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 $685 million of cash and cash equivalents, $167 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 at December 31, 2023. On September 15, 2024, the Company used the net proceeds from this issuance, together with a portion of cash on hand, to repay its outstanding 3.65% senior notes due 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 2024, net cash provided by operating activities was $1,191 million, compared to $1,315 million for 2023, a decrease of $124 million. Cash from operations excluding changes in cash used for operating assets and liabilities increased $80 million, primarily due to higher income from operations in 2024 as discussed above. Cash decreased by $204 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 in 2024 compared to 2023 primarily due to an increase in accrued receivables for the insurance recoveries related to pending litigation in 2024;

b)

a net unfavorable change in accounts receivable levels in 2024 compared to 2023 primarily due to higher sales and an increase in days sales outstanding in the Packaging segment during 2024;

c)

a net unfavorable change in inventories in 2024 compared to 2023 primarily due to an increase in Packaging segment inventory balances related to higher volume, partially offset by a favorable change in Paper segment inventory balances due to a smaller increase in Paper segment inventory balances in 2024 compared to 2023; and

d)

a net unfavorable change in income taxes in 2024 compared to 2023 primarily due to a larger decrease in income tax receivables in 2023 compared to 2024.

These unfavorable changes were partially offset by a net favorable change in accrued liabilities in 2024 compared to 2023 primarily related to higher accruals related to pending litigation in 2024 and higher accruals for employee compensation and benefit liabilities in 2024.

Investing Activities

We used $278 million for investing activities in 2024, compared to $875 million in 2023. In 2024, we spent $670 million for internal capital investments, compared to $470 million in 2023. Additionally, in September 2024, we received $400 million in net proceeds from the maturity of our investments in time deposits, which were used to repay our 3.65% senior notes that were due on September 15, 2024.

The details of capital expenditures for property and equipment by segment for the years ended December 31, 2024 and 2023 are included in the table below (dollars in millions).

We expect capital investments in 2025 to be between $840 million and $870 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 $24 million in 2025. 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 2024, net cash used for financing activities was $876 million, compared to $112 million of cash used for financing activities in 2023, an increase of $764 million. We paid $449 million in dividends on our common stock in both 2024 and 2023. We withheld shares to cover $26 million of employee restricted stock taxes in 2024 compared to $16 million of employee restricted stock taxes withheld in 2023. We did not repurchase any shares of the Company’s common stock in 2024, compared to repurchases of 0.3 million shares for $42 million in 2023.

On November 30, 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, which are included in marketable debt securities at December 31, 2023. On September 15, 2024, we used the net proceeds from this issuance, together with a portion of cash on hand, to repay our outstanding 3.65% senior notes due 2024. The repayment of these notes was $400 million excluding accrued interest.

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.