filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
Packaging Corporation of America
Consolidated Statements of In****come and Comprehensive Income
(unaudited, dollars in millions, except per-share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Statements of Income: | ||||||||||||||||
| Net sales | $ | 2,182.4 | $ | 1,936.0 | $ | 6,237.2 | $ | 5,864.5 | ||||||||
| Cost of sales | (1,677.2 | ) | (1,523.3 | ) | (4,923.8 | ) | (4,575.7 | ) | ||||||||
| Gross profit | 505.2 | 412.7 | 1,313.4 | 1,288.8 | ||||||||||||
| Selling, general and administrative expenses | (162.0 | ) | (144.2 | ) | (463.3 | ) | (438.1 | ) | ||||||||
| Other expense, net | (16.1 | ) | (9.9 | ) | (51.0 | ) | (37.1 | ) | ||||||||
| Income from operations | 327.1 | 258.6 | 799.1 | 813.6 | ||||||||||||
| Non-operating pension income (expense) | 1.2 | (1.8 | ) | 3.4 | (5.8 | ) | ||||||||||
| Interest expense, net | (9.7 | ) | (12.3 | ) | (29.7 | ) | (42.2 | ) | ||||||||
| Income before taxes | 318.6 | 244.5 | 772.8 | 765.6 | ||||||||||||
| Provision for income taxes | (80.5 | ) | (61.3 | ) | (188.8 | ) | (189.6 | ) | ||||||||
| Net income | $ | 238.1 | $ | 183.2 | $ | 584.0 | $ | 576.0 | ||||||||
| Net income per common share: | ||||||||||||||||
| Basic | $ | 2.65 | $ | 2.04 | $ | 6.51 | $ | 6.41 | ||||||||
| Diluted | $ | 2.64 | $ | 2.03 | $ | 6.48 | $ | 6.38 | ||||||||
| Dividends declared per common share | $ | 1.25 | $ | 1.25 | $ | 3.75 | $ | 3.75 | ||||||||
| Statements of Comprehensive Income: | ||||||||||||||||
| Net income | $ | 238.1 | $ | 183.2 | $ | 584.0 | $ | 576.0 | ||||||||
| Other comprehensive income, net of tax: | ||||||||||||||||
| Changes in unrealized gains on marketable debt securities, net of tax of ($0.3) million, ($0.1) million, ($0.3) million, and ($0.3) million, respectively | 1.0 | 0.4 | 0.8 | 0.9 | ||||||||||||
| Amortization of pension and postretirement plans actuarial loss and prior service cost, net of tax of ($0.4) million, ($0.5) million, ($1.0) million, and ($1.6) million, respectively | 1.0 | 1.6 | 3.1 | 4.8 | ||||||||||||
| Other comprehensive income | 2.0 | 2.0 | 3.9 | 5.7 | ||||||||||||
| Comprehensive income | $ | 240.1 | $ | 185.2 | $ | 587.9 | $ | 581.7 |
See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Packaging Corporation of America
Consolidated B****alance Sheets
(unaudited, dollars and shares in millions, except per-share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 676.6 | $ | 648.0 | ||||
| Short-term marketable debt securities ($95.0 million and $93.5 million measured at fair value as of September 30, 2024 and December 31, 2023, respectively) | 95.0 | 493.5 | ||||||
| Accounts receivable, net of allowance for credit losses and customer deductions of $19.4 million and $13.1 million as of September 30, 2024 and December 31, 2023, respectively | 1,216.1 | 1,033.2 | ||||||
| Inventories | 1,061.9 | 1,013.1 | ||||||
| Prepaid expenses and other current assets | 191.8 | 62.3 | ||||||
| Federal and state income taxes receivable | — | 4.3 | ||||||
| Total current assets | 3,241.4 | 3,254.4 | ||||||
| Property, plant, and equipment, net | 3,982.3 | 3,863.8 | ||||||
| Goodwill | 922.4 | 922.4 | ||||||
| Other intangible assets, net | 201.3 | 229.6 | ||||||
| Operating lease right-of-use assets | 260.3 | 279.6 | ||||||
| Long-term marketable debt securities | 69.7 | 64.1 | ||||||
| Other long-term assets | 76.4 | 67.2 | ||||||
| Total assets | $ | 8,753.8 | $ | 8,681.1 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt | $ | — | $ | 399.6 | ||||
| Operating lease obligations | 81.7 | 78.6 | ||||||
| Finance lease obligations | 2.1 | 2.0 | ||||||
| Accounts payable | 459.9 | 402.4 | ||||||
| Dividends payable | 115.8 | 115.9 | ||||||
| Accrued liabilities | 393.3 | 253.5 | ||||||
| Accrued interest | 32.5 | 13.7 | ||||||
| Federal and state income taxes payable | 15.2 | — | ||||||
| Total current liabilities | 1,100.5 | 1,265.7 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt | 2,473.7 | 2,472.2 | ||||||
| Operating lease obligations | 189.4 | 212.1 | ||||||
| Finance lease obligations | 7.2 | 8.7 | ||||||
| Deferred income taxes | 540.5 | 558.0 | ||||||
| Compensation and benefits | 98.5 | 106.4 | ||||||
| Other long-term liabilities | 80.4 | 60.7 | ||||||
| Total long-term liabilities | 3,389.7 | 3,418.1 | ||||||
| Commitments and contingent liabilities (Note 19) | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, par value $0.01 per share, 300.0 million shares authorized,89.8 million and 89.6 million shares issued as of September 30, 2024 and December 31, 2023, respectively | 0.9 | 0.9 | ||||||
| Additional paid in capital | 660.6 | 620.1 | ||||||
| Retained earnings | 3,669.1 | 3,447.2 | ||||||
| Accumulated other comprehensive loss | (67.0 | ) | (70.9 | ) | ||||
| Total stockholders' equity | 4,263.6 | 3,997.3 | ||||||
| Total liabilities and stockholders' equity | $ | 8,753.8 | $ | 8,681.1 |
See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Packaging Corporation of America
Consolidated Statem****ents of Cash Flows
(unaudited, dollars in millions)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 584.0 | $ | 576.0 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation, depletion, and amortization of intangibles | 389.6 | 386.8 | ||||||
| Amortization of deferred financing costs | 1.8 | 1.6 | ||||||
| Share-based compensation expense | 39.6 | 32.5 | ||||||
| Deferred income tax benefit | (18.0 | ) | (7.7 | ) | ||||
| Net loss on asset disposals | 12.9 | 5.2 | ||||||
| Pension and post-retirement benefits expense, net of contributions | (20.8 | ) | (35.8 | ) | ||||
| Other, net | 23.7 | 11.0 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in assets — | ||||||||
| Accounts receivable | (182.8 | ) | (13.4 | ) | ||||
| Inventories | (48.8 | ) | (8.8 | ) | ||||
| Prepaid expenses and other current assets | (129.7 | ) | (6.8 | ) | ||||
| Increase (decrease) in liabilities — | ||||||||
| Accounts payable | 36.1 | (1.1 | ) | |||||
| Accrued liabilities | 158.8 | (3.8 | ) | |||||
| Federal and state income taxes payable/receivable | 19.4 | 44.1 | ||||||
| Net cash provided by operating activities | 865.8 | 979.8 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Additions to property, plant, and equipment | (468.4 | ) | (328.6 | ) | ||||
| Additions to other long-term assets | (1.9 | ) | (2.5 | ) | ||||
| Proceeds from asset disposals | 0.8 | 1.5 | ||||||
| Purchases of available-for-sale debt securities | (91.9 | ) | (76.1 | ) | ||||
| Proceeds from sales of available-for-sale debt securities | 3.8 | 2.2 | ||||||
| Proceeds from maturities of available-for-sale debt securities | 83.1 | 72.4 | ||||||
| Proceeds from maturities of held-to-maturity debt securities | 400.0 | — | ||||||
| Net cash used for investing activities | (74.5 | ) | (331.1 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Repayments of debt and finance lease obligations | (401.4 | ) | (1.4 | ) | ||||
| Common stock dividends paid | (336.5 | ) | (336.9 | ) | ||||
| Repurchases of common stock | — | (41.5 | ) | |||||
| Shares withheld to cover employee restricted stock taxes | (24.8 | ) | (15.7 | ) | ||||
| Net cash used for financing activities | (762.7 | ) | (395.5 | ) | ||||
| Net increase in cash and cash equivalents | 28.6 | 253.2 | ||||||
| Cash and cash equivalents, beginning of period | 648.0 | 320.0 | ||||||
| Cash and cash equivalents, end of period | $ | 676.6 | $ | 573.2 |
See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Packaging Corporation of America
Consolidated Statements of Cha****nges in Stockholders’ Equity
(unaudited, dollars in millions and shares in thousands)
| Common Stock | Additional Paid in | Retained | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balance at July 1, 2024 | 89,815 | $ | 0.9 | $ | 650.3 | $ | 3,544.4 | $ | (69.0 | ) | $ | 4,126.6 | ||||||||||||
| Common stock withheld and retired to cover taxes on vested stock awards | (4 | ) | — | — | (0.7 | ) | — | (0.7 | ) | |||||||||||||||
| Common stock dividends declared | — | — | — | (112.7 | ) | — | (112.7 | ) | ||||||||||||||||
| Share-based compensation and other | (2 | ) | — | 10.3 | — | — | 10.3 | |||||||||||||||||
| Comprehensive income | — | — | — | 238.1 | 2.0 | 240.1 | ||||||||||||||||||
| Balance at September 30, 2024 | 89,809 | $ | 0.9 | $ | 660.6 | $ | 3,669.1 | $ | (67.0 | ) | $ | 4,263.6 | ||||||||||||
| Common Stock | Additional Paid in | Retained | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balance at July 1, 2023 | 89,916 | $ | 0.9 | $ | 607.4 | $ | 3,339.0 | $ | (98.7 | ) | $ | 3,848.6 | ||||||||||||
| Common stock repurchases and retirements | (286 | ) | — | (2.5 | ) | (39.0 | ) | — | (41.5 | ) | ||||||||||||||
| Common stock withheld and retired to cover taxes on vested stock awards | (1 | ) | — | — | (0.2 | ) | — | (0.2 | ) | |||||||||||||||
| Common stock dividends declared | — | — | — | (112.5 | ) | — | (112.5 | ) | ||||||||||||||||
| Share-based compensation and other | (4 | ) | — | 7.6 | — | — | 7.6 | |||||||||||||||||
| Comprehensive income | — | — | — | 183.2 | 2.0 | 185.2 | ||||||||||||||||||
| Balance at September 30, 2023 | 89,625 | $ | 0.9 | $ | 612.5 | $ | 3,370.5 | $ | (96.7 | ) | $ | 3,887.2 |
| Common Stock | Additional Paid in | Retained | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balance at January 1, 2024 | 89,625 | $ | 0.9 | $ | 620.1 | $ | 3,447.2 | $ | (70.9 | ) | $ | 3,997.3 | ||||||||||||
| Common stock withheld and retired to cover taxes on vested stock awards | (139 | ) | — | (1.3 | ) | (23.5 | ) | — | (24.8 | ) | ||||||||||||||
| Common stock dividends declared | — | — | — | (338.6 | ) | — | (338.6 | ) | ||||||||||||||||
| Share-based compensation and other | 323 | — | 41.8 | — | — | 41.8 | ||||||||||||||||||
| Comprehensive income | — | — | — | 584.0 | 3.9 | 587.9 | ||||||||||||||||||
| Balance at September 30, 2024 | 89,809 | $ | 0.9 | $ | 660.6 | $ | 3,669.1 | $ | (67.0 | ) | $ | 4,263.6 | ||||||||||||
| Common Stock | Additional Paid in | Retained | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balance at January 1, 2023 | 89,695 | $ | 0.9 | $ | 581.8 | $ | 3,186.8 | $ | (102.4 | ) | $ | 3,667.1 | ||||||||||||
| Common stock repurchases and retirements | (286 | ) | — | (2.5 | ) | (39.0 | ) | — | (41.5 | ) | ||||||||||||||
| Common stock withheld and retired to cover taxes on vested stock awards | (121 | ) | — | (1.1 | ) | (14.6 | ) | — | (15.7 | ) | ||||||||||||||
| Common stock dividends declared | — | — | — | (338.7 | ) | — | (338.7 | ) | ||||||||||||||||
| Share-based compensation and other | 337 | — | 34.3 | — | — | 34.3 | ||||||||||||||||||
| Comprehensive income | — | — | — | 576.0 | 5.7 | 581.7 | ||||||||||||||||||
| Balance at September 30, 2023 | 89,625 | $ | 0.9 | $ | 612.5 | $ | 3,370.5 | $ | (96.7 | ) | $ | 3,887.2 |
See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Condensed Notes to Unaudited Quarterly Consolidated Financial Statements
1. Nature of Operations and Basis of Presentation
Packaging Corporation of America ("we," "us," "our," PCA," or the "Company") was incorporated on January 25, 1999. In April 1999, PCA acquired the containerboard and corrugated packaging products business of Pactiv Corporation ("Pactiv"), formerly known as Tenneco Packaging, Inc. We are a large diverse manufacturer of both packaging and paper products. We are headquartered in Lake Forest, Illinois and we operate primarily in the United States.
We report our business in three reportable segments: Packaging, Paper, and Corporate and Other. Our Packaging segment produces a wide variety of containerboard and corrugated packaging products. The Paper segment manufactures and sells a range of communication-based papers. Corporate and Other includes support staff services and related assets and liabilities, transportation assets, and activity related to other ancillary support operations. For more information about our segments, see Note 18, Segment Information.
The consolidated financial statements of PCA as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 are unaudited but include all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of such financial statements. The preparation of the consolidated financial statements involves the use of estimates and accruals. Actual results may vary from those estimates. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete audited financial statements. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023.
The consolidated financial statements include the accounts of PCA and its majority-owned subsidiaries after elimination of intercompany balances and transactions.
2. New Accounting Standards
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU provides for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently assessing the impact of the disclosure requirements on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods starting within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The Company evaluated the new disclosure requirements and determined their applicability to its reporting segments, which will be presented in its 2024 Annual Report on Form 10-K.
There were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
3. Revenue
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services. Sales, value added, and other taxes collected concurrently with revenue-producing activities are excluded from revenue.
The following table presents our revenues disaggregated by product line (dollars in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Packaging | $ | 2,008.7 | $ | 1,759.8 | $ | 5,715.3 | $ | 5,358.7 | ||||||||
| Paper | 159.3 | 157.9 | 473.2 | 451.6 | ||||||||||||
| Corporate and Other | 14.4 | 18.3 | 48.7 | 54.2 | ||||||||||||
| Total revenue | $ | 2,182.4 | $ | 1,936.0 | $ | 6,237.2 | $ | 5,864.5 |
Packaging Revenue
Our containerboard mills produce linerboard and corrugating medium which are papers primarily used in the production of corrugated products. The majority of our containerboard production is used internally by our corrugated products manufacturing facilities. The remaining containerboard is sold to outside domestic and export customers. Our corrugated products manufacturing plants produce a wide variety of corrugated
packaging products and retail merchandise displays. We sell corrugated products to national, regional and local accounts, which are broadly diversified across industries and geographic locations.
The Company recognizes revenue for its packaging products when performance obligations under the terms of a contract with a customer are satisfied. This occurs with the transfer of control of our products at a specific point in time. Based on our express terms and conditions of the sale of products to our customers, as well as terms included in contractual arrangements with our customers, we do not have an enforceable right of payment that includes a reasonable profit throughout the duration of the contract for products that do not have an alternative use. Revenue is recognized when the product is shipped from the mill or from our manufacturing facility to our customer. Certain customers may receive volume-based incentives, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue recognized.
Certain customers receive a portion of their packaging products as consigned inventory with billing triggered once the customer uses or consumes the designated product. Prior to invoicing, these amounts are handled as unbilled receivables. Total unbilled receivables, which are immaterial in amount, are included in the accounts receivable financial statement caption.
Paper Revenue
We manufacture and sell a range of communication-based papers. Communication papers consist of cut-size office papers, and printing and converting papers.
The Company recognizes revenue for its paper products when performance obligations under the terms of a contract with a customer are satisfied. This occurs with the transfer of control of our products at a specific point in time. Revenue is recognized when the product is shipped from the mill or from our manufacturing facility or distribution center to our customer. Certain customers may receive incentives, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue recognized.
Corporate and Other Revenue
Revenue in this segment primarily relates to Louisiana Timber Procurement Company, L.L.C. ("LTP"), a variable-interest entity that is 50% owned by PCA and 50% owned by Boise Cascade Company ("Boise Cascade"). PCA is the primary beneficiary of LTP and has the power to direct the activities that most significantly affect the economic performance of LTP. Therefore, we consolidate 100% of LTP in our financial statements. See Note 17, Transactions With Related Parties, for more information related to LTP.
The Company recognizes revenue within this segment when performance obligations under the terms of a contract with a customer are satisfied. This occurs with the transfer of control of our products at a specific point in time.
Practical Expedients and Exemption
Shipping and handling fees billed to a customer are recorded on a gross basis in "Net sales" with the corresponding shipping and handling costs included in "Cost of sales" in the concurrent period as the revenue is recorded. We expense sales commissions when incurred because the amortization period is one year or less. Sales commissions are recorded in "Selling, general, and administrative expenses".
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
4. Earnings Per Share
The following table sets forth the computation of basic and diluted income per common share for the periods presented (dollars and shares in millions, except per share data):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Numerator: | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net income | $ | 238.1 | $ | 183.2 | $ | 584.0 | $ | 576.0 | ||||||||
| Less: Distributed and undistributed earnings allocated to participating securities | (1.7 | ) | (1.4 | ) | (4.1 | ) | (4.8 | ) | ||||||||
| Net income attributable to common shareholders | $ | 236.4 | $ | 181.8 | $ | 579.9 | $ | 571.2 | ||||||||
| Denominator: | ||||||||||||||||
| Weighted average basic common shares outstanding | 89.1 | 89.1 | 89.1 | 89.1 | ||||||||||||
| Effect of dilutive securities | 0.4 | 0.4 | 0.4 | 0.4 | ||||||||||||
| Weighted average diluted common shares outstanding | 89.5 | 89.5 | 89.5 | 89.5 | ||||||||||||
| Basic income per common share | $ | 2.65 | $ | 2.04 | $ | 6.51 | $ | 6.41 | ||||||||
| Diluted income per common share | $ | 2.64 | $ | 2.03 | $ | 6.48 | $ | 6.38 |
5. Other Income (Expense), Net
The components of other expense, net, were as follows (dollars in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Asset disposals and write-offs | $ | (11.4 | ) | $ | (9.0 | ) | $ | (26.9 | ) | $ | (22.2 | ) | ||||
| Facilities closure and other (costs) income (a) | (0.3 | ) | 0.1 | (0.3 | ) | (7.0 | ) | |||||||||
| DeRidder litigation (b) | (2.0 | ) | — | (127.7 | ) | — | ||||||||||
| DeRidder litigation insurance recovery (b) | 2.0 | — | 127.7 | — | ||||||||||||
| Jackson mill conversion-related activities (c) | — | — | (7.6 | ) | (1.5 | ) | ||||||||||
| Other | (4.4 | ) | (1.0 | ) | (16.2 | ) | (6.4 | ) | ||||||||
| Total | $ | (16.1 | ) | $ | (9.9 | ) | $ | (51.0 | ) | $ | (37.1 | ) |
(a)
For the three and nine months ended September 30, 2024, includes charges consisting of closure costs related to corrugated products facilities. For the nine months ended September 30, 2024, these charges were partially offset by income primarily related to a favorable lease buyout for a closed corrugated products facility during the first quarter of 2024. For the three and nine months ended September 30, 2023, includes income and charges consisting of closure costs related to the closure of corrugated products facilities and design centers. Included therein are closure costs as well as the gain on sale of a corrugated products facility.
(b)
On April 24, 2024, a jury for the remaining DeRidder mill lawsuit that was tried in the U.S. District Court for the Middle District of Louisiana awarded plaintiffs compensatory damages plus interest. The amount of the verdict with interest is within the remaining limits of the Company's liability insurance policies. See Note 19, Commitments, Guarantees, Indemnifications, and Legal Proceedings for additional detail.
(c)
Includes items related to the announced discontinuation of production of uncoated freesheet 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.
6. Income Taxes
For the three months ended September 30, 2024 and 2023, we recorded $80.5 million and $61.3 million of income tax expense and had an effective tax rate of 25.3% and 25.1%, respectively. The increase in our effective tax rate for the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to higher nondeductible employee remuneration paid to covered employees.
For the nine months ended September 30, 2024 and 2023, we recorded $188.8 million and $189.6 million of income tax expense and had an effective tax rate of 24.4% and 24.8%, respectively. The decrease in our effective tax rate for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to higher excess tax benefits associated with employee restricted stock and performance unit vests.
Our current effective tax rate is higher than the federal statutory income tax rate of 21.0% due primarily to the effect of state and local income taxes. During the nine months ended September 30, 2024 and 2023, cash paid for taxes, net of refunds received, was $187.3 million and $153.2 million, respectively. The increase in cash tax payments between the periods is primarily due to higher 2024 forecasted taxable income.
During the three and nine months ended September 30, 2024 and 2023, there were no significant changes to our uncertain tax positions. For more information, see Note 7, Income Taxes, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of our 2023 Annual Report on Form 10-K.
7. Inventories
We value our raw materials, work in process, and finished goods inventories using lower of cost, as determined by the average cost method, or net realizable value. Supplies and materials are valued at the first-in, first-out (FIFO) or average cost method.
The components of inventories were as follows (dollars in millions):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | 320.5 | $ | 326.2 | ||||
| Work in process | 15.6 | 14.9 | ||||||
| Finished goods | 219.3 | 200.5 | ||||||
| Supplies and materials | 506.5 | 471.5 | ||||||
| Inventories | $ | 1,061.9 | $ | 1,013.1 |
8. Property, Plant, and Equipment
The components of property, plant, and equipment were as follows (dollars in millions):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Land and land improvements | $ | 199.6 | $ | 197.8 | ||||
| Buildings | 1,132.7 | 1,090.4 | ||||||
| Machinery and equipment | 7,249.2 | 7,006.7 | ||||||
| Construction in progress | 401.7 | 335.8 | ||||||
| Other | 196.9 | 177.0 | ||||||
| Property, plant and equipment, at cost | 9,180.1 | 8,807.7 | ||||||
| Less accumulated depreciation | (5,197.8 | ) | (4,943.9 | ) | ||||
| Property, plant, and equipment, net | $ | 3,982.3 | $ | 3,863.8 |
Depreciation expense for the three months ended September 30, 2024 and 2023 was $122.7 million and $118.6 million, respectively. During the nine months ended September 30, 2024 and 2023, depreciation expense was $359.5 million and $354.9 million, respectively. During the nine months ended September 30, 2024, we recognized $1.7 million of incremental depreciation expense as a result of Jackson mill conversion-related activities and closure costs related to corrugated products facilities. We recognized $11.9 million of incremental depreciation expense during the nine months ended September 30, 2023 as a result of Jackson mill conversion-related activities and closure costs related to corrugated products facilities and design centers.
At September 30, 2024 and December 31, 2023, purchases of property, plant, and equipment included in accounts payable were $45.7 million and $24.2 million, respectively.
9. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At both September 30, 2024 and December 31, 2023, we had $922.4 million of goodwill recorded in our Packaging segment, which represents the entire goodwill balance reported on our Consolidated Balance Sheets.
Intangible Assets
Intangible assets are primarily comprised of customer relationships and trademarks and trade names. The weighted average remaining useful life, gross carrying amount, and accumulated amortization of our intangible assets were as follows (dollars in millions):
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Weighted Average Remaining Useful Life (in Years) | Gross Carrying Amount | Accumulated Amortization | Weighted Average Remaining Useful Life (in Years) | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||
| Customer relationships | 6.8 | $ | 546.0 | $ | 353.6 | 7.4 | $ | 546.0 | $ | 326.9 | ||||||||||||||
| Trademarks and trade names | 6.1 | 41.3 | 32.4 | 6.5 | 41.3 | 30.9 | ||||||||||||||||||
| Other | 2.2 | 4.4 | 4.4 | 2.9 | 4.4 | 4.3 | ||||||||||||||||||
| Total intangible assets (excluding goodwill) | 6.8 | $ | 591.7 | $ | 390.4 | 7.3 | $ | 591.7 | $ | 362.1 |
During the nine months ended September 30, 2024 and 2023, amortization expense was $28.3 million and $28.7 million, respectively.
10. Accrued Liabilities
The components of accrued liabilities were as follows (dollars in millions):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Compensation and benefits | $ | 156.8 | $ | 154.4 | ||||
| DeRidder litigation (a) | 127.7 | — | ||||||
| Franchise, property, sales and use taxes | 34.2 | 18.6 | ||||||
| Customer rebates and other credits | 30.7 | 35.2 | ||||||
| Medical insurance and workers’ compensation | 28.7 | 28.4 | ||||||
| Environmental liabilities and asset retirement obligations | 3.4 | 4.0 | ||||||
| Severance, retention, and relocation | 2.0 | 1.0 | ||||||
| Other | 9.8 | 11.9 | ||||||
| Total | $ | 393.3 | $ | 253.5 |
(a)
On April 24, 2024, a jury for the remaining DeRidder mill lawsuit that was tried in the U.S. District Court for the Middle District of Louisiana awarded plaintiffs compensatory damages plus interest. The amount of the verdict with interest is within the remaining limits of the Company's liability insurance policies. See Note 19, Commitments, Guarantees, Indemnifications, and Legal Proceedings for additional detail.
11. Debt
At September 30, 2024 and December 31, 2023, our long-term debt and interest rates on that debt were as follows (dollars in millions):
| September 30, | December 31, | ||||||||
| 2024 | 2023 | ||||||||
| Revolving Credit Facility | $ | — | $ | — | |||||
| 3.65% Senior Notes, net of discount of $0.1 million as of December 31, 2023, due September 2024 | — | 399.9 | |||||||
| 3.40% Senior Notes, net of discount of $0.6 million and $0.7 million as of September 30, 2024 and December 31, 2023, respectively, due December 2027 | 499.4 | 499.3 | |||||||
| 3.00% Senior Notes, net of discount of $0.4 million as of both September 30, 2024 and December 31, 2023, due December 2029 | 499.6 | 499.6 | |||||||
| 5.70% Senior Notes, net of discount of $0.3 million as of both September 30, 2024 and December 31, 2023, due December 2033 | 399.7 | 399.7 | |||||||
| 4.05% Senior Notes, net of discount of $3.2 million and $3.3 million as of September 30, 2024 and December 31, 2023, respectively, due December 2049 | 396.8 | 396.7 | |||||||
| 3.05% Senior Notes, net of discount of $3.4 million and $3.5 million as of September 30, 2024 and December 31, 2023, respectively, due October 2051 | 696.6 | 696.5 | |||||||
| Total | 2,492.1 | 2,891.7 | |||||||
| Less current portion (a) | — | 399.6 | |||||||
| Less unamortized debt issuance costs | 18.4 | 19.9 | |||||||
| Total long-term debt | $ | 2,473.7 | $ | 2,472.2 |
(a)
As of September 30, 2024, there are no unamortized debt issuance costs associated with the current portion of long-term debt, as the 2024 senior notes due September 2024 were repaid on September 15, 2024. As of December 31, 2023, the current portion of long-term debt excludes unamortized debt issuance costs of $0.3 million.
On September 15, 2024, we used the net proceeds from the November 2023 offering of the 5.70% senior notes due 2033 and cash on hand to repay our outstanding 3.65% senior notes due 2024. The repayment of the old 3.65% notes was $407.3 million, which included principal and accrued interest.
For the nine months ended September 30, 2024 and 2023, cash payments for interest were $61.4 million and $49.9 million, respectively.
Included in interest expense, net is the amortization of financing costs, which includes the amortization of debt issuance costs and amortization of bond discount. For the three months ended September 30, 2024 and 2023, amortization of debt issuance costs was $0.5 million and $0.4 million,
respectively, and during the nine months ended September 30, 2024 and 2023, amortization of debt issuance costs was $1.4 million and $1.2 million, respectively. For both the three and nine month periods ended September 30, 2024 and 2023, the amortization of bond discount was insignificant.
At September 30, 2024, we had $2,492.1 million of fixed-rate senior notes outstanding. The fair value of our fixed-rate debt was estimated to be $2,208.8 million. The difference between the book value and fair value is due to the difference between the period-end market interest rate and the stated rate of our fixed-rate debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 2 inputs) within the fair value hierarchy, which is further defined in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our 2023 Annual Report on Form 10-K.
For more information on our long-term debt and interest rates on that debt, see Note 10, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our 2023 Annual Report on Form 10-K.
12. Cash, Cash Equivalents, and Marketable Debt Securities
The following table shows the Company’s cash, cash equivalents, held-to-maturity ("HTM") debt securities, and available-for-sale ("AFS") debt securities by major asset category at September 30, 2024 and December 31, 2023 (in millions):
| September 30, 2024 | ||||||||||||||||||||||||||||
| Adjusted Cost Basis | Unrealized Gain | Unrealized Loss | Fair Value | Cash and Cash Equivalents | Short-Term Marketable Debt Securities | Long-Term Marketable Debt Securities | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 674.8 | $ | — | $ | — | $ | 674.8 | $ | 674.8 | $ | — | $ | — | ||||||||||||||
| Level 1 (a): | ||||||||||||||||||||||||||||
| U.S. Treasury securities | 28.3 | 0.1 | — | 28.4 | — | 16.2 | 12.2 | |||||||||||||||||||||
| Money market funds | 1.8 | — | — | 1.8 | 1.8 | — | — | |||||||||||||||||||||
| Subtotal | 30.1 | 0.1 | — | 30.2 | 1.8 | 16.2 | 12.2 | |||||||||||||||||||||
| Level 2 (b): | ||||||||||||||||||||||||||||
| Corporate debt securities | 125.8 | 0.8 | — | 126.6 | — | 70.1 | 56.5 | |||||||||||||||||||||
| Certificates of deposit | 6.7 | — | — | 6.7 | — | 6.7 | — | |||||||||||||||||||||
| U.S. government agency securities | 3.0 | — | — | 3.0 | — | 2.0 | 1.0 | |||||||||||||||||||||
| Subtotal | 135.5 | 0.8 | — | 136.3 | — | 78.8 | 57.5 | |||||||||||||||||||||
| Total | $ | 840.4 | $ | 0.9 | $ | — | $ | 841.3 | $ | 676.6 | $ | 95.0 | $ | 69.7 |
| December 31, 2023 | ||||||||||||||||||||||||||||
| Adjusted Cost Basis | Unrealized Gain | Unrealized Loss | Fair Value | Cash and Cash Equivalents | Short-Term Marketable Debt Securities | Long-Term Marketable Debt Securities | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 646.4 | $ | — | $ | — | $ | 646.4 | $ | 646.4 | $ | — | $ | — | ||||||||||||||
| Time Deposits (c): | 400.0 | — | — | 400.0 | — | 400.0 | — | |||||||||||||||||||||
| Level 1 (a): | ||||||||||||||||||||||||||||
| U.S. Treasury securities | 29.3 | — | — | 29.3 | — | 11.3 | 18.0 | |||||||||||||||||||||
| Money market funds | 1.6 | — | — | 1.6 | 1.6 | — | — | |||||||||||||||||||||
| Subtotal | 30.9 | — | — | 30.9 | 1.6 | 11.3 | 18.0 | |||||||||||||||||||||
| Level 2 (b): | ||||||||||||||||||||||||||||
| Corporate debt securities | 112.5 | 0.3 | (0.4 | ) | 112.4 | — | 68.5 | 43.9 | ||||||||||||||||||||
| U.S. government agency securities | 10.1 | — | (0.1 | ) | 10.0 | — | 7.8 | 2.2 | ||||||||||||||||||||
| Certificates of deposit | 5.9 | — | — | 5.9 | — | 5.9 | — | |||||||||||||||||||||
| Subtotal | 128.5 | 0.3 | (0.5 | ) | 128.3 | — | 82.2 | 46.1 | ||||||||||||||||||||
| Total | $ | 1,205.8 | $ | 0.3 | $ | (0.5 | ) | $ | 1,205.6 | $ | 648.0 | $ | 493.5 | $ | 64.1 |
(a)
Valuations based on quoted prices for identical assets or liabilities in active markets.
(b)
Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
(c)
We had $400.0 million of investments in time deposits classified as HTM debt securities as of December 31, 2023, which matured within one year and were recorded in “Short-term marketable debt securities” on our Consolidated Balance Sheets. We recorded these HTM debt securities at amortized cost, which approximated fair value. We did not have any investments in HTM debt securities as of September 30, 2024, as the investments in time deposits matured on September 12, 2024. The proceeds received from the maturity of these time deposits were used to repay our 3.65% senior notes due 2024, which matured on September 15, 2024.
For both the three and nine months ended September 30, 2024 and 2023, net realized gains and losses on the sales and maturities of certain marketable debt securities were insignificant.
The Company invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy requires securities to be investment grade and limits the amount of credit exposure to any one issuer. The maturities of the Company’s long-term marketable debt securities generally range from one to two years.
Fair values were determined for each individual marketable debt security in the investment portfolio. When evaluating a marketable debt security for impairment, PCA reviews factors such as the duration and extent to which the fair value of the marketable debt security is less than its cost, the financial condition of the issuer and any changes thereto, the general market condition in which the issuer operates, and PCA’s intent to sell, or whether it will be more likely than not be required to sell, the marketable debt security before recovery of its amortized cost basis.
As of September 30, 2024 and December 31, 2023, we do not consider any of the impairments related to our marketable debt securities to be the result of credit losses. Therefore, we have not recorded an allowance for credit losses related to our marketable debt securities. All unrealized gains and losses were recorded in other comprehensive income (OCI).
The following tables provide information about the Company’s marketable debt securities that have been in a continuous loss position as of September 30, 2024 and December 31, 2023 (in millions, except number of marketable debt securities in a loss position):
| September 30, 2024 | ||||||||||||||||||||||||
| Fair Value of Marketable Debt Securities in a Loss Position < 12 Months | Number of Marketable Debt Securities in a Loss Position < 12 Months | Unrealized Losses**<** 12 Months (d) | Fair Value of Marketable Debt Securities in a Loss Position ≥ 12 Months | Number of Marketable Debt Securities in a Loss Position ≥ 12 Months | Unrealized Losses ≥ 12 Months (d) | |||||||||||||||||||
| Corporate debt securities | $ | 8.3 | 12 | $ | — | $ | 4.0 | 7 | $ | — | ||||||||||||||
| U.S. Treasury securities | — | — | — | 9.0 | 8 | — | ||||||||||||||||||
| U.S. government agency securities | 2.0 | 3 | — | — | — | — | ||||||||||||||||||
| $ | 10.3 | 15 | $ | — | $ | 13.0 | 15 | $ | — |
| December 31, 2023 | ||||||||||||||||||||||||
| Fair Value of Marketable Debt Securities in a Loss Position < 12 Months | Number of Marketable Debt Securities in a Loss Position < 12 Months | Unrealized Losses**<** 12 Months | Fair Value of Marketable Debt Securities in a Loss Position ≥ 12 Months | Number of Marketable Debt Securities in a Loss Position ≥ 12 Months | Unrealized Losses ≥ 12 Months | |||||||||||||||||||
| Corporate debt securities | $ | 27.9 | 35 | $ | 0.1 | $ | 36.2 | 49 | $ | 0.3 | ||||||||||||||
| U.S. Treasury securities | 11.4 | 11 | — | 6.2 | 10 | 0.1 | ||||||||||||||||||
| U.S. government agency securities | 8.5 | 14 | — | 1.5 | 2 | — | ||||||||||||||||||
| $ | 47.8 | 60 | $ | 0.1 | $ | 43.9 | 61 | $ | 0.4 |
(d)
Unrealized losses were insignificant for both debt securities in a continuous loss position less than 12 months and debt securities in a continuous loss position greater than or equal to 12 months for the period ended September 30, 2024.
13. Employee Benefit Plans and Other Postretirement Benefits
The components of net periodic benefit cost for our pension plans were as follows (dollars in millions):
| Pension Plans | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Service cost | $ | 2.9 | $ | 3.3 | $ | 9.2 | $ | 10.5 | ||||||||
| Interest cost | 13.8 | 13.8 | 41.5 | 41.9 | ||||||||||||
| Expected return on plan assets | (16.4 | ) | (14.2 | ) | (49.3 | ) | (42.8 | ) | ||||||||
| Net amortization of unrecognized amounts | ||||||||||||||||
| Prior service cost | 1.4 | 1.3 | 4.1 | 3.9 | ||||||||||||
| Actuarial loss | 0.1 | 1.0 | 0.5 | 3.1 | ||||||||||||
| Net periodic benefit cost | $ | 1.8 | $ | 5.2 | $ | 6.0 | $ | 16.6 |
PCA makes pension plan contributions that are sufficient to fund its actuarially determined costs, generally equal to the minimum amounts required by the Employee Retirement Income Security Act (ERISA). From time to time, PCA may make additional discretionary contributions based on the funded status of the plans, tax deductibility, income from operations, and other factors. During both the three and nine months ended September 30, 2024 and 2023, payments to our nonqualified pension plans were insignificant. During the three and nine months ended September 30, 2024 and 2023, we made contributions of $25.0 million and $50.0 million, respectively, to our qualified pension plans. We do not have a required minimum contribution amount for 2024, but we made discretionary contributions to our plans during the three and nine months ended September 30, 2024.
For both the three and nine months ended September 30, 2024 and 2023, the net periodic benefit cost for our postretirement plans was insignificant.
14. Share-Based Compensation
The Company has a long-term equity incentive plan, which allows for grants of restricted stock, performance awards, stock appreciation rights, and stock options to directors, officers, and employees, as well as others who engage in services for PCA. On February 28, 2024, our board of directors approved, and, on May 8, 2024, our stockholders approved, the amendment and restatement of the plan. The amendment extended the plan’s term to May 8, 2034 and increased the number of shares of common stock available for issuance under the plan by 2.4 million shares. The total number of shares authorized for past and future awards is 14.3 million shares.
As of September 30, 2024, assuming performance units are paid out at the target level of performance, 2.7 million shares were available for future grants under the current plan. Forfeitures are added back to the pool of shares of common stock available to be granted at a future date.
The following table presents restricted stock and performance unit award activity for the nine months ended September 30, 2024:
| Restricted Stock | Performance Units | |||||||||||||||
| Shares | Weighted Average Grant- Date Fair Value | Shares | Weighted Average Grant- Date Fair Value | |||||||||||||
| Outstanding at January 1, 2024 | 671,723 | $ | 127.15 | 372,777 | $ | 119.22 | ||||||||||
| Granted | 175,956 | 176.60 | 129,923 | 189.01 | ||||||||||||
| Vested (a) | (207,337 | ) | 102.94 | (139,984 | ) | 182.64 | ||||||||||
| Forfeitures | (4,657 | ) | 146.30 | — | — | |||||||||||
| Outstanding at September 30, 2024 | 635,685 | $ | 144.98 | 362,716 | $ | 119.74 |
(a)
Upon payout of the performance unit awards that vested during the period, PCA issued 152,196 shares, which included 12,212 shares for dividends accrued during the performance period.
Compensation Expense
Our share-based compensation expense is primarily recorded in "Selling, general, and administrative expenses." Compensation expense for share-based awards recognized in the Consolidated Statements of Income, net of forfeitures, was as follows (dollars in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Restricted stock | $ | 5.7 | $ | 4.1 | $ | 25.7 | $ | 21.5 | ||||||||
| Performance units | 4.7 | 3.6 | 13.9 | 11.0 | ||||||||||||
| Total share-based compensation expense | 10.4 | 7.7 | 39.6 | 32.5 | ||||||||||||
| Income tax benefit | (2.6 | ) | (1.9 | ) | (9.9 | ) | (8.1 | ) | ||||||||
| Share-based compensation expense, net of tax benefit | $ | 7.8 | $ | 5.8 | $ | 29.7 | $ | 24.4 |
The fair value of restricted stock is determined based on the closing price of the Company’s stock on the grant date. Compensation expense, net of estimated forfeitures, is recorded over the requisite service period. As PCA’s Board of Directors has the ability to accelerate the vesting of these awards upon an employee’s retirement, the Company accelerates the recognition of compensation expense for certain employees approaching normal retirement age.
Performance unit awards granted to certain key employees are earned based on the achievement of defined performance rankings of Return on Invested Capital (ROIC) or Total Shareholder Return (TSR) compared to ROIC and TSR for peer companies. For performance unit awards made in 2024 and 2023, in terms of grant date value, 50% used TSR as the performance measure and 50% used ROIC as the performance measure. The ROIC component of performance unit awards is valued based on the closing price of the stock on the grant date. As the ROIC component contains a performance condition, compensation expense, net of estimated forfeitures, is recorded over the requisite service period based on the most probable number of awards expected to vest. The TSR component of performance unit awards is valued using a Monte Carlo simulation as the TSR component contains a market condition. The Monte Carlo simulation estimates the fair value of the TSR component based on the expected term of the award, a risk-free interest rate, expected dividends, and expected volatility of the Company’s common stock and the common stock of the peer companies. Compensation expense is recorded ratably over the expected term of the award regardless of whether the market condition is satisfied.
The unrecognized compensation expense for all share-based awards at September 30, 2024 was as follows (dollars in millions):
| September 30, 2024 | ||||||||
| Unrecognized Compensation Expense | Remaining Weighted Average Recognition Period (in years) | |||||||
| Restricted stock | $ | 34.2 | 2.6 | |||||
| Performance units | 27.8 | 2.4 | ||||||
| Total unrecognized share-based compensation expense | $ | 62.0 | 2.5 |
15. Stockholders' Equity
Dividends
During the nine months ended September 30, 2024, we paid $336.5 million of dividends to shareholders. On August 27, 2024, PCA’s Board of Directors declared a regular quarterly cash dividend of $1.25 per share of common stock, which was paid on October 15, 2024 to shareholders of record as of September 16, 2024. The dividend payment was $112.3 million.
Repurchases of Common Stock
On January 26, 2022, PCA announced that its Board of Directors authorized the repurchase of an additional $1 billion of the Company’s outstanding common stock. Repurchases may be made from time to time in open market or privately negotiated transactions in accordance with applicable securities regulations. The timing and amount of repurchases will be determined by the Company in its discretion based on factors such as PCA’s stock price and market and business conditions.
The company did not repurchase any shares of its common stock under this authority during the three and nine months ended September 30, 2024. At September 30, 2024, $436.0 million of the authorized amount remained available for repurchase of the Company’s common stock.
Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) (AOCI) by component were as follows (dollars in millions). Amounts in parentheses indicate losses:
| Unrealized Loss On Foreign Exchange Contracts | Unrealized Loss on Marketable Debt Securities | Unfunded Employee Benefit Obligations | Total | |||||||||||||
| Balance at January 1, 2024 | $ | (0.1 | ) | $ | (0.1 | ) | $ | (70.7 | ) | $ | (70.9 | ) | ||||
| Other comprehensive loss before reclassifications, net of tax | — | 0.8 | — | 0.8 | ||||||||||||
| Amounts reclassified from AOCI, net of tax | — | — | 3.1 | 3.1 | ||||||||||||
| Balance at September 30, 2024 | $ | (0.1 | ) | $ | 0.7 | $ | (67.6 | ) | $ | (67.0 | ) |
Reclassifications out of AOCI were as follows (dollars in millions). Amounts in parentheses indicate expenses in the Consolidated Statements of Income:
| Amounts Reclassified from AOCI | ||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
| Details about AOCI Components | 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Unfunded employee benefit obligations (a) | ||||||||||||||||||
| Amortization of prior service costs | $ | (1.3 | ) | $ | (1.2 | ) | $ | (3.8 | ) | $ | (3.6 | ) | See (a) below | |||||
| Amortization of actuarial losses | (0.1 | ) | (0.9 | ) | (0.3 | ) | (2.8 | ) | See (a) below | |||||||||
| (1.4 | ) | (2.1 | ) | (4.1 | ) | (6.4 | ) | Total before tax | ||||||||||
| 0.4 | 0.5 | 1.0 | 1.6 | Tax benefit | ||||||||||||||
| $ | (1.0 | ) | $ | (1.6 | ) | $ | (3.1 | ) | $ | (4.8 | ) | Net of tax |
(a)
These AOCI components are included in the computation of net pension and postretirement benefit costs. See Note 13, Employee Benefit Plans and Other Postretirement Benefits, for additional information.
16. Concentrations of Risk
ODP Corporation ("ODP"), formerly Office Depot Inc., along with its subsidiaries and affiliates, is our largest customer in the Paper segment. Our Paper segment has had a long-standing commercial and contractual relationship with ODP. This relationship exposes us to a significant concentration of business and financial risk. Our sales to ODP represented approximately 4% and 5% of our total Company sales for the nine month periods ended September 30, 2024 and 2023, respectively, and approximately 57% and 61% of our Paper segment sales for those periods, respectively. For the full year 2023, sales to ODP represented about 61% of our Paper segment sales.
At September 30, 2024 and December 31, 2023, we had $49.3 million and $46.5 million of accounts receivable due from ODP, respectively, which represents approximately 4% of our total Company receivables for both periods.
17. Transactions With Related Parties
Louisiana Timber Procurement Company, L.L.C. ("LTP") is a variable-interest entity that is 50% owned by PCA and 50% owned by Boise Cascade Company ("Boise Cascade"). LTP procures sawtimber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of PCA and Boise Cascade in Louisiana. PCA is the primary beneficiary of LTP and has the power to direct the activities that most significantly affect the economic performance of LTP. Therefore, we consolidate 100% of LTP in our financial statements in our Corporate and Other segment. The carrying amounts of LTP's assets and liabilities (which relate primarily to non-inventory working capital items) on our Consolidated Balance Sheets were $4.5 million at September 30, 2024 and $3.3 million at December 31, 2023. During the three months ended September 30, 2024 and 2023, we recorded $22.1 million and $20.3 million, respectively, and during the nine months ended September 30, 2024 and 2023, we recorded $63.2 million and $61.5 million, respectively, of LTP sales to Boise Cascade in "Net Sales" in the Consolidated Statements of Income and approximately the same amount of expenses in "Cost of Sales".
During the three months ended September 30, 2024 and 2023, fiber purchases from related parties were $2.6 million and $2.9 million**,** respectively, and during the nine months ended September 30, 2024 and 2023, fiber purchases from related parties were $8.4 million and $8.9 million, respectively. Most of these purchases related to chip and log purchases by LTP from Boise Cascade's wood products business. These purchases are recorded in "Cost of Sales" in the Consolidated Statements of Income.
18. Segment Information
We report our business in three reportable segments: Packaging, Paper, and Corporate and Other. These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies.
Each segment’s profits and losses are measured on operating profits before interest expense, net, non-operating pension income (expense), and income taxes. For certain allocated expenses, the related assets and liabilities remain in the Corporate and Other segment.
Selected financial information by reportable segment was as follows (dollars in millions):
| Sales, net | |||||||||||||||||
| Three Months Ended September 30, 2024 | Trade | Intersegment | Total | Segment Operating Income (Loss) | |||||||||||||
| Packaging | $ | 1,998.8 | $ | 9.9 | $ | 2,008.7 | $ | 320.7 | (a) | ||||||||
| Paper | 159.3 | — | 159.3 | 38.5 | |||||||||||||
| Corporate and Other | 24.3 | 41.3 | 65.6 | (32.1 | ) | ||||||||||||
| Intersegment eliminations | — | (51.2 | ) | (51.2 | ) | — | |||||||||||
| $ | 2,182.4 | $ | — | $ | 2,182.4 | 327.1 | |||||||||||
| Non-operating pension income | 1.2 | ||||||||||||||||
| Interest expense, net | (9.7 | ) | |||||||||||||||
| Income before taxes | $ | 318.6 |
| Sales, net | |||||||||||||||||
| Three Months Ended September 30, 2023 | Trade | Intersegment | Total | Segment Operating Income (Loss) | |||||||||||||
| Packaging | $ | 1,755.2 | $ | 4.6 | $ | 1,759.8 | $ | 256.8 | (c) | ||||||||
| Paper | 157.9 | — | 157.9 | 27.6 | (c) | ||||||||||||
| Corporate and Other | 22.9 | 40.6 | 63.5 | (25.8 | ) | ||||||||||||
| Intersegment eliminations | — | (45.2 | ) | (45.2 | ) | — | |||||||||||
| $ | 1,936.0 | $ | — | $ | 1,936.0 | 258.6 | |||||||||||
| Non-operating pension expense | (1.8 | ) | |||||||||||||||
| Interest expense, net | (12.3 | ) | |||||||||||||||
| Income before taxes | $ | 244.5 |
| Sales, net | |||||||||||||||||
| Nine Months Ended September 30, 2024 | Trade | Intersegment | Total | Segment Operating Income (Loss) | |||||||||||||
| Packaging | $ | 5,694.3 | $ | 21.0 | $ | 5,715.3 | $ | 804.3 | (a) (b) | ||||||||
| Paper | 473.2 | — | 473.2 | 94.9 | (b) | ||||||||||||
| Corporate and Other | 69.7 | 119.5 | 189.2 | (100.1 | ) | ||||||||||||
| Intersegment eliminations | — | (140.5 | ) | (140.5 | ) | — | |||||||||||
| $ | 6,237.2 | $ | — | $ | 6,237.2 | 799.1 | |||||||||||
| Non-operating pension income | 3.4 | ||||||||||||||||
| Interest expense, net | (29.7 | ) | |||||||||||||||
| Income before taxes | $ | 772.8 |
| Sales, net | |||||||||||||||||
| Nine Months Ended September 30, 2023 | Trade | Intersegment | Total | Segment Operating Income (Loss) | |||||||||||||
| Packaging | $ | 5,344.3 | $ | 14.4 | $ | 5,358.7 | $ | 810.5 | (c) | ||||||||
| Paper | 451.6 | — | 451.6 | 90.8 | (c) | ||||||||||||
| Corporate and Other | 68.6 | 116.5 | 185.1 | (87.7 | ) | ||||||||||||
| Intersegment eliminations | — | (130.9 | ) | (130.9 | ) | — | |||||||||||
| $ | 5,864.5 | $ | — | $ | 5,864.5 | 813.6 | |||||||||||
| Non-operating pension expense | (5.8 | ) | |||||||||||||||
| Interest expense, net | (42.2 | ) | |||||||||||||||
| Income before taxes | $ | 765.6 |
(a)
The three and nine months ended September 30, 2024 include $0.9 million and $1.0 million, respectively, of charges consisting of closure costs related to corrugated products facilities. For the nine months ended September 30, 2024, these charges were partially offset by income primarily related to a favorable lease buyout for a closed corrugated products facility during the first quarter of 2024.
(b)
The nine months ended September 30, 2024 include $9.7 million 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.
(c)
The three and nine months ended September 30, 2023 include the following:
$2.6 million and $8.2 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.
$0.1 million of income and $13.5 million of charges, respectively, related to the closure of corrugated products facilities and design centers. Included therein are closure costs as well as the gain on sale of a corrugated products facility.
19. Commitments, Guarantees, Indemnifications and Legal Proceedings
We have financial commitments and obligations that arise in the ordinary course of our business. These include lease obligations, long-term debt, capital additions, purchase commitments for goods and services, and legal proceedings, all of which are discussed in Note 3, Leases; Note 10, Debt; and Note 19, Commitments, Guarantees, Indemnifications, and Legal Proceedings, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our 2023 Annual Report on Form 10-K.
Guarantees and Indemnifications
We provide guarantees, indemnifications, and other assurances to third parties in the normal course of our business. These include tort indemnifications, environmental assurances, and representations and warranties in commercial agreements. At September 30, 2024, we are not aware of any material liabilities arising from any guarantee, indemnification, or financial assurance we have provided. If we determined such a liability was probable and subject to reasonable determination, we would accrue for it at that time.
DeRidder Mill Incident
On February 8, 2017, a tank located in the pulp mill at the Company's DeRidder, Louisiana facility exploded, resulting in three contractor fatalities and other injuries. The Company was served with multiple lawsuits involving the decedents and other allegedly injured parties, alleging negligence on the part of the Company and claiming compensatory and punitive damages. The Company believes that these suits are covered by its liability insurance policies, subject to an aggregate $1.0 million deductible. The majority of these lawsuits were settled by the Company and its insurers. The Company has not paid any losses in excess of its insurance deductible in connection with these settlements, and its insurance deductible has been satisfied in full. To date, all settlements in excess of the deductible have been paid out by one of the Company’s insurers. The remaining lawsuit, which involves nine plaintiffs, was tried in the U.S. District Court for the Middle District of Louisiana in April 2024. On April 24, 2024, a jury awarded these plaintiffs approximately $91.8 million in compensatory damages. The verdict is subject to interest. The amount of the verdict with interest is within the remaining limits of the Company's liability insurance policies. The matter is in the post-trial stage, and the Company intends to appeal the decision. While the Company cannot predict the outcome of the appeal and the ultimate outcome of this matter, the Company believes that it has sufficient insurance to cover the verdict and interest. At September 30, 2024, the Company recorded an accrual of $127.7 million including the compensatory damages as well as interest of $35.9 million in “Accrued liabilities” in the Consolidated Balance Sheets. Additionally, a receivable of $127.7 million for the insurance recovery was recorded in “Prepaids and other current assets” in the Consolidated Balance Sheets.
In May 2017, the EPA conducted an on-site inspection of the DeRidder facility to assess compliance with the Clean Air Act, Risk Management Program (“RMP”). The Company provided additional information to the EPA promptly after the inspection to address certain areas of concern (“AOCs”) observed during the inspection. Since the inspection in 2017, PCA performed several voluntary activities to address the AOCs presented in the EPA's inspection report and has removed the RMP covered process from the facility. In January 2021, the EPA and U.S. Department of Justice (“DOJ”) initiated civil judicial enforcement discussions with PCA. During the third quarter of 2022, we reached a settlement with the agencies, resulting in an agreed civil penalty of $2.5 million. The Company did not admit liability for violation of the Clean Air Act in connection with the settlement. The settlement was approved by the federal district court for the Western District of Louisiana in December 2022, and the agreed civil penalty was paid out in January 2023.
Legal Proceedings
We are also a party to various legal actions arising in the ordinary course of our business. These legal actions include commercial liability claims, premises liability claims, and employment-related claims, among others. As of the date of this filing, we believe it is not reasonably possible that any of the legal actions against us will, either individually or in the aggregate, have a material adverse effect on our financial condition, results of operations, or cash flows.
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