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 2021 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 90 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 2021 Annual Report on Form 10-K.
Executive Summary
First quarter net sales were $2.14 billion in 2022 and $1.81 billion in 2021. We reported $254 million of net income, or $2.70 per diluted share, during the first quarter of 2022, compared to $167 million, or $1.75 per diluted share, during the same period in 2021. Net income included $2 million of expense for special items in both first quarters of 2022 and 2021 (discussed below). Excluding special items, net income was $256 million, or $2.72 per diluted share, during the first quarter of 2022, compared to $169 million, or $1.77 per diluted share, in the first quarter of 2021. The increase in net income was driven primarily by higher prices and mix and volume in the Packaging segment, higher prices and mix in the Paper segment, a lower share count resulting from share repurchases completed during the fourth quarter of 2021, and lower interest expense. These items were partially offset by inflation-related operating cost increases primarily in energy, fiber, chemicals, operating labor, repair labor, and materials; higher freight and logistics expenses; higher converting costs driven by labor and materials expenses; higher depreciation expense; lower volume in the Paper segment; higher scheduled outage expenses; a higher tax rate; and other costs. 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 $362 million in the first quarter of 2022, compared to $258 million in the first quarter of 2021. Packaging segment EBITDA excluding special items was $464 million in the first quarter of 2022 compared to $352 million in the first quarter of 2021. The increase 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. Demand in the Packaging segment remained strong, as we set a quarterly record in corrugated products shipments. Although we still face significant inflation in our manufacturing costs as well as freight and logistic expenses, our facilities continued to deliver on numerous cost reduction initiatives, efficiency improvements, integration and optimization enhancements, and capital project benefits to maximize our returns and margins. Labor availability in our corrugated products plants improved as we experienced fewer COVID-related absences as the quarter progressed.
Paper segment income from operations was $22 million in the first quarter of 2022, compared to $9 million in the first quarter of 2021. Paper segment EBITDA excluding special items was $29 million in the first quarter of 2022, compared to $16 million in the first quarter of 2021. The increase was due to higher prices and mix and lower operating costs, partially offset by lower sales and production volumes, and higher freight and logistic expenses.
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 No. 3 machine at the Jackson 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 UFS paper grades on the machine and the permanent conversion of the machine to produce linerboard and other paper-to-containerboard conversion related activities. 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 producing corrugating medium on the No. 1 machine at the Jackson mill (which had produced UFS paper in the past) 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 producing corrugating medium on the machine for the foreseeable future. For the periods presented, operating results for the Jackson mill are included in both the Packaging and Paper segments, as appropriate.
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, 2022 and 2021 are as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Earnings per diluted share, as reported | $ | 2.70 | $ | 1.75 | ||||
| Special items: | ||||||||
| Jackson mill conversion-related activities (a) | 0.01 | 0.01 | ||||||
| Acquisition-related, facilities closure and other costs (b) | 0.01 | 0.01 | ||||||
| Total special items | 0.02 | 0.02 | ||||||
| Earnings per diluted share, excluding special items | $ | 2.72 | $ | 1.77 |
(a)
For the three months ended March 31, 2022 and 2021, includes $1.5 million and $1.1 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.
(b)
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. For the three months ended March 31, 2021, includes $2.1 million of charges consisting of closure costs related to corrugated products facilities.
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 down 1.8% during the first quarter of 2022 compared to the same quarter of 2021. Reported industry containerboard production increased 2.0% compared to the first quarter of 2021. Reported industry containerboard inventories at the end of the first quarter of 2022 were approximately 2.7 million tons, up 17.5% compared to the same period in 2021. Reported containerboard export shipments were up 9.1% compared to the first quarter of 2021. Prices reported by trade publications increased by $60 per ton for linerboard and $70 per ton for corrugating medium in March 2022.
Trade publications reported North American UFS paper shipments were down 1% in the first quarter of 2022, compared to the same quarter of 2021. Average prices reported by a trade publication for cut size office papers were higher by $67 per ton, or 5.4%, in the first quarter of 2022, compared to the fourth quarter of 2021, and higher by $233 per ton, or 21.8%, compared to the first quarter of 2021.
Outlook
We expect demand in our Packaging segment to remain strong in the second quarter of 2022, and we expect higher prices in both our Packaging and Paper segments as we implement price increases previously communicated to customers. Scheduled mill outage costs will be higher compared to the first quarter, and the planned outage at the International Falls mill will result in lower Paper segment sales volume. We also anticipate continued inflation with freight and logistics expenses as well as most of our operating costs, although we expect recycled fiber prices to be slightly lower than the first quarter. Considering these items, and excluding the effect of any special items, we expect second quarter earnings to be higher than our earnings for the first quarter.
Results of Operations
Three Months Ended March 31, 2022, compared to Three Months Ended March 31, 2021
The historical results of operations of PCA for the three months ended March 31, 2022 and 2021 are set forth below (dollars in millions):
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Packaging | $ | 1,964.5 | $ | 1,623.6 | $ | 340.9 | ||||||
| Paper | 153.5 | 164.6 | (11.1 | ) | ||||||||
| Corporate and Other | 58.3 | 55.4 | 2.9 | |||||||||
| Intersegment eliminations | (39.9 | ) | (36.4 | ) | (3.5 | ) | ||||||
| Net sales | $ | 2,136.4 | $ | 1,807.2 | $ | 329.2 | ||||||
| Packaging | $ | 362.2 | $ | 257.9 | $ | 104.3 | ||||||
| Paper | 22.4 | 8.7 | 13.7 | |||||||||
| Corporate and Other | (28.1 | ) | (28.3 | ) | 0.2 | |||||||
| Income from operations | $ | 356.5 | $ | 238.3 | $ | 118.2 | ||||||
| Non-operating pension income | 3.6 | 4.8 | (1.2 | ) | ||||||||
| Interest expense, net | (19.8 | ) | (23.5 | ) | 3.7 | |||||||
| Income before taxes | 340.3 | 219.6 | 120.7 | |||||||||
| Income tax provision | (86.1 | ) | (53.1 | ) | (33.0 | ) | ||||||
| Net income | $ | 254.2 | $ | 166.5 | $ | 87.7 | ||||||
| Non-GAAP Measures (a) | ||||||||||||
| Net income excluding special items | $ | 255.7 | $ | 168.9 | $ | 86.8 | ||||||
| Consolidated EBITDA | 466.2 | 339.1 | 127.1 | |||||||||
| Consolidated EBITDA excluding special items | 467.2 | 341.8 | 125.4 | |||||||||
| Packaging EBITDA | 463.1 | 350.0 | 113.1 | |||||||||
| Packaging EBITDA excluding special items | 463.9 | 352.1 | 111.8 | |||||||||
| Paper EBITDA | 28.8 | 15.2 | 13.6 | |||||||||
| Paper EBITDA excluding special items | 29.0 | 15.8 | 13.2 |
(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 $329 million, or 18.2%, to $2,136 million during the three months ended March 31, 2022, compared to $1,807 million during the same period in 2021.
Packaging. Net sales increased $341 million, or 21.0%, to $1,965 million, compared to $1,624 million in the first quarter of 2021 due to higher prices and mix ($268 million) and higher containerboard and corrugated products volume ($73 million). In the first quarter of 2022, our domestic containerboard prices were 20.2% higher, while export prices were 42.5% higher, than the same period in 2021. In the first quarter of 2022, export and domestic containerboard outside shipments increased 26.0% compared to the first quarter of 2021. Our total corrugated products shipments were up 2.9% with one additional workday and shipments per day were up 1.3%, compared to the same period in 2021, driven by continued strong demand.
Paper. Net sales decreased $11 million, or 6.7%, to $154 million, compared to $165 million in the first quarter of 2021, due to lower volume ($30 million), partially offset by higher prices and mix ($19 million).
Gross Profit
Gross profit increased $130 million during the three months ended March 31, 2022, compared to the same period in 2021. The increase was driven primarily by higher prices and mix and volume in the Packaging segment, higher prices and mix in the Paper segment, partially offset by higher operating and converting costs, higher freight and logistics expenses, higher depreciation expense, lower volume in the Paper segment, and higher scheduled outage expenses. In the three months ended March 31, 2022, gross profit included $1 million of special items for charges related to the Jackson mill conversion. In the three months ended March 31, 2021, gross profit included $0.5 million of special items for charges related to the Jackson mill conversion.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses (“SG&A”) increased $16 million during the three months ended March 31, 2022, compared to the same period in 2021. The increase was primarily due to higher employee fringes and incentives, commissions, travel, and an increase to bad debt expense.
Other Expense, Net
Other income (expense), net, for the three months ended March 31, 2022 and 2021 are set forth below (dollars in millions):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Asset disposals and write-offs | $ | (12.7 | ) | $ | (10.4 | ) | ||
| Jackson mill conversion-related activities | (0.4 | ) | (0.5 | ) | ||||
| Acquisition-related, facilities closure and other costs | (0.4 | ) | (2.1 | ) | ||||
| Other | (2.1 | ) | (7.4 | ) | ||||
| Total | $ | (15.6 | ) | $ | (20.4 | ) |
We discuss these items in more detail in Note 6, 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 $118 million, or 49.6%, during the three months ended March 31, 2022, compared to the same period in 2021. The first quarter of 2022 included $2 million of special items expense primarily related to the Jackson mill conversion activities, corrugated facility closures, and expenses related to the acquisition of Advanced Packaging, compared to $3 million of special items expense related to corrugated facility closure costs and Jackson mill conversion-related activities in the first quarter of 2021.
Packaging. Packaging segment income from operations increased $104 million to $362 million, compared to $258 million during the three months ended March 31, 2021. The increase related primarily to higher containerboard and corrugated products prices and mix ($233 million), higher sales and production volumes ($30 million), partially offset by higher operating and converting costs ($114 million), higher freight expenses ($28 million), higher depreciation expense ($9 million), higher annual outage expenses ($6 million), and other costs ($3 million). Special items during the first quarter of 2022 included $1 million of expense for corrugated facility closures and Advanced Packaging acquisition costs, compared to $2 million of special items expense related to corrugated facility closure costs in the first quarter of 2021.
Paper. Paper segment income from operations increased $13 million to $22 million, compared to $9 million during the three months ended March 31, 2021. The increase primarily related to higher prices and mix ($19 million), lower operating costs ($9 million), and lower annual outage expenses ($1 million), partially offset by lower sales and production volumes ($9 million) and higher freight expenses ($8 million). Special items during both the first quarter of 2022 and the first quarter of 2021 each included $1 million of expense for Jackson mill conversion-related activities.
Non-Operating Pension Income, Interest Expense, Net and Income Taxes
Non-operating pension income decreased $1 million during the three months ended March 31, 2022, compared to the same period in 2021. The decrease in non-operating pension income was primarily related to assumption changes, partially offset by favorable 2021 asset performance.
Interest expense, net for the three months ended March 31, 2022 decreased $4 million when compared to the same period in 2021. The decrease in interest expense, net was primarily due to lower interest rates on the Company's fixed-rate debt as a result of the Company's debt refinancing completed in October 2021.
During the three months ended March 31, 2022, we recorded $86 million of income tax expense, compared to $53 million of expense during the three months ended March 31, 2021. The effective tax rate for the three months ended March 31, 2022 and 2021 was 25.3% and 24.2%, respectively. The increase in our effective tax rate for the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to a favorable state law change during the three months ended March 31, 2021 with no corresponding favorable state law change during the three months ended March 31, 2022.
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, 2022, we had $629 million of cash and cash equivalents, $150 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.
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, | ||||||||||||
| 2022 | 2021 | Change | ||||||||||
| Net cash provided by (used for): | ||||||||||||
| Operating activities | $ | 325.3 | $ | 191.6 | $ | 133.7 | ||||||
| Investing activities | (221.2 | ) | (87.5 | ) | (133.7 | ) | ||||||
| Financing activities | (94.2 | ) | (95.3 | ) | 1.1 | |||||||
| Net increase in cash and cash equivalents | $ | 9.9 | $ | 8.8 | $ | 1.1 |
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, 2022, net cash provided by operating activities was $325 million, compared to $192 million in the same period in 2021, an increase of $133 million. Cash from operations excluding changes in cash used for operating assets and liabilities increased $108 million primarily due to higher income from operations in 2022 as discussed above. Cash from operations increased by $26 million due to changes in operating assets and liabilities, primarily due to an increase in accounts payable in the first quarter of 2022 primarily due to the timing of payments. This increase was partially offset by the following:
a)
a larger decrease in accrued liabilities primarily in compensation and benefits liabilities in the first quarter of 2022 compared to the corresponding period in 2021; and
b)
a larger increase in inventory in the first quarter of 2022 as compared to 2021, primarily in the Paper segment in finished goods, raw materials as well as supplies and materials.
Investing Activities
We used $221 million for investing activities during the three months ended March 31, 2022 compared to $88 million during the same period in 2021. We spent $213 million for internal capital investments during the three months ended March 31, 2022, compared to $85 million during the same period in 2021.
We expect capital investments in 2022 to be approximately $800 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 $17 million in 2022. 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 2021 Annual Report on Form 10-K.
Financing Activities
During the three months ended March 31, 2022, net cash used for financing activities was $94 million, compared to $95 million of net cash used for financing activities during the same period in 2021. We paid $94 million of dividends during the first three months of 2022, compared to $95 million of dividends paid during the comparable period in 2021.
In addition to the items discussed in Note 12, 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 2021 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 2021 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 months ended March 31, 2022 and 2021 follow (dollars in millions):
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| Income before Taxes | Income Taxes | Net Income | Income before Taxes | Income Taxes | Net Income | |||||||||||||||||||
| As reported in accordance with GAAP | $ | 340.3 | $ | (86.1 | ) | $ | 254.2 | $ | 219.6 | $ | (53.1 | ) | $ | 166.5 | ||||||||||
| Special items: | ||||||||||||||||||||||||
| Jackson mill conversion-related activities (a) | 1.5 | (0.4 | ) | 1.1 | 1.1 | (0.3 | ) | 0.8 | ||||||||||||||||
| Acquisition-related, facilities closure and other costs (b) | 0.6 | (0.2 | ) | 0.4 | 2.1 | (0.5 | ) | 1.6 | ||||||||||||||||
| Total special items | 2.1 | (0.6 | ) | 1.5 | 3.2 | (0.8 | ) | 2.4 | ||||||||||||||||
| Excluding special items | $ | 342.4 | $ | (86.7 | ) | $ | 255.7 | $ | 222.8 | $ | (53.9 | ) | $ | 168.9 |
(a)
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.
(b)
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 Corporation acquisition. For 2021, includes charges consisting of closure costs related to corrugated products facilities.
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, | ||||||||
| 2022 | 2021 | |||||||
| Net income | $ | 254.2 | $ | 166.5 | ||||
| Non-operating pension income | (3.6 | ) | (4.8 | ) | ||||
| Interest expense, net | 19.8 | 23.5 | ||||||
| Income tax provision | 86.1 | 53.1 | ||||||
| Depreciation, amortization, and depletion | 109.7 | 100.8 | ||||||
| EBITDA | $ | 466.2 | $ | 339.1 | ||||
| Special items: | ||||||||
| Acquisition-related, facilities closure and other costs | 0.6 | 2.1 | ||||||
| Jackson mill conversion-related activities | 0.4 | 0.6 | ||||||
| Total special items | 1.0 | 2.7 | ||||||
| EBITDA excluding special items | $ | 467.2 | $ | 341.8 |
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, | ||||||||
| 2022 | 2021 | |||||||
| Packaging | ||||||||
| Segment income | $ | 362.2 | $ | 257.9 | ||||
| Depreciation, amortization, and depletion | 100.9 | 92.1 | ||||||
| EBITDA | 463.1 | 350.0 | ||||||
| Acquisition-related, facilities closure and other costs | 0.6 | 2.1 | ||||||
| Jackson mill conversion-related activities | 0.2 | — | ||||||
| EBITDA excluding special items | $ | 463.9 | $ | 352.1 | ||||
| Paper | ||||||||
| Segment income | $ | 22.4 | $ | 8.7 | ||||
| Depreciation, amortization, and depletion | 6.4 | 6.5 | ||||||
| EBITDA | 28.8 | 15.2 | ||||||
| Jackson mill conversion-related activities | 0.2 | 0.6 | ||||||
| EBITDA excluding special items | $ | 29.0 | $ | 15.8 | ||||
| Corporate and Other | ||||||||
| Segment loss | $ | (28.1 | ) | $ | (28.3 | ) | ||
| Depreciation, amortization, and depletion | 2.4 | 2.2 | ||||||
| EBITDA | (25.7 | ) | (26.1 | ) | ||||
| EBITDA excluding special items | $ | (25.7 | ) | $ | (26.1 | ) | ||
| EBITDA | $ | 466.2 | $ | 339.1 | ||||
| EBITDA excluding special items | $ | 467.2 | $ | 341.8 |
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 March 31, 2022. For a discussion of derivatives and hedging activities, see Note 16, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2021 Annual Report on Form 10-K.
At March 31, 2022, 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, 2022.
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 2021 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 2021 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 2022.
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, 2021.
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