filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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 2020 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 uncoated freesheet paper in North America. We operate eight mills and 89 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 uncoated freesheet 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 2020 Annual Report on Form 10-K.
Executive Summary
Third quarter net sales were $2.00 billion in 2021 and $1.69 billion in 2020. We reported $251 million of net income, or $2.63 per diluted share, during the third quarter of 2021, compared to $139 million, or $1.46 per diluted share, during the same period in 2020. Net income included $6 million of expense for special items in the third quarter of 2021, compared to $10 million of expense for special items in 2020 (discussed below). Excluding special items, net income was $257 million, or $2.69 per diluted share, during the third quarter of 2021, compared to $149 million, or $1.57 per diluted share, in the third quarter of 2020. The increase in net income was driven primarily by higher prices and mix and volume in our Packaging segment, higher production volume and prices and mix in our Paper segment, lower non-operating pension expense, and lower interest expense. These items were partially offset by higher operating costs, higher freight and logistics expenses, higher converting costs, higher scheduled outage expenses, and lower sales volume in our Paper segment. 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 $365 million in the third quarter of 2021, compared to $222 million in the third quarter of 2020. Packaging segment EBITDA excluding special items was $467 million in the third quarter of 2021 compared to $324 million in the third quarter of 2020. The increase in EBITDA excluding special items was due primarily to higher prices and mix and higher sales and production volumes, partially offset by higher operating and converting costs, higher annual outage expense, and higher freight and logistic expenses. We continued to experience strong demand during the quarter, driving record volumes in terms of box shipments and record containerboard production. We also continued to experience cost inflation across our business, including in the areas of labor and benefits, recycled fiber, energy, repairs, materials, and supplies, as well as higher transportation costs, driven by higher fuel costs, tight supply, driver shortages, and higher spot prices. Our sales prices were higher as we implemented price increases on containerboard and corrugated products that we previously communicated to our customers. We continue to deploy capital to improve productivity and efficiencies at our facilities and believe that our success in doing so is helping us to manage cost inflation and better serve our customers.
Paper segment income from operations was $11 million in the third quarter of 2021, compared to $7 million in the third quarter of 2020. Paper segment EBITDA excluding special items was $18 million in the third quarter of 2021, compared to $17 million in the third quarter of 2020. The increase in EBITDA excluding special items was due to higher production volumes, higher prices and mix, and lower annual outage costs, partially offset by higher operating costs, higher freight and logistic expenses, and lower sales volume.
Sales and production volumes in the Paper segment significantly declined after the first quarter of 2020 as the COVID-19 pandemic caused lower demand for our paper products. During the second and third quarters of 2020, in response to such lower demand, we temporary idled both machines at our Jackson Alabama mill. During the fourth quarter of 2020, in order to meet strong packaging demand and maintain appropriate inventory levels in the packaging segment, we temporarily began producing linerboard on the number 3 machine at the mill and we have produced linerboard on the machine since that time. In the first quarter of 2021, we announced the discontinuation of production of uncoated freesheet paper grades on the machine and our plans to permanently convert the machine to produce linerboard in a phased approach over the next three years. Demand for paper products has improved since the beginning of the pandemic, but our sales and production in the paper segment will remain below pre-pandemic levels as we will no longer be producing paper products on the machine. In the third quarter of 2021, we began to produce corrugating medium on the number 1 machine at the Jackson mill (which had produced uncoated freesheet paper in the past) in order to help satisfy our demand for containerboard, build necessary inventories, and evaluate the capability of the machine to produce containerboard on a cost-effective basis. We expect to continue to produce corrugating medium on the machine during the fourth quarter. Before October 2020, operating results for the Jackson mill were included in the Paper segment. Beginning in October 2020, operating results for the Jackson mill are included in both the Packaging and Paper segments.
Packaging segment income from operations was $940 million in the first nine months of 2021, compared to $620 million in the same period in 2020. Packaging segment EBITDA excluding special items was $1,228 million in the first nine months of 2021 compared to $926 million in the first nine months of 2020. The increase in EBITDA excluding special items was due primarily to higher prices and mix and higher sales and production volumes, partially offset by higher operating and converting costs, higher freight and logistic expenses, and higher annual outage expense.
Paper segment income from operations was $22 million in the first nine months of 2021, compared to a loss of $22 million in the first nine months of 2020. Paper segment EBITDA excluding special items was $46 million in the first nine months of 2021, compared to $64 million in the same period in 2020. The decrease in EBITDA excluding special items was due to lower sales and production volumes and higher freight and logistic expenses, partially offset by lower operating costs and lower annual outage expense, while prices and mix were flat.
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 and nine months ended September 30, 2021 and 2020 are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Earnings per diluted share, as reported | $ | 2.63 | $ | 1.46 | $ | 6.55 | $ | 3.54 | ||||||||
| Special items: | ||||||||||||||||
| Facilities closure and other costs (a) | 0.02 | 0.03 | — | 0.19 | ||||||||||||
| Jackson mill conversion-related activities (b) | 0.03 | — | 0.07 | — | ||||||||||||
| Debt refinancing (c) | 0.01 | — | 0.01 | — | ||||||||||||
| Hurricane Laura impact (d) | — | 0.08 | — | 0.08 | ||||||||||||
| Goodwill impairment (e) | — | — | — | 0.58 | ||||||||||||
| Incremental costs for COVID-19 (f) | — | — | — | 0.06 | ||||||||||||
| Total special items | 0.06 | 0.11 | 0.08 | 0.91 | ||||||||||||
| Earnings per diluted share, excluding special items | $ | 2.69 | $ | 1.57 | $ | 6.63 | $ | 4.45 |
(a)
For the three and nine months ended September 30, 2021, includes $2.7 million and $0.1 million, respectively, of charges consisting of closure costs related to corrugated products facilities. For the nine months ended September 30, 2021, these costs are partially offset by income primarily consisting of an adjustment of the required asset retirement obligation related to the 2020 closure of the San Lorenzo, California facility, a gain on sale of corporate assets, and insurance proceeds received for a natural disaster at one of the corrugated products facilities. For the three and nine months ended September 30, 2020, includes $3.3 million and $24.1 million, respectively, of charges consisting of closure costs related to corrugated products facilities, substantially all of which relates to the closure of the San Lorenzo, California facility during the second quarter of 2020, partially offset by income related to the sale of a corrugated products facility during the second quarter of 2020.
(b)
For the three and nine months ended September 30, 2021, includes $4.5 million and $9.4 million, respectively, of charges related to the announced discontinuation of production of uncoated freesheet paper grades on the No. 3 machine at the Jackson, Alabama mill in the first quarter of 2021 associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.
(c)
For the three and nine months ended September 30, 2021, includes $0.5 million of costs related to the Company's September 2021 debt refinancing, which included the issuance of the new 3.05% Senior Notes due 2051.
(d)
For three and nine months ended September 30, 2020, includes $10.0 million of charges related to the impact of Hurricane Laura at our DeRidder, Louisiana mill, including unabsorbed costs related to lost production, excess purchased containerboard and freight costs, repair expenses, rental and supplies costs, and other recovery expenses.
(e)
During the second quarter of 2020, with the exacerbated deterioration in uncoated freesheet market conditions and the estimated impact on our Paper reporting unit arising from the COVID-19 pandemic, as well as projected future results of operations, we identified a triggering event indicating possible impairment of goodwill within our Paper reporting unit. The Company performed an interim quantitative analysis as of May 31, 2020, and, based on the evaluation performed, we determined that goodwill was fully impaired for the Paper reporting unit and recognized a non-cash impairment charge of $55.2 million.
(f)
The nine months ended September 30, 2020 include $6.9 million of incremental, out-of-pocket costs related to COVID-19, including supplies, cleaning and sick pay. Beginning in July 2020, all corresponding COVID-19 related expenses were included in normalized costs.
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 per work day were up 0.1% during the third quarter of 2021 compared to the same quarter of 2020. Reported industry containerboard production increased 3.9% compared to the third quarter of 2020. Reported industry containerboard inventories at the end of the third quarter of 2021 were approximately 2.7 million tons, up 16.6% compared to the same period in 2020. Reported containerboard export shipments were up 9.7% compared to the third quarter of 2020. Prices reported by trade publications increased by $20 per ton for linerboard and $30 per ton for corrugating medium in March 2021, $40 per ton for linerboard and corrugating medium in April 2021, and a further $50 per ton for linerboard and $60 per ton for corrugating medium in August 2021.
Trade publications reported North American uncoated freesheet paper shipments were up 3.0% in the third quarter of 2021, compared to the same quarter of 2020. Average prices reported by a trade publication for cut size office papers were higher by $50 per ton, or 4.4%, in the third quarter of 2021, compared to the second quarter of 2021, and higher by $120 per ton, or 11.3%, compared to the third quarter of 2020. Average prices reported by a trade publication for cut size office papers increased $20 per ton in March, $40 per ton in April, $30 per ton in June, and $30 per ton in July 2021.
Outlook
Looking ahead to the fourth quarter, we will continue to implement our previously announced price increases for domestic containerboard, corrugated packaging, and paper, and, based upon conditions in the export markets into which we sell, we also expect an increase in average export containerboard prices compared to the third quarter. Packaging segment volume will be lower due to three less shipping days as well as a scheduled maintenance outage that we are taking at our DeRidder mill, and Paper segment volume will be lower as we do not expect to produce any uncoated grades at the Jackson mill. With higher natural gas prices and anticipated colder weather, we expect energy costs to increase. Wood costs, especially in our southern mills, are expected to be higher due to the previous wet weather, low inventory, and high demand for wood fiber. We also expect inflation to continue with most of our other operating and converting costs, along with continued higher freight and logistics expenses. We also expect scheduled outage costs to be higher than the third quarter. Considering these items, we expect fourth quarter earnings to be lower than third quarter earnings.
Results of Operations
Three Months Ended September 30, 2021, compared to Three Months Ended September 30, 2020
The historical results of operations of PCA for the three months ended September 30, 2021 and 2020 are set forth below (dollars in millions):
| Three Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Packaging | $ | 1,829.4 | $ | 1,501.1 | $ | 328.3 | ||||||
| Paper | 150.3 | 178.1 | (27.8 | ) | ||||||||
| Corporate and Other | 61.3 | 48.8 | 12.5 | |||||||||
| Intersegment eliminations | (40.9 | ) | (34.3 | ) | (6.6 | ) | ||||||
| Net sales | $ | 2,000.1 | $ | 1,693.7 | $ | 306.4 | ||||||
| Packaging | $ | 365.2 | $ | 222.4 | $ | 142.8 | ||||||
| Paper | 11.0 | 7.3 | 3.7 | |||||||||
| Corporate and Other | (23.4 | ) | (20.2 | ) | (3.2 | ) | ||||||
| Income from operations | $ | 352.8 | $ | 209.5 | $ | 143.3 | ||||||
| Non-operating pension income | 5.0 | 0.6 | 4.4 | |||||||||
| Interest expense, net | (23.9 | ) | (24.4 | ) | 0.5 | |||||||
| Income before taxes | 333.9 | 185.7 | 148.2 | |||||||||
| Income tax provision | (83.2 | ) | (46.6 | ) | (36.6 | ) | ||||||
| Net income | $ | 250.7 | $ | 139.1 | $ | 111.6 | ||||||
| Non-GAAP Measures (a) | ||||||||||||
| Net income excluding special items | $ | 256.5 | $ | 149.2 | $ | 107.3 | ||||||
| Consolidated EBITDA | 458.4 | 309.9 | 148.5 | |||||||||
| Consolidated EBITDA excluding special items | 464.0 | 322.8 | 141.2 | |||||||||
| Packaging EBITDA | 461.4 | 311.0 | 150.4 | |||||||||
| Packaging EBITDA excluding special items | 466.9 | 323.9 | 143.0 | |||||||||
| Paper EBITDA | 18.1 | 16.9 | 1.2 | |||||||||
| Paper EBITDA excluding special items | 18.1 | 16.9 | 1.2 |
(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 increased $306 million, or 18.1%, to $2,000 million during the three months ended September 30, 2021, compared to $1,694 million during the same period in 2020.
Packaging. Net sales increased $328 million, or 21.9%, to $1,829 million, compared to $1,501 million in the third quarter of 2020 due to higher prices and mix ($241 million) and higher containerboard and corrugated products volume ($88 million). In the third quarter of 2021, our domestic containerboard prices were 24.4% higher, while export prices were 46.1% higher, than the same period in 2020. In the third quarter of 2021, export and domestic containerboard outside shipments increased 51.6% compared to the third quarter of 2020. Our total and per day corrugated products shipments were up 2.3% compared to the same period in 2020, driven by strong demand.
Paper. Net sales decreased $28 million, or 15.6%, to $150 million, compared to $178 million in the third quarter of 2020, due to lower volume ($34 million), partially offset by higher prices and mix ($6 million). In the fourth quarter of 2020, the Jackson mill No. 3 machine began producing linerboard. The Jackson mill was idled for two months during the second quarter of 2020.
Gross Profit
Gross profit increased $165 million during the three months ended September 30, 2021, compared to the same period in 2020. The increase was driven primarily by higher prices and mix and volume in our Packaging segment, and higher production volume and prices and mix in our Paper segment. These items were partially offset by higher operating costs, higher freight and logistics expenses, higher converting costs, higher annual outage expenses, and lower sales volume in our Paper segment. In the three months ended September 30, 2021, gross profit included $3 million of special items for charges related to the Jackson mill conversion and other paper-to-containerboard conversion related activities and facility closure costs. In the three months ended September 30, 2020, gross profit included $10 million of special items for charges related to the impact of Hurricane Laura at our DeRidder mill.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses (“SG&A”) increased $17 million during the three months ended September 30, 2021, compared to the same period in 2020. The increase was primarily due to higher employee salaries and fringes and incentives.
Other Expense, Net
Other income (expense), net, for the three months ended September 30, 2021 and 2020 are set forth below (dollars in millions):
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Asset disposals and write-offs | $ | (6.4 | ) | $ | (5.5 | ) | ||
| Jackson mill conversion-related activities | (3.2 | ) | — | |||||
| Facilities closure and other costs | (0.7 | ) | (2.9 | ) | ||||
| Other | (3.1 | ) | (0.4 | ) | ||||
| Total | $ | (13.4 | ) | $ | (8.8 | ) |
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 increased $143 million, or 68.4%, during the three months ended September 30, 2021, compared to the same period in 2020. The third quarter of 2021 included $7 million of special items expense primarily related to corrugated facility closures and costs from the Jackson mill conversion from uncoated freesheet paper to linerboard and other paper-to-containerboard conversion related activities, compared to $13 million of special items expense related to the impact of Hurricane Laura at our DeRidder mill and corrugated facilities closure costs in the third quarter of 2020.
Packaging. Packaging segment income from operations increased $143 million to $365 million, compared to $222 million during the three months ended September 30, 2020. The increase related primarily to higher containerboard and corrugated products prices and mix ($203 million), higher sales and production volumes ($79 million), partially offset by higher operating and converting costs ($112 million), higher freight expenses ($23 million), higher annual outage expenses ($7 million), higher depreciation expense ($8 million), and other costs. Special items during the third quarter of 2021 included $6 million of expense for the Jackson mill conversion-related activities and corrugated facility closures, compared to $10 million of special items expense related to the impact of Hurricane Laura at our DeRidder mill and $3 million of corrugated facility closure costs.
Paper. Paper segment income from operations increased $4 million to $11 million, compared to $7 million during the three months ended September 30, 2020. The increase primarily related to higher prices and mix ($6 million), higher sales and production volumes ($5 million), lower depreciation expense ($4 million), and lower annual outage expenses ($1 million), partially offset by higher freight expenses ($6 million), and higher operating costs ($4 million). Special items during the third quarter of 2021 included $1 million of expense for the Jackson mill conversion-related activities. There were no material special items during the third quarter of 2020.
Non-Operating Pension Income, Interest Expense, Net and Income Taxes
Non-operating pension income increased $4 million during the three months ended September 30, 2021, compared to the same period in 2020. The increase in non-operating pension income was primarily related to the favorable 2020 asset performance.
Interest expense, net for the three months ended September 30, 2021 was relatively flat when compared to the same period in 2020. The slight decrease in interest expense, net was primarily related to lower earnings on deferred compensation balances in the third quarter of 2021, partially offset by lower interest income due to lower rates on invested cash balances, lower capitalized interest in the third quarter of 2021, and higher interest expense related to the Company's September 2021 debt refinancing.
During the three months ended September 30, 2021, we recorded $83 million of income tax expense, compared to $47 million of expense during the three months ended September 30, 2020. The effective tax rate for the three months ended September 30, 2021 and 2020 was 24.9% and 25.0%, respectively. The decrease in our effective tax rate for the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to the favorable state rate impact of a subsidiary merger during the three months ended September 30, 2021 compared to September 30, 2020.
Nine Months Ended September 30, 2021, compared to Nine Months Ended September 30, 2020
The historical results of operations of PCA for the nine months ended September 30, 2021 and 2020 are set forth below (dollars in millions):
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Packaging | $ | 5,171.4 | $ | 4,378.5 | $ | 792.9 | ||||||
| Paper | 457.1 | 518.7 | (61.6 | ) | ||||||||
| Corporate and Other | 171.8 | 159.7 | 12.1 | |||||||||
| Intersegment eliminations | (113.2 | ) | (112.9 | ) | (0.3 | ) | ||||||
| Net sales | $ | 5,687.1 | $ | 4,944.0 | $ | 743.1 | ||||||
| Packaging | $ | 940.3 | $ | 619.9 | $ | 320.4 | ||||||
| Paper | 22.3 | (21.7 | ) | 44.0 | ||||||||
| Corporate and Other | (76.9 | ) | (63.5 | ) | (13.4 | ) | ||||||
| Income from operations | $ | 885.7 | $ | 534.7 | $ | 351.0 | ||||||
| Non-operating pension income | 14.8 | 1.7 | 13.1 | |||||||||
| Interest expense, net | (72.2 | ) | (69.1 | ) | (3.1 | ) | ||||||
| Income before taxes | 828.3 | 467.3 | 361.0 | |||||||||
| Income tax provision | (203.7 | ) | (129.9 | ) | (73.8 | ) | ||||||
| Net income | $ | 624.6 | $ | 337.4 | $ | 287.2 | ||||||
| Non-GAAP Measures (a) | ||||||||||||
| Net income excluding special items | $ | 632.1 | $ | 423.5 | $ | 208.6 | ||||||
| Consolidated EBITDA | 1,196.7 | 843.7 | 353.0 | |||||||||
| Consolidated EBITDA excluding special items | 1,202.6 | 932.3 | 270.3 | |||||||||
| Packaging EBITDA | 1,223.4 | 893.5 | 329.9 | |||||||||
| Packaging EBITDA excluding special items | 1,227.8 | 926.3 | 301.5 | |||||||||
| Paper EBITDA | 43.4 | 7.8 | 35.6 | |||||||||
| Paper EBITDA excluding special items | 45.5 | 63.6 | (18.1 | ) |
(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 increased $743 million, or 15.0%, to $5,687 million during the nine months ended September 30, 2021, compared to $4,944 million during the same period in 2020.
Packaging. Net sales increased $793 million, or 18.1%, to $5,171 million, compared to $4,378 million in the nine months ended September 30, 2020, due to higher containerboard and corrugated products prices and mix ($441 million) and higher containerboard and corrugated products volume ($352 million). In the first nine months of 2021, our domestic containerboard prices were 14.5% higher, while export prices were 31.5% higher, than the same period in 2020. In the first nine months of 2021, export and domestic containerboard outside shipments increased 70.6% compared to the first nine months of 2020. Total corrugated products shipments were up 6.1% with one less workday, and up 6.7% per day compared to the same period in 2020.
Paper. Net sales during the nine months ended September 30, 2021 decreased $62 million, or 11.9%, to $457 million, compared to $519 million in the nine months ended September 30, 2020, due to decreased volume ($61 million) and lower prices and mix ($1 million), primarily related to the Jackson mill conversion from uncoated freesheet paper to linerboard and other paper-to-containerboard conversion related activities.
Gross Profit
Gross profit increased $327 million during the nine months ended September 30, 2021, compared to the same period in 2020. The increase was driven primarily by higher prices and mix and higher volumes in our Packaging segment, partially offset by lower volume in our Paper segment, higher operating and converting costs, higher freight and logistic expenses, and higher annual outage expense. In the nine months ended September 30, 2021, gross profit included $6 million of special items expense for the Jackson mill conversion and other paper-to-containerboard conversion related activities and facility closure costs. In the nine months ended September 30, 2020, gross profit included $10 million of special items expense related to the impact of Hurricane Laura at our DeRidder mill, $7 million for incremental out-of-pocket costs related to the COVID-19 pandemic, including supplies, cleaning and sick pay, and $3 million of accelerated depreciation associated with the closure of our San Lorenzo, California facility.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses (“SG&A”) increased $26 million during the nine months ended September 30, 2021, compared to the same period in 2020. The increase was primarily due to higher employee compensation and fringes.
Goodwill Impairment
During the nine months ended September 30, 2020, with the exacerbated deterioration in uncoated freesheet market conditions and the estimated impact on our Paper reporting unit arising from the COVID-19 pandemic, as well as projected future results of operations, we identified a triggering event indicating possible impairment of goodwill within our Paper reporting unit. The Company performed an interim quantitative impairment analysis as of May 31, 2020, and, based on the evaluation performed, we determined that goodwill was fully impaired for the Paper reporting unit and recognized a non-cash impairment charge of $55 million in the second quarter of 2020.
Other Expense, Net
Other income (expense), net, for the nine months ended September 30, 2021 and 2020 are set forth below (dollars in millions):
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Asset disposals and write-offs | $ | (27.3 | ) | $ | (16.5 | ) | ||
| Jackson mill conversion-related activities | (6.1 | ) | — | |||||
| Facilities closure and other income (costs) | 2.7 | (16.6 | ) | |||||
| Other | (11.0 | ) | (3.8 | ) | ||||
| Total | $ | (41.7 | ) | $ | (36.9 | ) |
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 increased $351 million, or 65.6%, during the nine months ended September 30, 2021, compared to the same period in 2020. The first nine months of 2021 included $10 million of special items expense related to Jackson mill conversion costs and other paper-to-containerboard conversion related activities and facility closure costs, compared to $96 million of special items expense for the Paper reporting unit goodwill impairment; Hurricane Laura impact at our DeRidder mill; incremental, out-of-pocket costs related to COVID-19; and facility closure costs in the same period in 2020.
Packaging. Packaging segment income from operations increased $320 million to $940 million during the first nine months of 2021, compared to the same period last year. The increase related primarily to higher containerboard and corrugated products prices and mix ($373 million), higher sales and production volumes ($233 million), partially offset by higher operating and converting costs ($234 million), higher freight expenses ($49 million), higher annual outage expenses ($23 million), and higher depreciation expense ($17 million). Special items during the first nine months of 2021 included $4 million of costs for the Jackson mill conversion-related activities and $1 million of facility closure costs, compared to $24 million of expense related to facility closure costs; $10 million of expense related to the Hurricane Laura impact at our DeRidder mill, and $6 million of incremental, out-of-pocket costs related to COVID-19 in the first nine months of 2020.
Paper. Paper segment income from operations increased $44 million to $22 million, compared to the nine months ended September 30, 2020. Special items during the first nine months of 2021 included $5 million of expense for Jackson mill conversion-related activities, compared to $55 million of goodwill impairment and $1 million of incremental, out-of-pocket costs related to COVID-19 in the first nine months of 2020. The decrease, excluding special items, primarily related to lower sales and production volumes ($27 million), and higher freight and other expenses ($23 million), partially offset by lower operating costs ($24 million), lower annual outage expenses ($8 million), and lower depreciation expense ($11 million).
Non-Operating Pension Income, Interest Expense, Net and Income Taxes
Non-operating pension income increased $13 million during the nine months ended September 30, 2021, compared to the same period in 2020. The increase in non-operating pension income was primarily related to the favorable 2020 asset performance.
Interest expense, net increased $3 million during the nine months ended September 30, 2021, compared to the same period in 2020. The increase in interest expense, net was primarily related to lower interest income due to lower rates on invested cash balances in 2021 and higher interest expense related to the Company's September 2021 debt refinancing, partially offset by lower earnings on deferred compensation balances in 2021.
During the nine months ended September 30, 2021, we recorded $204 million of income tax expense, compared to $130 million of expense during the nine months ended September 30, 2020. The effective tax rate for the nine months ended September 30, 2021 and 2020 was 24.6% and 27.8%, respectively. The decrease in our effective tax rate for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to the nondeductible goodwill impairment charge associated with our Paper reporting unit recognized during the nine months ended September 30, 2020 with no corresponding charge during the nine months ended September 30, 2021.
Liquidity and Capital Resources
Sources and Uses of Cash
Our primary sources of liquidity are net cash provided by operating activities, cash on hand, and available borrowing capacity under our revolving credit facility. At September 30, 2021, we had $1.7 billion of cash and cash equivalents, $146 million of marketable debt securities, and $326 million of unused borrowing capacity under the revolving credit facility, net of letters of credit. On October 8, 2021, we redeemed our $700 million of outstanding 4.50% notes due November 1, 2023, using the proceeds of new notes we issued in September 2021 and cash-on-hand. See 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 as well as the information provided below under "—Financing Activities" for further information.
Currently, our primary uses of cash are for operations, capital expenditures, common stock dividends, debt service, acquisitions, 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, refinance, extend, or replace such debt or credit 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.
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):
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Net cash provided by (used for): | ||||||||||||
| Operating activities | $ | 703.4 | $ | 761.7 | $ | (58.3 | ) | |||||
| Investing activities | (365.0 | ) | (255.9 | ) | (109.1 | ) | ||||||
| Financing activities | 389.9 | (236.2 | ) | 626.1 | ||||||||
| Net increase in cash and cash equivalents | $ | 728.3 | $ | 269.6 | $ | 458.7 |
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 nine months ended September 30, 2021, net cash provided by operating activities was $703 million, compared to $762 million in the same period in 2020, a decrease of $58 million. Cash from operations excluding changes in cash used for operating assets and liabilities increased $269 million primarily due to higher income from operations in 2021 as discussed above. Cash decreased by $327 million due to changes in operating assets and liabilities, primarily due to the following:
a)
an increase in accounts receivable due to higher sales volumes and pricing in the third quarter in the Packaging segment, an increase in sales volumes in the Paper segment for the third quarter compared to last year primarily due to the impact of the pandemic in 2020, as well as the timing of collection of receivables in both the Packaging and Paper segments;
b)
an increase in inventories primarily due to an increase in containerboard on hand in the Packaging segment in 2021; and
c)
higher income tax payments in 2021 due to higher income during the first nine months of 2021.
These changes were partially offset by the following:
a)
an increase in accounts payable for the Paper segment due to the impact of the curtailment of the Jackson mill in the second and third quarters of 2020 and
b)
an increase in accrued liabilities primarily related to higher accruals for employee compensation and benefits liabilities for 2021 compared to 2020.
Investing Activities
We used $365 million for investing activities during the nine months ended September 30, 2021 compared to $256 million during the same period in 2020. We spent $366 million for internal capital investments during the nine months ended September 30, 2021, compared to $254 million during the same period in 2020.
We expect capital investments in 2021 to be approximately $550 million, including capital spending related to the conversion of the No. 3 paper machine to containerboard at our Jackson mill. 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 2021. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations, including those related to greenhouse gas emissions and industrial boilers. 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 2020 Annual Report on Form 10-K.
Financing Activities
During the nine months ended September 30, 2021, net cash provided by financing activities was $390 million, compared to net cash used for financing activities of $236 million during the same period in 2020. During the nine months ended September 30, 2021, we issued $700 million of 3.05% Senior Notes due 2051 (the "New Notes") through a registered public offering and notified the holders of our $700 million of 4.50% Senior Notes due November 1, 2023 (the "Old Notes") that we would redeem those notes in October 2021. On October 8, 2021, we completed the redemption of the Old Notes for $770 million, which included a redemption premium of $56 million and $14 million of accrued and unpaid interest. We used the proceeds of the offering of the New Notes and cash on hand to fund the redemption and the $8 million of debt issuance costs associated with the New Notes.
In addition to the $8 million of issuance costs associated with the debt refinancing paid in the first nine months of 2021, we paid an additional $1 million of issuance costs related to the New Revolving Credit Agreement that was entered into on June 8, 2021. In the first nine months of 2021, we paid $285 million of dividends compared to $225 million of dividends paid during the first nine months of 2020.
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, for more information about our debt, see Note 10, Debt, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2020 Annual Report on Form 10-K.
Contractual Obligations
There have been no material changes to the contractual obligations table disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Annual Report on Form 10-K.
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 and nine months ended September 30, 2021 and 2020 follow (dollars in millions):
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Income before Taxes | Income Taxes | Net Income | Income before Taxes | Income Taxes | Net Income | |||||||||||||||||||
| As reported in accordance with GAAP | $ | 333.9 | $ | (83.2 | ) | $ | 250.7 | $ | 185.7 | $ | (46.6 | ) | $ | 139.1 | ||||||||||
| Special items: | ||||||||||||||||||||||||
| Facilities closure and other costs (a) | 2.7 | (0.7 | ) | 2.0 | 3.3 | (0.8 | ) | 2.5 | ||||||||||||||||
| Jackson mill conversion-related activities (b) | 4.5 | (1.1 | ) | 3.4 | — | — | — | |||||||||||||||||
| Debt refinancing (c) | 0.5 | (0.1 | ) | 0.4 | — | — | — | |||||||||||||||||
| Hurricane Laura impact (d) | — | — | — | 10.0 | (2.4 | ) | 7.6 | |||||||||||||||||
| Total special items | 7.7 | (1.9 | ) | 5.8 | 13.3 | (3.2 | ) | 10.1 | ||||||||||||||||
| Excluding special items | $ | 341.6 | $ | (85.1 | ) | $ | 256.5 | $ | 199.0 | $ | (49.8 | ) | $ | 149.2 |
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Income before Taxes | Income Taxes | Net Income | Income before Taxes | Income Taxes | Net Income | |||||||||||||||||||
| As reported in accordance with GAAP | $ | 828.3 | $ | (203.7 | ) | $ | 624.6 | $ | 467.3 | $ | (129.9 | ) | $ | 337.4 | ||||||||||
| Special items: | ||||||||||||||||||||||||
| Facilities closure and other costs (a) | 0.1 | — | 0.1 | 24.1 | (6.0 | ) | 18.1 | |||||||||||||||||
| Jackson mill conversion-related activities (b) | 9.4 | (2.4 | ) | 7.0 | — | — | — | |||||||||||||||||
| Debt refinancing (c) | 0.5 | (0.1 | ) | 0.4 | — | — | — | |||||||||||||||||
| Goodwill impairment (e) | — | — | — | 55.2 | — | 55.2 | ||||||||||||||||||
| Hurricane Laura impact (d) | — | — | — | 10.0 | (2.4 | ) | 7.6 | |||||||||||||||||
| Incremental costs for COVID-19 (f) | — | — | — | 6.9 | (1.7 | ) | 5.2 | |||||||||||||||||
| Total special items | 10.0 | (2.5 | ) | 7.5 | 96.2 | (10.1 | ) | 86.1 | ||||||||||||||||
| Excluding special items | $ | 838.3 | $ | (206.2 | ) | $ | 632.1 | $ | 563.5 | $ | (140.0 | ) | $ | 423.5 |
(a)
For 2021, includes charges consisting of closure costs related to corrugated products facilities. For the nine months ended September 20, 2021, these costs are partially offset by income primarily consisting of an adjustment of the required asset retirement obligation related to the 2020 closure of the San Lorenzo, California facility, a gain on sale of corporate assets, and insurance proceeds received for a natural disaster at one of the corrugated products facilities, partially offset by closure costs related to corrugated products facilities. For 2020, includes charges consisting of closure costs related to corrugated products facilities, substantially all of which relate to the closure of the San Lorenzo, California facility during the second quarter of 2020, partially offset by income related to the sale of a corrugated products facility during the second quarter of 2020.
(b)
Includes charges related to the announced discontinuation of production of uncoated freesheet paper grades on the No. 3 machine at the Jackson, Alabama mill in the first quarter of 2021 associated with the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities.
(c)
Includes costs related to the Company's September 2021 debt refinancing, which included the issuance of the new 3.05% Senior Notes due 2051.
(d)
Includes charges related to the impact of Hurricane Laura at our DeRidder, Louisiana mill, including unabsorbed costs related to lost production, excess purchased containerboard and freight costs, repair expenses, rental and supplies costs, and other recovery expenses.
(e)
During the second quarter of 2020, with the exacerbated deterioration in uncoated freesheet market conditions and the estimated impact on our Paper reporting unit arising from the COVID-19 pandemic, as well as projected future results of operations, we identified a triggering event indicating possible impairment of goodwill within our Paper reporting unit. The Company performed an interim quantitative analysis as of May 31, 2020, and, based on the evaluation performed, we determined that goodwill was fully impaired for the Paper reporting unit and recognized a non-cash impairment charge of $55.2 million.
(f)
Includes incremental, out-of-pocket costs related to COVID-19 including supplies, cleaning and sick pay. Beginning in July 2020, all corresponding COVID-19 related expenses were included in normalized costs.
The following table reconciles net income to EBITDA and EBITDA excluding special items for the periods indicated (dollars in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income | $ | 250.7 | $ | 139.1 | $ | 624.6 | $ | 337.4 | ||||||||
| Non-operating pension income | (5.0 | ) | (0.6 | ) | (14.8 | ) | (1.7 | ) | ||||||||
| Interest expense, net | 23.9 | 24.4 | 72.2 | 69.1 | ||||||||||||
| Income tax provision | 83.2 | 46.6 | 203.7 | 129.9 | ||||||||||||
| Depreciation, amortization, and depletion | 105.6 | 100.4 | 311.0 | 309.0 | ||||||||||||
| EBITDA | $ | 458.4 | $ | 309.9 | $ | 1,196.7 | $ | 843.7 | ||||||||
| Special items: | ||||||||||||||||
| Facilities closure and other costs (income) | 2.3 | 2.9 | (0.5 | ) | 16.5 | |||||||||||
| Jackson mill conversion-related activities | 3.3 | — | 6.4 | — | ||||||||||||
| Hurricane Laura impact | — | 10.0 | — | 10.0 | ||||||||||||
| Goodwill impairment | — | — | — | 55.2 | ||||||||||||
| Incremental costs for COVID-19 | — | — | — | 6.9 | ||||||||||||
| Total special items | 5.6 | 12.9 | 5.9 | 88.6 | ||||||||||||
| EBITDA excluding special items | $ | 464.0 | $ | 322.8 | $ | 1,202.6 | $ | 932.3 |
The following table reconciles segment income (loss) to EBITDA and EBITDA excluding special items for the periods indicated (dollars in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Packaging | ||||||||||||||||
| Segment income | $ | 365.2 | $ | 222.4 | $ | 940.3 | $ | 619.9 | ||||||||
| Depreciation, amortization, and depletion | 96.2 | 88.6 | 283.1 | 273.6 | ||||||||||||
| EBITDA | 461.4 | 311.0 | 1,223.4 | 893.5 | ||||||||||||
| Facilities closure and other costs | 2.3 | 2.9 | 0.3 | 16.5 | ||||||||||||
| Jackson mill conversion-related activities | 3.2 | — | 4.1 | — | ||||||||||||
| Hurricane Laura impact | — | 10.0 | — | 10.0 | ||||||||||||
| Incremental costs for COVID-19 | — | — | — | 6.3 | ||||||||||||
| EBITDA excluding special items | $ | 466.9 | $ | 323.9 | $ | 1,227.8 | $ | 926.3 | ||||||||
| Paper | ||||||||||||||||
| Segment income (loss) | $ | 11.0 | $ | 7.3 | $ | 22.3 | $ | (21.7 | ) | |||||||
| Depreciation, amortization, and depletion | 7.1 | 9.6 | 21.1 | 29.5 | ||||||||||||
| EBITDA | 18.1 | 16.9 | 43.4 | 7.8 | ||||||||||||
| Jackson mill conversion-related activities | — | — | 2.1 | — | ||||||||||||
| Goodwill impairment | — | — | — | 55.2 | ||||||||||||
| Incremental costs for COVID-19 | — | — | — | 0.6 | ||||||||||||
| EBITDA excluding special items | $ | 18.1 | $ | 16.9 | $ | 45.5 | $ | 63.6 | ||||||||
| Corporate and Other | ||||||||||||||||
| Segment loss | $ | (23.4 | ) | $ | (20.2 | ) | $ | (76.9 | ) | $ | (63.5 | ) | ||||
| Depreciation, amortization, and depletion | 2.3 | 2.2 | 6.8 | 5.9 | ||||||||||||
| EBITDA | (21.1 | ) | (18.0 | ) | (70.1 | ) | (57.6 | ) | ||||||||
| Jackson mill conversion-related activities | 0.1 | — | 0.2 | — | ||||||||||||
| Facilities closure and other costs | — | — | (0.8 | ) | — | |||||||||||
| EBITDA excluding special items | $ | (21.0 | ) | $ | (18.0 | ) | $ | (70.7 | ) | $ | (57.6 | ) | ||||
| EBITDA | $ | 458.4 | $ | 309.9 | $ | 1,196.7 | $ | 843.7 | ||||||||
| EBITDA excluding special items | $ | 464.0 | $ | 322.8 | $ | 1,202.6 | $ | 932.3 |
Market Risk and Risk Management Policies
PCA is exposed to the impact of interest rate changes and changes in the market value of its financial instruments. We periodically enter into derivatives to minimize these risks, but not for trading purposes. We were not a party to any derivatives-based arrangements at September 30, 2021. For a discussion of derivatives and hedging activities, see Note 15, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2020 Annual Report on Form 10-K.
At September 30, 2021, 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 September 30, 2021.
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 2020 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.
PCA has included in its 2020 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 nine months of 2021.
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 the COVID-19 pandemic on the health of our employees, on our vendors and customers and on economic conditions affecting our business;
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;
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, 2020.
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