2021 3rd Quarter 10Q

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, 2021

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

(Exact Name of Registrant as Specified in its Charter)

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

Registrant's telephone number, including area code

[phone]

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 29, 2021 the Registrant had outstanding 94,990,766 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	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			31
Item 4.	Controls and Procedures	31
										PART II
Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities		32
Item 4.	Mine Safety Disclosures			32
Item 5.	Other Information	32
Item 6.	Exhibits			33

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.

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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,
		2021			2020			2021			2020
Statements of Income:
Net sales	$	2,000.1		$	1,693.7		$	5,687.1		$	4,944.0
Cost of sales		(1,489.4 )		(1,348.3 )		(4,324.0 )		(3,907.9 )
Gross profit		510.7			345.4			1,363.1			1,036.1
Selling, general and administrative expenses		(144.5 )		(127.1 )		(435.7 )		(409.3 )
Goodwill impairment		-		-		-		(55.2 )
Other expense, net		(13.4 )		(8.8 )		(41.7 )		(36.9 )
Income from operations		352.8			209.5			885.7			534.7
Non-operating pension income		5.0			0.6			14.8			1.7
Interest expense, net		(23.9 )		(24.4 )		(72.2 )		(69.1 )
Income before taxes		333.9			185.7			828.3			467.3
Provision for income taxes		(83.2 )		(46.6 )		(203.7 )		(129.9 )
Net income	$	250.7		$	139.1		$	624.6		$	337.4
Net income per common share:
Basic	$	2.64		$	1.47		$	6.58		$	3.56
Diluted	$	2.63		$	1.46		$	6.55		$	3.54
Dividends declared per common share	$	1.00		$	0.79		$	3.00		$	2.37
Statements of Comprehensive Income:
Net income	$	250.7		$	139.1		$	624.6		$	337.4
Other comprehensive income, net of tax:
Foreign currency translation adjustment		0.4			-		0.4			-
Changes in unrealized gains (losses) on marketable debt securities,
net of tax of $0.0 million, $0.1 million, $0.1 million,
and $0.2 million		-		(0.2 )		(0.2 )		0.5
Amortization of pension and postretirement plans actuarial loss and
prior service cost, net of tax of $0.8 million, $0.9 million,					2.7
$2.5 million, and $2.7 million		2.5					7.5			8.1
Other comprehensive income		2.9			2.5			7.7			8.6
Comprehensive income	$	253.6		$	141.6		$	632.3		$	346.0

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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Packaging Corporation of America

Consolidated Balance Sheets

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

		September 30,		December 31,
		2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,702.9		$	974.6
Short-term marketable debt securities		88.3			105.6
Accounts receivable, net of allowance for credit losses and customer deductions
of $15.1 million and $10.6 million as of September 30, 2021 and December 31, 2020,
respectively		1,066.7			832.4
Inventories		880.1			787.9
Prepaid expenses and other current assets		55.4			44.7
Federal and state income taxes receivable		11.4			5.1
Total current assets		3,804.8			2,750.3
Property, plant, and equipment, net		3,360.8			3,193.4
Goodwill		863.5			863.5
Other intangible assets, net		267.7			295.9
Operating lease right-of-use assets		230.4			234.2
Long-term marketable debt securities		57.8			42.7
Other long-term assets		45.8			53.2
Total assets	$	8,630.8		$	7,433.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	698.1		$	-
Operating lease obligations		67.2			68.9
Finance lease obligations		1.7			1.6
Accounts payable		499.1			387.0
Dividends payable		97.3			97.0
Accrued liabilities		252.5			216.2
Accrued interest		28.5			11.9
Total current liabilities		1,644.4			782.6
Long-term liabilities:
Long-term debt		2,471.1			2,479.4
Operating lease obligations		171.5			173.6
Finance lease obligations		13.1			14.4
Deferred income taxes		423.9			379.4
Compensation and benefits		241.1			298.3
Other long-term liabilities		57.4			59.2
Total long-term liabilities		3,378.1			3,404.3
Commitments and contingent liabilities
Stockholders' equity:
Common stock, par value $0.01 per share, 300.0 million shares authorized, 95.0 million
and 94.8 million shares issued as of September 30, 2021 and December 31, 2020,
respectively		1.0			0.9
Additional paid in capital		581.3			554.4
Retained earnings		3,162.8			2,835.5
Accumulated other comprehensive loss		(136.8 )		(144.5 )
Total stockholders' equity		3,608.3			3,246.3
Total liabilities and stockholders' equity	$	8,630.8		$	7,433.2

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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Packaging Corporation of America

Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

		Nine Months Ended
		September 30,
	2021					2020
Cash Flows from Operating Activities:
Net income	$	624.6			$	337.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization of intangibles		311.1				309.0
Amortization of deferred financing costs		2.0				1.9
Share-based compensation expense		26.9				23.8
Deferred income tax provision		41.7				21.1
Loss on asset disposals		7.3				4.1
Goodwill impairment		-		55.2
Pension and post-retirement benefits expense, net of contributions		(50.4 )			(68.1 )
Other, net		8.9				18.8
Changes in operating assets and liabilities:
(Increase) decrease in assets -
Accounts receivable		(234.3 )			(19.0 )
Inventories		(92.3 )			16.5
Prepaid expenses and other current assets		(11.8 )			(5.6 )
Increase (decrease) in liabilities -
Accounts payable		22.3				(6.2 )
Accrued liabilities		53.5				29.0
Federal and state income taxes payable / receivable		(6.1 )			43.8
Net cash provided by operating activities		703.4				761.7
Cash Flows from Investing Activities:
Additions to property, plant, and equipment		(366.2 )			(253.5 )
Additions to other long term assets		(1.8 )			(6.2 )
Proceeds from asset disposals		2.6				4.4
Purchases of marketable debt securities		(100.3 )			(71.5 )
Proceeds from sales of marketable debt securities		17.7				17.2
Proceeds from maturities of marketable debt securities		83.0				53.7
Net cash used for investing activities		(365.0 )			(255.9 )
Cash Flows from Financing Activities:
Repayments of debt and finance lease obligations		(1.2 )			(1.1 )
Proceeds from issuance of debt		696.3				-
Financing costs paid		(8.5 )			-
Common stock dividends paid		(284.8 )			(224.6 )
Shares withheld to cover employee restricted stock taxes		(11.9 )			(10.5 )
Net cash provided by (used for) financing activities
	389.9				(236.2 )
Net increase in cash and cash equivalents		728.3				269.6
Cash and cash equivalents, beginning of period		974.6				679.5
Cash and cash equivalents, end of period	$	1,702.9			$	949.1

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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