Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and analysis includes statements regarding our expectations with respect to our future performance, expected business conditions, liquidity, and capital resources. Such statements, along with any other statements that are not historical in nature, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in our 2022 Annual Report on Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission ("SEC"). We do not assume any obligation to update any forward-looking statement. Our actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q. Please see “Forward Looking Statements” elsewhere in this Item 2.
Overview
PCA is the third largest producer of containerboard products and a leading producer of UFS paper in North America. We operate eight mills and 87 corrugated products manufacturing plants. Our containerboard mills produce linerboard and corrugating medium, which are papers primarily used in the production of corrugated products. Our corrugated products manufacturing plants produce a wide variety of corrugated packaging products, including conventional shipping containers used to protect and transport manufactured goods, multi-color boxes and displays with strong visual appeal that help to merchandise the packaged product in retail locations, and honeycomb protective packaging. In addition, we are a large producer of packaging for meat, fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. We also manufacture and sell UFS papers, including both commodity and specialty papers, which may have custom or specialized features such as colors, coatings, high brightness, and recycled content. We are headquartered in Lake Forest, Illinois and operate primarily in the United States.
This Item 2 is intended to supplement, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Annual Report on Form 10-K.
Executive Summary
First quarter net sales were $1.98 billion in 2023 and $2.14 billion in 2022. We reported $190 million of net income, or $2.11 per diluted share, during the first quarter of 2023, compared to $254 million, or $2.70 per diluted share, during the same period in 2022. Net income included $8 million of expense for special items in the first quarter of 2023, compared to $2 million of expense for special items in 2022 (discussed below). Excluding special items, net income was $198 million, or $2.20 per diluted share, during the first quarter of 2023, compared to $256 million, or $2.72 per diluted share, in the first quarter of 2022. The decrease in net income was driven primarily by lower volumes in our Packaging and Paper segments and higher operating costs, depreciation expense, freight and logistics expenses, converting costs, and non-operating pension expense. These items were partially offset by higher prices and mix in our Packaging and Paper segments, lower scheduled maintenance outage expenses, a lower tax rate, and lower interest and other expenses. For additional detail on special items included in reported GAAP results, as well as segment income (loss) excluding special items, earnings before non-operating pension income (expense), interest, income taxes, and depreciation, amortization, and depletion ("EBITDA"), and EBITDA excluding special items, see “Item 2. Reconciliations of Non-GAAP Financial Measures to Reported Amounts.”
Packaging segment income from operations was $268 million in the first quarter of 2023, compared to $362 million in the first quarter of 2022. Packaging segment EBITDA excluding special items was $392 million in the first quarter of 2023 compared to $464 million in the first quarter of 2022. Higher prices and mix were offset by lower sales and production volumes, higher operating and converting costs, and higher freight and logistics expenses. Lower sales and production volumes were driven by lower demand, as economic conditions present during the second half of 2022 continued into the first quarter of 2023. We believe that demand was further affected by lower consumer spending resulting from higher interest rates and persistent inflation, along with consumer preferences shifting towards services rather than goods. Published containerboard prices declined in January and February, and our product prices were lower than in the fourth quarter of 2022. We continued to lower our containerboard production to levels appropriate for our demand, and we achieved our targeted weeks-of-inventory supply at the end of the quarter. We continue to focus on management of our operating costs in an effort to mitigate these unfavorable market conditions.
Paper segment income from operations was $34 million in the first quarter of 2023, compared to $22 million in the first quarter of 2022. Paper segment EBITDA excluding special items was $41 million in the first quarter of 2023, compared to $29 million in the first quarter of 2022. The increase was due to higher prices and mix and lower freight and logistic expenses, partially offset by higher operating costs and lower sales and production volumes. Paper prices increased throughout 2022, and sales volumes were lower primarily due to sales of products from the Jackson mill in 2022.
16
Special Items and Earnings per Diluted Share, Excluding Special Items
A reconciliation of reported earnings per diluted share to earnings per diluted share, excluding special items, for the three months ended March 31, 2023 and 2022 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2023 |
|
|
2022 |
|
Earnings per diluted share, as reported |
|
$ |
2.11 |
|
|
$ |
2.70 |
|
Special items: |
|
|
|
|
|
|
Facilities closure and other costs (a) |
|
|
0.08 |
|
|
|
0.01 |
|
Jackson mill conversion-related activities (b) |
|
|
0.01 |
|
|
|
0.01 |
|
Total special items |
|
|
0.09 |
|
|
|
0.02 |
|
Earnings per diluted share, excluding special items |
|
$ |
2.20 |
|
|
$ |
2.72 |
|
(a)For the three months ended March 31, 2023, includes $9.7 million of closure costs related to corrugated products facilities and design centers. For the three months ended March 31, 2022, includes $0.6 million of closure costs related to corrugated products facilities and acquisition and integration costs related to the December 2021 Advance Packaging Corporation acquisition.
(b)For the three months ended March 31, 2023 and 2022, includes $1.2 million and $1.5 million, respectively, of charges related to the announced discontinuation of production of UFS paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.
Included in this Item 2 are various non-GAAP financial measures, including diluted EPS excluding special items, segment income excluding special items and EBITDA excluding special items. Management excludes special items as it believes these items are not necessarily reflective of the ongoing results of operations of our business. We present these measures because they provide a means to evaluate the performance of our segments and our Company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods presented and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. A reconciliation of diluted EPS to diluted EPS excluding special items is included above and the reconciliations of other non-GAAP measures used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, to the most comparable measure reported in accordance with GAAP, are included in Item 2 under “Reconciliations of Non-GAAP Financial Measures to Reported Amounts.” Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.
Industry and Business Conditions
Trade publications reported North American industry-wide corrugated products shipments in total and per work day were down 8.5% during the first quarter of 2023 compared to the same quarter of 2022. Reported industry containerboard production decreased 10.0% compared to the first quarter of 2022. Reported industry containerboard inventories at the end of the first quarter of 2023 were approximately 2.7 million tons, down 1.1% compared to the same period in 2022. Reported containerboard export shipments were down 23.5% compared to the first quarter of 2022. In January 2023, prices decreased $10 per ton for linerboard and $30 per ton for corrugating medium, followed by an additional decrease in February of $20 per ton, each.
The market for communication papers competes heavily with electronic data transmission and document storage alternatives. Increasing shifts to these alternatives have reduced usage of traditional print media and communication papers. Trade publications reported North American UFS paper shipments were down 8.4% in the first quarter of 2023 compared to the same quarter of 2022. Average prices reported by a trade publication for cut size office papers were flat in the first quarter of 2023, compared to the fourth quarter of 2022, and higher by $195 per ton, or 15.0%, compared to the first quarter of 2022.
Outlook
Looking ahead to the second quarter, we expect improved volume in our Packaging segment, despite having one less shipping day. However, prices will be lower as a result of the previously published domestic containerboard price decreases along with lower export prices. In the Paper segment, sales volume as well as prices and mix are expected to be slightly lower based on lower demand. Although we anticipate most operating costs to trend lower, our converting costs, scheduled maintenance outage expense and depreciation expense will be higher. Primarily due to increases in contract rail rates at most of our mills, we expect higher freight and logistics expenses compared to the first quarter. Considering these items, we expect second quarter earnings to be lower than the first quarter.
17
Results of Operations
Three Months Ended March 31, 2023, compared to Three Months Ended March 31, 2022
The historical results of operations of PCA for the three months ended March 31, 2023 and 2022 are set forth below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
Packaging |
|
$ |
1,808.6 |
|
|
$ |
1,964.5 |
|
|
$ |
(155.9 |
) |
Paper |
|
|
150.9 |
|
|
|
153.5 |
|
|
|
(2.6 |
) |
Corporate and Other |
|
|
60.5 |
|
|
|
58.3 |
|
|
|
2.2 |
|
Intersegment eliminations |
|
|
(43.7 |
) |
|
|
(39.9 |
) |
|
|
(3.8 |
) |
Net sales |
|
$ |
1,976.3 |
|
|
$ |
2,136.4 |
|
|
$ |
(160.1 |
) |
|
|
|
|
|
|
|
|
|
|
Packaging |
|
$ |
268.0 |
|
|
$ |
362.2 |
|
|
$ |
(94.2 |
) |
Paper |
|
|
34.1 |
|
|
|
22.4 |
|
|
|
11.7 |
|
Corporate and Other |
|
|
(31.4 |
) |
|
|
(28.1 |
) |
|
|
(3.3 |
) |
Income from operations |
|
$ |
270.7 |
|
|
$ |
356.5 |
|
|
$ |
(85.8 |
) |
Non-operating pension (expense) income |
|
|
(2.0 |
) |
|
|
3.6 |
|
|
|
(5.6 |
) |
Interest expense, net |
|
|
(15.4 |
) |
|
|
(19.8 |
) |
|
|
4.4 |
|
Income before taxes |
|
|
253.3 |
|
|
|
340.3 |
|
|
|
(87.0 |
) |
Income tax provision |
|
|
(63.2 |
) |
|
|
(86.1 |
) |
|
|
22.9 |
|
Net income |
|
$ |
190.1 |
|
|
$ |
254.2 |
|
|
$ |
(64.1 |
) |
Non-GAAP Measures (a) |
|
|
|
|
|
|
|
|
|
Net income excluding special items |
|
$ |
198.3 |
|
|
$ |
255.7 |
|
|
$ |
(57.4 |
) |
Consolidated EBITDA |
|
|
400.3 |
|
|
|
466.2 |
|
|
|
(65.9 |
) |
Consolidated EBITDA excluding special items |
|
|
404.9 |
|
|
|
467.2 |
|
|
|
(62.3 |
) |
Packaging EBITDA |
|
|
387.0 |
|
|
|
463.1 |
|
|
|
(76.1 |
) |
Packaging EBITDA excluding special items |
|
|
391.6 |
|
|
|
463.9 |
|
|
|
(72.3 |
) |
Paper EBITDA |
|
|
41.0 |
|
|
|
28.8 |
|
|
|
12.2 |
|
Paper EBITDA excluding special items |
|
|
41.0 |
|
|
|
29.0 |
|
|
|
12.0 |
|
(a)See “Reconciliations of Non-GAAP Financial Measures to Reported Amounts” included in this Item 2 for a reconciliation of non-GAAP measures to the most comparable GAAP measure.
Net Sales
Net sales decreased $160 million, or 7.5%, to $1,976 million during the three months ended March 31, 2023, compared to $2,136 million during the same period in 2022.
Packaging. Net sales decreased $156 million, or 7.9%, to $1,809 million, compared to $1,965 million in the first quarter of 2022 due to lower containerboard and corrugated products volume ($229 million), partially offset by higher prices and mix ($73 million). In the first quarter of 2023, export and domestic containerboard outside shipments decreased 27.5% compared to the first quarter of 2022. Our total corrugated products shipments were down 12.7% in total and per workday, compared to the same period in 2022. Packaging prices and mix were favorable due to higher corrugated products prices, partially offset by lower outside containerboard prices. In the first quarter of 2023, our domestic containerboard prices were 2.9% lower, while export prices were 15.4% lower, than the same period in 2022.
Paper. Net sales decreased $3 million, or 1.7%, to $151 million, compared to $154 million in the first quarter of 2022, due to lower volume ($25 million), partially offset by higher prices and mix ($22 million).
Gross Profit
Gross profit decreased $102 million during the three months ended March 31, 2023, compared to the same period in 2022. The decrease was driven primarily by lower volumes in our Packaging and Paper segments, higher operating costs, higher depreciation expense, higher freight and logistics expenses, and higher converting costs, partially offset by higher prices and mix in our Packaging and Paper segments, lower scheduled maintenance outage expenses, and other expenses. In the three months ended March 31, 2023, gross profit included $6 million of special items primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities. In the three months ended March 31, 2022, gross profit included $1 million of special items for charges related to Jackson mill conversion-related activities.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses (“SG&A”) decreased $13 million during the three months ended March 31, 2023, compared to the same period in 2022. The decrease was primarily due to lower bad debt expense, fringe benefits, and outside services.
18
Other Expense, Net
Other income (expense), net, for the three months ended March 31, 2023 and 2022 are set forth below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2023 |
|
|
2022 |
|
Asset disposals and write-offs |
|
$ |
(6.6 |
) |
|
$ |
(12.7 |
) |
Facilities closure and other costs |
|
|
(4.7 |
) |
|
|
(0.4 |
) |
Jackson mill conversion-related activities |
|
|
0.3 |
|
|
|
(0.4 |
) |
Other |
|
|
(1.5 |
) |
|
|
(2.1 |
) |
Total |
|
$ |
(12.5 |
) |
|
$ |
(15.6 |
) |
We discuss these items in more detail in Note 5, Other Expense, Net, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this Form 10-Q.
Income from Operations
Income from operations decreased $86 million, or 24.1%, during the three months ended March 31, 2023, compared to the same period in 2022. The first quarter of 2023 included $11 million of special items expense primarily related to closure costs related to corrugated products facilities and Jackson mill conversion-related activities, compared to $2 million of special items expense primarily related to costs from Jackson mill conversion-related activities, closure costs related to corrugated products facilities, and expenses related to the acquisition of Advance Packaging Corporation in the first quarter of 2022.
Packaging. Packaging segment income from operations decreased $94 million to $268 million, compared to $362 million during the three months ended March 31, 2022. The decrease related primarily to lower sales and production volumes ($119 million), higher operating and converting costs ($25 million), higher freight expenses ($9 million), and higher depreciation expense ($13 million), partially offset by higher containerboard and corrugated products prices and mix ($73 million), lower annual outage expenses ($1 million), and other costs ($7 million). Special items during the first quarter of 2023 included $9 million of expense primarily related to closure costs related to corrugated products facilities, compared to $1 million of expense for corrugated facility closures and acquisition and integration-related costs in the first quarter of 2022.
Paper. Paper segment income from operations increased $12 million to $34 million, compared to $22 million during the three months ended March 31, 2022. The increase primarily related to higher prices and mix ($23 million) and lower freight expenses ($5 million), partially offset by higher operating costs ($11 million), and lower sales and production volumes ($5 million). Special items during the first quarter of 2023 and 2022 included $1 million of expense for Jackson mill conversion-related activities.
Non-Operating Pension Expense, Interest Expense, Net and Income Taxes
Non-operating pension expense increased $6 million during the three months ended March 31, 2023, compared to the same period in 2022. The increase in non-operating pension expense was primarily related to unfavorable 2022 asset performance, partially offset by assumption changes.
Interest expense, net for the three months ended March 31, 2023 decreased $4 million when compared to the same period in 2022. The decrease in interest expense, net was primarily due to higher interest income due to higher rates on invested cash balances compared to the same period in 2022.
During the three months ended March 31, 2023, we recorded $63 million of income tax expense, compared to $86 million of expense during the three months ended March 31, 2022. The effective tax rate for the three months ended March 31, 2023 and 2022 was 24.9% and 25.3%, respectively. The decrease in our effective tax rate for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to favorable employee performance unit vests with higher excess tax benefits partially offset by higher nondeductible employee remuneration paid to covered employees.
Liquidity and Capital Resources
Sources and Uses of Cash
Our primary sources of liquidity are net cash provided by operating activities and available borrowing capacity under our revolving credit facility. At March 31, 2023, we had $368 million of cash and cash equivalents, $152 million of marketable debt securities, and $321 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. Currently, our primary uses of cash are for operations, capital expenditures, acquisitions, debt service, common stock dividends, and repurchases of common stock. We believe that net cash generated from operating activities, cash on hand, available borrowings under our revolving credit facility, and available capital through access to capital markets will be adequate to meet our liquidity and capital requirements, including payments of any declared common stock dividends, for the foreseeable future. As our debt or credit facilities become due, we will need to repay, extend, or replace such facilities. Our ability to do so will be subject to future economic conditions and financial, business, and other factors, many of which are beyond our control.
19
Below is a summary table of our cash flows, followed by a discussion of our sources and uses of cash through operating activities, investing activities, and financing activities (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
Net cash provided by (used for): |
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
280.4 |
|
|
$ |
325.3 |
|
|
$ |
(44.9 |
) |
Investing activities |
|
|
(115.4 |
) |
|
|
(221.2 |
) |
|
|
105.8 |
|
Financing activities |
|
|
(117.3 |
) |
|
|
(94.2 |
) |
|
|
(23.1 |
) |
Net increase in cash and cash equivalents |
|
$ |
47.7 |
|
|
$ |
9.9 |
|
|
$ |
37.8 |
|
Operating Activities
Our operating cash flow is primarily driven by our earnings and changes in operating assets and liabilities, such as accounts receivable, inventories, accounts payable and other accrued liabilities, as well as factors described below. Cash requirements for operating activities are subject to PCA’s operating needs and the timing of collection of receivables and payments of payables and expenses.
During the three months ended March 31, 2023, net cash provided by operating activities was $280 million, compared to $325 million in the same period in 2022, a decrease of $45 million. Cash from operations excluding changes in cash used for operating assets and liabilities decreased $55 million primarily due to lower income from operations in 2023 as discussed above. Cash from operations increased by $10 million due to changes in operating assets and liabilities, primarily due to a favorable change in accounts receivable levels in the first quarter of 2023 compared to the same period in 2022 primarily due to lower sales volumes in the Packaging and Paper segments, partially offset by higher pricing in the Packaging and Paper segments in the first quarter of 2023. This favorable change was partially offset by an unfavorable change in accounts payable in the first quarter of 2023 compared to the same period in 2022 primarily due to lower production and sales volumes, which resulted in lower purchasing and manufacturing activities.
Investing Activities
We used $115 million for investing activities during the three months ended March 31, 2023 compared to $221 million during the same period in 2022. We spent $112 million for internal capital investments during the three months ended March 31, 2023, compared to $213 million during the same period in 2022.
We expect capital investments in 2023 to be approximately $475 million. These expenditures could increase or decrease as a result of a number of factors, including our financial results, strategic opportunities, future economic conditions, and our regulatory compliance requirements. We currently estimate capital expenditures to comply with environmental regulations will be about $20 million in 2023. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations. For additional information, see “Environmental Matters” in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Annual Report on Form 10-K.
Financing Activities
During the three months ended March 31, 2023, net cash used for financing activities was $117 million, compared to $94 million of net cash used for financing activities during the same period in 2022. We paid $112 million of dividends during the first three months of 2023, compared to $94 million of dividends paid during the comparable period in 2022.
In addition to the items discussed in Note 11, Debt, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Part I, Item 1. Financial Statements" of this Form 10-Q, see Note 11, Debt, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2022 Annual Report on Form 10-K for more information.
Contractual Obligations
There have been no material changes to the contractual obligations disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Annual Report on Form 10-K.
20
Reconciliations of Non-GAAP Financial Measures to Reported Amounts
Income from operations excluding special items, net income excluding special items, EBITDA, and EBITDA excluding special items are non-GAAP financial measures. Management excludes special items, as it believes that these items are not necessarily reflective of the ongoing operations of our business. These measures are presented because they provide a means to evaluate the performance of our segments and our Company on an ongoing basis using the same measures that are used by our management, because these measures assist in providing a meaningful comparison between periods and because these measures are frequently used by investors and other interested parties in the evaluation of companies and the performance of their segments. Any analysis of non-GAAP financial measures should be done in conjunction with results presented in accordance with GAAP. The non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such. Reconciliations of the non-GAAP measures to the most comparable measure reported in accordance with GAAP for the three months ended March 31, 2023 and 2022 follow (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
Income before Taxes |
|
|
Income Taxes |
|
|
Net Income |
|
|
Income before Taxes |
|
|
Income Taxes |
|
|
Net Income |
|
As reported in accordance with GAAP |
|
$ |
253.3 |
|
|
$ |
(63.2 |
) |
|
$ |
190.1 |
|
|
$ |
340.3 |
|
|
$ |
(86.1 |
) |
|
$ |
254.2 |
|
Special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities closure and other costs (a) |
|
|
9.7 |
|
|
|
(2.4 |
) |
|
|
7.3 |
|
|
|
0.6 |
|
|
|
(0.2 |
) |
|
|
0.4 |
|
Jackson mill conversion-related activities (b) |
|
|
1.2 |
|
|
|
(0.3 |
) |
|
|
0.9 |
|
|
|
1.5 |
|
|
|
(0.4 |
) |
|
|
1.1 |
|
Total special items |
|
|
10.9 |
|
|
|
(2.7 |
) |
|
|
8.2 |
|
|
|
2.1 |
|
|
|
(0.6 |
) |
|
|
1.5 |
|
Excluding special items |
|
$ |
264.2 |
|
|
$ |
(65.9 |
) |
|
$ |
198.3 |
|
|
$ |
342.4 |
|
|
$ |
(86.7 |
) |
|
$ |
255.7 |
|
(a)For 2023, includes charges consisting of closure costs related to corrugated products facilities and design centers. For 2022, includes charges consisting of closure costs related to corrugated products facilities and acquisition and integration costs related to the December 2021 Advance Packaging acquisition.
(b)Includes charges related to the announced discontinuation of production of UFS paper grades on the No. 3 machine at the Jackson, Alabama mill associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.
The following table reconciles net income to EBITDA and EBITDA excluding special items for the periods indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2023 |
|
|
2022 |
|
Net income |
|
$ |
190.1 |
|
|
$ |
254.2 |
|
Non-operating pension expense (income) |
|
|
2.0 |
|
|
|
(3.6 |
) |
Interest expense, net |
|
|
15.4 |
|
|
|
19.8 |
|
Income tax provision |
|
|
63.2 |
|
|
|
86.1 |
|
Depreciation, amortization, and depletion |
|
|
129.6 |
|
|
|
109.7 |
|
EBITDA |
|
$ |
400.3 |
|
|
$ |
466.2 |
|
|
|
|
|
|
|
|
Special items: |
|
|
|
|
|
|
Facilities closure and other costs |
|
|
4.9 |
|
|
|
0.6 |
|
Jackson mill conversion-related activities |
|
|
(0.3 |
) |
|
|
0.4 |
|
Total special items |
|
|
4.6 |
|
|
|
1.0 |
|
EBITDA excluding special items |
|
$ |
404.9 |
|
|
$ |
467.2 |
|
21
The following table reconciles segment income (loss) to EBITDA and EBITDA excluding special items for the periods indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2023 |
|
|
2022 |
|
Packaging |
|
|
|
|
|
|
Segment income |
|
$ |
268.0 |
|
|
$ |
362.2 |
|
Depreciation, amortization, and depletion |
|
|
119.0 |
|
|
|
100.9 |
|
EBITDA |
|
|
387.0 |
|
|
|
463.1 |
|
Facilities closure and other costs |
|
|
4.9 |
|
|
|
0.6 |
|
Jackson mill conversion-related activities |
|
|
(0.3 |
) |
|
|
0.2 |
|
EBITDA excluding special items |
|
$ |
391.6 |
|
|
$ |
463.9 |
|
|
|
|
|
|
|
|
Paper |
|
|
|
|
|
|
Segment income |
|
$ |
34.1 |
|
|
$ |
22.4 |
|
Depreciation, amortization, and depletion |
|
|
6.9 |
|
|
|
6.4 |
|
EBITDA |
|
|
41.0 |
|
|
|
28.8 |
|
Jackson mill conversion-related activities |
|
|
— |
|
|
|
0.2 |
|
EBITDA excluding special items |
|
$ |
41.0 |
|
|
$ |
29.0 |
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
|
|
|
|
Segment loss |
|
$ |
(31.4 |
) |
|
$ |
(28.1 |
) |
Depreciation, amortization, and depletion |
|
|
3.7 |
|
|
|
2.4 |
|
EBITDA |
|
|
(27.7 |
) |
|
|
(25.7 |
) |
EBITDA excluding special items |
|
$ |
(27.7 |
) |
|
$ |
(25.7 |
) |
|
|
|
|
|
|
|
EBITDA |
|
$ |
400.3 |
|
|
$ |
466.2 |
|
|
|
|
|
|
|
|
EBITDA excluding special items |
|
$ |
404.9 |
|
|
$ |
467.2 |
|
Market Risk and Risk Management Policies
PCA is exposed to the impact of commodity price changes, interest rate changes, and changes in the market value of its financial instruments. To manage these risks, we may from time to time enter into transactions, including certain physical commodity transactions, that are determined to be derivatives. As of March 31, 2023, we are party to certain physical commodity transactions related to natural gas supply contracts. These contracts qualify for the normal purchase normal sale ("NPNS") exception, and we have elected that exception. For a discussion of derivatives and hedging activities, see Note 2, Summary of Significant Account Policies, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2022 Annual Report on Form 10-K.
At March 31, 2023, interest rates on 100% of PCA’s outstanding debt are fixed.
Off-Balance-Sheet Activities
The Company does not have any off-balance sheet arrangements as of March 31, 2023.
Environmental Matters
There have been no material changes to the disclosure set forth in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters” filed with our 2022 Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, PCA evaluates its estimates, including those related to business combinations, pensions and other postretirement benefits, goodwill and intangible assets, long-lived asset impairment, environmental liabilities, and income taxes, among others. PCA bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
22
PCA has included in its 2022 Annual Report on Form 10-K a discussion of its critical accounting policies and estimates which require management’s most difficult, subjective, or complex judgments used in the preparation of its consolidated financial statements. PCA has not had any changes to these critical accounting estimates during the first three months of 2023.
New and Recently Adopted Accounting Standards
For a listing of our new and recently adopted accounting standards, see Note 2, New and Recently Adopted Accounting Standards, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in “Part I, Item 1. Financial Statements” of this Form 10-Q.
Forward-Looking Statements
Some of the statements in this Quarterly Report on Form 10-Q, and in particular, statements found in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words “will,” “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. These factors, risks and uncertainties include the following:
•the impact of general economic conditions;
•the impact of acquired businesses and risks and uncertainties regarding operation, expected benefits and integration of such businesses;
•containerboard, corrugated products, and white paper general industry conditions, including competition, product demand, product pricing, and input costs;
•fluctuations in wood fiber and recycled fiber costs;
•fluctuations in purchased energy costs;
•the possibility of unplanned outages or interruptions at our principal facilities; and
•legislative or regulatory actions or requirements, particularly concerning environmental or tax matters.
Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do occur, what impact they will have on our results of operations or financial condition. Given these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof. For a discussion of other factors, risks and uncertainties that may affect our business, see Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2022.
23