10-Q 1 pkg-20240331.htm 10-Q 10-Q
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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 March 31, 2024

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

 

img5153666_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 May 3, 2024, the Registrant had outstanding 89,797,979 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

16

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

24

 

 

 

 

Item 4.

 

Controls and Procedures

24

 

 

 

 

 

 

PART II

 

 

 

 

 

Item 1.

 

Legal Proceedings

25

 

 

 

 

Item 1A.

 

Risk Factors

25

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

25

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

25

 

 

 

 

Item 4.

 

Mine Safety Disclosures

25

 

 

 

 

Item 5.

 

Other Information

25

 

 

 

 

Item 6.

 

Exhibits

26

 

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

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Statements of Income:

 

 

 

 

 

 

Net sales

 

$

1,979.5

 

 

$

1,976.3

 

Cost of sales

 

 

(1,609.1

)

 

 

(1,544.9

)

Gross profit

 

 

370.4

 

 

 

431.4

 

Selling, general and administrative expenses

 

 

(151.9

)

 

 

(148.2

)

Other expense, net

 

 

(22.5

)

 

 

(12.5

)

Income from operations

 

 

196.0

 

 

 

270.7

 

Non-operating pension income (expense)

 

 

1.1

 

 

 

(2.0

)

Interest expense, net

 

 

(9.6

)

 

 

(15.4

)

Income before taxes

 

 

187.5

 

 

 

253.3

 

Provision for income taxes

 

 

(40.6

)

 

 

(63.2

)

Net income

 

$

146.9

 

 

$

190.1

 

Net income per common share:

 

 

 

 

 

 

Basic

 

$

1.64

 

 

$

2.12

 

Diluted

 

$

1.63

 

 

$

2.11

 

Dividends declared per common share

 

$

1.25

 

 

$

1.25

 

Statements of Comprehensive Income:

 

 

 

 

 

 

Net income

 

$

146.9

 

 

$

190.1

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

Changes in unrealized (losses) gains on marketable debt securities,
   net of tax of $
0.0 million and ($0.2) million for 2024 and 2023,
   respectively

 

 

(0.1

)

 

 

0.5

 

Amortization of pension and postretirement plans actuarial loss and
   prior service cost, net of tax of ($
0.4) million and ($0.6) million for
   2024 and 2023, respectively

 

 

1.0

 

 

 

1.6

 

Other comprehensive income

 

 

0.9

 

 

 

2.1

 

Comprehensive income

 

$

147.8

 

 

$

192.2

 

 

 

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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

692.4

 

 

$

648.0

 

Short-term marketable debt securities ($92.3 million and $93.5 million measured at
   fair value as of March 31, 2024 and December 31, 2023, respectively)

 

 

492.3

 

 

 

493.5

 

Accounts receivable, net of allowance for credit losses and customer deductions
   of $
12.1 million and $13.1 million as of March 31, 2024 and December 31, 2023,
   respectively

 

 

1,045.1

 

 

 

1,033.2

 

Inventories

 

 

1,003.6

 

 

 

1,013.1

 

Prepaid expenses and other current assets

 

 

211.7

 

 

 

62.3

 

Federal and state income taxes receivable

 

 

 

 

 

4.3

 

Total current assets

 

 

3,445.1

 

 

 

3,254.4

 

Property, plant, and equipment, net

 

 

3,864.5

 

 

 

3,863.8

 

Goodwill

 

 

922.4

 

 

 

922.4

 

Other intangible assets, net

 

 

220.1

 

 

 

229.6

 

Operating lease right-of-use assets

 

 

269.4

 

 

 

279.6

 

Long-term marketable debt securities

 

 

68.5

 

 

 

64.1

 

Other long-term assets

 

 

67.0

 

 

 

67.2

 

Total assets

 

$

8,857.0

 

 

$

8,681.1

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current maturities of long-term debt

 

$

399.8

 

 

$

399.6

 

Operating lease obligations

 

 

79.2

 

 

 

78.6

 

Finance lease obligations

 

 

2.0

 

 

 

2.0

 

Accounts payable

 

 

449.6

 

 

 

402.4

 

Dividends payable

 

 

114.9

 

 

 

115.9

 

Accrued liabilities

 

 

304.0

 

 

 

253.5

 

Accrued interest

 

 

33.3

 

 

 

13.7

 

Federal and state income taxes payable

 

 

17.5

 

 

 

 

Total current liabilities

 

 

1,400.3

 

 

 

1,265.7

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

2,472.7

 

 

 

2,472.2

 

Operating lease obligations

 

 

200.7

 

 

 

212.1

 

Finance lease obligations

 

 

8.3

 

 

 

8.7

 

Deferred income taxes

 

 

566.5

 

 

 

558.0

 

Compensation and benefits

 

 

112.1

 

 

 

106.4

 

Other long-term liabilities

 

 

65.4

 

 

 

60.7

 

Total long-term liabilities

 

 

3,425.7

 

 

 

3,418.1

 

Commitments and contingent liabilities (Note 19)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, par value $0.01 per share, 300.0 million shares authorized, 89.8 million
   and
89.6 million shares issued as of March 31, 2024 and December 31, 2023,
   respectively

 

 

0.9

 

 

 

0.9

 

Additional paid in capital

 

 

640.5

 

 

 

620.1

 

Retained earnings

 

 

3,459.6

 

 

 

3,447.2

 

Accumulated other comprehensive loss

 

 

(70.0

)

 

 

(70.9

)

Total stockholders' equity

 

 

4,031.0

 

 

 

3,997.3

 

Total liabilities and stockholders' equity

 

$

8,857.0

 

 

$

8,681.1

 

 

 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

2


 

Packaging Corporation of America

Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

146.9

 

 

$

190.1

 

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

 

 

 

 

 

 

Depreciation, depletion, and amortization of intangibles

 

 

128.4

 

 

 

129.5

 

Amortization of deferred financing costs

 

 

0.6

 

 

 

0.5

 

Share-based compensation expense

 

 

19.4

 

 

 

15.3

 

Deferred income tax provision

 

 

8.4

 

 

 

2.7

 

Net loss on asset disposals

 

 

5.2

 

 

 

1.8

 

Pension and post-retirement benefits expense, net of contributions

 

 

1.5

 

 

 

5.0

 

Other, net

 

 

8.2

 

 

 

6.8

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

(Increase) decrease in assets —

 

 

 

 

 

 

Accounts receivable

 

 

(11.9

)

 

 

0.4

 

Inventories

 

 

9.5

 

 

 

(26.1

)

Prepaid expenses and other current assets

 

 

(149.4

)

 

 

(29.3

)

Increase (decrease) in liabilities —

 

 

 

 

 

 

Accounts payable

 

 

1.5

 

 

 

(5.0

)

Accrued liabilities

 

 

70.3

 

 

 

(65.0

)

Federal and state income taxes payable/receivable

 

 

21.8

 

 

 

53.7

 

Net cash provided by operating activities

 

 

260.4

 

 

 

280.4

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Additions to property, plant, and equipment

 

 

(76.7

)

 

 

(112.4

)

Additions to other long-term assets

 

 

(1.4

)

 

 

(1.6

)

Proceeds from asset disposals

 

 

0.1

 

 

 

0.3

 

Purchases of available-for-sale debt securities

 

 

(32.8

)

 

 

(29.6

)

Proceeds from sales of available-for-sale debt securities

 

 

1.5

 

 

 

 

Proceeds from maturities of available-for-sale debt securities

 

 

28.3

 

 

 

27.9

 

Net cash used for investing activities

 

 

(81.0

)

 

 

(115.4

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Repayments of debt and finance lease obligations

 

 

(0.5

)

 

 

(0.5

)

Common stock dividends paid

 

 

(112.0

)

 

 

(112.1

)

Shares withheld to cover employee restricted stock taxes

 

 

(22.5

)

 

 

(4.7

)

Net cash used for financing activities

 

 

(135.0

)

 

 

(117.3

)

Net increase in cash and cash equivalents

 

 

44.4

 

 

 

47.7

 

Cash and cash equivalents, beginning of period

 

 

648.0

 

 

 

320.0

 

Cash and cash equivalents, end of period

 

$

692.4

 

 

$

367.7

 

 

 

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 January 1, 2024

 

 

89,625

 

 

$

0.9

 

 

$

620.1

 

 

$

3,447.2

 

 

$

(70.9

)

 

$

3,997.3

 

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

 

 

(127

)

 

 

 

 

 

(1.1

)

 

 

(21.4

)

 

 

 

 

 

(22.5

)

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(113.1

)

 

 

 

 

 

(113.1

)

Share-based compensation and other

 

 

306

 

 

 

 

 

 

21.5

 

 

 

 

 

 

 

 

 

21.5

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

146.9

 

 

 

0.9

 

 

 

147.8

 

Balance at March 31, 2024

 

 

89,804

 

 

$

0.9

 

 

$

640.5

 

 

$

3,459.6

 

 

$

(70.0

)

 

$

4,031.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid in

 

 

Retained

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balance at January 1, 2023

 

 

89,695

 

 

$

0.9

 

 

$

581.8

 

 

$

3,186.8

 

 

$

(102.4

)

 

$

3,667.1

 

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

 

 

(36

)

 

 

 

 

 

(0.3

)

 

 

(4.4

)

 

 

 

 

 

(4.7

)

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

(113.2

)

 

 

 

 

 

(113.2

)

Share-based compensation and other

 

 

273

 

 

 

 

 

 

16.3

 

 

 

 

 

 

 

 

 

16.3

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

190.1

 

 

 

2.1

 

 

 

192.2

 

Balance at March 31, 2023

 

 

89,932

 

 

$

0.9

 

 

$

597.8

 

 

$

3,259.2

 

 

$

(100.3

)

 

$

3,757.7

 

 

 

 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

4


 

Condensed Notes to Unaudited Quarterly Consolidated Financial Statements

1. Nature of Operations and Basis of Presentation

Packaging Corporation of America ("we," "us," "our," PCA," or the "Company") was incorporated on January 25, 1999. In April 1999, PCA acquired the containerboard and corrugated packaging products business of Pactiv Corporation ("Pactiv"), formerly known as Tenneco Packaging, Inc. We are a large diverse manufacturer of both packaging and paper products. We are headquartered in Lake Forest, Illinois and we operate primarily in the United States.

We report our business in three reportable segments: Packaging, Paper, and Corporate and Other. Our Packaging segment produces a wide variety of containerboard and corrugated packaging products. The Paper segment manufactures and sells a range of communication-based papers. Corporate and Other includes support staff services and related assets and liabilities, transportation assets, and activity related to other ancillary support operations. For more information about our segments, see Note 18, Segment Information.

The consolidated financial statements of PCA as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 are unaudited but include all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of such financial statements. The preparation of the consolidated financial statements involves the use of estimates and accruals. Actual results may vary from those estimates. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete audited financial statements. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023.

The consolidated financial statements include the accounts of PCA and its majority-owned subsidiaries after elimination of intercompany balances and transactions.

2. New Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU provides for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently assessing the impact of the disclosure requirements on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods starting within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The Company is currently assessing the impact of the disclosure requirements on its consolidated financial statements.

There were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.

 

3. Revenue

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services. Sales, value added, and other taxes collected concurrently with revenue-producing activities are excluded from revenue.

The following table presents our revenues disaggregated by product line (dollars in millions):

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Packaging

 

$

1,798.3

 

 

$

1,808.6

 

Paper

 

 

163.8

 

 

 

150.9

 

Corporate and Other

 

 

17.4

 

 

 

16.8

 

Total revenue

 

$

1,979.5

 

 

$

1,976.3

 

Packaging Revenue

Our containerboard mills produce linerboard and corrugating medium which are papers primarily used in the production of corrugated products. The majority of our containerboard production is used internally by our corrugated products manufacturing facilities. The remaining containerboard is sold to outside domestic and export customers. Our corrugated products manufacturing plants produce a wide variety of corrugated

5


 

packaging products and retail merchandise displays. We sell corrugated products to national, regional and local accounts, which are broadly diversified across industries and geographic locations.

The Company recognizes revenue for its packaging products when performance obligations under the terms of a contract with a customer are satisfied. This occurs with the transfer of control of our products at a specific point in time. Based on our express terms and conditions of the sale of products to our customers, as well as terms included in contractual arrangements with our customers, we do not have an enforceable right of payment that includes a reasonable profit throughout the duration of the contract for products that do not have an alternative use. Revenue is recognized when the product is shipped from the mill or from our manufacturing facility to our customer. Certain customers may receive volume-based incentives, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue recognized.

Certain customers receive a portion of their packaging products as consigned inventory with billing triggered once the customer uses or consumes the designated product. Prior to invoicing, these amounts are handled as unbilled receivables. Total unbilled receivables, which are immaterial in amount, are included in the accounts receivable financial statement caption.

Paper Revenue

We manufacture and sell a range of communication-based papers. Communication papers consist of cut-size office papers, and printing and converting papers.

The Company recognizes revenue for its paper products when performance obligations under the terms of a contract with a customer are satisfied. This occurs with the transfer of control of our products at a specific point in time. Revenue is recognized when the product is shipped from the mill or from our manufacturing facility or distribution center to our customer. Certain customers may receive incentives, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue recognized.

Corporate and Other Revenue

Revenue in this segment primarily relates to Louisiana Timber Procurement Company, L.L.C. ("LTP"), a variable-interest entity that is 50% owned by PCA and 50% owned by Boise Cascade Company ("Boise Cascade"). PCA is the primary beneficiary of LTP and has the power to direct the activities that most significantly affect the economic performance of LTP. Therefore, we consolidate 100% of LTP in our financial statements. See Note 17, Transactions With Related Parties, for more information related to LTP.

The Company recognizes revenue within this segment when performance obligations under the terms of a contract with a customer are satisfied. This occurs with the transfer of control of our products at a specific point in time.

Practical Expedients and Exemption

Shipping and handling fees billed to a customer are recorded on a gross basis in "Net sales" with the corresponding shipping and handling costs included in "Cost of sales" in the concurrent period as the revenue is recorded. We expense sales commissions when incurred because the amortization period is one year or less. Sales commissions are recorded in "Selling, general, and administrative expenses".

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

 

4. Earnings Per Share

The following table sets forth the computation of basic and diluted income per common share for the periods presented (dollars and shares in millions, except per share data):

 

 

 

Three Months Ended

 

 

 

March 31,

 

Numerator:

 

2024

 

 

2023

 

Net income

 

$

146.9

 

 

$

190.1

 

Less: Distributed and undistributed earnings allocated to participating
   securities

 

 

(1.0

)

 

 

(1.6

)

Net income attributable to common shareholders

 

$

145.9

 

 

$

188.5

 

Denominator:

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

 

89.0

 

 

 

89.0

 

Effect of dilutive securities

 

 

0.4

 

 

 

0.4

 

Weighted average diluted common shares outstanding

 

 

89.4

 

 

 

89.4

 

Basic income per common share

 

$

1.64

 

 

$

2.12

 

Diluted income per common share

 

$

1.63

 

 

$

2.11

 

 

6


 

5. Other Expense, Net

The components of other income (expense), net, were as follows (dollars in millions):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

DeRidder litigation (a)

 

$

(123.7

)

 

$

 

DeRidder litigation insurance recovery (a)

 

 

123.7

 

 

 

 

Asset disposals and write-offs

 

 

(7.4

)

 

 

(6.6

)

Jackson mill conversion-related activities (b)

 

 

(8.3

)

 

 

0.3

 

Facilities closure and other income (costs) (c)

 

 

0.1

 

 

 

(4.7

)

Other

 

 

(6.9

)

 

 

(1.5

)

Total

 

$

(22.5

)

 

$

(12.5

)

 

(a)
On April 24, 2024, a jury for the remaining DeRidder mill lawsuit that was tried in the U.S. District Court for the Middle District of Louisiana awarded plaintiffs compensatory damages plus prejudgment interest. The amount of the verdict with interest is within the remaining limits of the Company's liability insurance policies. See Note 19, Commitments, Guarantees, Indemnifications, and Legal Proceedings for additional detail.

 

(b)
Includes 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.

 

(c)
For 2024, includes income primarily related to a favorable lease buyout for a closed corrugated products facility, partially offset by closure costs related to corrugated products facilities and design centers. For 2023, includes charges consisting of closure costs related to corrugated products facilities and design centers.

 

6. Income Taxes

For the three months ended March 31, 2024 and 2023, we recorded $40.6 million and $63.2 million of income tax expense and had an effective tax rate of 21.6% and 24.9%, respectively. The decrease in our effective tax rate for the three months ended March 31, 2024 compared to the same period in 2023 was primarily due to higher excess tax benefits associated with employee restricted stock and performance unit vests.

Our current effective tax rate is higher than the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes. During the three months ended March 31, 2024 and 2023, cash paid for taxes, net of refunds received, was $10.3 million and $6.9 million, respectively. The increase in cash tax payments between the periods is primarily attributable to the 2023 year having been reduced by an applied overpayment of state taxes from the prior year with no equivalent impact in 2024.

During the three months ended March 31, 2024, there were no significant changes to our uncertain tax positions. For more information, see Note 7, Income Taxes, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2023 Annual Report on Form 10-K.

7. Inventories

We value our raw materials, work in process, and finished goods inventories using lower of cost, as determined by the average cost method, or net realizable value. Supplies and materials are valued at the first-in, first-out (FIFO) or average cost method.

The components of inventories were as follows (dollars in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Raw materials

 

$

322.4

 

 

$

326.2

 

Work in process

 

 

15.7

 

 

 

14.9

 

Finished goods

 

 

189.9

 

 

 

200.5

 

Supplies and materials

 

 

475.6

 

 

 

471.5

 

Inventories

 

$

1,003.6

 

 

$

1,013.1

 

 

7


 

8. Property, Plant, and Equipment

The components of property, plant, and equipment were as follows (dollars in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Land and land improvements

 

$

199.1

 

 

$

197.8

 

Buildings

 

 

1,091.3

 

 

 

1,090.4

 

Machinery and equipment

 

 

7,021.3

 

 

 

7,006.7

 

Construction in progress

 

 

395.9

 

 

 

335.8

 

Other

 

 

178.6

 

 

 

177.0

 

Property, plant and equipment, at cost

 

 

8,886.2

 

 

 

8,807.7

 

Less accumulated depreciation

 

 

(5,021.7

)

 

 

(4,943.9

)

Property, plant, and equipment, net

 

$

3,864.5

 

 

$

3,863.8

 

Depreciation expense for the three months ended March 31, 2024 and 2023 was $118.1 million and $118.8 million, respectively. During the three months ended March 31, 2024, we recognized $1.5 million of incremental depreciation expense as a result of Jackson mill conversion-related activities. We recognized $6.3 million of incremental depreciation expense during the three months ended March 31, 2023 as a result of corrugated products facilities and design center closures and Jackson mill conversion-related activities.

At March 31, 2024 and December 31, 2023, purchases of property, plant, and equipment included in accounts payable were $69.9 million and $24.2 million, respectively.

9. Goodwill and Intangible Assets

Goodwill

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 both March 31, 2024 and December 31, 2023, we had $922.4 million of goodwill recorded in our Packaging segment, which represents the entire goodwill balance reported on our Consolidated Balance Sheets.

Intangible Assets

Intangible assets are primarily comprised of customer relationships and trademarks and trade names. The weighted average remaining useful life, gross carrying amount, and accumulated amortization of our intangible assets were as follows (dollars in millions):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

Weighted
Average
Remaining
Useful Life
(in Years)

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Weighted
Average
Remaining
Useful Life
(in Years)

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

Customer relationships

 

 

7.2

 

 

$

546.0

 

 

$

335.8

 

 

 

7.4

 

 

$

546.0

 

 

$

326.9

 

Trademarks and trade names

 

 

6.4

 

 

 

41.3

 

 

 

31.4

 

 

 

6.5

 

 

 

41.3

 

 

 

30.9

 

Other

 

 

2.7

 

 

 

4.4

 

 

 

4.4

 

 

 

2.9

 

 

 

4.4

 

 

 

4.3

 

Total intangible assets (excluding goodwill)

 

 

7.1

 

 

$

591.7

 

 

$

371.6

 

 

 

7.3

 

 

$

591.7

 

 

$

362.1

 

 

During the three months ended March 31, 2024 and 2023, amortization expense was $9.5 million and $9.6 million, respectively.

8


 

10. Accrued Liabilities

The components of accrued liabilities were as follows (dollars in millions):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

DeRidder litigation (a)

 

$

123.7

 

 

$

 

Compensation and benefits

 

 

87.4

 

 

 

154.4

 

Medical insurance and workers’ compensation

 

 

28.3

 

 

 

28.4

 

Customer rebates and other credits

 

 

26.0

 

 

 

35.2

 

Franchise, property, sales and use taxes

 

 

23.5

 

 

 

18.6

 

Environmental liabilities and asset retirement obligations

 

 

3.9

 

 

 

4.0

 

Severance, retention, and relocation

 

 

1.4

 

 

 

1.0

 

Other

 

 

9.8

 

 

 

11.9

 

Total

 

$

304.0

 

 

$

253.5

 

 

(a)
On April 24, 2024, a jury for the remaining DeRidder mill lawsuit that was tried in the U.S. District Court for the Middle District of Louisiana awarded plaintiffs compensatory damages plus prejudgment interest. The amount of the verdict with interest is within the remaining limits of the Company's liability insurance policies. See Note 19, Commitments, Guarantees, Indemnifications, and Legal Proceedings for additional detail.

11. Debt

For the three months ended March 31, 2024 and 2023, cash payments for interest were $7.3 million and $7.5 million, respectively.

Included in interest expense, net is the amortization of financing costs, which includes the amortization of debt issuance costs and amortization of bond discount. For the three months ended March 31, 2024 and 2023, amortization of debt issuance costs was $0.5 million and $0.4 million, respectively. For both the three months ended March 31, 2024 and 2023, the amortization of bond discount was insignificant.

At March 31, 2024, we had $2,891.8 million of fixed-rate senior notes outstanding. The fair value of our fixed-rate debt was estimated to be $2,534.3 million. The difference between the book value and fair value is due to the difference between the period-end market interest rate and the stated rate of our fixed-rate debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 2 inputs) within the fair value hierarchy, which is further defined in 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 our 2023 Annual Report on Form 10-K.

For more information on our long-term debt and interest rates on that debt, see Note 10, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our 2023 Annual Report on Form 10-K.

12. Cash, Cash Equivalents, and Marketable Debt Securities

The following table shows the Company’s cash, cash equivalents, held-to-maturity ("HTM") debt securities, and available-for-sale ("AFS") debt securities by major asset category at March 31, 2024 and December 31, 2023 (in millions):

 

 

 

March 31, 2024

 

 

 

Adjusted
Cost Basis

 

 

Unrealized
Gain

 

 

Unrealized
Loss

 

 

Fair
Value

 

 

Cash and
Cash Equivalents

 

 

Short-Term
Marketable
Debt Securities

 

 

Long-Term
Marketable
Debt Securities

 

Cash and cash equivalents

 

$

691.9

 

 

$

 

 

$

 

 

$

691.9

 

 

$

691.9

 

 

$

 

 

$

 

Time Deposits (a):

 

 

400.0

 

 

 

 

 

 

 

 

 

400.0

 

 

 

 

 

 

400.0

 

 

 

 

Level 1 (b):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

34.4

 

 

 

 

 

 

(0.1

)

 

 

34.3

 

 

 

 

 

 

17.5

 

 

 

16.8

 

Money market funds

 

 

0.5

 

 

 

 

 

 

 

 

 

0.5

 

 

 

0.5

 

 

 

 

 

 

 

Subtotal

 

 

34.9

 

 

 

 

 

 

(0.1

)

 

 

34.8

 

 

 

0.5

 

 

 

17.5

 

 

 

16.8

 

Level 2 (c):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

111.4

 

 

 

0.1

 

 

 

(0.2

)

 

 

111.3

 

 

 

 

 

 

60.4

 

 

 

50.9

 

U.S. government agency securities

 

 

7.7

 

 

 

 

 

 

(0.1

)

 

 

7.6

 

 

 

 

 

 

6.8

 

 

 

0.8

 

Certificates of deposit

 

 

7.6

 

 

 

 

 

 

 

 

 

7.6

 

 

 

 

 

 

7.6

 

 

 

 

Subtotal

 

 

126.7

 

 

 

0.1

 

 

 

(0.3

)

 

 

126.5

 

 

 

 

 

 

74.8

 

 

 

51.7

 

Total

 

$

1,253.5

 

 

$

0.1

 

 

$

(0.4

)

 

$

1,253.2

 

 

$

692.4

 

 

$

492.3

 

 

$

68.5

 

 

9


 

 

 

December 31, 2023

 

 

 

Adjusted
Cost Basis

 

 

Unrealized
Gain

 

 

Unrealized
Loss

 

 

Fair
Value

 

 

Cash and
Cash Equivalents

 

 

Short-Term
Marketable
Debt Securities

 

 

Long-Term
Marketable
Debt Securities

 

Cash and cash equivalents

 

$

646.4

 

 

$

 

 

$

 

 

$

646.4

 

 

$

646.4

 

 

$

 

 

$

 

Time Deposits (a):

 

 

400.0

 

 

 

 

 

 

 

 

 

400.0

 

 

 

 

 

 

400.0

 

 

 

 

Level 1 (b):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

29.3

 

 

 

 

 

 

 

 

 

29.3

 

 

 

 

 

 

11.3

 

 

 

18.0

 

Money market funds

 

 

1.6

 

 

 

 

 

 

 

 

 

1.6

 

 

 

1.6

 

 

 

 

 

 

 

Subtotal

 

 

30.9

 

 

 

 

 

 

 

 

 

30.9

 

 

 

1.6

 

 

 

11.3

 

 

 

18.0

 

Level 2 (c):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

112.5

 

 

 

0.3

 

 

 

(0.4

)

 

 

112.4

 

 

 

 

 

 

68.5

 

 

 

43.9

 

U.S. government agency securities