Part I [Business](index=4&type=section&id=Item%201.%20Business) PCA is a leading North American producer of containerboard and uncoated freesheet paper, operating through three segments with extensive US facilities - PCA is the **third largest** producer of containerboard products and a **leading producer** of uncoated freesheet (UFS) paper in North America[14](index=14&type=chunk) - The company operates **eight mills** and **89 corrugated products plants** and related facilities[14](index=14&type=chunk) Production and Shipments Summary (2020-2022) | Metric | Unit | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | :--- | | Containerboard Production | thousand tons | 4,566 | 4,887 | 4,341 | | Corrugated Products Shipments | billion sq. ft. | 63.4 | 65.7 | 62.8 | | UFS Production | thousand tons | 506 | 572 | 648 | [Packaging Segment](index=5&type=section&id=Packaging) PCA's largest segment, Packaging, produces containerboard and corrugated products, generating $7.8 billion in sales in 2022, primarily serving regional customers Packaging Segment Performance 2022 | Metric | Value | | :--- | :--- | | Net Sales to Third Parties | $7.8 billion | | Containerboard Production | 4.6 million tons | | Corrugated Products Sales | 63.4 billion sq. ft. (BSF) | - The segment's total annual containerboard capacity was approximately **5.0 million tons** as of December 31, 2022[21](index=21&type=chunk) - In 2022, usage of recycled fiber, net of internal generation, represented **17%** of containerboard production. About **63%** of the packaging mills' energy consumption came from mill-generated biogenic fuels[28](index=28&type=chunk)[32](index=32&type=chunk) - The segment serves approximately **15,000** customers, with about **70%** of sales from regional and local accounts. No single customer exceeds **10%** of segment sales[37](index=37&type=chunk) - The primary end-use market for corrugated products is food, beverages, and agricultural products, accounting for **48%** of the market[38](index=38&type=chunk) [Paper Segment](index=8&type=section&id=Paper) The Paper segment is a leading North American producer of uncoated freesheet paper, with a single mill and ODP as a major customer - The segment operates one paper mill in International Falls, Minnesota, with an annual production capacity of approximately **500,000 tons**[42](index=42&type=chunk) - In 2022, about **75%** of the paper mill's energy consumption was from mill-generated biogenic fuels[46](index=46&type=chunk) - ODP Corporation is the largest customer, representing **48%** of the Paper segment's sales revenue and **4%** of consolidated sales revenue in 2022. A new supply agreement with ODP is effective through December 31, 2024[49](index=49&type=chunk) - The segment competes in a highly competitive market against rivals like Domtar Corporation and Sylvamo Corporation, as well as foreign producers and electronic data alternatives[51](index=51&type=chunk) [Corporate and Other Segment](index=9&type=section&id=Corporate%20and%20Other) This segment includes corporate support, transportation assets, and a 50% owned variable interest entity, Louisiana Timber Procurement Company - This segment includes corporate support staff, transportation assets (rail cars, trucks), and assets of the **50%** owned variable interest entity, Louisiana Timber Procurement Company, L.L.C. (LTP)[52](index=52&type=chunk) [Human Capital](index=9&type=section&id=Human%20Capital) As of December 31, 2022, PCA employed approximately 15,100 people, with 61% of hourly employees covered by collective bargaining agreements - As of December 31, 2022, PCA had approximately **15,100** employees, including **4,400** salaried and **10,700** hourly employees[59](index=59&type=chunk) - Approximately **61%** of hourly employees are unionized. In 2022, PCA reached new six-year master labor agreements covering seven mills and 25 container plants, with **no work stoppages** during the year[59](index=59&type=chunk) - A 2022 employee engagement survey showed overall engagement levels in line with other U.S. manufacturing companies, reaffirming a strong safety culture and favorable perceptions of diversity and inclusion[58](index=58&type=chunk) [Regulatory and Environmental Matters](index=10&type=section&id=Regulatory%20and%20Environmental%20Matters) The company's compliance with environmental laws is a significant factor, with detailed financial impact discussed in Part II, Item 7 - A detailed discussion of the financial impact of compliance with environmental laws is located in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations"[60](index=60&type=chunk) [Executive Officers of the Registrant](index=10&type=section&id=Executive%20Officers%20of%20the%20Registrant) This section provides brief biographical statements for PCA's executive officers as of February 23, 2023, including Mark W. Kowlzan and Robert P. Mundy - Mark W. Kowlzan, 67, has served as Chairman since January 2016 and as Chief Executive Officer since July 2010[62](index=62&type=chunk) - Robert P. Mundy, 61, has served as Chief Financial Officer since 2015[65](index=65&type=chunk) - Thomas A. Hassfurther, 67, has served as Executive Vice President - Corrugated Products since September 2009[64](index=64&type=chunk) [Risk Factors](index=12&type=page&id=Item%201A.%20Risk%20Factors) PCA faces various risks including economic deterioration, industry cyclicality, intense competition, rising costs, customer concentration, and labor relations - A deterioration in general economic conditions, including persistent inflation and rising interest rates, has led to lower demand for containerboard and corrugated products since mid-2022[77](index=77&type=chunk) - Product prices are cyclical and volatile. Published containerboard prices began decreasing in Q4 2022, which is expected to result in lower profitability[80](index=80&type=chunk) - The UFS paper business faces declining demand due to the increasing shift to electronic data transmission and document storage alternatives[82](index=82&type=chunk) - A **$10 per ton** increase in recycled fiber costs would result in approximately **$8 million** of additional annual expense, while a **$0.10 per MMBTU** increase in natural gas prices would add about **$3 million** in expense, based on 2022 consumption[86](index=86&type=chunk)[87](index=87&type=chunk) - The company relies on ODP Corporation, which accounted for **48%** of Paper segment sales in 2022. The loss or reduction of this business could harm the Paper segment's results[89](index=89&type=chunk)[90](index=90&type=chunk) - The company's workforce is **highly unionized**, and failure to successfully negotiate new labor agreements could lead to work stoppages and harm the business[102](index=102&type=chunk) [Unresolved Staff Comments](index=17&type=page&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments - None[109](index=109&type=chunk) [Properties](index=17&type=page&id=Item%202.%20Properties) PCA owns its eight mills and corporate headquarters, with a mix of owned and leased corrugated manufacturing operations, all well-maintained - The company owns the buildings and land for all **eight** of its mills[112](index=112&type=chunk) - Of the **89** corrugated manufacturing operations, buildings and land for **53** are owned, and buildings for **36** are leased[112](index=112&type=chunk) - The company owns its corporate headquarters building in Lake Forest, Illinois[113](index=113&type=chunk) [Legal Proceedings](index=17&type=page&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is detailed in Note 20 of the Notes to Consolidated Financial Statements - Information concerning legal proceedings can be found in Note 20, Commitments, Guarantees, Indemnifications, and Legal Proceedings, of the Notes to Consolidated Financial Statements[114](index=114&type=chunk) [Mine Safety Disclosure](index=17&type=page&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the company - Not applicable[115](index=115&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=18&type=page&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) PCA's common stock trades on the NYSE, and in 2022, the company repurchased 4.0 million shares for $523 million under a $1 billion program - On January 26, 2022, the Board of Directors authorized the repurchase of **$1 billion** of the Company's common stock[120](index=120&type=chunk) - During 2022, the company paid **$523 million** to repurchase **4.0 million shares** of common stock. At December 31, 2022, **$477 million** remained available for repurchase[121](index=121&type=chunk) Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Approximate Dollar Value of Shares That May Yet Be Purchased (in millions) | | :--- | :--- | :--- | :--- | :--- | | October 1-31, 2022 | 333,321 | $118.83 | 333,200 | $818.4 | | November 1-30, 2022 | 2,073,127 | $125.70 | 2,073,127 | $557.8 | | December 1-31, 2022 | 597,185 | $134.59 | 596,700 | $477.5 | | **Total** | **3,003,633** | **$126.70** | **3,003,027** | **$477.5** | [Selected Financial Data](index=19&type=page&id=Item%206.%20%5BRESERVED%5D) This item is reserved and contains no information - None[109](index=109&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, PCA's net sales rose to $8.5 billion and net income to $1.03 billion, driven by higher prices despite lower volumes and cost inflation [Executive Summary](index=20&type=section&id=Executive%20Summary) For 2022, net sales increased to $8.5 billion and net income to $1,030 million, primarily due to higher prices and mix in both segments Financial Highlights (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Sales | $8.5 billion | $7.7 billion | | Net Income | $1,030 million | $841 million | | Diluted EPS | $11.03 | $8.83 | | Diluted EPS (Excluding Special Items) | $11.14 | $9.39 | - Packaging segment EBITDA (excluding special items) increased to **$1,849 million** in 2022 from **$1,688 million** in 2021, driven by higher prices and mix, but partially offset by a **3.4%** decline in corrugated products shipments for the year[131](index=131&type=chunk) - Paper segment EBITDA (excluding special items) increased to **$132 million** in 2022 from **$72 million** in 2021, primarily due to higher paper prices and mix[132](index=132&type=chunk) [Industry and Business Conditions](index=22&type=section&id=Industry%20and%20Business%20Conditions) In 2022, North American corrugated products shipments declined, containerboard prices decreased in late 2022, while cut-size office paper prices significantly increased - North American industry-wide corrugated products shipments were down **3.8%** in 2022 compared to 2021[136](index=136&type=chunk) - Containerboard prices increased in March 2022 but decreased in November and December 2022, with further decreases in January 2023[136](index=136&type=chunk) - Average prices for cut-size office papers increased by **$259 per ton** (**22%**) in 2022 compared to 2021[137](index=137&type=chunk) [Results of Operations (2022 vs. 2021)](index=22&type=section&id=Results%20of%20Operations) Net sales for 2022 increased by 9.7% to $8.48 billion, with income from operations rising 14.4% to $1.42 billion, driven by strong pricing Consolidated Results of Operations (in millions) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $8,478.0 | $7,730.3 | $747.7 | | Income from Operations | $1,420.7 | $1,241.4 | $179.3 | | Net Income | $1,029.8 | $841.1 | $188.7 | | EBITDA excluding special items | $1,885.5 | $1,665.4 | $220.1 | - Packaging segment sales increased by **$728 million**, driven by higher prices and mix (**$963 million**), partially offset by lower volumes (**$235 million**)[141](index=141&type=chunk) - Paper segment sales increased by **$22 million**, driven by higher prices and mix (**$96 million**), partially offset by lower volume (**$74 million**)[142](index=142&type=chunk) - Packaging operating income increased by **$118 million**, as higher price/mix (**$842 million**) was partially offset by lower volumes (**-$166 million**), higher operating costs (**-$394 million**), and higher freight expense (**-$105 million**)[147](index=147&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) PCA's 2022 operating cash flow was $1.5 billion, funding capital expenditures, dividends, and share repurchases, with $470 million cash at year-end Cash Flow Summary (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,495.0 | $1,094.1 | | Net cash used for investing activities | ($833.7) | ($794.4) | | Net cash used for financing activities | ($960.0) | ($655.6) | - Capital expenditures for property and equipment totaled **$824.2 million** in 2022, a substantial increase from **$605.1 million** in 2021[156](index=156&type=chunk)[158](index=158&type=chunk) - Capital investments for 2023 are expected to be approximately **$475 million**[158](index=158&type=chunk) - In 2022, the company used **$523 million** to repurchase **4.0 million shares** and paid **$420 million** in dividends[159](index=159&type=chunk) [Commitments](index=26&type=section&id=Commitments) The company has long-term cash requirements from contractual obligations including debt, leases, and capital additions, detailed in financial statement notes - The company's cash requirements beyond twelve months stem from debt obligations, leases, asset retirement obligations, capital additions, purchase commitments, and employee benefit obligations[161](index=161&type=chunk)[165](index=165&type=chunk) [Inflation and Other General Cost Increases](index=26&type=section&id=Inflation%20and%20Other%20General%20Cost%20Increases) The company is subject to inflationary pressures; a 1% increase in total costs would raise expenses by $70 million, with volatile input costs like fiber and energy - A **1%** increase in total company costs (Cost of Sales and SG&A) would increase costs by **$70 million** and cash costs by **$65 million**, based on 2022 figures[163](index=163&type=chunk) 2022 Mill Fuel and Electricity Purchases | Item | Total Purchased | Average Cost | | :--- | :--- | :--- | | Fuel (all types) | 32.3 million MMBTUs | $6.09 / MMBTU | | Electricity | 22.0 million CkWh | $6.86 / CkWh | [Regulatory and Environmental Matters](index=27&type=section&id=Regulatory%20and%20Environmental%20Matters) PCA incurred $50 million in environmental compliance costs in 2022 and aims for a 35% reduction in Scope 1 and 2 GHG emissions by 2030 - Environmental compliance spending was **$50 million** in 2022, up from **$44 million** in 2021 and 2020[170](index=170&type=chunk) - As of December 31, 2022, the company maintained an environmental reserve of **$25.2 million** for on-site landfills, surface impoundments, and remedial projects[173](index=173&type=chunk) - PCA has set a goal to reduce absolute Scope 1 and 2 greenhouse gas emissions by **35%** by 2030 (from a 2021 baseline) and to reach **net-zero** carbon emissions by 2050[175](index=175&type=chunk) [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Accounting for defined benefit pension plans is a critical estimate, highly sensitive to assumptions like discount rates and expected return on plan assets - The calculation of pension expense and liabilities is a **critical accounting estimate**, requiring **significant judgment** regarding assumptions for discount rates, return on plan assets, and other factors[179](index=179&type=chunk)[180](index=180&type=chunk) Pension Expense Sensitivity Analysis for 2023 | Assumption Change | Impact on 2023 Pension Expense (in millions) | | :--- | :--- | | 0.25% Increase in Discount Rate | ($2.0) | | 0.25% Decrease in Discount Rate | $2.2 | | 0.25% Increase in Expected Return on Plan Assets | ($2.6) | | 0.25% Decrease in Expected Return on Plan Assets | $2.6 | [Reconciliations of Non-GAAP Financial Measures](index=30&type=section&id=Reconciliations%20of%20Non-GAAP%20Financial%20Measures%20to%20Reported%20Amounts) This section reconciles non-GAAP measures like Net income excluding special items and EBITDA to GAAP, used by management for operational performance evaluation Reconciliation of Net Income to Net Income Excluding Special Items (2022, in millions) | Metric | Amount | | :--- | :--- | | Net Income (GAAP) | $1,029.8 | | Total Special Items Expense | $10.4 | | **Net Income Excluding Special Items (Non-GAAP)** | **$1,040.2** | Reconciliation of Net Income to EBITDA (2022, in millions) | Metric | Amount | | :--- | :--- | | Net Income (GAAP) | $1,029.8 | | Adjustments (Interest, Taxes, D&A, etc.) | $847.7 | | **EBITDA (Non-GAAP)** | **$1,877.5** | | Special Items | $8.0 | | **EBITDA Excluding Special Items (Non-GAAP)** | **$1,885.5** | [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=page&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) PCA is exposed to commodity price and interest rate risks, with 100% fixed-rate debt as of December 31, 2022, mitigating interest rate risk on existing debt - The company is exposed to commodity price changes, interest rate changes, and financial instrument market value changes[190](index=190&type=chunk) - As of December 31, 2022, **100%** of PCA's outstanding debt is **fixed-rate**[191](index=191&type=chunk) [Financial Statements and Supplementary Data](index=33&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains PCA's audited consolidated financial statements for 2022, including income statements, balance sheets, cash flows, and accompanying notes Consolidated Statements of Income (in millions) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net sales | $8,478.0 | $7,730.3 | $6,658.2 | | Gross profit | $2,090.6 | $1,873.0 | $1,369.4 | | Income from operations | $1,420.7 | $1,241.4 | $723.9 | | Net income | $1,029.8 | $841.1 | $461.0 | | Diluted EPS | $11.03 | $8.83 | $4.84 | Consolidated Balance Sheets (in millions) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $2,508.3 | $2,732.7 | | Total Assets | $8,003.8 | $7,836.8 | | Total Current Liabilities | $875.5 | $884.8 | | Long-Term Debt | $2,473.6 | $2,471.5 | | Total Liabilities | $4,336.7 | $4,229.6 | | Total Stockholders' Equity | $3,667.1 | $3,607.2 | [Notes to Consolidated Financial Statements](index=40&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies, revenue, leases, debt, pensions, segment performance, and legal proceedings, supplementing financial statements [Changes In and Disagreements With Accountants on Accounting and Financial Disclosure](index=77&type=page&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[405](index=405&type=chunk) [Controls and Procedures](index=77&type=page&id=Item%209A.%20Controls%20and%20Procedures) Management concluded PCA's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management, including the CEO and CFO, concluded that PCA's disclosure controls and procedures were **effective** at the reasonable assurance level as of December 31, 2022[407](index=407&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2022, based on the COSO framework[411](index=411&type=chunk) [Other Information](index=77&type=page&id=Item%209B.%20Other%20Information) The company reports that it has no other information to disclose - None[413](index=413&type=chunk) [Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=77&type=page&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20That%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[414](index=414&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=78&type=page&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information regarding executive officers is located in Part I, Item 1 under the caption 'Executive Officers of the Registrant'[416](index=416&type=chunk) - Other required information concerning directors, corporate governance, and audit committee matters is incorporated by reference from the 2023 Proxy Statement[419](index=419&type=chunk) [Executive Compensation](index=78&type=page&id=Item%2011.%20Executive%20Compensation) All information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from PCA's 2023 Proxy Statement[416](index=416&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=78&type=page&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference from the 2023 Proxy Statement, with 1,010,073 securities available for future issuance Securities Authorized for Issuance under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants, and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by securityholders | — | $ — | 1,010,073 | | Equity compensation plans not approved by securityholders | N/A | N/A | N/A | | **Total** | **—** | **$ —** | **1,010,073** | [Certain Relationships and Related Transactions, and Director Independence](index=79&type=page&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) All information regarding related party transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from PCA's 2023 Proxy Statement[420](index=420&type=chunk) [Principal Accounting Fees and Services](index=79&type=page&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) All information regarding principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from PCA's 2023 Proxy Statement[421](index=421&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=80&type=page&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report, including governing documents and certifications - This section lists all exhibits filed with the Form 10-K, including the Contribution Agreement, Indentures for various Senior Notes, Credit Agreement, and management compensatory plans[423](index=423&type=chunk)[425](index=425&type=chunk)[426](index=426&type=chunk)

Packaging Corporation of America (NYSE:PKG) Q4 2022 Earnings Conference Call January 26, 2023 9:00 AM ET Company Participants Mark Kowlzan - Chairman and Chief Executive Officer Thomas Hassfurther - Executive Vice President, Corrugated Products Robert Mundy - Executive Vice President and Chief Financial Officer Conference Call Participants George Staphos - Bank of America Merrill Lynch Michael Roxland - Truist Securities Mark Weintraub - Seaport Research Partners Cleveland Rueckert - UBS Kyle White - Deutsc ...

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 (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporation or Organization) 1 North Field ...

Financial Data and Key Metrics Changes - Third quarter net income for 2022 was $262 million, or $2.80 per share, compared to $257 million, or $2.69 per share in Q3 2021, reflecting a year-over-year increase [3] - Net sales increased to $2.1 billion in Q3 2022 from $2.0 billion in Q3 2021 [3] - Total company EBITDA for Q3 2022 was $477 million, up from $464 million in Q3 2021 [3] Business Line Data and Key Metrics Changes - Packaging business EBITDA excluding special items was $467 million with sales of $1.9 billion, resulting in a margin of 24.1%, down from a margin of 25.5% in the previous year [5] - Paper segment EBITDA excluding special items was $33 million with sales of $165 million, achieving a margin of 20%, compared to $18 million and 12% margin in Q3 2021 [12] Market Data and Key Metrics Changes - Corrugated product shipments decreased by 6% compared to Q3 2021, with containerboard outside sales volume down 57,000 tons year-over-year [9] - Export containerboard prices increased by $0.06 per share compared to Q3 2021 and $1.00 per share compared to Q2 2022 [9] Company Strategy and Development Direction - The company is focused on implementing price increases across all product lines and optimizing process efficiencies to mitigate inflation impacts [5][7] - Scheduled maintenance outages and conversion work at the Jackson mill are expected to enhance operational efficiency and capacity [6][17] Management's Comments on Operating Environment and Future Outlook - Management noted that demand in the packaging segment was below expectations due to inventory corrections and inflation impacting consumer purchases [9][10] - The outlook for Q4 anticipates continued economic headwinds, including lower shipping days and a less favorable product mix [16][17] Other Important Information - Cash provided by operations reached a record $431 million, with free cash flows at $251 million [14] - The company repurchased 1,032,000 shares at an average price of $137.60 per share during the quarter [14] Q&A Session Summary Question: Early Q4 booking and billing trends - Bookings and billings are running about 5% below last year, with significant inventory destocking expected to take a couple of quarters to resolve [20][21] Question: Impact of inventory destocking on demand - Inventory destocking is a primary factor in the 6% decline in shipments, with some customers finally ready to order again after reducing excess inventory [23][24] Question: Guidance on sequential changes in earnings - The expected decline in earnings is attributed to volume issues, inflation, and increased maintenance costs, with specific impacts from energy and labor costs [30][31] Question: Internal inventory levels and economic downtime - The company is comfortable with its inventory levels and will adjust production based on demand [38][40] Question: Impact of COVID lockdowns in China on US economy - The US has seen a record increase in onshoring manufacturing, which is expected to benefit the box business despite ongoing supply chain issues [53]

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 June 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 (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporation or Organization) 1 North Field Cour ...

Financial Data and Key Metrics Changes - The company reported a net income of $301 million or $3.20 per share for Q2 2022, an increase from $207 million or $2.17 per share in Q2 2021, excluding special items [5][6] - Net sales for Q2 2022 were $2.2 billion, up from $1.9 billion in Q2 2021, with EBITDA of $533 million compared to $397 million in the previous year [6][21] - The increase in earnings per share was primarily driven by higher prices and mix in the Packaging segment, contributing $2.04 per share, and volume contributing $0.12 per share [6][8] Business Line Data and Key Metrics Changes - In the Packaging segment, EBITDA was $525 million with sales of $2.1 billion, resulting in a margin of 25.4%, compared to $409 million and $1.7 billion in sales with a margin of 23.8% in the previous year [9] - The Paper segment saw EBITDA of $32 million with sales of $150 million, yielding a margin of 21%, up from $12 million and 8.2% margin in Q2 2021 [17][19] Market Data and Key Metrics Changes - Total corrugated product shipments were flat compared to last year's record Q2, while outside sales volume of containerboard was about 41,000 tons above last year's second quarter [13][14] - Domestic containerboard and corrugated products prices were $1.89 per share above Q2 2021, reflecting successful price increases [14] Company Strategy and Development Direction - The company plans to build inventory ahead of a significant fourth-quarter outage at the Jackson, Alabama mill, focusing on meeting customer demand while managing inflationary pressures [10][25] - The company is implementing price increases in both the Packaging and Paper segments to offset rising costs, with an additional $60 per ton price increase announced for office printing and converting grades [24] Management's Comments on Operating Environment and Future Outlook - Management noted that economic conditions are negatively impacted by inflation and interest rate increases, leading to expectations of softening growth in corrugated products [25][26] - Despite inflationary pressures, management expressed confidence in retaining gains from previous years and anticipates a return to demand trends similar to last year once inventory issues are resolved [33][34] Other Important Information - The company generated cash from operations of $324 million and free cash flow of $135 million, ending the quarter with $667 million in cash [21] - Scheduled outage expenses are expected to increase due to the postponement of maintenance at the International Falls mill, impacting future earnings [22] Q&A Session Summary Question: Volume and end market trends - Management indicated that volume is currently about 2% below last year, with bookings starting to trend upwards, suggesting a potential stabilization in demand [30][32] Question: Bridging Q2 to Q3 earnings - Management confirmed that inflationary costs and volume changes will impact earnings, with a sequential change expected to be around $0.40 per share [34][37] Question: Pricing execution and market conditions - Management noted successful price execution across the board, with e-commerce and food and beverage markets remaining steady, while durable goods have seen a decline [41][42] Question: Cost and cadence of the GenX project - The company is on track with a $450 million capital project, with expected capacity increases and cost reductions once completed [60][61] Question: Freight market tightness and inventory levels - Management plans to build inventory to prepare for the upcoming outage, aiming for an increase of 30,000 to 40,000 tons of containerboard [118][122] Question: Consumer brand preferences - Management stated that the company is not significantly impacted by consumer shifts towards generic brands, as it serves a diverse customer base [130]

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The section presents unaudited consolidated financial statements for Q1 2022, including income, balance sheets, cash flows, and equity, with detailed accounting notes [Consolidated Statements of Income and Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Net Sales increased to $2,136.4 million in Q1 2022 from $1,807.2 million year-over-year, with Net Income rising significantly to $254.2 million Q1 2022 vs Q1 2021 Income Statement Highlights (in millions, except per-share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **Net sales** | $2,136.4 | $1,807.2 | | **Gross profit** | $533.2 | $403.7 | | **Income from operations** | $356.5 | $238.3 | | **Net income** | $254.2 | $166.5 | | **Diluted EPS** | $2.70 | $1.75 | | **Dividends declared per share** | $1.00 | $1.00 | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $8,137.8 million as of March 31, 2022, driven by growth in receivables, inventories, and property, plant, and equipment Balance Sheet Summary (in millions) | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $2,869.4 | $2,732.7 | | **Property, plant, and equipment, net** | $3,670.7 | $3,529.0 | | **Total assets** | $8,137.8 | $7,836.8 | | **Total current liabilities** | $967.9 | $884.8 | | **Long-term debt** | $2,472.0 | $2,471.5 | | **Total liabilities** | $4,358.5 | $4,229.6 | | **Total stockholders' equity** | $3,779.3 | $3,607.2 | [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly increased to $325.3 million in Q1 2022, while investing activities used $221.2 million, primarily for capital expenditures Q1 Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $325.3 | $191.6 | | **Net cash used for investing activities** | ($221.2) | ($87.5) | | **Net cash used for financing activities** | ($94.2) | ($95.3) | | **Net increase in cash and cash equivalents** | $9.9 | $8.8 | [Condensed Notes to Unaudited Quarterly Consolidated Financial Statements](index=7&type=section&id=Condensed%20Notes%20to%20Unaudited%20Quarterly%20Consolidated%20Financial%20Statements) The notes detail operations across Packaging, Paper, and Corporate segments, including the Jackson mill conversion, revenue recognition, and legal proceedings - The company operates in three reportable segments: Packaging, Paper, and Corporate and Other[25](index=25&type=chunk) - The Jackson, Alabama mill is undergoing a permanent conversion from producing uncoated freesheet (UFS) paper to linerboard to meet strong packaging demand, with its results now split between the Packaging and Paper segments[26](index=26&type=chunk) Revenue by Product Line (in millions) | Product Line | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **Packaging** | $1,964.5 | $1,623.6 | | **Paper** | $153.5 | $164.6 | | **Corporate and Other** | $18.4 | $19.0 | | **Total revenue** | $2,136.4 | $1,807.2 | Segment Operating Income (in millions) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **Packaging** | $362.2 | $257.9 | | **Paper** | $22.4 | $8.7 | | **Corporate and Other** | ($28.1) | ($28.3) | | **Total Income from operations** | $356.5 | $238.3 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q1 2022 performance to higher prices, mix, and volume in Packaging, offsetting significant inflation, with Q2 anticipating continued demand but higher outage costs - Q1 2022 net income increased to **$254 million** (**$2.70/share**) from **$167 million** (**$1.75/share**) in Q1 2021, driven primarily by higher prices and mix in the Packaging and Paper segments[101](index=101&type=chunk) - Key challenges included inflation-related cost increases in energy, fiber, chemicals, labor, and freight[101](index=101&type=chunk) - The outlook for Q2 2022 anticipates strong demand and higher prices in both segments, but also higher scheduled mill outage costs and continued cost inflation[108](index=108&type=chunk) - Expected capital investments for 2022 are approximately **$800 million**, including spending on the Jackson mill conversion[130](index=130&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Net sales grew 18.2% to $2.14 billion in Q1 2022, with Packaging sales up 21.0% due to higher prices/mix and volume, while Paper sales declined 6.7% Change in Net Sales (Q1 2022 vs Q1 2021, in millions) | Segment | Q1 2022 Sales | Q1 2021 Sales | Change | | :--- | :--- | :--- | :--- | | **Packaging** | $1,964.5 | $1,623.6 | +$340.9 | | **Paper** | $153.5 | $164.6 | -$11.1 | | **Total Net Sales** | $2,136.4 | $1,807.2 | +$329.2 | Change in Income from Operations (Q1 2022 vs Q1 2021, in millions) | Segment | Q1 2022 Income | Q1 2021 Income | Change | | :--- | :--- | :--- | :--- | | **Packaging** | $362.2 | $257.9 | +$104.3 | | **Paper** | $22.4 | $8.7 | +$13.7 | | **Total Income from Operations** | $356.5 | $238.3 | +$118.2 | [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2022, the company maintained strong liquidity with $629 million in cash and $321 million in unused borrowing capacity, supported by increased operating cash flow - Primary liquidity sources are cash from operations and an available revolving credit facility, with total liquidity including **$629 million** in cash and **$321 million** in unused borrowing capacity at quarter-end[125](index=125&type=chunk) Cash Flow Comparison (Q1 2022 vs Q1 2021, in millions) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **Operating** | $325.3 | $191.6 | | **Investing** | ($221.2) | ($87.5) | | **Financing** | ($94.2) | ($95.3) | [Reconciliations of Non-GAAP Financial Measures to Reported Amounts](index=23&type=section&id=Reconciliations%20of%20Non-GAAP%20Financial%20Measures%20to%20Reported%20Amounts) This section reconciles non-GAAP measures, showing Q1 2022 reported net income at $254.2 million and consolidated EBITDA at $466.2 million, with EBITDA excluding special items at $467.2 million EBITDA Reconciliation (in millions) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **Net income** | $254.2 | $166.5 | | **EBITDA** | $466.2 | $339.1 | | **EBITDA excluding special items** | $467.2 | $341.8 | Segment EBITDA Excluding Special Items (in millions) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | **Packaging** | $463.9 | $352.1 | | **Paper** | $29.0 | $15.8 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure to interest rate changes is mitigated as 100% of its outstanding debt carried fixed interest rates as of March 31, 2022 - As of March 31, 2022, **100%** of PCA's outstanding debt is at fixed interest rates[140](index=140&type=chunk) [Item 4. Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022, while integrating controls for the recently acquired Advance Packaging Corporation - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2022[151](index=151&type=chunk) - The company is in the process of integrating Advance Packaging's controls over financial reporting following its acquisition on December 11, 2021[152](index=152&type=chunk) [PART II OTHER INFORMATION](index=27&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in multiple lawsuits related to a 2017 explosion at its DeRidder, Louisiana facility, which are believed to be covered by liability insurance - The company faces multiple lawsuits alleging negligence from a 2017 explosion at its DeRidder, Louisiana mill, which are believed to be covered by insurance, subject to a met **$1.0 million** deductible[93](index=93&type=chunk) - An investigation by the U.S. Environmental Protection Agency (EPA) related to the DeRidder incident is ongoing, with civil judicial enforcement discussions with the EPA and DOJ in progress[95](index=95&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 were reported - No material changes to risk factors were reported for the quarter[156](index=156&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board authorized an additional $1 billion for share repurchases on January 26, 2022, with no shares repurchased during Q1 2022, leaving the full amount available - The company did not repurchase any shares of its common stock under its authorized plan during Q1 2022[81](index=81&type=chunk) - As of March 31, 2022, **$1 billion** remained available for repurchase under the company's stock repurchase program authorized in January 2022[81](index=81&type=chunk)[157](index=157&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications as required by the Sarbanes-Oxley Act of 2002 and Inline XBRL data files - Exhibits filed include CEO/CFO certifications (**31.1**, **31.2**, **32**) and Inline XBRL documents (**101** series)[162](index=162&type=chunk)

Financial Data and Key Metrics Changes - First quarter net income was $254 million or $2.70 per share, compared to $169 million or $1.77 per share in the first quarter of 2021, reflecting a significant increase [4][5] - First quarter net sales increased to $2.1 billion in 2022 from $1.8 billion in 2021 [5] - Total company EBITDA for the first quarter, excluding special items, was $467 million in 2022 compared to $342 million in 2021 [5][6] - The increase in earnings per share was primarily driven by higher prices and mix, contributing $1.83, and volume contributing $0.23 in the packaging segment [6][7] Business Line Data and Key Metrics Changes - In the packaging business, EBITDA excluding special items was $464 million with sales of $1,960 million, resulting in a 23.6% margin, up from last year's EBITDA of $352 million and sales of $1.62 billion with a 21.7% margin [9] - The paper segment reported EBITDA of $0.29 million with sales of $153 million, an 18.9% margin, compared to $0.16 million and $165 million for a 9.6% margin in the first quarter of 2021 [19] Market Data and Key Metrics Changes - Demand in the packaging segment remained strong, with total volume in corrugated products plants up 2.9% and shipments per day up 1.3% compared to the previous year [13] - Domestic containerboard and corrugated products prices contributed $1.60 per share above the first quarter of 2021 [15] Company Strategy and Development Direction - The company continues to implement previously announced price increases in both packaging and paper segments, anticipating strong demand in the packaging segment [26] - The focus remains on aligning with the right customers and supporting their growth, which has been a long-term strategy for the company [79] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing inflationary pressures, particularly in energy, fiber, and logistics, while also noting improvements in operational efficiencies [11][27] - The company expects second quarter earnings of $2.83 per share, despite anticipated lower volume in the paper segment due to scheduled outages [27] Other Important Information - Cash from operations for the first quarter was $339 million, with free cash flow of $113 million, and liquidity at $1.1 billion [23] - The company revised its estimated cost impact from scheduled mill maintenance outages for the year to $1.04 per share [24] Q&A Session Summary Question: Price increase implementation cadence - Management confirmed that the implementation is on track, with the majority of price increases expected in the second quarter [34] Question: Spot rates for trucking - Management noted slight improvements in the spot market but indicated that freight costs are still expected to rise by about 5% in the second quarter [36][37] Question: Inventory levels and customer needs during downtime - Management stated that necessary inventory has been preplanned for the upcoming maintenance shutdown, ensuring customer needs will be met [39] Question: Impact of new corrugating capacity on efficiency - Management indicated that new investments in corrugating capacity have not significantly impacted their efficiency [45] Question: Labor productivity and constraints - Management acknowledged ongoing challenges in the labor market but noted improvements in productivity due to capital investments [82] Question: Differentiating inflation levels at mill vs converting levels - Management confirmed that all areas are experiencing significant inflationary pressures, particularly in converting plants [87]

Part I [Business](index=3&type=section&id=Item%201.%20Business) Packaging Corporation of America (PCA) is a leading North American producer of containerboard and uncoated freesheet paper, operating eight mills and 90 corrugated products plants - PCA is the third largest producer of containerboard products and a leading producer of uncoated freesheet (UFS) paper in North America, operating eight mills and 90 corrugated products plants[12](index=12&type=chunk) - The company is organized into three reportable segments: Packaging, Paper, and Corporate and Other[13](index=13&type=chunk) Production and Shipments Overview (2019-2021) | Metric | Unit | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | :--- | | Containerboard Production | thousand tons | 4,887 | 4,341 | 4,249 | | Corrugated Products Shipments | billion sq. ft. | 65.7 | 62.8 | 59.4 | | UFS Production | thousand tons | 572 | 648 | 947 | [Packaging Segment](index=4&type=section&id=Packaging) PCA's largest segment, Packaging, produces containerboard and corrugated products, generating **$7.1 billion in net sales** in 2021, utilizing wood fiber and biogenic fuels Packaging Segment 2021 Performance | Metric | Value | | :--- | :--- | | Net Sales to Third Parties | $7.1 billion | | Containerboard Production | 4.9 million tons | | Corrugated Products Sales | 65.7 billion square feet (BSF) | - The Jackson, Alabama mill began converting to containerboard production in late 2020, with the No. 3 machine permanently converted in Q1 2021 and the No. 1 machine starting corrugating medium production in late 2021[23](index=23&type=chunk) - Fiber is the largest raw material cost, with recycled fiber usage at **18% of containerboard production** in 2021; **61% of 81 million MMBTUs** consumed for energy was from self-generated biogenic fuels[26](index=26&type=chunk)[30](index=30&type=chunk) - The segment's primary national competitors include International Paper, WestRock Company, Georgia-Pacific LLC, and Pratt Industries[38](index=38&type=chunk) [Paper Segment](index=7&type=section&id=Paper) The Paper segment, a leading North American producer of uncoated freesheet, operates two mills with **602,000 tons annual capacity** and faces declining demand due to electronic alternatives and competition - The segment has an annual production capacity of **602,000 tons** from two mills: International Falls, MN, and Jackson, AL[40](index=40&type=chunk) - Office Depot, Inc. is the largest customer, representing **51% of the Paper segment's sales revenue** and **4% of consolidated sales revenue in 2021**; the current supply agreement runs through December 31, 2022[48](index=48&type=chunk)[90](index=90&type=chunk) - The paper market is highly competitive, facing pressure from other producers (like Domtar and Sylvamo) and electronic alternatives, which are causing a decline in demand for UFS paper products[49](index=49&type=chunk)[50](index=50&type=chunk)[81](index=81&type=chunk) [Human Capital](index=8&type=section&id=Human%20Capital) As of December 31, 2021, PCA employed approximately **15,200 people**, with **63% of hourly employees unionized**, focusing on safety, recruitment, and diversity initiatives Employee Statistics (as of Dec 31, 2021) | Category | Number | | :--- | :--- | | Total Employees | ~15,200 | | Salaried Employees | 4,400 | | Hourly Employees | 10,800 | | Unionized Hourly Employees | ~63% | - The company has established a Diversity, Equity, and Inclusion Council and began publicly disclosing its EEO-1 report in 2021[55](index=55&type=chunk) - PCA experienced no work stoppages in 2021 and believes it has satisfactory labor relations[57](index=57&type=chunk) [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including COVID-19 impacts, operational challenges, input cost volatility, customer concentration, and other external and internal factors - **COVID-19 Risks:** The pandemic poses uncertainty regarding future operational disruptions, workforce availability, and supply chain costs It has already caused significantly lower demand for UFS paper products[76](index=76&type=chunk)[78](index=78&type=chunk) - **Operational & Industry Risks:** The business is subject to industry price cyclicality, intense competition, and potential increases in the cost of fiber, fuel, and chemicals A **$10/ton increase in recycled fiber cost** would add **$8.6 million in expense**[79](index=79&type=chunk)[80](index=80&type=chunk)[85](index=85&type=chunk) - **Customer Concentration Risk:** The Paper segment relies heavily on Office Depot, which accounted for **51% of its sales in 2021** A reduction in sales to Office Depot could significantly harm the segment's results[89](index=89&type=chunk)[90](index=90&type=chunk) - **Financial & Economic Risks:** The business is exposed to adverse economic conditions, including high inflation A **1% increase in cash costs (COS & SG&A)** would amount to a **$60 million increase in expenses**[101](index=101&type=chunk)[103](index=103&type=chunk) [Properties](index=16&type=section&id=Item%202.%20Properties) PCA owns all eight of its mills and corporate headquarters, along with 53 of its 90 corrugated manufacturing facilities, with the remainder leased - The company owns all eight of its mills and its corporate headquarters[111](index=111&type=chunk)[112](index=112&type=chunk) - Of the 90 corrugated manufacturing operations, PCA owns **53 facilities** (including 45 corrugated plants) and leases **37 facilities** (including 14 corrugated plants)[111](index=111&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) PCA's common stock trades on the NYSE, with a new **$1 billion share repurchase program** authorized in January 2022, and its 5-year cumulative total shareholder return was **185.17%** - In January 2022, the Board of Directors authorized a new **$1 billion share repurchase program**[119](index=119&type=chunk) - In Q4 2021, PCA repurchased **1.4 million shares** of common stock for **$193.0 million**, completing its prior authorization, with no repurchases made in 2020 or 2019[120](index=120&type=chunk) 5-Year Cumulative Total Shareholder Return (2016-2021) | Entity | 2016 Investment | 2021 Value | Cumulative Return | | :--- | :--- | :--- | :--- | | Packaging Corporation of America | $100.00 | $185.17 | 85.17% | | S&P 500 | $100.00 | $233.41 | 133.41% | | S&P Midcap 400 | $100.00 | $184.96 | 84.96% | | Peer Group | $100.00 | $110.53 | 10.53% | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) PCA's 2021 net sales increased to **$7.73 billion** and net income to **$841 million**, driven by Packaging segment growth and the Advance Packaging acquisition, despite cost inflation Financial Performance (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Sales | $7.73 billion | $6.66 billion | | Net Income | $841 million | $461 million | | Diluted EPS | $8.83 | $4.84 | | Net Income (Excluding Special Items) | $894 million | $550 million | | Diluted EPS (Excluding Special Items) | $9.39 | $5.78 | - Performance was driven by higher prices and mix in both segments and higher volumes in Packaging, partially offset by higher operating costs, converting costs, and freight expenses[130](index=130&type=chunk) - In December 2021, PCA acquired Advance Packaging Corporation for **$195 million** to further integrate its containerboard production[134](index=134&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) In 2021, net sales increased **16.1% to $7.73 billion**, driven by **19.1% growth in Packaging sales** to **$7.05 billion**, while Paper segment sales declined due to mill conversion Net Sales by Segment (2021 vs. 2020) | Segment | 2021 Net Sales (millions) | 2020 Net Sales (millions) | Change (%) | | :--- | :--- | :--- | :--- | | Packaging | $7,052.6 | $5,919.5 | +19.1% | | Paper | $599.7 | $674.8 | -11.1% | | **Total** | **$7,730.3** | **$6,658.2** | **+16.1%** | Income from Operations by Segment (2021 vs. 2020) | Segment | 2021 Income (millions) | 2020 Income (millions) | Change (millions) | | :--- | :--- | :--- | :--- | | Packaging | $1,306.0 | $829.5 | +$476.5 | | Paper | $39.1 | $(20.0) | +$59.1 | | **Total** | **$1,241.4** | **$723.9** | **+$517.5** | - In 2020, the company recognized a non-cash goodwill impairment charge of **$55 million** for the Paper reporting unit, with no such charge in 2021[149](index=149&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) PCA's 2021 liquidity was supported by **$1.09 billion in operating cash flow**, with **$794 million used in investing activities** (including **$605 million in capital expenditures** and **$195 million for acquisitions**), and **$656 million used in financing activities** including debt refinancing Cash Flow Summary (in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,094.1 | $1,032.8 | | Net cash used for investing activities | $(794.4) | $(426.1) | | Net cash used for financing activities | $(655.6) | $(311.6) | - Capital expenditures were **$605 million in 2021** and are expected to be approximately **$800 million in 2022**, including spending on the Jackson mill conversion[163](index=163&type=chunk)[165](index=165&type=chunk) - In 2021, the company issued **$700 million of 3.05% Senior Notes due 2051** and used the proceeds and cash on hand to redeem **$700 million of 4.50% Senior Notes due 2023**[167](index=167&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant judgment in areas such as pensions, goodwill impairment testing (including a **$55.2 million impairment** for the Paper segment in 2020), and long-lived asset impairment reviews - **Pensions:** Pension expense and liabilities are sensitive to assumptions; a **0.25% decrease in the discount rate** would have increased 2021 pension expense by **$2.2 million**, while a **0.25% decrease in the expected rate of return on assets** would have increased it by **$3.2 million**[189](index=189&type=chunk) - **Goodwill Impairment:** A triggering event in Q2 2020 related to the Paper segment resulted in a full impairment charge of **$55.2 million**, while the Q4 2021 annual test for the Packaging segment indicated no impairment[193](index=193&type=chunk)[194](index=194&type=chunk)[198](index=198&type=chunk) - **Long-Lived Asset Impairment:** A recoverability test on the Paper segment's long-lived assets in Q2 2020 indicated they were **100% recoverable**[201](index=201&type=chunk)[202](index=202&type=chunk) [Financial Statements and Supplementary Data](index=35&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents PCA's audited consolidated financial statements for 2021, including the independent auditor's unqualified opinion on financial statements and internal controls, with detailed notes on accounting policies, acquisitions, and debt - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[215](index=215&type=chunk) - The audit of internal control over financial reporting excluded Advance Packaging Corporation, acquired in December 2021, which represented approximately **3% of consolidated total assets**[216](index=216&type=chunk) - The auditor identified the evaluation of the value of the pension benefit obligation as a critical audit matter due to the specialized skills required and sensitivity to the discount rate assumption[224](index=224&type=chunk)[225](index=225&type=chunk) [Consolidated Financial Statements](index=38&type=section&id=Consolidated%20Financial%20Statements) PCA's 2021 consolidated financial statements show **$7,730.3 million in net sales**, **$841.1 million in net income**, **$7,836.8 million in total assets**, and **$1,094.1 million in operating cash flow** Key Financial Statement Data (2021) | Metric | Value (millions) | | :--- | :--- | | **Income Statement** | | | Net Sales | $7,730.3 | | Gross Profit | $1,873.0 | | Net Income | $841.1 | | **Balance Sheet (Year-End)** | | | Total Assets | $7,836.8 | | Total Liabilities | $4,229.6 | | Total Stockholders' Equity | $3,607.2 | | **Cash Flow Statement** | | | Net Cash from Operating Activities | $1,094.1 | [Notes to Consolidated Financial Statements](index=42&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes to the financial statements detail the **$194.9 million Advance Packaging acquisition**, **$700 million debt refinancing**, improved pension underfunded status to **$121.1 million**, and capital commitments of **$784.9 million** - On December 11, 2021, PCA acquired Advance Packaging for **$194.9 million**, allocating **$60.0 million to goodwill** and **$50.2 million to intangible assets**[323](index=323&type=chunk) - In 2021, the company refinanced debt by issuing **$700.0 million of 3.05% senior notes due 2051** and redeeming its **$700.0 million 4.50% notes due 2023**[349](index=349&type=chunk) - The pension plans' underfunded status improved from **$264.9 million in 2020 to $121.1 million in 2021**, primarily due to an increase in the discount rate assumption and asset returns[368](index=368&type=chunk) - The company has capital commitments of approximately **$784.9 million** as of December 31, 2021, for facility expansion and replacement[425](index=425&type=chunk) [Controls and Procedures](index=76&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that PCA's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, excluding the recently acquired Advance Packaging Corporation - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[438](index=438&type=chunk) - Management's assessment of internal control over financial reporting concluded that such controls were effective as of December 31, 2021[443](index=443&type=chunk) - The assessment of internal control over financial reporting excluded the newly acquired Advance Packaging Corporation, which accounted for approximately **3% of total assets**[439](index=439&type=chunk)[443](index=443&type=chunk) Part III [Directors, Executive Compensation, and Other Matters](index=78&type=section&id=Item%2010%2C%2011%2C%2013%2C%2014) This section incorporates by reference information from PCA's 2022 Proxy Statement regarding directors, executive officers, corporate governance, executive compensation, and related party transactions - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Certain Relationships and Related Transactions (Item 13), and Principal Accounting Fees and Services (Item 14) is incorporated by reference from the company's 2022 Proxy Statement[448](index=448&type=chunk)[451](index=451&type=chunk)[452](index=452&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=78&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference, with **1,317,879 securities** remaining available for future issuance under equity compensation plans as of December 31, 2021 Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to Be Issued Upon Exercise (A) | Weighted-Average Exercise Price (B) | Securities Remaining for Future Issuance (C) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by securityholders | — | $ — | 1,317,879 | | Equity compensation plans not approved by securityholders | N/A | N/A | N/A | | **Total** | **—** | **$ —** | **1,317,879** | - The number of securities to be issued upon exercise excludes **1,009,540 shares** of unvested restricted stock and performance units[450](index=450&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=80&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists exhibits filed with the 10-K, including corporate documents, credit agreements, employee benefit plans, and required CEO/CFO certifications and auditor consents - Lists key agreements including the Credit Agreement dated June 8, 2021, and indentures for various senior notes with maturities ranging from 2024 to 2051[455](index=455&type=chunk) - Includes management compensatory plans such as the Amended and Restated 1999 Long-Term Equity Incentive Plan and the Executive Incentive Compensation Plan[455](index=455&type=chunk) - Contains required filings such as the Consent of KPMG LLP (auditor) and CEO/CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[457](index=457&type=chunk)

Packaging Corporation of America (NYSE:PKG) Q4 2021 Earnings Conference Call January 27, 2021 9:00 AM ET Company Participants Mark W. Kowlzan - Chairman and CEO Thomas A. Hassfurther - EVP, Corrugated Products Robert P. Mundy - EVP and CFO Conference Call Participants George Staphos - Bank of America Philip Ng - Jefferies Mark Wilde - Bank of Montreal Mark Weintraub - Seaport Research Partners Gabe Hajde - Wells Fargo Adam Josephson - KeyBanc Capital Michael Roxland - Truist Securities Anthony Pettinari - C ...