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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission file number 1-15399

 

img3312389_0.jpg 

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

36-4277050

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1 North Field Court, Lake Forest, Illinois

 

60045

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant's telephone number, including area code

(847) 482-3000

 

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Emerging growth company

 

 

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of October 28, 2022 the Registrant had outstanding 92,534,480 shares of common stock, par value $0.01 per share.

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

PKG

New York Stock Exchange

 

 


Table of Contents

 

 

 

PART I

 

 

 

 

 

Item 1.

 

Financial Statements

1

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

 

Item 4.

 

Controls and Procedures

27

 

 

 

 

 

 

PART II

 

 

 

 

 

Item 1.

 

Legal Proceedings

28

 

 

 

 

Item 1A.

 

Risk Factors

28

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

28

 

 

 

 

Item 4.

 

Mine Safety Disclosures

28

 

 

 

 

Item 5.

 

Other Information

28

 

 

 

 

Item 6.

 

Exhibits

29

 

All reports we file with the Securities and Exchange Commission (SEC) are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available through our website at www.packagingcorp.com as soon as reasonably practicable after filing such material with the SEC.

 

 

 

i


PART I

FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Packaging Corporation of America

Consolidated Statements of Income and Comprehensive Income

(unaudited, dollars in millions, except per-share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Statements of Income:

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

2,125.9

 

 

$

2,000.1

 

 

$

6,499.6

 

 

$

5,687.1

 

Cost of sales

 

 

(1,607.5

)

 

 

(1,489.4

)

 

 

(4,859.3

)

 

 

(4,324.0

)

Gross profit

 

 

518.4

 

 

 

510.7

 

 

 

1,640.3

 

 

 

1,363.1

 

Selling, general and administrative expenses

 

 

(145.2

)

 

 

(144.5

)

 

 

(462.9

)

 

 

(435.7

)

Other expense, net

 

 

(12.9

)

 

 

(13.4

)

 

 

(44.7

)

 

 

(41.7

)

Income from operations

 

 

360.3

 

 

 

352.8

 

 

 

1,132.7

 

 

 

885.7

 

Non-operating pension income

 

 

3.6

 

 

 

5.0

 

 

 

10.9

 

 

 

14.8

 

Interest expense, net

 

 

(16.5

)

 

 

(23.9

)

 

 

(55.3

)

 

 

(72.2

)

Income before taxes

 

 

347.4

 

 

 

333.9

 

 

 

1,088.3

 

 

 

828.3

 

Provision for income taxes

 

 

(84.9

)

 

 

(83.2

)

 

 

(270.1

)

 

 

(203.7

)

Net income

 

$

262.5

 

 

$

250.7

 

 

$

818.2

 

 

$

624.6

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.81

 

 

$

2.64

 

 

$

8.74

 

 

$

6.58

 

Diluted

 

$

2.80

 

 

$

2.63

 

 

$

8.70

 

 

$

6.55

 

Dividends declared per common share

 

$

1.25

 

 

$

1.00

 

 

$

3.50

 

 

$

3.00

 

Statements of Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

262.5

 

 

$

250.7

 

 

$

818.2

 

 

$

624.6

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

0.4

 

 

 

 

 

 

0.4

 

Changes in unrealized losses on marketable debt securities,
   net of tax of $
0.2 million, $0.0 million, $0.7 million,
   and $
0.1 million

 

 

(0.6

)

 

 

 

 

 

(2.1

)

 

 

(0.2

)

Amortization of pension and postretirement plans actuarial loss and
   prior service cost, net of tax of ($
0.4) million, ($0.8) million,
   ($
1.2) million, and ($2.5) million

 

 

1.2

 

 

 

2.5

 

 

 

3.5

 

 

 

7.5

 

Other comprehensive income

 

 

0.6

 

 

 

2.9

 

 

 

1.4

 

 

 

7.7

 

Comprehensive income

 

$

263.1

 

 

$

253.6

 

 

$

819.6

 

 

$

632.3

 

 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

1


Packaging Corporation of America

Consolidated Balance Sheets

(unaudited, dollars and shares in millions, except per-share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

648.7

 

 

$

618.7

 

Short-term marketable debt securities

 

 

77.7

 

 

 

86.1

 

Accounts receivable, net of allowance for credit losses and customer deductions
   of $
20.2 million and $14.3 million as of September 30, 2022 and December 31, 2021,
   respectively

 

 

1,112.8

 

 

 

1,071.0

 

Inventories

 

 

994.9

 

 

 

902.5

 

Prepaid expenses and other current assets

 

 

67.3

 

 

 

47.0

 

Federal and state income taxes receivable

 

 

6.1

 

 

 

7.4

 

Total current assets

 

 

2,907.5

 

 

 

2,732.7

 

Property, plant, and equipment, net

 

 

3,813.2

 

 

 

3,529.0

 

Goodwill

 

 

922.4

 

 

 

923.5

 

Other intangible assets, net

 

 

277.4

 

 

 

308.4

 

Operating lease right-of-use assets

 

 

286.8

 

 

 

238.3

 

Long-term marketable debt securities

 

 

67.1

 

 

 

60.0

 

Other long-term assets

 

 

70.0

 

 

 

44.9

 

Total assets

 

$

8,344.4

 

 

$

7,836.8

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Operating lease obligations

 

$

72.5

 

 

$

67.1

 

Finance lease obligations

 

 

1.8

 

 

 

1.7

 

Accounts payable

 

 

485.3

 

 

 

452.4

 

Dividends payable

 

 

118.8

 

 

 

96.3

 

Accrued liabilities

 

 

259.5

 

 

 

255.0

 

Accrued interest

 

 

25.5

 

 

 

12.3

 

Total current liabilities

 

 

963.4

 

 

 

884.8

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

2,473.1

 

 

 

2,471.5

 

Operating lease obligations

 

 

221.4

 

 

 

179.3

 

Finance lease obligations

 

 

11.3

 

 

 

12.7

 

Deferred income taxes

 

 

513.7

 

 

 

465.9

 

Compensation and benefits

 

 

129.2

 

 

 

157.4

 

Other long-term liabilities

 

 

61.1

 

 

 

58.0

 

Total long-term liabilities

 

 

3,409.8

 

 

 

3,344.8

 

Commitments and contingent liabilities (Note 20)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, par value $0.01 per share, 300.0 million shares authorized, 92.7 million
   and
93.5 million shares issued as of September 30, 2022 and December 31, 2021,
   respectively

 

 

0.9

 

 

 

0.9

 

Additional paid in capital

 

 

600.6

 

 

 

579.4

 

Retained earnings

 

 

3,443.5

 

 

 

3,102.1

 

Accumulated other comprehensive loss

 

 

(73.8

)

 

 

(75.2

)

Total stockholders' equity

 

 

3,971.2

 

 

 

3,607.2

 

Total liabilities and stockholders' equity

 

$

8,344.4

 

 

$

7,836.8

 

 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

2


Packaging Corporation of America

Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2022

 

 

2021

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

818.2

 

 

$

624.6

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, depletion, and amortization of intangibles

 

 

338.0

 

 

 

311.1

 

Amortization of deferred financing costs

 

 

1.5

 

 

 

2.0

 

Share-based compensation expense

 

 

28.7

 

 

 

26.9

 

Deferred income tax provision

 

 

47.3

 

 

 

41.7

 

Net loss on asset disposals

 

 

11.1

 

 

 

7.3

 

Pension and post-retirement benefits expense, net of contributions

 

 

(48.1

)

 

 

(50.4

)

Other, net

 

 

4.0

 

 

 

8.9

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Increase in assets —

 

 

 

 

 

 

Accounts receivable

 

 

(41.6

)

 

 

(234.3

)

Inventories

 

 

(92.8

)

 

 

(92.3

)

Prepaid expenses and other current assets

 

 

(20.1

)

 

 

(11.8

)

Increase (decrease) in liabilities —

 

 

 

 

 

 

Accounts payable

 

 

8.9

 

 

 

22.3

 

Accrued liabilities

 

 

18.6

 

 

 

53.5

 

Federal and state income taxes receivable

 

 

1.2

 

 

 

(6.1

)

Net cash provided by operating activities

 

 

1,074.9

 

 

 

703.4

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Additions to property, plant, and equipment

 

 

(577.1

)

 

 

(366.2

)

Additions to other long-term assets

 

 

(5.8

)

 

 

(1.8

)

Proceeds from asset disposals

 

 

1.8

 

 

 

2.6

 

Purchases of marketable debt securities

 

 

(98.0

)

 

 

(100.3

)

Proceeds from sales of marketable debt securities

 

 

28.4

 

 

 

17.7

 

Proceeds from maturities of marketable debt securities

 

 

66.9

 

 

 

83.0

 

Other, net

 

 

1.9

 

 

 

 

Net cash used for investing activities

 

 

(581.9

)

 

 

(365.0

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Repayments of debt and finance lease obligations

 

 

(1.3

)

 

 

(1.2

)

Proceeds from issuance of debt

 

 

 

 

 

696.3

 

Financing costs paid

 

 

 

 

 

(8.5

)

Common stock dividends paid

 

 

(304.4

)

 

 

(284.8

)

Repurchases of common stock

 

 

(142.0

)

 

 

 

Shares withheld to cover employee restricted stock taxes

 

 

(15.3

)

 

 

(11.9

)

Net cash (used for) provided by financing activities

 

 

(463.0

)

 

 

389.9

 

Net increase in cash and cash equivalents

 

 

30.0

 

 

 

728.3

 

Cash and cash equivalents, beginning of period

 

 

618.7

 

 

 

974.6

 

Cash and cash equivalents, end of period

 

$

648.7

 

 

$

1,702.9

 

 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

3


Packaging Corporation of America

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited, dollars in millions and shares in thousands)

 

 

 

Common Stock

 

 

Additional
Paid in

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance at July 1, 2022

 

 

93,686

 

 

$

0.9

 

 

$

601.0

 

 

$

3,437.0

 

 

$

(74.4

)

 

$

3,964.5

 

Common stock repurchases and retirements

 

 

(1,032

)

 

 

 

 

 

(8.5

)

 

 

(133.5

)

 

 

 

 

 

(142.0

)

Common stock withheld and retired
   to cover taxes on vested stock awards

 

 

(43

)

 

 

 

 

 

(0.4

)

 

 

(5.5

)

 

 

 

 

 

(5.9

)

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(116.7

)

 

 

 

 

 

(116.7

)

Share-based compensation and other

 

 

90

 

 

 

 

 

 

8.5

 

 

 

(0.3

)

 

 

 

 

 

8.2

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

262.5

 

 

 

0.6

 

 

 

263.1

 

Balance at September 30, 2022

 

 

92,701

 

 

$

0.9

 

 

$

600.6

 

 

$

3,443.5

 

 

$

(73.8

)

 

$

3,971.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid in

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance at July 1, 2021

 

 

94,979

 

 

$

1.0

 

 

$

574.5

 

 

$

3,008.5

 

 

$

(139.7

)

 

$

3,444.3

 

Common stock withheld and retired to
   cover taxes on vested stock awards

 

 

(10

)

 

 

 

 

 

(0.1

)

 

 

(1.3

)

 

 

 

 

 

(1.4

)

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(95.3