Smurfit WestRock plc(SW) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information This section provides essential administrative details about Smurfit Westrock plc, including its incorporation, filing period, and non-accelerated filer status Registrant Information This section provides key administrative details about Smurfit Westrock plc, including its incorporation, address, trading symbol, and non-accelerated filer status for the quarterly period ended June 30, 2025 - Registrant: Smurfit Westrock plc, incorporated in Ireland[3] - Filing Period: Quarterly report for the period ended June 30, 2025[3] - Filer Status: Non-accelerated filer[3] Shares Issued and Outstanding as of July 31, 2025 | Class | Nominal Value | Shares Outstanding | | :-------------- | :----------------- | :----------------- | | Ordinary shares | $0.001 per share | 522,125,044 | Table of Contents This section outlines the report's structure, including an explanatory note on the Smurfit Kappa and WestRock Combination and a cautionary note on forward-looking statements Explanatory Note This note clarifies the corporate structure after the Smurfit Kappa and WestRock Combination, identifying Smurfit Kappa as the accounting acquirer for historical financial statements - Combination Details: Smurfit Westrock plc acquired Smurfit Kappa and WestRock Company, with the Combination closing on July 5, 2024[7] - Accounting Acquirer: Smurfit Kappa was determined to be the accounting acquirer, presenting its historical financials for periods prior to the Combination[7] - Ownership Structure Post-Combination: Smurfit Kappa shareholders own approximately 50.3% and WestRock shareholders own approximately 49.7% of Smurfit Westrock[7] Cautionary Note Regarding Forward-Looking Statements This note advises that the report contains forward-looking statements about future plans and financial prospects, which involve risks and uncertainties that could cause actual results to differ materially - Forward-looking statements cover plans, strategies, outcomes, outlooks, and prospects, including expected benefits and synergies from the Combination[9] - Risks and uncertainties include changes in demand, ability to execute closure plans, economic and market conditions, geopolitical factors, supply chain disruptions, competition, cybersecurity risks, and integration challenges post-Combination[11][12] - The Company disclaims any obligation to publicly update or revise forward-looking statements, except as required by legal or regulatory obligations[14] PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of Smurfit Westrock's financial condition and results of operations Item 1. Financial Statements This section presents Smurfit Westrock plc's unaudited condensed consolidated financial statements for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of operations, comprehensive income, cash flows, and changes in equity, along with detailed notes Condensed Consolidated Balance Sheets The balance sheet reflects a significant increase in total assets and liabilities from December 31, 2024, to June 30, 2025, primarily due to the WestRock acquisition, alongside increases in current assets and total equity Condensed Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Total assets | $45,746 | $43,759 | | Total liabilities | $27,422 | $26,372 | | Total equity | $18,324 | $17,387 | | Cash and cash equivalents | $778 | $855 | - Goodwill increased from $6,822 million to $7,207 million, reflecting the impact of the WestRock acquisition[17] - Non-current debt due after one year increased from $12,542 million to $13,329 million[17] Condensed Consolidated Statements of Operations For the three months ended June 30, 2025, the company reported a net loss due to impairment and restructuring costs, while net income for the six months increased, driven by the WestRock acquisition despite higher interest and restructuring costs Condensed Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net sales | $7,940 | $2,969 | $15,596 | $5,899 | | Gross profit | $1,515 | $693 | $3,092 | $1,403 | | Operating profit | $251 | $244 | $804 | $551 | | Net (loss) income attributable to common shareholders | $(28) | $132 | $356 | $323 | | Basic (loss) earnings per share | $(0.05) | $0.51 | $0.68 | $1.25 | - Impairment and restructuring costs were $280 million for the three months and $295 million for the six months ended June 30, 2025, compared to zero in the prior year periods[20] - Interest expense, net, significantly increased to $182 million (3 months) and $349 million (6 months) in 2025, up from $33 million and $58 million in 2024, primarily due to debt from the Combination[20] Condensed Consolidated Statements of Comprehensive Income Comprehensive income for the three and six months ended June 30, 2025, substantially increased compared to the prior year, primarily driven by foreign currency translation gains Condensed Consolidated Statements of Comprehensive Income Highlights (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income | $(26) | $132 | $356 | $323 | | Foreign currency translation gain (loss) | $712 | $(151) | $1,090 | $(267) | | Other comprehensive income (loss), net of tax | $651 | $(121) | $1,018 | $(224) | | Comprehensive income attributable to common shareholders | $623 | $11 | $1,374 | $99 | - Foreign currency translation shifted from a loss of $151 million (3 months 2024) to a gain of $712 million (3 months 2025), and from a loss of $267 million (6 months 2024) to a gain of $1,090 million (6 months 2025)[21] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased for the six months ended June 30, 2025, driven by higher net income adjusted for non-cash items, while investing activities saw increased capital expenditures and financing activities shifted to a net outflow Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $1,064 | $382 | | Net cash used for investing activities | $(996) | $(410) | | Net cash (used for) provided by financing activities | $(204) | $2,382 | | (Decrease) increase in cash and cash equivalents | $(77) | $2,325 | | Cash and cash equivalents at end of period | $778 | $3,325 | - Capital expenditures increased from $385 million (6 months 2024) to $999 million (6 months 2025)[22] - Cash dividends paid to shareholders increased from $335 million (6 months 2024) to $450 million (6 months 2025)[22] Condensed Consolidated Statements of Changes in Equity Total shareholders' equity increased from December 31, 2024, to June 30, 2025, primarily due to net income and other comprehensive income, despite dividend payments, with an increase in common shares outstanding Condensed Consolidated Statements of Changes in Equity Highlights (in millions, except share data) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :---------------- | | Total shareholders' equity | $18,297 | $17,360 | | Common stock shares outstanding | 522,058,394 | 520,444,261 | | Retained earnings | $2,771 | $2,950 | | Accumulated other comprehensive loss | $(428) | $(1,446) | - Net income contributed $356 million to equity for the six months ended June 30, 2025[28] - Dividends declared for the six months ended June 30, 2025, totaled $450 million ($0.86 per share)[28] Notes to the Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements, covering business description, accounting policies, acquisitions, segment information, revenue recognition, impairment, debt, income taxes, retirement plans, earnings per share, commitments, variable interest entities, accumulated other comprehensive loss, and subsequent events 1. Description of Business and Summary of Significant Accounting Policies This note describes Smurfit Westrock plc as a multinational provider of sustainable fiber-based paper and packaging solutions, outlining the basis of financial statement presentation, key accounting estimates, and details on supplier finance programs and impairment/restructuring cost recognition - Business Description: Multinational provider of sustainable fiber-based paper and packaging solutions with operations across North America, South America, Europe, Asia, Africa, and Australia[32] - Basis of Presentation: Unaudited Condensed Consolidated Financial Statements prepared in accordance with U.S. GAAP for interim financial information, omitting certain notes from the 2024 Annual Report on Form 10-K[34] Supplier Finance Program Obligations (in millions) | Date | Outstanding Payment Obligations | | :------------- | :------------------------------ | | June 30, 2025 | $375 | | Dec 31, 2024 | $450 | 2. Acquisitions This note details the Combination with WestRock Company, which closed on July 5, 2024, with an aggregate merger consideration of $13,461 million, and a preliminary purchase price allocation resulting in a $51 million increase in goodwill - Combination Closing Date: July 5, 2024[50] - Aggregate Merger Consideration: $13,461 million[50] - Goodwill Adjustment: Preliminary purchase price allocation resulted in a $51 million increase in goodwill[51] Unaudited Pro Forma Combined Financial Information (6 months ended June 30, 2024, as if Merger occurred Jan 1, 2023) (in millions) | Metric | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2024 | | :-------------------------------------- | :--------------------------- | :--------------------------- | | Net sales | $7,786 | $15,450 | | Net income attributable to common shareholders | $267 | $482 | 3. Segment Information The Company reports financial results across three segments: North America; Europe, MEA and APAC; and Latin America, with segment profitability measured by Adjusted EBITDA for performance assessment, pricing strategies, and resource allocation - Reportable Segments: North America; Europe, Middle East and Africa (MEA) and Asia-Pacific (APAC); and Latin America (LATAM)[57] - Profitability Metric: Adjusted EBITDA, which excludes unallocated corporate costs, D&A, interest, pension non-service income/expense, share-based compensation, other income/expense, inventory fair value step-up amortization, transaction/integration costs, impairment/restructuring, and other specific items[58] Segment Adjusted EBITDA (in millions) | Segment | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | North America | $752 | $61 | $1,537 | $120 | | Europe, MEA and APAC | $372 | $362 | $761 | $747 | | LATAM | $123 | $87 | $238 | $141 | 4. Revenue Recognition This note disaggregates revenue by product type (Paper and Packaging) and segment, showing significant net sales increases across all segments for both product types, largely attributable to the WestRock acquisition Disaggregated Revenue by Product Type (3 Months Ended June 30, 2025, in millions) | Product | North America | Europe, MEA and APAC | LATAM | Total | | :-------- | :------------ | :------------------- | :---- | :---- | | Paper | $1,092 | $374 | $50 | $1,516| | Packaging | $3,560 | $2,399 | $465 | $6,424| Disaggregated Revenue by Product Type (6 Months Ended June 30, 2025, in millions) | Product | North America | Europe, MEA and APAC | LATAM | Total | | :-------- | :------------ | :------------------- | :---- | :---- | | Paper | $2,218 | $784 | $96 | $3,098| | Packaging | $7,012 | $4,565 | $921 | $12,498| - Packaging revenue is the primary source, mainly from corrugated and consumer packaging products[73] 5. Impairment and Restructuring Costs The Company recognized significant impairment and restructuring costs for the three and six months ended June 30, 2025, primarily due to announced permanent closures of two U.S. mills and consultations for two German converting facilities, including impairment of property, plant, and equipment, and severance charges Impairment and Restructuring Costs (in millions) | Cost Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Impairment charges | $184 | $— | $184 | $— | | Restructuring costs | $96 | $— | $111 | $— | | Total | $280 | $— | $295 | $— | - Impairment charges of $176 million were triggered by the April 30, 2025, announcement of mill closures in St. Paul, Minnesota, and Forney, Texas, and potential closures in Germany[79] - Restructuring costs for the six months ended June 30, 2025, were split across segments: North America ($54 million), Europe, MEA and APAC ($54 million), and LATAM ($3 million)[82] 6. Transaction and Integration-related Expenses Associated with the Combination The Company incurred transaction and integration-related expenses due to the Combination, with the three months ended June 30, 2025, primarily reflecting integration costs, while the prior year focused on transaction-related expenses Transaction and Integration-related Expenses (in millions) | Expense Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Transaction-related expenses | $2 | $(60) | $— | $(83) | | Integration-related expenses | $(23) | $— | $(57) | $— | | Total | $(21) | $(60) | $(57) | $(83) | - Transaction-related expenses include banking, financing, legal, and professional services directly attributable to the Combination[86] - Integration expenses post-acquisition primarily consist of professional services and personnel costs related to merger integration, such as information systems work[87] 7. Accounts Receivable, net Net accounts receivable increased from $4,117 million at December 31, 2024, to $4,844 million at June 30, 2025, with corresponding increases in allowances for credit impairment, returns, and discounts Accounts Receivable, net (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Gross accounts receivable | $5,076 | $4,339 | | Less: Allowances | $(232) | $(222) | | Accounts receivable, net| $4,844 | $4,117 | 8. Inventories Total inventories increased from $3,550 million at December 31, 2024, to $3,774 million at June 30, 2025, with increases across finished goods, work-in-progress, raw materials, and consumables/spare parts Inventories (in millions) | Category | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Finished goods | $1,446 | $1,374 | | Work-in-progress | $222 | $206 | | Raw materials | $1,362 | $1,288 | | Consumables and spare parts | $744 | $682 | | Total Inventories | $3,774 | $3,550 | 9. Property, Plant and Equipment, net Net property, plant, and equipment increased to $23,097 million at June 30, 2025, from $22,675 million at December 31, 2024, including significant depreciation, depletion, and impairment charges primarily in North America and Europe, MEA and APAC segments Property, Plant and Equipment, net (in millions) | Category | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :---------------- | | Property, plant and equipment at cost, excluding forestlands | $31,946 | $29,579 | | Less: Accumulated depreciation and impairment | $(9,134) | $(7,155) | | Property, plant and equipment, net, excluding forestlands | $22,812 | $22,424 | | Forestlands, net of depletion | $285 | $251 | | Property, plant and equipment, net | $23,097 | $22,675 | Depreciation and Depletion Expense (in millions) | Period | 2025 | 2024 | | :------------------------- | :----- | :----- | | Three months ended June 30 | $575 | $149 | | Six months ended June 30 | $1,144 | $285 | - Of the $167 million impairment charges for property, plant and equipment, $156 million was in North America and $11 million in Europe, MEA and APAC[93] 10. Interest Net interest expense significantly increased for both the three and six months ended June 30, 2025, primarily due to interest on debt assumed and issued in connection with the WestRock Combination Interest Expense, net (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest expense | $(208) | $(75) | $(403) | $(112) | | Interest income | $26 | $42 | $54 | $54 | | Interest expense, net | $(182) | $(33) | $(349) | $(58) | - Cash paid for interest, net of interest received, was $283 million for the six months ended June 30, 2025, a substantial increase from $14 million in the prior year[94] 11. Fair Value Measurement This note details the fair value measurement of financial instruments, including debt, derivatives, and other investments, and covers accounts receivable monetization agreements, which generated $20 million in expense for the six months ended June 30, 2025 Fair Value of Debt with Fixed Interest Rates (in millions) | Date | Book Value | Fair Value | | :------------- | :--------- | :--------- | | June 30, 2025 | $11,775 | $11,783 | | Dec 31, 2024 | $11,370 | $11,289 | Fair Value of Derivatives (in millions) | Category | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :---------------- | | Derivatives in cash flow hedging relationships (Assets) | $— | $3 | | Derivatives not designated as hedging instruments (Assets) | $47 | $11 | | Derivatives in cash flow hedging relationships (Liabilities) | $19 | $1 | | Derivatives not designated as hedging instruments (Liabilities) | $2 | $13 | - Expense related to the sale of receivables under monetization agreements was $10 million for the three months and $20 million for the six months ended June 30, 2025[105] 12. Debt Total debt, excluding issuance costs, increased to $14,425 million at June 30, 2025, following an exchange offer for $3,588 million of unregistered senior unsecured notes for new registered notes, and the revolving credit facility maturity was extended to June 28, 2030 Total Debt (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :---------------- | | Total debt, excluding debt issuance costs | $14,425 | $13,658 | | Less: Current portion of debt | $(1,034) | $(1,053) | | Non-current debt due after one year | $13,329 | $12,542 | - Exchange Offer: Approximately $3,588 million aggregate principal amount of Original Notes were exchanged for New Notes, with identical terms except for registration status[109] - Revolving Credit Facility: Maturity date extended to June 28, 2030[107] 13. Income Taxes The effective tax rate for the three months ended June 30, 2025, was 144.8% due to increased unrecognized tax benefits and unrecognised losses, while for the six months, the rate was 20.5%, benefiting from the resolution of unrecognized tax benefits, with U.S. tax legislation enacted on July 4, 2025, not expected to have a material impact Effective Tax Rates | Period | 2025 | 2024 | | :------------------------- | :------ | :------ | | Three months ended June 30 | 144.8% | 29.4% | | Six months ended June 30 | 20.5% | 28.9% | - Cash paid for income taxes, net of refunds, was $210 million for the six months ended June 30, 2025, compared to $79 million in the prior year[118] - U.S. tax legislation enacted on July 4, 2025, is being evaluated but is not expected to materially impact results[119] 14. Retirement Plans Net periodic benefit income for defined benefit pension plans was recognized for the three and six months ended June 30, 2025, a shift from a cost in the prior year, primarily due to increased expected return on assets from acquired pension assets, with contributions to these plans also increasing Net Periodic Benefit (Income) Cost for Defined Benefit Pension Plans (in millions) | Plan Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | U.S. Plans | $(11) | $— | $(22) | $— | | Non-U.S. Plans | $16 | $36 | $31 | $52 | | Total | $5 | $36 | $9 | $52 | Company Contributions to Retirement Plans (in millions) | Plan Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Defined Benefit Pension Plans | $41 | $31 | $67 | $55 | | Other Postretirement Benefit Plans | $2 | $1 | $5 | $2 | - Withdrawal liabilities for multiemployer pension plans were $128 million at June 30, 2025[125] 15. Earnings Per Share Basic and diluted earnings per share for the three months ended June 30, 2025, showed a loss, contrasting with positive EPS in the prior year, and for the six months, EPS decreased despite an increase in net income, due to a higher weighted average number of shares outstanding Basic and Diluted Earnings Per Share (per share) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic (loss) earnings per share | $(0.05) | $0.51 | $0.68 | $1.25 | | Diluted (loss) earnings per share | $(0.05) | $0.51 | $0.68 | $1.24 | Weighted Average Shares Outstanding (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic weighted average shares outstanding | 522 | 259 | 521 | 259 | | Diluted weighted average shares outstanding | 522 | 260 | 525 | 260 | 16. Commitments and Contingencies This note outlines various legal and tax contingencies, including a challenge to a Brazil tax liability of $142 million, ongoing asbestos-related litigation with estimated liabilities of $81 million and insurance recoveries of $50 million, and an Italian Competition Authority investigation where a fine was reduced by $18 million - Brazil Tax Liability: WestRock is challenging claims for R$770 million ($142 million) in underpaid taxes, penalties, and interest[129][130] - Asbestos-Related Litigation: Approximately 720 lawsuits with estimated liabilities of $81 million and estimated insurance recoveries of $50 million as of June 30, 2025[131] - Italian Competition Authority Investigation: A fine levied on Smurfit Kappa Italia was reduced by approximately $18 million, with an appeal on the reduction amount pending[134] - International Arbitration Against Venezuela: Smurfit Holdings BV was granted compensation in excess of $469 million, plus legal costs and interest, for Venezuela's unlawful seizure of its business[138] 17. Variable Interest Entities The Company is involved with several Variable Interest Entities (VIEs) related to trade receivables securitization arrangements and a timber note receivable securitization arrangement, for which the Company is the primary beneficiary and whose assets and liabilities are consolidated - Trade Receivables Securitization: Involves special purpose entities (Smurfit Kappa International Receivables DAC, Smurfit Kappa European Packaging DAC, Smurfit Kappa Receivables plc) for financing using receivables as collateral[141] - Timber Note Receivable Securitization: Involves MeadWestvaco Timber Notes Holding, LLC (MWV TN) using an installment note receivable as collateral for secured financing[144] VIE Assets and Liabilities (in millions) | Category | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Total assets | $1,355 | $1,218 | | Total liabilities | $640 | $353 | 18. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss significantly decreased (improved) for the three and six months ended June 30, 2025, primarily due to foreign currency translation gains, partially offset by defined benefit pension and other post-retirement benefit plan adjustments Changes in Accumulated Other Comprehensive Loss (in millions) | Component | Balance at March 31, 2025 | Other Comprehensive (Income) Loss | Balance at June 30, 2025 | | :----------------------------------------- | :------------------------ | :-------------------------------- | :----------------------- | | Foreign Currency Translation | $1,306 | $(712) | $594 | | Cash Flow Hedges | $13 | $5 | $18 | | Defined Benefit Pension and Postretirement Plans | $511 | $56 | $567 | | Other Reserves | $(751) | $— | $(751) | | Total | $1,079 | $(651) | $428 | - Foreign currency translation gain was $712 million for the three months and $1,090 million for the six months ended June 30, 2025, reversing prior year losses[153][154] 19. Subsequent Events This note discloses two significant subsequent events: a class action antitrust lawsuit filed on July 29, 2025, alleging price-fixing, and the Board's approval of a quarterly dividend of $0.4308 per share on July 30, 2025 - Legal Proceedings: On July 29, 2025, Smurfit Westrock plc and other industry participants were named defendants in a class action antitrust lawsuit alleging price-fixing for containerboard and packaging products[155] - Dividend Approval: On July 30, 2025, the Board approved a quarterly dividend of $0.4308 per share, payable September 18, 2025[156] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive analysis of Smurfit Westrock's financial performance and condition, highlighting the significant impact of the WestRock acquisition on net sales, operating results, and cash flows, along with key business factors, segment performance, liquidity, and capital resources Overview Smurfit Westrock is a leading global manufacturer of paper-based packaging products with operations across multiple continents, whose financial reporting was significantly altered by the WestRock Combination, with Smurfit Kappa's historical financials forming the basis for prior periods - Company Profile: One of the world's largest integrated manufacturers of paper-based packaging products, operating in North America, South America, Europe, Asia, Africa, and Australia[160] - Combination Impact: The consolidated financial statements post-Combination are a continuation of Smurfit Kappa's financials, with retrospective adjustments for legal share capital[162] Recent Developments The Company announced plans to permanently close two U.S. mills and initiated consultations for two German converting facilities, reducing capacity by over 500,000 tons, which is expected to increase overall profitability by eliminating fixed costs - Facility Closures: Permanent closure of CRB mill in St. Paul, Minnesota, and containerboard mill in Forney, Texas, by June 2025 and May 2025, respectively[164] - Capacity Reduction: Over 500,000 tons of capacity reduced due to U.S. mill closures[164] - Strategic Impact: Closures are not expected to significantly impact net sales, as the Company aims to match supply with demand, and are anticipated to increase overall profitability by eliminating fixed costs[164] Executive Summary Smurfit Westrock experienced substantial net sales growth for the three and six months ended June 30, 2025, primarily driven by the WestRock acquisition, while net income attributable to common shareholders decreased for the three-month period but increased for the six-month period, also influenced by the acquisition Executive Summary Financial Highlights (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net sales | $7,940 | $2,969 | $15,596 | $5,899 | | Net (loss) income attributable to common shareholders | $(28) | $132 | $356 | $323 | | Net cash provided by operating activities | N/A | N/A | $1,064 | $382 | - WestRock acquisition contributed $4,839 million to net sales for the three months and $9,575 million for the six months ended June 30, 2025[166] - Net cash provided by operating activities increased by $682 million for the six months ended June 30, 2025, driven by higher net income adjusted for non-cash items[168] Significant Factors and Trends Affecting Smurfit Westrock's Results Smurfit Westrock's results are influenced by demand for paper-based packaging, correlating with economic growth and e-commerce, with prices affected by industry cycles, capacity, raw material costs, and energy prices, while foreign currency fluctuations also impact financial statements - Volumes: Demand for corrugated and consumer packaging is linked to economic growth, industrial production, and shifts towards paper-based packaging due to sustainability trends and e-commerce[171][172] - Prices and Costs: Influenced by industry cycles, market competition, raw material prices (wood, recycled paper), and operating costs such as energy, chemicals, and transportation, with price adjustment clauses in contracts potentially having a 3-6 month lag[173][174][175] - Foreign Currency Effects: Operations in multiple countries mean currency fluctuations directly and indirectly impact U.S. dollar-denominated financial statements[176] Results of Operations This section provides a detailed breakdown of the Company's consolidated financial performance, showing significant increases in net sales, cost of goods sold, and SG&A expenses, primarily driven by the WestRock acquisition, and highlights the impact of impairment, restructuring, and integration costs, as well as changes in interest and tax expenses Consolidated Results of Operations (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net sales | $7,940 | $2,969 | $15,596 | $5,899 | | Cost of goods sold | $(6,425) | $(2,276) | $(12,504) | $(4,496) | | Gross profit | $1,515 | $693 | $3,092 | $1,403 | | Operating profit | $251 | $244 | $804 | $551 | | Net (loss) income attributable to common shareholders | $(28) | $132 | $356 | $323 | - Net sales increased by $4,971 million (3 months) and $9,697 million (6 months) in 2025, with the WestRock acquisition contributing $4,839 million and $9,575 million, respectively[179][180] - Impairment and restructuring costs of $280 million (3 months) and $295 million (6 months) in 2025 were primarily due to facility closures[186][187] - Interest expense, net, increased significantly due to debt from the Combination, rising by $149 million (3 months) and $291 million (6 months) in 2025[195][196] Segment Information Segment results show substantial growth in net sales and Adjusted EBITDA for North America and LATAM, primarily driven by the WestRock acquisition, while Europe, MEA and APAC also saw increased net sales, but Adjusted EBITDA growth was more modest due to higher input prices offsetting acquisition benefits and higher selling prices Segment Net Sales (aggregate, in millions) | Segment | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | North America | $4,755 | $438 | $9,424 | $850 | | Europe, MEA and APAC | $2,778 | $2,211 | $5,360 | $4,405 | | LATAM | $518 | $340 | $1,031 | $681 | Segment Adjusted EBITDA (in millions) | Segment | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | North America | $752 | $61 | $1,537 | $120 | | Europe, MEA and APAC | $372 | $362 | $761 | $747 | | LATAM | $123 | $87 | $238 | $141 | - North America's net sales and Adjusted EBITDA saw the largest increases, primarily due to the WestRock acquisition, contributing $4,354 million to sales and $690 million to Adjusted EBITDA for the three months[207][209] - Europe, MEA and APAC Adjusted EBITDA growth was limited by higher input prices ($58 million for 3 months, $224 million for 6 months), despite positive impacts from the acquisition and higher selling prices[213][214] Liquidity and Capital Resources Smurfit Westrock's liquidity is primarily derived from operations, commercial paper, and committed credit lines, which the Company believes are adequate to meet future requirements, despite an increase in total debt, and the Company utilizes various working capital management strategies, including supplier finance and receivables securitization programs - Primary Liquidity Sources: Cash flows from operations, commercial paper program, and committed credit lines, including a $4,500 million revolving loan facility[220] Available Liquidity (as of June 30, 2025, in millions) | Component | Amount | | :-------------------------------- | :----- | | Undrawn committed facilities | $4,744 | | Cash and cash equivalents | $778 | | Total Available Liquidity | $5,522 | - Total debt increased by $768 million for the six months ended June 30, 2025, reaching $14,425 million, primarily due to net increase in borrowings and translation adjustments[222] - Working Capital Strategies: Includes supplier finance programs (outstanding obligations of $375 million at June 30, 2025), vendor financing, commercial card programs, and receivables monetization/securitization facilities[224][226][227] Cash Flow Activity (6 months ended June 30, in millions) | Activity | 2025 | 2024 | | :---------------------------------------- | :----- | :----- | | Net cash provided by operating activities | $1,064 | $382 | | Net cash used for investing activities | $(996) | $(410) | | Net cash (used for) provided by financing activities | $(204) | $2,382 | Non-GAAP Financial Measure This section defines Adjusted EBITDA as a non-GAAP financial measure used by management and investors to assess ongoing performance, excluding non-recurring items, and provides a reconciliation of Adjusted EBITDA to Net (loss) income, the most directly comparable GAAP measure - Adjusted EBITDA Definition: Net (loss) income before income tax, D&A, interest, pension non-service income/expense, share-based compensation, other income/expense, inventory fair value step-up amortization, transaction/integration costs, impairment/restructuring, and other specific non-recurring items[238] Reconciliation of Adjusted EBITDA to Net (loss) income (in millions) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income | $(26) | $132 | $356 | $323 | | Income tax expense | $84 | $55 | $92 | $131 | | Depreciation, depletion and amortization | $613 | $160 | $1,216 | $308 | | Impairment and restructuring costs | $280 | $— | $295 | $— | | Transaction and integration-related expenses | $21 | $60 | $57 | $83 | | Interest expense, net | $182 | $33 | $349 | $58 | | Pension and other postretirement non-service (income) expense, net | $(7) | $29 | $(16) | $39 | | Share-based compensation expense | $36 | $16 | $79 | $31 | | Other expense (income), net | $18 | $(5) | $23 | $— | | Other adjustments | $12 | $— | $14 | $(18) | | Adjusted EBITDA | $1,213 | $480 | $2,465 | $955 | Guarantor Summarized Financial Information This section provides summarized financial information for the Obligor Group (Issuers and Guarantors of the New Notes), presented on a combined basis, highlighting that operations are primarily conducted through non-obligor subsidiaries, making the Obligor Group's debt servicing dependent on earnings distributions from these subsidiaries - Guarantors: Smurfit Westrock plc and several wholly-owned subsidiaries (e.g., Smurfit Kappa Group plc, WestRock Company) jointly and severally guarantee the Original and New Notes[242] - Dependency: The Obligor Group's ability to service its debt relies on earnings distributions from non-obligor subsidiaries[243] Obligor Group Summarized Statement of Operations (6 months ended June 30, 2025, in millions) | Metric | Amount | | :---------------------------------------- | :----- | | Net sales to unrelated parties | $743 | | Net sales to non-Guarantor Subsidiaries | $625 | | Gross profit | $491 | | Interest expense, net with unrelated parties | $(308) | | Interest expense, net with non-Guarantor Subsidiaries | $(173) | | Net income and net income attributable to the Obligor Group | $457 | Obligor Group Summarized Balance Sheets (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------------------------- | :------------ | :---------------- | | Current amounts due from non-Guarantor Subsidiaries | $5,459 | $4,925 | | Other current assets | $854 | $1,049 | | Total current assets | $6,313 | $5,974 | | Non-current amounts due from non-Guarantor Subsidiaries | $2,855 | $2,848 | | Other non-current assets | $385 | $370 | | Total non-current assets | $3,240 | $3,218 | | Current amounts due to non-Guarantor Subsidiaries | $7,964 | $9,681 | | Other current liabilities | $1,162 | $1,122 | | Total current liabilities | $9,126 | $10,803 | | Non-current amounts due to non-Guarantor Subsidiaries | $6,626 | $6,604 | | Other non-current liabilities | $11,683 | $9,644 | | Total non-current liabilities | $18,309 | $16,248 | Critical Accounting Policies and Estimates There have been no material changes to Smurfit Westrock's critical accounting policies and estimates during the six months ended June 30, 2025, as previously identified in the 2024 Annual Report on Form 10-K - No material changes to critical accounting policies and estimates since the 2024 Form 10-K[248] New Accounting Standards This section refers to Note 1 of the Condensed Consolidated Financial Statements for a full description of recently issued or applicable accounting pronouncements, including their expected adoption dates and potential impacts - Refer to Note 1 for details on new accounting standards, including ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures)[250][48][49] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in Smurfit Westrock's exposure to market risk since the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes in market risk exposure since the 2024 Form 10-K[251] Item 4. Controls and Procedures Management concluded that Smurfit Westrock's disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness in internal control over financial reporting, stemming from the integration of Smurfit Kappa and WestRock's legacy control frameworks, particularly at historical Smurfit Kappa operations not previously subject to SOX Section 404 - Disclosure Controls Effectiveness: Not effective as of June 30, 2025, due to a material weakness in internal control over financial reporting[253] - Material Weakness Origin: Relates to the integration of Smurfit Kappa and WestRock's control frameworks, specifically processes and controls at historical Smurfit Kappa not subject to SOX Section 404 prior to the Combination[255][256] - Remediation Plan: Ongoing actions include designing and implementing policies for control operation, developing controls over manual journal entries (with automated workflow rollout), and enhancing general IT processes and controls (logical access, change management)[258] PART II - OTHER INFORMATION This section covers other information not included in the financial statements, such as legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings This section incorporates by reference disclosures regarding commitments and contingencies from Note 16 and subsequent events from Note 19 of the Condensed Consolidated Financial Statements, detailing various legal and tax disputes, including a recent antitrust class action lawsuit - Legal proceedings information is incorporated from Note 16 (Commitments and Contingencies) and Note 19 (Subsequent Events) of the financial statements[261] Item 1A. Risk Factors There have been no material changes to the Company's risk factors since those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes in risk factors since the 2024 Form 10-K[262] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No repurchases of ordinary shares occurred during the three months ended June 30, 2025, and 25,000 deferred shares were surrendered and cancelled for nil consideration, as they were no longer required for capital maintenance - No repurchases of ordinary shares during the three months ended June 30, 2025[263] - 25,000 deferred shares with a nominal value of €1.00 were surrendered and cancelled for nil consideration[264] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - No defaults upon senior securities[265] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not applicable[265] Item 5. Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No changes in Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers[266] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the Amended Constitution, Deferred Compensation Plan, List of Guarantor Subsidiaries, Certifications of Principal Executive and Financial Officers, and Inline XBRL documents - Exhibits include Amended Constitution, Deferred Compensation Plan, List of Guarantor Subsidiaries, Section 302 and 906 Certifications, and Inline XBRL documents[268] Signatures The report is duly signed by Anthony Smurfit, President & Group Chief Executive Officer, and Ken Bowles, Executive Vice President & Group Chief Financial Officer, on August 7, 2025 - Signed by Anthony Smurfit (President & Group CEO) and Ken Bowles (Executive VP & Group CFO) on August 7, 2025[273][274][275]