Segment Information

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Information

Segment Information

Prior to the acquisition of Boise on October 25, 2013, we manufactured and sold packaging products and reported our results in one reportable segment. In connection with the acquisition, we expanded our packaging business and entered the paper business as the third largest producer of white papers in North America in terms of production capacity. As a result, we began managing our business in three reportable segments: Packaging, Paper, and Corporate and Other. These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies. There are no differences in our basis of segmentation or in our basis of measurement of segment profit or loss from those disclosed in Note 19, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our updated 2013 Financial Statements.

Each segment's profits and losses are measured on operating profits before interest expense and interest income. After the acquisition of Boise, expenses that were historically included in "Corporate overhead" on our Consolidated Statements of Income, were reclassified to "Selling, general, and administrative expenses" to conform with the current year presentation. In addition, after increasing our product offerings to include both packaging and paper products after the Boise acquisition, we began allocating the amounts associated with running those businesses, previously included in "Corporate overhead", to our segments. For many of these allocated expenses, the related assets and liabilities remain in the Corporate and Other segment.

Effective January 1, 2014, the Company elected to change its method of accounting for certain inventories from lower of cost, as determined by the LIFO method, or market, to lower of cost, as determined by the average cost method, or market. The Company has applied this change in method of inventory costing retrospectively to all prior periods presented herein in accordance with U.S. generally accepted accounting principles relating to accounting changes. See Note 2, Change in Accounting Principle: Inventories, for additional information.

An analysis of operations by reportable segment were as follows (dollars in millions):

	Sales, net								Operating Income (Loss)
Three Months Ended September 30, 2014 (a)	Trade		Inter- segment			Total
Packaging	$	1,174.2	$	1.5		$	1,175.7		$	164.7		(b)
Paper	312.5		—			312.5			43.0			(c)
Corporate and Other	32.2		37.0			69.2			(19.3		)	(d)
Intersegment eliminations	—		(38.5		)	(38.5		)	—
	$	1,518.9	$	—		$	1,518.9		188.4
Interest expense, net									(23.1		)	(e)
Income before taxes									$	165.3

	Sales, net						Operating Income (Loss)
Three Months Ended September 30, 2013	Trade		Inter- segment		Total
Packaging	$	845.4	$	—	$	845.4	$	154.9		(f)
Corporate and Other	—		—		—		(12.1		)	(g)
	$	845.4	$	—	$	845.4	142.8
Interest expense, net							(11.9		)	(h)
Income before taxes							$	130.9

	Sales, net								Operating Income (Loss)
Nine Months Ended September 30, 2014 (a)	Trade		Inter- segment			Total
Packaging	$	3,413.8	$	4.5		$	3,418.3		$	501.8		(b)
Paper	917.0		—			917.0			104.3			(c)
Corporate and Other	87.9		112.8			200.7			(76.6		)	(d)
Intersegment eliminations	—		(117.3		)	(117.3		)	—
	$	4,418.7	$	—		$	4,418.7		529.5
Interest expense, net									(65.3		)	(e)
Income before taxes									$	464.2

	Sales, net						Operating Income (Loss)
Nine Months Ended September 30, 2013	Trade		Inter- segment		Total
Packaging	$	2,400.9	$	—	$	2,400.9	$	395.1		(f)
Corporate and Other	—		—		—		(36.1		)	(g)
	$	2,400.9	$	—	$	2,400.9	359.0
Interest expense, net							(30.4		)	(h)
Income before taxes							$	328.6

____________

(a) On October 25, 2013, we acquired Boise. The 2014 results include Boise for the full period.

(b) Includes costs related primarily to the conversion of the Number 3 newsprint machine at our DeRidder, Louisiana, mill to produce lightweight linerboard and corrugating medium, and our exit from the newsprint business in September 2014. The three and nine months ended September 30, 2014, include $26.0 million and $47.8 million, respectively, of restructuring charges, primarily accelerated depreciation. The three and nine months ended September 30, 2014, includes $1.0 million and $5.4 million of Boise acquisition integration-related and other costs recorded in "Other expense, net".

(c) Includes $0.4 million of income, net of expenses, for the nine months ended September 30, 2014, of integration related and other costs recorded in "Other expense, net".

(d) Includes $2.0 millionand $7.0 million, for the three and nine months ended September 30, 2014, of Boise acquisition integration-related and other costs recorded in "Other expense, net".

The nine months ended September 30, 2014, includes $17.6 million of costs for the settlement of the Kleen Products LLC v Packaging Corp. of America et al class action lawsuit. See Note 18, Commitments, Guarantees, Indemnifications and Legal Proceedings, for more information. These costs are recorded in "Other expense, net".

(e) Includes $1.5 million of expense related to the write-off of deferred financing costs in connection with the debt refinancing discussed in Note 10, Debt.

(f) Includes $3.1 million and $10.9 million, for the three and nine months ended September 30, 2013, respectively, of non-cash pension curtailment charges related to pension plan changes in which certain hourly corrugated plant and containerboard mill employees will transition from a defined benefit pension plan to a defined contribution (401k) plan.

(g) Includes $1.5 million of Boise acquisition-related costs primarily for professional fees related to transaction-advisory services.

(h) Includes $2.7 million of acquisition-related costs primarily related to financing the acquisition of Boise.