# Packaging Corp of America: Form 10-Q for the period ended Mar 31, 2019

- Company: [Packaging Corp of America](/companies/pkg.md) (CIK 75677)
- Form: 10-Q
- Filed: 2019-05-08
- Accepted by EDGAR: May 8, 2019, 10:46 ET
- Period: 2019-03-31
- Accession: 0001564590-19-016920
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/75677/000156459019016920/pkg-10q_20190331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/75677/000156459019016920/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-01-01 to 2019-03-31 | $1.73bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-01-01 to 2019-03-31 | $1.31bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2019-01-01 to 2019-03-31 | $421.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2019-01-01 to 2019-03-31 | $140.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-01-01 to 2019-03-31 | $275.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2019-01-01 to 2019-03-31 | $62.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-01-01 to 2019-03-31 | $186.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-01-01 to 2019-03-31 | $1.97 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-01-01 to 2019-03-31 | $1.98 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-01-01 to 2019-03-31 | 94,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2019-01-01 to 2019-03-31 | $236.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2019-01-01 to 2019-03-31 | $78.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2019-01-01 to 2019-03-31 | $74.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2019-03-31 | $442.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-03-31 | $2.26bn | us-gaap:AssetsCurrent |
| Total assets | at 2019-03-31 | $6.93bn | us-gaap:Assets |
| Current liabilities | at 2019-03-31 | $740.7m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2019-03-31 | $2.48bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2019-03-31 | $2.79bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,415 characters.

This management’s discussion and analysis includes statements regarding our expectations with respect to our future performance, expected business conditions, liquidity, and capital resources. Such statements, along with any other statements that are not historical in nature, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in our 2018 Annual Report on Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (SEC). We do not assume any obligation to update any forward-looking statement. Our actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q. Please see “Forward Looking Statements” elsewhere in this Item 2.

### Overview

PCA is the third largest producer of containerboard products and the third largest producer of uncoated freesheet paper in North America. We operate six containerboard mills, two paper mills, and 95 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.

This Item 2 is intended to supplement, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2018 Annual Report on Form 10-K.

### Executive Summary

First quarter net sales were $1.73 billion in 2019 and $1.69 billion in 2018. We reported $187 million of net income, or $1.97 per diluted share, during the first quarter of 2019, compared to $140 million, or $1.48 per diluted share, during the same period in 2018. Net income included $0.5 million of expense for special items (discussed below) in the first quarter of 2019, compared to $7 million in 2018. Excluding special items, net income was $187 million, or $1.98 per diluted share, during the first quarter of 2019, compared to $147 million, or $1.55 per diluted share, in the first quarter of 2018. The increase was driven primarily by higher prices and mix and volumes in our Packaging segment, higher prices and mix in our Paper segment, lower annual outage expenses, and lower depreciation expense. These items were partially offset by lower volumes in our Paper segment, higher indirect and converting costs, higher direct material costs, and higher fixed expenses. For additional detail on special items included in reported GAAP results, as well as segment income (loss) excluding special items, earnings before non-operating pension expense, interest, income taxes, and depreciation, amortization, and depletion (EBITDA), and EBITDA excluding special items, see “Item 2. Reconciliations of Non-GAAP Financial Measures to Reported Amounts.”

Packaging segment income from operations was $250 million in the first quarter of 2019, compared to $225 million in the first quarter of 2018. Packaging segment EBITDA excluding special items was $334 million in the first quarter of 2019 compared to $308 million in the first quarter of 2018. The increase in EBITDA excluding special items was due to higher containerboard and corrugated products prices and mix and sales and production volumes driven by strong demand, and lower annual outage expenses, partially offset by higher operating and converting costs, higher wood costs, and other fixed costs.

Paper segment income from operations was $46 million in the first quarter of 2019, compared to $7 million in the first quarter of 2018. Paper segment EBITDA excluding special items was $55 million in the first quarter of 2019, compared to $31 million in the first quarter of 2018. The increase in EBITDA excluding special items was due to higher prices and mix and lower operating costs, partially offset by lower sales and production volumes primarily related to the exit from the paper business at the Wallula Mill.

During the second quarter of 2018, the Company discontinued production of uncoated freesheet and coated one-side grades at its Wallula, Washington mill and converted the No. 3 paper machine to a 400,000 ton-per-year virgin kraft linerboard machine. The Company took an extended outage on the machine to complete the conversion in the fourth quarter of 2018. The Company incurred charges in the Packaging and Paper segments during the first quarter of 2019 and the Paper segment during the same period in 2018 relating to these activities as described below under “Special Items and Earnings per Diluted Share, Excluding Special Items.” The Company does not expect to incur further related charges going forward.

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

A reconciliation of reported earnings per diluted share to earnings per share, excluding special items, for the three months ended March 31, 2019 and 2018 are as follows:

|  | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Earnings per diluted share, as reported | $1.97 | $1.48 |
| Special items: |  |  |
| Wallula mill restructuring (a) | 0.01 | 0.07 |
| Total special items | 0.01 | 0.07 |
| Earnings per diluted share, excluding special items | $1.98 | $1.55 |

(a) For 2019 and 2018, includes $0.6 million and $8.8 million, respectively, of charges related to the discontinuation of production of uncoated free sheet and coated one-side grades at the Wallula, Washington mill in the second quarter of 2018 and conversion of the No. 3 paper machine to a high-performance 100% virgin kraft linerboard machine.

Included in this Item 2 are various non-GAAP financial measures, including diluted EPS excluding special items, segment income excluding special items and EBITDA excluding special items. Management excludes special items as it believes these items are not necessarily reflective of the ongoing results of operations of our business. We present these measures because they provide a means to evaluate the performance of our segments and our Company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods presented and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. A reconciliation of diluted EPS to diluted EPS excluding special items is included above and the reconciliations of other non-GAAP measures used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, to the most comparable measure reported in accordance with GAAP, are included in Item 2 under “Reconciliations of Non-GAAP Financial Measures to Reported Amounts.” Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

### Industry and Business Conditions

Trade publications reported North American industry-wide corrugated products shipments down 0.5%, during the first quarter of 2019 compared to the same quarter of 2018. Reported industry containerboard production decreased 3.9% compared to the first quarter of 2018. Reported industry containerboard inventories at the end of the first quarter of 2019 were approximately 2.7 million tons, up 12.5% compared to the same period in 2018. Reported containerboard export shipments were down 21.6% compared to the first quarter of 2018. Trade publications reported price decreases of $10 per ton for domestic linerboard in March of 2019 and $20 per ton for corrugating medium in January of 2019.

Trade publications reported North American uncoated freesheet paper shipments were down 8.3% in the first quarter of 2019, compared to the same quarter of 2018. Average prices reported by a trade publication for cut size office papers were higher by $123 per ton, or 12.5%, in the first quarter of 2019, compared to the first quarter of 2018.

### Outlook

Looking ahead to the second quarter of 2019, in our Packaging segment, we expect seasonally higher containerboard and corrugated products shipments, with lower prices as a result of the published domestic containerboard price decreases and lower export prices. In our Paper segment, volume should be similar to the first quarter, and we will continue implementing the previously announced price increases for Paper segment products, but scheduled outage costs will be higher due to the annual shutdown at our International Falls mill. Across both segments we anticipate slightly higher freight, repairs, and certain fixed costs as well as higher share-based compensation costs due to the accounting treatment of restricted stock. Energy costs should improve as we move into seasonally milder weather, recycled fiber prices should be slightly lower, and our effective tax rate should be lower when compared to the first quarter. Considering these items, we expect second quarter earnings to be higher than the first quarter.

### Results of Operations

### Three Months Ended March 31, 2019, compared to Three Months Ended March 31, 2018

The historical results of operations of PCA for the three months ended March 31, 2019 and 2018 are set forth below (dollars in millions):

|  | Three Months Ended March 31, 2019 | 2018 | Change |
| --- | ---: | ---: | ---: |
| Packaging | $1,477.6 | $1,402.9 | $74.7 |
| Paper | 239.7 | 269.4 | (29.7) |
| Corporate and Other | 56.7 | 53.6 | 3.1 |
| Intersegment eliminations | (40.3) | (35.3) | (5.0) |
| Net sales | $1,733.7 | $1,690.6 | $43.1 |
| Packaging | $249.6 | $224.7 | $24.9 |
| Paper | 45.6 | 7.2 | 38.4 |
| Corporate and Other | (19.8) | (19.0) | (0.8) |
| Income from operations | $275.4 | $212.9 | $62.5 |
| Non-operating pension expense | (2.0) | (0.5) | (1.5) |
| Interest expense, net | (24.1) | (25.8) | 1.7 |
| Income before taxes | 249.3 | 186.6 | 62.7 |
| Income tax provision | (62.5) | (46.5) | (16.0) |
| Net income | $186.8 | $140.1 | $46.7 |
| Non-GAAP Measures (a) |  |  |  |
| Net income excluding special items | $187.3 | $146.9 | $40.4 |
| Consolidated EBITDA | 370.2 | 321.0 | 49.2 |
| Consolidated EBITDA excluding special items | 370.6 | 321.8 | 48.8 |
| Packaging EBITDA | 333.6 | 307.8 | 25.8 |
| Packaging EBITDA excluding special items | 333.8 | 307.9 | 25.9 |
| Paper EBITDA | 54.7 | 30.6 | 24.1 |
| Paper EBITDA excluding special items | 54.9 | 31.3 | 23.6 |

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

### Net Sales

Net sales increased $43 million, or 2.5%, to $1,734 million during the three months ended March 31, 2019, compared to $1,691 million during the same period in 2018.

*Packaging.* Net sales increased $75 million, or 5.3%, to $1,478 million, compared to $1,403 million in the first quarter of 2018 due to higher domestic containerboard and corrugated products prices and mix ($64 million) and increased containerboard and corrugated products volume ($11 million). In the first quarter of 2019, our domestic containerboard prices increased 3.5%, while export prices decreased 4.0%, compared to the same period in 2018. In the first quarter of 2019, export and domestic containerboard outside shipments decreased 19.2%, and total corrugated products shipments were up 0.7%, compared to the first quarter of 2018.

*Paper.* Net sales during the three months ended March 31, 2019 decreased $30 million, or 11.0%, to $240 million, compared to $269 million in the first quarter of 2018, due to decreased volume ($55 million), primarily due to the exit from the paper business at Wallula, partially offset by favorable changes in prices and mix ($26 million).

### Gross Profit

Gross profit increased $65 million during the three months ended March 31, 2019, compared to the same period in 2018. The increase was driven primarily by higher containerboard and corrugated products prices and mix and sales and production volumes, higher prices and mix in our Paper segment, and lower annual outage expenses, partially offset by lower volumes in our Paper segment and higher operating and converting costs. In the three months ended March 31, 2019, gross profit did not include any special items, compared to $8 million of Wallula Mill restructuring charges in the same period last year.

### Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) increased $5 million during the three months ended March 31, 2019, compared to the same period in 2018. The increase was primarily due to higher employee salaries and fringes.

### Other Expense, Net

Other expense, net, for the three months ended March 31, 2019 and 2018 are set forth below (dollars in millions):

|  | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Asset disposals and write-offs | $(4.3) | $(5.1) |
| Wallula mill restructuring | (0.4) | (0.7) |
| Facilities closure and other costs | — | (0.1) |
| Other | (1.3) | (2.4) |
| Total | $(6.0) | $(8.3) |

We discuss these items in more detail in Note 7, Other Expense, Net of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in “Part I, Item1. Financial Statements” of this Form 10-Q.

### Income from Operations

Income from operations increased $63 million, or 29.4%, during the three months ended March 31, 2019, compared to the same period in 2018. The first quarter of 2019 and 2018 included $1 million and $9 million of expense, respectively, for special items related to the Wallula Mill restructuring.

*Packaging.* Packaging segment income from operations increased $25 million to $250 million, compared to $225 million during the three months ended March 31, 2018. The increase related primarily to higher containerboard and corrugated products prices and mix ($46 million), higher containerboard and corrugated products sales and production volumes ($34 million), and lower annual outage expenses ($3 million), partially offset by higher operating and converting costs ($37 million), higher fiber costs ($9 million), fixed asset disposals ($4 million) and other expenses ($8 million). There were an insignificant amount of special items in the Packaging segment in the first three months of 2019 and 2018.

*Paper.* Paper segment income from operations increased $38 million to $45 million, compared to $7 million during the three months ended March 31, 2018. The increase primarily related to higher prices and mix ($26 million), lower operating costs ($11 million), lower depreciation expense ($4 million) and other expenses ($5 million), partially offset by lower sales and production volumes ($16 million). There were an insignificant amount of special items in the Paper segment in the first three months of 2019. Special items for the first quarter 2018 included expense of $9 million related to the Wallula mill restructuring.

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

Non-operating pension expense increased $1.5 million during the three months ended March 31, 2019, compared to the same period in 2018. The increase in non-operating pension expense was primarily related to the 2018 asset performance (i.e. lower asset balances resulted in lower than expected return) and the amortization of the 2018 losses.

Interest expense, net decreased $2 million during the three months ended March 31, 2019, compared to the same period in 2018. The decrease in interest expense, net was primarily due to our repayment of the 6.50% Senior Notes due in March 2018.

During the three months ended March 31, 2019, we recorded $63 million of income tax expense, compared to $47 million of expense during the three months ended March 31, 2018. The effective tax rate for the three months ended March 31, 2019 and 2018 was 25.1% and 24.9%, respectively. The slight increase in our effective tax rate was primarily due to higher state and local income taxes net of the federal benefit.

### Liquidity and Capital Resources

### Sources and Uses of Cash

Our primary sources of liquidity are net cash provided by operating activities and available borrowing capacity under our revolving credit facility. At March 31, 2019, we had $442 million of cash and $328 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. Currently, our primary uses of cash are for operations, capital expenditures, acquisitions, debt service, common stock dividends, and repurchases of common stock. We believe that net cash generated from operating activities, cash on hand, available borrowings under our revolving credit facility, and available capital through access to capital markets will be adequate to meet our liquidity and capital requirements, including payments of any declared common stock dividends, for the foreseeable future. As our debt or credit facilities become due, we will need to repay, extend, or replace such facilities. Our ability to do so will be subject to future economic conditions and financial, business, and other factors, many of which are beyond our control.

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

| Net cash provided by (used for): | Three Months Ended March 31, 2019 | 2018 | Change |
| --- | ---: | ---: | ---: |
| Operating activities | $236.0 | $202.5 | $33.5 |
| Investing activities | (80.1) | (107.2) | 27.1 |
| Financing activities | (75.0) | (209.8) | 134.8 |
| Net increase (decrease) in cash and cash equivalents | $80.9 | $(114.5) | $195.4 |

### Operating Activities

Our operating cash flow is primarily driven by our earnings and changes in operating assets and liabilities, such as accounts receivable, inventories, accounts payable and other accrued liabilities, as well as factors described below. Cash requirements for operating activities are subject to PCA’s operating needs and the timing of collection of receivables and payments of payables and expenses.

During the three months ended March 31, 2019, net cash provided by operating activities was $236 million, compared to $202 million in the same period in 2018, an increase of $34 million. Cash from operations excluding changes in cash used for operating assets and liabilities increased $47 million, primarily due to higher income from operations as discussed above. Cash decreased by $13 million due to changes in operating assets and liabilities. The decrease was primarily due to the following: (a) an increase in finished goods inventory in the Paper segment in anticipation of the planned second quarter annual outage at the International Falls paper mill, and (b) an increase in rollstock inventories in the Packaging segment due to lower export and domestic containerboard shipments in the first quarter of 2019 compared to the first quarter of 2018. These changes were partially offset by an increase in accounts payable levels related to the timing of payments in the first quarter.

### Investing Activities

We used $80 million for investing activities during the three months ended March 31, 2019 compared to $107 million during the same period in 2018. We spent $79 million for internal capital investments during the three months ended March 31, 2019, compared to $108 million during the same period in 2018.

We expect capital investments in 2019 to be between $390 million and $410 million, not including acquisitions. These expenditures could increase or decrease as a result of a number of factors, including our financial results, strategic opportunities, future economic conditions, and our regulatory compliance requirements. We currently estimate capital expenditures to comply with environmental regulations will be about $10 million in 2019. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations, including those related to greenhouse gas emissions and industrial boilers. For additional information, see “Environmental Matters” in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2018 Annual Report on Form 10-K.

### Financing Activities

During the three months ended March 31, 2019, net cash used for financing activities was $75 million, compared to $210 million during the same period in 2018. The decrease primarily relates to the $150 million repayment of our 6.5% senior notes that were due March 2018. In the first three months of 2019, we paid $75 million of dividends compared with $59 million of dividends paid during the first three months of 2018. On May 15, 2018, PCA's Board of Directors announced an increase in the regular quarterly cash dividend to $0.79 per share from the previous $0.63 per share dividend, beginning with the dividend paid on July 13, 2018.

For more information about our debt, see Note 10, Debt, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2018 Annual Report on Form 10-K.

### Contractual Obligations

There have been no material changes to the contractual obligations table disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2018 Annual Report on Form 10-K.

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

Income from operations excluding special items, net income excluding special items, EBITDA, and EBITDA excluding special items are non-GAAP financial measures. Management excludes special items, as it believes that these items are not necessarily reflective of the ongoing operations of our business. These measures are presented because they provide a means to evaluate the performance of our segments and our Company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. Reconciliations of the non-GAAP measures to the most comparable measure reported in accordance with GAAP for the three months ended March 31, 2019 and 2018 follow (dollars in millions):

|  | Three Months Ended March 31, 2019 Income before Taxes | Income Taxes | Net Income | 2018 Income before Taxes | Income Taxes | Net Income |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| As reported in accordance with GAAP | $249.3 | $(62.5) | $186.8 | $186.6 | $(46.5) | $140.1 |
| Special items: |  |  |  |  |  |  |
| Wallula mill restructuring (a)(b) | 0.6 | (0.1) | 0.5 | 8.8 | (2.2) | 6.6 |
| Facilities closure and other costs (b) | — | — | — | 0.3 | (0.1) | 0.2 |
| Total special items | 0.6 | (0.1) | 0.5 | 9.1 | (2.3) | 6.8 |
| Excluding special items | $249.9 | $(62.6) | $187.3 | $195.7 | $(48.8) | $146.9 |

(a) The three months ended March 31, 2019 include $0.6 million of charges related to the announced second quarter 2018 discontinuation of uncoated free sheet and coated one-side grades at the Wallula, Washington mill associated with the conversion of the No. 3 paper machine to a high-performance 100% virgin kraft linerboard machine.

(b) The three months ended March 31, 2018 include the following:

1\. $8.8 million of charges related to the second quarter 2018 discontinuation of uncoated free sheet and coated one-side grades at the Wallula, Washington mill associated with the conversion of the No. 3 paper machine to a high-performance 100% virgin kraft linerboard machine million of charges consisting of closure costs related to corrugated products facilities and corporate administration facility.

2\. $0.3 million of charges million of charges consisting of closure costs related to corrugated products facilities and corporate administration facility.

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

|  | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Net income | $186.8 | $140.1 |
| Non-operating pension expense | 2.0 | 0.5 |
| Interest expense, net | 24.1 | 25.8 |
| Income tax provision | 62.5 | 46.5 |
| Depreciation, amortization, and depletion | 94.8 | 108.1 |
| EBITDA | $370.2 | $321.0 |
| Special items: |  |  |
| Wallula mill restructuring | 0.4 | 0.7 |
| Facilities closure and other costs | — | 0.1 |
| Total special items | 0.4 | 0.8 |
| EBITDA excluding special items | $370.6 | $321.8 |

22

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

| Packaging | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Segment income | $249.6 | $224.7 |
| Depreciation, amortization, and depletion | 84.0 | 83.1 |
| EBITDA | 333.6 | 307.8 |
| Wallula mill restructuring | 0.2 | — |
| Facilities closure and other costs | — | 0.1 |
| EBITDA excluding special items | **$333.8** | **$307.9** |
| **Paper** |  |  |
| Segment income | $45.6 | $7.2 |
| Depreciation, amortization, and depletion | 9.1 | 23.4 |
| EBITDA | 54.7 | 30.6 |
| Wallula mill restructuring | 0.2 | 0.7 |
| EBITDA excluding special items | **$54.9** | **$31.3** |
| **Corporate and Other** |  |  |
| Segment loss | $(19.8) | $(19.0) |
| Depreciation, amortization, and depletion | 1.7 | 1.6 |
| EBITDA | (18.1) | (17.4) |
| EBITDA excluding special items | **$(18.1)** | **$(17.4)** |
| **EBITDA** | **$370.2** | **$321.0** |
| **EBITDA excluding special items** | **$370.6** | **$321.8** |

### Market Risk and Risk Management Policies

PCA is exposed to the impact of interest rate changes and changes in the market value of its financial instruments. We periodically enter into derivatives to minimize these risks, but not for trading purposes. We were not a party to any derivatives-based arrangements at March 31, 2019. For a discussion of derivatives and hedging activities, see Note 14, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2018 Annual Report on Form 10-K.

At March 31, 2019, interest rates on 100% of PCA’s outstanding debt are fixed.

### Off-Balance-Sheet Activities

The Company does not have any off-balance sheet arrangements as of March 31, 2019.

### Environmental Matters

There have been no material changes to the disclosure set forth in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters” filed with our 2018 Annual Report on Form 10-K.

### Critical Accounting Policies and Estimates

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

PCA has included in its 2018 Annual Report on Form 10-K a discussion of its critical accounting policies and estimates which require management’s most difficult, subjective, or complex judgments used in the preparation of its consolidated financial statements. PCA has not had any changes to these critical accounting estimates during the first three months of 2019.

### New and Recently Adopted Accounting Standards

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

### Forward-Looking Statements

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

- the impact of general economic conditions;
- the impact of acquired businesses and risks and uncertainties regarding operation, expected benefits and integration of such businesses;
- containerboard, corrugated products, and white paper general industry conditions, including competition, product demand, product pricing, and input costs;
- fluctuations in wood fiber and recycled fiber costs;
- fluctuations in purchased energy costs;
- the possibility of unplanned outages or interruptions at our principal facilities;
- legislative or regulatory actions or requirements, particularly concerning environmental or tax matters.

Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do occur, what impact they will have on our results of operations or financial condition. Given these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof. For a discussion of other factors, risks and uncertainties that may affect our business, see Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2018.

## 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, 2,002 characters.

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

Prior to filing this report, PCA completed an evaluation under the supervision and with the participation of PCA’s management, including PCA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of PCA’s disclosure controls and procedures as of March 31, 2019. The evaluation of PCA’s disclosure controls and procedures included a review of the controls’ objectives and design, PCA’s implementation of the controls, and the effect of the controls on the information generated for use in this report. Based on this evaluation, PCA’s Chief Executive Officer and Chief Financial Officer concluded that PCA’s disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2019.

### Changes in Internal Control over Financial Reporting

The Company implemented technology, processes, and controls related to the recording of right-of-use assets and lease liabilities in connection with the adoption of ASC 842, *Leases*, as described in Notes 2 and 3 in this Quarterly Report on Form 10-Q. Otherwise, there were no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### PART II

### OTHER INFORMATION

## Risk factors

As filed, 172 characters.

There have been no material changes to the risk factors disclosed in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018.

Filed May 8, 2019.
Source: SEC EDGAR, the filing index for accession 0001564590-19-016920. Last ingested by Listed: Nov 5, 2026, 13:32 ET. No prices; not investment advice.