at our DeRidder, Louisiana mill to produce containerboard. We received $23 million of cash proceeds for the sale of our Hexacomb corrugated manufacturing operations in Mexico and Europe during 2015.

### Financing Activities

In 2016, net cash used for financing activities changed by $429 million to a source of $24 million, compared with a use of $405 million in 2015. The change primarily related to proceeds from the issuance of a new $385 million unsecured five-year term loan facility, which PCA fully borrowed to finance its acquisition of TimBar Corporation, and lower repurchases of PCA common stock in 2016 compared to 2015. In 2016, we made $37 million of principal payments on long-term debt and capital leases, compared with $48 million of payments in 2015. During 2016, we paid $100 million to repurchase 1,987,187 shares of common stock, and we withheld 172,438 shares from vesting equity awards to cover employee tax liabilities of $11 million, compared with $155 million of share repurchases and $9 million of shares withheld on equity award vesting in 2015. We paid $216 million of dividends in 2016, compared with $201 million of dividends in 2015. On August 31, 2016, PCA's Board of Directors increased the regular quarterly cash dividend to $0.63 per share from the previous $0.55 per share, beginning with the dividend paid on September 15, 2016.

On February 25, 2016, PCA announced that its Board of Directors authorized the repurchase of $200 million of the Company's outstanding common stock. At the time of announcement, there was no remaining authority under previously announced programs. Repurchases may be made from time to time in the open market or privately negotiated transactions in accordance with applicable securities regulations. The timing and amount of repurchases will be determined by the Company in its discretion based on factors such as PCA's stock price and market and business conditions.

For more information about our debt, commitments, and treasury lock derivative instruments, see Note 9, Debt, Note 13, Derivative Instruments and Hedging Activities, and Note 18, Commitments, Guarantees, Indemnifications, and Legal Proceedings, respectively, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

In 2015, we used $405 million for financing activities, compared with $351 million in 2014. The increase in cash used for financing activities primarily relates to share repurchases and increased dividend payments, partially offset by a decrease in debt repayments, net of proceeds received. In 2015, we made $48 million of principal payments on long-term debt and capital leases, compared with $194 million of payments, net of debt proceeds received, in 2014. In 2014, we also paid $3 million of financing costs. We paid $201 million of dividends in 2015, compared with $157 million of dividends in 2014. On February 26, 2015, PCA's Board of Directors increased the regular quarterly cash dividend to $0.55 per share from the previous $0.40 per share dividend, beginning with the dividend paid on April 15, 2015. During 2015, we paid $155 million to repurchase 2,326,493 shares of common stock, and we withheld 129,983 shares from vesting equity awards to cover employee tax liabilities of $9 million, compared with no share repurchases and $13 million of shares withheld on equity award vesting in 2014. Tax benefits from share-based awards and proceeds from the exercise of stock options contributed $6 million in 2015, compared with $16 million in 2014.

### Commitments

### Contractual Obligations

The table below sets forth our enforceable and legally binding obligations as of December 31, 2016, for the categories described below. Some of the amounts included in the table are based on management's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table. Purchase orders made in the ordinary course of business are excluded from the table below. Any amounts for which we are liable under purchase orders are reflected on the Consolidated Balance Sheets as accounts payable and accrued liabilities (dollars in millions):

|  | Payments Due by Period Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Term loan, due October 2020 | $630.5 | $6.5 | $13.0 | $611.0 | $— |
| Term loan, due August 2021 | 380.2 | 19.3 | 38.5 | 322.4 | — |
| 6.50% Senior Notes, due March 2018 | 150.0 | — | 150.0 | — | — |
| 3.90% Senior Notes, due June 2022 | 400.0 | — | — | — | 400.0 |
| 4.50% Senior notes, due November 2023 | 700.0 | — | — | — | 700.0 |
| 3.65% Senior notes, due September 2024 | 400.0 | — | — | — | 400.0 |
| Total short-term and long-term debt (a) | 2,660.7 | 25.8 | 201.5 | 933.4 | 1,500.0 |
| Interest on long-term debt (b) | 515.3 | 94.5 | 170.0 | 146.3 | 104.5 |
| Capital lease obligations, including interest | 31.2 | 2.7 | 5.4 | 5.4 | 17.7 |
| Operating leases (c) | 254.3 | 64.4 | 96.2 | 45.3 | 48.4 |
| Capital commitments | 94.7 | 94.7 | — | — | — |
| Purchase commitments: |  |  |  |  |  |
| Raw materials (d) | 201.3 | 61.2 | 55.3 | 39.1 | 45.7 |
| Energy related (e) | 38.7 | 32.2 | 6.5 | — | — |
| Other liabilities reflected on our Consolidated Balance Sheet (f): |  |  |  |  |  |
| Compensation and benefits (g) | 359.7 | 45.0 | 97.5 | 112.0 | 105.2 |
| Other (h) | 71.8 | 18.5 | 7.1 | 3.8 | 42.4 |
|  | $4,227.7 | $439.0 | $639.5 | $1,285.3 | $1,863.9 |

(a) The table assumes our long-term debt is held to maturity and includes the current portion of long-term debt. See Note 9, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K. Amounts are reported gross and do not include unamortized debt discounts of $2.5 million at December 31, 2016.

(b) Amounts represent estimated future interest payments as of December 31, 2016, assuming our long-term debt is held to maturity and using interest rates in effect at December 31, 2016. See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for the impact of changes in interest rates on PCA’s future cash flows.

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

(d) Included among our raw materials purchase obligations are contracts to purchase approximately $171.7 million of wood fiber. Purchase prices under most of these agreements are set quarterly, semiannually, or annually based on regional market prices, and the estimate is based on contract terms or first quarter 2017 pricing. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. Our log, fiber, and wood chip obligations are subject to change based on, among other things, the effect of governmental laws and regulations, disruptions to our manufacturing operations, and log and fiber availability.

(e) We enter into utility contracts for the purchase of electricity and natural gas. We also purchase these services under utility tariffs. The contractual and tariff arrangements include multiple-year commitments and minimum annual purchase requirements. Our payment obligations were based upon prices in effect on December 31, 2016, or contract language, if available.

(f) Long-term deferred income taxes of $334.7 million and unrecognized tax benefits of $6.3 million, including interest and penalties, are excluded from this table, because the timing of their future cash outflows are uncertain.

(g) Amounts primarily consist of pension and postretirement obligations, including current portion of $2.5 million. We have minimum qualified pension contributions of approximately $8 million in 2017. See Note 10, Employee Benefit Plans and Other Postretirement Benefits, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K, for additional information.

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

### Off-Balance-Sheet Arrangements

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

### Inflation and Other General Cost Increases

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

In 2016, our total company costs including cost of sales (COS) and selling, general, and administrative expenses (SG&A) was $5.0 billion, and excluding non-cash costs (depreciation, pension and postretirement expense, and share-based compensation expense) was $4.6 billion. A 1% increase in COS and SG&A costs would increase costs by $50 million and cash costs by $46 million.

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

### Energy

In 2016, our mills, including both packaging and paper mills, consumed about 89 million MMBTU’s of fuel, including internally generated and externally purchased, to produce both steam and electricity. The following table for 2016 provides the total MMBTU's purchased externally by fuel type each quarter and the average cost per MMBTU by fuel type for the year. Our mills represent about 90% of our total purchased fuel costs. The cost per MMBTU includes the cost of the fuel plus our transportation and delivery costs.

| Fuel Type | 2016 Fuel Purchased (millions of MMBTU's) First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Full Year | 2016 Avg. Cost / MMBTU |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Natural gas | 6.86 | 6.09 | 5.71 | 6.36 | 25.02 | $3.08 |
| Purchased bark | 2.31 | 1.99 | 1.87 | 2.34 | 8.51 | 2.32 |
| Other purchased fuels | 0.45 | 0.39 | 0.40 | 0.31 | 1.55 | 3.81 |
| Total Mills | 9.62 | 8.47 | 7.98 | 9.01 | 35.08 | $2.93 |

In addition, the mills purchased 21.59 million CkWh (hundred kilowatt-hours) of purchased electricity in 2016. The purchases by quarter and the average cost per CkWh were as follows:

|  | 2016 Purchased Electricity (millions of CkWh) First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Full Year | 2016 Avg. Cost / CkWh |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Purchased electricity | 5.12 | 5.17 | 5.67 | 5.63 | 21.59 | $5.49 |

28

### Environmental Matters

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

- Resource Conservation and Recovery Act (RCRA);
- Clean Water Act (CWA);
- Clean Air Act (CAA);
- The Emergency Planning and Community Right-to-Know-Act (EPCRA);
- Toxic Substance Control Act (TSCA); and
- Safe Drinking Water Act (SDWA).

We believe that we are currently in material compliance with these and all applicable environmental rules and regulations. Because environmental regulations are constantly evolving, the Company has incurred, and will continue to incur, costs to maintain compliance with these and other environmental laws. The Company works diligently to anticipate and budget for the impact of applicable environmental regulations, and does not currently expect that future environmental compliance obligations will materially affect its business or financial condition. For the years ended December 31, 2016, 2015, and 2014, we spent $44 million, $43 million, and $44 million, respectively, to comply with the requirements of these and other environmental laws. Additionally, we had $8 million of environmental capital expenditures in 2016, $16 million in 2015, and $29 million in 2014.

In January 2013, the U.S. Environmental Protection Agency (the "EPA") established a three-year deadline for compliance with the Boiler MACT regulations, establishing air emissions standards and certain other requirements for industrial boilers. PCA's compliance actions involved modifying or replacing certain boilers and PCA was set to achieve compliance by the deadline. On July 29, 2016, the U.S. Court of Appeals for the District of Columbia Circuit issued a ruling on the consolidated cases challenging Boiler MACT. The court vacated key portions of the rule, including emission limits for certain subcategories of solid fuel boilers, and remanded issues to the EPA for further rulemaking. At this time, we cannot predict with certainty how the recent decision will impact our existing Boiler MACT compliance efforts or whether we will incur additional costs to comply with any revised standards.

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

Because liability for remediation costs under environmental laws is strict, meaning that liability is imposed without fault, joint and several, meaning that liability is imposed on each party without regard to contribution, and retroactive, PCA could receive notifications of cleanup liability in the future and this liability could be material. From 2006 through 2015, there were no significant environmental remediation costs at PCA's mills and corrugated plants. As of December 31, 2016, we maintained an environmental reserve of $25 million relating to on-site landfills and surface impoundments as well as ongoing and anticipated remedial projects. The Company believes that it is not reasonably possible that future environmental expenses above the $25 million accrued at December 31, 2016, will have a material impact on its financial condition, results of operations, and cash flows.

While legislation regarding the regulation of greenhouse gas emissions has been proposed at the federal level, it is uncertain whether such legislation will be passed and, if so, what the breadth and scope of such legislation will be. The result of the regulation of greenhouse gas emissions could be an increase in our future environmental compliance costs, through caps, taxes or additional capital expenditures to modify facilities, which may be material. However, climate change legislation and the resulting future energy policy could also provide us with opportunities if the use of renewable energy is encouraged. We currently self-generate a significant portion of our power requirements at our mills using bark, black liquor and biomass as fuel, which are derived from renewable resources. While we believe we are well-positioned to take advantage of any renewable energy incentives, it is uncertain what the ultimate costs and opportunities of any climate change legislation will be and how our business and industry will be affected.

### Critical Accounting Policies and Estimates

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

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

### Pensions

The Company accounts for defined benefit pension plans in accordance with Accounting Standards Codification (ASC) 715, "Compensation - Retirement Benefits." The calculation of pension expense and pension liabilities requires decisions about a number of key assumptions that can significantly affect expense and liability amounts, including discount rates, expected return on plan assets, expected rate of compensation increases, longevity and service lives of participants, expected contributions, and other factors. The pension assumptions used to measure pension expense and liabilities are discussed in Note 10, Employee Benefit Plans and Other Postretirement Benefits.

We recognize the funded status of our pension plans on our Consolidated Balance Sheet and recognize the actuarial and experience gains and losses and the prior service costs and credits as a component of "Accumulated Other Comprehensive Loss" in our Consolidated Statement of Changes in Stockholders' Equity. Actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. At December 31, 2016, we had approximately $121.5 million of actuarial losses and prior service costs, net of tax, recorded in "Accumulated other comprehensive loss" on our Consolidated Balance Sheet. Accumulated losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets will be recognized on a straight-line basis over the average remaining service period of active employees in PCA plans (which is between seven to ten years) and over the average remaining lifetime of inactive participants of Boise plans (which is between 26 and 29 years), to the extent that losses are not offset by gains in subsequent years. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.

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

|  | Year Ending December 31, 2017 2016 | Year Ended December 31 2015 |  |
| --- | ---: | ---: | ---: |
| Pension expense | $25.3 | $27.4 | $31.3 |
| **Assumptions** |  |  |  |
| Discount rate | 4.24% | 4.49% | 4.14% |
| Expected rate of return on plan assets | 6.55% | 6.57% | 6.73% |

A change of 0.25% in either direction to the discount rate or the expected rate of return on plan assets would have had the following effect on 2016 and 2017 pension expense (dollars in millions):

| 2016 Expense (b) | Base Expense 0.25% Increase | Increase (Decrease) in Pension Expense (a) 0.25% Decrease |  |
| --- | ---: | ---: | ---: |
| Discount rate | $27.4 | $(2.6) | $3.1 |
| Expected rate of return on plan assets | 27.4 | (1.9) | 1.9 |
| **2017 Expense** |  |  |  |
| Discount rate | $25.3 | $(1.9) | $2.2 |
| Expected rate of return on plan assets | 25.3 | (2.1) | 2.1 |

(a) The sensitivities shown above are specific to 2016 and 2017. The sensitivities may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.

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

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

### Goodwill Impairment

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At December 31, 2016, we had $737.9 million of goodwill, of which, during 2016, we recorded $157.3 million in connection with the acquisition of TimBar Corporation and $36.6 million in connection with the acquisition of Columbus Container, Inc. At December 31, 2016, we had $682.7 million and $55.2 million of goodwill recorded in our Packaging and Paper segments, respectively.

We maintain two reporting units for purposes of our goodwill impairment testing, Packaging and Paper, which are the same as our operating segments discussed in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K. We test goodwill for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value.

Under ASC 350, “Intangibles - Goodwill and Other,” companies have the option of performing either a qualitative analysis or a quantitative analysis to test goodwill for possible impairment. The qualitative analysis is commonly referred to as "Step 0". The Step 0 assessment requires the evaluation of certain events and circumstances such as macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as well as company and reporting unit specific items. If, after assessing these qualitative factors, the Company determines that it is more likely than not that the carrying value of the reporting unit is less than its fair value, then no further testing is required. Otherwise, the Company would perform a quantitative analysis, also known as the two-step impairment analysis, below.

Step One of the analysis requires companies to compare the fair value of the reporting units to which goodwill was assigned to their respective carrying values. In calculating fair value, we use the income approach as our primary indicator of fair value. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. These estimates are based on a number of factors including industry experience, business expectations and the economic environment. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and the Company would then complete Step Two of the analysis in order to measure the impairment loss of the reporting unit. This step requires the determination of the fair value of all the individual assets and liabilities of the reporting unit as of the analysis date. Once these fair values have been determined, the implied fair value of the unit’s goodwill is calculated as the excess, if any, of the fair value of the reporting unit determined in Step One over the fair value of the net assets determined in Step Two. The carrying value of goodwill is then reduced to the implied value, or to zero if the fair value of the assets exceeds the fair value of the reporting unit, through an impairment charge.

During the annual goodwill impairment test, we assessed qualitative factors to determine whether it was more likely than not that the fair value of each reporting unit was less than its carrying value. Based on the results of the Step 0 goodwill impairment test, we determined that it was more likely than not that the carrying value was less than the fair value of the Packaging and Paper reporting units.

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

### Long-Lived Asset Impairment

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

We review the carrying value of long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. For purposes of testing for impairment, we group our long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and liabilities. Our asset groupings vary based on the related business in which the long-lived asset is employed and the interrelationship between those long-lived assets in producing net cash flows. Asset groupings could change in the future if changes in the operations of the business or business environment affect the way particular long-lived assets are employed or the interrelationships between assets. To estimate whether the carrying value of an asset or asset group is impaired, we estimate the undiscounted cash flows that could be generated under a range of possible outcomes. To measure future cash flows, we are required to make assumptions about future production volumes, future product pricing, and future expenses to be incurred. In addition, estimates of future cash flows may change based on the availability of fiber, environmental requirements, capital spending, and other strategic management decisions. We estimate the fair value of an asset or asset group based on quoted market prices for similar assets and liabilities or inputs that are observable either directly (Level 1 measurement) or indirectly (the amount for which the asset(s) could be bought or sold in a current transaction with a third party) when available (Level 2 measurement). When quoted market prices are not available, we use a discounted cash flow model to estimate fair value (Level 3 measurement).

We periodically assess the estimated useful lives of our assets. Changes in circumstances, such as changes to our operational or capital strategy, changes in regulation, or technological advances, may result in the actual useful lives differing from our estimates. Revisions to the estimated useful lives of assets requires judgment and constitutes a change in accounting estimate, which is accounted for prospectively by adjusting or accelerating depreciation and amortization rates. In 2016, we recognized incremental depreciation expense of $2.9 million, primarily related to facilities closure costs and the Wallula mill restructuring. During the year ended December 31, 2015, we recognized $9.0 million of accelerated depreciation expense related to shortening the useful lives of assets at the DeRidder, Louisiana mill, which primarily related to the newsprint business we exited in 2014.

### New and Recently Adopted Accounting Standards

For a listing of our new and recently adopted accounting standards, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

### Reconciliations of Non-GAAP Financial Measures to Reported Amounts

Income from operations 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 years ended December 31, 2016, 2015, and 2014, follow (dollars in millions):

|  | Year Ended December 31 2016 Income before Taxes | Income taxes | Net Income | 2015 Income before Taxes | Income Taxes | Net Income |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| As reported in accordance with GAAP | $688.5 | $(238.9) | $449.6 | $664.5 | $(227.7) | $436.8 |
| Special items: |  |  |  |  |  |  |
| Facilities closure costs (a) | 11.0 | (3.9) | 7.1 | — | — | — |
| Acquisition-related costs (b) | 4.5 | (1.6) | 2.9 | — | — | — |
| Wallula mill restructuring (c) | 2.7 | (0.9) | 1.8 | — | — | — |
| Multiemployer pension withdrawal (d) | 0.9 | (0.3) | 0.6 | — | — | — |
| DeRidder restructuring (e) | — | — | — | 2.0 | (0.7) | 1.3 |
| Integration-related and other costs (f) | — | — | — | 13.4 | (4.5) | 8.9 |
| Sale of St. Helens paper mill site (g) | — | — | — | (6.7) | 2.3 | (4.4) |
| Total special items | 19.1 | (6.7) | 12.4 | 8.7 | (2.9) | 5.8 |
| Excluding special items | $707.6 | $(245.6) | $462.0 | $673.2 | $(230.6) | $442.6 |

|  | Year Ended December 31 2014 Income before Taxes | Income Taxes | Net Income |
| --- | ---: | ---: | ---: |
| As reported in accordance with GAAP | $614.3 | $(221.7) | $392.6 |
| Special items: |  |  |  |
| DeRidder restructuring (e) | 65.8 | (23.7) | 42.1 |
| Integration-related and other costs (f) | 19.9 | (7.2) | 12.7 |
| Class action lawsuit settlement (h) | 17.6 | (6.4) | 11.2 |
| Total special items | 103.3 | (37.3) | 66.0 |
| Excluding special items | $717.6 | $(259.0) | $458.6 |

(a) Includes closure costs related to corrugated facilities and a paper products facility.

(b) Includes acquisition-related costs for the TimBar Corporation and Columbus Container, Inc. acquisitions.

(c) Includes costs related to ceased softwood market pulp operations at our Wallula, Washington mill and the permanent shutdown of the No.1 machine.

(d) Includes costs related to our withdrawal from a multiemployer pension plan for one of our corrugated products facilities.

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

(f) 2015 and 2014 include Boise acquisition integration-related and other costs, primarily for severance, retention, travel, and professional fees. 2014 also includes $1.5 million of expense related to the write-off of deferred financing costs in connection with the debt refinancing.

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

(h) Includes $17.6 million of costs for the settlement of the *Kleen Products LLC v Packaging Corp. of America et al* class action lawsuit. See Note 18, Commitments, Guarantees, Indemnifications, and Legal Proceedings, for more information.

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

|  | Year Ended December 31 2016 | 2015 | 2014 | 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income | $449.6 | $436.8 | $392.6 | $441.3 | $160.2 |
| Interest expense, net | 91.8 | 85.5 | 88.4 | 58.3 | 62.9 |
| Provision (benefit) for income taxes | 238.9 | 227.7 | 221.7 | (17.7) | 214.5 |
| Depreciation, amortization, and depletion | 358.0 | 356.5 | 381.0 | 201.8 | 170.8 |
| EBITDA | $1,138.3 | $1,106.5 | $1,083.7 | $683.7 | $608.4 |
| Special items: |  |  |  |  |  |
| Facilities closure costs | $10.2 | $— | $— | $— | $2.0 |
| Acquisition-related costs | 4.5 | — | — | 17.2 | — |
| Wallula mill restructuring | 0.6 | — | — | — | — |
| Multiemployer pension withdrawal | 0.9 | — | — | — | — |
| DeRidder restructuring | — | (7.0) | 23.9 | — | — |
| Integration-related and other costs | — | 13.4 | 18.4 | 17.4 | — |
| Sale of St. Helens paper mill site | — | (6.7) | — | — | — |
| Class action lawsuit settlement | — | — | 17.6 | — | — |
| Acquisition inventory step-up | — | — | — | 21.5 | — |
| Pension curtailment charges | — | — | — | 10.9 | — |
| Alternative energy tax credits | — | — | — | — | (95.5) |
| EBITDA excluding special items | $1,154.5 | $1,106.2 | $1,143.6 | $750.7 | $514.9 |

35

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

| Packaging | Year Ended December 31 2016 | 2015 | 2014 |
| --- | ---: | ---: | ---: |
| Segment income | $711.1 | $714.9 | $663.2 |
| Depreciation, amortization, and depletion | 293.3 | 297.3 | 323.0 |
| EBITDA | 1,004.4 | 1,012.2 | 986.2 |
| Facilities closure costs | 9.3 | — | — |
| Acquisition-related costs | 4.2 | — | — |
| Multiemployer pension withdrawal | 0.9 | — | — |
| DeRidder restructuring | — | (7.0) | 23.9 |
| Integration-related and other costs | — | 4.1 | 4.9 |
| EBITDA excluding special items | **$1,018.8** | **$1,009.3** | **$1,015.0** |
| **Paper** |  |  |  |
| Segment income | $138.1 | $112.5 | $135.4 |
| Depreciation, amortization, and depletion | 59.6 | 54.9 | 50.6 |
| EBITDA | 197.7 | 167.4 | 186.0 |
| Wallula mill restructuring | 0.6 | — | — |
| Facilities closure costs | 0.9 | — | — |
| Sale of St. Helens paper mill site | — | (6.7) | — |
| EBITDA excluding special items | **$199.2** | **$160.7** | **$186.0** |
| **Corporate and Other** |  |  |  |
| Segment income (loss) | $(68.9) | $(77.4) | $(95.9) |
| Depreciation, amortization, and depletion | 5.1 | 4.3 | 7.4 |
| EBITDA | (63.8) | (73.1) | (88.5) |
| Acquisition-related costs | 0.3 | — | — |
| Integration-related and other costs | — | 9.3 | 13.5 |
| Class action lawsuit settlement | — | — | 17.6 |
| EBITDA excluding special items | **$(63.5)** | **$(63.8)** | **$(57.4)** |
| **EBITDA** | **$1,138.3** | **$1,106.5** | **$1,083.7** |
| **EBITDA excluding special items** | **$1,154.5** | **$1,106.2** | **$1,143.6** |

## Market risk

As filed, 819 characters.

PCA is exposed to the impact of interest rate changes and changes in the market value of its financial instruments. PCA periodically enters into derivatives in order to minimize these risks, but not for trading purposes. We were not party to any derivative-based arrangements at December 31, 2016. For a discussion of derivatives and hedging activities, see Note 13, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

The interest rates on approximately 62% 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 $10.1 million annually.

## Controls and procedures

As filed, 5,767 characters.

### Controls and Procedures

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 December 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 December 31, 2016.

### Changes in Internal Control over Financial Reporting

On August 29, 2016, PCA acquired TimBar Corporation ("TimBar"). Additionally, on November 30, 2016, PCA acquired Columbus Container, Inc. ("Columbus"). We are currently in the process of evaluating and integrating TimBar’s and Columbus' controls over financial reporting which may result in changes or additions to PCA’s internal control over financial reporting. Under guidelines established by the SEC, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company. We excluded TimBar and Columbus from the assessment of internal control over financial reporting at December 31, 2016. Except as may relate to the TimBar and Columbus acquisitions, there were no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the most recent fiscal quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As of and for the year ended December 31, 2016, TimBar accounted for approximately 7% of the Company's consolidated total assets and 2% of consolidated sales, and Columbus accounted for approximately 2% of the Company's consolidated total assets and less than 1% of consolidated net sales.

### Management’s Report on Internal Control Over Financial Reporting

PCA’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, PCA’s internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

PCA’s management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment and excluding the operations acquired from TimBar and Columbus, PCA’s management concluded that its internal control over financial reporting was effective as of December 31, 2016, based on the specified criteria.

KPMG LLP, the independent registered public accounting firm that audited PCA’s financial statements included in this Form 10-K, has also audited the effectiveness of the Company’s internal control over financial reporting. Their attestation report precedes PCA’s audited financial statements included elsewhere in this report.

Filed Feb 28, 2017.
Source: SEC EDGAR, the filing index for accession 0000075677-17-000004. Last ingested by Listed: Nov 5, 2026, 13:32 ET. No prices; not investment advice.