PACKAGING CORP OF AMERICA

Year Ended December 31, 2023, Compared with Year Ended December 31, 2022

The historical results of operations of PCA for the years ended December 31, 2023 and 2022 are set forth below (dollars in millions):

(a)

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

Net Sales

Net sales decreased $676 million, or (8.0%), to $7,802 million in 2023, compared to $8,478 million in 2022.

Packaging. Net sales decreased $645 million, or (8.3%), to $7,136 million, compared to $7,781 million in 2022, due to lower prices and mix ($397 million) and lower volumes ($248 million). In 2023, our domestic containerboard prices decreased (10.5%) and export prices decreased (29.7%) compared to 2022. Our containerboard outside shipments decreased (1.1%), and total corrugated products shipments were down (4.6%) in total and (4.3%) per workday, compared to 2022.

Paper. Net sales decreased $27 million, or (4.3%), to $595 million, compared to $622 million in 2022. The decrease was due to lower volume ($65 million), partially offset by higher prices and mix ($38 million).

Gross Profit

Gross profit decreased $392 million in 2023, compared to 2022. The decrease was driven primarily by lower prices and mix in our Packaging segment, and lower volumes in our Packaging and Paper segments, partially offset by higher prices and mix in our Paper segment, lower operating and converting costs, and lower annual outage expense. In 2023, gross profit included $15 million of special items expense related to Jackson mill conversion-related activities and corrugated facility closure and other costs, compared to $7 million of special items expense related to Jackson mill conversion-related activities, corrugated facility closure and other costs, and income related to acquisition and integration-related activities in 2022.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (SG&A) decreased $28 million in 2023 compared to 2022. The decrease was primarily due to lower employee-related expenses, outside services, and bad debt expense.

Other Expense, Net

Other expense, net for the years ended December 31, 2023 and 2022 are set forth below (dollars in millions):

We discuss these items in more detail in Note 6, Other Expense, Net of the Condensed Notes to the Consolidated Financial Statements in “Part II, Item 8. Financial Statements” of this Form 10-K.

Income from Operations

Income from operations decreased $346 million, or (24.3%), for the year ended December 31, 2023, compared to 2022. Income from operations in 2023 included $25 million of expense for special items compared to $14 million in 2022. Special items in 2023 included $14 million of expense related to corrugated facility closure and other costs and $11 million for Jackson mill conversion-related activities. Special items in 2022 consisted of $14 million of expense for Jackson mill conversion-related activities, $1 million of corrugated facility closure and other costs, and $1 million of income related to acquisition and integration-related activities.

Packaging. Segment income from operations decreased $349 million to $1,074 million, compared to $1,424 million in 2022. The decrease in 2023 related primarily to lower containerboard and corrugated products prices and mix ($373 million), lower sales and production volumes ($123 million), higher depreciation expense ($47 million), and higher freight expense ($14 million), partially offset by lower operating and converting costs ($163 million), lower annual outage expense ($36 million), and other costs ($18 million). Special items in 2023 included $14 million of expense for corrugated facility closure and other costs. Special items in 2022 included $5 million of expense for Jackson mill conversion-related activities, corrugated facility closure and other costs, and income related to acquisition and integration-related activities.

Paper. Segment income from operations increased $16 million to $119 million, compared to $103 million in 2022. The increase, excluding special items, primarily related to higher paper prices and mix ($40 million), lower freight expense ($14 million), and lower other costs ($2 million), partially offset by lower sales and production volumes ($23 million), higher operating costs ($13 million), and higher annual outage expense ($1 million). Special items in 2023 included $11 million of expense for Jackson mill conversion-related activities. Special items in 2022 included $9 million of expense for Jackson mill conversion-related activities.

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

During 2023, non-operating pension expense increased $22 million compared to 2022. The increase in non-operating pension expense was related to unfavorable 2022 asset performance, partially offset by favorable assumption changes.

Interest expense, net, during 2023 decreased $17 million compared to 2022. The decrease in interest expense, net in 2023 was primarily due to higher interest income due to higher rates on invested cash balances compared to 2022.

During 2023, we recorded $249 million of income tax expense, compared to $335 million of income tax expense during 2022. The effective tax rate for both 2023 and 2022 was 24.5%.