PCA(PKG) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements 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 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 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 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 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] - 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] 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 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] - Key challenges included inflation-related cost increases in energy, fiber, chemicals, labor, and freight[101] - 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] - Expected capital investments for 2022 are approximately $800 million, including spending on the Jackson mill conversion[130] Results of Operations 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 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] 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 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 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] Item 4. Controls and Procedures 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] - The company is in the process of integrating Advance Packaging's controls over financial reporting following its acquisition on December 11, 2021[152] PART II OTHER INFORMATION Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - As of March 31, 2022, $1 billion remained available for repurchase under the company's stock repurchase program authorized in January 2022[81][157] Item 6. Exhibits 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]