PACKAGING CORP OF AMERICA

Sources and Uses of Cash

Our primary sources of liquidity are net cash provided by operating activities and available borrowing capacity under our revolving credit facility. We ended the year with $648 million of cash and cash equivalents, $558 million of marketable debt securities, and $323 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. On November 30, 2023, we issued $400 million of 5.70% senior notes due 2033 through a registered public offering and invested the net proceeds received from this issuance in time deposits, which are included in marketable debt securities. We intend to use the net proceeds from this issuance, together with a portion of cash on hand, to redeem, repurchase, or otherwise repay at or prior to maturity our outstanding 3.65% senior notes due 2024, which mature on September 15, 2024. See Note 10, Debt, of the Consolidated Financial Statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K as well as information provided below under “—Investing Activities” and “—Financing Activities” for further information.

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):

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 other 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 2023, net cash provided by operating activities was $1,315 million, compared to $1,495 million for 2022, a decrease of $180 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $258 million, primarily due to lower income from operations in 2023 as discussed above. Cash increased by $78 million due to changes in operating assets and liabilities, primarily due to the following:

a)

a net favorable change in income taxes due to lower tax payments during 2023 compared to 2022;

b)

a net favorable change in inventories in 2023 compared to 2022 due to a smaller increase in Packaging segment inventory levels in 2023, primarily in raw materials and finished goods, partially offset by an increase in Paper segment inventory levels due to softening demand during 2023; and

c)

a net favorable change in accounts payable in 2023 compared to 2022 primarily related to higher production volumes during the last quarter of 2023 compared to 2022.

These favorable changes were partially offset by:

a)

a net unfavorable change in accounts receivable levels in 2023 compared to 2022 due to higher sales and production volumes in the Packaging segment during the latter portion of 2023, partially offset by lower pricing in the Packaging segment in 2023; and

b)

a net unfavorable change in accrued liabilities in 2023 compared to 2022 primarily related to lower accruals for employee compensation and benefit liabilities and a decrease in customer rebates related to the timing of payments and lower sales volumes in 2023.

Investing Activities

We used $875 million for investing activities in 2023, compared to $834 million in 2022. In 2023, we spent $470 million for internal capital investments, compared to $824 million in 2022. Additionally, in November 2023, we invested the net proceeds received from the issuance of our $400 million of 5.70% senior notes due 2033 in time deposits, which are included in marketable debt securities.

The details of capital expenditures for property and equipment, excluding acquisitions, by segment for the years ended December 31, 2023 and 2022 are included in the table below (dollars in millions).

We expect capital investments in 2024 to be between $470 million and $490 million. 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 $15 million in 2024. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations. For additional information, see “Environmental Matters” in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Financing Activities

In 2023, net cash used for financing activities was $112 million, compared to $960 million of cash used for financing activities in 2022, a decrease of $848 million. We paid $449 million in dividends on our common stock in 2023, compared to $420 million paid in 2022. We repurchased and retired 0.3 million shares of the Company's common stock for $42 million in 2023, compared to repurchases of 4.0 million shares for $523 million in 2022.

In November 2023, we issued $400 million of 5.70% senior notes due 2033 through a registered public offering. The Company paid $4 million of debt issuance costs associated with the new notes, of which $3 million was funded using the net proceeds received from the issuance of new notes and $1 million was funded using cash on hand. The net proceeds received from the issuance of the new notes were invested in time deposits. We intend to use the net proceeds from this issuance, together with a portion of cash on hand, to redeem, repurchase, or otherwise repay at or prior to maturity our outstanding 3.65% senior notes due 2024, which mature on September 15, 2024.

See Note 10, Debt, of the Consolidated Financial Statements included in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K for more information on our debt.