PACKAGING CORP OF AMERICA

Year Ended December 31, 2024, Compared with Year Ended December 31, 2023

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

(a)

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

Net Sales

Net sales increased $581 million, or 7.4%, to $8,383 million in 2024, compared to $7,802 million in 2023.

Packaging. Net sales increased $555 million, or 7.8%, to $7,691 million, compared to $7,136 million in 2023, due to higher volumes ($735 million), partially offset by lower prices and mix ($180 million). In 2024, our domestic containerboard prices increased 3.7% and export prices decreased (2.2%) compared to 2023. Our containerboard outside shipments increased 16.1%, and total corrugated products shipments were up 10.5% in total and 10.1% per workday, compared to 2023.

Paper. Net sales increased $29 million, or 4.9%, to $625 million, compared to $595 million in 2023. The increase was due to higher volume ($49 million), partially offset by lower prices and mix ($19 million).

Gross Profit

Gross profit increased $84 million in 2024, compared to 2023. The increase was driven primarily by higher volumes, and lower freight and logistic expenses, partially offset by lower containerboard and corrugated products prices and mix, higher operating and converting costs and higher annual outage expense. In 2024, gross profit included $3 million of special items expense related to Jackson mill conversion-related activities and corrugated facility closure and other costs, compared to $15 million of special items expense related to Jackson mill conversion-related activities and corrugated facility closure and other costs in 2023.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (SG&A) increased $29 million in 2024 compared to 2023. The increase was primarily due to higher employee-related expenses and bad debt expense.

Other Expense, Net

Other expense, net for the years ended December 31, 2024 and 2023 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 increased $26 million, or 2.4%, for the year ended December 31, 2024, compared to 2023. Income from operations in 2024 included $12 million of expense for special items compared to $25 million in 2023. Special items in 2024 included $10 million for Jackson mill conversion-related activities and $2 million of expense related to corrugated facility closure and other costs. 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.

Packaging. Segment operating income increased $28 million to $1,102 million, compared to $1,074 million in 2023. The increase, excluding special items, related primarily to higher sales and production volumes ($377 million) and lower freight expense ($30 million), partially offset by lower containerboard and corrugated products prices and mix ($211 million), higher operating and converting costs ($121 million), higher depreciation expense ($22 million), higher annual outage expense ($13 million), and other costs ($20 million). Special items in 2024 included $4 million of expense for Jackson mill conversion-related activities and $2 million of expense for corrugated facility closure and other costs. Special items in 2023 included $14 million of expense for corrugated facility closure and other costs.

Paper. Segment operating income increased $11 million to $130 million, compared to $119 million in 2023. The increase, excluding special items, primarily related to higher sales and production volumes ($22 million), lower depreciation expense ($3 million), and lower operating costs ($2 million), partially offset by lower paper prices and mix ($19 million) and higher freight expense ($1 million). Special items in 2024 included $6 million of expense for Jackson mill conversion-related activities. Special items in 2023 included $11 million of expense for Jackson mill conversion-related activities.

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

During 2024, non-operating pension income increased $12 million compared to 2023. The increase in non-operating pension income was related to favorable 2023 asset performance and favorable assumption changes.

Interest expense, net, during 2024 decreased $12 million compared to 2023. The decrease in interest expense, net in 2024 was primarily due to higher interest income 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 2024, we recorded $259 million of income tax expense, compared to $249 million of income tax expense during 2023. The effective tax rate for 2024 and 2023 was 24.4% and 24.5%, respectively. The lower effective tax rate for 2024 was primarily due to higher excess tax benefits associated with employee restricted stock and performance unit vests partially offset by higher nondeductible employee remuneration paid to covered employees.