# Packaging Corp of America: Form 10-Q for the period ended Jun 30, 2013

- Company: [Packaging Corp of America](/companies/pkg.md) (CIK 75677)
- Form: 10-Q
- Filed: 2013-08-06
- Accepted by EDGAR: Aug 6, 2013, 16:31 ET
- Period: 2013-06-30
- Accession: 0001193125-13-321685
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/75677/000119312513321685/d563703d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/75677/000119312513321685/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2013-04-01 to 2013-06-30 | $800.2m | us-gaap:SalesRevenueNet |
| Revenue | 6 months, 2013-01-01 to 2013-06-30 | $1.56bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2013-04-01 to 2013-06-30 | $608.1m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 6 months, 2013-01-01 to 2013-06-30 | $1.18bn | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2013-04-01 to 2013-06-30 | $192.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2013-01-01 to 2013-06-30 | $374.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2013-04-01 to 2013-06-30 | $54.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2013-01-01 to 2013-06-30 | $110.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2013-04-01 to 2013-06-30 | $107.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2013-01-01 to 2013-06-30 | $210.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2013-04-01 to 2013-06-30 | $33.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2013-01-01 to 2013-06-30 | $67.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-04-01 to 2013-06-30 | $64.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2013-01-01 to 2013-06-30 | $125.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-04-01 to 2013-06-30 | $0.66 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2013-01-01 to 2013-06-30 | $1.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-04-01 to 2013-06-30 | $0.67 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2013-01-01 to 2013-06-30 | $1.30 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-04-01 to 2013-06-30 | 97,494,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2013-01-01 to 2013-06-30 | 97,461,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2013-01-01 to 2013-06-30 | $283.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2013-01-01 to 2013-06-30 | $80.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2013-01-01 to 2013-06-30 | $30.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2013-01-01 to 2013-06-30 | $5.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2013-06-30 | $370.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-06-30 | $1.10bn | us-gaap:AssetsCurrent |
| Total assets | at 2013-06-30 | $2.61bn | us-gaap:Assets |
| Current liabilities | at 2013-06-30 | $344.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2013-06-30 | $771.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2013-06-30 | $15.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2013-06-30 | $1.05bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,205 characters.

### Overview

Packaging Corporation of America, or PCA, is the fourth largest producer of containerboard and corrugated products in the United States, based on production capacity. We produce a wide variety of corrugated products ranging from basic corrugated shipping containers to specialized packaging, such as wax-coated boxes for the agriculture industry. We also have multi-color printing capabilities to make high-impact graphics boxes and displays that offer our customers more attractive packaging. Our operating facilities and customers are located primarily in the United States.

In analyzing our operating performance, we focus on the following factors that affect our business and are important to consider when reviewing our financial and operating results:

- containerboard and corrugated products demand;
- corrugated products and containerboard pricing and mix;
- cost trends and volatility for our major costs, including wood and recycled fiber, purchased fuels, electricity, labor and fringe benefits, and transportation costs; and
- cash flow from operations and capital expenditures.

The cost to manufacture containerboard is dependent, in large part, on the costs of wood fiber, recycled fiber, purchased fuels, electricity and labor and fringe benefits. Excluding the cost of containerboard, labor and benefits costs make up the largest component of corrugated products’ manufactured costs.

The market for containerboard is generally subject to changes in the U.S. economy. Historically, supply and demand, as well as industry-wide inventory levels, have influenced prices of containerboard and corrugated products. In addition to U.S. shipments, approximately 10% of domestically produced containerboard has been exported annually for use in other countries.

As reported by the Fibre Box Association, industry-wide shipments of corrugated products increased 1.3% for the three months ended June 30, 2013 compared to the same period in 2012. Reported industry containerboard production for the three months ended June 30, 2013 increased 4.1% compared to the same period in 2012. Trade publications reported that containerboard inventories at the end of the second quarter of 2013 were approximately 2.22 million tons compared to first quarter 2013 ending inventories of 2.23 million tons, essentially unchanged. Reported industry shipments to export markets increased 3.8% for the second quarter of 2013 compared to the last year’s second quarter. Published containerboard prices increased $50 per ton in April 2013.

During the second quarter of 2013, PCA produced approximately 629,000 tons of containerboard at our mills and sold about 9.3 billion square feet (“bsf”) of corrugated products. Our corrugated products shipments for the second quarter of 2013 were up 6.8% compared to the second quarter of 2012. Containerboard volume sold to domestic and export customers for the three months ended June 30, 2013 was 9,000 tons lower than the same period in 2012.

Published prices for recycled fiber were 10% lower in the second quarter of 2013 compared to the second quarter of 2012 average price and were essentially unchanged compared to the first quarter of 2013. Our wood costs increased slightly compared to last year’s second quarter. Our chemicals and maintenance costs in the second quarter of 2013 were slightly higher than the comparable period in 2012 due to more scheduled maintenance mill outages in the current quarter. Purchased fuel prices increased primarily due to higher prices for natural gas and coal. Our transportation costs increased 1% compared to last year’s second quarter.

Excluding a pension curtailment charge of $5.0 million, or $0.05 per share, we earned net income of $69.5 million ($0.71 per diluted share) in the second quarter of 2013, compared with net income before special items of $47.7 million ($0.49 per diluted share) in the second quarter of 2012. Special items in the second quarter of 2012 included debt refinancing charges of $2.5 million ($0.025 per diluted share). Information regarding our use of non-GAAP financial measures and reconciliations of non-GAAP measures used in this Item 2 to the most comparable measure reported in accordance with GAAP are included elsewhere in this section under “Reconciliations of Non-GAAP Financial Measures to Reported Amounts.”

Looking ahead to the third quarter, we expect higher corrugated products prices, higher sales volume, and with no planned annual outages, increased mill production and lower mill operating costs. We also expect higher purchased electricity costs with summer pricing, higher amortization of annual outage repair costs, and a higher tax rate. Considering these items, we currently expect third quarter earnings to be higher than the second quarter.

### Results of Operations

### Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

The historical results of operations of PCA for the three months ended June 30, 2013 and 2012 are set forth below:

*(In thousands)*

|  | Three Months Ended June 30, 2013 | 2012 | Change |
| --- | ---: | ---: | ---: |
| Net sales | $800,230 | $712,468 | $87,762 |
| Income from operations | $107,270 | $83,858 | $23,412 |
| Interest expense, net | (9,232) | (13,256) | 4,024 |
| Income before taxes | 98,038 | 70,602 | 27,436 |
| Provision for income taxes | (33,573) | (25,448) | (8,125) |
| Net income | $64,465 | $45,154 | $19,311 |

### Net Sales

Net sales increased by $87.8 million, or 12.3%, for the three months ended June 30, 2013 from the comparable period in 2012, as a result of higher sales price and improved mix ($41.3 million) and higher sales volume ($46.5 million).

Corrugated products shipments for the second quarter increased 5.2% compared to the second quarter of 2012 on a shipments-per-workday basis. Total corrugated products volume sold for the three months ended June 30, 2013 increased 6.8% over last year’s second quarter. The difference in the percentage increase between the total shipments increase and the increase on a per-workday basis is that the second quarter of 2013 contained one more workday, those days not falling on a weekend or holiday, than the same period in 2012. Second quarter 2013 contained 64 workdays compared to 63 workdays in second quarter 2012.

Containerboard volume sold to outside domestic and export customers for the three months ended June 30, 2013 was 9,000 tons lower than the same period in 2012. Containerboard mill production during the second quarter was 629,000 tons compared to 638,000 tons during the second quarter of 2012.

### Income from Operations

Income from operations increased $23.4 million, or 27.9%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. As noted in Note 8 to the condensed consolidated financial statements, PCA recorded a pre-tax charge of $7.8 million for pension curtailment. Excluding the charge for pension curtailment, income from operations increased $31.2 million, driven by higher pricing and improved mix ($41.3 million) and higher corrugated products volume ($7.2 million). These improvements were partially offset by higher expenses for energy ($5.8 million), labor ($5.2 million), and the timing of annual mill maintenance outages ($4.7 million).

Gross profit increased $34.0 million, or 21.5%, for the three months ended June 30, 2013 from the comparable period in 2012. Gross profit as a percentage of net sales increased to 24.0% for second quarter 2013 compared to 22.2% in second quarter 2012 primarily attributable to the price and volume increases previously described.

Selling and administrative expenses increased $2.0 million, or 3.8%, for the three months ended June 30, 2013 compared to the same period in 2012, primarily as a result of increased salary costs ($1.7 million) and related fringe benefits ($0.5 million).

Corporate overhead increased $1.4 million, or 8.1%, for the three months ended June 30, 2013 compared to the second quarter of 2012, primarily due to increased costs related to salary and fringe benefits ($0.7 million), and travel ($0.5 million).

Other expense for the three months ended June 30, 2013 increased $7.2 million or 197.0% compared to the comparable period in 2012, primarily due to the pension plan curtailment charge ($7.8 million) partially offset by reduced costs related to legal matters ($0.7 million).

### Interest Expense, Net and Income Taxes

Net interest expense decreased $4.0 million, or 30.4%, from $13.3 million in the second quarter of 2012 to $9.2 million in the comparable period in 2013. Net interest expense in 2012 included $3.7 million of charges related to the Company’s debt refinancing completed in June 2012. Excluding these charges, net interest expense was $0.3 million lower for the three months ended June 30, 2013 compared to the same period in 2012. The decrease is due to lower interest rates on PCA’s $400.0 million of notes that were refinanced in June 2012 and on PCA’s variable rate debt (term loan and receivables revolver), resulting in lower interest expense of $2.1 million. This was partially offset by $1.9 million in additional amortization of treasury lock settlements due to the settlement of the treasury lock related to the refinancing noted above.

PCA’s effective tax rate was 34.2% for the three months ended June 30, 2013 compared to 36.0% for the same period in 2012. The effective tax rate varies from the U.S. federal statutory rate of 35.0% principally due to the impact of state and local income taxes and the domestic manufacturers’ deduction. PCA had no material changes to its reserve for unrecognized tax benefits under ASC 740, “Income Taxes,” during the second quarter of 2013 but does expect a significant change by the end of the year as described in Note 14 to the condensed consolidated financial statements.

### Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

The historical results of operations of PCA for the six months ended June 30, 2013 and 2012 are set forth below:

*(In thousands)*

|  | Six Months Ended June 30, 2013 | 2012 | Change |
| --- | ---: | ---: | ---: |
| Net sales | $1,555,437 | $1,383,825 | $171,612 |
| Income from operations | $210,516 | $252,968 | $(42,452) |
| Interest expense, net | (18,483) | (22,939) | 4,456 |
| Income before taxes | 192,033 | 230,029 | (37,996) |
| Provision for income taxes | (66,955) | (167,031) | 100,076 |
| Net income | $125,078 | $62,998 | $62,080 |

### Net Sales

Net sales increased by $171.6 million, or 12.4%, for the six months ended June 30, 2013 from the comparable period in 2012, primarily as a result of higher sales price and mix ($75.9 million) and higher sales volume ($95.7 million).

Corrugated products shipments for the first half of 2013 increased 6.2% compared to the first half of 2012 on a shipments-per-workday basis. Total corrugated products volume sold for the six months ended June 30, 2013 increased 5.3% over the comparable period last year. The first half of 2013 contained 126 workdays, those days not falling on a weekend or holiday, compared to 127 workdays in the first half of 2012.

Containerboard volume sold to outside domestic and export customers decreased 4.3% for the six months ended June 30, 2013 compared to the same period in 2012 primarily related to decreased export sales. Containerboard mill production during the first half of 2013 was 1,275,000 tons compared to 1,278,000 tons during the first half of 2012.

### Income from Operations

Income from operations in the first six months of 2013 was $210.5 million including the $7.8 million pension curtailment charge previously discussed. As noted in Note 14 to the condensed consolidated financial statements, PCA amended its 2009 federal tax return in February 2012 to reallocate gallons between the alternative fuel mixture credits and the cellulosic biofuel producer credits. As a result, income from operations was increased for the six months ended June 30, 2012 by $95.5 million to $253.0 million with an offsetting amount recorded in tax expense of $118.5 million.

Excluding special items (as detailed below under “Reconciliations of Non-GAAP Financial Measures to Reported Amounts”), income from operations increased $60.8 million, primarily due to increased sales price and improved mix ($75.9 million) and higher sales volume ($10.3 million). Partially offsetting these items were increased expenses related to labor and benefits ($14.3 million), energy ($7.4 million) and transportation ($2.8 million).

Gross profit increased $71.4 million, or 23.6%, for the six months ended June 30, 2013 from the comparable period in 2012, primarily due to the sales price and volume increases described above. Gross profit as a percentage of net sales increased to 24.1% of net sales for the first half of 2013 compared to 21.9% in the first six months of 2012.

Selling and administrative expenses increased $5.7 million, or 5.5%, for the six months ended June 30, 2013 compared to the same period in 2012, primarily as a result of higher salaries ($4.1 million), related fringe benefits ($0.9 million) and travel related costs ($0.5 million).

Corporate overhead increased $4.1 million, or 11.8%, for the first half of 2013 compared to the first half of 2012, primarily due to higher salary and fringe benefits expense ($2.2 million), legal costs ($1.1 million) and travel and meeting costs ($0.6 million).

Other expense for the six months ended June 30, 2013 increased $8.6 million or 137.6% compared to the same period in 2012, primarily due to the pension plan curtailment charge ($7.8 million) and increased expenses related to worker’s compensation ($0.8 million).

### Interest Expense, Net and Income Taxes

Net interest expense decreased $4.5 million, or 19.4%, from $22.9 million for the six months ended June 30, 2012 to $18.5 million for the comparable period in 2013. Net interest expense in 2012 included $3.7 million of charges related to the Company’s debt refinancing completed in June 2012. Excluding these charges, net interest expense was $0.8 million lower for the six months ended June 30, 2013 compared to the same period in 2012. The decrease is due to lower interest rates on PCA’s $400.0 million of notes that were refinanced in June 2012 and on PCA’s variable rate debt (term loan and receivables revolver), resulting in lower interest expense of $4.2 million. This was partially offset by $3.8 million in additional amortization of treasury lock settlements due to the settlement of the treasury lock related to the refinancing noted above.

PCA’s effective tax rate was 34.9% for the six months ended June 30, 2013. This compares to 72.6% for the six months ended June 30, 2012, which included a 36.6% higher rate from amending our 2009 tax return in February 2012 related to the alternative energy tax credits described in Note 14 of the condensed consolidated financial statements. Excluding the amendment, the effective tax rate for the first half of 2012 would have been 36.0%. The effective tax rate varies from the U.S. federal statutory rate of 35.0% principally due to the impact of the alternative energy tax credits in 2012, state and local income taxes and the domestic manufacturers’ deduction.

### Liquidity and Capital Resources

The following table presents a summary of our cash flows for the periods presented:

*(In thousands)*

| Net cash provided by (used for): | Six Months Ended June 30, 2013 | 2012 | Change |
| --- | ---: | ---: | ---: |
| Operating activities | $283,037 | $150,045 | $132,992 |
| Investing activities | (82,853) | (48,897) | (33,956) |
| Financing activities | (37,520) | 257,660 | (295,180) |
| Net increase in cash and cash equivalents | $162,664 | $358,808 | $(196,144) |

### Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2013 was $283.0 million compared to $150.0 million for the six months ended June 30, 2012, an increase of $133.0 million, or 88.6%. Cash provided by operating activities before changes in operating assets and liabilities was $314.8 million for the first six months of 2013 compared to $238.6 million for the comparable period in 2012, an increase of $76.2 million that was driven by the stronger operations in 2013 as previously discussed and an additional $28.5 million of alternative energy tax credits used to reduce federal income tax payments during the first six months of 2013. Cash used for operating assets and liabilities totaled $31.7 million for the six month period ended June 30, 2013 compared to $88.6 million for the comparable period in 2012, a decrease of $56.9 million. The lower requirements for operating assets and liabilities in 2013 were driven by higher accounts payable levels in 2013 partially offset by higher levels of accounts receivable due to higher sales prices and volumes in 2013 as previously described. Cash requirements for operating activities are subject to PCA’s operating needs and the timing of collection of receivables and payments of payables and expenses.

### Investing Activities

Net cash used for investing activities for the six months ended June 30, 2013 increased $34.0 million, or 69.4%, to $82.9 million, compared to the six months ended June 30, 2012. The increase was related to the receipt of $57.4 million in grant proceeds from the U.S. Treasury in 2012 and higher additions to property, plant and equipment of $11.6 million during the first six months of 2013 compared to the same period in 2012. This was partially offset by a $35.4 million acquisition completed in the first quarter of 2012.

### Financing Activities

Net cash used for financing activities totaled $37.5 million for the six months ended June 30, 2013 compared to net cash provided by financing activities of $257.7 million for the comparable period in 2012, a difference of $295.2 million. The difference was primarily attributable to $397.0 million in net proceeds received from the Company’s senior notes issuance that was completed on June 26, 2012 and lower proceeds received from stock option exercises of $5.0 million during the first half of 2013 compared to the same period in 2012. This was partially offset by a $65.5 million payment to settle a treasury lock on June 26, 2012, lower repurchases of PCA common stock of $28.2 million in 2013, and lower dividends paid of $13.6 million in 2013 primarily due to accelerating a dividend payment into 2012, resulting in no dividends paid in the first quarter of 2013.

PCA’s primary sources of liquidity are net cash provided by operating activities and borrowing availability under its revolving credit facility and receivables credit facility. As of June 30, 2013, PCA had $329.0 million in unused borrowing capacity under its existing credit facilities, with $12.0 million of the borrowing capacity used for outstanding letters of credit. Currently, PCA’s primary uses of cash are for operations, capital expenditures, debt service and declared common stock dividends, which it expects to be able to fund from these sources.

The following table provides the outstanding balances, excluding unamortized debt discount, and the weighted average interest rates as of June 30, 2013 for PCA’s senior credit facility, the receivables credit facility, and the senior notes:

*(Dollars in thousands)*

| Borrowing Arrangement | Balance at June 30, 2013 | Weighted Average Interest Rate | Projected Annual Cash Interest Payments |
| --- | ---: | ---: | ---: |
| Revolving Credit Facility | $— | N/A | N/A |
| Term Loan | 127,500 | 1.70% | $2,162 |
| Receivables Credit Facility | 109,000 | 1.04 | 1,139 |
| 3.90% Senior Notes (due June 15, 2022) | 400,000 | 3.90 | 15,600 |
| 6.50% Senior Notes (due March 15, 2018) | 150,000 | 6.50 | 9,750 |
| Total | $786,500 | 3.64% | $28,651 |

The above table excludes the annual non-cash recorded interest expense of $5.7 million from the annual amortization of the treasury locks over the terms for both the 6.50% senior notes due 2018 and the 3.90% senior notes due 2022.

The instruments governing PCA’s indebtedness contain covenants that limit, among other things, the ability of PCA and its subsidiaries to:

- enter into sale and leaseback transactions,
- incur liens or secured indebtedness,
- incur indebtedness at the subsidiary level,
- enter into certain transactions with affiliates, or
- merge or consolidate with any other person or sell or otherwise dispose of all or substantially all of the assets of PCA.

These limitations could limit corporate and operating activities.

In addition, PCA must maintain a minimum interest coverage ratio and a maximum leverage ratio under its senior credit facility. A failure to comply with the covenants contained in the senior credit facility could lead to an event of default, which could result in an acceleration of any outstanding indebtedness and/or prohibit PCA from drawing on its revolving credit facility. Such acceleration may also constitute events of default under the senior notes indentures and the receivables credit facility. As of June 30, 2013, PCA was in compliance with these covenants.

PCA currently expects to incur normal capital expenditures of about $130.0 million in 2013, primarily for maintenance capital, cost reduction, business growth and environmental compliance, plus $75.0 million for either box plant acquisitions or strategic investments in our existing box plants and $10.0 million required for compliance with the Boiler MACT rules. As of June 30, 2013, PCA incurred $80.9 million of capital expenditures and had committed to an additional $76.2 million of capital expenditures for the remainder of 2013 and beyond.

PCA believes that net cash generated from operating activities, cash on hand, available borrowings under its existing credit facilities and available capital through access to capital markets will be adequate to meet its liquidity and capital requirements, including payments of any declared common stock dividends, for the foreseeable future. As its debt or credit facilities become due, PCA will need to repay, extend or replace such facilities. Its ability to do so will be subject to future economic conditions and financial, business and other factors, many of which are beyond PCA’s control.

### Contractual Obligations

There have been no material changes to the contractual obligations table disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2012.

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

Income from operations, net income and diluted earnings per share excluding special items are non-GAAP financial measures. Management presents income from operations, net income and diluted earnings per share excluding these special items to focus on PCA’s ongoing operations and assess its operating performance and believes that these measures provide useful information to investors because they enable them to perform meaningful comparisons of past and present operating results. Reconciliations of those non-GAAP measures to the most comparable measure reported in accordance with GAAP for the three and six months ended June 30, 2013 and 2012 follow:

*(In millions, except per share amounts)*

|  | Three Months Ended June 30, 2013 Income from Operations | Net Income | Diluted EPS | 2012 Income from Operations | Net Income | Diluted EPS |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| As reported in accordance with GAAP | $107.3 | $64.5 | $0.66 | $83.9 | $45.2 | $0.46 |
| Special items: |  |  |  |  |  |  |
| Pension curtailment charge (a) | 7.8 | 5.0 | 0.05 | — | — | — |
| Debt refinancing charges (b) | — | — | — | — | 2.5 | 0.03 |
| Total special items | 7.8 | 5.0 | 0.05 | — | 2.5 | 0.03 |
| Excluding special items | $115.1 | $69.5 | $0.71 | $83.9 | $47.7 | $0.49 |

*(In millions, except per share amounts)*

|  | Six Months Ended June 30, 2013 Income from Operations | Net Income | Diluted EPS | 2012 Income from Operations | Net Income | Diluted EPS |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| As reported in accordance with GAAP | $210.5 | $125.1 | $1.28 | $253.0 | $63.0 | $0.65 |
| Special items: |  |  |  |  |  |  |
| Pension curtailment charge (a) | 7.8 | 5.0 | 0.05 | — | — | — |
| Debt refinancing charges | — | — | — | — | 2.5 | 0.03 |
| Biofuel energy tax credits (c) | — | — | — | (95.5) | 23.0 | 0.24 |
| Total special items | 7.8 | 5.0 | 0.05 | (95.5) | 25.5 | 0.26 |
| Excluding special items | $218.3 | $130.1 | $1.33 | $157.5 | $88.5 | $0.91 |

Note: The sum of diluted EPS may not equal the total for the respective period’s diluted EPS due to rounding.

(a) Represents a curtailment charge of $7.8 million pre-tax less $2.8 million in taxes, or $5.0 million after-tax, related to the Company’s hourly defined benefit plan.

(b) Represents charges from the company’s debt refinancing completed June 26, 2012 of $3.7 million pre-tax less $1.2 million in taxes, or $2.5 million after-tax.

(c) Represents a charge from amending the Company’s 2009 federal income tax return to reduce the gallons of black liquor claimed as cellulosic biofuel producer credits previously recorded as a tax benefit, and to increase the gallons claimed for alternative fuel mixture credits previously recorded as income. The total number of gallons of black liquor remained the same. The increase in gallons claimed as alternative fuel mixture credits resulted in income of $95.5 million, and the decrease in gallons claimed as cellulosic biofuel producer credits resulted in a decrease in tax benefits of $118.5 million, for a net non-cash, after-tax charge of $23.0 million.

### Market Risk and Risk Management Policies

PCA is exposed to the impact of interest rate changes and changes in the market value of its financial instruments. PCA periodically enters into derivatives in order to minimize these risks, but not for trading purposes. For a discussion of derivatives and hedging activities, see Note 10 to PCA’s unaudited condensed consolidated financial statements included elsewhere in this report.

The interest rates on approximately 70% of PCA’s debt are fixed. A one percent increase in interest rates related to variable rate debt would have resulted in an increase in interest expense and a corresponding decrease in income before taxes of $2.4 million annually.

### Environmental Matters

There have been no material changes to the disclosure set forth in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Environmental Matters” in our Annual Report on Form 10-K for the year ended December 31, 2012. For a discussion of PCA’s reserve for environmental matters as of June 30, 2013, please see Note 12 to the financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

### Impact of Inflation

PCA does not believe that inflation has had a material impact on its financial position or results of operations during the three- and six-month periods ending June 30, 2013 and 2012.

### Off-Balance Sheet Arrangements

PCA does not have any off-balance sheet arrangements as of June 30, 2013 that would require disclosure under SEC FR-67, “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.”

### Critical Accounting Policies and Estimates

Management’s discussion and analysis of PCA’s 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 the Company 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 bad debts, inventories, intangible assets, pensions and other postretirement benefits, income taxes, contingencies and litigation. PCA bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

PCA has included in its Annual Report on Form 10-K for the year ended December 31, 2012, a discussion of its critical accounting policies which it believes affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. PCA has not made any changes in any of these critical accounting policies during the first six months of 2013.

### Forward-Looking Statements

Some of the statements in this Quarterly Report on Form 10-Q, 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. These statements are often identified by the words “will,” “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. These factors, risks and uncertainties include the following:

- the impact of general economic conditions;
- containerboard and corrugated products general industry conditions, including competition, product demand and product pricing;
- fluctuations in wood fiber and recycled fiber costs;
- fluctuations in purchased energy costs;
- the possibility of unplanned outages or interruptions at our principal facilities; and
- legislative or regulatory actions or requirements, particularly concerning environmental or tax matters.

Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do occur, what impact they will have on our results of operations or financial condition. 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 any forward-looking statements that have been made to reflect the occurrence of events after the date hereof. For a discussion of other factors, risks and uncertainties that may affect our business, see Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2012.

## Market risk

As filed, 238 characters.

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

## Controls and procedures

As filed, 1,618 characters.

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

Prior to filing this report, PCA completed an evaluation under the supervision and with the participation of PCA’s management, including PCA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of PCA’s disclosure controls and procedures as of June 30, 2013. 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 June 30, 2013.

During the quarter ended June 30, 2013, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, PCA’s internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 162 characters.

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012.

Filed Aug 6, 2013.
Source: SEC EDGAR, the filing index for accession 0001193125-13-321685. Last ingested by Listed: Nov 5, 2026, 13:32 ET. No prices; not investment advice.