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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ T****RANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-42161
Smurfit Westrock plc
(Exact name of registrant as specified in its charter)
| Ireland | 98-1776979 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| Beech Hill, Clonskeagh Dublin 4**,** D04 N2R2 Ireland | N/A | |
| (Address of principal executive offices) | (Zip Code) |
+353 1 202 7000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| Ordinary shares, par value $0.001 per share | SW | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☐ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
As of November 5, 2024, the registrant had 520,156,112 ordinary shares, nominal value $0.001 per share, issued and outstanding.
TABLE OF CONTENTS
EXPLANATORY NOTE
On April 26, 2024, the United States Securities and Exchange Commission (the “SEC”) declared effective the Registration
Statement on Form S-4 (file number 333-278185), as amended (as supplemented by the prospectus filed with the SEC on April 26,
2024, the “Registration Statement”), of Smurfit WestRock Limited, formerly known as Cepheidway Limited and re-registered as an
Irish public limited company and renamed Smurfit Westrock plc (the “Company” or “Smurfit Westrock”), to register ordinary shares
of $0.001 each in the capital of Smurfit Westrock (the “Smurfit Westrock Shares”) to be issued to the holders of shares of common
stock of WestRock Company (“WestRock”), pursuant to a transaction agreement dated as of September 12, 2023 (the “Transaction
Agreement”), among Smurfit Westrock, Smurfit Kappa Group plc (“Smurfit Kappa”), WestRock and Sun Merger Sub, LLC (“Merger
Sub”) pursuant to which (i) Smurfit Westrock acquired Smurfit Kappa by means of a scheme of arrangement under the Companies Act
2014 of Ireland (as amended) and (ii) Merger Sub merged with and into WestRock, (the “Merger” and, together with the Smurfit
Kappa Share Exchange, the “Combination”). The Combination closed on July 5, 2024. A detailed description of the terms of the
Combination is included in the Registration Statement. Upon the completion of the Combination on July 5, 2024, Smurfit Kappa and
WestRock each became wholly owned subsidiaries of Smurfit Westrock with Smurfit Kappa shareholders owning approximately
50.3% and WestRock shareholders owning approximately 49.7%. Prior to the closing of the Combination, Smurfit Westrock had no
operations other than activities related to its formation and the Combination. Smurfit Kappa was determined to be the accounting
acquirer in the Combination; therefore, the historical Consolidated Financial Statements of Smurfit Kappa for periods prior to the
Combination are presented as the historical financial statements of the Company. Unless the context otherwise requires, Smurfit
Westrock and “the Company” refer to the business and operations of Smurfit Kappa and its wholly-owned subsidiaries, which prior to
July 5, 2024, did not include WestRock, when referring to the periods prior to the closing of the Combination, and refer to the
combined company (Smurfit Westrock, including, among others, its subsidiaries Smurfit Kappa and WestRock) when referring to the
periods after the Combination.
This Quarterly Report on Form 10-Q is being filed with respect to the interim period ended September 30, 2024.
Accordingly, the disclosures herein, including the financial statements and related Management’s Discussion and Analysis, describe
the business, financial condition, results of operations, liquidity and capital resources of Smurfit Westrock following the Combination,
except as expressly provided herein. For prior periods, including the first five days of July 2024, the disclosures herein reflect the
financials of Smurfit Kappa, except as expressly provided herein.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
SMURFIT WESTROCK PLC
| Page | |
| Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 | 5 |
| Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and September 30, 2023 | 6 |
| Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2024 and September 30, 2023 | 7 |
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and September 30, 2023 | 8 |
| Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2024 and September 30, 2023 | 9 |
| Notes to the Condensed Consolidated Financial Statements | 12 |
Smurfit Westrock plc
Condensed Consolidated Balance Sheets (Unaudited)
(in millions, except share and per share data*)*
| September 30, 2024 | December 31, 2023 | ||
| Assets | |||
| Current assets: | |||
| Cash and cash equivalents, including restricted cash (amounts related to consolidated variable interest entities of $3 million and $3 million at September 30, 2024 and December 31, 2023, respectively) | $951 | $1,000 | |
| Accounts receivable (amounts related to consolidated variable interest entities of $823 million and $816 million at September 30, 2024 and December 31, 2023, respectively) | 4,613 | 1,806 | |
| Inventories | 3,585 | 1,203 | |
| Other current assets | 1,396 | 561 | |
| Total current assets | 10,545 | 4,570 | |
| Property, plant and equipment, net | 23,206 | 5,791 | |
| Goodwill | 7,215 | 2,842 | |
| Intangibles, net | 1,094 | 218 | |
| Prepaid pension asset | 615 | 29 | |
| Other non-current assets (amounts related to consolidated variable interest entities of $390 million and $— million at September 30, 2024 and December 31, 2023, respectively) | 2,354 | 601 | |
| Total assets | $45,029 | $14,051 | |
| Liabilities and Equity | |||
| Current liabilities: | |||
| Accounts payable | $3,357 | $1,728 | |
| Accrued expenses | 813 | 278 | |
| Accrued compensation and benefits | 954 | 438 | |
| Current portion of debt | 745 | 78 | |
| Other current liabilities | 1,257 | 484 | |
| Total current liabilities | 7,126 | 3,006 | |
| Non-current debt due after one year (amounts related to consolidated variable interest entities of $337 million and $20 million at September 30, 2024 and December 31, 2023, respectively) | 13,174 | 3,669 | |
| Deferred tax liabilities | 3,682 | 280 | |
| Pension liabilities and other postretirement benefits, net of current portion | 788 | 537 | |
| Other non-current liabilities (amounts related to consolidated variable interest entities of $334 million and $— at September 30, 2024 and December 31, 2023, respectively) | 2,267 | 385 | |
| Total liabilities | 27,037 | 7,877 | |
| Commitments and Contingencies (Note 17) | |||
| Equity: | |||
| Preferred stock; $0.001 par value; 500,000,000 and Nil shares authorized; 10,000 shares and Nil outstanding at September 30, 2024 and December 31, 2023, respectively | — | — | |
| Common stock; $0.001 par value; 9,500,000,000 and 9,910,931,085 shares authorized; 520,056,084 and 260,354,342 shares outstanding at September 30, 2024 and December 31, 2023, respectively | 1 | — | |
| Deferred shares, €1 par value; 25,000 shares and 25,000 shares authorized; 25,000 and 100 shares outstanding at September 30, 2024 and December 31, 2023, respectively | — | — | |
| Treasury stock, at cost (2,037,589, and 1,907,129 common stock at September 30, 2024 and December 31, 2023 respectively) | (93) | (91) | |
| Capital in excess of par value | 15,890 | 3,575 | |
| Accumulated other comprehensive loss | (1,011) | (847) | |
| Retained earnings | 3,178 | 3,521 | |
| Total stockholders’ equity | 17,965 | 6,158 | |
| Noncontrolling interests | 27 | 16 | |
| Total equity | 17,992 | 6,174 | |
| Total liabilities and equity | $45,029 | $14,051 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Smurfit Westrock plc
Condensed Consolidated Statements of Operations (Unaudited)
(in millions, except share and per share data)
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Net sales | $7,671 | $2,915 | $13,570 | $9,231 | |||
| Cost of goods sold | (6,321) | (2,173) | (10,817) | (6,878) | |||
| Gross profit | 1,350 | 742 | 2,753 | 2,353 | |||
| Selling, general and administrative expenses | (1,028) | (371) | (1,797) | (1,144) | |||
| Transaction and integration-related expenses associated with the Combination | (267) | (17) | (350) | (17) | |||
| Operating profit | 55 | 354 | 606 | 1,192 | |||
| Pension and other postretirement non-service benefit (expense), net | 8 | (9) | (31) | (29) | |||
| Interest expense, net | (167) | (39) | (225) | (109) | |||
| Other expense, net | (13) | (4) | (13) | (19) | |||
| (Loss) income before income taxes | (117) | 302 | 337 | 1,035 | |||
| Income tax expense | (33) | (73) | (164) | (258) | |||
| Net (loss) income | (150) | 229 | 173 | 777 | |||
| Less: Net (loss) income attributable to noncontrolling interests | — | — | — | — | |||
| Net (loss) income attributable to common stockholders | $(150) | $229 | $173 | $777 | |||
| Basic (loss) earnings per share attributable to common stockholders | $(0.30) | $0.89 | $0.51 | $3.01 | |||
| Diluted (loss) earnings per share attributable to common stockholders | $(0.30) | $0.88 | $0.50 | $3.00 | |||
| The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. |
Smurfit Westrock plc
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
(in millions, except share and per share data)
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Net (loss) income | $(150) | $229 | $173 | $777 | |||
| Other comprehensive income (loss), net of tax: | |||||||
| Foreign currency: | |||||||
| Foreign currency translation gain (loss) | 86 | (139) | (181) | 119 | |||
| Defined benefit pension and other postretirement benefit plans adjustments | (26) | 25 | 14 | 11 | |||
| Derivatives: | |||||||
| Deferred gain recognized on cash flow hedges | — | 7 | 3 | 3 | |||
| Other comprehensive income (loss), net of tax | 60 | (107) | (164) | 133 | |||
| Comprehensive (loss) income | (90) | 122 | 9 | 910 | |||
| Less: Comprehensive (loss) income attributable to noncontrolling interests | — | — | — | — | |||
| Comprehensive (loss) income attributable to common stockholders | $(90) | $122 | $9 | $910 | |||
| The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. |
Smurfit Westrock plc
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions, except share and per share data)
| Nine months ended | |||
| September 30, | |||
| 2024 | 2023 | ||
| Operating activities: | |||
| Net income | $173 | $777 | |
| Adjustments to reconcile consolidated net income to net cash provided by operating activities: | |||
| Depreciation, depletion and amortization | 872 | 430 | |
| Cash surrender value increase in excess of premiums paid | (14) | — | |
| Share-based compensation expense | 154 | 43 | |
| Deferred income tax benefit | (99) | (4) | |
| Pension and other postretirement funding more than cost | (30) | (35) | |
| Other | 16 | (4) | |
| Change in operating assets and liabilities, net of acquisitions and divestitures: | |||
| Accounts receivable | (422) | 63 | |
| Inventories | 120 | 161 | |
| Other assets | (31) | 21 | |
| Accounts payable | (226) | (438) | |
| Income taxes | 34 | (46) | |
| Accrued liabilities and other | 155 | (20) | |
| Net cash provided by operating activities | 702 | 948 | |
| Investing activities: | |||
| Capital expenditures | (897) | (661) | |
| Cash paid for purchase of businesses, net of cash acquired | (716) | (29) | |
| Proceeds from corporate owned life insurance | 2 | — | |
| Proceeds from sale of property, plant and equipment | 15 | 11 | |
| Other | 1 | 2 | |
| Net cash used for investing activities | (1,595) | (677) | |
| Financing activities: | |||
| Additions to debt | 3,127 | 77 | |
| Repayments of debt | (1,640) | (120) | |
| Debt issuance costs | (44) | — | |
| Revolving credit facilities repayments, net | (4) | (4) | |
| Changes in commercial paper, net | (33) | — | |
| Other debt additions, net | 17 | — | |
| Repayments of lease liabilities | (12) | (2) | |
| Tax paid in connection with shares withheld from employees | (21) | — | |
| Purchases of treasury stock | (27) | (30) | |
| Cash dividends paid to stockholders | (493) | (299) | |
| Other | (1) | — | |
| Net cash provided by (used for) financing activities | 869 | (378) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (25) | (5) | |
| Decrease in cash, cash equivalents and restricted cash | (49) | (112) | |
| Cash, cash equivalents and restricted cash at beginning of period | 1,000 | 841 | |
| Cash, cash equivalents and restricted cash at end of period | $951 | $729 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Smurfit Westrock plc
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(in millions, except per share data)
The following table presents a summary of the changes in equity for the three months ended September 30, 2024:
| Shares of Common Stock | Common Stock | Capital in Excess of Par value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | Noncontrolling Interest ("NCI") | Total | |
| Balance at June 30, 2024**(1)** | 261 | $— | $3,580 | $(93) | $3,509 | $(1,071) | $5,925 | $16 | $5,941 |
| Net loss | — | — | — | — | (150) | — | (150) | — | (150) |
| Other comprehensive income, net of tax | — | — | — | — | — | 60 | 60 | — | 60 |
| Share-based payments | — | — | 119 | — | — | — | 119 | — | 119 |
| Shares of Smurfit Westrock common stock issued to WestRock stockholders and NCI assumed as a result of the Merger | 258 | 1 | 12,098 | — | — | — | 12,099 | 11 | 12,110 |
| Converted WestRock RSUs and Options attributable to pre-Combination services | — | — | 91 | — | — | — | 91 | — | 91 |
| Issuance of common stock net of tax paid in connection with shares withheld from employees | 1 | — | — | — | (21) | — | (21) | — | (21) |
| Dividends declared ($0.30 per share)(2) | — | — | 2 | — | (160) | — | (158) | — | (158) |
| Balance at September 30, 2024 | 520 | $1 | $15,890 | $(93) | $3,178 | $(1,011) | $17,965 | $27 | $17,992 |
The following table presents a summary of the changes in equity for the three months ended September 30, 2023:
| Shares of Common Stock | Common Stock | Capital in Excess of Par value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | Noncontrolling Interest ("NCI") | Total | |
| Balance at June 30, 2023**(1)** | 260 | $— | $3,547 | $(92) | $3,336 | $(969) | $5,822 | $15 | $5,837 |
| Net income | — | — | — | — | 229 | — | 229 | — | 229 |
| Other comprehensive loss, net of tax | — | — | — | — | — | (107) | (107) | — | (107) |
| Share-based payments | — | — | 7 | — | — | — | 7 | — | 7 |
| Shares distributed by Smurfit Kappa Employee Trust | — | — | (1) | 1 | — | — | — | — | — |
| Balance at September 30, 2023 | 260 | $— | $3,553 | $(91) | $3,565 | $(1,076) | $5,951 | $15 | $5,966 |
(1) Pursuant to the Transaction Agreement, on July 5, 2024 each issued ordinary share, par value €0.001 per share, of Smurfit Kappa (a “Smurfit Kappa Share”) was exchanged for
one ordinary share, par value $0.001 per share, of Smurfit Westrock (a “Smurfit Westrock Share”). The exchange of shares is reflected retroactively to the earliest period
presented.
(2) Includes cash dividends and dividend equivalent units declared on certain unvested share-based payment awards.
Smurfit Westrock plc
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(in millions, except per share data)
The following table presents a summary of the changes in equity for the nine months ended September 30, 2024:
| Shares of Common Stock | Common Stock | Capital in Excess of Par value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | Noncontrolling Interest ("NCI") | Total | |
| Balance at December 31, 2023**(1)** | 260 | $— | $3,575 | $(91) | $3,521 | $(847) | $6,158 | $16 | $6,174 |
| Net income | — | — | — | — | 173 | — | 173 | — | 173 |
| Other comprehensive loss, net of tax | — | — | — | — | — | (164) | (164) | — | (164) |
| Share-based payments | — | — | 149 | — | — | — | 149 | — | 149 |
| Shares distributed by Smurfit Kappa Employee Trust | — | — | (25) | 25 | — | — | — | — | — |
| Purchases of treasury stock | — | — | — | (27) | — | — | (27) | — | (27) |
| Shares of Smurfit Westrock common stock issued to WestRock stockholders and NCI assumed as a result of the Merger | 258 | 1 | 12,098 | — | — | — | 12,099 | 11 | 12,110 |
| Converted WestRock RSUs and Options attributable to pre-Combination services | — | — | 91 | — | — | — | 91 | — | 91 |
| Issuance of common stock net of tax paid in connection with shares withheld from employees | 2 | — | — | — | (21) | — | (21) | — | (21) |
| Dividends declared ($0.95 per share)(2) | — | — | 2 | — | (495) | — | (493) | — | (493) |
| Balance at September 30, 2024 | 520 | $1 | $15,890 | $(93) | $3,178 | $(1,011) | $17,965 | $27 | $17,992 |
(1) Pursuant to the Transaction Agreement, on July 5, 2024 each issued ordinary share, par value €0.001 per share, of Smurfit Kappa (a “Smurfit Kappa Share”) was exchanged for
one ordinary share, par value $0.001 per share, of Smurfit Westrock (a “Smurfit Westrock Share”). The exchange of shares is reflected retroactively to the earliest period
presented.
(2) Includes cash dividends and dividend equivalent units declared on certain unvested share-based payment awards.
Smurfit Westrock plc
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(in millions, except per share data)
The following table presents a summary of the changes in equity for the nine months ended September 30, 2023:
| Shares of Common Stock | Common Stock | Capital in Excess of Par value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | Noncontrolling Interest ("NCI") | Total | |
| Balance at December 31, 2022**(1)** | 259 | $— | $3,528 | $(78) | $3,087 | $(1,209) | $5,328 | $15 | $5,343 |
| Net income | — | — | — | — | 777 | — | 777 | — | 777 |
| Other comprehensive income, net of tax | — | — | — | — | — | 133 | 133 | — | 133 |
| Share-based payments | — | — | 42 | — | — | — | 42 | — | 42 |
| Issuance of common stock | 1 | — | — | — | — | — | — | — | — |
| Purchases of treasury stock | — | — | — | (30) | — | — | (30) | — | (30) |
| Shares distributed by Smurfit Kappa Employee Trust | — | — | (17) | 17 | — | — | — | — | — |
| Dividends declared ($1.15 per share) | — | — | — | — | (299) | — | (299) | — | (299) |
| Balance at September 30, 2023 | 260 | $— | $3,553 | $(91) | $3,565 | $(1,076) | $5,951 | $15 | $5,966 |
(1) Pursuant to the Transaction Agreement, on July 5, 2024 each issued ordinary share, par value €0.001 per share, of Smurfit Kappa (a “Smurfit Kappa Share”) was exchanged for
one ordinary share, par value $0.001 per share, of Smurfit Westrock (a “Smurfit Westrock Share”). The exchange of shares is reflected retroactively to the earliest period
presented.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
1. Description of Business and Summary of Significant Accounting Policies
1.1. Description of Business
Unless the context otherwise requires, or unless indicated otherwise,“we”, “us”, “our”, “Smurfit Westrock” and “the Company” refer
to the business of Smurfit Westrock plc, its wholly-owned subsidiaries and its partially-owned consolidated subsidiaries.
Smurfit Westrock plc (formerly known as Cepheidway Limited and Smurfit WestRock Limited) is a company limited by shares that is
incorporated in Ireland. On December 11, 2023, Smurfit Westrock changed its name to Smurfit WestRock Limited, and then on June
18, 2024, it re-registered as an Irish public limited company and was renamed Smurfit Westrock plc.
We are a multinational provider of sustainable fiber-based paper and packaging solutions. We partner with our customers to provide
differentiated, sustainable paper and packaging solutions that enhance our customers’ prospects of success in their markets. Our team
members support customers around the world from our operating and business locations in North America, South America, Europe,
Asia, Africa, and Australia.
Pursuant to a transaction agreement dated as of September 12, 2023 (the “Transaction Agreement”), among Smurfit Westrock, Smurfit
Kappa Group plc (“Smurfit Kappa”), WestRock Company ("WestRock") and Sun Merger Sub, LLC (“Merger Sub”) the following
was completed (i) Smurfit Westrock acquired Smurfit Kappa by means of a scheme of arrangement under the Companies Act 2014 of
Ireland (as amended) (the “Smurfit Kappa Share Exchange”) and (ii) Merger Sub merged with and into WestRock, with WestRock
continuing as the surviving entity (the “Merger” and, together with the Smurfit Kappa Share Exchange, the “Combination”). The
Combination closed on July 5, 2024 (the “Closing Date”). Upon the completion of the Combination, Smurfit Kappa and WestRock
each became wholly owned subsidiaries of Smurfit Westrock.
1.2. Basis of Presentation
Other than activities related to its formation and in anticipation of the Combination, Smurfit Westrock did not conduct any operations
from its incorporation until completion of the Combination. Given the non-operational nature of Smurfit Westrock prior to the
Combination, the Smurfit Kappa Share Exchange is not considered a business combination and does not give rise to any goodwill or
adjustments to accounting basis.
The consolidated financial statements of Smurfit Westrock following the Smurfit Kappa Share Exchange are a continuation of the
financial statements of Smurfit Kappa. The comparative financial information presented in these Condensed Consolidated Financial
Statements reflect the pre-Combination carrying values of Smurfit Kappa with the legal share capital retroactively adjusted to reflect
the legal capital of Smurfit Westrock as the successor after giving effect to the Smurfit Kappa Share Exchange.
The Merger is recognized as a business combination under Accounting Standards Codification (“ASC”) 805, “Business
Combinations” (“ASC 805”). Smurfit Kappa was determined to be the accounting acquirer of WestRock. Accordingly, the financial
statements reflected in these Condensed Consolidated Financial Statements include WestRock's financial position and results of
operations for the period subsequent to the completion of the Combination on July 5, 2024.
Refer to “Note 2. Acquisitions” for additional information related to the accounting for the Combination.
Following the completion of the Combination, we reassessed our reportable segments due to changes in our organizational structure
and how our chief operating decision maker (“CODM”) makes key operating decisions, allocates resources and assesses the
performance of our business. Consequently, subsequent to the Combination, we began to manage the combined business as three
reportable segments: (1) Europe, the Middle East and Africa (“MEA”), and Asia-Pacific (“APAC”), (2) North America, and (3) Latin
America (“LATAM”).
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
1. Description of Business and Summary of Significant Accounting Policies - continued
1.2. Basis of Presentation - continued
As a result of the change in reportable segments, prior year amounts have been recast to conform to the current year presentation.
Throughout this Quarterly Report on Form 10-Q, amounts and activity reflect reclassifications related to the Company's change in
reportable segments. The change in reportable segments had no impact on the Company’s Condensed Consolidated Balance Sheets,
Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive (Loss) Income,
Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Changes in Equity previously
reported. Refer to “Note 3. Segment Information”, for further discussion of the Company’s segment reporting structure.
We derived the Condensed Consolidated Balance Sheet as of December 31, 2023 from the audited Consolidated Financial Statements
of Smurfit Kappa for the year ended December 31, 2023 (the “2023 Consolidated Financial Statements”) included in the Proxy
Statement/Prospectus of Smurfit Westrock dated April 26, 2024 (file number 333-278185). In the opinion of Smurfit Westrock’s
management, all normal recurring adjustments necessary for the fair statement of the Consolidated Financial Statements have been
included for the interim periods reported.
The interim financial statements have been prepared in accordance with accounting principles generally accepted in the U.S.
(“GAAP”) for interim financial information and with Article 10 of Regulation S-X of the Securities and Exchange Commission
(“SEC”). Accordingly, they omit certain notes and other information from the 2023 Consolidated Financial Statements. Therefore,
these interim financial statements should be read in conjunction with the 2023 Consolidated Financial Statements. The results for the
three and nine months ended September 30, 2024 are not necessarily indicative of results that may be expected for the full year.
The preparation of the Condensed Consolidated Financial Statements requires management to make certain estimates and assumptions
about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures
about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include fair value of acquired
assets and assumed liabilities, goodwill impairment, income taxes and pension and other postretirement benefits. These estimates and
assumptions are based on management’s judgment. Actual results may differ from those estimates, and the differences could be
material. Estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary
if there are changes in the circumstances or experiences on which the estimate was based or as a result of new information. Changes in
estimates, including those resulting from changes in the economic environment, are reflected in the period in which the change in
estimate occurs.
Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may
not precisely reflect the absolute figures.
Following the Combination, certain reclassifications have been made to the prior year amounts to conform to the current year
presentation. These reclassifications include reclassifications within our segments, as described above. On completion of the Merger,
as part of the harmonization of accounting policies, a disclosure reclassification of amounts previously classified as 'other
postretirement benefit plans' took place with the plans now being classified and disclosed as 'defined benefit pension plans'. The prior
year disclosure information in “Note 15. Retirement Plans” has been updated to conform to the current year presentation.
1.3. Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies as described in “Note 1. Description of Business and
Summary of Significant Accounting Policies” in the 2023 Consolidated Financial Statements, other than updates to policies as a result
of the Merger as described below.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
1. Description of Business and Summary of Significant Accounting Policies - continued
1.4. Revenue Recognition
The Company's revenue is primarily derived from the sale of containerboard, corrugated containers and other paper-based packaging
products. All revenue relates to revenue from contracts with customers. Contracts with customers include a single performance
obligation to sell these products and do not generally contain multiple performance obligations.
We recognize revenue on a point-in-time basis when the customer takes title to the goods and assumes the risks and rewards for the
goods, which coincides with the transfer of control of our goods to the customer upon delivery.
Additionally, we manufacture certain customized products that have no alternative use to us (since they are made to specific customer
specifications), and we believe that for certain customers we have a legally enforceable right to payment for performance completed to
date on these products, including a reasonable profit. For products that meet these two criteria, we recognize revenue over time. This
results in revenue recognition prior to the date of shipment or title transfer for these products and results in the recognition of a
contract asset (unbilled receivables) with a corresponding reduction in finished goods inventory on our Condensed Consolidated
Balance Sheets.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods and is derived primarily
from fixed consideration. Certain contracts may also include variable consideration, typically in the form of volume-based rebates and
early settlement discounts. If a contract with a customer includes variable consideration, we estimate the expected impact based on
historical experience and net the provisions for volume-based rebates, early settlement discounts and other adjustments against our
gross sales. We concluded this method is consistent with the most likely amount method under ASC 606, “Revenue from Contracts
with Customers” (“ASC 606”) and allows us to make the best estimate of the consideration we will be entitled to from customers.
As permitted by ASC 606, we have elected to treat costs associated with obtaining new contracts as expenses when incurred if the
amortization period of the asset we would recognize is one year or less. We do not record interest income when the difference in
timing of control transfer and customer payment is one year or less. No element of financing is deemed present as the sales are made
with credit terms consistent with market practice and are in line with normal credit terms in the entities’ country of operation.
We also account for sales and other taxes that are imposed on and concurrent with individual revenue-producing transactions between
a customer and us on a net basis which excludes the taxes from our net sales.
1.5. Fair Value of Financial Instruments and Nonfinancial Assets and Liabilities
We estimate fair values in accordance with ASC 820 “Fair Value Measurement” (“ASC 820”). ASC 820 provides a framework for
measuring fair value and expands disclosures required about fair value measurements. Specifically, ASC 820 sets forth a definition of
fair value and a hierarchy prioritizing the inputs to valuation techniques. ASC 820 defines fair value as the price that would be
received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. Additionally, ASC 820 defines levels within the
hierarchy based on the availability of quoted prices for identical items in active markets, similar items in active or inactive markets and
valuation techniques using observable and unobservable inputs. We incorporate credit valuation adjustments to reflect both our own
nonperformance risk and the respective counterparty’s nonperformance risk in our fair value measurements.
The hierarchy consists of:
- Level 1: fair value measurements represent exchange-traded securities, which are valued at quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date;
- Level 2: fair value measurements are determined using input prices that are directly observable for the asset or liability or
indirectly observable through corroboration with observable market data; and
- Level 3: fair value measurements are determined using unobservable inputs, such as internally developed pricing models for
the asset or liability due to little or no market activity for the asset or liability.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
1. Description of Business and Summary of Significant Accounting Policies - continued
1.5. Fair Value of Financial Instruments and Nonfinancial Assets and Liabilities - continued
Financial instruments not recognized at fair value on a recurring or nonrecurring basis include cash and cash equivalents, accounts
receivable, certain other current assets, short-term debt, accounts payable, certain other current liabilities and non-current debt. With
the exception of non-current debt, the carrying amounts of these financial instruments approximate their fair values due to their short
maturities. The fair value of debt such as debentures and various notes are based on quoted market prices as of the balance sheet date.
The fair value of the revolving credit facility approximates its carrying value due to the nature of the repricing and interest based on
variable rates.
Following the Combination, we have financial instruments recognized at fair value including supplemental retirement savings plans
(“Supplemental Plans”) that are nonqualified deferred compensation plans pursuant to which assets are invested primarily in mutual
funds, interest rate derivatives, commodity derivatives or other similar class of assets or liabilities. Assets and liabilities held in
respect of these Supplemental Plans were $181 million and $168 million, respectively, as of September 30, 2024. We measure the fair
value of our mutual fund investments based on quoted prices in active markets. Additionally, we measure our derivative contracts, if
any, based on observable inputs such as interest rates, yield curves, spot and future commodity prices, and spot and future exchange
rates.
We discuss fair values in more detail in “Note 10. Fair Value Measurement”.
1.6. Supplier Finance Program Obligations
We maintain supplier finance programs whereby we have entered into payment processing agreements with certain financial
institutions. These agreements allow participating suppliers to track payment obligations from Smurfit Westrock, and if voluntarily
elected by the supplier, to sell payment obligations from Smurfit Westrock to financial institutions at a discounted price. We are not a
party to the agreements between the participating financial institutions and the suppliers in connection with the program, and we do
not reimburse suppliers for any costs they incur for participation in the program. We have not pledged any assets as security or
provided any guarantees as part of the programs. We have no economic interest in our suppliers’ decisions to participate in the
programs. Our responsibility is limited to making payment in full to the respective financial institution according to the terms
originally negotiated with the supplier, which generally do not exceed 120 days. Smurfit Westrock or the financial institutions may
terminate the agreements upon 30 or 90 days’ notice.
Following the Combination, we assumed outstanding payment obligations to financial institutions and the outstanding payment
obligations under these programs were $432 million as of September 30, 2024. These obligations are classified as accounts payable
within the Condensed Consolidated Balance Sheets.
1.7. New Accounting Standards Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures.” This ASU requires an entity to disclose incremental segment information, including enhanced disclosures about
significant segment expenses. ASU 2023-07 is effective for the Company’s annual reporting periods beginning after December 15,
2023 and for interim periods beginning after December 15, 2024. Adoption is a fully retrospective method of transition. Early
adoption is permitted. The Company is currently evaluating the effect that adoption of ASU 2023-07 will have on its Consolidated
Financial Statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This
ASU requires the annual financial statements to include consistent categories and greater disaggregation of information in the rate
reconciliation, and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company’s annual reporting
periods beginning after December 15, 2024. Adoption is either with a prospective method or a fully retrospective method of transition.
Early adoption is permitted. The Company is currently evaluating the effect that adoption of ASU 2023-09 will have on its
Consolidated Financial Statements.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
2. Acquisitions
As referred to in “Note 1. Description of Business and Summary of Significant Accounting Policies - Description of the Business”, on
September 12, 2023, Smurfit Kappa and WestRock, a public company incorporated in Delaware, announced they had reached a
definitive agreement on the terms of a proposed combination.
The Combination closed on July 5, 2024. Pursuant to the Transaction Agreement, on the Closing Date each issued ordinary share, par
value €0.001 per share, of Smurfit Kappa (a “Smurfit Kappa Share”) was exchanged for one ordinary share, par value $0.001 per
share, of Smurfit Westrock (a “Smurfit Westrock Share”) and, in exchange for the net assets of WestRock acquired through the
Merger, each share of common stock, par value $0.01 per share, of WestRock (the “WestRock Common Stock”), was converted into
the right to receive one Smurfit Westrock Share and $5.00 in cash (the “Merger Consideration”) for an aggregate cash consideration of
$1,291 million (the “Cash Consideration”) and issuance of 258,228,403 shares to WestRock shareholders.
Upon completion of the Combination, Smurfit Kappa and WestRock each became wholly owned subsidiaries of Smurfit Westrock
with Smurfit Kappa shareholders owning approximately 50.3% and WestRock shareholders owning approximately 49.7%.
The Company expects the Combination to result in a global leadership position in sustainable packaging, characterized by quality,
product, and geographic diversity.
In connection with the Combination, on April 3, 2024, Smurfit Kappa Treasury (a wholly owned subsidiary of Smurfit Westrock plc)
completed an offering in the aggregate principal amount of $2,750 million of senior unsecured notes in three series, comprised of the
following: $750 million aggregate principal amount of 5.200% senior notes due 2030 (the “2030 Notes”), $1,000 million aggregate
principal amount of 5.438% senior notes due 2034 (the “2034 Notes”) and $1,000 million aggregate principal amount of 5.777%
senior notes due 2054 (the “2054 Notes” and, together with the 2030 Notes and 2034 Notes, the “Notes” or the “Financing”) (such
offering, the “Notes Offering”). A portion of the net proceeds of the Notes Offering was used to finance the Cash Consideration, fees,
commissions, costs and expenses payable in connection with the Combination.
Merger Consideration
The following table summarizes the components of the aggregate Merger Consideration. The amounts are calculated by reference to
Smurfit Kappa’s share price of £36.56 on the Closing Date, translated to U.S. dollars using the closing exchange rate as of that date.
| Cash paid for outstanding WestRock Stock (a) | $1,291 |
| Smurfit Westrock Shares issued to WestRock Stockholders (b) | 12,098 |
| Converted WestRock Options and WestRock RSU Awards attributable to pre-Combination service (c) | 101 |
| Settlement of pre-existing relationships, trade and other payable and receivable balances with WestRock (d) | (29) |
| Aggregate Merger Consideration | $13,461 |
(a) The cash component of the aggregate Merger Consideration is based on 258,228,403 shares of WestRock Stock multiplied by the Cash Consideration of $5.00 per WestRock share.
(b) Value of Smurfit Westrock Shares issued is based on 258,228,403 shares of outstanding WestRock Stock resulting in the issue of 258,228,403 Smurfit Westrock Shares at the closing share price of
£36.56 on July 5, 2024, translated to U.S. dollars using the closing exchange rate of £1 to $1.2815 as of that date.
(c) Consideration for WestRock Options and WestRock restricted stock unit (“ RSU”) Awards replaced with Smurfit Westrock equity awards with similar terms, and the amount represents the consideration
for their replacement. A portion of the fair value of Smurfit Westrock equity awards issued represents consideration transferred, while the remaining portion represents the post-Combination
compensation expense based on the vesting terms of the converted awards. Also included, is the Merger Consideration in respect of WestRock Director RSU Awards, settled options held by former
WestRock employees and vested and unreleased RSU awards all of which converted into WestRock Stock immediately prior to the Closing Date.
(d) Component of Merger Consideration in respect of the settlement for no gain or loss of trade and other receivable and payable balances with WestRock as of the date of the Merger. The Merger
Consideration has been increased by the amount of the settled Smurfit Kappa receivable of $3 million in respect of sales to WestRock and has been reduced to account for the effective settlement of
accounts payable of $32 million in respect of trade and other purchases from WestRock. The WestRock receivable and payable in respect of these inter-company transactions were not recognized as an
acquired asset or assumed liability.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
2. Acquisitions - continued
Preliminary Purchase Price Allocation
Smurfit Westrock management determined that Smurfit Kappa is the accounting acquirer in the Merger, which is accounted for under
the acquisition method of accounting for business combinations in accordance with ASC 805.
The preliminary allocation of the purchase price with respect to the Merger is based upon management’s estimates of and assumptions
related to the fair values of WestRock assets acquired and liabilities assumed as of the Closing Date using currently available
information. The excess of the purchase price over the fair value of net assets acquired has been allocated to goodwill.
The purchase price allocation for the Merger is preliminary and is subject to revision as additional information about the acquisition-
date fair value of assets and liabilities becomes available. The Company is still evaluating the fair value of acquired property, plant
and equipment, intangible assets and certain income tax related items in addition to ensuring all other assets and liabilities and
contingencies have been identified and recorded. The Company has estimated the preliminary fair value of assets acquired and
liabilities assumed based on information currently available and will continue to adjust those estimates during the measurement period
(a period not to exceed 12 months from the Closing Date). Smurfit Westrock will reflect measurement period adjustments, if any, in
the period in which the adjustments occur, and will finalize the accounting for the Merger within the measurement period.
The preliminary allocation of the purchase price to the assets acquired and liabilities assumed, and a reconciliation to total
consideration transferred is presented in the table below:
| Identifiable net assets: | |
| Cash and cash equivalents | $603 |
| Accounts receivable | 2,374 |
| Inventories | 2,504 |
| Other current assets | 825 |
| Property, plant and equipment | 17,567 |
| Intangibles | 922 |
| Prepaid pension asset | 558 |
| Other non-current assets | 1,765 |
| Accounts payable | (2,018) |
| Accrued compensation and benefits | (447) |
| Current portion of debt | (1,285) |
| Other current liabilities | (1,123) |
| Non-current debt due after one year | (7,438) |
| Deferred tax liabilities | (3,523) |
| Pension liabilities and other postretirement benefits, net of current portion | (299) |
| Other non-current liabilities | (1,872) |
| Noncontrolling interests | (11) |
| Identifiable net assets acquired as of July 5, 2024 | 9,102 |
| Goodwill arising on Merger | 4,359 |
| Aggregate Merger Consideration | $13,461 |
The goodwill arising from the Merger is attributable to the workforce of the acquired business and the significant synergies expected
to arise after the Merger. Of the total goodwill recognized on the Merger, $3,990 million was allocated to the North American
segment, $207 million was allocated to the LATAM segment and $162 million was allocated to the Europe, MEA and APAC
segment. Of the total goodwill recognized, $187 million is estimated to be deductible for tax purposes.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
2. Acquisitions - continued
The fair value of the assets acquired includes accounts receivable of $2,374 million that are not purchased financial assets with credit
deterioration. The gross amount due under contracts was $2,429 million of which $55 million was expected to be uncollectible.
Acquired other non-current assets includes a sales-type lease receivable and notes receivable with an aggregate fair value of $85
million. The gross amount due under contracts was $107 million, $22 million of which was expected to be uncollectible.
The preliminary fair values of intangible assets were generally determined using income-based methods. The income method used for
customer relationship intangibles is the multi-period excess earnings method based on forecasts of the expected future cash flows
attributable to those assets. The relief from royalty method which the Company has used for the valuation of trade name and certain
technology intangibles, estimates fair value by reference to the royalties saved through ownership of the trade name rather than paying
a rent or royalty for its use. The fair value of certain technology-based intangibles was determined using a cost savings approach that
measures the value of an asset by estimating the cost savings achieved through owning the asset.
Significant estimates and assumptions inherent in the valuations reflect consideration of other market participants, the amount and
timing of future cash flows (including expected growth rates, discount rates, cost savings and profitability), royalty rates used in the
relief from royalty method, and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and
circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions used to calculate the fair values
of acquired intangible assets.
Preliminary identifiable intangible assets are presented in the following table:
| Preliminary Fair Value | Weighted Average Useful Lives (in years) | ||
| Preliminary fair value of intangible assets acquired: | |||
| Customer relationships | $417 | 10 | |
| Trade names and trademarks | 228 | 10 | |
| Developed technology | 179 | 12 | |
| Software assets | 94 | 5 | |
| Land use rights | 4 | 22 | |
| Intangible assets acquired | $922 | 10 |
The Company incurred transaction-related expenses associated with the Combination of $128 million and $211 million for the three
and nine months ended September 30, 2024, respectively ($17 million for the three and nine months ended September 30, 2023).
These costs were associated primarily with legal and other professional services and were recorded in transaction and integration-
related expenses associated with the Combination.
Following the Combination, Smurfit Kappa funded the prepayment and cancellation of WestRock’s credit agreement with an
outstanding amount of $750 million ("Delayed Draw Term Facility"). Waivers from lenders removing change in control provisions
had previously been received for this loan facility. The outstanding balance of the facility as of July 5, 2024 was recognized as an
assumed liability. The repayment did not form part of Merger Consideration. The repayment of the principal ($750 million) has been
presented as a financing cash outflow with the payment of accrued interest ($1 million) reflected within operating activities, each in
the Condensed Consolidated Statement of Cash Flows.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
2. Acquisitions - continued
Outstanding WestRock Stock Based Compensation Awards
In connection with the Combination, outstanding WestRock RSU Awards (other than director RSUs) for current employees were
replaced with Smurfit Westrock RSU Awards and a cash award equal to $5.00 per share, both of which will vest over the same
requisite service period as the original awards. Director RSUs were fully vested upon the change in control and settled shortly
thereafter in July 2024. Outstanding WestRock performance stock units ("PSUs") were converted at the higher of target or the average
actual performance of the last three years prior to the Merger and replaced with Smurfit Westrock RSU Awards and a cash award
equal to $5.00 per share, both of which will vest over the same requisite service period as the original awards. The outstanding
WestRock stock options and their exercise prices were converted using an exchange ratio based on the volume weighted average price
of Smurfit Kappa shares for a ten day period prior to the close of the Merger and replaced with Smurfit Westrock stock options with
the same terms and conditions as the original awards. Outstanding WestRock stock options for former employees were settled in
connection with the acquisition. The Merger Consideration includes $101 million related to WestRock awards that were settled or
replaced in connection with the acquisition. Compensation expense of $21 million was recognized immediately post-acquisition and
$162 million of compensation expense will be recognized over the remaining service period of up to three years. In addition during the
quarter ended September 30, 2024, $44 million of stock compensation expense was recognized in respect of “dual trigger” awards to
certain executives, which accelerated vesting upon (i) a change in control and (ii) involuntary termination or a termination for good
reason following a change in control.
WestRock Net Sales and Earnings
WestRock contributed net sales of $4,684 million and net loss of $132 million to the consolidated results of Smurfit Westrock for the
period from completion of the Merger to September 30, 2024.
Unaudited Pro Forma Combined Financial Information
The following unaudited pro forma combined financial information presents the combined results of operations for the three and nine
months ended September 30, 2024 and 2023, as if the Merger had occurred on January 1, 2023.
| Three months ended | Nine months ended | ||||||
| September 30 | September 30 | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Net sales | $7,931 | $7,925 | $23,381 | $24,688 | |||
| Net income (loss) attributable to common stockholders | $33 | $324 | $527 | $(1,486) |
The unaudited pro forma combined financial information above is based on the historical financial statements of Smurfit Kappa,
WestRock, and Smurfit Westrock, and is not indicative of the results of operations that would have been achieved if the Merger had
occurred on January 1, 2023, nor is it indicative of future results. The unaudited pro forma combined financial information has been
prepared by applying the accounting policies of Smurfit Westrock and includes, where applicable, adjustments for the following
factually supportable items or transactions, directly attributable to the Merger: (i) elimination of intercompany activity; (ii)
incremental depreciation expense from the preliminary fair value adjustments to property, plant and equipment; (iii) amortization
expense from the preliminary fair value adjustments to acquired intangible assets; (iv) incremental stock-based compensation expense
associated with the Merger; (v) interest expense for acquisition financing and the amortization of the fair value adjustment to debt
assumed; (vi) removal of pension and other postretirement amortization expense resulting from the fair value adjustment to acquired
WestRock pension and other post-employment benefit assets and liabilities; (vii) changes to align accounting policies; and (viii)
associated tax-related impacts of adjustments.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
2. Acquisitions - continued
The unaudited pro forma combined financial information also reflects pro forma adjustments for the following material nonrecurring
expenses directly attributable to the Merger, each reflected as of the beginning of the earliest pro-forma comparative period presented:
(i) transaction-related costs of both Smurfit Kappa and WestRock ($450 million), including retention-related bonuses; and (ii)
amortization of the fair value adjustment to acquired inventories of $227 million.
These pro forma adjustments are based on available information as of the date hereof and upon assumptions that the Company
believes are reasonable to reflect the impact of the Merger on the Company’s historical financial information on a supplemental pro
forma basis. Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be
achieved by the combined business.
3. Segment Information
Following the completion of the Combination we reassessed our operating segments due to changes in our organizational structure and
how our chief operating decision maker (“CODM”) makes key operating decisions, allocates resources and assesses the performance
of our business. The CODM is determined to be the executive management team, comprising the President and Chief Executive
Officer Anthony Smurfit and the Executive Vice President and Group Chief Financial Officer Ken Bowles. The CODM is responsible
for assessing performance, allocating resources and making strategic decisions.
During the three months ended September 30, 2024, we identified three operating segments, which are also our reportable segments:
i.Europe, the Middle East and Africa (MEA), and Asia-Pacific (APAC).
ii.North America, which includes operations in the U.S., Canada and Mexico.
iii.Latin America (“LATAM”), which includes operations in Central America and Caribbean, Argentina, Brazil, Chile, Colombia,
Ecuador and Peru.
These changes reflect how we manage our business during the third quarter of 2024, following the completion of the Combination. No
operating segments have been aggregated for disclosure purposes. Prior period comparatives have been restated to reflect the change
in segments.
In the identification of the operating and reportable segments, we considered the level of integration of our different businesses as well
as our objective to develop long-term customer relationships by providing customers with differentiated packaging solutions that
enhance the customer’s prospects of success in their end markets.
The Europe, MEA and APAC, North America, and LATAM segments are each highly integrated within the segment and there are
many interdependencies within these operations. They each include a system of mills and plants that primarily produce a full line of
containerboard that is converted into corrugated containers within each segment, or is sold to third parties.
In addition, the Europe, MEA and APAC segment also produces types of paper, such as solid board, sack kraft paper, machine glazed
and graphic paper; and other paper-based packaging, such as honeycomb, solid board packaging, folding cartons, inserts and labels;
and bag-in-box packaging (located in Europe, Argentina, Canada, Mexico and the U.S.).
The North America segment also produces paperboard and specialty grades; other paper-based packaging, such as folding cartons,
inserts, labels and displays and also engages in the assembly of displays as well as the distribution of packaging products.
The LATAM segment also comprises forestry; types of paper, such as boxboard and sack paper; and paper-based packaging, such as
folding cartons, honeycomb and paper sacks.
Inter-segment transfers or transactions are entered into under normal commercial terms and conditions that would also be available to
unrelated third parties.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
3. Segment Information - continued
Segment profit is measured based on Adjusted EBITDA, defined as (loss) income before income taxes, unallocated corporate costs,
depreciation, depletion and amortization, interest expense, net, pension and other postretirement non-service benefit (expense), net,
share-based compensation expense, other expense, net, impairment of goodwill and other assets, amortization of fair value step up on
inventory, transaction and integration-related expenses associated with the Combination, restructuring costs, legislative or regulatory
fines and reimbursements and losses at closed facilities.
The following tables show selected financial data for our segments:
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Net sales (aggregate) | |||||||
| Europe, MEA and APAC | $2,651 | $2,191 | $7,056 | $7,047 | |||
| North America | 4,649 | 401 | 5,499 | 1,239 | |||
| LATAM | 506 | 341 | 1,187 | 1,000 | |||
| Total | $7,806 | $2,933 | $13,742 | $9,286 | |||
| Less net sales (intersegment): | |||||||
| Europe, MEA and APAC | $5 | $3 | $13 | $9 | |||
| North America | 118 | — | 119 | — | |||
| LATAM | 12 | 15 | 40 | 46 | |||
| Total | $135 | $18 | $172 | $55 | |||
| Net sales (unaffiliated customers): | |||||||
| Europe, MEA and APAC | $2,646 | $2,188 | $7,043 | $7,038 | |||
| North America | 4,531 | 401 | 5,380 | 1,239 | |||
| LATAM | 494 | 326 | 1,147 | 954 | |||
| Total | $7,671 | $2,915 | $13,570 | $9,231 | |||
| Adjusted EBITDA: | |||||||
| Europe, MEA and APAC | $411 | $411 | $1,158 | $1,330 | |||
| North America | 780 | 66 | 900 | 209 | |||
| LATAM | 116 | 74 | 257 | 217 | |||
| Total | $1,307 | $551 | $2,315 | $1,756 | |||
| Unallocated corporate costs | (42) | (26) | (95) | (74) | |||
| Depreciation, depletion and amortization | (564) | (147) | (872) | (430) | |||
| Interest expense, net | (167) | (39) | (225) | (109) | |||
| Pension and other postretirement non-service benefit (expense), net | 8 | (9) | (31) | (29) | |||
| Share-based compensation expense | (123) | (7) | (154) | (43) | |||
| Other expense, net | (13) | (4) | (13) | (19) | |||
| Amortization of fair value step up on inventory | (227) | — | (227) | — | |||
| Transaction and integration-related expenses associated with the Combination | (267) | (17) | (350) | (17) | |||
| Other adjustments | (29) | — | (11) | — | |||
| (Loss) income before income taxes | $(117) | $302 | $337 | $1,035 |
Other adjustments for the three months ended September 30, 2024 include restructuring costs of $19 million, losses at closed facilities
of $8 million and impairment of other assets of $2 million. Other adjustments for the nine months ended September 30, 2024 include
restructuring costs of $19 million, losses at closed facilities of $8 million and impairment of other assets of $2 million partially offset
by legislative or regulatory fine reimbursement of $18 million. There were no amounts included in other adjustments for the three and
nine months ended September 30, 2023.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
3. Segment Information - continued
| Nine months ended | |||
| September 30, | |||
| 2024 | 2023 | ||
| Capital expenditures: | |||
| Europe, MEA and APAC | $353 | $411 | |
| North America | 373 | 96 | |
| LATAM | 154 | 148 | |
| Total per reportable segment | $880 | $655 | |
| Corporate | 17 | 6 | |
| Total capital expenditure | $897 | $661 |
| September 30, | December 31, | ||
| 2024 | 2023 | ||
| Assets: | |||
| Europe, MEA and APAC | $11,408 | $9,521 | |
| North America | 29,343 | 1,607 | |
| LATAM | 3,438 | 1,795 | |
| Total per reportable segment | $44,189 | $12,923 | |
| Corporate(1) | 840 | 1,128 | |
| Total assets | $45,029 | $14,051 |
(1)Corporate assets are composed primarily of Pension assets, Property, plant and equipment net, Derivative financial instruments,
Deferred tax assets, Recoverable or refundable income taxes and Cash and cash equivalents.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
4. Revenue Recognition
Disaggregated Revenue
ASC 606 requires that we disaggregate revenue from contracts with customers into categories that depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by economic factors.
The following tables summarize our disaggregated revenue with unaffiliated customers by product type and segment for the three and
nine months ended September 30, 2024 and 2023. Net sales are attributed to segments based on the location of production.
| Three months ended | |||||||
| September 30, 2024 | |||||||
| Europe, MEA and APAC | North America | LATAM | Total | ||||
| Revenue by product: | |||||||
| Paper | $402 | $1,107 | $42 | $1,551 | |||
| Packaging | 2,244 | 3,424 | 452 | 6,120 | |||
| Total | $2,646 | $4,531 | $494 | $7,671 |
| Three months ended | |||||||
| September 30, 2023 | |||||||
| Europe, MEA and APAC | North America | LATAM | Total | ||||
| Revenue by product: | |||||||
| Paper | $333 | $25 | $14 | $372 | |||
| Packaging | 1,855 | 376 | 312 | 2,543 | |||
| Total | $2,188 | $401 | $326 | $2,915 |
| Nine months ended | |||||||
| September 30, 2024 | |||||||
| Europe, MEA and APAC | North America | LATAM | Total | ||||
| Revenue by product: | |||||||
| Paper | $1,092 | $1,165 | $73 | $2,330 | |||
| Packaging | 5,951 | 4,215 | 1,074 | 11,240 | |||
| Total | $7,043 | $5,380 | $1,147 | $13,570 |
| Nine months ended | |||||||
| September 30, 2023 | |||||||
| Europe, MEA and APAC | North America | LATAM | Total | ||||
| Revenue by product: | |||||||
| Paper | $1,054 | $81 | $38 | $1,173 | |||
| Packaging | 5,984 | 1,158 | 916 | 8,058 | |||
| Total | $7,038 | $1,239 | $954 | $9,231 |
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
4. Revenue Recognition - continued
Packaging revenue is derived mainly from the sale of corrugated and consumer packaging products. The remainder of packaging
revenue is composed of bag-in-box, packaging solutions and other paper-based packaging products.
Revenue Contract Balances
In connection with the Combination, the Company acquired contract assets and assumed contract liabilities. These contract assets
relate to the manufacture of certain products that have no alternative use to us, with right to payment for performance completed to
date on these products, including a reasonable profit. Contract assets are reduced when the customer takes title to the goods and
assumes the risks and rewards for the goods. Contract liabilities represent obligations to transfer goods or services to a customer for
which we have received consideration and are reduced once control of the goods is transferred to the customer.
Contract assets and contract liabilities are reported within “Other current assets” and “Other current liabilities”, respectively, on the
Condensed Consolidated Balance Sheets.
| Contract Assets (Short-Term) | Contract Liabilities (Short-Term) | ||
| Recorded on the Combination | $220 | $10 | |
| Decrease | (17) | (4) | |
| Ending balance - September 30, 2024 | $203 | $6 |
5. Transaction and integration-related costs associated with the Combination
The following table summarizes the transaction and integration costs associated with the Combination:
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Transaction-related costs associated with the Combination | $(128) | $(17) | $(211) | $(17) | |||
| Integration-related costs associated with the Combination | (139) | — | (139) | — | |||
| Total transaction and integration-related costs associated with the Combination | $(267) | $(17) | $(350) | $(17) |
Transaction-related costs associated with the Combination
Transaction-related costs associated with the Combination comprise of banking and financing related costs as well as legal and other
professional services which are directly attributable to the Combination and retention payments that are contractually committed to
and associated with the successful completion of the Combination.
Integration-related costs associated with the Combination
We incur integration costs post-acquisition that reflect work performed to facilitate merger and acquisition integration and primarily
consist of professional services and personnel and related expenses, such as work associated with information systems.
We consider transaction and integration costs to be corporate costs regardless of the segment or segments involved in the transaction.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
6. Accounts Receivable
Accounts receivable consists of the following:
| September 30, | December 31, | ||
| 2024 | 2023 | ||
| Gross accounts receivable | $4,830 | $1,976 | |
| Less: Allowances | (217) | (170) | |
| Accounts receivable | $4,613 | $1,806 |
Allowances include the reserves for allowance for estimated credit impairment losses, returns, cash discounts and non-cash rebates
where netting requirements are met.
7. Inventories
Inventories are as follows:
| September 30, | December 31, | ||
| 2024 | 2023 | ||
| Finished goods | $1,364 | $514 | |
| Work in process | 240 | 52 | |
| Raw materials | 1,378 | 348 | |
| Consumables and spare parts | 603 | 289 | |
| Inventories | $3,585 | $1,203 |
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
| September 30, | December 31, | ||
| 2024 | 2023 | ||
| Land and buildings | $5,531 | $2,679 | |
| Forestlands | 272 | 78 | |
| Plant and equipment | 22,684 | 8,860 | |
| Construction in progress | 1,465 | 656 | |
| Finance lease right-of-use assets | 422 | 32 | |
| Property, plant and equipment at cost | 30,374 | 12,305 | |
| Less: Accumulated depreciation, depletion and amortization | (7,168) | (6,514) | |
| Property, plant and equipment, net | $23,206 | $5,791 |
Depreciation expense for the three months ended September 30, 2024 and 2023, was $517 million and $134 million, respectively, and
for the nine months ended September 30, 2024 and 2023, was $802 million and $392 million, respectively.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
9. Goodwill
During the third quarter of 2024, the Company changed its reportable segments as described in “Note 3. Segment Information”.
Concurrent with the change in reportable segments, the Company reassessed it’s reporting units. The prior year amounts for goodwill
by reportable segment have been recast by assigning reporting units to new reportable segments based on location of reporting units.
The Company concluded the change in reportable segments was not a triggering event for goodwill impairment. There were no
charges for goodwill impairment in the nine months ended September 30, 2024.
The changes in the carrying amount of goodwill for the period ended September 30, 2024 are as follows:
| Europe, MEA and APAC | North America | LATAM | Total | ||||
| Balance as of December 31, 2023 | |||||||
| Goodwill | $2,653 | $264 | $189 | $3,106 | |||
| Accumulated impairment losses | (209) | — | (55) | (264) | |||
| 2,444 | 264 | 134 | 2,842 | ||||
| Acquisitions | 171 | 3,990 | 207 | 4,368 | |||
| Translation adjustment | 33 | (15) | (13) | 5 | |||
| Balance as of September 30, 2024 | |||||||
| Goodwill | 2,860 | 4,239 | 378 | 7,477 | |||
| Accumulated impairment losses | (212) | — | (50) | (262) | |||
| $2,648 | $4,239 | $328 | $7,215 |
Of the acquisitions amount in the table above, $4,359 million relates to goodwill recognized from the Merger. Further information is
included in “Note 2. Acquisitions”.
10. Fair Value Measurement
The fair values of the Company's financial assets and financial liabilities listed below reflect the amounts that would be received to sell
the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price).
The Company's non-derivative financial instruments primarily include cash and cash equivalents, trade and other receivables, certain
other current assets, trade and other payables, certain other current liabilities, short-term debt and non-current debt, all of whose
carrying values approximates fair value (with the exception of non-current debt with fixed rates). Fair value disclosures are classified
based on the fair value hierarchy. See “Note 1. Description of Business and Summary of Significant Accounting Policies," for
information about the Company's fair value hierarchy.
The carrying values, net of deferred debt issuance costs, and estimated fair values of debt with fixed interest rates (classified as Level
2 in the fair value hierarchy) were as follows:
| September 30, 2024 | December 31, 2023 | ||||||
| Book Value | Fair Value | Book Value | Fair Value | ||||
| Debt with fixed interest rates | $11,274 | $11,414 | $3,615 | $3,379 |
The fair value of the Company's debt with fixed interest rates is based on quoted market prices. With the exception of financial
instruments included in the table above, the carrying amounts of all other debt instruments approximate their fair values. The variable
nature and repricing dates of the receivables securitization facilities and the revolving credit facility result in a carrying value
approximating its fair value. Both the revolving credit facility and the receivables securitization facilities are classified as Level 2 in
the fair value hierarchy.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
10. Fair Value Measurement - continued
Assets a****nd Liabilities Measured and Recorded at Fair Value on a Recurring B****asis
The Company measures and records certain assets and liabilities, including derivative instruments at fair value. The following table
summarizes the fair value of these instruments, which are measured at fair value on a recurring basis, by level, within the fair value
hierarchy:
| Level 1 | Level 2 | ||||||
| September 30, | December 31, | September 30, | December 31, | ||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Assets | |||||||
| Other Investments: | |||||||
| Listed | $2 | $2 | $— | $— | |||
| Unlisted | — | — | 10 | 9 | |||
| Derivatives in cash flow hedging relationships | — | — | 2 | 5 | |||
| Derivatives not designated as hedging instruments | — | — | 18 | 14 | |||
| Assets measured at fair value | $2 | $2 | $30 | $28 | |||
| Liabilities | |||||||
| Derivatives in cash flow hedging relationships | — | — | 6 | 8 | |||
| Derivatives not designated as hedging instruments | — | — | 1 | 12 | |||
| Liabilities measured at fair value | $— | $— | $7 | $20 |
There were no assets or liabilities, which are measured at fair value on a recurring basis, classified as Level 3 in the fair value
hierarchy for the periods presented.
The fair value of listed financial assets is determined by reference to their bid price at the reporting date. Unlisted financial assets are
valued using recognized valuation techniques for the underlying security including discounted cash flows and similar unlisted equity
valuation models.
The fair value of foreign currency forwards, cross currency swaps and energy hedging contracts is based on their listed market price, if
available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual
forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on
government bonds).
The fair value of natural gas commodity derivatives is estimated based on observable inputs such as commodity future prices. We
utilize fixed price natural gas commodity derivatives to mitigate the associated price risk resulting from variability in the NYMEX
Henry Hub Index. The notional amount of the Company's natural gas commodity program at September 30, 2024 was 10 million
MMBtu. The fair values of the hedges are not material.
For derivative financial instruments that are not designated as accounting hedges, the entire change in fair value of the financial
instrument is reported immediately in current period earnings.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
10. Fair Value Measurement - continued
Assets a****nd Liabilities Measured and Recorded at Fair Value on a Nonr****ecurring Basis
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities
at fair value on a nonrecurring basis. This includes assets acquired and liabilities assumed as a result of business combinations or non-
monetary exchanges, situations where events or changes in circumstances indicate the carrying value may not be recoverable, or when
they are deemed to be other than temporarily impaired. These assets include goodwill and other intangible assets, assets and disposal
groups held for sale and other non-current assets. The fair values of these assets are determined, when applicable, based on valuation
techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow
projections. These nonrecurring fair value measurements are considered to be Level 3 in the fair value hierarchy.
For more details on the measurement of assets acquired and liabilities assumed as part of business combinations during the period,
refer to “Note 2. Acquisitions".
Accounts Receivable Monetization Agreements
Available to the Company is a $700 million accounts receivable monetization facility to sell to a third-party financial institution all of
the short-term trade receivables generated from certain customer trade accounts. On September 13, 2024, we amended this agreement
to extend the maturity date by one year to September 15, 2025. This facility (the “Monetization Agreement”) has Coöperatieve
Rabobank U.A., New York Branch, as purchaser, (“Rabobank”). The terms of the Monetization Agreements limit the balance of
receivables sold to the amount available to fund such receivables sold, thereby eliminating the receivable for proceeds from the
financial institution at any transfer date. Transfers under the Monetization Agreement meet the requirements to be accounted for as
sales in accordance with guidance in ASC 860, “Transfers and Servicing”. We pay a monthly yield on investment to Rabobank at a
rate equal to adjusted Term SOFR plus a margin on the outstanding amount of Rabobank’s investment. The Company has a similar
$110 million bilateral facility with Sumitomo Mitsui Banking Corporation, New York Branch as purchaser, with a maturity of
December 4, 2024.
The customers from these facilities are not included in the receivables securitization facilities, as discussed in more detail in “Note 11.
Debt” and "Note 18. Variable Interest Entities".
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
10. Fair Value Measurement - continued
The following table presents a summary of these accounts receivable monetization agreements for the nine months ended
September 30, 2024:
| Receivable from financial institutions recognized as part of Combination | $— |
| Receivables sold to the financial institutions and derecognized | (670) |
| Receivables collected by financial institutions | 621 |
| Cash proceeds from financial institutions | 49 |
| Receivable from financial institutions at September 30, 2024 | $— |
Receivables sold under these accounts receivable monetization agreements as of the balance sheet date were approximately $711
million.
Cash proceeds or payments related to the receivables sold are included in Net cash provided by operating activities in the Condensed
Consolidated Statement of Cash Flows in the Accounts receivable line item. The expense related to the sale of receivables was $12
million for the post-Combination period. The expense recorded may vary depending on current rates and levels of receivables sold and
is recorded in “Other expense, net” in the Condensed Consolidated Statements of Operations. Although the sales are made without
recourse, we maintain continuing involvement with the receivables sold as we provide collections services related to the transferred
assets. The associated servicing liability is not material given the high credit quality of the customers underlying the receivables and
the anticipated short collection period.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
11. Debt
The following were individual components of debt, split between items previously held by the Company and those assumed as a result
of the Combination:
| September 30, | December 31, | ||
| 2024 | 2023 | ||
| Amounts held by Smurfit Kappa prior to the Combination: | |||
| Revolving credit facility due 2026 | $— | $4 | |
| €100 million receivables securitization variable funding notes due 2026 | 112 | 6 | |
| €230 million receivables securitization variable funding notes due 2026 | 223 | 14 | |
| $292.3 million senior debentures due 2025 | 292 | 294 | |
| €250 million senior notes due 2025 | — | 279 | |
| €1,000 million senior notes due 2026 | 1,117 | 1,121 | |
| €750 million senior notes due 2027 | 837 | 832 | |
| €500 million senior green notes due 2029 | 557 | 553 | |
| $750 million senior green notes due 2030 | 749 | — | |
| €500 million senior green notes due 2033 | 557 | 553 | |
| $1,000 million senior green notes due 2034 | 1,000 | — | |
| $1,000 million senior green notes due 2054 | 1,000 | — | |
| Bank loans | 110 | 68 | |
| Finance lease obligations | 27 | 29 | |
| Bank overdrafts | 8 | 16 | |
| Amounts assumed in connection with the Combination: | |||
| $750 million senior notes due 2026 | 742 | — | |
| $500 million senior notes due 2027 | 477 | — | |
| $600 million senior notes due 2028 | 578 | — | |
| $500 million senior notes due 2028 | 480 | — | |
| $750 million senior notes due 2029 | 749 | — | |
| $400 million senior notes due 2030 | 456 | — | |
| $300 million senior notes due 2031 | 341 | — | |
| $500 million senior notes due 2032 | 472 | — | |
| $76 million senior notes due 2032 | 82 | — | |
| $600 million senior notes due 2033 | 512 | — | |
| $3 million senior notes due 2037 | 3 | — | |
| $150 million senior notes due 2047 | 175 | — | |
| $700 million receivables securitization due 2027 | 525 | — | |
| Term loan facilities | 600 | — | |
| Commercial paper | 512 | — | |
| Other debt | 42 | — | |
| Vendor financing and commercial card programs | 114 | — | |
| Finance lease obligations | 515 | — | |
| Total debt, excluding debt issuance costs | $13,964 | $3,769 | |
| Debt issuance costs | (45) | (22) | |
| Total debt | 13,919 | 3,747 | |
| Less: Current portion of debt | (745) | (78) | |
| Non-current debt due after one year | $13,174 | $3,669 |
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
11. Debt - continued
For the terms attached to the senior notes (other than those senior notes issued during the three months period ended June 30, 2024)
and the receivables securitization facilities, refer to the narrative included in “Note 10. Debt” of the 2023 Consolidated Financial
Statements. The carrying amount of the borrowings designated as Net Investment Hedges, as outlined therein, has not changed
materially and no ineffectiveness was recognized in the period.
The carrying amount of our debt includes a fair value adjustment related to debt assumed through mergers and acquisitions. At
September 30, 2024 the unamortized fair value market adjustment was $58 million, which will be amortized over a weighted average
remaining life of 7.4 years.
At September 30, 2024, all of our debt was unsecured with the exception of our receivables securitization facilities and finance lease
obligations.
On August 12, 2024, we redeemed €250 million aggregate principal amount of our senior notes due February 2025. We funded this
redemption by drawing on our receivables securitization facilities. No gain/loss on extinguishment of debt has been recorded.
On September 17, 2024, we discharged $600 million aggregate principal amount of our 3.75% senior notes due March 2025. We
funded this discharge using a portion of the proceeds from our Notes Offering which is described in further detail in “Note 2.
Acquisitions”. We recorded a $4 million loss on extinguishment of debt.
Senior Notes Issued
On April 3, 2024, Smurfit Kappa Treasury completed the Notes Offering.
The Company (a) used a portion of the proceeds from the Notes Offering (i) to finance the payment of the Cash Consideration of the
Combination; (ii) to finance the payment of fees, commissions, costs and expenses in relation to the Combination and the Notes
Offering; and (iii) for general corporate purposes, including the repayment of indebtedness, and (b) intends to use an amount
equivalent to the proceeds from the Notes Offering to finance or refinance a portfolio of eligible green projects in accordance with
Smurfit Kappa’s Green Finance Framework, which the Company may, in the future, update in line with developments in the market.
Revolving Credit Facility
On June 28, 2024, conditional upon the closing of the Combination, the Company entered into a Multicurrency Term and Revolving
Facilities Agreement (the "New Credit Agreement") with certain lenders and Wells Fargo Bank, National Association, as agent,
providing for (i) a U.S. dollar term loan facility in an aggregate principal amount of $600 million (the “Term Loan Facility”), (ii) a
multicurrency revolving loan facility in an aggregate principal amount of $4,500 million including a swingline sub-facility in an
aggregate principal amount of $500 million (together, the “New RCF”).
On July 2, 2024, the Term Loan Facility of $600 million under the New Credit Agreement was cancelled prior to any drawdown and
no early termination penalties were incurred as a result of the cancellation.
We cancelled the €1,350 million Revolving Credit Facility (that was due to mature in January 2026) (the “Existing RCF”) as part of
the conditions of the New Credit Agreement upon the closing of the Combination on the Closing Date. There were no early
termination penalties incurred as a result of the termination of the Existing RCF. The conditions attaching to the New Credit
Agreement becoming effective were completed on the Closing Date.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
11. Debt - continued
Revolving Credit Facility - continued
Loans under the New RCF may be drawn in U.S. dollars, euro, pounds sterling, Swiss francs, Japanese yen, Swedish kronor and
Canadian dollars, with a borrower (or the obligors’ agent on behalf of a borrower) selecting the currency of a loan under the New
RCF. Borrowings under the New RCF bear interest at rates based upon an underlying reference rate, plus a margin determined in
accordance with a ratings-based pricing grid. Reference rates include SOFR for U.S. dollars, EURIBOR for euro, SONIA for pounds
sterling, STIBOR for Swedish kronor and SARON for Swiss francs. Unused revolving commitments under the New RCF will accrue a
commitment fee equal to a percentage of the applicable interest rate margin. The New RCF also requires the payment of a utilization
fee calculated on outstanding revolving loans, based on the utilization rate of the New RCF. The New RCF has an initial term of five
years from the date of the New Credit Agreement, which may be extended on two occasions by up to an aggregate of two years. The
New RCF is unsecured. As of September 30, 2024, there were no amounts outstanding under the facility.
Term Loan Facilities
Farm Loan Credit Facility
A credit agreement (the “Farm Credit Facility Agreement”) is in place with CoBank, ACB, as administrative agent. The Farm Credit
Facility Agreement provides for a senior unsecured term loan facility in an aggregate principal amount of $600 million (the “Farm
Credit Facility”) with a maturity date of July 9, 2029. The carrying value of this facility at September 30, 2024 was $600 million.
At our option, loans issued under the Farm Credit Facility will bear interest at either Term SOFR or an alternate base rate, in each case
plus an applicable interest rate margin that will fluctuate between 1.650% per annum and 2.275% per annum (for Term SOFR loans)
or between 0.650% per annum and 1.275% per annum (for alternate base rate loans), based upon the Company’s corporate credit
ratings (as defined in the Farm Credit Facility Agreement). In addition, Term SOFR loans will be subject to a credit spread adjustment
equal to 0.1% per annum.
Delayed Draw Term Facility
A credit agreement with an outstanding amount of $750 million (the “Delayed Draw Term Facility”) was in place at the Combination
date. This amount (plus accrued interest) was repaid and the facility cancelled on July 5, 2024.
Receivables Securitization Facilities
As of September 30, 2024, the gross amount of receivables collateralizing the €100 million 2026 trade receivables securitization
programs were €317 million (December 31, 2023: €327 million). As of September 30, 2024 maximum available borrowings,
excluding amounts outstanding under this facility, were $— million (December 31, 2023: $105 million). The gross amount of
receivables collateralizing the €230 million 2026 trade receivables securitization program at September 30, 2024 was €422 million
(December 31, 2023: €415 million). At September 30, 2024 maximum available borrowings, excluding amounts outstanding under
this facility, were $34 million (December 31, 2023: $240 million). In accordance with the contractual terms, the counterparty has
recourse to the securitized debtors only. Given the short-term nature of the securitized receivables and the variable floating rates, the
carrying amount of the securitized receivables and the associated liabilities reported on the Condensed Consolidated Balance Sheets is
estimated to approximate fair value.
The Company also has a third receivables securitization program with certain lenders and Coöperatieve Rabobank U.A., New York
Branch, in its capacity as administrative agent. It has a facility size of $700 million, a margin of 0.9% plus 0.1% credit spread
adjustment and matures in June 2027. At September 30, 2024 maximum available borrowings, excluding amounts outstanding under
this facility, were $175 million. The gross carrying amount of receivables collateralizing the maximum available borrowings at
September 30, 2024 were approximately $1,137 million. We have continuing involvement with the underlying receivables as we
provide credit and collection services pursuant to the underlying agreement. Borrowing availability under this facility is based on the
eligible underlying accounts receivable and compliance with certain covenants. The agreement governing the receivables
securitization facility contains restrictions, including, among others, on the creation of certain liens on the underlying collateral.
Further details are included in the agreement.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
11. Debt - continued
Commercial Paper
The Company also maintains an unsecured commercial paper program with WRKCo Inc. (a wholly owned subsidiary of Smurfit
Westrock plc) as the issuer. Under the program, we may issue senior short-term unsecured commercial paper notes in an aggregate
principal amount at any time not to exceed $1,000 million with up to 397-day maturities. The program has no expiration date and can
be terminated by either the agent or us with not less than 30 days notice. The $1,000 million commercial paper program is supported
by the $4,500 million New RCF with a separate $500 million swingline sublimit which allows for same-day drawing in U.S. Dollar.
The amount of commercial paper outstanding does not reduce available capacity under the New RCF. Commercial paper borrowings
may vary during the period, largely as a result of fluctuations in funding requirements.
Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. At September 30, 2024, there was
$512 million issued. The weighted average interest rate pertaining to this facility was 5.2% as of that date.
12. Leases
We lease various real estate, including certain operating facilities, warehouses, office space and land. We also lease material handling
equipment, vehicles and certain other equipment.
Components of Lease Costs
The following table presents certain information related to the lease costs for finance and operating leases:
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Operating lease costs | $(95) | $(31) | $(168) | $(87) | |||
| Variable and short-term lease costs | (53) | (10) | (72) | (35) | |||
| Finance lease cost: | |||||||
| Amortization of lease assets | (23) | (1) | (25) | (2) | |||
| Interest on lease liabilities | (11) | — | (12) | (1) | |||
| Lease cost | $(182) | $(42) | $(277) | $(125) |
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
12. Leases - continued
Supplemental Condensed Consolidated Balance Sheets Information Related to Leases
| Balance Sheet Location | September 30, | December 31, | |||
| 2024 | 2023 | ||||
| Operating leases: | |||||
| Operating lease right-of-use assets | Other non-current assets | $985 | $374 | ||
| Current operating lease liabilities | Other current liabilities | $306 | $113 | ||
| Non-current operating lease liabilities | Other non-current liabilities | 706 | 269 | ||
| Total operating lease liabilities | $1,012 | $382 | |||
| Finance leases: | |||||
| Property, Plant and Equipment | Property, plant and equipment, net | $422 | $32 | ||
| Accumulated depreciation | (25) | (6) | |||
| Property, Plant and Equipment, net | $397 | $26 | |||
| Current finance lease liabilities | Current portion of debt | $32 | $3 | ||
| Non-current finance lease liabilities | Non-current debt due after one year | 510 | 26 | ||
| Total finance lease liabilities | $542 | $29 | |||
Operating lease right-of-use assets and lease liabilities increased by $659 million and $662 million, respectively, as a result of leased
assets acquired and liabilities assumed from the Combination. Similarly, finance lease right-of-use assets and lease liabilities have
increased by $388 million and $512 million, respectively.
Supplemental Cash Flow Information Related to Leases
| Nine months ended, | |||
| September 30, | |||
| 2024 | 2023 | ||
| Leased assets obtained in exchange for lease liabilities: | |||
| Operating leases | $125 | $68 | |
| Finance leases | $2 | $— |
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
13. Interest
The components of interest expense, net is as follows:
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Interest expense | $(209) | $(46) | $(321) | $(129) | |||
| Interest income | 42 | 7 | 96 | 20 | |||
| Interest expense, net | $(167) | $(39) | $(225) | $(109) |
Total cash paid for interest, net of interest received was $236 million and $123 million for the nine months ended September 30, 2024
and September 30, 2023, respectively. Of this, capitalized interest paid was $11 million and $9 million for the nine months ended
September 30, 2024 and September 30, 2023, respectively.
14. Income Taxes
The effective tax rates in the three and nine months ended September 30, 2024 and for the comparative periods ended September 30,
2023 were generally impacted by a combination of factors including the reduction in earnings and the geographical mix of where those
earnings were generated, as well as the impacts resulting from the Combination on July 5, 2024. The negative effect from non-
deductible expenses was partially offset by the positive effect of earnings that were not subject to tax.
The effective tax rate for the nine months ended September 30, 2024 was 48.7% compared to 24.9% for the same period in 2023. In
2024, the non-deductible transaction related expenses associated with the Combination contributed to the increase in the rate. This was
offset in part by the recognition of non-taxable income, a reduction in the deferred tax liability on unremitted earnings, and other non-
recurring items.
The effective tax rate for the three months ended September 30, 2024 was (28.2)% compared to 24.2% for the same period in 2023. In
2024, this includes the impact of the increase in the non-deductible expenses related to the Combination.
During the nine months ended September 30, 2024 and September 30, 2023, cash paid for income taxes, net of refunds, was
$229 million and $308 million, respectively.
As a result of the Combination, approximately $520 million of unrecognized tax benefits were acquired.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
15. Retirement Plans
The net periodic benefit (income) cost recognized in the Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2024 and September 30, 2023, respectively, is composed of the following:
| Defined Benefit Pension Plans | |||||||||||||||
| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||
| U.S. Plans | Non-U.S. Plans | U.S. Plans | Non-U.S. Plans | ||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||
| Service cost | $5 | $— | $9 | $6 | $5 | $— | $22 | $17 | |||||||
| Interest cost | 50 | 1 | 36 | 24 | 53 | 2 | 78 | 69 | |||||||
| Expected return on assets | (70) | (1) | (34) | (21) | (71) | (2) | (78) | (62) | |||||||
| Amortization of: | |||||||||||||||
| Net actuarial loss | — | — | 9 | 7 | — | — | 29 | 23 | |||||||
| Prior service credit | — | — | (1) | (1) | — | — | (1) | (1) | |||||||
| Settlement loss | — | — | — | — | — | — | 19 | — | |||||||
| Total net periodic benefit (income) cost | $(15) | $— | $19 | $15 | $(13) | $— | $69 | $46 |
| Other Postretirement Benefit Plans | |||||||
| Three months ended September 30 | Nine months ended September 30 | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Service cost | $1 | $— | $2 | $1 | |||
| Interest cost | 2 | — | 2 | — | |||
| Total net periodic benefit cost | $3 | $— | $4 | $1 |
Service cost is included within “Cost of goods sold” and “Selling, general and administrative expenses” while all other components
are recorded within “Pension and other postretirement non-service benefit (expense), net”.
As part of the Company’s pension de-risking strategy, annuities were purchased with an insurance company for the pensioners in our
Irish Executive Fund during the quarter ended June 30, 2024. As a result of this transaction, a settlement loss occurred when
approximately 70% of the projected benefit obligation was settled.
In connection with the Combination, the Company acquired net pension assets of $234 million ($4,931 million in obligations and
$5,165 million in plan assets). The Company expects to contribute $17 million to these plans in fiscal year 2024.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
15. Retirement Plans - continued
As a result of the acquisition of WestRock, we participate in several multiemployer pension plans (“MEPP” or “MEPPs”) that provide
retirement benefits to certain union employees in accordance with various collective bargaining agreements and WestRock has
participated in other MEPPs in the past. The multiemployer plan expense was immaterial for the three and nine months ended
September 30, 2024. In the normal course of business, we evaluate our potential exposure to MEPPs, including potential withdrawal
liabilities. In fiscal 2018, WestRock submitted formal notification to withdraw from the Pace Industry Union-Management Pension
Fund (“PIUMPF”) and recorded a liability associated with the withdrawal. Subsequently, in fiscal 2019 and 2020, Westrock received
demand letters from PIUMPF, including a demand for withdrawal liabilities and for its proportionate share of PIUMPF's accumulated
funding deficiency, and Westrock refined its liability, the impact of which was not significant. WestRock began making monthly
payments for the PIUMPF withdrawal liabilities in fiscal 2020, excluding the accumulated funding deficiency demands. We dispute
the accumulated funding deficiency demands. In February 2020, WestRock received a demand letter from PIUMPF asserting that it
owed $51 million for its pro-rata share of PIUMPF’s accumulated funding deficiency, including interest. Similarly, in April 2020,
WestRock received an updated demand letter related to one of its subsidiaries asserting that it owed $1 million of additional
accumulated funding deficiency, including interest. In July 2021, PIUMPF filed suit against Westrock in the U.S. District Court for
the Northern District of Georgia claiming the right to recover WestRock’s pro rata share of the pension fund’s accumulated funding
deficiency along with interest, liquidated damages and attorney's fees. The federal court recently ordered the parties to mediate, and
the parties have agreed to mediate on November 21, 2024. We believe we are adequately reserved for this matter.
In connection with the Combination, we assumed withdrawal liabilities of $211 million (balance of $212 million at September 30,
2024), including liabilities associated with PIUMPF's accumulated funding deficiency demands.
With respect to certain other MEPPs, in the event we withdraw from one or more of the MEPPs in the future, it is reasonably possible
that we may incur withdrawal liabilities in connection with such withdrawals. Our estimate of any such withdrawal liabilities, both
individually and in the aggregate, are not material for the remaining plans in which we participate.
Pension Plan Contributions
Established funding standards govern the funding requirements for our qualified and approved pensions in various jurisdictions. We
fund the benefit payments of our non-qualified or unfunded plans as benefit payments come due.
The Company’s contributions for the three and nine months ended September 30, 2024 and September 30, 2023, respectively, were as
follows:
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Defined Benefit Pension Plans Contributions | $31 | $24 | $86 | $80 | |||
| Other Postretirement Benefit Plans Contributions | $2 | $1 | $4 | $2 |
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
16. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Numerator: | |||||||
| Net (loss) income attributable to common stockholders | $(150) | $229 | $173 | $777 | |||
| Denominator: | |||||||
| Basic weighted average shares outstanding | 508 | 258 | 342 | 258 | |||
| Effect of dilutive share options | — | 1 | 2 | 1 | |||
| Diluted weighted average shares outstanding | 508 | 259 | 344 | 259 | |||
| Basic (loss) earnings per share attributable to common stockholders | $(0.30) | $0.89 | $0.51 | $3.01 | |||
| Diluted (loss) earnings per share attributable to common stockholders | $(0.30) | $0.88 | $0.50 | $3.00 |
The following weighted average share-based compensation awards were not included in computing diluted earnings per share because
the effect would have been antidilutive:
| Three months ended | Nine months ended | ||||||
| September 30, | September 30, | ||||||
| 2024 | 2023 | 2024 | 2023 | ||||
| Performance stock units | 7 | — | — | — | |||
| Restricted stock units | 3 | — | — | — | |||
| Total antidilutive shares | 10 | — | — | — |
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
17. Commitments and Contingencies
B****razil Tax Liability
Our subsidiary, WestRock, is challenging claims by the Brazil Federal Revenue Department that we underpaid taxes as a result of
amortization of goodwill generated by the 2002 merger of two of its Brazilian subsidiaries. The matter has proceeded through the
Brazil Administrative Council of Tax Appeals (“CARF”) principally in two proceedings, covering tax years 2003 to 2008 and 2009 to
- The tax, penalty and interest claims relating to both tax periods were administratively finalized and they are now the subject of
two annulment actions WestRock has filed in the Brazil federal court. The fraud penalties and interest for tax years 2003 to 2008
remain pending in the court action relating to this period. For tax years 2009 to 2012 the government claim of fraud penalties and
interest was resolved and terminated by CARF in favor of WestRock in 2023.
We assert that we have no liability in these matters. The total amount in dispute before CARF and in the annulment actions relating to
the claimed tax deficiency was R$745 million ($137 million) as of September 30, 2024, including various penalties and interest. The
U.S. dollar equivalent has fluctuated significantly due to changes in exchange rates. Resolution of the uncertain tax positions could
have a material adverse effect on our cash flows and results of operations or materially benefit our results of operations in future
periods depending upon their ultimate resolution.
PIUMPF-Related Litigation
Refer to “Note 15. Retirement Plans” for details of legal proceedings filed by PIUMPF against the Company.
Asbestos-Related Litigation
We have been named as a defendant in asbestos-related personal injury litigation, primarily in relation to the historical operations of
certain companies that have been acquired by the Company. To date, the costs resulting from the litigation, including settlement costs,
have not been significant. We accrue for the estimated value of pending claims and litigation costs using historical claims information,
as well as the estimated value of future claims based on our historical claims experience. As of September 30, 2024, there were
approximately 625 such lawsuits. We believe that we have substantial insurance coverage, subject to applicable deductibles and policy
limits, with respect to asbestos claims. We also have valid defenses to these asbestos-related personal injury claims and intend to
continue to defend them vigorously. Should the Company’s litigation profile change substantially, or if there are adverse
developments in applicable law, it is possible that the Company could incur significantly more costs resolving these cases. We record
asbestos-related insurance recoveries that are deemed probable. In assessing the probability of insurance recovery, we make judgments
concerning insurance coverage that we believe are reasonable and consistent with our historical dealings and our knowledge of any
pertinent solvency issues surrounding the insurers. The Company does not expect the resolution of pending asbestos litigation and
proceedings to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, it is
possible such proceedings or matters could have an adverse effect on the Company's results of operations, financial condition or cash
flows. As of September 30, 2024, the Company had recorded liabilities in respect of these matters of $73 million and estimated
insurance recoveries of $46 million.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
17. Commitments and Contingencies - continued
Italian Competition Authority Investigation
In August 2019, the Italian Competition Authority (the “AGCM”) notified approximately 30 companies, of which Smurfit Kappa
Italia, a subsidiary of Smurfit Westrock, was one, that an investigation had found the companies to have engaged in anti-competitive
practices, in relation to which the AGCM levied a fine of approximately $138 million on Smurfit Kappa Italia, which was paid in
In October 2019, Smurfit Kappa Italia appealed the AGCM’s decision to the First Administrative Court of Appeal (TAR Lazio),
however Smurfit Kappa Italia was later notified that this appeal had been unsuccessful. In September 2021, Smurfit Kappa Italia filed
a further appeal to the Council of State which published its ruling in February 2023. While some grounds of appeal were dismissed,
the Council of State upheld Smurfit Kappa Italia’s arguments regarding the quantification of the fine. As a result, the AGCM was
directed to recalculate Smurfit Kappa Italia’s fine. On March 7, 2024, the AGCM notified Smurfit Kappa Italia that its fine had been
reduced by approximately $18 million. Smurfit Kappa Italia has appealed the amount of this reduction and a decision on that appeal is
expected in 2025.
Separate to these proceedings regarding the fine, in May 2023, Smurfit Kappa Italia filed an application with the Council of State for
revocation of the February 2023 ruling to the extent that it failed to consider certain pleas that had been raised by Smurfit Kappa Italia
on appeal. If successful, the revocation will imply that the Council of State will have to (re-) assess those pleas, which in turn could
determine the partial annulment of the August 2019 ACGM decision, although this would not impact the size of the fine levied on
Smurfit Kappa Italia. A decision is expected in 2025.
After publication of the AGCM’s August 2019 decision, a number of purchasers of corrugated sheets and boxes initiated litigation
proceedings against Smurfit Kappa companies, alleging that they were harmed by the alleged anti-competitive practices and seeking
damages. These actions are still in early stages and Smurfit Westrock cannot predict its potential liability or their outcomes with
certainty at this point in time. In addition, other parties have threatened litigation against Smurfit Westrock seeking damages (either
specified or unspecified). It cannot be anticipated whether these threatened actions will become actual litigation proceedings, nor
whether any amounts claimed will be the same as those that have been threatened.
International Arbitration Against Venezuela
Smurfit Kappa, which is now a subsidiary of Smurfit Westrock, announced in 2018 that due to the Government of Venezuela’s
measures, Smurfit Kappa no longer exercised control over the business of Smurfit Kappa Carton de Venezuela. Smurfit Kappa’s
Venezuelan operations were therefore deconsolidated in the third quarter of 2018. Later that year, Smurfit Kappa’s wholly owned
subsidiary, Smurfit Holdings BV, filed an international arbitration claim against the Bolivarian Republic of Venezuela before the
World Bank’s International Centre for Settlement of Investment Disputes seeking compensation for Venezuela’s unlawful seizure of
its Venezuelan business as well as for other arbitrary, inconsistent and disproportionate State measures that destroyed the value of its
investments in Venezuela. Following the exchange of written submissions, an oral hearing was held in September 2022 in Paris.
On 28 August 2024, upon the completion of its deliberations, the arbitral tribunal issued an award granting Smurfit Holdings BV, then
a wholly owned subsidiary of Smurfit Westrock, compensation in excess of $469 million, plus legal costs of $5 million, plus interest
from May 31, 2024 until the date of payment (the “Award”). In September 2024 Smurfit Holdings BV initiated proceedings against
the Bolivarian Republic of Venezuela to enforce the Award.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
17. Commitments and Contingencies - continued
Combination-Related Litigation
In May 2024, in connection with the Combination, two lawsuits were filed by purported stockholders of WestRock challenging the
sufficiency of the disclosures that have been made in connection therewith in the definitive proxy statement that WestRock filed with
the SEC on April 26, 2024: Robert Scott v. WestRock Company et al., No. 652627/2024 (N.Y.S.), filed on May 21, 2024, and Richard
McDaniel v. WestRock Company et al., No. 652638/2024 (N.Y.S.), filed on May 22, 2024. Both complaints, which name WestRock
and its directors as defendants, allege state law claims for breach of fiduciary duty. Due to the early stage of this proceeding, the
Company cannot predict the outcomes of these matters and cannot reasonably estimate the potential range of loss, if any.
Other Litigation
We are a defendant in a number of other lawsuits and claims arising out of the conduct of our business. While the ultimate results of
such suits or other proceedings against us cannot be predicted, we believe the resolution of these other matters will not have a material
adverse effect on our results of operations, financial condition or cash flows.
18. Variable Interest Entities
Trade Receivables Securitization Arrangements
The Company is a party to arrangements involving securitization of its trade receivables. The arrangements required the establishment
of certain special purpose entities namely Smurfit Kappa International Receivables DAC, Smurfit Kappa Receivables plc and Smurfit
Kappa European Packaging DAC (a subsidiary of Smurfit Kappa Receivables plc). The sole purpose of the securitization entities is the
raising of finance for the Company using the receivables generated by certain operating entities, as collateral. All entities are
considered to be variable interest entities.
The Company is the primary beneficiary of Smurfit Kappa International Receivables DAC, Smurfit Kappa European Packaging DAC
and Smurfit Kappa Receivables plc, through various financing arrangements and due to the fact that it is responsible for the entities’
most significant economic activities.
The carrying value of the restricted asset and limited recourse liability as of September 30, 2024 ($821 million and $336 million
respectively) approximates fair value due to the short-term nature of the securitized assets and the floating rates of the liabilities.
Timber Note Receivable Securitization Arrangement
The Company is also a party to an arrangement involving securitization of its note receivable. Pursuant to the sale of forestlands in
2007, a special purpose entity (“SPE”) namely MeadWestvaco Timber Notes Holding, LLC (“MWV TN”) received an installment
note receivable (“Timber Note”). Using this installment note as collateral, the SPE received proceeds under secured financing
agreements, which is recorded as a non-recourse liability.
Using the Timber Note as collateral, MWV TN received $338 million in proceeds under a secured financing agreement with a bank.
Under the terms of the agreement, the liability from this transaction is non-recourse to the Company and is payable from the Timber
Note proceeds upon its maturity in October 2027. As a result, the Timber Note is not available to satisfy any obligations of the
Company. MWV TN can elect to prepay at any time the liability in whole or in part, however, given that the Timber Note is not
prepayable, MWV TN expects to repay the liability at maturity from the Timber Note proceeds.
The Company is the primary beneficiary of MWV TN through various financing arrangements and due to the fact that it is responsible
for the entity’s most significant economic activities. This entity is considered to be a variable interest entity.
The carrying value of the restricted asset and non-recourse liability as of September 30, 2024 approximates fair value due to their
floating rates.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
18. Variable Interest Entities - continued
Green Power Solutions
Green Power Solutions of Georgia, LLC ("GPS") is a joint venture providing steam to the Company and electricity to a third party
client. The Company owns a 48% interest in GPS and the majority of the debt issued through the entity SP Fiber Holdings Inc. ("SP
Fiber"), a 100% owned subsidiary. Based on the commercial and financial relationships in force between SP Fiber and GPS, it has
been determined that the SP Fiber has a controlling financial interest in and is the primary beneficiary of GPS. The vehicle holds
unrestricted cash of $2 million as of September 30, 2024.
The fair values of the restricted assets and non-recourse liabilities are classified as level 2 within the fair value hierarchy.
The carrying amounts of the restricted assets and limited or non-recourse liabilities of Variable Interest Entities reported within the
Condensed Consolidated Balance Sheets are set out in the following table:
| September 30, | December 31, | ||
| 2024 | 2023 | ||
| Assets | |||
| Current assets: | |||
| Cash and cash equivalents, including restricted cash | $3 | $3 | |
| Accounts receivable | 823 | 816 | |
| Non-current assets: | |||
| Property, plant and equipment, net | 41 | — | |
| Other non-current assets | 390 | — | |
| Total assets | $1,257 | $819 | |
| Liabilities | |||
| Current liabilities: | |||
| Accounts payable | $7 | $— | |
| Current portion of debt | 2 | — | |
| Other current liabilities | 2 | — | |
| Non-current liabilities: | |||
| Non-current debt due after one year | 337 | 20 | |
| Other non-current liabilities | 334 | — | |
| Total liabilities | $682 | $20 |
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
19. Accumulated Other Comprehensive Loss
The tables below summarize the changes in accumulated other comprehensive loss by component for the three months ended
September 30, 2024:
| Foreign Currency Translation | Cash Flow Hedges | Defined Benefit Pension and Postretirement Plans | Other Reserves**(2)** | Total**(1)** | |
| Balance at June 30, 2024 | $1,056 | $13 | $753 | $(751) | $1,071 |
| Other comprehensive (income) loss | (86) | — | 26 | — | (60) |
| Balance at September 30, 2024 | $970 | $13 | $779 | $(751) | $1,011 |
The tables below summarize the changes in accumulated other comprehensive loss by component for the three months ended
September 30, 2023:
| Foreign Currency Translation | Cash Flow Hedges | Defined Benefit Pension and Postretirement Plans | Other Reserves**(2)** | Total**(1)** | |
| Balance at June 30, 2023 | $941 | $25 | $754 | $(751) | $969 |
| Other comprehensive loss (income) | 139 | (7) | (25) | — | 107 |
| Balance at September 30, 2023 | $1,080 | $18 | $729 | $(751) | $1,076 |
The tables below summarize the changes in accumulated other comprehensive loss by component for the nine months ended
September 30, 2024:
| Foreign Currency Translation | Cash Flow Hedges | Defined Benefit Pension and Postretirement Plans | Other Reserves**(2)** | Total**(1)** | |
| Balance at December 31, 2023 | $789 | $16 | $793 | $(751) | $847 |
| Other comprehensive loss (income) | 181 | (3) | (14) | — | 164 |
| Balance at September 30, 2024 | $970 | $13 | $779 | $(751) | $1,011 |
The tables below summarize the changes in accumulated other comprehensive loss by component for the nine months ended
September 30, 2023:
| Foreign Currency Translation | Cash Flow Hedges | Defined Benefit Pension and Postretirement Plans | Other Reserves**(2)** | Total**(1)** | |
| Balance at December 31, 2022 | $1,199 | $21 | $740 | $(751) | $1,209 |
| Other comprehensive income | (119) | (3) | (11) | — | (133) |
| Balance at September 30, 2023 | $1,080 | $18 | $729 | $(751) | $1,076 |
(1)All amounts are net of tax and noncontrolling interest.
(2)This relates to a reverse acquisition reserve which arose on the creation of a new parent of the Company prior to the United
Kingdom and Ireland listings.
Smurfit Westrock plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMEN****TS
(in millions, except share and per share data)
19. Accumulated Other Comprehensive Loss - continued
A summary of the components of other comprehensive income (loss), including noncontrolling interest, for the three months ended
September 30, 2024 and September 30, 2023, is as follows:
| Three months ended | Three months ended | ||||||
| September 30, 2024 | September 30, 2023 | ||||||
| Pre-Tax | Tax | Net of Tax | Pre-Tax | Tax | Net of Tax | ||
| Foreign currency translation gain (loss) | $86 | $— | $86 | $(139) | $— | $(139) | |
| Defined benefit pension and other postretirement benefit plans adjustments: | |||||||
| Amortization and settlement recognition of net actuarial loss | 9 | (1) | 8 | 7 | (2) | 5 | |
| Amortization of prior service credit | (1) | — | (1) | (1) | — | (1) | |
| Foreign currency (loss) gain - pensions | (33) | — | (33) | 21 | — | 21 | |
| Derivatives: | |||||||
| Deferred gain recognized on cash flow hedges | — | — | — | 7 | — | 7 | |
| Other comprehensive income (loss) | 61 | (1) | 60 | (105) | (2) | (107) | |
| Less: Other comprehensive income (loss) attributable to noncontrolling interests | — | — | — | — | — | — | |
| Other comprehensive income (loss) attributable to common stockholders | $61 | $(1) | $60 | $(105) | $(2) | $(107) |
A summary of the components of other comprehensive (loss) income, including noncontrolling interest, for the nine months ended
September 30, 2024 and September 30, 2023, is as follows:
| Nine months ended | Nine months ended | ||||||
| September 30, 2024 | September 30, 2023 | ||||||
| Pre-Tax | Tax | Net of Tax | Pre-Tax | Tax | Net of Tax | ||
| Foreign currency translation (loss) gain | $(181) | $— | $(181) | $119 | $— | $119 | |
| Defined benefit pension and other postretirement benefit plans adjustments: | |||||||
| Net actuarial loss arising during period | (1) | — | (1) | — | — | — | |
| Amortization and settlement recognition of net actuarial loss | 48 | (12) | 36 | 23 | (6) | 17 | |
| Amortization of prior service credit | (1) | — | (1) | (1) | — | (1) | |
| Foreign currency loss - pensions | (20) | — | (20) | (5) | — | (5) | |
| Derivatives: | |||||||
| Deferred gain recognized on cash flow hedges | 3 | — | 3 | 3 | — | 3 | |
| Other comprehensive (loss) income | (152) | (12) | (164) | 139 | (6) | 133 | |
| Less: Other comprehensive (loss) income attributable to noncontrolling interests | — | — | — | — | — | — | |
| Other comprehensive (loss) income attributable to common stockholders | $(152) | $(12) | $(164) | $139 | $(6) | $133 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF SMURFIT WESTROCK
The following discussion and analysis of Smurfit Westrock’s financial condition and results of operations should be read in
conjunction with Smurfit Westrock’s Condensed Consolidated Financial Statements and their related notes included above, our
audited Consolidated Financial Statements and their related notes for the fiscal year ended December 31, 2023*, and Smurfit Kappa’s*
audited Consolidated Financial Statements and their related notes for the fiscal year ended December 31, 2023, as well as the
information under the heading “Management’s Discussion and Analysis of the Financial Condition and Results of Operations of
Smurfit Kappa” that were disclosed in Smurfit Westrock plc’s (“Smurfit Westrock”) Registration Statement on Form S-4 (file number
333-278185) which was declared effective on April 26, 2024 (as supplemented by the prospectus filed with the SEC on April 26, 2024,
the “Registration Statement”). This discussion contains forward-looking statements that involve risks and uncertainties. Smurfit
Westrock’s future results could differ materially from the results discussed below. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” below.
Please refer to the section below entitled “Cautionary Note Regarding Forward-Looking Statements*" for additional information.*
Smurfit Kappa was determined to be the accounting acquirer in the Combination; therefore, the historical consolidated financial
statements of Smurfit Kappa for periods prior to the Combination were also considered to be the historical financial statements of the
Company. Unless otherwise specified or the context otherwise requires, all references to “the Company” and “Smurfit Kappa” refer
to Smurfit Kappa Group plc and its subsidiaries and their operations when referring to periods prior to the closing of the
Combination, and references to “the Company” and “Smurfit Westrock” refer to the combined company, Smurfit Westrock plc and its
subsidiaries, including, among others, Smurfit Kappa and WestRock, when referring the periods after the Combination.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes certain “forward-looking statements” (including within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) regarding, among other
things, the plans, strategies, outcomes, and prospects, both business and financial, of Smurfit Westrock, the expected benefits of the
completed Combination of Smurfit Kappa and WestRock Company (including, but not limited to, synergies), and any other statements
regarding Smurfit Westrock’s future expectations, beliefs, plans, objectives, results of operations, financial condition and cash flows,
or future events or performance. Statements that are not historical facts, including statements about the beliefs and expectations of the
management of Smurfit Westrock, are forward-looking statements. Words such as “may”, “will”, “could”, “should”, “would”,
“anticipate”, “intend”, “estimate”, “project”, “plan”, “believe”, “expect”, “target”, “prospects”, “potential”, “commit”, “forecasts”,
“aims”, “considered”, “likely”, “estimate” and variations of these words and similar future or conditional expressions are intended to
identify forward-looking statements but are not the exclusive means of identifying such statements. While the Company believes these
expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve
known and unknown risks and uncertainties, many of which are beyond the control of the Company. By their nature, forward-looking
statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur.
Actual results may differ materially from the current expectations of the Company depending upon a number of factors affecting its
business, including risks associated with the integration and performance of the Company following the Combination. Risks,
uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to, the
factors discussed below under the section entitled “Risk Factors” below and in subsequent filings with the SEC by the Company.
Forward-looking and other statements in this document may also address the Company’s corporate responsibility progress, plans, and
goals (including environmental matters), and the inclusion of such statements is not an indication that these contents are necessarily
material to investors or required to be disclosed in our filings with the Securities and Exchange Commission. In addition, historical,
current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still
developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made. Neither the
Company nor any of its associates or directors, officers or advisers provides any representation, assurance or guarantee that the
occurrence of the events expressed or implied in any such forward-looking statements will actually occur. You are cautioned not to
place undue reliance on these forward-looking statements. Other than in accordance with its legal or regulatory obligations (including
under the UK Listing Rules, the Disclosure Guidance and Transparency Rules, the UK Market Abuse Regulation and other applicable
regulations), the Company is under no obligation, and the Company expressly disclaims any intention or obligation, to update or
revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
OVERVIEW
Smurfit Westrock is one of the world's largest integrated manufacturers of paper-based packaging products in terms of volumes and
sales, with operations in North America, South America, Europe, Asia, Africa, and Australia. Smurfit Westrock partners with its
customers to provide differentiated, sustainable paper and packaging solutions that enhance its customers’ prospects of success in their
markets.
Transaction Agreement and Combination with WestRock
On September 12, 2023, Smurfit Kappa, a public company incorporated in Dublin, Ireland, and WestRock, a public company
incorporated in Delaware, United States, announced they had reached a definitive agreement on the terms of a proposed combination.
As described elsewhere in this report, the Combination closed on July 5, 2024. Pursuant to the Transaction Agreement, on the Closing
Date each issued ordinary share, par value €0.001 per share, of Smurfit Kappa (a “Smurfit Kappa Share”) was exchanged for one
ordinary share, par value $0.001 per share, of Smurfit Westrock (a “Smurfit Westrock Share”) and, in exchange for the net assets of
WestRock acquired through the Merger, each share of common stock, par value $0.01 per share, of WestRock (the “WestRock
Common Stock”), was converted into the right to receive one Smurfit Westrock Share and $5.00 in cash (the “Merger Consideration”)
for an aggregate cash consideration of $1,291 million (the “Cash Consideration”) and issuance of 258,228,403 shares to WestRock
shareholders.
Upon completion of the Combination, Smurfit Kappa and WestRock each became wholly owned subsidiaries of Smurfit Westrock
with Smurfit Kappa shareholders owning approximately 50.3% and WestRock shareholders owning approximately 49.7%. Prior to the
closing of the Combination, Smurfit WestRock had no operations other than activities related to its formation and the Combination.
Given the non-operational nature of the Company prior to the Combination, the Smurfit Kappa Share Exchange is not considered a
business combination and does not give rise to any goodwill or adjustments to accounting basis.
The consolidated financial statements of Smurfit Westrock following the Smurfit Kappa Share Exchange are a continuation of the
financial statements of Smurfit Kappa and therefore, the historical consolidated financial information for periods prior to the
Combination including the comparatives presented, reflect the pre-Combination carrying values of Smurfit Kappa except for the
retrospective adjustment to reflect the Company’s legal share capital as the successor after giving effect to the Smurfit Kappa Share
Exchange.
The Merger is recognized as a business combination under Accounting Standards Codification (“ASC”) 805, “Business
Combinations” (“ASC 805”). Smurfit Kappa was determined to be the accounting acquirer of WestRock. Accordingly, as noted
above, the financial statements reflected in these Condensed Consolidated Financial Statements and the discussions below include
WestRock's financial position and results of operations for the period subsequent to the completion of the Combination on July 5,
- All results reported for the three and nine months ended September 30, 2024 do not include the financial results of WestRock
for the first five days of July.
Refer to “Note 2. Acquisitions” of the Condensed Consolidated Financial Statements for additional information related to the
accounting for the Combination.
Following the completion of the Combination, we reassessed our reportable segments due to changes in our organizational structure
and how our chief operating decision maker (“CODM”) makes key operating decisions, allocates resources and assesses the
performance of our business. Consequently, subsequent to the Combination, we began to manage the combined business as three
reportable segments: (1) Europe, the Middle East and Africa (“MEA”), and Asia-Pacific (“APAC”), (2) North America, and (3) Latin
America (“LATAM”). As a result of the change in reportable segments, certain prior year amounts have been recast to conform to the
current year presentation. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity reflect
reclassifications related to the Company's change in reportable segments. Refer to “Note 3. Segment Information” of the Condensed
Consolidated Financial Statements for further discussion of the Company’s segment reporting structure.
EXECUTIVE SUMMARY
Smurfit Westrock’s net sales increased by $4,756 million to $7,671 million in the three months ended September 30, 2024, from
$2,915 million in the three months ended September 30, 2023. Net sales increased by $4,339 million to $13,570 million in the nine
months ended September 30, 2024, from $9,231 million in the nine months ended September 30, 2023. The increase in both the three
and nine months ended September 30, 2024, was primarily due to the impact of $4,684 million which related to the acquisition of
WestRock.
Net (loss) income attributable to common stockholders decreased by $379 million to a net loss of $150 million in the three months
ended September 30, 2024, from net income of $229 million in the three months ended September 30, 2023. Net income attributable
to common stockholders decreased by $604 million to $173 million in the nine months ended September 30, 2024, from $777 million
in the nine months ended September 30, 2023. The decrease in both the three and nine months ended September 30, 2024, was
primarily due to an increase in transaction and integration-related expenses associated with the Combination, and an increase in cost of
goods sold of $227 million for the amortization of the fair value step up on inventory recognized on WestRock’s inventory acquired.
Refer to “Results of Operations” for a detailed review of Smurfit Westrock’s performance.
Net cash provided by operating activities decreased by $246 million to $702 million in the nine months ended September 30, 2024,
from $948 million in the nine months ended September 30, 2023, primarily due to a $111 million increase in the outflow in the change
in operating assets and liabilities due to additional operating cash flow activity as a result of the acquisition. Additionally, net cash
provided by operating activities decreased by $135 million due to a decrease in net income adjusted for non-cash items, including
depreciation, depletion and amortization, share-based compensation expense, deferred income tax, and pension and other
postretirement funding more than cost. During the nine months ended September 30, 2024, Smurfit Westrock invested $897 million in
capital expenditures and paid $716 million in cash for purchase of businesses, net of cash acquired. The Company also secured $3,127
million in additions to debt, partially offset by repayments of $1,640 million of debt, and $493 million in cash dividends were paid to
stockholders. See the section entitled “Liquidity and Capital Resources” below for additional information.
RESULTS OF OPERATIONS
The following table summarizes Smurfit Westrock’s consolidated results for the three and nine months ended September 30, 2024 and
September 30, 2023:
| Three months ended, | Nine months ended, | |||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||
| Net sales | $7,671 | $2,915 | $13,570 | $9,231 | ||||
| Cost of goods sold | (6,321) | (2,173) | (10,817) | (6,878) | ||||
| Gross profit | 1,350 | 742 | 2,753 | 2,353 | ||||
| Selling, general and administrative expenses | (1,028) | (371) | (1,797) | (1,144) | ||||
| Transaction and integration-related expenses associated with the Combination | (267) | (17) | (350) | (17) | ||||
| Operating profit | 55 | 354 | 606 | 1,192 | ||||
| Pension and other postretirement non-service benefit (expense), net | 8 | (9) | (31) | (29) | ||||
| Interest expense, net | (167) | (39) | (225) | (109) | ||||
| Other expense, net | (13) | (4) | (13) | (19) | ||||
| (Loss) income before income taxes | (117) | 302 | 337 | 1,035 | ||||
| Income tax expense | (33) | (73) | (164) | (258) | ||||
| Net (loss) income | (150) | 229 | 173 | 777 | ||||
| Less: Net (loss) income attributable to noncontrolling interests | — | — | — | — | ||||
| Net (loss) income attributable to common stockholders | $(150) | $229 | $173 | $777 |
Results of operations for the three and nine months ended September 30, 2024*, compared to the three and* nine months ended
September 30, 2023*.*
Net Sales
Net sales increased by $4,756 million, to $7,671 million in the three months ended September 30, 2024, from $2,915 million in the
three months ended September 30, 2023. This increase was primarily due to the impact of $4,684 million which related to the
acquisition of WestRock. Excluding the impact of this acquisition, net sales increased by $72 million primarily due to a volume impact
of $98 million, partially offset by a lower selling price/mix of $30 million and a net negative foreign currency impact of $5 million.
Net sales increased by $4,339 million, to $13,570 million in the nine months ended September 30, 2024, from $9,231 million in the
nine months ended September 30, 2023. This increase was primarily due to the impact of $4,684 million which related to the
acquisition of WestRock. Excluding the impact of this acquisition, net sales decreased by $345 million primarily due to a $667 million
impact of a lower selling/price mix, partially offset by a positive volume impact of $246 million and an $85 million net positive
foreign currency impact. See “Segment Information” below for more detail on Smurfit Westrock’s segment results.
Cost of Goods Sold
Cost of goods sold increased by $4,148 million, to $6,321 million in the three months ended September 30, 2024, from $2,173 million
in the three months ended September 30, 2023. The increase in cost of goods sold was primarily due to the impact of the acquisition of
WestRock of $4,041 million, which included an expense of $227 million for the amortization of the fair value step up on inventory
recognized on WestRock’s inventory acquired. Excluding the impact of this acquisition, cost of goods sold increased by $107 million
primarily due to higher raw material and payroll costs. Raw material costs increased by $84 million primarily due to higher prices and
volumes and payroll costs increased by $26 million primarily due to inflationary pay increases.
Cost of goods sold increased by $3,939 million, to $10,817 million in the nine months ended September 30, 2024, from $6,878 million
in the nine months ended September 30, 2023. The increase in cost of goods sold was primarily due to the impact of the acquisition of
WestRock of $4,041 million, which included an expense of $227 million for the amortization of the fair value step up on inventory
recognized on WestRock’s inventory acquired. Excluding the impact of this acquisition, cost of goods sold decreased by $102 million
primarily due to lower energy and raw material costs, partly offset by higher payroll and distribution costs. Energy costs decreased by
$216 million, primarily due to lower gas and electricity prices. Raw material costs decreased by $44 million primarily due to lower
prices, partly offset by higher volumes. Payroll costs increased by $70 million, primarily due to inflationary pay increases and
distribution costs were $42 million higher due to higher prices and higher volumes.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased by $657 million, to $1,028 million in the three months ended September 30, 2024, from $371 million in the
three months ended September 30, 2023. The increase in SG&A expenses of $657 million was primarily due to additional SG&A
expenses of $619 million related to the acquisition of WestRock. Excluding the impact of this acquisition, SG&A expenses increased
by $38 million driven by a variety of factors, including a $22 million increase in payroll costs driven by inflationary pay increases,
partially offset by lower headcount and a $31 million increase in share-based payments primarily due to an expense for the
incremental fair value on the modification of certain share-based payment awards in connection with the Combination. These
increases were partially offset by a $15 million net reduction in other costs.
SG&A expenses increased by $653 million, to $1,797 million in the nine months ended September 30, 2024, from $1,144 million in
the nine months ended September 30, 2023. The increase in SG&A expenses of $653 million was primarily due to additional SG&A
expenses of $619 million related to the acquisition of WestRock. Excluding the impact of this acquisition, SG&A expenses increased
by $34 million driven by a variety of factors, including a $47 million increase in payroll costs driven by inflationary pay increases,
partially offset by lower headcount; and a $27 million increase in share-based payments primarily due to an expense for the
incremental fair value on the modification of certain share-based payment awards in connection with the Combination. These
increases were partially offset by an $18 million accrual for the partial recovery of the Italian Competition Authority fine and a $22
million net decrease in other costs.
Transaction and integration-related expenses associated with the Combination
The Company incurred transaction and integration-related expenses associated with the Combination of $267 million and $17 million
in the three months ended September 30, 2024 and 2023, respectively, and $350 million and $17 million in the nine months ended
September 30, 2024 and 2023, respectively.
Transaction-related expenses associated with the Combination were $128 million and $17 million in the three months ended
September 30, 2024 and 2023, respectively, and $211 million and $17 million in the nine months ended September 30, 2024 and 2023,
respectively. Transaction-related costs associated with the Combination comprise of banking and financing related costs as well as
legal and other professional services which are directly attributable to the Combination and retention payments that are contractually
committed to and associated with the successful completion of the Combination.
Integration-related expenses associated with the Combination were $139 million in the three and nine months ended September 30,
- We incur integration costs post-acquisition that reflect work performed to facilitate merger and acquisition integration and
primarily consist of professional services and personnel and related expenses, such as work associated with information systems.
Pension and Other Postretirement Non-Service Benefit (Expense), Net
Pension and other postretirement non-service benefit (expense), net, decreased by $17 million, to a benefit of $8 million in the three
months ended September 30, 2024, from an expense of $9 million in the three months ended September 30, 2023. The decrease for the
three months ended September 30, 2024, was primarily due to an increase in the return on plan assets of $82 million partially offset by
an increase in interest costs of $63 million, both primarily due to acquired net pension assets in connection with the Combination.
Pension and other postretirement non-service benefit (expense), net, increased by $2 million, to an expense of $31 million in the nine
months ended September 30, 2024, from an expense of $29 million in the nine months ended September 30, 2023. The increase for the
nine months ended September 30, 2024, was primarily due to an increase in interest costs of $62 million primarily due to acquired net
pension assets in connection with the Combination; a $19 million one-time settlement expense and $6 million increase in the net
actuarial loss. The increase was partially offset by an $85 million increase in the return on plan assets primarily due to acquired net
pension assets in connection with the Combination.
Interest Expense, Net
Interest expense, net increased by $128 million, to $167 million in the three months ended September 30, 2024, from $39 million in
the three months ended September 30, 2023. The increase was primarily due to increased debt due to debt assumed as part of the
Combination and the $2,750 million Notes Offering in connection with the Combination. The increase was partially offset by higher
interest income of $35 million primarily due to increased average cash balances in the period.
Interest expense, net increased by $116 million, to $225 million in the nine months ended September 30, 2024, from $109 million in
the nine months ended September 30, 2023. The increase was primarily due to increased debt due to debt assumed as part of the
Combination and the $2,750 million Notes Offering in connection with the Combination. The increase was partially offset by higher
interest income of $76 million primarily due to increased average cash balances in the period.
See “Note 11. Debt” of the Notes to Condensed Consolidated Financial Statements for details of the Notes Offering.
Other Expense**, Net**
Other expense, net, increased by $9 million, to $13 million in the three months ended September 30, 2024, from $4 million in the three
months ended September 30, 2023. This increase was primarily due to a $12 million expense recorded in the three months ended
September 30, 2024 in connection with the sale of receivables under an accounts receivable monetization program acquired as a result
of the Combination.
Other expense, net, decreased by $6 million in the nine months ended September 30, 2024, to $13 million, from $19 million in the
nine months ended September 30, 2023. This decrease was primarily due to a $6 million increase in income from equity method
investments; a $6 million increase in the profit from the sale of businesses; and a $7 million net positive impact from foreign currency
translation. The decrease in other expense, net was partially offset by $12 million expense recorded in the nine months ended
September 30, 2024 in connection with the sale of receivables under an accounts receivable monetization program acquired as a result
of the Combination.
Income Tax Expense
Income tax expense was $33 million in the three months ended September 30, 2024, compared to an income tax expense of $73
million in the three months ended September 30, 2023. The effective tax rate on the loss for the three months ended September 30,
2024, was (28.2)%, while the effective tax rate on the profit for the three months ended September 30, 2023, was 24.2%.
Income tax expense was $164 million in the nine months ended September 30, 2024, compared to an income tax expense of $258
million in the nine months ended September 30, 2023. The effective tax rate on the profit for the nine months ended September 30,
2024, was 48.7%, while the effective tax rate on the profit for the nine months ended September 30, 2023, was 24.9%.
See “Note 14. Income Taxes” of the Condensed Consolidated Financial Statements for the primary factors impacting our effective tax
rates.
SEGMENT INFORMATION
Smurfit Westrock has identified its operating segments based on the manner in which reports are reviewed by its CODM, which is
determined to be the executive management team responsible for assessing performance, allocating resources and making strategic
decisions. Effective the third quarter of 2024 Smurfit Westrock has identified three operating segments: (i) Europe, MEA and APAC,
(ii) North America, which includes operations in the U.S., Canada and Mexico, and (iii) LATAM, which includes operations in
Central America and Caribbean, Argentina, Brazil, Chile, Colombia, Ecuador and Peru. No operating segments have been aggregated
for disclosure purposes. Prior period comparatives have been recast to reflect the change in segments.
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis, but
exclude certain central costs such as certain corporate costs, including executive costs, and costs of Smurfit Westrock’s legal,
company secretarial, pension administration, tax, treasury and controlling functions and other administrative costs. Segment profit is
measured based on Adjusted EBITDA, defined as (loss) income before income taxes, unallocated corporate costs, depreciation,
depletion and amortization, interest expense, net, pension and other postretirement non-service benefit (expense), net, share-based
compensation expense, other expense, net, impairment of goodwill and other assets, amortization of fair value step up on inventory,
transaction and integration-related expenses associated with the Combination, restructuring costs, legislative or regulatory fines and
reimbursements and losses at closed facilities.
The following table contains selected financial information for Smurfit Westrock’s segments for the three and nine months ended
September 30, 2024, and 2023:
| Three months ended | Nine months ended | |||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |
| ($ in millions) | ||||
| Net sales (aggregate):****(1) | ||||
| Europe, MEA and APAC | $2,651 | $2,191 | $7,056 | $7,047 |
| North America | 4,649 | 401 | 5,499 | 1,239 |
| LATAM | 506 | 341 | 1,187 | 1,000 |
| Adjusted EBITDA: | ||||
| Europe, MEA and APAC | $411 | $411 | $1,158 | $1,330 |
| North America | 780 | 66 | 900 | 209 |
| LATAM | 116 | 74 | 257 | 217 |
(1) - Net sales before intersegment eliminations
Europe, MEA and APAC segment
Net Sales – Europe, MEA and APAC Segment
Net sales for the Europe, MEA and APAC segment increased by $460 million, to $2,651 million in the three months ended
September 30, 2024, from $2,191 million in the three months ended September 30, 2023. This increase was primarily due to the
impact of $384 million which related to the acquisition of WestRock. Excluding the impact of this acquisition, net sales increased by
$76 million primarily due to a positive volume impact of $87 million, primarily driven by a 2.7% increase in corrugated volumes and a
foreign currency impact of $41 million, mainly due to the weakening of the U.S. dollar against the Euro, Sterling and Polish Zloty.
These increases were partially offset by a $61 million lower selling price/mix.
Net sales for the Europe, MEA and APAC segment increased by $9 million, to $7,056 million in the nine months ended September 30,
2024, from $7,047 million in the nine months ended September 30, 2023. This increase was primarily due to the impact of $384
million which related to the acquisition of WestRock. Excluding the impact of this acquisition, net sales decreased by $375 million
primarily due to a lower selling/price mix of $649 million, partially offset by a positive volume impact of $224 million, driven by an
increase of 1.6% in corrugated volumes and net foreign currency impact of $56 million primarily due to the weakening of the U.S.
dollar against the Euro, Sterling and Polish Zolty.
Adjusted EBITDA – Europe, MEA and APAC Segment
Adjusted EBITDA for the Europe, MEA and APAC segment remained at $411 million in the three months ended September 30, 2024,
consistent with the three months ended September 30, 2023, due to a $37 million positive impact from the acquisition of WestRock,
offset by a reduction in adjusted EBITDA of $37 million primarily due to a $63 million increase in raw material costs, a $38 million
increase payroll costs and $16 million increase in distribution costs, partially offset by a $76 million increase in net sales and an $8
million decrease in energy costs. Raw material costs increased by $63 million, primarily due to a $34 million increase from higher
volumes, a $10 million increase from higher prices, mainly due to higher old corrugated containers (“OCC”) prices and a $19 million
net negative foreign currency impact, primarily due to the weakening of the U.S. dollar against the Euro and Sterling. Payroll costs
increased by $38 million, due to inflationary pay rises and an increase in headcount.
Adjusted EBITDA for the Europe, MEA and APAC segment decreased by $172 million, to $1,158 million in the nine months ended
September 30, 2024, from $1,330 million in the nine months ended September 30, 2023. There was a $37 million positive impact from
the acquisition of WestRock. Excluding the impact of this acquisition, Adjusted EBITDA decreased by $209 million mainly due to a
$375 million decrease in net sales, a $76 million increase in payroll costs and a $30 million increase in distribution costs, partially
offset by a $289 million decrease in raw material and energy costs.
Payroll costs increased by $76 million, due to inflationary pay rises and an increase in headcount. Distribution costs increased by $30
million, primarily due to higher volumes and higher prices. Raw material costs decreased by $78 million, primarily driven by a $203
million decrease due to lower prices, while recovered fiber costs were higher, other raw material prices were lower driving the
decrease. This decrease in raw material costs was partially offset by a $106 million increase due to higher volumes and a $24 million
net foreign currency impact, primarily due to the weakening of the U.S. dollar against the Euro and Sterling. Additionally, energy
costs decreased by $211 million, primarily due to a $217 million decrease in costs from lower gas and electricity prices.
North America Segment
Net Sales – North America Segment
Net sales for the North America segment increased by $4,248 million, to $4,649 million in the three months ended September 30,
2024, from $401 million in the three months ended September 30, 2023, and by $4,260 million, to $5,499 million in the nine months
ended September 30, 2024, from $1,239 million in the nine months ended September 30, 2023. These increases were primarily due to
the positive impact of $4,249 million from the acquisition of WestRock.
Adjusted EBITDA – North America Segment
Adjusted EBITDA for the North America segment increased by $714 million, to $780 million in the three months ended
September 30, 2024, from $66 million in the three months ended September 30, 2023, and by $691 million, to $900 million in the nine
months ended September 30, 2024, from $209 million in the nine months ended September 30, 2023. These increases were primarily
driven by a $724 million positive impact from the acquisition of WestRock.
LATAM Segment
Net Sales – LATAM Segment
Net sales for the LATAM segment increased by $165 million, to $506 million in the three months ended September 30, 2024, from
$341 million in the three months ended September 30, 2023, and by $187 million, to $1,187 million in the nine months ended
September 30, 2024, from $1,000 million in the nine months ended September 30, 2023. These increases were primarily due to the
positive impact of $175 million from the acquisition of WestRock.
Adjusted EBITDA – LATAM Segment
Adjusted EBITDA for the LATAM segment increased by $42 million, to $116 million in the three months ended September 30, 2024,
from $74 million in the three months ended September 30, 2023 and by $40 million, to $257 million in the nine months ended
September 30, 2024, from $217 million in the nine months ended September 30, 2023. These increases were primarily driven by a
positive impact of $56 million from the acquisition of WestRock.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Smurfit Westrock’s primary sources of liquidity are the cash flows generated from its operations, its commercial paper program, and
committed credit lines. The uncommitted commercial paper program is supported by the $4.5 billion New RCF with a separate
swingline sub-facility which allows for same-day drawing in U.S. Dollar. The amount of commercial paper outstanding does not
reduce available capacity under the New RCF. The primary uses of this liquidity are to fund Smurfit Westrock’s day-to-day
operations, capital expenditure, debt service, dividends and other investment activity, including acquisitions.
On April 3, 2024, Smurfit Kappa Treasury, completed an offering in the aggregate principal amount of $2,750 million of senior
unsecured notes in three series, comprised of the following: $750 million aggregate principal amount of 5.200% senior notes due 2030
(the “2030 Notes”), $1,000 million aggregate principal amount of 5.438% senior notes due 2034 (the “2034 Notes”) and $1,000
million aggregate principal amount of 5.777% senior notes due 2054 (the “2054 Notes” and, together with the 2030 Notes and 2034
Notes, the “Notes” or the “Financing”) (such offering, the “Notes Offering”).
Net proceeds of the Offering were used to finance the Cash Consideration, fees, commissions, costs and expenses payable in
connection with the Combination and for general corporate purposes including the repayment of indebtedness.
On June 28, 2024, conditional upon the closing of the Combination, the Company entered into the New Credit Agreement with certain
lenders and Wells Fargo Bank, National Association, as agent, providing for (i) the $600 million Term Loan Facility, (ii) a
multicurrency revolving loan facility in an aggregate principal amount of $4,500 million including a swingline sub-facility in an
aggregate principal amount of $500 million (together, defined above as the New RCF). As of September 30, 2024, there was no
amount outstanding under the facility.
On July 2, 2024, the Term Loan Facility of $600 million under the New Credit Agreement was cancelled prior to any drawdown and
no early termination penalties were incurred as a result of the cancellation. On July 5, 2024, the Company cancelled the €1,350 million
Existing RCF as part of the conditions of the New Credit Agreement upon the closing of the Combination on the Closing Date.
Additionally, following the Combination and during the quarter ended September 30, 2024, Smurfit Westrock repaid or otherwise
discharged certain outstanding debt including the following: on July 5, 2024, the Company funded the prepayment and cancellation of
the $750 million delayed draw term loan agreement as held by WestRock at that date, on August 12, 2024, the Company redeemed
€250 million aggregate principal amount of senior notes due February 2025, and on September 17, 2024, the Company discharged
$600 million aggregate principal amount of senior notes due March 2025. See “Note 11. Debt” of the Notes to the Condensed
Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information regarding Smurfit
Westrock’s debt during the nine months ended September 30, 2024.
The Company believes that the cash flows generated from its operations, cash on hand, its commercial paper program, available
borrowings under its committed credit lines and available capital through access to capital markets will be adequate to meet the
Company's liquidity and capital requirements, including payments of any declared common stock dividends, for the next 12 months
and for the foreseeable future.
Smurfit Westrock is a party to enforceable and legally binding contractual obligations involving commitments to make payments to
third parties. These obligations impact Smurfit Westrock’s short-term and long-term liquidity and capital resource needs. Certain
contractual obligations are reflected on Smurfit Westrock’s Condensed Consolidated Balance Sheet as of September 30, 2024, while
others are considered future obligations. Smurfit Westrock’s contractual obligations primarily consist of items such as long-term debt,
including current portion, lease obligations, purchase obligations and other obligations. See the paragraph entitled “Contractual
Obligations and Commitments” for more information.
As of September 30, 2024, Smurfit Westrock had $13,964 million of debt, excluding debt issuance costs, of which $753 million was
current. The carrying amount of the Company’s debt includes a fair value adjustment related to debt assumed through mergers and
acquisitions. At September 30, 2024 the unamortized fair value market adjustment was $58 million. As of September 30, 2024,
Smurfit Westrock held cash and cash equivalents of $951 million, of which $493 million were held in Euro, $198 million were held in
U.S. dollar, and $260 million were held in other currencies. As of September 30, 2024, Smurfit Westrock had $18 million of restricted
cash which was held in Smurfit Westrock subsidiaries and by a trust which facilitates the operation of Smurfit Westrock’s long-term
incentive plans. Restricted cash comprises cash held by Smurfit Westrock, which is used as security for specific financing
arrangements, and to which Smurfit Westrock does not have unfettered access. As discussed above, on July 5, 2024, Smurfit Kappa
paid consideration of $1,291 million for the cash component of the Combination. See the paragraph entitled “Overview” for additional
details.
Included within the carrying value of Smurfit Westrock’s borrowings as of September 30, 2024, are debt issuance costs of $45 million,
of which $8 million is current, all of which will be recognized in interest expense in Smurfit Westrock’s Condensed Consolidated
Statement of Operations using the effective interest rate method over the remaining life of the borrowings.
At September 30, 2024, the Company had approximately $4.7 billion in undrawn committed facilities available under the New RCF
and receivables securitization facilities. The weighted average period until maturity of undrawn committed facilities was 4.6 years as
of September 30, 2024. Combined with cash and cash equivalents of $951 million, the Company has approximately $5.7 billion
liquidity available.
Smurfit Westrock uses a variety of working capital management strategies including supply chain financing ("SCF") programs, vendor
financing and commercial card programs, monetization facilities where we sell short-term receivables to a group of third-party
financial institutions and receivables securitization facilities. The programs are described below.
The Company engages in certain customer-based SCF programs to accelerate the receipt of payment for outstanding accounts
receivables from certain customers. Certain costs of these programs are borne by the customer or the Company. Receivables
transferred under these customer-based SCF programs generally meet the requirements to be accounted for as sales in accordance with
guidance under “Transfers and Servicing” (“ASC 860”), resulting in derecognition of such receivables from the Company’s
consolidated balance sheets. Receivables involved with these customer-based SCF programs constitute approximately 2% of the
Company’s annual net sales. In addition, Smurfit Westrock has monetization facilities that sell to third-party financial institutions all
of the short-term receivables generated from certain customer trade accounts. See “Note 10. Fair Value Measurement” for a
discussion of the Company’s monetization facilities.
Smurfit Westrock’s working capital management strategy includes working with its suppliers to revisit terms and conditions, including
the extension of payment terms. The Company’s current payment terms with the majority of its suppliers generally range from payable
upon receipt to 120 days and vary for items such as the availability of cash discounts. The Company does not believe its payment
terms will be shortened significantly in the near future, and does not expect its net cash provided by operating activities to be
significantly impacted by additional extensions of payment terms. Certain financial institutions offer voluntary SCF programs that
enable the Company’s suppliers, at their sole discretion, to sell their receivables from Smurfit Westrock to the financial institutions on
a non-recourse basis at a rate that leverages the Company’s credit rating and thus might be more beneficial to the Company’s
suppliers. Smurift Westrock and its suppliers agree on commercial terms for the goods and services we procure, including prices,
quantities and payment terms, regardless of whether the supplier elects to participate in SCF programs. The suppliers sell Smurfit
Westrock goods or services and issue the associated invoices based on the agreed-upon contractual terms. The due dates of the
invoices are not extended due to the supplier’s participation in SCF programs. Smurfit Wesrock suppliers, at their sole discretion if
they choose to participate in a SCF program, determine which invoices, if any, they want to sell to the financial institutions. No
guarantees are provided by the Company under SCF programs and it has no economic interest in a supplier’s decision to participate in
the SCF program. Therefore, amounts due to the Company’s suppliers that elect to participate in SCF programs are included in the line
items accounts payable in the Company’s consolidated balance sheets and the activity is reflected in net cash provided by operating
activities in the Company’s consolidated statements of cash flows. Based on correspondence with the financial institutions that are
involved with Smurfit WestRock’s two primary SCF programs, while the amount suppliers elect to sell to the financial institutions
varies from period to period, the amount generally averages approximately 13% of the Company’s accounts payable balance. The
outstanding payment obligations to financial institutions under these programs were $432 million as of September 30, 2024.
Smurfit Westrock also participates in certain vendor financing and commercial card programs to support travel and entertainment
expenses and smaller vendor purchases. Amounts outstanding under these programs are classified as debt primarily because the
Company receives the benefit of extended payment terms and a rebate from the financial institution that would not have otherwise
been received without the financial institution's involvement. Smurfit Westrock also has receivables securitization facilities that allows
for borrowing availability based on underlying accounts receivable eligibility and compliance with certain covenants. See “Note 11.
Debt” and “Note 18. Variable Interest Entities” of the Notes to Condensed Consolidated Financial Statements for a discussion of the
receivables securitization facilities and the amount outstanding under the Company’s vendor financing and commercial card programs.
Cash Flow Activity
The following table contains selected financial information from Smurfit Westrock’s Condensed Consolidated Statements of Cash
Flows for the nine months ended September 30, 2024, and 2023:
| Nine months ended | ||
| September 30, | September 30, | |
| 2024 | 2023 | |
| ($ in millions) | ||
| Net cash provided by operating activities | $702 | $948 |
| Net cash used for investing activities | $(1,595) | $(677) |
| Net cash provided by (used for) financing activities | $869 | $(378) |
Net cash provided by operating activities decreased by $246 million, or 25.9%, to $702 million in the nine months ended
September 30, 2024, from $948 million in the nine months ended September 30, 2023, primarily due to a $111 million increase in the
outflow in the change in operating assets and liabilities due to additional operating cash flow activity as a result of the acquisition and
higher corrugated volumes (excluding acquisitions) in the Europe, MEA and APAC segment. Additionally, net cash provided by
operating activities decreased by $135 million due to a decrease in net income adjusted for non-cash items, including depreciation,
depletion and amortization, share-based compensation expense, deferred income tax, and pension and other postretirement funding
more than cost.
Net cash used for investing activities of $1,595 million in the nine months ended September 30, 2024, consisted primarily of capital
expenditures of $897 million and cash paid for purchase of businesses, net of cash acquired of $716 million, which primarily related to
the cash consideration of $1,291 million (net of cash acquired of $603 million) for the acquisition of WestRock. This was partially
offset by proceeds from sale of property, plant and equipment of $15 million. Net cash used for investing activities of $677 million in
the nine months ended September 30, 2023, consisted primarily of capital expenditures of $661 million.
Net cash provided by financing activities was $869 million in the nine months ended September 30, 2024, which consisted of
additions to debt of $3,127 million (refer above to the Notes Offering for additional details), partially offset by repayments of debt of
$1,640 million, cash dividends paid to stockholders of $493 million, debt issuance costs of $44 million, changes in commercial paper
net of $33 million, purchases of treasury stock of $27 million, and tax paid in connection with shares withheld from employees of $21
million. Net cash used for financing activities of $378 million in the nine months ended September 30, 2023, consisted primarily of
cash dividends paid to stockholders of $299 million, repayments of debt of $120 million, and purchases of treasury stock of $30
million, and was partially offset by additions to debt of $77 million.
Contractual Obligations and Commitments
We summarize our enforceable and legally binding contractual obligations as of September 30, 2024, and the effect these obligations
are expected to have on our liquidity and cash flow in future periods in the following table. Certain amounts in this table are based on
management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated
actions by third parties and other factors, including estimated minimum pension plan contributions and estimated benefit payments
related to postretirement obligations, supplemental retirement plans and deferred compensation plans. Because these estimates and
assumptions are subjective, the enforceable and legally binding obligations we actually pay in future periods may vary from those
presented in the table.
| Payments Due by Period | |||||
| ($ in millions) | |||||
| Total | Fiscal 2024 (5) | Fiscal 2025 and 2026 | Fiscal 2027 and 2028 | Thereafter | |
| Long-Term Debt, including current portion, excluding finance lease obligations (1) | $13,435 | $682 | $2,564 | $2,965 | $7,224 |
| Lease obligations (2) | 1,956 | 106 | 662 | 453 | 735 |
| Purchase obligations and other (3) (4) | 5,017 | 1,483 | 1,414 | 708 | 1,412 |
| Total | $20,408 | $2,271 | $4,640 | $4,126 | $9,371 |
(1) Includes only principal payments owed on the Company’s debt assuming that all of the long-term debt will be held to maturity, excluding scheduled payments.
The Company has excluded $58 million of fair value of debt step-down from the table to arrive at the Company’s debt obligations. See “Note 11. Debt” of the Notes
to Condensed Consolidated Financial Statements for additional information.
(2) Includes the undiscounted cash flows of operating lease liabilities and finance lease liabilities. See “Note 12. Leases” of the Notes to Condensed Consolidated
Financial Statements for additional information.
(3) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including:
fixed or minimum quantities to be purchased; fixed, minimum or variable price provision; and the approximate timing of the transaction. These obligations relate to
various purchase agreements for items such as minimum amounts of energy, fiber, and wood purchases over periods ranging from one year to six years. Some of the
amounts are based on management's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by
third parties, and other factors. Purchase obligations exclude agreements that are cancellable without penalty. Because these estimates and assumptions are
necessarily subjective, our actual payments may vary from those reflected in the table.
(4) Includes future estimated minimum pension plan contributions, multiemployer pension plans (“MEPP”) withdrawal payments with definite payout terms and
estimated benefit payments related to postretirement obligations, supplemental retirement plans and deferred compensation plans. The Company’s estimates are
based on various factors, such as discount rates and expected returns on plan assets. Future contributions are subject to changes in funded status based on factors such
as investment performance, discount rates, returns on plan assets and changes in legislation. It is possible that assumptions may change, actual market performance
may vary or Smurfit Westrock may decide to contribute different amounts. The Company has excluded $114 million of MEPP withdrawal liabilities recorded as of
September 30, 2024, including our estimate of the accumulated funding deficiency, due to lack of definite payout terms for certain of the obligations. See “Note 15.
Retirement Plans” of the Notes to Condensed Consolidated Financial Statements for additional information.
(5) Payments due for the remainder of the fiscal year ending December 31, 2024.
Capital Commitments
Estimated costs for future purchases of property, plant and equipment that Smurfit Westrock is obligated to purchase as of
September 30, 2024, total approximately $862 million.
Off-Balance Sheet Arrangements
As of September 30, 2024, Smurfit Westrock did not have any off-balance sheet arrangements.
NON-GAAP FINANCIAL MEASURES
Definitions
Non-GAAP Financial Measures
Smurfit Westrock reports its financial results in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
However, management believes certain non-GAAP financial measures, as discussed below, provide Smurfit Westrock’s board of
directors, investors, potential investors, securities analysts and others with additional meaningful financial information that should be
considered when assessing its ongoing performance. Smurfit Westrock management also uses these non-GAAP financial measures in
making financial, operating and planning decisions, and in evaluating company performance. Non-GAAP financial measures are not
intended to be considered in isolation of or as a substitute for, or superior to, financial information prepared and presented in
accordance with GAAP and should be viewed in addition to, and not as an alternative for, the GAAP results. The non-GAAP financial
measures Smurfit Westrock presents may differ from similarly captioned measures presented by other companies. Smurfit Westrock
uses the non-GAAP financial measures “Adjusted EBITDA,” “Adjusted Net Income,” and “Adjusted Earnings Per Share - Basic.”
Adjusted EBITDA
Smurfit Westrock uses the non-GAAP financial measure “Adjusted EBITDA” to evaluate its overall performance. The composition of
Adjusted EBITDA is not addressed or prescribed by GAAP. Smurfit Westrock defines Adjusted EBITDA as net (loss) income before
income taxes, depreciation, depletion and amortization, interest expense, net, pension and other postretirement non-service (benefit)
expense, net, share-based compensation expense, other expense, net, impairment of goodwill and other assets, amortization of fair
value step up on inventory, transaction and integration-related expenses associated with the Combination, restructuring costs,
legislative or regulatory fines and reimbursements and losses at closed facilities. Smurfit Westrock views Adjusted EBITDA as an
appropriate and useful measure used to compare financial performance between periods.
Management believes that the most directly comparable GAAP measure to Adjusted EBITDA is “Net (loss) income”. Management
believes this measure provides Smurfit Westrock’s management, board of directors, investors, potential investors, securities analysts
and others with useful information to evaluate Smurfit Westrock’s performance because, in addition to income tax expense,
depreciation, depletion and amortization expense, interest expense, net, pension and other postretirement non-service (benefit)
expense, net, and share-based compensation expense, Adjusted EBITDA also excludes restructuring costs, impairment of goodwill
and other assets and other specific items that management believes are not indicative of the operating results of the business. Smurfit
Westrock and its board of directors use this information in making financial, operating and planning decisions and when evaluating
Smurfit Westrock’s performance relative to other periods.
Set forth below is a reconciliation of the non-GAAP financial measure Adjusted EBITDA to Net (loss) income, the most directly
comparable GAAP measure, for the periods indicated.
| Three months ended | Nine months ended | |||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |
| ($ in millions) | ||||
| Net (loss) income | $(150) | $229 | $173 | $777 |
| Income tax expense | 33 | 73 | 164 | 258 |
| Depreciation, depletion and amortization | 564 | 147 | 872 | 430 |
| Amortization of fair value step up on inventory | 227 | — | 227 | — |
| Transaction and integration-related expenses associated with the Combination | 267 | 17 | 350 | 17 |
| Interest expense, net | 167 | 39 | 225 | 109 |
| Pension and other postretirement non-service (benefit) expense, net | (8) | 9 | 31 | 29 |
| Share-based compensation expense | 123 | 7 | 154 | 43 |
| Other expense, net | 13 | 4 | 13 | 19 |
| Other adjustments | 29 | — | 11 | — |
| Adjusted EBITDA | $1,265 | $525 | $2,220 | $1,682 |
Other adjustments for the three months ended September 30, 2024 include restructuring costs of $19 million, losses at closed facilities of $8 million and impairment of
other assets of $2 million. There were no amounts included in other adjustments for the three months ended September 30, 2023. Other adjustments for the nine months
ended September 30, 2024 include restructuring costs of $19 million, losses at closed facilities of $8 million and impairment of other assets of $2 million, partially
offset by legislative or regulatory fine reimbursement of $18 million. There were no amounts included in other adjustments for the nine months ended September 30,
Adjusted Net Income and Adjusted Earnings per Share - Basic
Smurfit Westrock uses the non-GAAP financial measures “Adjusted Net Income” and “Adjusted Earnings Per Share - Basic”.
Management believes these measures provide Smurfit Westrock’s management, board of directors, investors, potential investors,
securities analysts and others with useful information to evaluate Smurfit Westrock’s performance because they exclude transaction
and integration-related expenses associated with the Combination and other specific items that management believes are not indicative
of the operating results of the business. Smurfit Westrock and its board of directors use this information when making financial,
operating and planning decisions and when evaluating Smurfit Westrock’s performance relative to other periods. Smurfit Westrock
believes that the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Earnings Per Share - Basic are Net
(loss) income attributable to common stockholders and basic earnings per share attributable to common stockholders (“Earnings Per
Share - Basic”).
Set forth below is a reconciliation of the non-GAAP financial measure Adjusted Net Income to Net (loss) income attributable to
common stockholders and Earnings Per Share - Basic to Adjusted Earnings Per Share, the most directly comparable GAAP measures
for the periods indicated.
| Three months ended | Nine months ended | |||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |
| (in $ millions, except per share data) | ||||
| Net (loss) income attributable to common stockholders | $(150) | $229 | $173 | $777 |
| Transaction and integration-related expenses associated with the Combination | 267 | 17 | 350 | 17 |
| Amortization of fair value step up on inventory | 227 | — | 227 | — |
| Bridge facility fees | — | 8 | — | 8 |
| Loss on debt extinguishment and amortization of deferred debt issue costs | 5 | — | 5 | — |
| Other adjustments | 29 | — | 11 | — |
| Income tax on items listed above | (107) | — | (107) | — |
| Adjusted Net Income | $271 | $254 | $659 | $802 |
| Earnings Per Share - Basic | $(0.30) | $0.89 | $0.51 | $3.01 |
| Transaction and integration-related expenses associated with the Combination | 0.52 | 0.07 | 1.03 | 0.07 |
| Amortization of fair value step up on inventory | 0.45 | — | 0.66 | — |
| Bridge facility fees | — | 0.03 | — | 0.03 |
| Loss on debt extinguishment and amortization of deferred debt issue costs | 0.01 | — | 0.01 | — |
| Other adjustments | 0.06 | — | 0.03 | — |
| Income tax on items listed above | (0.21) | — | (0.31) | — |
| Adjusted Earnings Per Share – Basic | $0.53 | $0.99 | $1.93 | $3.11 |
Other adjustments for the three months ended September 30, 2024 include restructuring costs of $19 million, losses at closed facilities of $8 million and impairment of
other assets of $2 million. There were no amounts included in other adjustments for the three months ended September 30, 2023. Other adjustments for the nine months
ended September 30, 2024 include restructuring costs of $19 million, losses at closed facilities of $8 million and impairment of other assets of $2 million, partially
offset by legislative or regulatory fine reimbursement of $18 million. There were no amounts included in other adjustments for the nine months ended September 30,
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have prepared our accompanying condensed consolidated financial statements in conformity with GAAP, which requires
management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported. Significant accounting
policies are described in “Note 1. Description of Business and Summary of Significant Accounting Policies” in the Notes, and in the
Notes of the 2023 Consolidated Financial Statements of Smurfit Kappa. There have been no material changes during the three months
ended September 30, 2024, to Smurfit Westrock’s critical accounting policies and estimates as identified by Smurfit Kappa.
NEW ACCOUNTING STANDARDS
See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to the Condensed Consolidated
Financial Statements for a full description of recent accounting pronouncements, including the respective expected dates of adoption
and expected effects on Smurfit Westrock’s results of operations and financial condition.
Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk