# PACKAGING CORP OF AMERICA (PKG) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from PACKAGING CORP OF AMERICA's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/75677/000095017022001913/pkg-20211231.htm
Accession: 0000950170-22-001913
Filing date: 2022-02-24
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/PKG/
All MD&A years: /company/PKG/mda/
Next year: /company/PKG/mda/fy2022/ (FY 2022)

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of historical results of operations and financial condition should be read in conjunction with the audited financial statements and the notes thereto which appear elsewhere in this Form 10-K. This discussion includes forward-looking statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other non-historical statements in the discussion, are forward-looking. See our discussion regarding forward-looking statements included under “Part I, Item 1A. Risk Factors” of this Form 10-K. For our discussion and analysis of our results of operations, financial condition and cash flows for the year ended December 31, 2019, the earliest of the years presented in the accompanying audited financial statements included in Item 8 herein, please refer to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 24, 2021. Such information is presented in Item 7 of such report under the subcaptions “Results of Operations —Year Ended December 31, 2020, Compared with Year Ended December 31, 2019” and “Liquidity and Capital Resources” and is incorporated by reference herein.

Overview

PCA is the third largest producer of containerboard products and a leading producer of uncoated freesheet paper in North America. We operate eight mills and 90 corrugated products manufacturing plants. Our containerboard mills produce linerboard and corrugating medium, which are papers primarily used in the production of corrugated products. Our corrugated products manufacturing plants produce a wide variety of corrugated packaging products, including conventional shipping containers used to protect and transport manufactured goods, multi-color boxes and displays with strong visual appeal that help to merchandise the packaged product in retail locations, and honeycomb protective packaging. In addition, we are a large producer of packaging for meat, fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. We also manufacture and sell UFS papers, including both commodity and specialty papers, which may have custom or specialized features such as colors, coatings, high brightness, and recycled content. We are headquartered in Lake Forest, Illinois and operate primarily in the United States.

Executive Summary

Net sales were $7.73 billion for the year ended December 31, 2021 and $6.66 billion in 2020. We reported $841 million of net income, or $8.83 per diluted share, in 2021, compared to $461 million, or $4.84 per diluted share, in 2020. Net income included $53 million of expense for special items in 2021, compared to $89 million of expense for special items in 2020. Special items in both periods are described later in this section. Excluding special items, we recorded $894 million of net income, or $9.39 per diluted share, in 2021, compared to $550 million, or $5.78 per diluted share, in 2020. The increase was driven primarily by higher prices and mix in our Packaging and Paper segments and higher volumes in our Packaging segment, partially offset by higher operating and converting costs, higher annual outage expense, lower volumes in our Paper segment, and higher freight and logistic 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 expense, interest, income taxes, and depreciation, amortization, and depletion (EBITDA), and EBITDA excluding special items, see “Item 7. Reconciliations of Non-GAAP Financial Measures to Reported Amounts.” PCA ended the year with $765 million of cash and marketable debt securities and, including borrowing availability under its revolving credit facility, $1.1 billion in liquidity.

Packaging segment income from operations was $1,306 million in 2021, compared to $830 million in 2020. Packaging segment EBITDA excluding special items was $1,688 million in 2021, compared to $1,229 million in 2020. The increase was driven primarily by higher containerboard and corrugated products prices and mix and higher sales and production volumes, partially offset by higher operating and converting costs, higher annual outage expense, and higher freight and logistic expenses. Demand for Packaging segment products remained strong throughout the year, with record-setting shipments from our corrugated products and record containerboard production. We also continued to experience cost inflation across our business, including in the areas of labor and benefits, recycled fiber, energy, repairs, materials, and supplies, as well as higher transportation costs, driven by higher fuel costs, tight rail supply, driver and truck shortages, and higher spot prices. We have experienced some workforce availability issues late in the year and early in 2022 due to the spread of the Omicron variant, as well as effects from supply chain and transportation service disruptions, but we have generally been able to manage through these issues such that our operations have not been materially disrupted. We continue to deploy capital to improve productivity and efficiencies at our facilities and believe that our success in doing so is helping us to manage cost inflation and better serve our customers.

Paper segment income from operations was $39 million in 2021, compared to a loss of $20 million in 2020. Paper segment EBITDA excluding special items was $72 million in 2021, compared to $73 million in 2020. The decrease was due primarily to lower sales and production volumes and higher freight and logistic expenses, partially offset by lower operating costs, lower annual outage expense, and higher paper prices and mix. As described in Note 9, Goodwill and Intangible Assets included in Item 8 of this Annual Report on Form 10-K, we incurred a charge of $55.2 million during 2020 associated with the full impairment of goodwill within the Paper segment.

19

Sales and production volumes in the Paper segment significantly declined after the first quarter of 2020 as the COVID-19 pandemic caused lower demand for our paper products. During the second and third quarters of 2020, in response to such lower demand, we temporary idled both machines at our Jackson, Alabama mill. During the fourth quarter of 2020, in order to meet strong packaging demand and maintain appropriate inventory levels in the Packaging segment, we temporarily began producing linerboard on the No. 3 machine at the mill, and we have produced linerboard on the machine since that time. In the first quarter of 2021, we announced the discontinuation of production of uncoated freesheet paper grades on the machine and the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities. Demand for paper products has improved since the beginning of the pandemic, but our sales and production in the Paper segment will remain below pre-pandemic levels as we will no longer be producing paper products on the machine. Later in 2021, we began to produce corrugating medium on the No. 1 machine at the Jackson mill (which had produced uncoated freesheet paper in the past) to help satisfy our demand for containerboard, build necessary inventories, and evaluate the capability of the machine to produce containerboard on a cost-effective basis. We expect to continue to produce corrugating medium on the machine for the foreseeable future. Before October 2020, operating results for the Jackson mill were included in the Paper segment. Beginning in October 2020, operating results for the Jackson mill are included in both the Packaging and Paper segments.

On December 10, 2021, we completed the acquisition of the assets of Advance Packaging Corporation, an independent corrugated products producer, for a cash purchase price of $195 million, including a purchase price adjustment based upon net working capital. Advance Packaging is a full-service producer of corrugated packaging products, including graphics, retail displays, sustainable shipping containers, and protective packaging. Advance Packaging owns and operates a 500,000 square foot corrugated products facility in Grand Rapids, Michigan. The operating results of Advance Packaging are included in PCA's results after the date of acquisition. The acquisition is consistent with our historical growth strategy and will provide additional integration of containerboard we produce into our own corrugated products facilities.

Special Items and Earnings per Diluted Share, Excluding Special Items

Earnings per diluted share, excluding special items, in 2021 and 2020 were as follows:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020"],["Earnings per diluted share","","$","8.83","","","$","4.84"],["Special items:"],["Facilities closure and other costs (income) (a)","","","(0.03",")","","","0.23"],["Debt refinancing (b)","","","0.47","","","","\u2014"],["Jackson mill conversion-related activities (c)","","0.11","","","","\u2014"],["Acquisition and integration related costs (d)","","0.01","","","","\u2014"],["Goodwill impairment (e)","","","\u2014","","","","0.58"],["Hurricane Laura impact (f)","","","\u2014","","","","0.08"],["Incremental costs for COVID-19 (g)","","","\u2014","","","","0.05"],["Total special items expense","","","0.56","","","","0.94"],["Earnings per diluted share, excluding special items","","$","9.39","","","$","5.78"]]
[[/GREPCENT_TABLE]]

(a)
For 2021, includes $3.6 million of income primarily consisting of an adjustment of the required asset retirement obligation related to the 2020 closure of the San Lorenzo, California facility, a gain on sale of transportation assets and corrugated products facilities, and insurance proceeds received for a natural disaster at one of the corrugated products facilities, partially offset by closure costs related to corrugated products facilities. For 2020, includes $28.1 million of restructuring costs for paper administrative functions and closure costs related to corrugated products facilities, substantially all of which relates to the previously announced closure of the San Lorenzo, California facility during the second quarter of 2020, partially offset by income related to the sale of a corrugated products facility during the second quarter of 2020.

(b)
Includes $58.9 million of costs related to the Company's debt refinancing completed in October 2021, which included a redemption premium and the write-off of the remaining balance of unamortized debt issuance costs.

(c)
Includes $14.0 million of charges related to the announced discontinuation of production of uncoated freesheet 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.

(d)
Includes $0.9 million of charges for acquisition and integration costs related to the December 2021 Advance Packaging Corporation acquisition.

20

(e)
During the second quarter of 2020, with the exacerbated deterioration in uncoated freesheet market conditions and the estimated impact on our Paper reporting unit arising from the COVID-19 pandemic, as well as projected future results of operations, we identified a triggering event indicating possible impairment of goodwill within our Paper reporting unit. The Company performed an interim quantitative impairment analysis as of May 31, 2020, and, based on the evaluation performed, we determined that goodwill was fully impaired for the Paper reporting unit and recognized a non-cash impairment charge of $55.2 million.

(f)
Includes $10.0 million of charges related to the impact of Hurricane Laura at our DeRidder, Louisiana mill, including unabsorbed costs related to lost production, excess purchased containerboard and freight costs, repair expenses, rental and supplies costs, and other recovery expenses.

(g)
Includes $6.9 million of incremental, out-of-pocket costs related to COVID-19, including supplies, cleaning and sick pay. Beginning in July 2020, all corresponding COVID-19 related expenses were included in normalized costs.

Management excludes special items, as it believes these items are not necessarily reflective of the ongoing results of operations of our business. We present these measures because they provide a means to evaluate the performance of our segments and our company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods presented and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. A reconciliation of diluted earnings per share to diluted earnings per share excluding special items is included above and the reconciliations of other non-GAAP measures used in this Management's Discussion and Analysis of Financial Condition and Results of Operations, to the most comparable measure reported in accordance with GAAP, are included later in Item 7 under “Reconciliations of Non-GAAP Financial Measures to Reported Amounts.” Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

Industry and Business Conditions

Trade publications reported North American industry-wide corrugated products shipments per workday were up 2.8% during 2021, compared to 2020. Reported industry containerboard production increased 5.6% compared to 2020, and reported industry containerboard inventories at the end of 2021 were approximately 2.8 million tons, up 19.5% compared to 2020. Reported containerboard export shipments increased 9.9% compared to 2020. Prices reported by trade publications increased by $20 per ton for linerboard and $30 per ton for corrugating medium in March 2021, $40 per ton for linerboard and corrugating medium in April 2021, and a further $50 per ton for linerboard and $60 per ton for corrugating medium in August 2021.

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 uncoated freesheet paper shipments were down 0.4% in 2021, compared to 2020. Average prices reported by a trade publication for cut size office papers increased $20 per ton in March 2021, $40 per ton in April 2021, $30 per ton in June 2021, $30 per ton in July 2021, and $80 per ton in November 2021.

Outlook

For the first quarter of 2022, in the Packaging segment, we expect higher corrugated products volume than the fourth quarter of 2021, driven by continued strong demand and three additional shipping days, along with slightly higher domestic and export containerboard sale prices and mix. Earlier in the first quarter, we notified our customers of a $70 per ton price increase for all of our linerboard and corrugating grades. We do not expect to realize significant benefits of this price increase during the first quarter of 2022.

In our Paper segment, we expect higher prices and mix from price increases previously communicated to customers during the fourth quarter and earlier in the first quarter of 2022.

We expect maintenance outage expenses in the first quarter to be lower than the fourth quarter. We also expect continued cost inflation to persist at higher than historical levels across our mills, converting plants, and other operations as well as freight and logistics expenses. In addition to the effect of cost inflation, labor and benefits costs will also be higher due to timing-related increases such as annual wage increases, and seasonally colder weather is expected to increase energy and wood fiber costs. The effect of higher costs is expected to offset any sequential benefit of higher corrugated products volume and more favorable prices and mix in our Packaging and Paper segments. Considering these items, and excluding the effect of any special items, we expect first quarter earnings to be lower than our earnings for the fourth quarter of 2021.

21

Results of Operations

Year Ended December 31, 2021, Compared with Year Ended December 31, 2020

The historical results of operations of PCA for the years ended December 31, 2021 and 2020 are set forth below (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020","","","Change"],["Packaging","","$","7,052.6","","","$","5,919.5","","","$","1,133.1"],["Paper","","","599.7","","","","674.8","","","","(75.1",")"],["Corporate and other and eliminations","","","78.0","","","","63.9","","","","14.1"],["Net sales","","$","7,730.3","","","$","6,658.2","","","$","1,072.1"],["Packaging","","$","1,306.0","","","$","829.5","","","$","476.5"],["Paper","","","39.1","","","","(20.0",")","","","59.1"],["Corporate and other","","","(103.7",")","","","(85.6",")","","","(18.1",")"],["Income from operations","","","1,241.4","","","","723.9","","","","517.5"],["Non-operating pension income","","","19.7","","","","2.3","","","","17.4"],["Interest expense, net","","","(152.4",")","","","(93.5",")","","","(58.9",")"],["Income before taxes","","","1,108.7","","","","632.7","","","","476.0"],["Income tax expense","","","(267.6",")","","","(171.7",")","","","(95.9",")"],["Net income","","$","841.1","","","$","461.0","","","$","380.1"],["Net income excluding special items (a)","","$","893.8","","","$","550.0","","","$","343.8"],["EBITDA (a)","","$","1,658.9","","","$","1,133.9","","","$","525.0"],["EBITDA excluding special items (a)","","$","1,665.4","","","$","1,225.0","","","$","440.4"]]
[[/GREPCENT_TABLE]]

(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 increased $1,072 million, or 16.1%, to $7,730 million in 2021, compared to $6,658 million in 2020.

Packaging. Net sales increased $1,133 million, or 19.1%, to $7,053 million, compared to $5,920 million in 2020, due to higher prices and mix ($699 million) and increased volumes ($435 million), primarily due to higher containerboard and corrugated products shipments and strong demand. In 2021, our domestic containerboard prices increased 17.2% and export prices increased 40.7% compared to 2020. Our containerboard outside shipments increased 38.2%, and total corrugated products shipments were up 4.5% in total and 5.0% per workday, compared to 2020, driven by strong demand.

Paper. Net sales decreased $75 million, or 11.1%, to $600 million, compared to $675 million in 2020. The decrease was due to lower volume ($85 million), primarily related to the discontinuation of producing UFS on the Jackson No. 3 machine, partially offset by higher prices and mix ($10 million).

Gross Profit

Gross profit increased $504 million in 2021, compared to 2020. The increase was driven primarily by higher prices and mix in our Packaging and Paper segments and higher volumes in our Packaging segment, partially offset by higher operating and converting costs, higher annual outage expense, lower volumes in our Paper segment, and higher freight and logistic expense. In 2021, gross profit included $7 million of special items expense related to Jackson mill conversion-related activities, corrugated facility closure costs, and corrugated facility acquisition costs, compared to $21 million of special items expense related to the impact of Hurricane Laura at our DeRidder, Louisiana mill, incremental out-of-pocket costs related to COVID-19, and facility closure costs in 2020.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (SG&A) increased $37 million in 2021 compared to 2020. The increase was primarily due to higher employee salaries and fringe benefits.

22

Goodwill Impairment

During 2020, with the exacerbated deterioration in uncoated freesheet market conditions and the estimated impact on our Paper reporting unit arising from the COVID-19 pandemic, as well as projected future results of operations, we identified a triggering event indicating possible impairment of goodwill within our Paper reporting unit. The Company performed an interim quantitative impairment analysis as of May 31, 2020, and, based on the evaluation performed, we determined that goodwill was fully impaired for the Paper reporting unit and recognized a non-cash impairment charge of $55 million. For more information, see Note 9, Goodwill and Intangible Assets, of the Condensed Notes to the Consolidated Financial Statements in “Part II, Item 8. Financial Statements” of this Form 10-K.

Other Expense, Net

Other expense, net for the years ended December 31, 2021 and 2020 are set forth below (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020"],["Asset disposals and write-offs","","$","(38.9",")","","$","(26.5",")"],["Facilities closure and other income (costs)","","","6.5","","","","(19.1",")"],["Jackson mill conversion-related activities","","","(8.9",")","","","\u2014"],["Acquisition and integration related costs","","","(0.6",")","","","\u2014"],["Other","","","(12.9",")","","","(5.1",")"],["Total","","$","(54.8",")","","$","(50.7",")"]]
[[/GREPCENT_TABLE]]

We discuss these items in more detail in Note 7, 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 $518 million, or 71.5%, for the year ended December 31, 2021, compared to 2020. Income from operations in 2021 included $11 million of expense for special items compared to $100 million in 2020. Special items in 2021 consisted of $14 million of expense for Jackson mill conversion-related costs and other paper-to-containerboard conversion-related activities, $1 million of expense related to the acquisition of Advance Packaging, and $4 million of income related to corrugated products facility closures. 2020 special items included $55 million of expense for the Paper reporting unit goodwill impairment; $28 million of restructuring costs for closure costs related to corrugated products facilities and paper administrative functions; $10 million related to the impact of Hurricane Laura at our DeRidder, Louisiana mill; and $7 million of incremental, out-of-pocket costs related to COVID-19 that were incurred in the first half of 2020.

Packaging. Segment income from operations increased $477 million to $1,306 million, compared to $829 million in 2020. The increase in 2021 related primarily to higher containerboard and corrugated products prices and mix ($646 million) and higher containerboard and corrugated products sales and production volumes ($278 million), partially offset by higher operating and converting costs ($340 million), higher freight expense ($72 million), higher annual outage expense ($56 million), and higher depreciation expense ($24 million). Special items in 2021 included $4 million of expense for Jackson mill conversion-related activities, $1 million of expense related to the acquisition of Advanced Packaging, and $3 million of income related to corrugated products facility closures. Special items in 2020 included $27 million of closure costs for corrugated products facilities, $10 million of charges related to the impact of Hurricane Laura at our DeRidder, Louisiana mill, and $6 million of incremental, out-of-pocket costs related to COVID-19.

Paper. Segment income from operations increased $59 million to $39 million, compared to a loss of $20 million in 2020. The increase, excluding special items, primarily related to higher paper prices and mix ($11 million), lower operating costs ($37 million), lower annual outage expense ($23 million), and lower depreciation expense ($13 million), partially offset by lower sales and production volumes ($42 million), higher freight expense ($28 million), and other fixed costs ($3 million). Special items in the Paper segment in 2021 included $9 million of expense for Jackson mill conversion-related activities, compared to $55 million related to goodwill impairment, $1 million of restructuring costs for paper administrative functions, and $1 million of incremental, out-of-pocket costs related to COVID-19 in 2020.

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

During 2021, non-operating pension income increased $17 million compared to 2020. The increase in non-operating pension expense was primarily related to the favorable 2020 asset performance, partially offset by assumption changes.

23

Interest expense, net, during 2021 increased $59 million compared to 2020. The increase is related to the $59 million of charges from the Company's debt refinancing completed in October 2021.

During 2021, we recorded $268 million of income tax expense, compared with $172 million of income tax expense during 2020. The effective tax rate for 2021 and 2020 was 24.1% and 27.1%, respectively. The higher effective tax rate for 2020 was primarily due to the nondeductible goodwill impairment charge associated with our Paper reporting unit with no corresponding charge during 2021.

Liquidity and Capital Resources

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 $619 million of cash and cash equivalents, $146 million of marketable debt securities, and $323 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. On October 8, 2021, we redeemed our $700 million of outstanding 4.50% notes due November 1, 2023, using the proceeds of new notes we issued in September 2021 and cash-on-hand. See Note 11, Debt, of the Condensed Notes to the Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K as well as the information provided below under "--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):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020"],["Net cash provided by (used for):"],["Operating activities","","$","1,094.1","","","$","1,032.8"],["Investing activities","","","(794.4",")","","","(426.1",")"],["Financing activities","","","(655.6",")","","","(311.6",")"],["Net (decrease) increase in cash and cash equivalents","","$","(355.9",")","","$","295.1"]]
[[/GREPCENT_TABLE]]

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 2021, net cash provided by operating activities was $1,094 million, compared to $1,033 million for 2020, an increase of $61 million. Cash from operations excluding changes in cash used for operating assets and liabilities increased $426 million, primarily due to higher income from operations as discussed above. Cash decreased by $365 million due to changes in operating assets and liabilities, primarily due to the following:

a)
an increase in accounts receivable levels in 2021 compared to 2020 due to higher sales volumes and pricing in the Packaging segment and higher pricing partially offset by lower sales volumes in the Paper segment in 2021;

b)
an increase in inventories in 2021 compared to 2020 primarily related to an increase in containerboard and finished goods in the Packaging segment due to the need to service stronger demand;

c)
an unfavorable change in accounts payable in 2021 compared to 2020 related to the timing of payments; and

d)
higher income tax payments in 2021 due to higher income levels in 2021 as compared to 2020.

24

These changes were partially offset by an increase in accrued liabilities in 2021 compared to 2020 due to higher accruals for employee compensation and benefits liabilities as well as higher accruals for customer volume rebates in 2021.

Investing Activities

We used $794 million for investing activities in 2021, compared to $426 million in 2020. In 2021, we spent $605 million for internal capital investments, compared to $421 million in 2020. During 2021, we acquired Advance Packaging Corporation for $195 million, including a purchase price adjustment based upon net working capital. We did not acquire any businesses in 2020.

The details of capital expenditures for property and equipment, excluding acquisitions, by segment for the years ended December 31, 2021 and 2020 are included in the table below (dollars in millions).

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020"],["Packaging","","$","562.5","","","$","395.2"],["Paper","","","30.1","","","","19.7"],["Corporate and Other","","","12.5","","","","6.3"],["","","$","605.1","","","$","421.2"]]
[[/GREPCENT_TABLE]]

We expect capital investments in 2022 to be about $800 million, including capital spending related to the conversion of the No. 3 paper machine to containerboard at our Jackson mill. 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 $17 million in 2022. 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.

At December 31, 2021, the Company had commitments for capital expenditures of $785 million. The Company believes that cash-on-hand combined with cash flow from operations will be sufficient to fund these commitments.

Financing Activities

In 2021, net cash used for financing activities was $656 million, compared to $312 million of cash used for financing activities in 2020, an increase of $344 million. We paid $380 million in dividends on our common stock in 2021, compared to $300 million paid in 2020. We repurchased and retired 1.4 million shares of the Company's common stock for $193 million in 2021. We had no share repurchases in 2020. In 2021, we issued $700 million of 3.05% Senior Notes due 2051 (the "New Notes") through a registered public offering and notified the holders of our $700 million 4.50% Senior Notes due November 1, 2023 (the "Old Notes") that we would redeem those notes in October 2021. On October 8, 2021, we completed the redemption of the Old Notes for $770 million, which included a redemption premium of $56 million and $14 million of accrued and unpaid interest. We used the proceeds of the offering of the New Notes and cash-on-hand to fund the redemption and the $8 million of debt issuance costs associated with the New Notes.

In addition to the $8 million of issuance costs associated with the debt refinancing, we paid an additional $1 million of issuance costs related to the New Revolving Credit Agreement that was entered into June 8, 2021.

See Note 11, 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 the debt refinancing.

25

Commitments

Contractual Obligations

Our cash requirements greater than twelve months from contractual obligations and commitments include:

•
Debt obligations and interest payments. See Note 11, 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 obligations and interest payments and the timing of expected future payments.

•
Operating and finance leases. See Note 3, Leases, 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 lease obligations and the timing of expected future payments.

•
Asset retirement obligations. See Note 14, Asset Retirement Obligations, 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 asset retirement obligation at the end of the period.

•
Capital commitments. See Note 21, Commitments, Guarantees, Indemnifications, and Legal Proceedings, 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 capital commitments in connection with the expansion and replacement of existing facilities and equipment.

•
Purchase commitments. Purchase commitments relate to various purchase agreements for items such as minimum amounts of energy and fiber purchases. See Note 21, Commitments, Guarantees, Indemnifications, and Legal Proceedings, 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 purchase commitments and the timing of expected future payments.

•
Employee benefit obligations. See Note 13, Employee Benefits Plans and Other Postretirement Benefits, 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 employee benefit obligations and the timing of expected future benefit payments under our pension plans and postretirement plans.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements as of December 31, 2021.

Inflation and Other General Cost Increases

We are subject to both contractual, inflation, and other general cost increases. If we are unable to offset these cost increases by price increases, growth, and/or cost reductions in our operations, these inflation and other general cost increases could have a material adverse effect on our operating cash flows, profitability, and liquidity.

In 2021, our total company costs including cost of sales (COS) and selling, general, and administrative expenses (SG&A) was $6.4 billion, and excluding non-cash costs (depreciation, depletion and amortization, pension and postretirement expense, and share-based compensation expense) was $6.0 billion. A 1% increase in COS and SG&A costs would increase costs by $64 million and cash costs by $60 million.

Certain items of product input costs have historically been subject to more cost volatility including fiber, purchased energy, and chemicals.

26

Energy

In 2021, our mills, including both packaging and paper mills, consumed about 93 million MMBTUs of fuel, including internally generated and externally purchased, to produce both steam and electricity. The following table for 2021 provides the total MMBTUs purchased externally by fuel type each quarter and the average cost per MMBTU by fuel type for the year. Our mills represent about 90% of our total purchased fuel costs. The cost per MMBTU includes the cost of the fuel plus our transportation and delivery costs.

[[GREPCENT_TABLE]]
[["","","2021 Fuel Purchased (millions of MMBTUs)","","","2021 Avg."],["Fuel Type","","First Quarter","","","Second Quarter","","","Third Quarter","","","Fourth Quarter","","","Full Year","","","Cost / MMBTU"],["Natural gas","","","7.93","","","","6.73","","","","6.44","","","","7.15","","","","28.25","","","$","3.54"],["Purchased bark","","","1.15","","","","1.36","","","","1.56","","","","1.60","","","","5.67","","","","2.31"],["Other purchased fuels","","","0.13","","","","0.16","","","","0.17","","","","0.10","","","","0.56","","","","5.47"],["Total mills","","","9.21","","","","8.25","","","","8.17","","","","8.85","","","","34.48","","","$","3.37"]]
[[/GREPCENT_TABLE]]

In addition, the mills purchased 23.29 million CkWh (hundred kilowatt-hours) of electricity in 2021. The purchases by quarter and the average cost per CkWh were as follows:

[[GREPCENT_TABLE]]
[["","","2021 Purchased Electricity (millions of CkWh)","","","2021 Avg."],["","","First Quarter","","","Second Quarter","","","Third Quarter","","","Fourth Quarter","","","Full Year","","","Cost / CkWh"],["Purchased electricity","","","5.80","","","","5.61","","","","5.84","","","","6.04","","","","23.29","","","$","5.65"]]
[[/GREPCENT_TABLE]]

Regulatory and Environmental Matters

Our operations are subject to our compliance with the laws and regulations in the jurisdictions in which we operate, primarily in the United States. Of particular importance are laws and regulations relating to the environment and health and safety matters.

Environmental compliance requirements are a significant factor affecting our business. We employ processes in the manufacture of containerboard, paper, and pulp, which result in various discharges, emissions and waste disposal. These processes are subject to numerous federal, state, local and foreign environmental laws and regulations. We operate and expect to continue to operate, under environmental permits and similar authorizations from various governmental authorities that regulate such discharges, emissions, and waste disposal. The most significant of these laws affecting the Company are:

•
Resource Conservation and Recovery Act (RCRA);

•
Clean Water Act (CWA);

•
Clean Air Act (CAA);

•
The Emergency Planning and Community Right-to-Know-Act (EPCRA);

•
Toxic Substance Control Act (TSCA); and

•
Safe Drinking Water Act (SDWA).

We believe that we are currently in material compliance with these and all applicable environmental rules and regulations. Because environmental regulations are constantly evolving, the Company has incurred, and will continue to incur, costs to maintain compliance with these and other environmental laws. The Company works diligently to anticipate and budget for the impact of applicable environmental regulations, and does not currently expect that future environmental compliance obligations will materially affect its business or financial condition. For both the years ended December 31, 2021 and 2020, we spent $44 million, and for 2019, we spent $41 million, to comply with the requirements of these and other environmental laws. Additionally, we had $10 million of environmental capital expenditures in 2021 and $9 million in both 2020 and 2019.

In January 2013, the U.S. Environmental Protection Agency (the “EPA”) established a three-year deadline for compliance with the Boiler MACT regulations, establishing air emissions standards and certain other requirements for industrial boilers. PCA's compliance actions involved modifying or replacing certain boilers, and all PCA mills are in full compliance with Boiler MACT requirements. On July 29, 2016, the U.S. Court of Appeals for the District of Columbia Circuit issued a ruling on the consolidated cases challenging Boiler MACT. The court vacated key portions of the rule, including emission limits for certain subcategories of solid fuel boilers, and remanded issues to the EPA for further rulemaking. At this time, we cannot predict with certainty how this decision will impact our existing Boiler MACT compliance efforts or whether we will incur additional costs to comply with any revised standards.

27

As is the case with any industrial operation, PCA has, in the past, incurred costs associated with the remediation of soil or groundwater contamination, as required by the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as the federal “Superfund” law, and analogous state laws. Cleanup requirements arise with respect to properties the Company currently owns or operates, former facilities and off-site facilities where the Company has disposed of hazardous substances. As part of the sale to PCA of the containerboard and corrugated products business of Pactiv Corporation in April 1999, Pactiv agreed to retain all liability for all former facilities and all sites associated with pre-closing off-site waste disposal. Pactiv also retained environmentally impaired real property in Filer City, Michigan unrelated to current mill operations. In addition, OfficeMax (now an indirect, wholly owned subsidiary of Office Depot) retains responsibility for certain environmental liabilities related to some of the businesses, facilities, and assets we acquired from Boise. Generally, this responsibility relates to hazardous substance releases and other environmental incidents that arose before 2004. Some of these liabilities could be significant; however, Office Depot may not have sufficient funds to satisfy its indemnification obligations, and in some cases, we may not be entitled to such indemnification.

Because liability for remediation costs under environmental laws is strict, meaning that liability is imposed without fault, joint and several, meaning that liability is imposed on each party without regard to contribution, and retroactive, PCA could receive notifications of cleanup liability in the future and this liability could be material. From 2006 through 2021, there were no significant environmental remediation costs at PCA's mills and corrugated plants. As of December 31, 2021, we maintained an environmental reserve of $24.3 million relating to on-site landfills and surface impoundments as well as ongoing and anticipated remedial projects. The Company believes that it is not reasonably possible that future environmental expenses above the $24.3 million accrued at December 31, 2021, will have a material impact on its financial condition, results of operations, and cash flows.

While legislation regarding the regulation of greenhouse gas emissions has been proposed at the federal level, it is uncertain whether such legislation will be passed and, if so, what the breadth and scope of such legislation will be. The result of the regulation of greenhouse gas emissions could be an increase in our future environmental compliance costs, through caps, carbon or other taxes, or additional capital expenditures to modify facilities, which may be material. However, climate change legislation and the resulting future energy policy could also provide us with opportunities if the use of renewable energy is encouraged. We currently self-generate the majority of our power requirements at our mills using renewable biogenic fuel such as bark, black liquor and biomass, which are derived from renewable resources. While we believe we are well-positioned to take advantage of any renewable energy incentives, it is uncertain what the ultimate costs and opportunities of any climate change legislation will be and how our business and industry will be affected.

We and our industry support the goal of a 50% reduction in Scope 1 and Scope 2 greenhouse gas emissions intensity by 2030 from a 2005 baseline. We have established a carbon neutrality team, consisting of a cross-functional group of key operational, engineering, technology and sustainability personnel to lead our efforts. Our strategy to achieve greenhouse gas emissions reductions is premised upon the carbon neutrality of the biogenic fuels used in our operations and we believe that meaningful reductions in greenhouse gas emissions can be achieved through investment in more efficient operations utilizing carbon-neutral fuels. We work constantly to identify and implement high-return projects that will improve our efficiency. To what extent and when we embark upon major capital projects to reduce emissions will depend in part upon emerging regulatory and tax policy involving greenhouse gas emissions and incentives to invest in projects that reduce emissions. We also regularly assess the use of alternative, non-emitting energy sources at our own facilities (such as solar) where feasible to do so and partnering with utilities to procure carbon-free power where opportunities exist. We annually report key data to our stakeholders regarding our greenhouse gas emissions, among other things, in our responsibility report. Our responsibility report is available on our website and is not intended to be incorporated by reference herein.

We are also subject to extensive federal, state and local laws related to workplace health and safety, and our safety management system includes measures to assure compliance with these laws and regulations. We do not believe that future compliance with health and safety laws and regulations will have a material adverse effect on our financial condition, results of operations or cash flows.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, PCA evaluates its estimates, including those related to business combinations, goodwill and intangible assets, pensions and other postretirement benefits, environmental liabilities, income taxes, and long-lived asset impairment, among others. PCA bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

28

Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our Board of Directors. The Company believes that of its significant accounting policies, the following involve a higher degree of judgment and/or complexity:

Pensions

The Company accounts for defined benefit pension plans in accordance with Accounting Standards Codification ("ASC") 715, Compensation - Retirement Benefits. The calculation of pension expense and pension liabilities requires decisions about a number of key assumptions that can significantly affect expense and liability amounts, including discount rates, expected return on plan assets, expected rate of compensation increases, longevity and service lives of participants, expected contributions, and other factors. The pension assumptions used to measure pension expense and liabilities are discussed in Note 13, Employee Benefit Plans and Other Postretirement Benefits, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

We recognize the funded status of our pension plans on our Consolidated Balance Sheet and recognize the actuarial and experience gains and losses and the prior service costs and credits as a component of “Accumulated Other Comprehensive Loss” in our Consolidated Statement of Changes in Stockholders' Equity. Actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. At December 31, 2021, we had approximately $74.8 million of actuarial losses and prior service costs, net of tax, recorded in “Accumulated other comprehensive loss” on our Consolidated Balance Sheet. Accumulated losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets will be recognized on a straight-line basis over the average remaining service period of active employees in PCA plans (which is between six and nine years) and over the average remaining lifetime of inactive participants of Boise plans (which is between 22 and 26 years), to the extent that losses are not offset by gains in subsequent years. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.

We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period. As discussed above, the future effects of pension plans on our financial position and results of operations will depend on economic conditions, employee demographics, mortality rates, retirement rates, investment performance, and funding decisions, among other factors. The following table presents selected assumptions used and expected to be used in the measurement of pension expense in the following periods (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ending December 31,","","","Year Ended December 31,"],["","","2022","","","2021","","","2020"],["Pension expense","","$","5.7","","","$","2.1","","","$","21.1"],["Assumptions"],["Discount rate","","","2.89","%","","","2.57","%","","","3.25","%"],["Expected rate of return on plan assets","","","4.08","%","","","4.91","%","","","5.29","%"]]
[[/GREPCENT_TABLE]]

A change of 0.25% in either direction to the discount rate or the expected rate of return on plan assets would have had the following effect on 2021 and 2022 pension expense (dollars in millions):

[[GREPCENT_TABLE]]
[["","","","","","Increase (Decrease) in Pension Expense(a)"],["","","Base Expense","","","0.25% Increase","","","0.25% Decrease"],["2021"],["Discount rate","","$","2.1","","","$","(1.9",")","","$","2.2"],["Expected rate of return on plan assets","","","2.1","","","","(3.2",")","","","3.2"],["2022"],["Discount rate","","$","5.7","","","$","\u2014","","","$","1.8"],["Expected rate of return on plan assets","","","5.7","","","","(3.4",")","","","3.4"]]
[[/GREPCENT_TABLE]]

(a)
The sensitivities shown above are specific to 2021 and 2022. The sensitivities may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.

For more information related to our pension benefit plans, see Note 13, Employee Benefit Plans and Other Postretirement Benefits, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

29

Goodwill Impairment

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At December 31, 2021, we had $923.5 million of goodwill, all of which was recorded in the Packaging segment. Of the $923.5 million of goodwill, $60.0 million was recorded in connection with the acquisition of Advance Packaging. The amount of goodwill associated with the Advance Packaging acquisition continues to be preliminary, as estimates and assumptions are subject to change as more information becomes available.

We test goodwill for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value.

During the second quarter of 2020, with the exacerbated deterioration in uncoated freesheet market conditions arising from the COVID-19 pandemic and the estimated impact on our Paper segment and its projected future results of operations, we identified a triggering event indicating possible impairment of goodwill within our Paper reporting unit and performed an interim quantitative impairment analysis as of May 31, 2020. For additional information, see Note 9, Goodwill and Intangible Assets, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

Based on the evaluation performed, we determined that the carrying value of the Paper reporting unit exceeded its fair value, which resulted in a goodwill impairment charge totaling $55.2 million, the full amount of goodwill associated with the Paper reporting unit. At December 31, 2021 and 2020, we had $0 million of goodwill recorded in the Paper segment.

Under ASU 2017-04 (Topic 350), Intangibles - Goodwill and Other – Simplifying the Test for Goodwill Impairment, companies are no longer required to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment, thus eliminating Step Two of the analysis that was required under the prior guidance. Under ASU 2017-04, goodwill impairment testing is performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company adopted this ASU prospectively beginning with its annual goodwill impairment test in the fourth quarter of 2017.

The update to the standard does not eliminate the optional qualitative assessment of goodwill impairment that is often used to determine if the quantitative assessment is necessary. The qualitative assessment requires the evaluation of certain events and circumstances such as macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as well as company and reporting unit specific items. If, after assessing these qualitative factors, the Company determines that it is more likely than not that the carrying value of the reporting unit is less than its fair value, then no further testing is required. Otherwise, the Company would perform a quantitative analysis.

The quantitative analysis requires companies to compare the fair value of the reporting units to which goodwill was assigned to their respective carrying values. In calculating fair value, we use the income approach as our primary indicator of fair value. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows (Level 3 measurement). These estimates are based on a number of factors including industry experience, business expectations and the economic environment. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired, and the carrying value of goodwill is then reduced to the implied value, or to zero if the fair value of the assets exceeds the fair value of the reporting unit, through an impairment charge.

During the annual goodwill impairment test performed in the fourth quarter of 2021, we assessed qualitative factors to determine whether it was more likely than not that the fair value of the Packaging reporting unit was less than its carrying value. Based on the results of the qualitative impairment test, we determined that it was more likely than not that the carrying value was less than the fair value of the Packaging reporting unit.

If management's estimates of future operating results materially change or if there are changes to other assumptions, the estimated fair value of our goodwill could change significantly. Such change could result in impairment charges in future periods, which could have a significant noncash impact on our operating results and financial condition. We cannot predict the occurrence of future events that might adversely affect the reported value of our goodwill. As additional information becomes known, we may change our estimates.

30

Long-Lived Asset Impairment

An impairment of a long-lived asset exists when the carrying value of an asset is not recoverable through future undiscounted cash flows from operations and when the carrying value of the asset exceeds its fair value. Long-lived asset impairment is a critical accounting estimate, as it is susceptible to change from period to period.

During the second quarter of 2020, with the exacerbated deterioration in uncoated freesheet market conditions arising from the COVID-19 pandemic and the estimated impact on our Paper segment and its projected future results of operations, we identified a triggering event indicating possible impairment of our long lived assets within our Paper segment, including property, plant, and equipment, and performed a recoverability test on the Paper reporting unit long lived assets as of May 31, 2020. The recoverability test was based on forecasts of undiscounted cash flows. The results of the recoverability test indicated that the long lived assets within our Paper segment, inclusive of property, plant, and equipment, were 100% recoverable.

We review the carrying value of long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. For purposes of testing for impairment, we group our long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and liabilities. Our asset groupings vary based on the related business in which the long-lived asset is employed and the interrelationship between those long-lived assets in producing net cash flows. Asset groupings could change in the future if changes in the operations of the business or business environment affect the way particular long-lived assets are employed or the interrelationships between assets. To estimate whether the carrying value of an asset or asset group is impaired, we estimate the undiscounted cash flows that could be generated under a range of possible outcomes. To measure future cash flows, we are required to make assumptions about future production volumes, future product pricing, and future expenses to be incurred. In addition, estimates of future cash flows may change based on the availability of fiber, environmental requirements, capital spending, and other strategic management decisions. We estimate the fair value of an asset or asset group based on quoted market prices for similar assets and liabilities or inputs that are observable either directly (Level 1 measurement) or indirectly (the amount for which the asset(s) could be bought or sold in a current transaction with a third party) when available (Level 2 measurement). When quoted market prices are not available, we use a discounted cash flow model to estimate fair value (Level 3 measurement).

We periodically assess the estimated useful lives of our assets. Changes in circumstances, such as changes to our operational or capital strategy, changes in regulation, or technological advances, may result in the actual useful lives differing from our estimates. Revisions to the estimated useful lives of assets requires judgment and constitutes a change in accounting estimate, which is accounted for prospectively by adjusting or accelerating depreciation and amortization rates. In 2021 and 2020, we recognized incremental depreciation expense of $4.7 million and $4.5 million, respectively. The incremental depreciation expense for 2021 related to Jackson mill conversion-related activities and closures of corrugated products facilities, while the incremental depreciation expense for 2020 related to closures of corrugated products facilities.

New and Recently Adopted Accounting Standards

For a listing of our new and recently adopted accounting standards, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.

31

Reconciliations of Non-GAAP Financial Measures to Reported Amounts

Net income excluding special items, EBITDA, and EBITDA excluding special items are non-GAAP financial measures. Management excludes special items, as it believes that these items are not necessarily reflective of the ongoing operations of our business. These measures are presented because they provide a means to evaluate the performance of our segments and our Company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. 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 years ended December 31, 2021 and 2020 follow (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020"],["","","Income before Taxes","","","Income Taxes","","","Net Income","","","Income before Taxes","","","Income Taxes","","","Net Income"],["As reported in accordance with GAAP","","$","1,108.7","","","$","(267.6",")","","$","841.1","","","$","632.7","","","$","(171.7",")","","$","461.0"],["Special items:"],["Facilities closure and other costs (income) (a)","","","(3.6",")","","","0.9","","","","(2.7",")","","","28.1","","","","(7.0",")","","","21.1"],["Debt refinancing (b)","","","58.9","","","","(14.7",")","","","44.2","","","","\u2014","","","","\u2014","","","","\u2014"],["Jackson mill conversion-related activities (c)","","","14.0","","","","(3.5",")","","","10.5","","","","\u2014","","","","\u2014","","","","\u2014"],["Acquisition and integration related costs (d)","","","0.9","","","","(0.2",")","","","0.7","","","","\u2014","","","","\u2014","","","","\u2014"],["Goodwill impairment (e)","","","\u2014","","","","\u2014","","","","\u2014","","","","55.2","","","","\u2014","","","","55.2"],["Hurricane Laura impact (f)","","","\u2014","","","","\u2014","","","","\u2014","","","","10.0","","","","(2.5",")","","","7.5"],["Incremental costs for COVID-19 (g)","","","\u2014","","","","\u2014","","","","\u2014","","","","6.9","","","","(1.7",")","","","5.2"],["Total special items","","","70.2","","","","(17.5",")","","","52.7","","","","100.2","","","","(11.2",")","","","89.0"],["Excluding special items","","$","1,178.9","","","$","(285.1",")","","$","893.8","","","$","732.9","","","$","(182.9",")","","$","550.0"]]
[[/GREPCENT_TABLE]]

(a)
For 2021, includes income primarily consisting of an adjustment of the required asset retirement obligation related to the 2020 closure of the San Lorenzo, California facility, a gain on sale of transportation assets and corrugated products facilities, and insurance proceeds received for a natural disaster at one of the corrugated products facilities, partially offset by closure costs related to corrugated products facilities. For 2020, includes charges consisting of restructuring costs for paper administrative functions and closure costs related to corrugated products facilities, substantially all of which relates to the previously announced closure of the San Lorenzo, California facility during the second quarter, partially offset by income related to the sale of a corrugated products facility during the second quarter.

(b)
Includes costs related to the Company's debt refinancing completed in October 2021, which included a redemption premium and the write-off of the remaining balance of unamortized debt issuance costs.

(c)
Includes charges related to the announced discontinuation of producing uncoated freesheet paper grades on the No. 3 machine at the Jackson, Alabama mill in the first quarter of 2021 associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.

(d)
Includes charges for acquisition and integration costs related to the December 2021 Advance Packaging Corporation acquisition.

(e)
During the second quarter of 2020, with the exacerbated deterioration in uncoated freesheet market conditions and the estimated impact on our Paper reporting unit arising from the COVID-19 pandemic, as well as projected future results of operations, we identified a triggering event indicating possible impairment of goodwill within our Paper reporting unit. The Company performed an interim quantitative impairment analysis as of May 31, 2020, and, based on the evaluation performed, we determined that goodwill was fully impaired for the Paper reporting unit and recognized a non-cash impairment charge of $55.2 million.

(f)
Includes charges related to the impact of Hurricane Laura at our DeRidder, Louisiana mill, including unabsorbed costs related to lost production, excess purchased containerboard and freight costs, repair expenses, rental and supplies costs, and other recovery expenses.

(g)
Includes incremental, out-of-pocket costs related to COVID-19, including supplies, cleaning and sick pay. Beginning in July 2020, all corresponding COVID-19 expenses were included in normalized costs.

32

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020"],["Net income","","$","841.1","","","$","461.0"],["Non-operating pension income","","","(19.7",")","","","(2.3",")"],["Interest expense, net","","","152.4","","","","93.5"],["Provision for income taxes","","","267.6","","","","171.7"],["Depreciation, amortization, and depletion","","","417.5","","","","410.0"],["EBITDA","","$","1,658.9","","","$","1,133.9"],["Special items:"],["Facilities closure and other costs (income)","","$","(4.3",")","","$","19.0"],["Jackson mill conversion-related activities","","","9.9","","","","\u2014"],["Acquisition and integration related costs","","","0.9","","","","\u2014"],["Goodwill impairment","","","\u2014","","","","55.2"],["Hurricane Laura impact","","","\u2014","","","","10.0"],["Incremental costs for COVID-19","","","\u2014","","","","6.9"],["EBITDA excluding special items","","$","1,665.4","","","$","1,225.0"]]
[[/GREPCENT_TABLE]]

The following table reconciles segment income (loss) to EBITDA and EBITDA excluding special items (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020"],["Packaging"],["Segment income","","$","1,306.0","","","$","829.5"],["Depreciation, amortization, and depletion","","","381.0","","","","365.2"],["EBITDA","","","1,687.0","","","","1,194.7"],["Facilities closure and other costs (income)","","","(3.5",")","","","18.2"],["Jackson mill conversion-related activities","","","4.3","","","","\u2014"],["Acquisition and integration related costs","","","0.4","","","","\u2014"],["Hurricane Laura impact","","","\u2014","","","","10.0"],["Incremental costs for COVID-19","","","\u2014","","","","6.3"],["EBITDA excluding special items","","$","1,688.2","","","$","1,229.2"],["Paper"],["Segment income (loss)","","$","39.1","","","$","(20.0",")"],["Depreciation, amortization, and depletion","","","27.4","","","","36.5"],["EBITDA","","","66.5","","","","16.5"],["Jackson mill conversion-related activities","","","5.2","","","","\u2014"],["Goodwill impairment","","","\u2014","","","","55.2"],["Facilities closure and other costs","","","\u2014","","","","0.8"],["Incremental costs for COVID-19","","","\u2014","","","","0.6"],["EBITDA excluding special items","","$","71.7","","","$","73.1"],["Corporate and Other"],["Segment loss","","$","(103.7",")","","$","(85.6",")"],["Depreciation, amortization, and depletion","","","9.1","","","","8.3"],["EBITDA","","","(94.6",")","","","(77.3",")"],["Acquisition and integration related costs","","","0.5","","","","\u2014"],["Jackson mill conversion-related activities","","","0.4","","","","\u2014"],["Facilities closure and other income","","","(0.8",")","","","\u2014"],["EBITDA excluding special items","","$","(94.5",")","","$","(77.3",")"],["EBITDA","","$","1,658.9","","","$","1,133.9"],["EBITDA excluding special items","","$","1,665.4","","","$","1,225.0"]]
[[/GREPCENT_TABLE]]

33