Packaging of America : 2021 1st 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 March 31, 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 April 30, 2021 the Registrant had outstanding 94,994,066 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.

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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
			March 31,
	2021				2020
Statements of Income:
Net sales	$	1,807.2	$	1,708.7
Cost of sales			(1,403.5)			(1,343.7)
Gross profit			403.7			365.0
Selling, general and administrative expenses			(145.0)			(145.9)
Other expense, net			(20.4)			(10.0)
Income from operations			238.3			209.1
Non-operating pension income			4.8			0.6
Interest expense, net			(23.5)			(19.6)
Income before taxes			219.6			190.1
Provision for income taxes			(53.1)			(48.4)
Net income
$	166.5	$	141.7
Net income per common share:
Basic	$	1.75	$	1.50
Diluted
$	1.75	$	1.49
Dividends declared per common share
$	1.00	$	0.79
Statements of Comprehensive Income:
Net income	$	166.5	$	141.7
Other comprehensive income, net of tax:
Changes in unrealized losses on marketable debt securities,
net of tax of $0.0 million and $0.1 million, for 2021 and 2020,
respectively			(0.1)			(0.2)
Amortization of pension and postretirement plans actuarial loss and
prior service cost, net of tax of $0.8 million and $0.9 million, for
2021 and 2020, respectively			2.5			2.7
Other comprehensive income			2.4			2.5
Comprehensive income	$	168.9	$	144.2

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)

			March 31,		December 31,
			2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	983.4		$	974.6
Short-term marketable debt securities			102.5			105.6
Accounts receivable, net of allowance for credit losses and customer deductions
of $12.8 million as of March 31, 2021 and $10.6 million December 31, 2020, respectively			908.6			832.4
Inventories			799.6			787.9
Prepaid expenses and other current assets			62.8			44.7
Federal and state income taxes receivable			-		5.1
Total current assets			2,856.9			2,750.3
Property, plant, and equipment, net			3,212.5			3,193.4
Goodwill			863.5			863.5
Other intangible assets, net			286.3			295.9
Operating lease right-of-use assets			231.5			234.2
Long-term marketable debt securities			47.0			42.7
Other long-term assets			51.3			53.2
Total assets	$	7,549.0		$	7,433.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Operating lease obligations	$	69.3		$	68.9
Finance lease obligations			1.7			1.6
Accounts payable			402.5			387.0
Dividends payable			97.6			97.0
Accrued liabilities			184.0			216.2
Accrued interest			28.1			11.9
Federal and state income taxes payable			22.6			-
Total current liabilities			805.8			782.6
Long-term liabilities:
Long-term debt			2,480.0			2,479.4
Operating lease obligations			170.0			173.6
Finance lease obligations			14.0			14.4
Deferred income taxes			392.6			379.4
Compensation and benefits			295.8			298.3
Other long-term liabilities			59.6			59.2
Total long-term liabilities			3,412.0			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 March 31, 2021 and December 31, 2020, respectively			1.0			0.9
Additional paid in capital			566.0			554.4
Retained earnings			2,906.3			2,835.5
Accumulated other comprehensive loss			(142.1)		(144.5)
Total stockholders' equity			3,331.2			3,246.3
Total liabilities and stockholders' equity	$	7,549.0		$	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)

			Three Months Ended
			March 31,
	2021				2020
Cash Flows from Operating Activities:
Net income	$	166.5		$	141.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization of intangibles			100.8			100.3
Amortization of deferred financing costs			0.7			0.6
Share-based compensation expense			11.6			10.1
Deferred income tax provision			12.0			13.5
Loss on asset disposals			3.7			2.3
Pension and post-retirement benefits expense, net of contributions			(0.2)		1.0
Other, net			3.7			3.2
Changes in operating assets and liabilities:
Increase in assets -
Accounts receivable			(76.2)		(34.0)
Inventories			(11.7)		(15.7)
Prepaid expenses and other current assets			(19.0)		(23.0)
Increase (decrease) in liabilities -
Accounts payable			(12.3)		28.5
Accrued liabilities			(15.8)		(22.0)
Federal and state income taxes payable / receivable			27.8			30.2
Net cash provided by operating activities			191.6			236.7
Cash Flows from Investing Activities:
Additions to property, plant, and equipment			(85.1)		(70.5)
Additions to other long term assets			(1.3)		(2.7)
Proceeds from asset disposals			0.7			0.1
Purchases of marketable debt securities			(31.4)		(20.5)
Proceeds from sales of marketable debt securities			11.4			6.3
Proceeds from maturities of marketable debt securities			18.2			10.3
Net cash used for investing activities			(87.5)		(77.0)
Cash Flows from Financing Activities:
Repayments of debt and finance lease obligations			(0.4)		(0.4)
Common stock dividends paid			(94.8)		(74.8)
Shares withheld to cover employee restricted stock taxes			(0.1)		-
Net cash used for financing activities
		(95.3)		(75.2)
Net increase in cash and cash equivalents			8.8			84.5
Cash and cash equivalents, beginning of period			974.6			679.5
Cash and cash equivalents, end of period	$	983.4		$	764.0

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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