SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission file number 1-15399

PACKAGING CORPORATION OF AMERICA

(Exact Name of Registrant as Specified in its Charter)

Delaware		36-4277050
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
1900 West Field Court, Lake Forest, Illinois (Address of Principal Executive Offices)		60045 (Zip Code)

Registrant’s telephone number, including area code (847) 482-3000

Securities registered pursuant to Section 12(b) of the Act:

		Title of Each Class					Name of Each Exchange on Which Registered
Common Stock, $0.01 par value						New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

At June 28, 2002, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Registrant’s common equity held by nonaffiliates was approximately $1,194,557,459. This calculation of market value has been made for the purposes of this report only and should not be considered as an admission or conclusion by the Registrant that any person is in fact an affiliate of the Registrant.

On March 18, 2003, there were 104,580,090 shares of Common Stock outstanding.

Documents Incorporated by Reference

Specified portions of the Proxy Statement for the Registrant’s 2003 Annual Meeting of Shareholders are incorporated by reference to the extent indicated in Part III of this Form 10-K.

INDEX

		Page
PART I
Item 1.	Business	3
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	12
PART II
Item 5.	Market for Registrant’s Common Stock and Related Shareholder Matters	12
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	24
PART III
Item 10.	Directors and Executive Officers of the Registrant	25
Item 11.	Executive Compensation	26
Item 12.	Security Ownership of Certain Beneficial Owners and Management	26
Item 13.	Certain Relationships and Related Transactions	26
Item 14.	Controls and Procedures	26
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	27
SIGNATURES		30
CERTIFICATIONS		31
INDEX TO FINANCIAL STATEMENTS		F-1

PART I

Item 1. BUSINESS

General

Packaging Corporation of America, or PCA, is the sixth largest producer of containerboard and corrugated products in the United States, based on production capacity as reported in the Pulp & Paper 2002 North American Fact Book. With 2002 net sales of $1.7 billion, PCA produced about 2.2 million tons of containerboard, about 80% of which was consumed in our corrugated products manufacturing plants, and shipped about 27.5 billion square feet (BSF) of corrugated products.

Containerboard Production and Corrugated Shipments

		First		Second		Third		Fourth		Full
		Quarter		Quarter		Quarter		Quarter		Year
Containerboard Production (thousand tons)	2002		520		548		578		558	2,204
	2001		502		519		561		543	2,125
Corrugated Shipments (BSF)	2002		6.5		7.2		7.3		6.5	27.5
	2001		6.6		6.8		6.8		6.3	26.5

In 2002, we produced about 1.4 million tons of kraft linerboard at our mills located in Counce, Tennessee and Valdosta, Georgia. We also produced about 0.8 million tons of semi-chemical corrugating medium at our mills located in Tomahawk, Wisconsin and Filer City, Michigan. We currently lease the cutting rights to approximately 140,000 acres of timberland located near our Counce and Valdosta mills. We also have supply agreements on about 600,000 of the 800,000 acres of timberland we sold during 1999 and 2000.

Our converting operations produce a wide variety of corrugated packaging products, including conventional shipping containers used to protect and transport manufactured goods. We also produce multi-color boxes and displays with strong visual appeal that help to merchandise the packaged product in retail locations. Finally, we are a large producer of meat boxes and wax-coated boxes for the agricultural industry.

Corporate Developments

On April 12, 1999, Pactiv Corporation, formerly known as Tenneco Packaging Inc., a wholly owned subsidiary of Tenneco Inc., sold its containerboard and corrugated products business to PCA, an entity formed by Madison Dearborn Partners, LLC, a private equity investment firm, in January 1999, for $2.2 billion, consisting of $246.5 million in cash, the assumption of $1,760.0 million of debt incurred by Pactiv immediately prior to the contribution, and a 45% common equity interest in PCA valued at $193.5 million. PCA Holdings LLC, an entity organized and controlled by Madison Dearborn, acquired the remaining 55% common equity interest in PCA for $236.5 million in cash, which was used to finance in part the transactions.

The financing of the transactions consisted of (1) borrowings under a new $1,469.0 million senior credit facility for which J.P. Morgan Securities Inc. and BT Alex. Brown Incorporated (the predecessor to Deutsche Banc Alex. Brown) were co-lead arrangers, (2) the offering of $550.0 million of 9⁵/₈% senior subordinated notes due 2009, and $100.0 million of 12³/₈% senior exchangeable preferred stock due 2010, (3) a cash equity investment of $236.5 million by PCA Holdings LLC and (4) an equity investment by Pactiv valued at $193.5 million. As required by their terms, the $550.0 million of senior subordinated notes and $100.0 million of senior exchangeable preferred stock issued in the April 12, 1999 transactions were exchanged for publicly registered securities in the same amounts in a registered exchange offer completed in October 1999.

The senior credit facility was entered into to finance in part the transactions and to pay related fees and expenses and to provide future borrowings to PCA for general corporate purposes, including working capital. The senior credit facility initially consisted of three term loan facilities in an original aggregate principal amount of $1,219.0 million and a revolving credit facility with up to $250.0 million in availability. Effective December 14, 1999, PCA elected to reduce its availability under the revolving credit facility from $250.0 million to $150.0 million.

On January 28, 2000, PCA became a publicly-traded company with the initial public offering of its common stock. In the offering, Pactiv sold 35,000,000 shares and PCA sold 11,250,000 new shares of common stock, both at an offering price of $12.00 per share. PCA used its net proceeds to redeem all of the outstanding senior exchangeable preferred stock on March 3, 2000.

PCA completed the refinancing of its $735.0 million senior secured debt and $150.0 million senior secured revolving credit facility on June 29, 2000. Completion of the refinancing eliminated a $226.5 million term loan, and reduced PCA’s average effective interest rate on its senior secured term debt by approximately 100 basis points. PCA’s total borrowings under the senior credit facility as of December 31, 2002 consisted of $79.0 million of term loans. No amounts were outstanding under the senior revolving credit facility as of that date.

On November 29, 2000, PCA established an on-balance sheet securitization program for its trade accounts receivable. To effectuate this program, PCA formed a wholly-owned limited purpose subsidiary, Packaging Credit Company, LLC, or PCC, which in turn formed a wholly-owned, bankruptcy-remote, special-purpose subsidiary, Packaging Receivables Company, LLC, or PRC, for the purpose of acquiring receivables from PCC. Both of these entities are included in the consolidated financial statements of PCA. Under this program, PCC purchases on an ongoing basis all of the receivables of PCA and sells such receivables to PRC. PRC and lenders established a $150.0 million receivables-backed revolving credit facility through which PRC obtains funds to purchase receivables from PCC. The receivables purchased by PRC are and will be solely the property of PRC. In the event of a liquidation of PRC, the creditors of PRC would be entitled to satisfy their claims from PRC’s assets prior to any distribution to PCC or PCA. Credit available under the receivables credit facility is on a borrowing-base formula. As a result, the full amount of the facility may not be available at all times. As of December 31, 2002, $113.0 million was outstanding and $37.0 million was available for additional borrowing under the receivables credit facility. The highest outstanding principal balance under the receivables credit facility during fiscal 2002 was $126.0 million.

During 2001, Pactiv sold approximately 6,160,240 shares of PCA common stock, which represented its remaining ownership interest.

Industry Overview

According to the Fibre Box Association, the value of industry shipments of corrugated products was over $22 billion in 2002.

The primary end-use markets for corrugated products are shown below:

Food, beverages and agricultural products	43.0	%
Paper products	23.6	%
Petroleum, plastic, synthetic and rubber products	10.8	%
Glass, pottery, fabricated metal and metal containers	5.4	%
Electrical and electronic machinery and appliances	3.3	%
Toys, amusement, sporting and athletic goods	3.2	%
Textile mill products and apparel	2.2	%

Converting plants tend to be located in close proximity to customers to minimize freight costs. The corrugated products industry consists of approximately 675 companies in the United States.

Containerboard, which includes both linerboard and corrugating medium, is the principal raw material used to manufacture corrugated products. Linerboard is used as the inner and outer facings, or liners, of corrugated products. Corrugating medium is fluted and laminated to linerboard in corrugator plants to produce corrugated sheets. The sheets are subsequently printed, cut, folded and glued in corrugator plants or sheet plants to produce corrugated products.

Containerboard may be manufactured from both softwood and hardwood fibers, as well as from recycled fibers from used corrugated and waste from converting operations. Kraft linerboard is made predominantly from softwoods like pine. Semi-chemical corrugating medium is made from hardwoods such as oak. The finished paper product is wound into large rolls, which are slit to size as required by converters, and shipped to them.

Linerboard is made in a range of grades or basis weights. The most commonly used basis weight of linerboard is 35 lb., although linerboard is produced in weights that vary from under 26 lb. to over 90 lb. Basis weight represents the weight in pounds per thousand square feet of linerboard. Producers also market linerboard by performance characteristics, appearance and color. The following table describes different product weight, performance and color characteristics:

Category	Products	Description
Weights (lb./1,000 sq. ft.)	26-38 lb.	Lightweights
	41-56	Middleweights
	61-90	Heavyweights
	>90	Super heavyweights
Performance	High ring crush	Stacking or compression strength
	Tare weight	Minimal variations in basis weight
	Wet strength	Strength while wet
Color	Mottled white	Bleached pulp applied to unbleached sheet; mottled appearance
	White top	Even, white surface appearance on top sheet
	Full bleached	Solid white throughout

Historically, pricing for containerboard has reflected changes in containerboard supply as well as changes in demand.

PCA Operations and Products

Our two linerboard mills can manufacture a broad range of linerboard grades ranging from 26 lb. to 96 lb. Our two semi-chemical corrugating medium mills can manufacture grades ranging in weight from 21 lb. to 47 lb. All four of our mills have completed an extensive independent review process to become ISO 9002 certified. ISO 9002 is an international quality certification that verifies a facility maintains and follows stringent procedures for manufacturing, sales and customer service.

Counce. Our Counce, Tennessee mill is one of the largest linerboard mills in the United States. Its production capacity is approximately 980,000 tons per year. In 2002, we produced approximately 966,000 tons of kraft linerboard on two paper machines at Counce. We produced a broad range of basis weights from 31 lb. to 90 lb. The mill also produces a variety of performance and specialty grades of linerboard including high-ring crush and wet strength.

Valdosta. Our Valdosta, Georgia mill is a kraft linerboard mill that has a production capacity of approximately 406,000 tons per year. In 2002, our single paper machine at Valdosta produced approximately 425,000 tons of kraft linerboard. Linerboard production for 2002 exceeded the stated capacity of the mill due to an unusually high percentage of middleweight production. Valdosta produces light to middleweight linerboard ranging from 35 lb. to 56 lb., and heavyweight/super heavyweight linerboard ranging from 61 lb. to 90 lb.

Tomahawk. Our Tomahawk, Wisconsin mill is the second largest corrugating medium mill in the United States with production capacity of 547,000 tons per year. In 2002, we produced approximately 533,000 tons of semi-chemical corrugating medium on three paper machines, one of which is among the largest corrugating medium machines in the world. These machines produce a broad range of basis weights from 23 lb. to 40 lb. Our Tomahawk mill also produces a variety of performance and specialty grades of corrugating medium. This includes high ring crush, wet strength, tare weight and super heavyweight.

Filer City. Our Filer City, Michigan mill is a semi-chemical corrugating medium mill currently operating with two machines with a production capacity of 292,000 tons. In 2002, we produced approximately 281,000 tons of corrugating medium. In July 1998, we shut down one machine at Filer City. Mill production capacity at Filer City is 362,000 tons a year if we run all three paper machines. Filer City produces a range of corrugating medium grades in basis weights from 23 lb. to 40 lb.

We operate 64 corrugated manufacturing operations, a technical and development center, five regional graphic design centers, a rotogravure printing operation and a complement of packaging supplies and distribution centers. Of the 64 manufacturing facilities, 39 operate as combining operations that manufacture corrugated sheets and finished corrugated containers. The remaining 25 manufacturing facilities purchase combined sheets and manufacture finished corrugated containers. The five graphic design centers are located in Cincinnati, Ohio; Dallas, Texas; Cranbury, New Jersey; Salisbury, North Carolina and South Gate, California.

Our corrugated manufacturing operations are spread throughout the United States. Each corrugator plant serves a market radius that typically averages 150 miles. Our sheet plants are generally located in close proximity to our larger corrugator plants which enables us to offer additional services and converting capabilities such as small volume and quick turnaround items.

We produce a wide variety of products ranging from basic corrugated shipping containers to specialized packaging such as wax-coated boxes for the agriculture industry. We also have multi-color printing capabilities to make high-impact graphics boxes and displays that offer customers more attractive packaging.

Timberland

We currently lease the cutting rights to approximately 140,000 acres of timberland located near our Counce and Valdosta mills. Virtually all of the acres under cutting rights agreements are located within 100 miles of our mills, which results in lower wood transportation costs and provides a secure source of wood fiber. Most of these leased cutting rights agreements have terms with over 15 years remaining.

During 1999 and 2000, PCA sold about 800,000 acres of timberland. As part of the timberland sale agreements, we entered into supply arrangements covering about 600,000 acres of the total acres sold. We also retained a one-third equity ownership interest in 385,000 acres sold to Southern Timber Venture, LLC in November 2000.

In addition to the timberland we manage ourselves, our Forest Management Assistance Program provides professional forestry assistance to private timberland owners to improve harvest yields and to optimize their harvest schedule. We have managed the regeneration of approximately 120,000 acres by supplying pine seedlings. In exchange for our expertise, we are given the right of first refusal over timber

sales from those lands. These private lands include over 210,000 acres of timberland. We expect to harvest approximately 85,000 cords of wood from these forests annually.

PCA also participates in the Sustainable Forestry Initiative, which is organized by the American Forest and Paper Association. This initiative is aimed at ensuring the long-term health and conservation of America’s forestry resources. Activities include limiting tree harvest sizes, replanting harvest acreage, participating in flora and fauna research and protecting water streams.

Solid Wood and Recycling Facilities

We own three sawmills located in Ackerman and Fulton, Mississippi and Selmer, Tennessee. During 2002, these three sawmills sold approximately 115 million board feet of lumber used to make furniture and building products. We also have an air-dry yard operation in Burnsville, Mississippi that holds newly cut lumber while it dries.

We also operate two paper recycling centers, one in Jackson, Tennessee and one in Nashville, Tennessee. These recycling centers collect old corrugated containers, newspapers and other paper that provide a source of recycled fiber to our nearby Counce mill.

Sales and Marketing

Our corrugated products are sold through a direct sales and marketing organization. Sales representatives and a sales manager at each converting operations facility serve local and regional accounts. Corporate account managers serve large national accounts at multiple customer locations. Additionally, our graphic design centers maintain an on-site dedicated graphics sales force. General marketing support is located at our corporate headquarters.

Our containerboard sales group is responsible for the sale of linerboard and corrugating medium to our corrugator plants, to other domestic customers and to the export market. This group handles order processing for all shipments of containerboard from our mills to our corrugator plants. These personnel also coordinate and execute all containerboard trade agreements with other containerboard manufacturers.

In addition to direct sales and marketing personnel, we utilize support personnel that are new product development engineers and product graphics and design specialists. These individuals are located at both the corrugator plants as well as the graphic design centers.

Distribution

Our corrugated products are usually delivered by truck due to our large number of customers and their demand for timely service. Shipping costs represent a relatively high percentage of our total costs due to the high bulk of corrugated products. As a result, our converting operations typically service customers within a 150 miles radius.

Containerboard produced in our mills is shipped by rail or truck. Our individual mills do not own or maintain outside warehousing facilities. We do use some third-party warehouses for short-term storage.

Customers

PCA’s corrugated products group sells to over 8,300 customers in over 14,600 locations. About 70% of our corrugated products customers are regional and local accounts, which are broadly diversified across industries and geographic locations. The remaining 30% of our customer base consists primarily of national accounts, or those customers with a national presence. These customers typically purchase corrugated products from several of our box plants throughout the United States.

In 2002, our corrugated products plants consumed approximately 1,752,000 tons, or 80% of our mills’ containerboard production. Of the remaining 20% of our containerboard mill production that we did not consume at our own converting operations, about 12% of the tons was sold to domestic customers, and about 8% of the tons was sold to export customers.

Major Raw Materials Used

Fiber supply. Fiber is the single largest cost in the manufacture of containerboard. PCA consumes both wood fiber and recycled fiber in our containerboard mills. We have no 100% recycled mills, or those mills whose fiber consumption consists solely of recycled fiber. To reduce our fiber costs, we have invested in processes and equipment to ensure a high degree of fiber flexibility. Our mills have the capability to shift a portion of their fiber consumption between softwood, hardwood and recycled sources. With the exception of our Valdosta mill, our other mills can utilize some recycled fiber in their containerboard production. Our ability to use various types of virgin and recycled fiber helps mitigate the impact of changes in the prices of various fibers. Our corrugated products plants generate recycled fiber as a by-product from the manufacturing process, which is sold to our mills directly or through trade agreements. During 2002, our containerboard mills consumed approximately 554,000 tons of recycled fiber, of which about 198,000 tons was generated from our own box plants, resulting in net recycled consumption of 356,000 tons, or 16% of our total fiber requirements.

Energy supply. Energy at the mills is obtained through purchased electricity or through various fuels, which are converted to steam or electricity on-site. Fuel sources include coal, natural gas, oil, internally produced and purchased bark and by-products of the containerboard manufacturing and pulping process. These fuels are burned in boilers to produce steam. Steam turbine generators are used to produce electricity. To reduce our mill energy cost, we have invested in processes and equipment to ensure a high level of purchased fuel flexibility. Historically, natural gas and fuel oil have shown more price volatility than coal and purchased bark. During 2002, 11.8 million M² BTU’s (million BTU’s), or approximately 70% of our mills purchased fuel needs, were from purchased bark and coal, historically our two lowest cost fuels. For the same period, our mills consumed about 3.0 million M² BTU’s of natural gas and 1.9 million M² BTU’s of fuel oil.

Our two, kraft linerboard mills at Counce and Valdosta generate approximately 65% to 70% of their fuel requirements from their own by-products. Approximately 45% to 50% of the electricity consumed by our four mills is generated on-site.

PCA’s corrugated products combining plants each have a boiler that produces steam which is used by the corrugator. The majority of these boilers burn natural gas, although some also have the ability to burn fuel oil. During 2002, PCA’s corrugated products plants consumed approximately 2.1 million M² BTU’s of natural gas.

Competition

Corrugated products are produced by about 675 U.S. companies operating approximately 1,425 plants. Most corrugated products are custom manufactured to the customer’s specifications. Corrugated producers generally sell within a 150-mile radius of their plants and compete with other corrugated producers in their local market. In fact, the Fibre Box Association tracks industry data by 47 distinct market regions.

The larger, multi-plant integrated companies may also solicit larger, multi-plant customers who purchase for all of their facilities on a consolidated basis. These customers are often referred to as national or corporate accounts.

Corrugated products businesses seek to differentiate themselves through pricing, quality, service, design and product innovation. We compete for both local and national account business and we compete

against producers of other types of packaging products. On a national level, our competitors include Georgia-Pacific Corporation, International Paper Company, Smurfit-Stone Container Corporation, Temple-Inland Inc. and Weyerhaeuser Company. However, with our strategic focus on local and regional accounts, we believe we compete as much with the smaller, independent converters as with the larger, integrated producers.

Our principal competitors with respect to our containerboard produced but not consumed at our own corrugated products plants are a number of large, diversified paper companies, including Georgia-Pacific Corporation, International Paper Company, Smurfit-Stone Container Corporation, Temple-Inland Inc. and Weyerhaeuser Company, as well as other regional manufacturers. Containerboard is generally considered a commodity-type product and can be purchased from numerous suppliers.

Employees

As of December 31, 2002, we had approximately 7,900 employees. Approximately 2,200 of these employees were salaried and approximately 5,700 were hourly. Approximately 75% of our hourly employees are represented by unions. Our unionized employees are represented primarily by the Paper, Allied Industrial, Chemical, Energy Workers International Union, the International Association of Machinists, the Graphic Communications International Union and the United Steel Workers of America (USWA).

The contract for our unionized mill employees at our Valdosta, Georgia kraft linerboard mill expires in September 2003. Contracts for unionized mill employees at our three remaining containerboard mills expire between October 2005 and June 2007. Contracts for unionized converting plant employees expire between February 2003 and November 2008. We are currently in negotiations to renew or extend any union contracts that have recently expired or are expiring in the near future.

During 2002 we experienced no work stoppages. In 2001, we experienced a one-month strike at our Filer City mill with the USWA. The strike was settled, and the mill’s current agreement expires in May 2006. Prior to this incident we had experienced no instances of significant work stoppages in the previous 15 years. We believe we have satisfactory relations with our employees.

Environmental Matters

Compliance with environmental requirements is a significant factor in our business operations. We commit substantial resources to maintaining environmental compliance and managing environmental risk. We are subject to, and must comply with, a variety of federal, state and local environmental laws, particularly those relating to air and water quality, waste disposal and the cleanup of contaminated soil and groundwater. We believe that we are currently in material compliance with all applicable environmental rules and regulations. Because environmental regulations are constantly evolving, we have incurred, and will continue to incur, costs to maintain compliance with those laws. We work diligently to anticipate and budget for the impact of applicable environmental regulations and do not currently expect that future environmental compliance obligations will materially affect our business or financial condition.

In April 1998, the United States Environmental Protection Agency (EPA) finalized a new Clean Air and Water Act commonly referred to as the Cluster Rules, which govern all pulp and paper mill operations, including those at our mills. Over the next several years, the Cluster Rules will affect our allowable discharges of air and water pollutants. As a result, PCA and its competitors are required to incur costs to ensure compliance with these new rules. From 1997 through 2002, we spent approximately $30.3 million on Cluster Rule compliance to meet Clean Air Act requirements. Total capital costs for environmental matters, including Cluster Rule compliance, were $4.3 million for 2002. We currently estimate 2003 environmental capital expenditures will be $14.7 million, of which $4.4 million of the

expenditures are to meet Cluster Rule requirements. Our current spending projections to complete all Cluster Rule compliance requirements at our four mills is about $14.4 million from 2003 to 2005.

As is the case with any industrial operation, we have in the past incurred costs associated with the remediation of soil or groundwater contamination. From 1994 through 2002, remediation costs at our mills and converting plants totaled about $2.9 million. We do not believe that any on-going remedial projects are material in nature. As of December 31, 2002, we maintained an environmental reserve of $3.7 million, which includes funds relating to onsite landfill and surface impoundments as well as on-going and anticipated remedial projects. We believe these reserves are adequate.

We could also incur environmental liabilities as a result of claims by third parties for civil damages, including liability for personal injury or property damage, arising from releases of hazardous substances or contamination. We are not aware of any material claims of this type currently pending against us.

As a part of the April 12, 1999 transactions, Pactiv agreed to retain all liability for all former facilities and all sites associated with pre-closing offsite waste disposal. Pactiv also retained environmental liability for a closed landfill located near the Filer City mill.

Forward-looking Statements

Some of the statements in this report and in our 2002 Annual Report to Shareholders, and in particular, statements found in Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are not historical in nature may constitute forward-looking statements. These statements are often identified by the words “will,” “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. These factors, risks and uncertainties include the following:

· the impact of general economic conditions;

· containerboard and corrugated products general industry conditions, including competition, product demand and product pricing;

· fluctuations in wood fiber and recycled fiber costs;

· fluctuations in purchased energy costs;

· legislative or regulatory requirements, particularly concerning environmental matters.

Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our results of operations or financial condition. In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof. For a discussion of other factors that may affect our business, see the “Risk Factors” exhibit included with this report.

Available Information

The Company’s internet website address is www.packagingcorp.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission.

Item 2. PROPERTIES

The table below provides a summary of our containerboard mills, the principal products produced and each mill’s annual capacity.

Location

Function

Capacity (tons)

Counce, TN

Kraft linerboard mill

980,000

Valdosta, GA

Kraft linerboard mill

406,000

Tomahawk, WI

Semi-chemical medium mill

547,000

Filer City, MI

Semi-chemical medium mill

362,000

Total

2,295,000

* We have operated only two of our three paper machines at Filer City since July 1998, reducing the total productive capacity by 70,000 tons to 292,000 tons, and to 2,225,000 tons for our total mill containerboard system.

Each of the mills is currently subject to a mortgage held by Morgan Guaranty Trust Company of New York on behalf of the lenders under the senior credit facility.

In addition to our mills, we own 42 corrugated products plants. We also own three sawmills, an air-drying yard, one recycling facility, one warehouse and miscellaneous other property, which includes sales offices and woodlands forest management offices. These sales offices and woodlands forest management offices generally have one to four employees and serve as administrative offices. We lease 22 corrugated products plants, five regional design centers, one recycling facility and numerous other distribution centers, warehouses and facilities. PCA has one leased property, a warehouse and assembly center, outside of the continental United States in Nogales, Mexico. All of our owned real property is subject to a first priority mortgage held by Morgan Guaranty Trust Company of New York on behalf of the lenders under the senior credit facility.

We lease the cutting rights to approximately 140,000 acres of timberland located near our Counce and Valdosta mills. Most of these cutting rights agreements have terms with over 15 years remaining.

We currently lease our executive and administrative offices in Lake Forest, Illinois under a lease expiring in January 2005. We currently believe that our facilities and properties are sufficient to meet our operating requirements for the foreseeable future.

Item 3. LEGAL PROCEEDINGS

On May 14, 1999, PCA was named as a defendant in a Consolidated Class Action Complaint which alleged a civil violation of Section 1 of the Sherman Act. The suit, captioned Winoff Industries, Inc. v. Stone Container Corporation, MDL No. 1261 (E.D. Pa.), names us as a defendant based solely on the allegation that PCA is successor to the interests of Tenneco Packaging Inc. and Tenneco Inc., both of which were also named as defendants in the suit, along with nine other linerboard manufacturers. The complaint alleges that the defendants, during the period October 1, 1993 through November 30, 1995, conspired to limit the supply of linerboard, and that the purpose and effect of the alleged conspiracy was artificially to increase prices of corrugated containers. The plaintiffs have moved to certify a class of all persons in the United States who purchased corrugated containers directly from any defendant during the above period, and seek treble damages and attorneys’ fees on behalf of the purported class. The Court granted plaintiffs’ motion on September 4, 2001, but modified the proposed class to exclude those purchasers who purchased corrugated containers pursuant to contracts in which the price was “not tied to the price of linerboard”. The Court’s class certification decision was affirmed by the Court of Appeals for the Third Circuit on September 5, 2002. The case is currently set for trial in April, 2004. We believe that the plaintiffs’ allegations have no merit and intend to defend against the suit vigorously. We do not believe that the

outcome of this litigation should have a material adverse effect on our financial position, results of operations, or cash flow.

PCA is also party to various legal actions arising in the ordinary course of our business. These legal actions cover a broad variety of claims spanning our entire business. We believe that the resolution of these legal actions will not, individually or in the aggregate, have a material adverse effect on our financial condition or results of operations.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders in the fourth quarter of 2002.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Market for Common Stock; Dividends

PCA’s common stock is listed on the New York Stock Exchange under the symbol “PKG”. The following table sets forth the high and low sale prices as reported by the New York Stock Exchange during the last two years.

	Fiscal Year 2002
		First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
Stock sale prices per share:
High		$	19.88	$	21.10	$	19.85	$	18.60	$	21.10
Low		$	16.45	$	18.81	$	16.27	$	16.20	$	16.20

	Fiscal Year 2001
		First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
Stock sale prices per share:
High		$	16.50	$	16.98	$	20.70	$	18.64	$	20.70
Low		$	12.65	$	12.85	$	14.75	$	14.23	$	12.65

As of March 18, 2003, there were 52 holders of record of our common stock.

We have never paid dividends on our common stock, and we currently have no plans to do so. The payment of any future dividends will be determined by PCA’s Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors. Under the terms of the agreements governing our outstanding indebtedness, we are restricted in the amount of dividends we can pay on our common stock.

No equity securities of PCA were sold by PCA during fiscal year 2002 which were not registered under the Securities Act of 1933.

Stock Repurchase Program

On May 16, 2001, PCA announced a $100.0 million common stock repurchase program. We currently expect to continue to repurchase shares from time to time. The following table sets forth our share repurchases during the last two years.

Time Period	Number of Shares	Average Price Per Share			Total Cost
					(In thousands)
First Quarter	––		$	—		$	—
Second Quarter	222,900		15.55			3,465
Third Quarter	1,589,800		16.75			26,634
Fourth Quarter	510,500		16.12			8,229
Total 2001	2,323,200		$	16.50		$	38,328
First Quarter	385,100		$	17.54		$	6,754
Second Quarter	120,100		19.61			2,355
Third Quarter	1,078,700		17.37			18,735
Fourth Quarter	303,800		16.93			5,143
Total 2002	1,887,700		$	17.47		$	32,987
Total Program To Date	4,210,900		$	16.94		$	71,315

Item 6. SELECTED FINANCIAL DATA

The following table sets forth the selected historical financial and other data of PCA and the containerboard and corrugated products business of Pactiv Corporation (the “Group”). The selected historical financial and other data as of and for the years ended December 31, 1998, and for the period from January 1, 1999 to April 11, 1999, was derived from the audited combined financial statements of the Group. The historical financial data as of December 31, 1999 and for the period from April 12, 1999 to December 31, 1999, and for the years ended December 31, 2000, 2001and 2002 has been derived from the audited consolidated financial statements of PCA included elsewhere in this report. The information contained in the following table also should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical consolidated financial statements of PCA including the notes thereto, contained elsewhere in this report.

	PCA(1)												Group
	For the Year Ended December 31,								April 12, 1999 Through				Jan. 1, 1999 Through				Year Ended
	2002		2001			2000			Dec. 31, 1999				April 11, 1999				Dec. 31, 1998
(In thousands, except per share data)
Statement of Income Data:
Net sales	$	1,735,858	$	1,789,956		$	1,921,868			$	1,317,342			$	453,207			$	1,643,823
Income (loss) before cumulative effect of accounting change and extraordinary item	$	48,179	$	107,522		$	172,961			$	47,397			$	(128,599	)		$	71,439
Cumulative effect of accounting change	—		(495		)	—				—				—				—
Extraordinary item	—		(609		)	(11,060		)		(6,897		)		(6,327		)		—
Net income (loss)	48,179		106,418			161,901				40,500				(134,926		)		71,439
Preferred dividends and accretion of preferred stock issuance costs	—		—			(18,637		)		(9,296		)		—				—
Net income (loss) available to common stockholders	$	48,179	$	106,418		$	143,264			$	31,204			$	(134,926	)		$	71,439
Basic earnings per share(2):
Income (loss) before cumulative effect of accounting change and extraordinary item	$	.46	$	1.01		$	1.47			$	.41			$	(1.36	)		$	.76
Cumulative effect of accounting change	—		—			—				—				—				—
Extraordinary item	—		(.01		)	(.10		)		(.07		)		(.07		)		—
Net income (loss) per common share	$	.46	$	1.00		$	1.37			$	.34			$	(1.43	)		$	.76
Diluted earnings per share(2):
Income (loss) before cumulative effect of accounting change and extraordinary item	$	.45	$	.99		$	1.43			$	.39			$	(1.36	)		$	.76
Cumulative effect of accounting change	—		—			—				—				—				—
Extraordinary item	—		(.01		)	(.10		)		(.07		)		(.07		)		—
Net income (loss) per common share	$	.45	$	.98		$	1.33			$	.32			$	(1.43	)		$	.76
Weighted average common shares outstanding	105,053		106,277			104,890				92,108				94,600				94,600
Balance Sheet Data:
Total assets	$	1,982,551	$	1,971,780		$	1,942,112			$	2,153,208			$	2,391,089			$	1,367,403
Total long-term obligations(3)	742,213		795,217			869,414				1,432,553				1,760,466				17,552
Shareholders equity/interdivision account	795,875		769,834			687,424				416,699				156,697				908,392

1) There was no activity for PCA from January 25, 1999, its date of inception, through April 11, 1999.

2) Earnings per share through April 11, 1999 has been calculated using the historical earnings of the Group and the number of common shares resulting from the closing of the acquisition on April 12, 1999 (94,600,000 common shares after giving effect to the 220-for-one stock split). For the PCA historical period from April 12, 1999 to December 31, 1999, earnings available to common stockholders includes a reduction for $9,296 of preferred stock dividends. For the year ended December 31, 2000, earnings available to common stockholders includes reductions of $2,371 of preferred stock dividends and $16,266 for the redemption of PCA’s 12 3/8% preferred stock. PCA did not declare any dividends on its common shares in 1999, 2000, 2001 or 2002.

For all periods presented through April 11, 1999, basic and diluted earnings per share are the same because there are no potentially dilutive securities. For the PCA historical period from April 12, 1999 to December 31, 1999 and for the years ended December 31, 2000, 2001 and 2002 diluted earnings per share includes the dilutive effect of outstanding options. This dilutive effect is calculated using the treasury stock method.

3) Total long-term obligations include long-term debt, the current maturities of long-term debt and redeemable preferred stock. The amount excludes amounts due to Pactiv or other Tenneco affiliates as part of the Group’s interdivision account or other financing arrangement.

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

The following discussion 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 report.

Overview

In connection with the April 12, 1999 transactions, PCA acquired the containerboard and corrugated products business of Pactiv Corporation (the “Group”), formerly known as Tenneco Packaging Inc., a wholly owned subsidiary of Tenneco, Inc. The Group operated prior to April 12, 1999 as a division of Pactiv, and not as a separate, stand-alone entity. From its formation in January 1999 and through the closing of the acquisition on April 12, 1999, PCA did not have any significant operations.

The April 12, 1999 acquisition was accounted for using historical values for the contributed assets. Purchase accounting was not applied because, under the applicable accounting guidance, a change of control was deemed not to have occurred as a result of the participating veto rights held by Pactiv after the closing of the transactions under the terms of the stockholders agreement entered into in connection with the transactions.

General

Containerboard demand is dependent upon both domestic demand for corrugated products and linerboard export activity.

According to Pulp & Paper Week, after giving effect to price changes in 2002, average mid-point prices in December 2002 for linerboard and corrugating medium, East, were 4% higher than December 2001 prices.

Pulp & Paper Week, in its February 17, 2003 publication, reported that average prices for linerboard and corrugating medium decreased $10 per ton, or 2%, and $15 per ton, or 4%, respectively, compared to December 2002 levels. The March 17, 2003 Pulp & Paper Week publication reported that prices remained unchanged from February 2003 levels.

Results of Operations

The historical results of operations of PCA are set forth below:

*(In millions)*	For the Year Ended December 31,
*(In millions)*	2002				2001				2000
Net Sales		$	1,735.9			$	1,790.0			$	1,921.9
Operating Income		$	145.3			$	249.5			$	404.8
Interest Expense		(67.7		)		(74.1		)		(117.6		)
Income Before Taxes, Cumulative Effect of Accounting Change and Extraordinary Item		77.6				175.4				287.2
Provision for Income Taxes		(29.4		)		(67.9		)		(114.2		)
Income Before Cumulative Effect of Accounting Change and Extraordinary Item		48.2				107.5				173.0
Cumulative Effect of Accounting Change		—				(0.5		)		—
Extraordinary Item		—				(0.6		)		(11.1		)
Net Income		48.2				106.4				161.9
Preferred Dividends and Accretion of Preferred Stock Issuance Costs		—				—				(18.6		)
Net Income Available to Common Shareholders		$	48.2			$	106.4			$	143.3

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net Sales

Net sales decreased by $54.1 million, or 3.0%, for the year ended December 31, 2002 from the year ended December 31, 2001. The decrease was primarily the result of decreased sales prices of corrugated products and containerboard, partially offset by increased corrugated products volume and slightly higher volume of containerboard sold to third parties.

Total corrugated products volume increased 3.5% to 27.5 billion square feet in 2002 compared to 26.5 billion square feet in 2001. On a comparable shipment-per-workday basis, corrugated products volume increased 3.9% in 2002 from 2001. The larger percentage increase was due to the fact that 2001 had one more workday, those days not falling on a weekend or holiday, than 2002. Containerboard volume to external domestic and export customers increased 11.4% to 477,000 tons for the year ended December 31, 2002 from 428,000 tons in the comparable period of 2001. Our total containerboard mill production in 2002 was 2,204,000 tons compared to 2,125,000 tons in 2001.

According to Pulp & Paper Week, average industry mid-point linerboard and semi-chemical medium prices for 42 lb. Liner-East and 26 lb. Medium-East, which are representative benchmark grades, were $426 and $383, respectively, per ton in 2002. This compares to $444 and $404, respectively, per ton in 2001. With respect to box prices, PCA realized an additional $9 per ton increase in October after implementing $10 per ton increases in both August and September.

In November 2002, Pulp & Paper Week reported that average linerboard prices for 42 lb. Liner-East decreased $5 per ton to $435 per ton. The same publication reported that prices for 26 lb. Medium-East, semi-chemical medium remained unchanged for the month at $395 per ton. Pulp & Paper Week reported no changes in linerboard or medium prices in December.

Income Before Interest Expense and Income Taxes (Operating Income)

Operating income decreased by $104.2 million, or 41.8%, for the year ended December 31, 2002 compared to 2001. The decrease was primarily the result of decreased sales prices, which reduced operating income by $97.8 million, plus increased costs for recycled fiber at our containerboard mills,

higher medical costs and increased depreciation expense. These items were only partially offset by increased corrugated products and containerboard volume.

PCA did not record any material benefit related to changes in accounting treatment of goodwill in 2002. Goodwill amortization was not material for the years ended December 31, 2000 and 2001.

Gross profit decreased $91.4 million, or 21.9%, for the year ended December 31, 2002 from the year ended December 31, 2001. Gross profit as a percentage of sales declined from 23.3% of sales in 2001 to 18.8% of sales in the current year primarily due to the sales price decreases described above.

Corporate overhead for the year ended December 31, 2002, increased by $0.4 million, or 1.1%, from the year ended December 31, 2001.

Selling and administrative expenses increased $8.6 million, or 6.9%, for the year ended December 31, 2002 from the comparable period in 2001. The increase was primarily the result of increased salary, medical and other general selling related expenses.

Interest Expense and Income Taxes

Interest expense decreased by $6.4 million, or 8.6%, for the year ended December 31, 2002 from the comparable period in 2001, primarily due to prepayments PCA made in 2001 and 2002 on the term loans under its senior credit facility and the receivables credit facility.

PCA’s effective tax rate was 37.9% for the year ended December 31, 2002 and 38.7% for the year ended December 31, 2001. The tax rate is higher than the federal statutory rate of 35.0% due to state income taxes.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net Sales

Net sales decreased by $131.9 million, or 6.9%, for the year ended December 31, 2001 from the year ended December 31, 2000. The decrease was primarily the result of decreased sales prices, reduced volume of containerboard sold to third parties, and slightly lower corrugated products volume.

Total corrugated products volume decreased 1.1% to 26.5 billion square feet in 2001 compared to 26.9 billion square feet in 2000. On a comparable shipment-per-workday basis, corrugated products volume decreased 1.5% in 2001 from 2000. The larger percentage decrease was due to the fact that 2001 had one more workday, those days not falling on a weekend or holiday, than 2000. Containerboard volume to external domestic and export customers decreased 16.0% to 428,000 tons for the year ended December 31, 2001 from 509,000 tons in the comparable period of 2000. Our total containerboard mill production in 2001 was 2,125,000 tons compared to 2,165,000 tons in 2000.

Income Before Interest Expense and Income Taxes (Operating Income)

Operating income decreased by $95.0 million, or 27.6%, for the year ended December 31, 2001 compared to 2000. The decrease was the result of decreased sales prices which reduced operating income by $63.4 million in addition to lower volume of containerboard sold to third parties, and slightly lower corrugated products volume. Operating income for 2000 excludes a fourth quarter gain on timberland sales of $60.4 million.

Gross profit decreased $85.5 million, or 17.0%, for the year ended December 31, 2001 from the year ended December 31, 2000. Gross profit as a percentage of sales declined from 26.2% of sales in 2000 to 23.3% of sales in 2001 primarily due to the sales price decreases described above.

Corporate overhead for the year ended December 31, 2001, increased by $0.1 million, or 0.2%, from the year ended December 31, 2000.

Selling and administrative expenses increased $5.5 million, or 4.7%, for the year ended December 31, 2001 from the comparable period in 2000. The increase was primarily the result of increased salary and other general selling related expenses.

Interest Expense and Income Taxes

Interest expense decreased by $43.7 million, or 37.1%, for the year ended December 31, 2001 from the comparable period in 2000, primarily due to prepayments PCA made on its term loans under the senior credit facility.

PCA’s effective tax rate was 38.7% for the year ended December 31, 2001 and 39.8% for the year ended December 31, 2000. The tax rate is higher than the federal statutory rate of 35.0% due to state income taxes.

Liquidity and Capital Resources

Operating Activities

Cash flow provided by operating activities decreased $74.3 million, or 23.6%, to $240.0 million, for the year ended December 31, 2002 compared to the year ended December 31, 2001. The decrease was primarily due to lower net income as a result of decreased sales prices of containerboard and corrugated products, as well as decreased deferred income taxes and unfavorable changes in working capital. The unfavorable changes in working capital were primarily driven by higher balances of accounts receivable related to the strong sales volumes previously described, partially offset by lower inventory levels and a smaller reduction of the accounts payable balance than in 2001.

Cash flow provided by operating activities decreased $26.7 million, or 7.8%, to $314.3 million, for the year ended December 31, 2001 from the comparable period in 2000. The decrease was primarily due to lower net income and decreased deferred taxes partially offset by a favorable change in working capital, caused by lower balances of accounts receivable due to lower sales prices and volumes described previously.

Investing Activities

Cash used for investing activities decreased by $25.3 million, or 18.7%, to $109.6 million, for the year ended December 31, 2002 compared to the year ended December 31, 2001. The change was primarily the result of decreased additions to property, plant and equipment and one business acquisition in the second quarter of 2001.

Cash used for investing activities increased by $251.8 million, or 215.3%, to $134.9 million, for the year ended December 31, 2001 compared to the year ended December 31, 2000. The change was primarily attributable to a reduction in proceeds from timberland sales of $247.9 million.

As of December 31, 2002, PCA had commitments for capital expenditures of $31.3 million. PCA believes operating cash flow from continuing operations will be sufficient to fund these commitments.

Financing Activities

Cash used for financing activities decreased by $23.3 million, or 22.2%, to $81.6 million, for the year ended December 31, 2002 compared to the year ended December 31, 2001, primarily attributable to decreased prepayments made by PCA on its various debt agreements and a decrease in expenditures to repurchase PCA common stock.

Cash used for financing activities decreased by $355.5 million, or 77.2%, for the year ended December 31, 2001 compared to the year ended December 31, 2000, primarily reflecting decreased prepayments made by PCA on its various debt agreements.

On January 28, 2000, PCA became a publicly traded company with an initial public offering of its common stock. On March 3, 2000, PCA used the net proceeds from the offering to redeem all of its outstanding shares of 12³/₈% senior exchangeable preferred stock due 2010.

On November 16, 2000, PCA completed the sale of approximately 385,000 acres of timberland to Southern Timber Venture, LLC. PCA received $247.9 million in cash and a 33¹/₃% equity ownership interest in Southern Timber Venture, LLC. PCA recorded a pre-tax gain of $60.4 million, and a portion of the gain was not recognized as a result of PCA’s continuing ownership interest. In March 2002 PCA received a $2.3 million dividend ($1.4 million, after-tax) from Southern Timber Venture, LLC.

On November 29, 2000, PCA established an on-balance sheet securitization program for its trade accounts receivable. To effectuate this program, PCA formed a wholly-owned limited purpose subsidiary, Packaging Credit Company, LLC, or PCC, which in turn formed a wholly-owned, bankruptcy-remote, special-purpose subsidiary, Packaging Receivables Company, LLC, or PRC, for the purpose of acquiring receivables from PCC. Both of these entities are included in the consolidated financial statements of PCA. Under this program, PCC purchases on an ongoing basis substantially all of the receivables of PCA and sells such receivables to PRC. PRC and lenders established a $150.0 million receivables-backed revolving credit facility through which PRC obtains funds to purchase receivables from PCC. The receivables purchased by PRC are and will be solely the property of PRC. In the event of a liquidation of PRC, the creditors of PRC would be entitled to satisfy their claims from PRC’s assets prior to any distribution to PCC or PCA. Credit available under the receivables credit facility is on a borrowing-base formula. As a result, the full amount of the facility may not be available at all times. As of December 31, 2002, $113.0 million was outstanding and $37.0 million was available for additional borrowing under the receivables credit facility. The highest outstanding principal balance under the receivables credit facility during fiscal 2002 was $126.0 million.

Contractual Obligations

The following table summarizes PCA’s contractual obligations at December 31, 2002:

	Payments Due by Period
*(In thousands)*	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Term loans	$	79,000	$	—	$	45,734	$	33,266	$	—
Receivables credit facility	113,000		113,000		—		—		—
Senior subordinated notes, 9⁵/₈%, callable beginning April 1, 2004 at 104.8125%	550,000		—		—		—		550,000
Other long-term debt	213		94		119		—		—
Total short-term and long-term debt	742,213		113,094		45,853		33,266		550,000
Operating leases	94,409		19,589		31,207		12,051		31,562
Purchase commitments	19,715		15,639		4,076		—		—
Letters of credit	16,600		14,535		2,065		—		—
Total	$	872,937	$	162,857	$	83,201	$	45,317	$	581,562

The lease commitments, purchase commitments and letters of credit are not reflected on PCA’s consolidated balance sheet as of December 31, 2002. See Notes 6 and 10 to the audited consolidated financial statements for additional information.

PCA’s primary sources of liquidity are cash flows from operations and borrowings under PCA’s senior revolving credit facility and receivables credit facility. As of December 31, 2002, PCA had $187.0 million in unused borrowing capacity under its existing credit agreements. PCA’s primary uses of cash are for debt service and capital expenditures. PCA expects to be able to fund its debt service and capital expenditures from these sources.

The following table provides the outstanding balance and the weighted average interest rate as of December 31, 2002 for each of PCA’s outstanding term loans, the revolving credit facility and the receivables credit facility:

Borrowing Arrangement (in thousands)

Balance at
December 31, 2002

Weighted Average
Interest Rate