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)

Delaware	36-4277050
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
1 North Field Court, Lake Forest, Illinois	60045
(Address of Principal Executive Offices)	(Zip Code)

Registrant's telephone number, including area code

(847) 482-3000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 29, 2022 the Registrant had outstanding 93,739,929 shares of common stock, par value $0.01 per share.

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	PKG	New York Stock Exchange

Table of Contents

	PART I
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
	PART II
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

All reports we file with the Securities and Exchange Commission (SEC) are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available through our website at www.packagingcorp.com as soon as reasonably practicable after filing such material with the SEC.

i

PART I

FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Packaging Corporation of America

Consolidated Statements of Income and Comprehensive Income

(unaudited, dollars in millions, except per-share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Statements of Income:
Net sales	$	2,237.3		$	1,879.9		$	4,373.7		$	3,687.0
Cost of sales		(1,648.5	)		(1,431.1	)		(3,251.7	)		(2,834.5	)
Gross profit		588.8			448.8			1,122.0			852.5
Selling, general and administrative expenses		(156.7	)		(146.3	)		(317.7	)		(291.3	)
Other expense, net		(16.3	)		(7.9	)		(31.9	)		(28.3	)
Income from operations		415.8			294.6			772.4			532.9
Non-operating pension income		3.6			5.0			7.3			9.8
Interest expense, net		(18.8	)		(24.9	)		(38.7	)		(48.4	)
Income before taxes		400.6			274.7			741.0			494.3
Provision for income taxes		(99.1	)		(67.4	)		(185.3	)		(120.5	)
Net income	$	301.5		$	207.3		$	555.7		$	373.8
Net income per common share:
Basic	$	3.22		$	2.18		$	5.93		$	3.94
Diluted	$	3.20		$	2.17		$	5.91		$	3.92
Dividends declared per common share	$	1.25		$	1.00		$	2.25		$	2.00
Statements of Comprehensive Income:
Net income	$	301.5		$	207.3		$	555.7		$	373.8
Other comprehensive income, net of tax:
Changes in unrealized losses on marketable debt securities,    net of tax of $0.1 million, $0.0 million, $0.5 million,    and $0.1 million		(0.3	)		(0.1	)		(1.5	)		(0.2	)
Amortization of pension and postretirement plans actuarial loss and    prior service cost, net of tax of ($0.4) million, ($0.8) million,    ($0.7) million, and ($1.7) million		1.1			2.5			2.3			5.0
Other comprehensive income		0.8			2.4			0.8			4.8
Comprehensive income	$	302.3		$	209.7		$	556.5		$	378.6

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

1

Packaging Corporation of America

Consolidated Balance Sheets

(unaudited, dollars and shares in millions, except per-share data)

	June 30,			December 31,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	667.3		$	618.7
Short-term marketable debt securities		82.3			86.1
Accounts receivable, net of allowance for credit losses and customer deductions    of $21.3 million and $14.3 million as of June 30, 2022 and December 31, 2021,    respectively		1,212.0			1,071.0
Inventories		954.2			902.5
Prepaid expenses and other current assets		74.6			47.0
Federal and state income taxes receivable		—			7.4
Total current assets		2,990.4			2,732.7
Property, plant, and equipment, net		3,762.9			3,529.0
Goodwill		922.5			923.5
Other intangible assets, net		287.3			308.4
Operating lease right-of-use assets		273.8			238.3
Long-term marketable debt securities		61.2			60.0
Other long-term assets		42.5			44.9
Total assets	$	8,340.6		$	7,836.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Operating lease obligations	$	69.3		$	67.1
Finance lease obligations		1.8			1.7
Accounts payable		528.2			452.4
Dividends payable		120.2			96.3
Accrued liabilities		236.7			255.0
Accrued interest		11.7			12.3
Federal and state income taxes payable		5.0			—
Total current liabilities		972.9			884.8
Long-term liabilities:
Long-term debt		2,472.6			2,471.5
Operating lease obligations		210.9			179.3
Finance lease obligations		11.7			12.7
Deferred income taxes		495.1			465.9
Compensation and benefits		153.2			157.4
Other long-term liabilities		59.7			58.0
Total long-term liabilities		3,403.2			3,344.8
Commitments and contingent liabilities (Note 20)
Stockholders' equity:
Common stock, par value $0.01 per share, 300.0 million shares authorized, 93.7 million    and 93.5 million shares issued as of June 30, 2022 and December 31, 2021,    respectively		0.9			0.9
Additional paid in capital		601.0			579.4
Retained earnings		3,437.0			3,102.1
Accumulated other comprehensive loss		(74.4	)		(75.2	)
Total stockholders' equity		3,964.5			3,607.2
Total liabilities and stockholders' equity	$	8,340.6		$	7,836.8

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

2

Packaging Corporation of America

Consolidated Statements of Cash Flows

(unaudited, dollars in millions)

	Six Months Ended
	June 30,
	2022			2021
Cash Flows from Operating Activities:
Net income	$	555.7		$	373.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization of intangibles		224.0			205.5
Amortization of deferred financing costs		1.0			1.3
Share-based compensation expense		21.6			20.1
Deferred income tax provision		28.8			14.3
Loss on asset disposals		12.1			5.4
Pension and post-retirement benefits expense, net of contributions		1.7			(0.3	)
Other, net		0.2			4.2
Changes in operating assets and liabilities:
Increase in assets —
Accounts receivable		(140.9	)		(149.0	)
Inventories		(51.7	)		(39.4	)
Prepaid expenses and other current assets		(27.3	)		(34.7	)
Increase (decrease) in liabilities —
Accounts payable		25.1			(2.7	)
Accrued liabilities		(18.3	)		15.4
Federal and state income taxes payable / receivable		12.3			5.9
Net cash provided by operating activities		644.3			419.8
Cash Flows from Investing Activities:
Additions to property, plant, and equipment		(397.5	)		(216.5	)
Additions to other long-term assets		(2.6	)		(1.6	)
Proceeds from asset disposals		0.4			2.4
Purchases of marketable debt securities		(64.2	)		(65.7	)
Proceeds from sales of marketable debt securities		19.9			12.9
Proceeds from maturities of marketable debt securities		44.0			48.3
Other, net		1.9			—
Net cash used for investing activities		(398.1	)		(220.2	)
Cash Flows from Financing Activities:
Repayments of debt and finance lease obligations		(0.9	)		(0.8	)
Financing costs paid		—			(0.9	)
Common stock dividends paid		(187.2	)		(189.8	)
Shares withheld to cover employee restricted stock taxes		(9.5	)		(10.5	)
Net cash used for financing activities		(197.6	)		(202.0	)
Net increase (decrease) in cash and cash equivalents		48.6			(2.4	)
Cash and cash equivalents, beginning of period		618.7			974.6
Cash and cash equivalents, end of period	$	667.3		$	972.2

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

3

Packaging Corporation of America

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited, dollars in millions and shares in thousands)

	Common Stock						Additional Paid in			Retained			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Amount			Capital			Earnings			Loss			Equity
Balance at April 1, 2022		93,704		$	0.9		$	591.7		$	3,261.9		$	(75.2	)	$	3,779.3
Common stock withheld and retired    to cover taxes on vested stock awards		(66	)		—			(0.5	)		(8.7	)		—			(9.2	)
Common stock dividends declared		—			—			—			(117.7	)		—			(117.7	)
Share-based compensation and other		48			—			9.8			—			—			9.8
Comprehensive income		—			—			—			301.5			0.8			302.3
Balance at June 30, 2022		93,686		$	0.9		$	601.0		$	3,437.0		$	(74.4	)	$	3,964.5
	Common Stock						Additional Paid in			Retained			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Amount			Capital			Earnings			Loss			Equity
Balance at April 1, 2021		94,994		$	1.0		$	566.0		$	2,906.3		$	(142.1	)	$	3,331.2
Common stock withheld and retired to    cover taxes on vested stock awards		(76	)		(0.1	)		(0.6	)		(9.7	)		—			(10.4	)
Common stock dividends declared		—			—			—			(95.4	)		—			(95.4	)
Share-based compensation and other		61			0.1			9.1			—			—			9.2
Comprehensive income		—			—			—			207.3			2.4			209.7
Balance at June 30, 2021		94,979		$	1.0		$	574.5		$	3,008.5		$	(139.7	)	$	3,444.3

	Common Stock					Additional Paid in			Retained			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Amount		Capital			Earnings			Loss			Equity
Balance at January 1, 2022		93,539		$	0.9	$	579.4		$	3,102.1		$	(75.2	)	$	3,607.2
Common stock withheld and retired to    cover taxes on vested stock awards		(67	)		—		(0.6	)		(8.9	)		—			(9.5	)
Common stock dividends declared