What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-08 · 172 added, 94 removed, 171 unchanged (61% of the section changed)

15 unchanged sentences

Executive Summary

First quarter net sales were $2.0 billion in both 2024 and 2023.

We reported $147 million of net income, or $1.63 per diluted share, during the first quarter of 2024, compared to $190 million, or $2.11 per diluted share, during the same period in 2023.

Net income included $8 million of expense for special items in both the first quarter of 2024 and the first quarter of 2023 (discussed below).

Excluding special items, net income was $155 million, or $1.72 per diluted share, during the first quarter of 2024, compared to $198 million, or $2.20 per diluted share, in the first quarter of 2023.

The decrease in net income was driven primarily by lower prices and mix in the Packaging and Paper segments, higher scheduled mill outage expenses, higher depreciation, higher expenses related to corrugated plant capital projects, and other expenses.

These items were partially offset by higher volume in the Packaging and Paper segments, lower operating and converting costs, lower freight and logistics expenses, lower interest expense, and a lower tax rate.

Second quarter net sales were $2.08 billion in 2024 and $1.95 billion in 2023.

We reported $199 million of net income, or $2.21 per diluted share, during the second quarter of 2024, compared to $203 million, or $2.24 per diluted share, during the same period in 2023.

Net income included an insignificant amount for special items in the second quarter of 2024, compared to $6 million of expense for special items in 2023 (discussed below).

Excluding special items, net income was $199 million, or $2.20 per diluted share, during the second quarter of 2024, compared to $209 million, or $2.31 per diluted share, in the second quarter of 2023.

The decrease in net income was driven primarily by lower prices and mix in the Packaging segment and Paper segment, higher operating costs, higher depreciation expense, and a higher tax rate.

These items were partially offset by higher volume in the Packaging segment and Paper segment, lower other converting costs, lower freight and logistics expenses, and lower interest expense.

For additional detail on special items included in reported GAAP results, as well as segment income (loss) excluding special items, earnings before non-operating pension income (expense), interest, income taxes, and depreciation, amortization, and depletion (“EBITDA”), and EBITDA excluding special items, see “Item 2.

Reconciliations of Non-GAAP Financial Measures to Reported Amounts.”

Packaging segment income from operations was $204 million in the first quarter of 2024, compared to $268 million in the first quarter of 2023.

Packaging segment EBITDA excluding special items was $326 million in the first quarter of 2024 compared to $392 million in the first quarter of 2023.

The decrease was due to lower prices and mix, higher scheduled mill outage expenses, higher expenses related to corrugated plant capital projects, and other expenses, partially offset by higher sales and production volumes, lower operating and converting costs, and lower freight and logistics expense.

Our demand remained strong as corrugated products shipments increased 11.0% per workday compared to the first quarter of 2023.

We began to implement price increases on our containerboard and corrugated products during the quarter.

Throughout our mills and corrugated products facilities, operational benefits were achieved through emphasis on cost management and process efficiencies.

Paper segment income from operations was $30 million in the first quarter of 2024, compared to $34 million in the first quarter of 2023.

Paper segment EBITDA excluding special items was $41 million in the first quarter of 2024 and in the first quarter of 2023.

Higher sales volumes, lower operating costs, and lower freight and logistics expense were offset by lower prices and mix.

We experienced increased demand from both existing customers as well as incremental volume from some new customers acquired towards the end of 2023.

Packaging segment income from operations was $280 million in the second quarter of 2024, compared to $286 million in the second quarter of 2023.

Packaging segment EBITDA excluding special items was $400 million in the second quarter of 2024 compared to $405 million in the second quarter of 2023.

The decrease was due to lower prices and mix, higher operating and other costs, partially offset by higher sales and production volumes, lower scheduled mill outage expenses, lower other converting costs, and lower freight and logistics expense.

Strong market conditions continued in the second quarter.

This drove a new all-time containerboard production record of 1.3 million tons in order to service corrugated products and containerboard demand which grew stronger each month.

Corrugated products shipments per day were up 9.2% compared to the second quarter of 2023.

Prices and mix moved higher from first quarter levels as we continued to implement price increases that were communicated to customers in the first and second quarters of 2024.

Paper segment income from operations was $27 million in the second quarter of 2024, compared to $29 million in the second quarter of 2023.

Paper segment EBITDA excluding special items was $31 million in the second quarter of 2024, compared to $39 million in the second quarter of 2023.

The decrease was due to lower prices and mix and higher scheduled mill outage expenses, partially offset by higher sales and production volumes and lower operating costs.

Packaging segment income from operations was $484 million in the first six months of 2024, compared to $554 million in the same period in 2023.

Packaging segment EBITDA excluding special items was $726 million in the first six months of 2024 compared to $797 million in the first six months of 2023.

The decrease in EBITDA excluding special items was due primarily to lower prices and mix, higher operating costs, higher expenses related to corrugated plant capital projects and other costs, and higher scheduled outage expenses, partially offset by higher sales and production volumes, lower other converting costs, and lower freight and logistics expenses.

Paper segment income from operations was $56 million in the first six months of 2024, compared to $63 million in the first six months of 2023.

Paper segment EBITDA excluding special items was $71 million in the first six months of 2024, compared to $80 million in the same period in 2023.

The decrease in EBITDA excluding special items was due to lower prices and mix and higher scheduled mill outage expenses, partially offset by higher sales and production volumes, lower operating costs, and lower freight and logistic expenses.

Special Items and Earnings per Diluted Share, Excluding Special Items

A reconciliation of reported earnings per diluted share to earnings per diluted share, excluding special items, for the three months ended March 31, 2024 and 2023 is as follows:

A reconciliation of reported earnings per diluted share to earnings per diluted share, excluding special items, for the three and six months ended June 30, 2024 and 2023 is as follows:

Three Months Ended

Six Months Ended

Earnings per diluted share, as reported

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Earnings per diluted share, excluding special items

(a) For the three months ended March 31, 2024 and 2023, includes $10.4 million and $1.2 million, respectively, of charges related to the announced discontinuation of production of UFS paper grades on the No.

(a) For the three and six months ended June 30, 2024, includes $0.6 million of income and $9.7 million of charges, respectively, related to the announced discontinuation of production of UFS paper grades on the No.

3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.

(b) For the three months ended March 31, 2024, includes $0.1 million of income primarily related to a favorable lease buyout for a closed corrugated products facility, partially offset by closure costs related to corrugated products facilities and design centers.

For the three months ended March 31, 2023, includes $9.7 million of closure costs related to corrugated products facilities and design centers.

For the three and six months ended June 30, 2023, these amounts were $4.4 million and $5.7 million, respectively.

(b) For the three months ended June 30, 2024, includes $0.1 million of charges consisting of closure costs related to corrugated products facilities.

For the six months ended June 30, 2024, these charges were completely offset by $0.1 million of income primarily related to a favorable lease buyout for a closed corrugated products facility during the first quarter of 2024.

For the three and six months ended June 30, 2023, includes $3.9 million and $13.6 million, respectively, of closure costs related to corrugated products facilities and design centers.

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.

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Industry and Business Conditions

Trade publications reported North American industry-wide corrugated products shipments were down (1.1%) in total and up 0.5% per workday with one less shipping day during the first quarter of 2024 compared to the same quarter of 2023.

Reported industry containerboard production increased 7.1% compared to the first quarter of 2023.

Reported industry containerboard inventories at the end of the first quarter of 2024 were approximately 2.8 million tons, up 3.1% compared to the same period in 2023.

Reported containerboard export shipments were up 38.7% compared to the first quarter of 2023.

In February 2024, index prices increased $40 per ton for linerboard and $60 per ton for corrugating medium.

Trade publications reported North American industry-wide corrugated products shipments were up 1.1% in total and down (0.5%) per workday with one additional shipping day during the second quarter of 2024 compared to the same quarter of 2023.

Reported industry containerboard production increased 7.5% compared to the second quarter of 2023.

Reported industry containerboard inventories at the end of the second quarter of 2024 were approximately 2.7 million tons, up 1.6% compared to the same period in 2023.

Reported containerboard export shipments were up 39.5% compared to the second quarter of 2023.

In February 2024, index prices increased $40 per ton for linerboard and $60 per ton for corrugating medium, followed by an additional increase in June 2024 of $40 per ton for linerboard and corrugating medium.

The market for communication papers competes heavily with electronic data transmission and document storage alternatives.

Increasing shifts to these alternatives have reduced usage of traditional print media and communication papers.

Trade publications reported North American UFS paper shipments were down (1.1%) in the first quarter of 2024 compared to the same quarter of 2023.

Average prices reported by a trade publication for cut size office papers were lower by $90 per ton, or (6.0%) in the first quarter of 2024, compared to the first quarter of 2023.

In January 2024, index prices declined $40 per ton for cut size office papers and $20 per ton for offset printing papers.

Looking ahead into the second quarter, in our Packaging segment we expect continued strong demand and higher corrugated products and containerboard shipments.

Prices and mix will move higher due to our announced price increases and the increase in published domestic index prices, as well as higher export prices.

Orders in our Paper segment are expected to remain strong however, volume will be lower due to a scheduled maintenance outage at our International Falls, MN mill during the quarter.

Although we are implementing our recently announced paper price increases, average prices and mix are expected to be slightly lower due to the published decrease in index prices earlier this year and how that impacts contract triggers with certain customers.

Operating and converting costs should be slightly lower primarily due to the sequential improvement in seasonal weather and wage and benefit timing expenses that we incurred in the first quarter, and scheduled maintenance outage expenses will be lower.

Rail rate increases at six of our mills during the first and second quarters will result in higher freight and logistics expenses, and depreciation expense will be higher.

Finally, our tax rate will be sequentially higher due to the tax-related benefit of share-based compensation vests in the first quarter.

Considering these items, we expect second quarter earnings to be higher than the first quarter.

Trade publications reported North American UFS paper shipments were down (2.7%) in the second quarter of 2024 compared to the same quarter of 2023.

Average prices reported by a trade publication for cut size office papers were higher by $33 per ton, or 2.4% in the second quarter of 2024, compared to the first quarter of 2024, and lower by $40 per ton, or (2.7%), compared to the second quarter of 2023.

In January 2024, index prices declined $40 per ton for cut size office papers and $20 per ton for offset printing papers, followed by $20 per ton price increases in April and May 2024 for both cut size office papers and offset printing papers.

Looking ahead into the third quarter, we expect prices and mix in both our Packaging and Paper segments to improve as we continue to implement price increases previously communicated to customers along with higher containerboard export prices.

Although there is one less shipping day for the corrugated business, we expect shipments-per-day to continue to strengthen, potentially setting a new third quarter record, and higher containerboard volume.

With containerboard inventory below our target levels, we will attempt to build some inventory ahead of the scheduled maintenance outage at our Deridder mill in October.

Paper volume is expected to be slightly lower primarily due to the timing of the back-to-school business received in the second quarter.

Operating and converting costs should be higher primarily due to seasonal electricity usage and prices and slightly higher recycled fiber costs, with scheduled outage expenses expected to be slightly lower.

Considering these items, we expect third quarter earnings to be higher than second quarter earnings.

Results of Operations

Three Months Ended March 31, 2024, compared to Three Months Ended March 31, 2023

The historical results of operations of PCA for the three months ended March 31, 2024 and 2023 are set forth below (dollars in millions):

Three Months Ended June 30, 2024, compared to Three Months Ended June 30, 2023

The historical results of operations of PCA for the three months ended June 30, 2024 and 2023 are set forth below (dollars in millions):

Three Months Ended

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(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 increased $3 million, or 0.1%, to $1,979 million during the three months ended March 31, 2024, compared to $1,976 million during the same period in 2023.

Net sales decreased $10 million, or (0.5%), to $1,799 million, compared to $1,809 million in the first quarter of 2023 due to lower containerboard and corrugated products prices and mix ($168 million), partially offset by higher volume ($158 million).

In the first quarter of 2024, export and domestic containerboard outside shipments increased 22.1% compared to the first quarter of 2023.

Our total corrugated products shipments were up 9.2% in total and up 11.0% per workday, with one less shipping day, compared to the same period in 2023.

In the first quarter of 2024, our domestic containerboard prices were (1.7%) lower, while export prices were (25.6%) lower, than the same period in 2023.

Net sales increased $13 million, or 8.5%, to $164 million, compared to $151 million in the first quarter of 2023, due to higher volume ($23 million), partially offset by lower prices and mix ($10 million).

Gross profit decreased $61 million during the three months ended March 31, 2024, compared to the same period in 2023.

The decrease was driven primarily by lower prices and mix in the Packaging and Paper segments, higher scheduled mill outage expenses, higher depreciation, higher expenses related to corrugated plant capital projects, and other expenses, partially offset by higher volume in the Packaging and Paper segments, lower operating and converting costs, and lower freight and logistics expenses.

In the three months ended March 31, 2024, gross profit included $2 million of special items related to Jackson mill conversion-related activities.

In the three months ended March 31, 2023, gross profit included $6 million of special items primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities.

Net sales increased $123 million, or 6.3%, to $2,075 million during the three months ended June 30, 2024, compared to $1,952 million during the same period in 2023.

Net sales increased $118 million, or 6.6%, to $1,908 million, compared to $1,790 million in the second quarter of 2023 due to higher volume ($199 million), partially offset by lower containerboard and corrugated products prices and mix ($81 million).

In the second quarter of 2024, export and domestic containerboard outside shipments increased 19.9% compared to the second quarter of 2023.

Our total corrugated products shipments were up 10.9% in total and up 9.2% per workday, with one additional shipping day compared to the same period in 2023.

In the second quarter of 2024, our domestic containerboard prices were (0.1%) lower, while export prices were (6.0%) lower, than the same period in 2023.

Net sales increased $7 million, or 5.1%, to $150 million, compared to $143 million in the second quarter of 2023, due to higher volume ($16 million), partially offset by lower prices and mix ($9 million).

Gross profit decreased $7 million during the three months ended June 30, 2024, compared to the same period in 2023.

The decrease was driven primarily by lower prices and mix in the Packaging segment and Paper segment, higher operating costs, and higher depreciation expense, partially offset by higher volume in the Packaging segment and Paper segment, lower other converting costs, and lower freight and logistics expenses .

In the three months ended June 30, 2024, gross profit included no special items.

In the three months ended June 30, 2023, gross profit included $3 million of special items for charges primarily related to Jackson mill conversion-related activities and closure costs related to corrugated products facilities.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) increased $4 million during the three months ended March 31, 2024, compared to the same period in 2023.

The increase was primarily due to bad debt expense.

Selling, general, and administrative expenses (“SG&A”) increased $4 million during the three months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily due to higher employee-related expenses.

Other Income (Expense), Net

Other income (expense), net, for the three months ended March 31, 2024 and 2023 are set forth below (dollars in millions):

Other income (expense), net, for the three months ended June 30, 2024 and 2023 are set forth below (dollars in millions):

Three Months Ended

Asset disposals and write-offs

Jackson mill conversion-related activities

Facilities closure and other costs

DeRidder litigation

DeRidder litigation insurance recovery

We discuss these items in more detail in Note 5, Other Income (Expense), Net, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in “Part I, Item 1.

Financial Statements” of this Form 10-Q.

Income from Operations

Income from operations decreased $8 million, or (3.0%), during the three months ended June 30, 2024, compared to the same period in 2023.

The second quarter of 2024 included an insignificant amount of special items, compared to $8 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities in the second quarter of 2023.

Packaging segment income from operations decreased $6 million to $280 million, compared to $286 million during the three months ended June 30, 2023.

The decrease related primarily to lower containerboard and corrugated products prices and mix ($103 million), higher operating costs ($41 million), higher depreciation expense ($5 million) and other costs ($2 million), partially offset by higher sales and production volumes ($114 million), lower annual outage expenses ($10 million), lower other converting costs ($9 million), and lower freight expenses ($8 million).

There was an insignificant amount of special items in the Packaging segment during the second quarter of 2024, compared to $4 million of expense primarily related to closure costs related to corrugated products facilities in the second quarter of 2023.

Paper segment income from operations decreased $2 million to $27 million, compared to $29 million during the three months ended June 30, 2023.

The decrease primarily related to lower prices and mix ($9 million) and higher annual outage expenses ($9 million), partially offset by higher sales and production volumes ($8 million), lower operating costs ($2 million), and lower depreciation expense ($1 million).

There was an insignificant amount of special items in the Paper segment during the second quarter of 2024, compared to $4 million of expense for Jackson mill conversion-related activities in the second quarter of 2023.

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

Non-operating pension income increased $3 million during the three months ended June 30, 2024, compared to the same period in 2023.

The increase in non-operating pension income was related to favorable 2023 asset performance and favorable assumption changes.

Interest expense, net for the three months ended June 30, 2024 decreased $4 million when compared to the same period in 2023.

The decrease in interest expense, net was primarily due to higher interest income on invested cash in 2024 due to higher rates and higher cash balances.

During the three months ended June 30, 2024, we recorded $68 million of income tax expense, compared to $65 million of expense during the three months ended June 30, 2023.

The effective tax rate for the three months ended June 30, 2024 and 2023 was 25.4% and 24.3%, respectively.

The increase in our effective tax rate for the three months ended June 30, 2024 compared to the same period in 2023 was primarily due to lower excess tax benefits associated with employee restricted stock and performance unit vests as well as lower favorable state tax law changes .

Six Months Ended June 30, 2024, compared to Six Months Ended June 30, 2023

The historical results of operations of PCA for the six months ended June 30, 2024 and 2023 are set forth below (dollars in millions):

Six Months Ended

Corporate and Other

Intersegment eliminations

Corporate and Other

Income from operations

Non-operating pension income (expense)

Interest expense, net

Income before taxes

Income tax provision

Non-GAAP Measures (a)

Net income excluding special items

Consolidated EBITDA

Consolidated EBITDA excluding special items

Packaging EBITDA

Packaging EBITDA excluding special items

Paper EBITDA excluding special items

(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 increased $126 million, or 3.2%, to $4,055 million during the six months ended June 30, 2024, compared to $3,928 million during the same period in 2023.

Net sales increased $108 million, or 3.0%, to $3,707 million, compared to $3,599 million in the six months ended June 30, 2023, due to higher containerboard and corrugated products volume ($357 million), partially offset by lower containerboard and corrugated products prices and mix ($249 million).

In the first six months of 2024, export and domestic containerboard outside shipments increased 20.9% compared to the first six months of 2023.

Total corrugated products shipments were up 10.1% in total and per workday compared to the same period in 2023.

In the first six months of 2024, our domestic containerboard prices were (0.9%) lower, while export prices were (15.9%) lower, than the same period in 2023.

Net sales during the six months ended June 30, 2024 increased $20 million, or 6.9%, to $314 million, compared to $294 million in the six months ended June 30, 2023, due to higher volume ($39 million), partially offset by lower prices and mix ($19 million).

Gross profit decreased $68 million during the six months ended June 30, 2024, compared to the same period in 2023.

The decrease was driven primarily by lower prices and mix in the Packaging and Paper segments, higher operating costs, higher scheduled outage expenses, higher depreciation expense, and other costs, partially offset by higher volumes in the Packaging and Paper segments, lower other converting costs, and lower fright and logistic expenses.

In the six months ended June 30, 2024, gross profit included $2 million of special items expense related to Jackson mill conversion-related activities.

In the six months ended June 30, 2023, gross profit included $10 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) increased $7 million during the six months ended June 30, 2024, compared to the same period in 2023.

The increase was primarily due to higher bad debt expense and employee-related expenses.

Other Income (Expense), Net

Other income (expense), net, for the six months ended June 30, 2024 and 2023 are set forth below (dollars in millions):

Six Months Ended

Asset disposals and write-offs

Jackson mill conversion-related activities

Facilities closure and other income (costs)

DeRidder litigation

DeRidder litigation insurance recovery

Facilities closure and other costs

We discuss these items in more detail in Note 5, Other Income (Expense), Net, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in “Part I, Item 1.

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Income from Operations

Income from operations decreased $75 million, or (27.6%), during the three months ended March 31, 2024, compared to the same period in 2023.

The first quarter of 2024 included $10 million of special items expense primarily related to Jackson mill conversion-related activities, compared to $11 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities in the first quarter of 2023.

Packaging segment income from operations decreased $64 million to $204 million, compared to $268 million during the three months ended March 31, 2023.

The decrease related primarily to lower containerboard and corrugated products prices and mix ($158 million), higher annual outage expenses ($12 million), higher expenses related to corrugated plant capital projects other costs ($6 million), and higher depreciation expense ($4 million), partially offset by higher sales and production volumes ($87 million), lower operating and converting costs ($20 million), and lower freight expenses ($3 million).

Special items during the first quarter of 2024 included $4 million of expense primarily related to Jackson mill conversion-related activities, compared to $9 million of expense primarily related to closure costs related to corrugated products facilities in the first quarter of 2023.

Paper segment income from operations decreased $4 million to $30 million, compared to $34 million during the three months ended March 31, 2023.

The decrease primarily related to lower prices and mix ($10 million), partially offset by higher sales and production volumes ($6 million), lower operating costs ($3 million) and lower freight expenses ($1 million).

Special items during the first quarter of 2024 and 2023 included $6 million and $1 million, respectively, of expense for Jackson mill conversion-related activities.

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

Non-operating pension income increased $3 million during the three months ended March 31, 2024, compared to the same period in 2023.

Income from operations decreased $83 million, or (15.0%), during the six months ended June 30, 2024, compared to the same period in 2023.

The first six months of 2024 included $10 million of special items expense primarily related to Jackson mill conversion-related costs, compared to $19 million of special items expense primarily related to corrugated facility closure costs and Jackson mill conversion-related costs in the same period in 2023.

Packaging segment income from operations decreased $70 million to $484 million during the first six months of 2024, compared to the same period last year.

The decrease related primarily to lower containerboard and corrugated products prices and mix ($261 million), higher operating costs ($30 million), higher depreciation expense ($9 million), higher expenses related to corrugated plant capital projects and other costs ($8 million), and higher annual outage expenses ($2 million), partially offset by higher sales and production volumes ($201 million), lower other converting costs ($18 million), and lower freight expenses ($11 million).

Special items during the first six months of 2024 included $4 million of expense related to Jackson mill conversion-related activities, compared to $13 million of expense related to corrugated facility closure costs in the same period in 2023.

Paper segment income from operations decreased $7 million to $56 million, compared to the six months ended June 30, 2023.

The decrease primarily related to lower prices and mix ($19 million), and higher annual outage expenses ($9 million), partially offset by higher sales and production volumes ($14 million), lower operating costs ($5 million), lower depreciation ($2 million), and lower freight expenses ($1 million).

For both the six month periods ended June 30, 2024 and 2023, special items included $6 million of expense related to Jackson mill conversion-related activities.

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

Non-operating pension income increased $6 million during the six months ended June 30, 2024, compared to the same period in 2023.

The increase in non-operating pension income was related to favorable 2023 asset performance and favorable assumption changes.

Interest expense, net for the three months ended March 31, 2024 decreased $6 million when compared to the same period in 2023.

The decrease in interest expense, net was primarily due to higher interest income in 2024 due to higher rates on invested cash balances, partially offset by higher interest expense in 2024 related to the Company's November 2023 debt refinancing.

During the three months ended March 31, 2024, we recorded $41 million of income tax expense, compared to $63 million of expense during the three months ended March 31, 2023.

The effective tax rate for the three months ended March 31, 2024 and 2023 was 21.6% and 24.9%, respectively.

The decrease in our effective tax rate for the three months ended March 31, 2024 compared to the same period in 2023 was primarily due to higher excess tax benefits associated with employee restricted stock and performance unit vests.

Interest expense, net decreased $10 million during the six months ended June 30, 2024, compared to the same period in 2023.

The decrease in interest expense, net was primarily due to higher interest income on invested cash in 2024 due to higher rates and higher cash balances.

During the six months ended June 30, 2024, we recorded $108 million of income tax expense, compared to $128 million of expense during the six months ended June 30, 2023.

The effective tax rate for the six months ended June 30, 2024 and 2023 was 23.9% and 24.6%, respectively.

The decrease in our effective tax rate for the six months ended June 30, 2024 compared to the same period in 2023 was primarily due to higher excess tax benefits associated with employee restricted stock and performance unit vests.

Liquidity and Capital Resources

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Our primary sources of liquidity are net cash provided by operating activities and available borrowing capacity under our revolving credit facility.

At March 31, 2024, we had $692 million of cash and cash equivalents, $561 million of marketable debt securities, and $323 million of unused borrowing capacity under the revolving credit facility, net of letters of credit.

At June 30, 2024, we had $614 million of cash and cash equivalents, $559 million of marketable debt securities, and $323 million of unused borrowing capacity under the revolving credit facility, net of letters of credit.

Currently, our primary uses of cash are for operations, capital expenditures, acquisitions, debt service, common stock dividends, and repurchases of common stock.

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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):

Six Months Ended

Net cash provided by (used for):

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Financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Operating Activities

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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, 2024, net cash provided by operating activities was $260 million, compared to $280 million in the same period in 2023, a decrease of $20 million.

During the six months ended June 30, 2024, net cash provided by operating activities was $539 million, compared to $640 million in the same period in 2023, a decrease of $101 million.

Cash from operations excluding changes in cash used for operating assets and liabilities decreased $36 million primarily due to lower income from operations in 2024 as discussed above.

Cash from operations increased by $13 million due to changes in operating assets and liabilities primarily due to the following:

a) a net favorable change in accrued liabilities during the first three months of 2024 compared to the same period in 2023 primarily related to the accrued liability for the DeRidder trial compensatory damages and prejudgment interest recorded in the first quarter of 2024;

b) a net favorable change in inventories during the first three months of 2024 compared to the same period in 2023 primarily due to a decrease in raw materials inventory levels in the Packaging segment and a decrease in finished goods in the Paper segment due to strong demand.

These favorable changes were partially offset by the following:

c) a net unfavorable change in prepaid expenses and other current assets during the first three months of 2024 compared to the same period in 2023 primarily due to the accrued receivable for the insurance recovery related to the DeRidder litigation recorded in the first quarter of 2024;

d) a net unfavorable change in income taxes due to a larger decrease in income tax receivables in the first quarter of 2023 compared to the first quarter of 2024;

e) a net unfavorable change in accounts receivable levels during the first three months of 2024 compared to the same period in 2023 primarily related to a larger increase in accounts receivable levels in the Paper segment in 2024 due to higher sales volumes and an increase in interest receivables in the Corporate and Other segment during the first quarter of 2024 related to accrued interest on the proceeds received from the November 2023 debt refinancing.

Cash from operations decreased by $65 million due to changes in operating assets and liabilities primarily due to the following:

a) a net unfavorable change in prepaid expenses and other current assets during the first six months of 2024 compared to the same period in 2023 primarily due to the accrued receivable for the insurance recovery related to the DeRidder litigation;

b) a net unfavorable change in accounts receivable during the first six months of 2024 compared to the same period in 2023 primarily due to an increase in accounts receivable levels for the Packaging segment in 2024 due to higher prices and sales volumes and an increase in interest receivables in the Corporate and Other segment in 2024 related to accrued interest on the proceeds received from the November 2023 debt refinancing;

c) a net unfavorable change in income taxes due to a smaller decrease of income tax receivables during the first six months of 2024 compared to the same period in 2023.

These unfavorable changes were partially offset by the following:

d) a net favorable change in accrued liabilities during the first six months of 2024 compared to the same period in 2023 primarily related to the accrued liability for the DeRidder trial compensatory damages and interest recorded during the first six months of 2024;

e) a net favorable change in accounts payable during the first six months of 2024 compared to the same period in 2023 primarily related to an increase in accounts payable levels during the first six months of 2024 due to an increase in cost of sales in 2024 and the timing of payments.

Investing Activities

We used $81 million for investing activities during the three months ended March 31, 2024 compared to $115 million during the same period in 2023.

We spent $77 million for internal capital investments during the three months ended March 31, 2024, compared to $112 million during the same period in 2023.

We used $324 million for investing activities during the six months ended June 30, 2024 compared to $242 million during the same period in 2023.

We spent $322 million for internal capital investments during the six months ended June 30, 2024, compared to $239 million during the same period in 2023.

We expect capital investments in 2024 to be between $670 million and $690 million.

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Financing Activities

During the three months ended March 31, 2024, net cash used for financing activities was $135 million, compared to $117 million of net cash used for financing activities during the same period in 2023.

We paid $112 million of dividends during the first three months of both 2024 and 2023.

In addition, we withheld shares to cover $23 million of employee restricted stock taxes during the first three months of 2024 compared to $5 million of employee restricted stock taxes withheld during the same period in 2023.

During the six months ended June 30, 2024, net cash used for financing activities was $249 million, compared to $241 million of net cash used for financing activities during the same period in 2023.

We paid $224 million of dividends during the first six months of 2024, compared to $225 million of dividends paid during the comparable period in 2023.

In addition, we withheld shares to cover $24 million of employee restricted stock taxes during the first six months of 2024 compared to $16 million of employee restricted stock taxes withheld during the same period in 2023.

In addition to the items discussed in Note 11, Debt, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Part I, Item 1.

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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, 2024 and 2023 follow (dollars in millions):

Three Months Ended March 31,

Reconciliations of the non-GAAP measures to the most comparable measure reported in accordance with GAAP for the three and six months ended June 30, 2024 and 2023 follow (dollars in millions):

Three Months Ended June 30,

As reported in accordance with GAAP

1 unchanged sentence

Jackson mill conversion-related activities (a)

Facilities closure and other (income) costs (b)

Facilities closure and other costs (b)

Total special items

Excluding special items

(a) Includes charges related to the announced discontinuation of production of UFS paper grades on the No.

Six Months Ended June 30,

As reported in accordance with GAAP

Special items:

Jackson mill conversion-related activities (a)

Facilities closure and other costs (b)

Total special items

Excluding special items

(a) Includes items related to the announced discontinuation of production of UFS paper grades on the No.

3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.

(b) For 2024, includes income primarily related to a favorable lease buyout for a closed corrugated products facility, partially offset by closure costs related to corrugated products facilities and design centers.

For 2023, includes charges consisting of closure costs related to the closure of corrugated products facilities and design centers.

(b) For the three months ended June 30, 2024, includes charges consisting of closure costs related to corrugated products facilities.

For the six months ended June 30, 2024, these charges were completely offset by income primarily related to a favorable lease buyout for a closed corrugated products facility during the first quarter of 2024.

For 2023, includes charges consisting of closure costs related to corrugated products facilities and design centers.

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

Three Months Ended

Six Months Ended

Non-operating pension (income) expense

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Jackson mill conversion-related activities

Facilities closure and other (income) costs

Facilities closure and other costs

Total special items

2 unchanged sentences

Three Months Ended

Six Months Ended

Segment income

Depreciation, amortization, and depletion

Facilities closure and other costs

Jackson mill conversion-related activities

Facilities closure and other (income) costs

EBITDA excluding special items

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To manage these risks, we may from time to time enter into transactions, including certain physical commodity transactions, that are determined to be derivatives.

As of March 31, 2024, we are party to certain physical commodity transactions related to natural gas supply contracts.

As of June 30, 2024, we are party to certain physical commodity transactions related to natural gas supply contracts.

These contracts qualify for the normal purchase normal sale ("NPNS") exception, and we have elected that exception.

1 unchanged sentence

Financial Statements and Supplementary Data” of our 2023 Annual Report on Form 10-K.

At March 31, 2024, interest rates on 100% of PCA’s outstanding debt are fixed.

At June 30, 2024, 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, 2024.

The Company does not have any off-balance sheet arrangements as of June 30, 2024.

Environmental Matters

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PCA has included in its 2023 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 2024.

PCA has not had any changes to these critical accounting estimates during the first six months of 2024.

New and Recently Adopted Accounting Standards

23 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis